The United States is famous for its ability to innovate. Aspiring fiscal conservatives around the world thus might be interested in learning four tricks that American politicians commonly use when promising to cut taxes while simultaneously reducing budget deficits.

These are hard promises to keep, for the simple reason that a budget deficit equals government spending minus tax revenue. But, each of the four tricks has been refined over three decades. Indeed, they first acquired their colorful names in the early years of Ronald Reagan’s presidency: the “magic asterisk,” the “rosy scenario,” the Laffer hypothesis, and the “starve the beast” scenario. As shop-worn as these tricks are, voters and journalists still fall for them, so they remain useful tools for anyone posing as a fiscal conservative.

The first term was coined by Reagan’s budget director, David Stockman. Originally, it was an act of desperation, because the numbers in the 1981 budget plan did not add up. “We invented the ‘magic asterisk,’” Stockman wrote in The Triumph of Politics in 1986. “If we couldn’t find the savings in time – and we couldn’t – we would issue an IOU. We would call it ‘Future savings to be identified.’”

Ever since, the magic asterisk has become a familiar American device. Recent examples include the recommendation of the Simpson-Bowles commission…to cut real spending growth by precise amounts, without saying where the cuts would be made. US presidential candidate Mitt Romney’s spending plans contain the same conjuring trick…his plan to eliminate enough tax expenditures to offset the $5 trillion in revenue lost from cutting marginal tax rates by 20%, while refusing to say which tax loopholes he would close…

As Election Day nears, the pressure on a candidate to be more specific grows. The conjurer thus resorts to the rosy scenario: since he cannot find enough tax loopholes to eliminate, he must claim that what he meant by closing the revenue gap was that stronger economic growth will bring in the additional revenue…

…The press asks, “Why should we believe that the growth rate will magically accelerate just because you become president? Where will this GDP come from? It sounds like pulling a rabbit out of a hat.”

Right on cue, it is time for the famous Laffer hypothesis – the proposition, identified with the economist Arthur Laffer and “supply-side economics,” that reductions in tax rates are like magic beans: they so stimulate economic growth that total tax revenue (the tax rate times income) goes up rather than down.

One might think that the Romney campaign would not resurrect so discredited a trick. After all, two of his main economic advisers, Glenn Hubbard and Greg Mankiw, have both authored textbooks in which they argue that the Laffer hypothesis is incorrect as a description of US tax rates. Mankiw’s book, in its first edition, even called proponents of the hypothesis “charlatans…”

BTW – Hubbard plans on being either Secretary of the Treasury [preferred] or Chairman of the Federal Reserve Bank – if Romney is elected.

The final trick, “starve the beast,” typically comes later, if and when the president has enacted his tax cuts and discovers that smoke and mirrors do not trump reality. He cannot find enough spending to cut…the acceleration in GDP is nowhere to be seen…and tax revenues have not grown…

…The performer explains that the deficit is all the fault of congress for not cutting spending and that the only way to tame the beast is to raise the budget deficit because “Congress can’t spend money it doesn’t have.” This trick never works either, of course. Congress can, in fact, spend money it doesn’t have, especially if the president has been quietly sending it budgets that call for just that.

By the time the crowd realizes that it has been conned, the magician has already pulled off the greatest trick of all: yet another audience that came to see the deficit shrink leaves the theater with the deficit bigger than before.

You may wonder how the Republican Party can pull off this stunt repeatedly. It’s all a matter of timing. Of course, you can’t do this in sequential election cycles.

No – it takes about 8 year gaps with one or another downward swing in the economy to produce appropriate panic among the unemployed and undereducated. Since our recession cycle is approximately 67 months from crash to complete recovery since WW2, our political hacks can usually count on crunch time happening every other presidential election.



  1. bobbo, the pragmatic existential evangelical anti-theist says:

    Rmoney uses only the Rosey Scenario. What I haven’t heard is what growth rate would need to be hit to make the numbers work. I’ll just guess 15% per year for 20 years?

    If you haven’t seen it–catch TrumptheIncredibleA**hole on Letterman lambaste China for taking advantage of USA and then move on to tout his ties as the best selling ties in the World===and then Lettermen tell TrumptheIncredibleA**hole his ties were made in China.

