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The 800-pound gorilla that gets ignored by people who use these talking points is the dominant economic factor of those years — namely the huge and unsustainable housing boom that led to a catastrophic housing bust that took down the whole economy on Bush 43’s watch.
Tax cuts are not a panacea. In fact, nothing is a panacea or else, by definition, all the problems of the world would already be solved.
Ironically, it was Mr. Leonhardt’s own newspaper that reported in 2006, “An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”
Expectations are of course in the eye of the beholder. Rising tax revenues in the wake of a cut in high tax rates was a possibility expected by five different administrations, both Democratic and Republican, over a period of more than three-quarters of a century.
No one expected automatic and instant surges in economic growth. Both John F. Kennedy and John Maynard Keynes spoke in terms of the long-run effects of lower tax rates, not the kind of instant results suggested by Mr. Leonhardt’s graph of growth rates — least of all during a very volatile housing market in which American homeowners took trillions of dollars in equity out of their homes.
Back during the 1920s, when there was no such monumental economic factor as the housing boom and bust until 1929, there was a rapid increase in both tax revenues and jobs after the tax rates were cut. Today, the uncertainties generated by an activist and anti-business administration probably have more of a chilling effect on investments than the tax rate does.
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