Tories claim that tax cuts “cause growth” in the economy. They “grow the pie”. How much growth exactly? How much growth from the budget tax cuts?
The Budget tax package is conservatively forecast to add about 1% to the size of the economy by 2017, says English.
1% ? By 2017 ? Pardon me if I am underwhelmed. That’s not even a real prediction of growth, that’s margin of error. Keith Ng:
This is actually a tax cut. It will cost $1.085b in the next four years. The only reason they can say it’s ‘revenue positive’ by 2013/14 is by adding a line called ‘Adjustment for macroeconomic effects’. That is, they argue that tax cuts will spur economic growth, and therefore the economy will grow faster, and so it’ll be revenue positive by 2013/14.
It would be unfair to call this magic money, but at the very least, it’s entirely theoretical money. Not only can we not know whether it’s real or not now, but we won’t know whether it’s real or not in 2013/14.
The reason the Nats aren’t predicting real growth is that they know it isn’t true. “Growth” is just one of the lines they run to keep us nodding dumbly while they hand huge cuts to the rich. Tax cuts don’t cause growth. Gordon Campbell took them to task on this:
Will the tax cuts deliver economic growth, savings, jobs and higher wages? For decades, right wing economists have claimed both here and overseas that tax cuts are a crucial engine of economic growth. Reality, as often as not, has begged to differ.
Here in New Zealand during the mid 1980s, a major package of tax cuts was followed by years of little or no growth, and ultimately, by a recession. In the early 1990s, Bill Clinton’s tax hikes immediately preceded the longest and most sustained economic boom in the US since the Second World War.
In 1998, the true believers in the National government were predicting that tax cuts would foster savings fully one third of that round of tax cuts, Treasury predicted, would be saved. They weren’t.
In 2000, the incoming government hiked up the top tax rate and this neither caused, nor prevented, a prolonged bout of economic good times. Ultimately, there is no essential link, either way, between tax cuts and economic growth.
Tax cuts haven’t caused growth historically in America:
The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent. …
A review of American history makes the opposite case that conservatives would like it to make: high growth usually coincides with high taxes. During both world wars, taxes soared to record heights. And the supercharged economies that resulted produced high growth for decades afterwards. World War I was followed by the Roaring 20s; World War II was followed by the boom times of the 50s and 60s.
Tax cuts haven’t caused growth recently in America:
Myth 3: The economy has grown strongly over the past several years because of the tax cuts. Reality: The 2001-2007 economic expansion was sub-par overall, and job and wage growth were anemic.
Members of the Administration routinely tout statistics regarding recent economic growth, then credit the President’s tax cuts with what they portray as a stellar economic performance. But as a general rule, it is difficult or impossible to infer the effect of a given tax cut from looking at a few years of economic data, simply because so many factors other than tax policy influence the economy. What the data do show clearly is that, despite major tax cuts in 2001, 2002, 2003, 2004, and 2006, the economy’s performance between 2001 and 2007 was [far from] from stellar.
And in 2008? The American economy, despite all the recent Bush tax cuts, simply imploded.
The truth is that tax cuts come and go. Growth comes and goes. Sometimes cuts and growth coincide, sometimes they don’t. But no honest review of the long term historical picture can sustain the claim that “tax cuts cause growth”. They do not. So let’s not put up with this lie anymore!