This is a sequel (of sorts) to my earlier post explaining how Tom Coburn and Jeb Bush (two prominent Republicans who called for tax increases as part of a deficit reduction package) were getting the economics completely wrong. As it turns out, Lindsey Graham (Corner) and Peter King are nearly as clueless.
Graham spoke up first, so I’ll lead off with him. He insisted that raising taxes would be “for the good of the economy.” Nothing could be further from the truth.None other than Christina Romer (along with her husband David) revealed that tax increases have a multiplier effect somewhere between 2 and 3 – in English, a tax increase of X will lead to the economy contracting by anywhere between 2X and 3X. Spending (and spending cuts), by contrast, have multipliers below 1. The evidence clearly shows that reducing spending is better for the economy than raising taxes.
Graham digs deeper with an off-hand reference to the current status of revenues (presumably as a percentage of GDP): “we’re below historical averages.” There’s only one problem with that: the revenue/GDP ratio is not determined by rates; if anything, it’s determined by economic performance. Lest we forget, we were in tune with historical averages with the same rates and deductions in 2007.
Graham’s last mistake is his assertion that avoiding tax increases means America would “end up like Greece.” In fact, Greece has relied on tax increases as part of their Fauxsterity, and it’s failed miserably. If anything, Graham is ensuring we “end up like Greece” by relying on tax increases – which have failed to raise the revenues expected of them (1982, 1984, 1987, 1990, and 1993).
Of course, Graham was first elected to Congress in 1994, so he missed all of that.
Peter King (New York) has no such excuse; having first been elected in 1992, he saw the last version of the error first-hand. In his case, though, King goes for the political argument, insisting that accepting tax increases is the “adult” thing to do (Corner). Tax-hike opponents hear this repeatedly; laregly because it is an attempt to ignore the economics and cut-off debate. However, shouting “act like adults” and “the election’s over” doesn’t change the economic reality. It just means (in the case of Election 2012) that there are fewer of us willing to acknowledge the economic reality.
Again, none of this surprises me. I expect the Republicans to cave, and taxes to go up. I do not expect our long-term budget problems to be fixed by it.
Cross-posted to the right-wing liberal