Much has been made of the seemingly incongruous positions of simultaneously advocating for tax cuts and deficit reduction. Indeed, just today the New York Times refers to them as “Jedi mind games and plain bad economics.”
If only it were so. Tax cuts spur business investment. Business investment spurs job demand. Employees who fill this demand contribute tax revenue from earnings and wages. Tax cuts grow the tax base, thereby increasing revenue overall. Which is why 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 to little fanfare. More importantly, it vindicated supply-side supporters.
President Obama himself, when challenged by Charlie Gibson over the fact that each time tax rates on capital gains are cut revenue from this tax source increases, was forced to cede the point. His response?
“Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”
And there it is. Tax policy shouldn’t be used as a putative political weapon, wielded simply because the president arbitrarily believes certain people aren’t paying their fair share. If it isn’t prudent to raise taxes in a recession because it will strangle growth (as an increasing number of Blue Dog Democrats now concede) why is it prudent at any other time? Doesn’t this sort of settle the argument?