Professor Michael Boskin has an opinion piece in the Wall St Journal today. Excellent credentials. Professor of Economics at Standford. Has a PhD in economics. Chaired the Council of Economic Advisers under Bush. Basically it doesn't get much better than this in terms of a pedigree. Here's what he says:
The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.
Can someone explain to me how such a well educated economic expert can make a statement like this? By what measure has the post Reagan era produced the best economic performance? The Reagan era has produced much lower economic growth as measured by GDP than the prior quarter century. An amazing expansion in inequality. Why is this better?
First, as college students learn in Econ 101, higher marginal rates cause real economic harm.
They probably do learn that in Econ 101. But is there a reason to believe it based on evidence? I'm not aware of it. Boskin continues:
Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy.
Art Laffer may have argued that point. But did he show that the point was true or that tax rates in the US were stifling revenue generation? Sure, conceptually you could imagine that if tax rates got so high people would entirely lose their motivation to work and they'd work less or not work at all. That's what you might call a hypothesis. So what happened when Reagan cut taxes, or when Clinton raised them, or when Bush II cut them again. Did the Bush tax cuts produce more revenue? Did the Clinton tax increases produce less as Boskin is suggesting? I see no evidence for it.
We can either believe the experts or our lying eyes.
I just noticed Krugman also saw Boskin's piece. He's similarly rebutting delusions concerning Reagan.