    Rmoney is cut from the same cloth. Yet, he is ahead in the Popular National Poll (aka Only to be used if you are behind in the Electorial College Analysis).

    Silly Hoomans.

    • bobbo, the pragmatic existential evangelical anti-theist says:

      I meant to add its only a Magic Trick if you can’t see how the trick is done?

      The only “trick” is being willing to stand up and bald facedly LIE to the American Public. Then have your wifey and kiddies lie the same way. The only trick Rmoney has really learned how to do.

      • Taxed Enough Already Dude says:

        You and other Obamaphiles are projecting when you accuse Romney of lying.

        The smears aren’t working as in the past, most people grew up hearing the same scare…Republicans want to throw granny off the cliff and kill your health care….since FDR…and oddly enough, more people than ever realize its a lie.

        That liberals lie….that if you are a liberal, you are a liar, and the outward physical evidence lying is taking place, is your open mouth and empty brain.

        • bobbo, the pragmatic existential evangelical anti-theist says:

          Yes Alfie everone lies especially politicians. Rmoney just does it more obviously than anyone else I can think of except that SNL character.

          Rmoney lies in the same sentence. Most politicians are embarassable enough to separate the lies by a sentence or two.

          1. I care for all Americans.
          2. I’m a Job Creator.
          3. I supported Obama’s plan for GM.
          4. I’m for a womans right to choose.
          5. You can get great care in the ER.
          6. I’ll add 8 Trillion Debt and balance it with deductions that at most equal 2 trillion and the balance will be made up by growth.
          7. I love the height of trees in Michigan /// Ha, ha.====MEANING–practically every statement out of the man’s mouth is a lie.

          Pitiful. And yet he leads the popular poll.

          Stoopid Voters: thinking a business CEO has transferable skills to Being the President. “Maybe” some do but the analysis should be on a case by case basis. Rmoney is nothing but primarily A LIAR, and then secondarily a VULTURE CAPITALIST.

          All you have to do is………… LOOK!!

  2. Taxed Enough Already Dude says:

    If its a trick, its Ron Paul’s trick. He proposed slashing Government, drastically reducing what is spent in real terms (not baseline budgeting), and taxes…arguing this would create explosive growth in the private economy…leading to deficit reduction as tax revenue collected would increase, not decrease.

    Yes, its “paradoxical” but Collidge, JFK Reagan and Bush all proved it happens.

    The rich don’t hide their money when they believe the tax rate is fair, and a growing economy increases the tax base and what it pays per person.

    Eideard, you are a statist, not libertarian…your agenda is to attack personal freedom, especially as it applies to free markets…like a good comrade.

    • LVPolaroid says:

      The rich don’t hide their money when the tax rate is fair, they hide their money when there is a tax rate at all.

      Cut government spending in areas that are severely bloated. Our USA Military Industrial Complex budget is a great place. Remember when all the news was that the Pentagon could not account for a $trillion or more in spending over a long period of time? Do we as a nation really need to keep updating fighter jets in the day and age of cyber attacks being just as deadly?

      Start with the military and work down. There can be no sacred cows for spending cuts.

  3. noname says:

    Believe or Believe not. There is no Romney reason.

    Republican or Republican not. There is no other vote.

    Where is pedro?

  4. dusanmal says:

    There are no magic tricks just lying liars who succeeded to bamboozle even such bards as Regan. This is the point where I expect Romney/Ryan to break the ranks as both of them have records of actual reductions in Government spending and the recent Ryan budget that indeed cuts the budget. Not in a way Left wants, but cuts it. Bamboozling by “spending reductions later” won’t work or be bought now. Crisis is just too far gone.
    Just privatization of SS and semi-privatization of Medicare as proposed by Ryan would do a major part. Cut BS programs across the board, again believable would add reasonably more. Finally tax reform that makes everyone over poverty line to pay some (if not equal percentage) federal income tax would set healthy long term system even with significant reductions for the “rich” which should provide growth.

