Last week was a gem for advocates of the Free Lunch and Sunspot Theory of Tax Policy. I’ve borrowed liberally from the writings of Sabastian Mallaby for what follows.

BAA Boy published his economic blather complete with a chart showing skyrocketing tax revenues; Senator Rick Santorum extolled the extension of Bush’s tax cuts by saying, "We've put these tax provisions in place and they've raised money." bushconnecticutwelcome

They were following the lead of their fearless economic guru who, earlier this year, mouthed what his father condemned as “voodoo economics”, "By cutting the taxes on the American people, this economy is strong, and the overall tax revenues have hit at record levels." The next month, President Bush told a New Hampshire audience, "You cut taxes and the tax revenues increase."

Golly, nothing to it - cut taxes and the money just pours in! Man the buckets and the bilge pumps, Bush’s economic ship is gonna rock and roll with these tax cuts!

Real, conservative economists support the Free Lunchers in a most peculiar way, though.

Consider Harvard Professor N. Gregory Mankiw, a proponent of tax cuts, who chaired the Council of Economic Advisers in the Bush White House. In a paper he published last year, Mankiw reported enthusiastically that the self-financing effect of tax cuts is "surprisingly large."

How large, exactly? Well, Mankiw reckons that over the long run, tax cuts on capital gains generate enough extra growth to pay for half of the lost revenue. Helloooo! That means the other half of the lost revenue goes into - duh - da deficit!

Mankiw also calculates that the comparable figure for cuts in personal income taxes is 17 percent. Yup, a billion dollar tax cut would add a paltry $830 million to the national debt!

But, let's cut BAA and Rick some slack. Hey, maybe they just overlooked that Mankiw paper.

They sure didn’t listen to Douglas Holtz-Eakin, another economist who took over the Congressional Budget Office after a stint in the Bush White House. In a study, conducted under his direction, the CBO estimated that a 10 percent reduction in personal income taxes, even under the most optimistic assumptions, would stimulate enough economic activity to return 22% of the lost revenues in the first five years, 32% in the next five. Using pessimistic assumptions, the effects of the tax cut did nothing to offset the revenue loss.

So Mankiw ain’t really a Free Luncher like BAA Boy. Holtz-Eakin ain’t really a Sun Spotter like Santorum. That raises a question - when Republicans go around claiming that tax cuts pay for themselves, which economic authorities are they listening to?

None, is the answer. These people's approach to government is to make economics up.

The Republicans' only argument is that tax receipts have boomed in the years since the 2003 tax cut. But the question is whether tax receipts increased because the tax cuts worked some kind of magic or because the economy was headed up anyway after the recession and low interest rates and then, of course, there was the massive deficit spending which, to borrow a term from the Free Lunchers, “puts money in play” immediately.

Friends, the reason we have economists is so that they can solve these puzzles for us. Ignoring their solutions is like ignoring the judgment of medical science in favor of faith healers and quacks.

http://post.economics.harvard.edu/faculty/mankiw/papers/dynamicscoring_05-1212.pdf

http://www.cbo.gov/ftpdocs/69xx/doc6908/12-01-10PercentTaxCut.pdf