Assessing Tax Cuts

The difficulty of assessing the effect of tax cuts on economic growth is illustrated by the Washington Post's E.J. Dionne, Jr. in this op-ed piece on Democratic political strategy.

People out there liked Clinton's you-have-a-problem-I-have-a-proposal approach...

Every new Democratic proposal that involves spending will face that old, annoying question: How will you pay for that without increasing the deficit? That's exactly the effect Bush hoped his tax plan would have. It's why Daschle and the even bolder Ted Kennedy are right to challenge the future tax cuts.

As I pointed out in The Growth Doctrine and Policy, a tax cut that reduces the government surplus almost surely reduces growth. However, a tax cut that reduces spending on feel-good programs probably enhances growth. The analysis requires a political calculation.