    • noname says:

      Yeah, here we go again “reductions for the “rich” which should provide growth”. Key Word “Should”!

      Why do Republican (Romnesics) want to have a squeal of BUSHnomicsII. We all know how sequels are far worse than the original.

      GWB tried BUSHnomics so much so, he blindly believed in liberating Wall Street and the Rich, so they could grow our economy and our world standing with Wars of choice thrown in for good measure!

      It’s easy to believe in anything wrong when history, data or reason don’t influence your thinking!

  5. Taxed Enough Already Dude says:

    There is a simple, wonderfully elegant solution to our budget deficits…stop spending what we don’t have…balance the budget.

    Yes, just like the average American doesn’t print their own money and spend what they don’t have…so should Government behave.

    Then the private sector isn’t starved for capital, and economic growth occurs.

    • hmeyers says:

      “balance the budget.”

      1. Why?
      2. How?

      As long as our funny money buys oil and trinkets from China, why?

      It’s the perfect scam.

      As long we have aircrafts and missiles and drones, they can never make us pay up.

  6. McCullough says:

    For me, it’s come down to who can slow the death spiral. Rmoney won’t solve anything, but just might slow down the inevitable. And give me more time to prepare for the worst.

    Obama has nothing to lose in a lame duck Presidency, except his reputation which is already crap. I believe he will use this time to attack the 2nd Amendment, and further erode Constitutional rights.

    Obama blew it for me when he took away my Civil Rights, and I know Rmoney won’t give them back.

    Just thinking out loud. And now I’m depressed.

    • Taxed Enough Already Dude says:

      Its my hope Romney/Ryan might be a stepping stone to a more libertarian Government…freedom is the solution, not tyranny.

    • Mextli says:

      You should read this from The Atlantic of all places.

      Why I Refuse to Vote for Barack Obama – Conor Friedersdo​rf

      http://tinyurl.com/8elf2gp

      • McCullough says:

        From the article:

        “I don’t see how anyone who confronts Obama’s record with clear eyes can enthusiastically support him. I do understand how they might concluded that he is the lesser of two evils, and back him reluctantly, but I’d have thought more people on the left would regard a sustained assault on civil liberties and the ongoing, needless killing of innocent kids as deal-breakers.

        Nope.”
        …………………………..
        ” 1. Obama terrorizes innocent Pakistanis on an almost daily basis. The drone war he is waging in North Waziristan isn’t “precise” or “surgical” as he would have Americans believe. It kills hundreds of innocents, including children. And for thousands of more innocents who live in the targeted communities, the drone war makes their lives into a nightmare worthy of dystopian novels. People are always afraid. Women cower in their homes. Children are kept out of school. The stress they endure gives them psychiatric disorders. Men are driven crazy by an inability to sleep as drones buzz overhead 24 hours a day, a deadly strike possible at any moment. At worst, this policy creates more terrorists than it kills; at best, America is ruining the lives of thousands of innocent people and killing hundreds of innocents for a small increase in safety from terrorists. It is a cowardly, immoral, and illegal policy, deliberately cloaked in opportunistic secrecy. And Democrats who believe that it is the most moral of all responsible policy alternatives are as misinformed and blinded by partisanship as any conservative ideologue.

        2. Obama established one of the most reckless precedents imaginable: that any president can secretly order and oversee the extrajudicial killing of American citizens. Obama’s kill list transgresses against the Constitution as egregiously as anything George W. Bush ever did. It is as radical an invocation of executive power as anything Dick Cheney championed. The fact that the Democrats rebelled against those men before enthusiastically supporting Obama is hackery every bit as blatant and shameful as anything any talk radio host has done.

        3. Contrary to his own previously stated understanding of what the Constitution and the War Powers Resolution demand, President Obama committed U.S. forces to war in Libya without Congressional approval, despite the lack of anything like an imminent threat to national security. ”

        Good article.

        • bobbo, the pragmatic existential evangelical anti-theist says:

          Yes, but as already recognized: still better than Rmoney.

          Choosing between Good and Bad is hardly EVER the choice. Always its choosing between the lesser of two evils with 50% or more of the population unable to pull that trick off.

