Thursday, July 10, 2008

Wait a Minute

This morning John Ydstie was on to talk about the tax policies of John McCain and Barack Obama. I have to say, that tax policy is out of my league - but I think I know when I'm being hornswoggled. Ydstie had this to say:
"...for McCain the big idea is, a Republican idea going back to Ronald Reagan, and that is to boost growth...." After hearing a sound bite of McCain claiming that our corporate tax rate is the "2nd highest in the world" Ydstie is back to add "...and I think most economists would agree - if you cut corporate tax rates, if you cut personal income tax rates, you're going to boost growth. The rub is this: if you don't pay for those tax cuts and you increase the deficit, you could very easily undermine that growth..."
Now wait there one second fella. Before you go and sell the store claiming such miraculous powers for supply-side economics, I just don't think it's all that straightforward. I did a little research and currently there does seem to be a lot of religious faith (CATO institute and AEI, of course) in the powers of cutting taxes for corporations - but that "most economists" stuff is pretty darn sloppy. As this article from Smart Money notes, the tax rate is one thing, but what corporations in the US actually pay is a quite a different story. The Center for Budget and Policy Priorities has some interesting views on the whole "most economists agree" angle, too.

The thing that I have discovered is that since the Reagan-Thatcher counterrevolution of the 1980s corporate taxes have been falling globally (see the CATO article above). And I don't know about you, but looking around at jobs, real wages, health insurance, infrastructure, etc. - I'd say the period has been marked by definite growth (the rich getting a whole lot richer) combined with some serious shrinkage in the quality of life for most humans on the planet, and a lot of downward pressures on the middle class.

I'd be happy to hear from anyone with a bit more expertise in this area.

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