POAC VII, part b

Okay, so maybe part b didn't exactly follow "soon."

I was busy.

In the previous post, I was dissecting the so-called "host of studies" referred to by POAC that supposedly refute a GOP talking point that tax cuts pay for themselves. I'll quote the citation again, picking up on the transition between the Harvard (N. G. Mankiw) study and the next member of the "host."

"The feedback is surprisingly large," concluded N. Gregory Mankiw, the study's co-author. He headed Bush's Council of Economic Advisers from 2003 to 2005.

Mankiw's study also concluded that the Treasury payback would be 17 percent of the tax-cut's cost if the reduction were on wages instead of capital.

That's in line with a December study by the CBO. It looked at a hypothetical 10 percent cut in income-tax rates. It concluded that up to 22 percent of the lost revenue could be regained over five years, and up to 32 percent over five more years.
("Tax cuts lose more money than they generate, studies conclude" by Kevin G. Hall)

Here's the study (be forewarned, it's in .pdf format).
The reporting on the CBO study was good (to my admitted surprise). The author didn't exactly play up the fact that cuts in capital gains taxes were more likely to return to the government in the form of revenue, though.
Perhaps he wouldn't want people remembering that when a later story proclaims that tax cuts primarily helped the wealthy.

These two apparently comprise the "host" of studies. Both suggest (they are only estimates, after all), that tax cuts do result in sufficient economic growth to at least partially pay for themselves--and that's buying into the biased way that the mainstream media talks about taxes.

The tax cuts were recommended initially as a response to a budget surplus, then secondarily as a Keynesian approach to an impending recession. Given that the budget deficit is shrinking under current policy, any increase in taxes--including the sunset of the Bush tax cuts--should be justified to the taxpayers in no uncertain terms.
But that won't happen. The Democrats will propose plenty of new programs that will justify any increase in taxes. Wait and see.

***
One additional note.
The CBO report has footnote that seems lost on Democrats and many Republicans as well. It talked about the pressure for wage increases when the labor pool shrinks and warned of inflationary pressure as a result.
Yet Democrats push for minimum wage increases fairly routinely--typically without making a peep about inflationary pressure.

It's all about politics. Raising the minimum wage when the market has already raised the entry-level wage doesn't do much harm (unless the market changes so that there is pressure for wages to fall--then it does plenty of harm) because it doesn't actually do much. But the politicians who voted for it can claim to be for the little guy.