Now long forgotten, in July 2005 the Congressional Budget Office expressed surprise at the extra $100 billion in unexpected tax revenue it received. There it was; it just showed up. Republicans claimed vindication for Bush tax cuts and pushed to make them permanent. Opponents said it was temporary and we’d soon be back to our deficit-racking ways. I’m reminded of this as Tuesday nears and the tax debate reaches a fevered pitch. Art Laffer and other tax-cut free-marketiers are making a plea in the face of panic to hold the line on taxes. We’ve been down this road many times before, they claim, and knee-jerk increases in the top marginal tax rates is the exact wrong thing to do. Try it, and the only “change” we’ll experience is a return to the heady days of 1979.
Before you dismiss Laffer as a nut-bag right-winger (at this point, I don’t know how you could, but there are those of you who will try), consider Austan Goolsbee of the University of Chicago, now a top Barack Obama advisor. According to the Wall Street Journal, in a paper entitled “What Happens When You Tax the Rich?” Goolsbee writes “the higher marginal rates of 1993 led to a significant decline in taxable income.” Less for Treasury coffers, not more.