All Tax Cuts All The Time

Conservatives have a problem with originality. When your solution to every problem is tax cuts, life can get a bit dull. Economy doing well? Tax cuts. Economy doing poorly? Tax cuts. Cat peed on the rug? Tax cuts. You can just imagine Dick Cheney and Mitch McConnell sitting around:

  McConnell: What are we going to do tonight, Dick?
  Cheney: Same thing we do every night Mitch, try and take over the w--, er, cut taxes.

On some level this isn't too surprising. Conservatives think government should be smaller, so they want to cut taxes. Sure, it would make more sense to cut spending as well, but at least there's some logic to an all-tax-cuts-all-the-time position.

Here's the thing though: Conservatives don't say, “We think government should be smaller, so we want to cut taxes.” Instead, they shape their pitch based on the current economic conditions. Right now, the economy is doing poorly so tax cuts are “stimulus.” In 2001 we had a surplus, so we cut taxes because the government was supposedly taking in too much money. For conservatives, tax cuts are like duct tape—they can fix anything.

Before we get to deep in the weeds of tax policy, a quick word on the economy. Think Progress recently came up with seven economists who are predicting a recession [1] and, as Dean Baker has pointed out [2], economists usually don't predict a recession until it's underway or even over. NPR's awesome On The Media did a great piece [3] on the subject last weekend.

So, things aren't looking so good and it's not unreasonable for the government to look at ways to smooth the business cycle. However, given that tax revenues will tend to decline in bad economic times, a sensible policymaker would want to ensure that a stimulus plan produces the most possible stimulus for the least possible cost.

How do you do that? Like pretty much any other macroeconomic question it's debatable, but the deeply moderate people at the Brookings Institution recently took a shot [4] at coming up with a consensus opinion. The report identifies three basic qualities a successful stimulus package should have.

First, it should be timely—it should come when the economy is getting in to trouble, not when it's already there. Second, it should be targeted—it should produce the most benefit and address the people who are hurt the most by an economic downturn. (Thankfully, the hardest hit people are most likely to spend new money. so these two goals dovetail). Third, it should be temporary—I think you can figure that one out.

These criteria are imperfect and a bit vague, but they are a good way to consider whether a set of policies are genuinely being proposed with stimulus in mind. With that in mind, let's take a look at what stimulus plans are being proposed by conservatives.

The Wall Street Journal wants [5]... wait for it... tax cuts. This could be defensible, but the actual policies it proposes have very little to do with stimulus. The authors suggest “bonus depreciation” which is essentially a tax break on new buildings for corporations. It's not targeted (it certainly doesn't benefit the people hardest hit by a recession), it's not very timely (it would arrive in April at the earliest), and the editorial explicitly argues against making it temporary.

The Journal is honest that it has “been saying for some time that the economy could use another tax cut” and if it was really honest it would admit that such a tax cut has nothing to do with stimulus. After all, the Journal argues for tax cuts the way Cheech and Chong argue for marijuana legalization—pretty much all the time.

And it's not just the Journal. The National Review's Lawrence Kudlow points out approvingly [6] that all of the Republican candidates are greedily guzzling down the supply-side Kool-Aid. Even John McCain, the dreaded deficit hawk, has signed on to the concept of corporate tax breaks as economic stimulus. Indeed, Kudlow makes the rather startling claim that the White House is insufficiently loyal to the supply-side orthodoxy. If the Bush administration isn't supply-side enough, I'd hate to see who is.

The White House hasn't released its stimulus proposal, but it seems certain to include tax cuts and most likely [7] will also [8] include an extension of earlier tax cuts that benefited the richest Americans. It goes without saying that such a move isn't temporary, and given that the tax cuts don't expire for three years anyway, it wouldn't be timely either. Furthermore, an extension of the tax cuts, which primarily benefited the wealthy, would hardly be targeted at those hardest hit or those most likely to spend the money they receive.

Some more honest Republicans resist this all-tax-cut-all-the-time mentality. David Brooks, writing in the New York Times, went so far as to call for the end of supply-side economics. As he says:

Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy. The demographics have changed. The U.S. is an aging society. We have made expensive promises to our seniors. We can’t keep those promises at the current tax levels, let alone at reduced ones. As David Frum writes in “Comeback,” his indispensable new book: “In the face of such a huge fiscal gap, the days of broad, across-the-board, middle-class tax cutting are over.”

Still, don't hold your breath. The Grover Norquists of the world still dream of strangling government in a bathtub and the Bush Republicans will continue to push for further tax cuts, as a quick search of the Times archives reveals they [9] have [10] done [11] every [12] single [13] year [8] of the Bush presidency.

Conservatives have become as good at hiding unpopular policies as teenage boys are at hiding porn, but they're running out of creativity and we're starting to learn to look under the mattress. If they want tax cuts for a smaller government let them make that argument. But if they claim a need for them as stimulus, don't be fooled. It's a lie.