16 Apr 2026 1:41 pm
Continued:
Myth No. 5: Tax Cuts Pay for Themselves
Politicians on the right have said this for 40 years. But it's not quite true. Tax rates affect behavior. Cut the marginal rate on work and investment, and you get more of both, which generates more revenue than a static calculation predicts. But generating more revenue than expected is not necessarily enough to cover the cost of the rate cut. The 2017 Tax Cuts and Jobs Act proved it. Growth picked up, wages rose, business investment increased, yet the deficit still widened.
The honest argument is different: A tax cut that costs real revenue but improves the allocation of capital and raises long-run productivity is still the right policy. The question is not whether tax cuts pay for themselves but whether the economic growth is worthwhile. That's harder to fit on a bumper sticker, but it's the version of the conservative tax argument that actually holds up.
That said, we should always offset the loss of revenue when possible. There is plenty of spending to cut, and there are plenty of tax breaks to close for that.
BV's favorite source no less.
Myth No. 5: Tax Cuts Pay for Themselves
Politicians on the right have said this for 40 years. But it's not quite true. Tax rates affect behavior. Cut the marginal rate on work and investment, and you get more of both, which generates more revenue than a static calculation predicts. But generating more revenue than expected is not necessarily enough to cover the cost of the rate cut. The 2017 Tax Cuts and Jobs Act proved it. Growth picked up, wages rose, business investment increased, yet the deficit still widened.
The honest argument is different: A tax cut that costs real revenue but improves the allocation of capital and raises long-run productivity is still the right policy. The question is not whether tax cuts pay for themselves but whether the economic growth is worthwhile. That's harder to fit on a bumper sticker, but it's the version of the conservative tax argument that actually holds up.
That said, we should always offset the loss of revenue when possible. There is plenty of spending to cut, and there are plenty of tax breaks to close for that.
BV's favorite source no less.