One More Act of New Year's Mockery
A Theory About Cinnamon and Recipes

Supply-Side Effects of Tax Cuts

Mark Thoma directs us to Daniel Altman writing about Ben Page's CBO study of supply-side effects of tax cuts:

Economist's View: The Myth That Tax Cuts Pay for Themselves: This will not please the tax cut fanatics and proponents of the Laffer curve... [a] report from the CBO discussed in this Economic View by Daniel Altman from the New York Times:

Early last month, without much fanfare, the Congressional Budget Office released a paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates."... [I]t may be one of the most important government publications in years. As Douglas J. Holtz-Eakin, the budget office's director, writes... most predictions of the effects of tax-rate changes "do not include the budgetary impact of any possible macroeconomic effects of tax policies." In other words, the predictions don't take into account how tax cuts could affect the overall size of the economy. It is this omission - one often cited by proponents of tax cuts, especially in the White House - that the paper tries to correct.... Ben Page estimates estimates how an across-the-board cut in income tax rates could generate higher levels of economic activity.... Even in his most generous scenario, only 28 percent of lost tax revenue is recouped over a 10-year period. The United States, it seems, is firmly planted on the left side of the Laffer Curve. Recent experience corroborates this prediction. In the second quarter of 2001, just before the first of President Bush's tax cuts took effect, federal receipts from personal taxes accounted for 10.3 percent of the economy. By the end of the post-recession slump, receipts had dropped to 6.4 percent. But in the third quarter of 2005, with the economy booming, they were still under 7.5 percent - an enormous difference. In dollar terms, federal receipts from personal income taxes, at $802 billion in 2004, are still lower than they were in 1998 ($826 billion) and much lower than in 2001 ($994 billion)...