“Reaganomics” Still Wrong

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Jon Chait’s Los Angeles Times column lands a few more kicks and punches on the theory that “supply-side magic” via tax cuts was responsible for higher-than-expected tax revenue of late. Here’s a bit we didn’t mention yesterday:

First, the rise in revenues mainly reflects temporary factors. Economic growth is nothing special at this point in a business cycle, and revenue from individual income tax withholdings — that is, regular wages — are actually growing very slowly. As Mark Zandi of economy.com has noted, the primary factor is the red-hot housing market, which is causing capital gains, as well as bonuses for brokers and underwriters, to skyrocket. A second factor is the hot stock market from 2004, which is already cooling. On top of that, a provision in a 2004 tax bill encouraged corporations to bring home overseas profits right away, causing them to pay more in taxes in 2005 but less in subsequent years.

The upshot of all this is that a bunch of short-term factors have come together to cause revenues to shoot up this year. It has nothing to do with President Bush’s “pro-growth” tax cuts, unless you think the tax cuts have somehow caused the housing run-up.

Quite so. One other note: It’s true, as Matthew Yglesias argues over at TAPPED, that the “dangers of relying overmuch on the deficit as a political issue” do exist. As I noted yesterday, these aren’t the biggest problems in the world right now. We were told by balanced-budget hawks that there would be all sorts of short-term problems with running crippling deficits, but as it happens, inflation has been spectacularly low during Bush’s first term, long-term interest rates are still down—no one seems to know why, but they are—and government deficits haven’t “crowded out” private investment, as was often predicted.

At the same time, persistent budget shortfalls, whether they’re a hundred billion dollars more than expected or a hundred billion dollars less than expected, pose a very severe problem for the not-so-far-away future, because eventually borrowing costs will catch up with us. Max Sawicky of EPI has written in more detail on the subject, and if you look at his Table 1, it’s clear that thanks to the deficits we’re currently running, net interest costs will become far more expensive than Medicare in about 60 years. Social Security, meanwhile, is a pretty small part of this long-term problem.

Now I can’t vouch for the political wisdom of the lesson here, but higher income taxes are inevitable—they probably need to be raised to about 20 percent of GDP, if we want to fund various discretionary programs like education and roads decently. More if universal health care becomes a reality. That’s still much, much less than virtually all European countries, none of whom are throttled by their tax burdens, and even 20 percent remains slightly lower than the tax burden in the later Clinton years when, I noticed, the economy seemed to hum along nicely. The math is pretty clear on the necessity here, though unfortunately, the Bush administration very wrongly insists on singling out Social Security—the best-financed program in all of government—as the problem.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate