Columns » Ernest Dumas

Myth Romney: Tax cuts spur growth

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The economics of taxing and spending does not have to be complicated. Whether you are in Washington or Little Rock, if you cut taxes or appropriations you will have less money to spend, and unless you were running a surplus that means you will have to cut back on jobs or the level and quality of services you plan to provide to people, or both.

Other conditions in the economy can affect the equation a little at the margins, but that is how it has always worked.

But the contemporary Republican Party, except for a few remnants of the past, dissociates the elements of taxing, spending, services and public works so that there is no longer the cause and effect that people came to expect. If you cut taxes or cap or cut appropriations, they say, there is no reason to expect the services you get from government will suffer. If they do, blame someone else.

Thus Mitt Romney accuses the president and his party of cutting Medicare by $600 billion in future years through the new health insurance law (true, but the cuts will be in subsidies to insurance companies and providers, not beneficiaries). Romney has endorsed a plan to "save Medicare" that will force future Medicare recipients to buy expensive policies to cover their care or else lose their benefits.

When the spending reductions forced by House Republicans last year take effect, it's Republican members of Congress who beat their breasts as farm service offices in their districts start to close, or military spending slackens and it affects forces in their districts.

Romney and his competitors all promise drastic tax cuts for corporations and upper incomes, particularly investors. But it won't affect anything you consider valuable, like your health insurance, Social Security, roads or the health and safety protections people take for granted. That is because, they say, the tax cuts will set off a binge of economic growth that will fill the national treasury and keep all those services funded.

Not once has that ever happened, but the theory never loses its shine. Ronald Reagan cut lots of taxes in 1981, and it was followed by the deepest recession since the '30s — 10 straight months of double-digit unemployment and soaring deficits. When the economy began to recover, he raised taxes over and over until the big 1986 tax increase (revenue enhancement, they called it) was followed by the growth spurt that got him the reputation as the wizard of economic growth. George W. Bush passed successive tax cuts, which produced ballooning deficits, virtually no job growth and, finally, the longest doldrums since the Great Depression.

Back in Little Rock, the resurgent Republicans in the legislature push for more and more tax cuts but also more services — protect Medicaid and forests, more road money for their districts and towns, tough sentencing. When timber tax receipts fell and forest-protection workers were being laid off, they demanded that the governor do something to save the jobs. They succeeded in last week's legislative session in giving the trucking industry a tax cut on their big rig purchases even though the truckers said they didn't want it and it means more than $4 million less money for roads and streets in their districts.

Then the Republican candidate for speaker of the House, Rep. Terry Rice, made this pitch last week for his election — next year if his party wins enough House races: He and his party will see to it that the state income tax is cut so that the "depopulation of Arkansas" will end and the state can start to grow.

Depopulation? The state has been gaining population for 50 years and grew by 9.1 percent over the past decade. He said people were fleeing across the border to Texas and Tennessee to live to escape Arkansas's income tax (and to live in communities with higher property and excise taxes). Texas does not have a personal income tax and Tennessee's only applies to investment income. Arkansas lost population back in the days when its state and local taxes were the lowest in the United States.

That tax-and-growth record under Reagan and Bush? It was like that in Arkansas, too. When the current income tax rates were set, in 1971, and other taxes raised as well, the state set records for job growth the next three years. When Bill Clinton raised taxes in 1983 and 1987, we led the nation in manufacturing job growth. When Mike Huckabee cut capital gains taxes, the economy and the treasury fell into a slump and he had to raise income taxes for two years to keep from cutting health benefits and other services. When he set records for tax increases in 2003-05, the state grew modestly.

Mike Huckabee might have been the last Republican to understand and demonstrate how fiscal policy actually works, though he might be the last to acknowledge it today.

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