The supply side caricature

What a nightmare

Bruce Bartlett:

During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts--the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.

These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just giveaways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a "tax cut."

I think these sorts of semantic differences cloud economic decision making rather than contributing to it. As a consequence, we now have a tax code riddled with tax credits and other tax schemes of dubious merit, expiring provisions that never expire, and an income tax that fully exempts almost on half of tax filers from paying even a penny to support the general operations of the federal government.

I think this is at least broadly correct. Republican thinking on taxes has too often become lazy and simplistic with intellectual rigor sorely absent. Tax cuts have become defined as any act which deprives the government of revenue. Tax credits, however, are as much the enemy as government spending as they distort economic decision making, reward the politically connected and make the tax code even more incomprehensible.

Marginal rate reductions are great, but they also need to be linked with spending cuts. While many Republicans love to talk about cutting taxes it seems few are willing to lead the charge on slashing government programs. We want the ice cream but refuse to eat our broccoli.

Instead of tax cuts -- laughable in an era of massive deficits -- what Republicans should instead emphasize is tax reform. The U.S. has a tax code that is any abomination by any measure. It is lengthy, complex and its numerous loopholes a tribute to the power wielded by lobbyists. Why not scrap all loopholes and tax credits and in exchange for marginal rate reductions? After all, this was done before -- on a bipartisan basis -- with the 1986 Tax Reform Act.

The other aspect of U.S. taxation I find near scandalous is how many people don't participate in it. An astounding 47 percent of households pay zero income tax. Yes, many in that number pay payroll taxes which fund Social Security and Medicare, but they get that money back in benefits later on in life. Even if only $50, everyone should pay something.