Whadda you say what?

which, according to my daughter, is how Hannah Montana expresses surprise at crazy talk. It is something I hear directed at me, alot. Peter Martin alerts us to this quote from Opposition Treasury Spokesperson, Julie Bishop:

Well, it would depend what the package included, but we would be urging the government to include in any stimulus package tax cuts, broad and sweeping tax cuts that will increase the tax base and increase tax revenues.

Whadda you say what?

I guess, we can put this down to a weekend slip up. But let’s just suppose for the moment that it were true and there was a way of cutting taxes and increasing revenues. Now unless the growth in GDP this gets us is so large as to wash this away, macroeconomically, it is the opposite of a stimulus. A stimulus means less tax revenues even if this isn’t the same as cutting taxes. Of course, they are going to be hard pressed to find any economist who thinks that the government has been missing the boat on tax cuts and a climb in revenues all of this time.

[DDET There’s more]

Actually, the bigger gaff is surely this one:

And there’s plenty of evidence to show that the multiplier for a tax cut is greater than that of a direct government spend.

Whadda you say what? Since when? We will be looking for the evidence in support of that.

[Update: Julie Bishop does think tax revenues will rise. OK, tell me again how that stimulates the economy? I am pretty sure the consensus view is that this a recession driven by low aggregate demand rather than a supply contraction. And if it is the latter, why no low-hanging tax reform prior to 2007?]

[/DDET]

7 thoughts on “Whadda you say what?”

  1. 1. If you reduce the tax rate on something, more of that thing gets produced and consumed.  The tax base – the value of the thing you are taxing – increases. 

    2. Bishop’s comments are perfectly consistent with Australia being on the wrong side of the Laffer curve.  Now maybe she has evidence for that, maybe not.  All I know is that we keep cutting marginal rates in this country, and revenue doesn’t seem to be falling.  In any case, it is hardly “crazy talk.”  The Laffer curve has been around for over a hundred years and is basic economics 101. 

    3.  There is plenty of evidence that the “multiplier” for a tax cut exceeds that for government spending.  Why don’t you pop over to Greg Mankiw’s blog some time and educate yourself?

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  2. Joshua:

    Please stop suggesting that Bishop is an idiot for making this suggestion. Reagan cut taxes and the result was even more tax receipts.

    You ought to be worried about the clown who is actually the treasurer as he’s the biggest nincompoop to ever reach high office.

    And as for you calling other people economically illiterate. Are you forgetting that you a supported Fuelwatch digging yourself into a hole you almost reached China.

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  3. Isn’t it amazing how ideologically conveneient untruths persist?  There is not a single shred of evidence that any developed country is on the wrong side of the Laffer curve, and no serious economist believes it is – and that includes Greg Mankiw.

    Reagan cut taxes massively in 1983 – the tax take (adjusted for inflation) fell massively.  He raised them in 1986 – the tax take rose.  Bush I raised them further in 1990 – the tax take rose.  Clinton raised them further in 1993- the tax take rose sharply (and the economy, incidentally, took off –  refuting supply-siders and Keynesians alike).  Bush cut them bigtime in 2001 – the take fell sharply.  He cut them a little bit in 2004 – the take fell a little bit.

    As for “tax cuts are more stimulating than spending”, that again defies experience.  Mankiw is in a pretty small minority in the profession on this question.   It’s a very technical question, and if you’re not on top of those technicalities then you oughtn’t just choose the answer you like.

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