"I used the phrase ‘charlatans and cranks’ in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't. " -- Greg Mankiw, chair of the G.W. Bush Council of Economic Advisers (CEA), advisor to Mitt Romney’s 2012 campaign.
Ever since Reagan’ 1980 election campaign, it’s been an article of faith among movement conservatives that tax cuts pay for themselves. They don’t of course. The evidence is overwhelming, and economists across the political spectrum—even top Republican advisors such as Greg Mankiw, quoted above—have said so repeatedly over the years. But that’s the thing about articles of faith—they don’t depend on evidence at all, they depend on belief. And believing that tax cuts pay for themselves has been a pretty successful political strategy, regardless of the less-than-steller economic results. (Reagan’s tax cuts in 1981 were supposed to pay for themselves, so were Bush’s 20 years later. Both created massive deficits instead.) That political success is why Time’s Justin Fox found such widespread enthusiasm for the idea among top GOP politicos in late 2007:
If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. "You cut taxes, and the tax revenues increase," President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, "does produce more revenue for the Federal Government." Presidential candidate John McCain declared in March that "tax cuts ... as we all know, increase revenues." His rival Rudy Giuliani couldn't agree more. "I know that reducing taxes produces more revenues," he intones in a new TV ad.
Economist Mark Thoma took note that the notion was still alive and well with some GOP Senate candidates in October 2010, despite the fact that “the Bush tax cuts did not even come close to paying for themselves,” and actually “cost us around $1.7 trillion in revenue from 2001 through 2008.” Two years later, Media Matters noted that both Romney and Gingrich were on board with the idea in 2012, and CBS treated it as “an open question’—despite the fact that Mankiw and a bevy of other Republican economists they cited dismissed it in no uncertain terms.
So now that the GOP has got control of both houses of Congress, what can we expect in the way of economic thinking? Hear’s a hint: You know how they just love to say, “I’m not a scientist?” as a way to explain ignoring climate science? Well, they aren’t economists, either. And the consequences won’t just be seen in the form of ludicrous economic proposals—that would be too easy. Besides, they’ve already been doing that for years—decades, actually. Instead, they’re looking to use their ideological fairytale to skew all the official government calculations that Congress uses to guide its deliberations. So it’s not just the content of their economic proposals that are headed even more deeply into cloud cukooland, it’s the entire context in which Congress thinks about economics that’s about to exit, stage right, from reality-land.
Things have been building toward this for some time. Last summer, Steve Wamhoff, Legislative Director at Citizens for Tax Justice (CTJ) explained what had happened so far. Setting the stage, he wrote:
Proponents of tax cuts and supply-side economics have for years called on the Joint Committee on Taxation (JCT), the official revenue-estimators for Congress, to use a method called dynamic scoring to take into account these supply-side effects that allegedly reduce the cost of tax cuts or even result in a revenue increase.
But given the utter uncertainty about these macroeconomic impacts, it is entirely reasonable that they are left out of official revenue scores that Congress and the public must rely on to understand the effects of tax legislation.
Nonetheless, GOP arm-twisting had managed to get JCT to use dynamic scoring to analyze a tax reform plan introduced last February by House Ways and Means Chairman David Camp, and the results were just what you’d expect from loading the dice:
JCT found that the macroeconomic growth effects of Camp’s plan would increase revenue “by $50 to $700 billion, depending on which modeling assumptions are used,” over a decade. (CTJ found that while the Camp plan would be revenue-neutral in the first decade, it would lose $1.7 trillion in the following decade, a hole that no dynamic analysis can fix.)
As Wamhoff went on to explain, perhaps the easiest way to see through this sham is to note how selective the proponents of dynamic scoring are:
Yet another problem with dynamic scoring is that its proponents never want to apply the same logic to spending. If tax cuts boost the economy enough to offset part of their costs, then surely the same could be true for public investments such as education and infrastructure, which everyone agrees boost the economy. But don’t expect Arthur Laffer or Dave Camp to be making that argument any time soon.
Such was the depressing state of affairs before the midterms, when the Democrats still held some institutional power, even if they wavered considerably in using it. So the midterms were bound to have a noticeable impact.
This all came out into the open more than a month ago, in the form of a fight over who should head the Congressional Budget Office, the workhorse in producing economic analysis for Congress. At first, Mankiw and several other leading GOP/conservative economists came out in support of reappointing Doug Elmendorf, who had been first appointed by Democrats, true, but all the better, they argued, as Lori Montgomery explained at the Wonkblog:
Why? Because Elmendorf has been scrupulously impartial, they argue, and unafraid to cut the knees out from under some illegitimate liberal ideas. A Democratic appointee willing to trash stupid Democratic policies, they argue, is a potent weapon that Republicans should think twice about casting aside.
