Bruce Bartlett and I agree a lot

I’ve argued before that we should think of tax cuts as equivalent to government spending (it’s an opportunity cost), and Bartlett makes pretty much the same point (and then some).  His argument, better written and researched than mine, is that supply-side economics has outlived its usefulness and became a caricature under the post-2000 Republicans.  Here is what he says:

During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts–the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.

These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just give-aways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a “tax cut.”

I think these sorts of semantic differences cloud economic decisionmaking rather than contributing to it. As a consequence, we now have a tax code riddled with tax credits and other tax schemes of dubious merit, expiring provisions that never expire, and an income tax that fully exempts almost on half of tax filers from paying even a penny to support the general operations of the federal government.

The supply-siders are to a large extent responsible for this mess, myself included. We opened Pandora’s Box when we got the Republican Party to abandon the balanced budget as its signature economic policy and adopt tax cuts as its raison d’être. In particular, the idea that tax cuts will “starve the beast” and automatically shrink the size of government is extremely pernicious.

What Republicans are discovering, or will soon discover, however, is that the government is not a beast.  It’s actually an organization run by people designed for people.   It is, in fact, better thought of as a business with a lot of debt to repay.  It could cut back on services, but its shareholders (citizens) don’t want to see that happen.  Instead, the beast will have to eat even more (raise taxes) to compensate for its previous obsession with anorexia.  In other words, Republican tax cuts are primarily responsible for the eventual enlargement of the government.

I have also argued that we need to expand our tax base, which is basically a regressive tax expansion.  An expanded base, through a sales tax or pure income tax, is the most politically feasible tax reform.  The problem has been in framing: Republicans see more tax as government expansion and liberals see it as regressive, but liberals should see it as paying for needed reform and Republicans should see it as hurting the poor.  Then everyone would be happy.  Again, Bartlett makes the point:

We don’t have a VAT because liberals think it’s regressive and conservatives think it’s a money machine. We’ll get a VAT when liberals figure out it’s a money machine and conservatives figure out it’s regressive.

Then again, there’s this institution called the Senate.