Thanks.

The Niskanen (of Cato) analysis and conclusion, to which I assume you are referring, is apparently a subject of debate among economists, and it seems that the jury is out among at least some economists on whether or not lower tax rates and/or lower revenues induce lower spending. It may seem intuitive that lower revenues would induce lower spending, but an intuitive argument is made the other way as well -- that borrowing to spend rather than taxing to spend shields taxpayers from the pain of spending and reduces the incentive to curb spending. In addition to this intuitive aspect, the empirical evidence is debated.

A debate emerged among some economists after the Niskanen piece was published last year  http://www.cato.org/pubs/policy_report/v26n2/cpr-26n2-2.pdf . Niskanen is (or at least was at the time) Chairman of the Cato Institute and former member and acting chairman of President Reagan's Council of Economic Advisers. He holds a Ph.D. in economics from the (famously free-market...or infamously, depending on one's perspective) University of Chicago, which has honored him with a lifetime professional service award. Niskanen concluded that tax cuts led to HIGHER, not lower spending.

Economist Gregory Mankiw, who was Chairman of W Bush’s Council of Economic Advisors and is an economics professor at Harvard (now advising the Romney campaign), noted at the time that another prominent economist reached the opposite conclusion, with some differences in methodology (with perhaps some advantages), albeit with less recent data vs. Niskanen's analysis. Mankiw concluded that the jury is still out on which is correct -- it's just not clear if "starve the beast works" (i.e., if tax cuts lead to lower spending). http://gregmankiw.blogspot.com/2006/06/starving-beast.html .

Mark Thoma, who's a partisan pr*ck, but who, as a liberal, wouldn't have a vested interest in knocking Niskanen's conclusion, said "There are many more questions and until there is a much more thorough and complete investigation of this issue, I don't think these results should be taken very seriously. http://economistsview.typepad.com/economistsview/2006/05/a_closer_look_a.html

Thanks, but I'm not at all sure I'd get your vote, Miss :)

LOL. I like the way you put that. And I've had that experience, too. And you're right. They get that amusing deer-in-the-headlights look! Their breathing halts for a couple of seconds, followed by an audible exhale, as if their soul has just been yanked from their bodies.

First, while you are correct that even Bush's economists have stated clearly that tax cuts in general, including the Bush tax cuts, have a net NEGATIVE impact on revenues, Bush himself, along with Cheney, at least some of the Republican presidential candidates, the WSJ editorial board, Limbaugh and his imitators all emphatically contend the opposite.

As for the argument at that link, after reading just the first few paragraphs I can see that it is fundamentally flawed. Right off the bat, he makes a flatly incorrect assertion: "The problem is that the Laffer Curve is a static analysis." That doesn't even make sense. The Laffer Curve is all about dynamic effects. In fairness to that writer, I think what he means to say is that consensus of economists (of all stripes) that the revenue feedback effects are not great enough to make the tax cuts revenue-neutral (much less revenue-positive) is only looking at the short term, but this, too is incorrect. They are speaking of the long term. Lastly, while one could look at the exponential nature of incremental growth due to tax cuts and think that eventually incremental growth would have to compensate for an initial loss of revenue, that is neglecting the time value of money (i.e., present value analysis, using a discount rate). A dollar today is worth a lot more than a dollar ten years from now (aside from exchange rate changes), and not just because of inflation. There's also the cost of incremental debt (if we're running deficits), opportunity cost, and other factors that are taken into account in choosing a discount rate in net present value (NPV) analyis. So no, the incremental growth, even considering the exponential nature of economic growth (i.e,. compounding) does NOT mean that eventually a tax cut that generates incremental growth will generate increased revenue.