          “A Vulture Capitalist will be better at correcting the economy.” /// BWHAHAHA. Thats like saying a mass murderer will be better at healthcare.

          Stoopid Hoomans: Rmoney: worse than Bush.

  7. Moran says:

    How a out a third option: STOP USING THE FUCKING CREDIT CARD TO BUY SHIT?!?!

    You dumb asses keep voting Republicans and Democrats in and nothing has happened but more wars and more spending.

    • msbpodcast says:

      The problem may not be in who you vote for but in the process of elections themselves.

      • hmeyers says:

        The reality is that the debates were a Miss America pageant. No one learned anything insightful.

        Yet, the debates changed many minds.

        I find this doubly disturbing. The debates were basically a personality contest.

        What is the most lol-funny is Obama “attacking” Romney’s really-vague and hazy ideas, because Romney’s ideas — as vague and unclear as they are — are far more clear than Obama’s non-plans for a 2nd term.

        I saw Obama holding some “2nd Term Agenda pamplet” and it said something like “Job Creation plan”.

        Why did he wait until re-election to care about job creation? Wherez he been the last 4 years?

  8. Moran says:

    The real question is: I’m voting for neither clown in this election.

    • Taxed Enough Already Dude says:

      That confuses you with the numbnuts who don’t care…vote for Gary Johnson if you want to protest statism.

      I would have but I want Obama to lose above all…Romney is light years better than him…we can’t take another four years of epa and regulatory madness shutting down our economy…while Obama publicly lies he is doing the opposite.

      • JCD's Lovechild says:

        Read my previous post. One election at a time. 5% at a time. Romney sucks ass, so I’m voting for Johnson. The Republicans have failed. I wrote the Democrats off a decade ago.

        Winning is not the objective. Making a point is. Too bad Republicans and Romney “supporters” can’t figure that out, with their tentative support of a mediocre candidate.

        • Taxed Enough Already Dude says:

          Mediocre is better than dangerous. I truly believe Obama will fundamentally transform us into an entitlement, disabled statist state which kills off libertarian hopes as well.

          Without the state one won’t be able to live, tyranny logically follows such a system as dictating where you live and what you do is necessary for proper distribution of resources.

          • hmeyers says:

            Let’s say Obama win re-election — he likely won’t … watch what happens next week — but let’s say he does …

            The Western world is an period of protracted stability and in the US we’ve been trading rights, freedoms for stability for over 100 years.

            And there isn’t anything wrong with that. Only socially-irregular people bear those burdens (the no-fly list people, pervs, alcoholics, wife-beaters, people in cults or militias or hard-core vegans).

  9. MikeN says:

    The Economist is just plagiarizing from Barry Goldwater who opposed the Kennedy tax cuts being sold with tricks 1-3.

  10. MikeN says:

    “Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
    – John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964

    “In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
    – John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”

    “It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
    – John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”

    “Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
    – John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.

    “A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”

    “In those countries where income taxes are lower than in the United States, the ability to defer the payment of U.S. tax by retaining income in the subsidiary companies provides a tax advantage for companies operating through overseas subsidiaries that is not available to companies operating solely in the United States. Many American investors properly made use of this deferral in the conduct of their foreign investment.”

    “Our present tax system … exerts too heavy a drag on growth … It reduces the financial incentives for personal effort, investment, and risk-taking … The present tax load … distorts economic judgments and channels an undue amount of energy into efforts to avoid tax liabilities.”

    “The present tax codes … inhibit the mobility and formation of capital, add complexities and inequities which undermine the morale of the taxpayer, and make tax avoidance rather than market factors a prime consideration in too many economic decisions.”

    “In short, it is a paradoxical truth that … the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country’s own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”

    “The largest single barrier to full employment of our manpower and resources and to a higher rate of economic growth is the unrealistically heavy drag of federal income taxes on private purchasing power, initiative and incentive.”

    “A bill will be presented to the Congress for action next year. It will include an across-the-board, top-to-bottom cut in both corporate and personal income taxes. It will include long-needed tax reform that logic and equity demand … The billions of dollars this bill will place in the hands of the consumer and our businessmen will have both immediate and permanent benefits to our economy. Every dollar released from taxation that is spent or invested will help create a new job and a new salary. And these new jobs and new salaries can create other jobs and other salaries and more customers and more growth for an expanding American economy.”

