Rubin’s Revisionomics Reduced to Rubble

Yesterday, Clinton Administration Treasury Secretary Robert Rubin burned up 2,000 words (link requires subscription) attempting to revise economic history, and succeeded only in showing us that we were lucky he didn’t always get his way when he was in charge.

Gregg at PunditReview.com and Don Luskin both did masterful jobs of fisking Mr. Rubin.

But first, a bit of the Rube himself:

….. The proponents of supply-side theory who assert that tax cuts will wholly — or even significantly — pay for themselves (through increased growth and federal tax revenues), appear to be no more accurate now than they were in the ’90s. Then, they argued that tax increases included in our plan to address fiscal deficits were likely to lead to massive job loss, but what followed instead was the longest economic expansion in our history. Moreover, while 10-year fiscal deficit projections are inevitably unreliable, these forecasts could just as readily turn out to be low as to be high. What actually happens will always involve factors cutting both ways — the unexpected costs for Katrina and unbudgeted costs for Iraq and Afghanistan are already projected to exceed the unexpected tax revenues.

Here’s Gregg on this howler: “Historical evidence has demonstrated that tax cuts have increased tax revenues to the federal treasury. Three times in 1900s (the 20s, 60s, and 80s) taxes were cut across the board. All three cuts stimulated the economy substantially and immediately and resulted in increases in tax dollars to the federal treasury.” As have the Bush cuts of the early 2000s. Gregg also has significant data on the effects of the various 1920s across-the-board tax cuts that show that supply-side econ was working a full 50 years before the term was first coined.

Back to the Rubemeister:

….. Finding the balance that best promotes economic growth in this context could well call for revenue increases as well as spending discipline, as evidenced by the ’90s, when a mixture of spending cuts and targeted tax increases was followed by years of strong growth, powerful job creation and rising incomes. Moreover, any revenue-increasing measures should reduce, not exacerbate, our growing income gap.

We’ll let Don Luskin take this one with a HUGELY overlooked point that explains why the late 1990s saw tax revenues and stock market valuations explode (bold is mine):

….. It’s a lie to say that the expansion “followed” the Clinton tax increases. The expansion began in March 1991 — and Clinton didn’t even take office until almost two years later (and his tax hikes weren’t implemented until several months after that). ….. As supply-side theory would predict, they resulted in virtually no greater tax revenues than had been expected before the hikes were conceived and enacted — they were thus a deadweight loss to the economy. ….. The positive surprise (in tax revenues) versus expectations started in 1997 and the years after. What happened in 1997? A Republican congress cut the capital gains tax. So it all went just perfectly according to supply-side theory.

Gregg’s and Don’s posts, plus this one from a few weeks ago, should be all you’ll ever need to blow away the “supply-side doesn’t work” arguments.