Supply Sider Fetishes

The hunt for deductions, exemptions, and loopholes to eliminate, undertaken by The Economist (as seen in my last post) and other “free-market” advocates, is part of the never-ending quest to “broaden the tax base”, which has been a fixture of Republican economic policy for decades. Mitt Romney referred to it repeatedly in his presidential campaign, and it was a major plank of “Reaganomics.”

“Broadening the tax base” is also part of the Republican holy grail of “revenue neutrality”, which Grover Norquist underlined once again on November 16:

Romney’s plan was always revenue-neutral — I’m in favor of getting rid of deductions and credits and reducing rates, as long as it’s revenue-neutral. That’s always been the Republican position.

Rothbard pointed out the folly of “revenue neutral” deal-making back in 1993 in the Rothbard-Rockwell Report:

The last time that “free market economists” played such a repugnant role was in the 1986 “tax reform,” engineered by Jacobin egalitarian economists in the name of “fairness,” “equality,” and free markets. (Tip: genuine free markets have nothing to do with “equality,” and nothing whatever to do with modern leftist notions of “fairness.”) The “social compact” devised by the 1986 Republican Jacobins was to cut upper income tax rates in exchange for “closing the loopholes,” “broadening the tax base,” and thereby keeping everything “revenue neutral.” (Query: what’s so great about keeping tax revenues up, the eternal aim of supply siders? Why not drastically lower tax rates and tax revenues? Isn’t that the real free-market position?)

Well, they closed the loopholes all right, thereby leveling a blow to the real estate market from which it has still not recovered. Thanks, Jacobins. And, as some of us predicted without being heeded in 1986, it took only a few years for the upper income tax rates to be raised again.

Twenty-six years later, the ineducable supply siders are looking to make the same mistake all over again, and it will likely bear similar fruits. Even if “tax broadening” garners concessions concerning “tax hiking”, those concessions will likely ultimately be reversed, and we will end up with a tax structure that is both broader and higher.

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