    “This administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes … Next year’s tax bill should reduce personal as well as corporate income taxes, for those in the lower brackets, who are certain to spend their additional take-home pay, and for those in the middle and upper brackets, who can thereby be encouraged to undertake additional efforts and enabled to invest more capital … I am confident that the enactment of the right bill next year will in due course increase our gross national product by several times the amount of taxes actually cut.”

    – John F. Kennedy, Nov. 20, 1962, news conference

    • noname says:

      Speeches don’t mean anything! Speeches from dishonorable candidates mean even less and amount to USED CAR SALESMAN speech about how crazy great this turd vehicle is and you can buy it at massive huge discount.

      I get it; you’re a committed diehard believer in Supply-side economics! Not that actual data can dissuade you but; the last Three Decades of Empirical Economic Data Shows; Supply-Side Economics Doesn’t Work!

      Now you want to double down on squeal of BUSHnomicsII and your false god of Warm & Gold Yellow Tinkle Tinkle down Romneomics.

      Nobel Prize winning economist is predicting a Romney Victory will just mean ‘Double-Dip Recession!

    • LVPolaroid says:

      If all you said is a true quote of JFK, and is applied to Bush 43, how come we are not swimming in jobs just waiting to be filled? We did have two giant tax cuts under 43 and there have been additional tax reductions under Obama 44.

      Where are all the jobs and great economic times that these tax cuts were supposed to bring?

      I’ll wait. I have an iPod classic that has 140 gig of stuff to listen to while the answer is looked for. May I suggest that you Google the item “Two Santa Clause Theory”

      • MikeN says:

        There were three Santa Clauses, you left out the Escape Clause.

        Revenues went up under George W Bush. Deficits increase because of high spending. Plus the first tax cut had income tax rate cuts, but was largely a Keynesian tax cut of giving people checks of $600, with a convenient Sent From Texas. The capital gains tax did increase revenue to the government, to the point where candidates were asked about in a Democratic debate. Obama said he didn’t care if it would bring less money to the government, he wanted to raise tax rates as a matter of fairness.

  11. MikeN says:

    I’m starting to wonder if Dallas takes his name in honor of the city that killed this dangerous President who wanted to cut taxes.

  12. noname says:

    If DU was smart (some how I doubt this!) they would implement a Gotcha for all and captcha for infrequent or new posters.

  13. ± says:

    吃屎,死請

  14. Wandering Bear says:

    Cell me a socialist, a communist, a terrorist, whatever.

    But does anyone else think that the free-market idea was just a bad idea? With tremendous powers in business, and little or no government protection for the people left, freedom all but history, isn’t it time to throw in the proverbial towel and try another system?

    You can analyze the way your politicians get away with lying to you until you are all left with nothing… Or you can look at another system(or size) of government.

    Didn’t the founding fathers, Jefferson in particular, advocate putting down government and starting over; when it gets this bad?

    (Not trying to troll, just pointing out the obvious)

    • Captain Obvious says:

      Obviously conservatives like slogans like “the only good government is no government”. Which is about as smart as “the only good business is no business”.

      The world is seismically shifting out from under the US economic power base. The US will have to reinvent itself. Most Americans are scared because of their declining economic clout and reduced real income. Neither party has an answer which makes everybody angry.

    • hmeyers says:

      Once the global economy hit, the free market went beyond the jurisdiction of the law.

      Due to easily corrupted countries — like most of Asia, everywhere south of Texas, etc. — the free market won’t be reigned in our lifetimes (lack of good governance in those places).

      The Cold War was very effective for market regulation and protect vital “state secrets” through strict regulation of trade.

      But once the Cold War was over, this was all evitable.

  15. MikeN says:

    Obama is proposing a corporate tax rate cut with elimination of some exemptions for a net revenue neutral. So perhaps if you think these are just magic tricks, you should avoid voting for Obama who has proposed the same in his budget.