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Republicans, Taxes, And The 1982 Mistake

The Republican fiscal position holds that immediate fiscal contraction will accelerate economic growth. But, this odd view holds, this is only true is the contraction comes in the form of spending cuts. Any increase in tax revenue will have a devastating impact on the recovery.

Bruce Bartlett notes that Republicans made the exact same argument in 1982, and it didn't turn out so well:

Back in 1982, Ronald Reagan was persuaded that the deficit was such a severe impediment to growth that a tax increase to reduce it would be economically beneficial. Many in his party strenuously objected, citing research by Republican economists. For example, on August 12, 1982, U.S. Chamber of Commerce president Richard Lesher sent to Congress an analysis of the proposed tax increase. Said Lesher:
“If H.R. 4961 is passed in these troublesome economic times, we have no doubt that it will curb the economic recovery everyone wants. It will mean a lower cash flow as more businesses pay more taxes, with a depressing effect on stock prices. It will reduce incentives for the increased savings and investment so badly needed to improve productivity and create more jobs. It will mean higher prices for many products and services. It will increase government costs in caring for those who, because the economy is held down, cannot find employment.”
It would be hard to find an economic forecast that was more wrong in every respect. Looking at real gross domestic product, it grew 4.5 percent in 1983 and 7.2 percent in 1984 – an exceptionally strong performance. The stock market had one of its best years ever in 1983 – both the Dow Jones Industrial Average and the S&P 500 Index rose 35 percent. There was no increase in the rate of inflation, which was exactly the same in 1983 and 1984 as it was in 1982. The unemployment rate fell from 10.6 percent in December 1982 to 8.1 percent by December 1983 and 7.1 percent in December 1984.
The Chamber was not an outlier. Virtually every Republican economist made similar dire predictions. Economist Arthur Laffer told his clients on July 26, 1982, that the Tax Equity and Fiscal Responsibility Act, which raised taxes by about one percent of GDP, “will stifle economic recovery,” “retard economic growth,” and undercut “the economy’s ability to enter into a period of expansion.” On August 20, 1982, he told his clients that TEFRA “will tend to lengthen and deepen the recession.” Writing in the New York Times on September 12, 1982, economist Norman Ture said the administration’s claim that TEFRA would promote economic growth was “bizarre.” He said it would “weaken the impetus for economic growth” and make the economic recovery “less certain and less vigorous.”
Despite these erroneous predictions, Republican economists said pretty much the same thing when Bill Clinton proposed a tax increase in 1993.

The 1993 example is telling because it has been disproven twice: First when the economy accelerated after conservatives predicted the higher marginal rates would kill it, and then when George W. Bush reduced the top rate and then saw a historically weak recovery as a result. Total net impact of all these examples upon Republican economic thinking about the efficacy of tax cuts: zero.

To be sure, I'd prefer to delay any revenue increases, especially those primarily affecting moderate earners with a higher propensity to spend. But the combination of insisting on immediate deficit reduction, but no additional revenue, is not only incoherent but historically repudiated.