Thomas P.M. Barnett :: Weblog

Reading the article, it seems to me that the tax cuts stimulated the economy so that tax revenue is actually up for the past 2 years. Were the tax cuts a cause for higher deficits? Absolutely! Are the tax cuts reducing the deficit? Certainly! Saying the tax cuts did their work by enhancing the economy and suggesting we can do away with them now doesn't make much sense to me. Why not leave them in place, let them continue to work their magic on the economy and plan for the deficit to continue to shrink? If you eliminate the tax cuts, what does that do to the economy?

If tax cuts encouraged a good economy and lowered the deficit, where's the logic that says a tax increase will continue do to the same?

If tax cuts have helped reduce the deficit, why not make them permanent?

Nonpartisan does not mean competent or something worth relying on. The CBO, last I heard, is obligated to use static analysis. If a congressman were to be so daft as to propose a 100% tax on income a CBO analysis would be forced to project not only hefty revenues in the 1st year but a growth in revenues in the second and subsequent years because the effect of the tax on incentives to work is held at zero by their rules (which may be by law, it's been awhile).

Take a look at CBO projections for 2006 that were written in 2004 and they will bear little relation to the reality of tax collections as they happened. In fact, take any period a few years apart and you'll find busted projection after projection.

People trapped in the static mindset are constantly surprised by revenue coming in above their static projections after tax cuts and disappointed about "unforseen" revenue shortfalls after tax increases.

So we're 4 years out from our first "surplus" year of 2011. Anybody want to give me an example of a CBO projection that was remotely accurate 4 years out? I bet you'll have a lot harder time than I will finding ones that are very inaccurate.

sonofsamphm1c - While it's possible to have a good economy after a tax increase, you won't get one that fits prior projections when you use static analysis. Taking CBO's static analysis numbers at face value in your analysis is an exercise in GIGO because human beings simply don't ignore a changed incentives landscape, ever.

The reason that dynamic analysis (DA) hasn't entirely supplanted it is that it is easy to "cheat" on dynamic analysis. DA depends (much like the real world) on what is going on in people's heads, how they will, in the aggregate, respond to changing incentives. Nobody is competent to judge that objectively so we rely on tools we know are wrong because they're the only ones we can agree on as objective numbers. Tom was falling for a fallacy. We shouldn't go along with that.