One of those supposedly ‘illegitimate ideas’ was that a minimum wage increase to $10.10/hour would have little or no negative employment effects—an idea that actually has substantial support from the economic literature, as John Schmitt explained for the Center for Economic Policy and Research. The impact of that literature did somewhat soften the range of CBO’S job loss estimate, which centered at 500,000, but began at virtually zero. ‘Including zero in the range of plausible employment outcomes –for the first time ever– ought to feature more prominently in the discussion of the report,’ Schmitt noted, adding:
More than two decades of research that has questioned the negative employment impact of moderate increases in the minimum wage is slowly entering into standard analysis.
The CBO chose not to referee a deep divide in the economics profession and, instead, awkwardly split the difference on estimates of the employment effects.
What this shows, unfortunately, is that economics as a profession is slow to respond to unwelcome new data, that it remains far more ideological and far less empirical than it claims to be, and that this inevitably impacts all work in the field, even (perhaps especially) work that bends over backwards trying to be ‘fair’. Mankiw and other top conservative economists wisely saw CBO’s estimate in this case as a win for them, particularly given CBO’s reputation as non-partisan and unbiased.
The media also largely ignored the many other points on which CBO’s analysis supported proponents of hiking the minimum wage, as Schmitt pointed out earlier. So the conservative economists’ argument that Elmendorf’s reappointment would be good for their side showed considerable sensitivity to political (if not economic) reality. So naturally, those further right just had to counter-attack. ‘Well, that didn’t take long,’ Montgomery wrote the next day :
After a series of highly-regarded conservatives voiced their support for Doug Elmendorf, the director of the Congressional Budget Office whose term is up in January, Elmendorf haters fired back on Friday, urging Republicans to jettison the Democratic appointee as soon as possible.
Leading the charge was Grover Norquist of Americans for Tax Reform, author of GOP’s ironclad anti-tax pledge, which insures that Ronald Reagan himself could never be elected by today’s GOP :
So why is Norquist against Elmendorf? For one thing, because CBO, under Elmendorf, has not demonized higher taxes. Instead, the agency promotes a "Failed Keynesian Economic Analysis," Norquist says, that asserts that "higher taxes are good for the economy, even to the point of implying that growth is maximized when tax rates are 100 percent."
Of course that’s ludicrous, and Montgomery explains how Norquist reaches that absurd conclusion, but the bottom line is that Norquist on taxes is like former Senator James Inhofe on global warming, calling it ‘The Greatest Hoax’, thereby projecting his own ignorant ideological rigidity onto the expert majority consensus. So once again we have the lunatic right insisting that moderates are wild-eyed ravers, and that they are only sober voices around. Given that mindset, only one of their own will do. In early December, Joshua Holland, of Moyers & Company, explained, in the context of noting that Paul Ryan was a powerful inside-Congress advocate for these same extreme views:
A number of Republicans have called for the CBO to incorporate what US News & World Report calls a “gimmick” that would result in tax cuts magically paying for themselves in future CBO scores. In fact, it would likely result in the CBO claiming that even deep tax cuts for corporations and the wealthy would result in more revenues coming into the government’s coffers. We could have our cake and eat it, too!
The gimmick is called “dynamic scoring,” and is based on economic models that purport to show that tax cuts unleash so much new economic activity that ultimately, they result in more taxes being collected.
Budget guru Stan Collender, executive vice president of Qorvis Communications, tells Moyers & Company that to a degree both the CBO and Congress’s Joint Committee on Taxation already use dynamic scoring. Economists agree that changes in taxation influence how much money individuals and corporations spend. “They just don’t use it to the extent that tax cut proponents want,” says Collender. “And there’s very little substantive evidence to justify the kind of dynamic scoring that they want.”
“Make no mistake,” Collender adds. “This is not an attempt to fix the substance, this is an attempt to fix the politics to make it easier to cut taxes.”
Holland also included this CBO graphic chart, showing how profoundly the Bush tax cuts had depressed revenues, contributing enormously to our rapid shift from running surpluses under Clinton to running up massive deficits under Bush.
December was a much busier political month than anyone expected, so there was not much notice taken of this potentially quite significant change. Then, just three days before Christmas, David Weigel reported—with few specific details—that Elmendorf would not be reappointed.
