Why Liberals Can’t Be Trusted on the Economy
It’s pretty much axiomatic that liberal Democrats can’t be trusted on national security and were wrong on Iraq and the larger War on Terror in general. They are also consistently wrong on economic policy. Former Secretary of the Treasury Robert Rubin who served under Bill Clinton (actually that was Monica but I digress) writes an article today in the Wall St. Journal entitled “We Must Change Policy Drection” (Subs Req.) in which Mr. Rubin lays out his prescription for economic growth. (Not that anybody asked him) Of course his prescription was typical Keynesian style higher taxes (”targeted” of course- one can infer on the “rich”) as well as more regulations on business, and entitlement/government spending.
He totally ignores the enormous economic impact that the Bush tax cuts have had and instead credits the largely accommodative easy money/low interest rates of the Fed for the economic growth that in his words has been “reasonably healthy.” What planet is Little Bobby living on? Reasonably healthy? Only a pointy-headed intellectual like Mr. ivy leaguer Bobby Rubin would claim that the 14 straight quarters of above average GDP growth, record low inflation, and unemployment could be characterized as “reasonably healthy.” Oh, and did I mention that Bush and the GOP were able to achieve this growth in spite of the Clinton Recession, The Clinton Era Corporate Scandals, the bursting of the Clinton Stock Market Bubble, 9-11, and Katrina?
He then goes on to attempt to claim that for future economic growth to continue that we can’t rely on supply side tax cuts which doesn’t really generate that much revenues to the treasury and is sure to exacerbate the long term deficit:
The proponents of supply-side theory who assert that tax cuts will wholly — or even significantly — pay for themselves (through increased growth and federal tax revenues), appear to be no more accurate now than they were in the ’90s. Then, they argued that tax increases included in our plan to address fiscal deficits were likely to lead to massive job loss, but what followed instead was the longest economic expansion in our history. Moreover, while 10-year fiscal deficit projections are inevitably unreliable, these forecasts could just as readily turn out to be low as to be high. What actually happens will always involve factors cutting both ways — the unexpected costs for Katrina and unbudgeted costs for Iraq and Afghanistan are already projected to exceed the unexpected tax revenues.
Blah, Blah, Blah.
To Rubin’s claim that tax cuts cause deficits (an old canard of the left that they stubbornly cling to):
Historical evidence has demonstrated that tax cuts have increased tax revenues to the federal treasury. Three times in 1900s (the 20s, 60s, and 80s) taxes were cut across the board. All three cuts stimulated the economy substantially and immediately and resulted in increases in tax dollars to the federal treasury.
The Harding/Coolidge tax cuts increased tax dollars to the federal treasury. Andrew Mellon, treasury secretary under Presidents Warren Harding and Calvin Coolidge, engineered what were really the first supply side tax cuts in American history. As part of the Revenue Acts of 1921, 1924, and 1926 taxes where cut across the board. Top marginal rates decreased from 73% to 58% in 1922, to 50% in 1923, to 46% in 1924, to 25% in 1925, and finally to 24% in 1929. IRS data shows that these across the-board tax cuts resulted in greater tax payments, especially by those in the highest tax brackets. When taxes were reduced from 60% to 25% on top income earners, taxes paid increased from $300 billion to $700 billion a year. During this period, top income earners also increased their share of the overall tax burden from one third in the early 20s to approximately two-thirds (of all taxes paid) by the late 20s.
Of note, between 1922-1928 average incomes of those earning greater than $100K increased by 15%. Those earning between $10K and $100K increased by 84%! Clearly, tax cuts â??lifted all boats,â?ť not just those of the rich.
JFKs tax cuts increased tax dollars to the federal treasury. In 1962, JFK, a Democrat, cut income tax rates across the board by 20% and proposed a 10% reduction in corporate income taxes to spur economic growth and job creation. (Legislation, which was supported by, then freshman Sen. Ted Kennedy- ironically one of the most vocal opponents of the current 2003 Bush tax cuts.) Over the next 4 years employment grew by over 1 million jobs. The economic growth rate increased from 4.3% to 6.6%. Additionally, tax receipts to the federal treasury grew from $48.7 billion in 1964 to $68.7 billion in 1968.
Reaganâ??s tax cuts increased tax dollars to the federal treasury. In 1981, Reagan cut marginal tax rates across the board. As a result, income taxes to the federal treasury doubled from approximately $500 million per year in 1983 to over $1 billion per year in 1989.
