Paul Krugman’s column in the New York Times today talked of the revival of “Voodoo economics” by some Republican politicians. This refers to the Laffer Proposition that a cut in income tax rates stimulates economic activity so much that tax revenue goes up rather than down. Gov. Sam Brownback, who is running for re-election in Kansas, has had to confront the reality that tax revenues went down, not up as he argued they would, when he cut state tax rates.
I disagree with one thing that Krugman wrote in his column: the idea that there was a long break, particularly after George W. Bush took office, during which Republican politicians did not push this line. To the contrary, I have collected many quotes from George W. Bush and his top officials claiming the Laffer Proposition during the decade of the 2000s. The quotes are on pages 35-39 of “Snake-Oil Tax Cuts,” RWP 08-056, Harvard Kennedy School, 2008. Here is one of many from him: “The best way to get more revenues in the Treasury is…cut taxes to get more economic growth.“ It is true that the chairmen of Bush’s Council of Economic Advisers did not support the Laffer Proposition, known as the centerpiece of “supply-side economics”. But then that was also the case in the Reagan Administration.
The McCain presidential campaign replayed the pattern yet again in 2008: the candidate said tax cuts would bring in more revenue even though his economic adviser said it wouldn’t. Voodoo economics is a very hardy perennial.