1) Tax breaks pay for themselves. 2) Tax breaks, especially in recessions, can stimulate growth. Okay, those are two very different statements. Virtually all economists would disagree with statement 1. There is a huge amount of research on this topic by economists who range the political spectrum. In the context of an economy near full employment, tax breaks can at best trigger enough growth to replace 30 percent of percent of the lost revenue and most estimates are considerably less. On the other hand, virtually all economists would agree with statement 2. In the short-term, tax breaks will stimulate growth, especially when the economy is below full employment, as it is now. President Bush and many Republican leaders have been found of asserting statement 1, even though almost no serious economists would support this position. On the other hand, President Obama and his advisers have been arguing a version of statement 2, although in reference to spending rather than tax cuts. For some reason, the NYT wants to accuse President Obama of arguing a version of statement 1. This is entirely an invention of the NYT. Neither President Obama nor any of his top advisers have claimed that his spending will pay for itself in the form of higher tax revenue. While they have argued that it will boost growth, which will help to cover the cost of the spending, the assertion that the spending will pay for itself comes from the NYT, not the Obama administration. It is unfortunate that trees had to die for this story.
--Dean Baker
