March 11, 2008 7:47AM

Ben Stein Should Stick with Acting

I've always enjoyed reading Ben Stein's descriptions of life in Hollywood in The American Spectator. And his performance in Ferris Bueller's Day Off is a cult classic. Unfortunately, his writings on economics are somewhat less fulfilling. A recent open letter to John McCain in the New York Times argues for "much higher taxes on the truly rich" and assumes that it is impossible to control government spending:

All politicians campaign on the promise to cut federal spending by identifying hitherto unfound waste, fraud and corruption. None of them ever do so in a meaningful way. ...That is the first thing you need to know. The next thing is that the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting. ...In fact, tax cuts lower federal revenue and generate federal deficits. ...What to do? ...You can propose still more tax cuts... Or, you can raise taxes. But whom to tax? ...The first step toward putting our house in order, once we are past the seemingly looming recession, is much higher taxes on the truly rich and serious enforcement to prevent offshore tax evasion. ...we can have some integrity and levy taxes equal to what we spend. 

Stein's analysis is horribly wrong. First, he asserts that government spending cannot be reduced and that this means either runaway deficits or higher taxes. While it would be nice if government outlays actually were reduced, a more modest measure of success is whether the private economy is growing faster than the government. If that happens, deficits will fall since tax revenues generally increase at least as fast as nominal GDP. This modest level of fiscal discipline is not an impossible task, as former Cato expert Veronique de Rugy has shown (here and here). Before urging Senator McCain to raise taxes, perhaps Stein should be arguing that the presumptive Republican nominee merely hold the growth of government to, say, the rate of inflation.

Stein is equally misguided on tax policy. He correctly notes that many Republicans have wrongly claimed that all "tax cuts pay for themselves." Indeed, that is the same point I made in the Center for Freedom and Prosperity's first video on the Laffer Curve. But he fails to realize that there are some tax policies that have very significant Laffer-Curve effects, and the second video in the series specifically shows that Stein's proposal of "much higher tax rates" on the rich almost surely would backfire.