And, oh yeah, I might add that the lefties claimed that the Bush tax cuts would exacerbate the deficit and ruin the economy. Tax revenues to the federal treasury increased and the deficit has decreased from almost $400 billion to about $280 Billion- The exact opposite the tax and spend liberals claimed. Did I mention that since 2002 4.5 million new jobs were created?
Robert Rubin hasn’t earned the right to be taken seriously about his economic prescriptions given his dismal record:
The Rubinomics Lie- According to this argument, known during the Clinton years as “Rubinomics,” -tax cuts increase the money supply, which drives up interest rates and inflation and thereby increases the budget deficit. This line of reasoning is flawed on many levels. First, even though we are experiencing a mid-size deficit (about $300 billion in 2005, which is just a fraction of our 13 trillion-dollar GDP) interest rates have actually decreased. (From 6.03% in 2000 to around 4% in 2005.) Certainly, one cannot conclude that larger deficits cause interest rates to fall. However, it is incorrect to assert that rising budget deficits cause interest rates to increase. There is simply no demonstrable causal link.
As to needed reforms in healthcare, social security, and education, Mr. Rubin may want to ask his fellow liberals in Congress why they continually oppose and obstruct the vary market based initiatives and reforms that have proven to be the most successful (i.e. HSAs, individual voluntary retirement accounts, and school vouchers.)
Rubin is no doubt a very smart guy, but why are technocrats like him and former Clinton Secretary of Labor Robert Reich so impervious to empirical economic data that has demonstrated time and time again that the best way to achieve economic growth for all Americans is via permanent, deep, and immediate tax cuts (on personal income, dividends, capital gains, and inheritance), reductions in pork barrel/entitlement spending, reduced regulations on business, and free market reforms for healthcare, retirement, and education?
January 24, 2006 5:49 pm 
But if the data doesn’t fit their model (bigger government is better), then the data must be flawed.
Right?
Mr. Rubin’s silly diatribe is really not an economic position but a political one. I don’t believe for a second that Rubin–or Paul Krugman–don’t understand this ’supply side miracle’ of increasing revenues by cutting taxes. They are not stupid. It is worse than that. In order to please their customers they will prostitute themselves, and the MSM will not call them on it because they all belong to the same club and want to sound cool to the liberal elite.
GREAT post.
Rubin and Reich don’t have an alternative answer as why federal receipts went up during the three boom periods of the 20s and 60s and 80s even though tax rates went down. In his article he says the latest increases were “unexpected” and one-time, as if they just fell out of the sky.
Good job on dredging up the 1920s data.
I’ll post brief post on this tomorrow, because I want to have it as a marker for future discussion (yes, it’s that good), but I have an important Kelo Church-Taking Update post I want to keep at the top for the rest of today.
Thanks Tom. Can’t wait to read the Kelo piece. Appreciate the kind words. I go more in depth in my book coming out in April Conservative Comebacks to Liberal Lies.
Gregg J
Rubin’s Revisionomics Reduced to Rubble
Yesterday, Clinton Administration Treasury Secretary Robert Rubin burned up 2,000 words (link requires subscription) attempting to revise economic history, and succeeded only in showing us that we were lucky he didn’t always get his way when he …
1) Rubin wants us to believe that a $25B tax increase propelled a $7000B economy. Sorry, RR that dog won’t hunt as it is only 0.4% of GDP.
2) For the Bubble years of 1998-2000, if you back-out the personal income taxes that came from the exercise of stock options and back-out the capital gains taxes paid as tech stocks zoomed you have an long term average amount of taxes paid as a percentage of GDP. So there was no Clinton/Rubin miracle. (Isn’t the real point of the editorial that RR is brilliant?)
3) If you look at the growth of real personal disposal income over a presidency Clinton’s is below average.
First and foremost, I am a Republican. More conservative than most. Let’s face facts, however. The economy under Clinton was very good. A lot of Republicans do not want to admit it and that’s a big mistake. Like him or not, he connected with the people. We are in trouble if we do not face this fact as Hillary will walk right back into the White House with Bill by her side. Also, W just doesn’t get his message out and there is no one else to blame except him.
[...] Gregg at PunditReview.com and Don Luskin both did masterful jobs of fisking Mr. Rubin. [...]
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