John Stossel Should Do a Fraud Investigation on Himself

John Stossel makes a false claim about tax cuts. As we know, tax cuts do not pay for themselves. No credible analyst claims that. But John Stossel does:

The Tax-Cut Myth, by John Stossel, RCP: ...[T]ax cuts stimulated the economy and increased tax revenues. It happens because, as the Laffer Curve illustrates, lower rates mean higher rewards for productive activities. ...

Any decent reporter would know that isn't true. He can't even keep his story straight. After saying it was tax cuts that increased revenues, he then says:

President Bush brags that the deficit is coming down -- and it is. ... But that's largely because your FICA taxes currently exceed Social Security and Medicare payments. ...

He then goes back to the tax cuts increase revenues propaganda and quotes the president pushing the same myth:

Bush boasted last year, "This economy is growing, federal taxes are rising, and we're cutting the federal deficit... Some in Washington say we had to choose between cutting taxes and cutting the deficit. Today's numbers show that that was a false choice. The economic growth fueled by tax relief has helped send our tax revenues soaring."

Remember what Andrew Samwick, who was chief economist of the Council of Economic Advisers from 2003 to 2004, said about statements like this?

Next, Stossel gets himself all tied up in knots. Tax cuts are good. But if tax cuts increase government revenue, then tax cuts are bad because it means government takes more of our money. So tax cuts aren't good after all:

But I don't want tax revenues to soar. That's money you and I could be spending for things we want. I want revenue and spending and government overall to shrink. So I'm not celebrating with the president.

So a higher tax rate is bad, a lower tax rate is bad, and the tax rate we have is unacceptable. It's all the government's fault anyway. Because of politicians, we'll never, ever get to the promised land on the other side of the Laffer curve:

If revenues are pouring in, why don't the politicians return it to the taxpayers instead of spending it? Because politicians love to spend money. They get reelected not by how much they save but by how much they shower on interest groups.

He has a book called Myths, Lies, and Downright Stupidity. I haven't read it and don't plan to, but from the above, I assume it's autobiographical.

Comments

[real person from the real world]

I remember when Stossel did a "gimme a break" defending fees on ATMs, because they are a "convenience". I also remember that ATMs were sold to the public as a way for banks to save on the salaries of tellers, and implied that it would lower costs for a bank's customers (altho they always avoided going just that far in the rationale). Stossel is just hype to justify the semi-myth that journalists are all white knights ferreting out scams and injustice in the world. There may have been a few times they actually did find something worth uncovering, but for the most part, a lot of the so-called investigative journalism now is pretty petty stuff, used to hook viewers into watching a late news program.

[robertdfeinman]

Imagine what the world would look like if a Marxist or follower of Henry George were given a weekly prime time platform to promote his political philosophy.

Stossel is a libertarian and as we all know there view of the world is internally contradictory. The capitalists like giving a platform to libertarians because their attacks on "big government" fit in with the capitalist's aims of eliminating government oversight.

Just today there is a story about a senior lobbyist of the National Association of Manufacturers taking the job as the head of the Consumer Product Safety Commission. The conflict of interest is so great that he will have to recuse himself from the majority of the cases coming up. (This probably won't stop him from finding his own Monica Goodling to do the dirty work.)

Personally I would like to see some major media outlet give an opportunity to those holding fringe views to be heard. If the Washington Consensus can't stand a little criticism from a populist or anarchist or socialist than one has to wonder how valid their points may be.

[pgl]

But Stossel's title was Tax Cut Myth. Parts of his oped were pretty good - as we argue over at Angrybear. But then he launches into this Laffer lunacy - twice. Nice take down but wouldn't the right query to John be something like this - if you want less revenues coming to the government, aren't you advocating a tax rate increase? Guess Stossel got this twisted as he learned economics from Lawrence Kudlow!

[anne]

"Parts of his oped were pretty good - as we argue over at Angrybear."

Yes; especially if you take each word individually and forget that they form sentences and forget that the sentences need to make sense along with the nonsensical paragrphs but otherwise his oped was pretty good as individual words go.

I like the word "door." I do wish the word "door" had been used. I like door, do you like door, can we all dorr togehter?

[anne]

Well, "dorr togehter" was not intended, but makes about as much sense as the inane self-parodying apology.

