Growth and jobs effects of the Buffet Rule: Was Newt right?

[ProgressiveEconomist]

Economic growth and employment effects of the Buffet Rule: Was Newt right about President Obama's SOTU proposal of a 30 percent alternative minimum tax for millionaires?

According to http://www.cbsnews.com/8301-505245_162-57366012/senate-democrats-promise-to-push-obama-tax-agenda , "On a campaign swing in Florida, Newt Gingrich said Obama's proposal for a 30 percent tax rate for millionaires 'would be a disaster of the first order.' Added Gingrich: 'It would double the capital gains tax. Doubling the capital gains tax would lead to a dramatic decline in the stock market, which would affect every pension fund in the United States.'"

Was Newt correct?

IMO, no, as usual, he was exactly wrong. Analyses of economic data provide extremely weak support for Newt's assertions about Reaganomics.

The conclusion of a brief simplified graphic comparison of Clinton's fiscal policies versus those of Reagan and Bush is unequivocal: NO!

From http://www.epi.org/page/-/pdf/supply_side.pdf :

"Take a Walk on the Supply Side: Tax Cuts on Profits, Savings, and the Wealthy Fail to Spur Economic Growth" Michael Ettlinger (Center for American Progress) and John Irons (Economic Policy Institute), September 2008

The supply-side eras beginning in 1981 and 2001 were both qssociated with economic performances that were disappointing by most measures when compared to the post- 1993 era, which reversed many of the supply-side policies. Above all, the central premise of supply-side economic theory--that tax cuts for corporations and the wealthy, and in capital income, produce greater economic growth by spurring investment--fails when confronted by the data. Investment growth during the post-1993 era far exceeded that seen during the two supply-side periods. ...

Our analysis suggests that during the recent periods where supply-side economics were embraced and put to a practical test, the great economic success predicted by the tax cut advocates simply did not ccur. In contrast, the era of new investments and fiscal responsibility begun in 1993 paid for by tax increases antithetical to supply-side practice led to a period of strong economic performance--suggesting that those tax changes were not harmful, and possibly were helpful, to the nation's economic growth."

[Trajan]

1. Didn't Newtie say exactly the same thing in 1993 ?

Wasn't he proven wrong way back then ? ..... Surely the quotes from the 1993 GOP naysayers are available ....

[ProgressiveEconomist]

4. Excellent point! But wouldn't it be prohibitively costly

prohibitively costly for the Obama campaign to take on the enduring myths of Reaganomics directly?

I liked the way the President vowed in his SOTU speech not to allow reinstatement of the very economic policies that led to the disaster he inherited. That IMO was a brilliant indirect way of asserting what the EPI paper linked in the OP concluded.

Unfortunately, addressing directly the successes of Clintonomics vs. the failures of Reaganomics is a much harder task than what the President accomplished last night. And I fear that only "wonks" like the first few posters in this thread would be listening to a direct sustained attack on "supply-side follies" (see http://www.amazon.com/Supply-Side-Follies-Conservative-Economics-Innovation/dp/0742551067 ).

[dkf]

2. That doesn't mean the opposite is true though...that raising taxes is good for growth.

Maybe the truth is that growth is more highly correlated to things other than taxes such as energy prices and usage.

Maybe in a happy medium taxes aren't as relevant and only when it gets to extremes, does it start to become distortive. I don't know what the truth to this is, but I'm skeptical that taxes are the solution either way. I can see where they can be used for short term effect, but long term won't they just get back to the norm?

[rfranklin]

3. Greatest GDP growth has occurred during times of heavier taxation....

Chart: Since 1950, Lower Tax Rates Have Coincided with Weaker Economic Growth

As Linden put it, “these numbers do not mean that higher rates necessarily lead to higher growth. But the central tenet of modern conservative economics is that a lower top marginal tax rate will result in more growth, and these numbers do show conclusively that history has not been kind to that theory.” Indeed, these numbers put the lie to the common Republican refrain that Obama and Democrats in Congress are trying to implement a “job-killing tax hike” by putting the top tax rate back to where it was under President Clinton.

http://thinkprogress.org/economy/2011/06/20/249061/chart-taxes-economic-growth/

So it seems that raising taxes will have no effect on growth, according to you, so why not try to reduce the deficit by collecting them?

[ProgressiveEconomist]

5. Did the Buffet Rule come up

in tonight;s Republican debate moderated by Wolf Blitzer? I haven't seen the second hour yet.

[FarLeftFist]

6. Jeez, I thought this country collectively decided to hate Newt Gingrich back in '96.

But the irony of republicans being the party of insanity: trying the same failed ideas over and over and over again and coming up with the same failed results never ceases to amaze me.