Tax Law

Tax Cuts Kill Jobs, Part 2

In a recent post we talked about the best kept secret in Washington: supply-side effects of debt-financed tax cuts are negative. To back this up we cited a just-released CBO study and 2003 report from the Joint Committee on Taxation. Here's some additional supporting research:

(1) In
a 2002 article in the National Tax Journal by William Gale and Samara Potter concluded that the Bush tax cuts reduced the size of the economy...

(2) A March 2003 Congressional Budget Office study, using models similar to those employed by Gale and Potter, found that the Bush tax cuts because they were deficit financed would have little, and possibly negative effects, on long-term growth... 

(3)
A new report from the International Monetary Fund, addressing on the worldwide (U.S.-excepted) push for budget austerity, concludes that deficit reduction will improve long-term economic growth.

Astute readers have already noticed that all this negativity about tax cuts has only been directed to the "long-term." What about short-term effects? Well, most of these models do conclude that short-term effects of debt-financed tax cuts are positive. This should be welcome news to the pro-tax cut crowd but it creates a huge blockage to the logical flow of their arguments. The short-term effects are Keynesian. They are, in fact, pure economic stimulus...  The chart on page 11 of
this CBO presentation illustrates the point.

...

View TaxAnalysts' Marty Sullivan's opinion in its entirety on TAX.com

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