[Rich]

Stossel and his ilk who support the president and his war in Iraq should evince some recognition that they have an obligation to pay for it through...wait for it...a tax on their hard earned money.

After all, if the revenue that the government takes in is the people's money than it logically follows that th debt that that the government incurs is the people's debt.

[bakho]

He leaves out that some of the temp tax cuts of Bush phased in and out. One has only to look at revenue as %GDP. In 2004 revenue was 16.3% of GDP. In 2006, revenue was 18.4% of GDP. This increase in the RATE of revenue collection is responsible for and additional $275 Billion from 04 to 06 revenue. Only $252 Billion is due to increase in GDP from 04-06.

The first four years of Bush, 01-04, we collected less revenue than we did in 2000.

[Brian Moore]

Why is it "always" false that tax cuts increase revenues? If tax cuts cause some economic activity to become feasible, then you could see revenue increases.

30% tax rate on a GDP of 100 million gets you 30 million. 25% tax rate of a GDP of 200 million gets you 50 million, even though your tax rate is lower. If that economic activity creates 100 mil more in economic activity, there, tax cuts have increased revenue.

Obviously this is dependent on the tax cut amount, what is being taxed, the elasticity of the market for that thing being taxed and lots of other variables. But it's not "impossible."

To steal an analogy, replace "taxes" with "price" and "work hours" with "product." A company could reduce the price on their items in order to sell more items, and therefore increase overall revenue. Are you saying that all this time, companies running sales and discounts have really been cutting into their revenue?

[GL]

Excellent post!

First, Brian Moore, no one is denying the theoretical possibility per the Laffer Curve (and common sense combined with basic algebra, as you've illustrated). The point is that there is an overwhelming consensus among even supply-side economists -- including Bush's own economic advisors -- that we were NOT on that portion of the Laffer Curve prior to the Bush cuts such that the net impact would be higher revenues (than would be received otherwise), nor were we anywhere close.

For more info on what supplys-side economists have said on this question, see http://rationalguy.townhall.com/g/bfe10281-94c6-43bb-bf04-33f9eb7800c1

[Holly W.]

Brian Moore:

A company could reduce the price on their items in order to sell more items, and therefore increase overall revenue. Are you saying that all this time, companies running sales and discounts have really been cutting into their revenue?

Interesting question. Offhand, it seems to me that alot of companies that have reduced their prices over the long-term have indeed been cutting into their revenue ... think airlines, think companies that do business with Walmart and get told that they can only charge so much for their products, or who found themselves having to drastically cut prices on flat-screen TVs thanks to Walmart during this past holiday season.

Closer to home for me, the company I work for has been forced by local competition to lower its prices for some of our services, and that has pretty much resulted in lower income for that side of the business, no matter how much work we get.

Have you got any examples of companies that have meaningfully increased their revenues by permanently reducing their prices across the board, which would be the proper analogy for the Bush tax cuts?

Sales don't really count since they're often on items that haven't sold for full price and would represent a total loss if they aren't gotten out the door for at least cost. I used to work at the Gap, and we were told that even when a $30 item is sold for, say, $6, the company was still making some profit on it.

[Lee A. Arnold]

Anne, I laughed out loud.

[DB]

Give John Stoessel some credit. That will increase economic activity across the board, and raise tax revenues even more. oops! Don't give John Stoessel some credit.....

[robertdfeinman]

Will the Laffer curve never die? If it exists would one of the believers please give a citation to a published example complete with actual data points?

I'll wait.

[Dirk van Dijk]

The basic Laffer curve, as scetched on the back of the cocktail napkin is both true, and trivial. What no one has ever shown is what is the revenue maximizaion point on the curve. Assuming it is a normal bell curve (no evidence of that, but as good an assumption as any) then tax cuts like Kennedy did, where the starting top marginal rate was something like 90%, should be very revenue positive. However, it does NOT follow that cutting the top rate from 39% to 35% should produce a bonanza of increased revenues.

[John H. Morrison]

The Laffer curve was propaganda from the start. If its promoters ever took it seriously, the first thing we would have heard was an estimation of where the maximum occurred. But I have never seen any estimation of this point -- with one exception: the Laffer curve is drawn symmetrically about its maximum, as a bell-shaped curve or a parabola. It goes to zero at rates of zero and 100% -- that automatically places the maximum at 50%.

