Last week, 2012 GOP presidential hopeful Tim Pawlenty revealed that he is a true believer in voodoo supply-side economics, saying on Fox News, “Keep in mind, whether it be the Bush tax cuts, the Reagan tax cuts, or other tax cuts, they always produce an increase in revenue. There’s no dispute about that.”
This belief in the “tax fairy” — that revenues always increase after tax cuts, all evidence to the contrary — is pervasive among conservatives. Today, 2012 GOP candidate Herman Cain appeared on Fox News and showed that he is also a believer in the supply-side myth, claiming that “the American people have been lied to” when told that tax cuts cost something:
Unfortunately, the American people have been lied to about tax rates costing money. If you look at the decade of the ’60s, when JFK was able to get some dramatic cuts, tax revenues increased over 50 percent. When Reagan did it in the decade of the ’80s, tax revenues increased over 50 percent.
There’s definitely some lying going on here, but it’s all coming from Cain. As this graph shows, the 1981 Reagan tax cuts and the 2001/2003 Bush tax cuts were both followed by drops in revenue:
In fact, revenues did not increase over 50 percent during Reagan’s term; they increased by less than fifteen percent in inflation-adjusted dollars. But more importantly, revenue dropped after Reagan’s tax cut, and went back up after Reagan raised taxes in the face of an ugly deficit. Revenues also fell for two years following the Kennedy tax cut (enacted after his death).
As Nobel Prize-winning economist Paul Krugman wrote, “The revenue track under Reagan looks a lot like the track under Bush: a drop in revenues, then a resumption of growth, but no return to the previous trend. This is exactly what you would expect to see if supply-side economics were just plain wrong: revenues are permanently reduced relative to what they would otherwise have been.”