No one can say precisely what will happen next, but taking history as our guide, it could well prove disastrous—and what’s worse, it could quickly be normalized as well. The best precedent we have for what Republicans are aiming to do is Newt Gingrich’s 1995 abolition of the Office of Technology Assessment (archive here), along with a number of other institutional changes which drastically weakened the informed deliberative capacity of the House in particular, and thus strengthened his hand as Speaker.
The OTA was established in 1972, and issued over 750 reports across a wide range of subjects until its defunding under Gingrich. It did not dictate to lawmakers, but instead routinely provided them with a comparative menu of viable policy options. It was so highly regarded that it provided a model that was copied by national, sub-national and supra-national legislative bodies around the world, such as the European Parliamentary Technology Assessment network which brings together 13 member organizations. In a 1984 story, “Little-Known Agency Draws Worldwide Interest,” the New York Times reported, “In just the last year, for example, more than 100 visitors have come to Washington from 25 countries including China, France, Indonesia, Denmark, Egypt, Britain, Brazil and Australia to find out how the agency works and what it produces.”
Although its immediate purpose was to provide Congress with expert guidance on making sense of complex technology-related issues, the quality and lucidity of its reports made them a valuable resource which influenced the broader public as well, further strengthening the quality of public policy deliberation. And though it was a technology organization, it’s primary purpose was not technological, but rather making sense of things in a publicly-accessible, big-picture way. In writing about the OTA ten years after its defunding, Chris Mooney captured a vital over-riding function and purpose of the OTA as it was expressed by its long-time director, Jack Gibbons;
In explaining the role of the Office of Technology Assessment, which he guided for more than a decade, Gibbons has similarly turned to the language of poetry to describe a unique endeavor at the interface of science and policy. Over the years in discussing OTA, he has repeatedly invoked a sonnet from Edna St. Vincent Millay's 1939 collection Huntsman, What Quarry?, in which the poet cites society's bombardment by a "meteoric shower of facts" that lie "unquestioned, uncombined," and continues: "Wisdom enough to leech us of our ill / Is daily spun; but there exists no loom / To weave it into fabric. . . ." During his 1979 swearing-in as OTA director, Gibbons quoted this passage to members of Congress, announcing his (metaphorical) intention to weave scattered facts into a fabric that policy makers could use.
In November 2011, as Gingrich was momentarily surging in the polls, Bruce Bartlett, a top economic adviser to presidents Reagan and Bush I, wrote a scathing critique of Gingrich's dismantling of the OTA, among other institutions, "Gingrich and the Destruction of Congressional Expertise", in which he wrote:
"He [Gingrich] has always considered himself to be the smartest guy in the room and long chaffed at being corrected by experts when he cooked up some new plan, over which he may have expended 30 seconds of thought, to completely upend and remake the health, tax or education systems.
"Because Mr Gingrich does know more than most politicians, the main obstacles to his grandiose schemes have always been Congress’ professional staff members, many among the leading authorities anywhere in their areas of expertise.
"To remove this obstacle, Mr Gingrich did everything in his power to dismantle Congressional institutions that employed people with the knowledge, training and experience to know a harebrained idea when they saw it. When he became speaker in 1995, Mr Gingrich moved quickly to slash the budgets and staff of the House committees, which employed thousands of professionals with long and deep institutional memories....
"In addition to decimating committee budgets, he also abolished two really useful Congressional agencies, the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations. The former brought high-level scientific expertise to bear on legislative issues and the latter gave state and local governments an important voice in Congressional deliberations."
Such was the criticism from a former top staffer for Ronald Reagan and George HW Bush. Sadly, once Gingrich had dramatically slashed the level of congressional institutional expertise, it proved exceedingly difficult to rebuild it. Rush Holt, the only physicist serving in Congress [just retired] made several attempts to get OTA’S funding restored, but without success.
Nancy Pelosi’s failure to restore funding when she became Speaker in 2007 was one of her most striking failures of leadership—but equally striking was how little notice this failure attracted. Gingrich’s radical downsizing of congressional competence established a ‘new normal’ which proved remarkably resilient, regardless of how dysfunctional it may have been from broader policy perspective. It was as if Congress had given itself a lobotomy, and didn’t see anything wrong with it afterwards. Now, twenty years on, Congress is all set to take it one step further. They’ve already jettisoned their best source of well-integrated information. Now they’re actively going after bad information—the same sorts of rosy projections that helped justify the Bush tax cuts, which turned Clinton’s surpluses into staggering deficits. It’s as if Congress were following up its self-lobotomy by opening up it’s own meth lab. What could possibly go wrong?
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