Please everyone: Any time someone talks about the Laffer curve without estimating where the maximum occurs, he is BSing you.

[Sam]

>> What no one has ever shown is what is the
>> revenue maximizaion point on the curve.

I doubt there is a single point.

The range of possible values would be influenced by the history and culture, to name only 2 of many variables.

I would bet that there are significant hysteresis effects - in a society that had a 90% tax rate for 100 years, reducing the rates to 10% would have one effect,

in a society that had 10% tax rates for 99 years, then 90% for one year, then back to 10% would have a completely different effect, even though the 2 final rates are now the same.

[bakho]

The Laffer revenue increase depends on a tax cut increasing the rate of economic expansion. However, economic expansion has limits. Too rapid economic expansion is inflationary. In that case, revenues could increase at the lower tax rate due to inflation, but would be inadequate to meet the rising cost of services.

In the US, we have the Federal Reserve which has a policy of raising interest rates to keep the economy from expanding too rapidly and prevent inflation. In reality, tax cuts can provide an economic stimulus, but the Fed will apply the economic brakes so economic growth will never be rapid enough to replace the revenue lost to the tax cuts. If you leave out the Fed and monetary policy, then the Laffer model could work. However, leaving out the Fed and monetary policy will not produce a very realistic model.

Clinton policy clearly disproved the tax cuts-economic stimulus-increased revenue Laffer non-sense. Clinton raised the top tax rate. Revenue increased to the point of surplus. The US enjoyed the longest post-war expansion.

[Tomas]

In supplyside economics the maximum is defined!

If the taxrate is T at t0 then the revenue maximizing taxrate is always T - Tp0 where Tp is the maximum politically possible taxcut at t0. In t1 the revenue maxizing taxrate will be T - Tp0 - Tp1 where Tp1 is the maximum politically possible taxcut at t1 ect.

Its all very well defined and very very scientific.

[Mike]

To all supply-side skeptics:

How many of you are small business owners? It seems even basic logic is beyond the class-warfare waging liberals in this group.

I will challenge any of you to disprove the historical relationship between tax cuts and and increased growth in the economy. The facts support this position alone. There is no other conclusion that can be reached through logic. Period.

Taxes are, by definition, a throttle on growth and redirect revenue from productive to non-productive use. Any time you reduce the productivity you reduce the potential for growth. Basic math, no algebra needed. Any third grader could understand this.

[Mike]

Addendum:

Please don't quote an increase in the deficit during a period of tax cuts as proof that tax cuts are bad. One does not follow from the other. A budget deficit can increase with increased tax collections via increased spending. During the Reagan years the military was significantly rebuilt. Spending increases can cause budget deficits even during periods of increased revenue collection.

For the class-warriors:
If I get a 20% raise and increase my spending 40%, and realize a deficit, this does not mean the raise was not a good thing.

I tried to keep this simple. Please let me know if the concepts are too complex for you.

[Esben]

Brian Moore: "30% tax rate on a GDP of 100 million gets you 30 million. 25% tax rate of a GDP of 200 million gets you 50 million, even though your tax rate is lower. If that economic activity creates 100 mil more in economic activity, there, tax cuts have increased revenue."

So in this numeral example a 5% tax cut would have to stimulate the economy to 100% growth - from 100 million to 200 million. And this is the very problem. Except for when we begin very high marginal tax rates, any numerical example you set up will require so large growth rates to offset the tax cuts that they exceed even the most rapid periods of growth in the most rapidly expanding developing countries. Clearly if tax cuts has such massive effects we would have observed it in the real world long time ago. In reality there is no conclusive evidence that tax cuts per se (as opposed to structural tax reform) lead to ANY growth at all.

Mike. You DO make a convincing argument. Especially when you said "period" you almost had me. But the the fact that you make no sense at all caused me to reconsider.

Where is your evidence that taxes per se inhibit growth? I sure don't see any. There are countries which have quite decent growth rates with very high tax regimes. It seems much more important what you tax and the relative weight with which you tax different things, than what the overall level of taxes are. Even with a 80% overall tax rate people still wouldn't stop trying to make a living for themselves. In fact it could be argued that a very high tax rate would make people work MORE, since they need to do so in order to reach the level of income they desire.

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