You’re right, Mankiw nailed it.

And I agree that Klein was trying to tackle the “pay for themselves” argument.

The problem is that the argument is actually true:

Tax cuts will pay for themselves — over time.

The Laffer Curve doesn’t support lowering taxes to increase revenues, because it’s not intended to be a dynamic analysis of economic growth rates. It’s purely a way to show incentives towards tax avoidance. It’s a VERY WEAK tool, yet people focus entirely too much attention on it.

Supply-side arguments, though, do support lowering tax rates to improve economic growth. And these supply-side arguments are actually common on the “Right”, but too many dolts themselves advancing these arguments refer to the Laffer Curve when doing so. As you point out, Mankiw is not one of those dolts.

Most people in mainstream politics completely gloss over this because they’re woefully underqualified to shine my shoes, much less decide policies of national governance.

Assume GDP of $13T today. Move 50 years in the future at consistent growth rates below:

2% AGR: ~$34T
3% AGR: ~$57T
4% AGR: ~$92T
5% AGR: ~$150T

Real GDP growth 1950->2009 was 3.22% AGR. If higher taxes today drop it to 3% and lower taxes today raise it to 3.5%, that’s a pretty enormous difference 50 years out and beyond.

Given the way exponential curves work, I’m far more concerned about that figure falling [and interested in ways to make it rise] than anything over the short term.

However, I believe the point of the piece was to tackle the “tax cuts will pay for themselves” argument. If we’re on the left side of the curve tax cuts will reduce revenue and will not “pay for themselves”. Whether or not we should increase taxes to increase revenue to fund all of the government’s projects is, to me, a different question.

I don’t recall ever advocating raising taxes in the post (especially corporate rates). While I stated we’re on the left side of the curve, I thought I was pretty clear that I don’t think we should move right because the negative impact to growth is not worth the deficit reduction today.

Tim,

I completely agree with you… The problem, if you ask a politician, is that the revenue required to do the job always seems to outstrip tax intake — this year to the tune of $1.5T. I would tell a politician that they need to do a smaller job (or at least a more efficient one) rather than taking more of our money, but sadly that option doesn’t appear to be on the table.

How about we raise the minimal amount if revenue required to do the job?