Tax policy is probably going to get very heated in the next few months. So let’s deal with a simple bit of conservative economics (Austrians and Monetarists should both not have any problems with this): The Laffer Curve
Economist Dan Mitchell says it better than I could, so let’s listen to him.
Now two very important things I would take away from this. The first is that you will notice that he states that cuts such as new deductions have little to no effect on improving the economy, whereas actual cuts in the rate itself do.
You’ll also notice that this is exactly what Romney and Ryan are proposing, getting rid of deductions and lowering the rate. Thus you are replacing cuts that have no effect on the growth of the economy with cuts that do.
Now some very smart people who don’t know much about economics (Chris Wallace anyone?) want to listen to the “unbiased” report from the Tax Policy Center which states that Romney’s plan doesn’t work. (To hell if the Tax Policy Center is run by the left leaning Urban Institute and really left leaning Brookings Institute). (To hell that even the Tax Policy Center admits this report was based or NEVER ACTUALLY LOOKING AT ROMNEY’S PLAN ) (To hell if the report was authored by a former member of the Obama administration) (And to hell if the report is based off the idea that tax cuts will not affect the economy one single little bit ) (To hell that Chris Wallace ignored all of these when he called it a report from an “Independent group”).
But when he asks silly question like “What will the effect be if we count the tax cuts but not the reductions in your tax plan?” (My paraphrasing, but that’s essentially what he asks.) So if we take half of your plan and only look at part of it and ignore other integral parts of it. Might as well ask a surgeon, “Doesn’t cutting into people cause them great pain? And you can’t bring up anesthetic. You cut into people, you terrible, terrible monster.” (But this is the same Wallace who asks “Why are you losing?” to Ryan when he should be asking “Why are we skewing the polls so badly).
So when Ryan says the actual plan will be deficit neutral, it will be deficit neutral because you can easily eliminate lots of the insane deductions out there and trust me there is more than enough to cut to make the 20% tax break (and that means cutting 20% of the current rate, that is, if your current rate is 25% your new rate will be 20%, .8x.25=.2)
And that’s not even counting the fact that such cuts will have a positive effect on the economy (thus they’re being revenue neutral, just on the fact of it, means they will bring in more revenue after the economy jumps…add to that cutting regulations and the federal work force…hmmm).
So keep all of this in mind when you hear about taxes in the upcoming discussion of who should be president.