02 February 2009

Economics & Theology: Tax Cuts

About a decade ago theologian Harvey Cox published a perceptive essay in The Atlantic entitled "The Market as God." Cox makes a sound case for treating common attitudes toward the economy in religious terms. As such, the claims made by one sect or another have little to recommend them other than the fervor with which believers press them.

It is an article of faith among free market fundamentalists that cutting taxes will stimulate economic performance while costing very little in terms of, say, government budget deficits. This article of faith is currently at play in the debates over the Obama economic policy, with Republicans insisting on even more slavish obeisance to tax cut dogma than the Democrats already have shown. (By my recollection roughly 40% of the stimulus package the Democrats are peddling consists in tax cuts of various sorts.) Unfortunately, the actual evidence for this article of faith seems to be mixed, at best. This may mark me as crazy or, worse, a heretic, but only among he true believers. You might have a look at this short piece from The Center for Budget & Policy Priorities. Or you might have a look at this New York Times essay from a couple years back by economist Robert Frank. Or you might wonder why a large number of economists opposed the tax cuts that BushCo pushed so vociferously. In other words, claims about the inevitably beneficial effects of tax cuts seem like more or less unadulterated ideology.

My sense is that what the Republicans really want to do with tax cuts is cripple (OK, perhaps only offset) any possibility of transfer of income or wealth downwards. Setting that suspicion aside, the relationship between taxation and economic performance is complicated. It is not a topic that lends itself to being settled theologically. It is possible to specify conditions under which tax cuts can enhance economic performance. And it is possible too, to specify conditions under which they will have little or even detrimental effects. The Obama stimulus package contains a rather large package of tax cuts - more than enough to be useful if we could identify the proper conditions under which to deploy them.

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