It's a shame Bruce Bartlett seems determined to burn all his bridges to his former GOP mates, as he would make a splendid economic adviser whose presence on a campaign would give the candidate that hired him instant credibility with anyone retaining a lick of common sense about the economy. Case in point: his latest column dealing with Tim Pawlenty's absurd claim that tax cuts could produce 5% per year GDP growth:
The bottom line is that neither taxes nor spending by themselves are the most important government contribution to the investment climate; it’s the budget deficit. Consequently, a reduction in tax revenue which raises the deficit is unlikely to stimulate domestic investment because more money will have to be borrowed from abroad. Conversely, a tax increase dedicated to deficit reduction could well be stimulative, as was the case with the 1982 and 1993 tax increases. Contrary to Republican dogma, rapid growth followed on both occasions.
A big cut in the budget deficit would be destabilizing in the short-run, but a reduction in the long-term deficit would free up more national saving for private investment. But if taxes are cut at the same time, as Republicans insist, then the economic consequences are ambiguous. With federal taxes at a historical low – they are currently just 14.8 percent of GDP versus a postwar average of about 18.5 percent – it’s implausible to argue that further tax cuts will stimulate growth. Indeed, there is good reason to think that undermining the government’s ability to raise revenue will raise prospects for future deficits, which will drain saving from the economy and reduce investment. For this reason, I am also very skeptical of the idea just floated by the White House to further cut the payroll tax.
If we want to raise the long-term rate of growth, we have to go back to the textbook and increase saving and investment, channel more public investment into education and basic infrastructure, and do everything in our power to promote scientific research and technological advancement. It’s not sexy and it takes a lot of time, but it works.
Go read the whole thing.
One issue Barlett doesn't discuss is the impact that baby boomer retirements will have on the already low savings rate. What impact can we expect as boomers liquidate their retirement savings?
