Lack Of Straight Talk On Economics

It's amazing to watch the McCain campaigns arguments about tax and budget policy become increasingly detached from reality.

First, McCain has said "Obama will raise your taxes." That statement is simply false. Obama has talked about allowing the Bush tax cuts for those making above $250,000 to expire. If McCain wants to call that a tax increase, fine. Obama has also talked about raising the Social Security tax for people with incomes of over $250,000. But only about 2% of the public makes that much money, so anyone looking at Obama's budget proposals--and telling the truth about them--would have to admit that the vast majority of Americans would not have their taxes go up (unless McCain is adopting a very expansive definition of "your"). Now, Obama's numbers may not balance the buget, but that's another issue.

More important in my view that McCain has repeatedly said that raising taxes in a weak economy would be a huge mistake. The supply-side conservative argument is that tax hikes always hurt the economy because they discourage growth, and that doing so in a delicate economy would kill off any chance at recovery. The problem with this argument is that conservatives said the exact same thing when Clinton and Congress raised taxes in the early 1990s as the country was coming out of a recession. And they were not only wrong, but spectacularly wrong as the nation endured one of the greatest sessions of long-term economic growth that benefited people at all income levels.

To me, this is a classic case of the tyranny of ideology. Some people believe in their ideology so strongly that when their ideology conflicts with facts, they throw out the facts instead of adjusting their ideology to reality (one can point to numerous instances of this phenomenon in the Bush administration). Yes, it's true that excessive tax rates will kill off growth; the Laffer Curve is obviously correct in the extreme case of 100% taxation producing zero revenue; no one would have any incentive to be productive if they can't keep any part of what they've worked for.

But the Clinton years should show that the tax rates of that period did not inhibit tremendous growth, even when imposed during shaky economic times. One might argue that those times happened to coincide with unprecedented productivity gains brought on by a technological revolution. Nevertheless, I see little evidence that people were deterred from working harder in order to avoid the top tax bracket. We aren't at the far end of the Laffer Curve, and it seems more likely to me that larger economic trends just aren't affected much by changing top tax levels by a couple of percentage points.

Yet supply-siders keep repeating the mantra that going back to the Clinton tax rates, even at just the higher levels, will stifle growth--despite the clear counterexample from the last decade. How can they keep saying it? Do they not remember even recent history? Or is their dedication to ideology so strong that they can't bring themselves to address the facts? At the very least, if they think that the continued prosperity under the Clinton tax code was an aberration that would not repeat itself today, they owe us that explanation. But we don't even get that explanation. And if they're not going to address recent history, it's hard for me to take their arguments seriously.