Watching the GOP debate: Rudy Giuliani turns a question about infrastructure investment (in the wake of the Minnesota bridge disaster) into a defense of the Laffer curve. He claims to have increased tax revenue in NYC by lowering the city’s income tax rate — a rather doubtful claim, worth investigating.
Giuliani seems uninterested in dealing with the real, immediate issue of the crisis in American infrastructure, just as he’s uninterested in dealing with the real, immediate issue of the crisis in American health care. Instead he seems devoted to the most simple-minded, voodoo-esque interpretations of supply-side economics. This is the kind of behavior Bruce Bartlett — himself one of the original supply-siders — criticized recently. I wrote about this at Alien & Sedition:
Bartlett argues that the original focus on carefully-targeted marginal tax cuts has been dumbed down into the mantra that, in President Bush’s words, “You cut taxes and the tax revenues increase.” According to Bartlett, the supply-siders never actually believed that cutting taxes would raise revenues: only that it wouldn’t reduce revenues as much as Keynesian economists predicted it would.
Bartlett himself said:
Today, supply-side economics has become associated with an obsession for cutting taxes under any and all circumstances. No longer do its advocates in Congress and elsewhere confine themselves to cutting marginal tax rates — the tax on each additional dollar earned — as the original supply-siders did. Rather, they support even the most gimmicky, economically dubious tax cuts with the same intensity.
It may be true that there’s some relationship between marginal tax rates and economic growth, but Giuliani is either ignorant or dishonest when he repeats the “lower taxes=higher revenue” mantra. Public investment — including, I should point out, infrastructure investment — also contributes to economic growth. The economy works better when our schools, work force, roads, and — yes — bridges work better. Can we expect Giuliani to acknowledge this?
Update: Factcheck.org looks at Giuliani’s tax history as mayor of NYC, and finds (surprise) that Rudy is claiming credit for a number of tax cuts for which he was not responsible — including some he actively opposed. In the debate, Giuliani based his faith in voodoo economics on the claim that he cut income taxes in NYC, and revenues went up (and keep in mind, again, that the Laffer curve theory is meant to apply only to marginal income tax rates, not to other forms of taxation). Factcheck.org points out that he in fact strenuously opposed eliminating the 12.5% income tax surcharge (which, I presume, was the tax cut to which Rudy was referring):
Early in his administration, Giuliani had proposed getting rid of the surcharge, but he dropped the matter for other priorities. In fact, Giuliani completely changed course, so strongly opposing the expiration of the surcharge that he made late-night phone calls to legislators in Albany in 1996 and 1997 to convince them to keep it, according to news reports. Then, in 1998, the city council pushed hard to end the surcharge. Giuliani was at loggerheads with council members for five months before finally striking a deal and going along with the council’s position…
Oh, and what about those increased revenues? Well, they certainly weren’t enough to prevent him from leaving a serious deficit to his successor:
Giuliani’s radio ad also asserts that he “turned a 2.3 billion deficit into a multibillion-dollar surplus” in New York. Well, not if you’re comparing what he inherited with what he left, which would be a logical way to look at it. When he took office in 1994, Giuliani was indeed facing a $2.3 billion deficit for the next fiscal year. But Giuliani’s last budget, issued in May 2001 – before 9/11 – for fiscal 2002, projected a deficit of nearly $2.8 billion in fiscal 2003, the first budget year the new mayor would face. The IBO estimated the deficit would be even larger, about $3.3 billion.
Now it’s possible that revenues did increase after the tax cut, but the benefits were simply wiped out by new spending — though if that’s the case, it’s hard to see Rudy as much of a fiscal conservative after all. Either way, keep in mind that all this was happening at the time of the great national economic expansion of the late 1990s — if income tax receipts did rise, it might have a lot more to do with the fact that the Clinton-era national economy was booming, and a lot less to do with any voodoo magic worked by Rudy Giuliani.
Something to say?
