Deinonychus antirrhopus

You're one of the few people that I've seen who has actually defended the tax cuts for something that they are not, without even the slightest bit of shame.

When one pumps that much money into the economy, one is bound to get some positive effect. I don't think anybody questioned that. The question was, what sort of bang-for-your-buck ratio, to steal a phrase from Brad DeLong, were we getting? In all seriousness, Steve, do you really think that the tax cuts really got us a whole lot considering their size?

And yes, tax cuts are expansionary fiscal policy. Deficits, of course, were part of that. Nobody was denying that. The problem here is, the Bush administration and Congressional Republicans would never show any inclination to raise taxes or cut some sort of spending (at least upfront and honestly), thereby making short-term deficits okay.

Brain,

You keep saying that wealth redistribution is a tax cut when in reality it isn't. Wealth redistribution carries with it some serious potential problems. I've already outlined them and I'm not curious as to what DeLong's off the top of his head thought are. Why don't people like you and DeLong come clean and call your "tax cuts" what they really are, redistribution of wealth and income. Try at least to be honest for a change.

Oddly, famed tax cutter Reagan did exactly that-- raised taxes in a recession, in '82 and '83, and oddly, the effect was to trigger the secular bull market, calm the fears of investors somewhat over the otherwise daunting prospects for deficits, and set the stage for the recovery, which ensued.

No, it's not generally going to work out. Worked that time because the profligate tax cuts had a perverse effect on the markets, and it had to be substantially revised to assuage the markets.

First off, 1983 was not a recession year.

Second, TERFA was passed into law in August of 1982 just a few months short of the end of the recession. Further, I wouldn't be at all surprised if some or all of the increases were not scheduled to take place in 1983 or later.

1983 wasn't a recession year, as you correctly say.

In 1982, which was a recession year that saw unemployment rise to about 11% for the first double digit unemployment figure since the Great Depression, Reagan signed into law not one but two major tax increases. The Tax Equity and Fiscal Responsibility Act raised taxes by $37.5 billion per year, and the Highway Revenue Act of 1982 raised the gasoline tax by another $3.3 billion.

It's true as you suggested that ETRA, the '81 tax cut bill, would have seen further tax cut equivalents for business depreciation starting in '85, and that extra was cancelled by TEFRA without ever taking effect. However, both TEFRA and the federal excise tax hike of about 10 cents a gallon extra on gasoline certainly were tax increases in a recession year.

TEFRA's approximate 1% of gdp tax hike increased the cost of business investment (going against the supply side rationale of the creation of capital investment incentives in ERTA), and the gasoline tax hit consumers particularly hard several ways, directly, and in the increased cost of energy as a production and transportation factor throughout the economy.

Neo-Keynesian demand side counter-cyclical fiscal policies are supposed to be temporary, ending as the business cycle turns up, not permanently reduce federal revenues to 17% of gdp, lower than they've been since the '50s, prior to the institution of Medicare.

Relying on increasing consumer spending that exceeds their income increases, which therefore is financed by ever shrinking savings rates and ever increasing indebtedness, to drive gdp growth, is not a sustainable formula.

In fact, it has only been sustained to date by a phenomenally low interest rate environment that includes zero or even negative real interest rate subsidies by corporations. As the interest rate regime returns to more normal historical ranges, the ability of consumers to continue and even mount up further record levels of indebtedness will certainly diminish.

Things that cannot go on forever tend to stop.

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