Mr. Cheney's Free Lunch, or, Laff Out Loud

In the middle of a generally useless "profile" of that international man of mystery, Dick Cheney, Lizzy Bumiller and "Dick" Stevenson repeat the mythological "lady in the lake" moment that Cheney experienced while watching Arthur Laffer doodle on a napkin.

Despite his reputation in recent years for exerting his influence primarily on post-Sept. 11 foreign policy, helping to manage domestic policy is in many ways the more natural outgrowth of his background.

Once a candidate for a doctorate in political science, he went on to serve in several economic policy positions in the Nixon administration and became chief of staff in the Ford White House. During that time, friends say, he was scarred by what he considered one of the great policy mistakes of recent history, the imposition by President Richard M. Nixon of wage and price controls, a step that flew in the face of the conservative belief in free markets.

Over dinner one night in the mid-1970's, he watched Arthur B. Laffer, one of the earliest proponents of supply-side economics, sketch on a napkin a curve showing that, beyond a certain point, higher tax rates generate diminishing amounts of revenue by reducing incentives to work and invest.

It was one moment in the introduction to Washington of a new way of thinking about tax policy, and as with many Republicans of the time, Mr. Cheney became increasingly convinced in the late 1970's and early 1980's that lower taxes were the answer to unleashing the economy's potential for growth.

In other words, Bum-iller and Stevenson don't say, Cheney remains an adherent to the Voodoo economics that left the US economy shackled with deficits following the Reagan administration, despite Congress having to put through emergency tax increases early in Reagan's first term.

And we are once again witness to an egregious lack of skepticism on the behalf of the Times' White House correspondents. "[B]eyond a certain point, higher tax rates generate diminishing amounts of revenue by reducing incentives to work and invest"? Who says?

Oyster reminds us of Alan Murray's defenestration of the supply siders' dream date, via the CBO's own supply-side-minded economist:

DO TAX CUTS pay for themselves? That's been the hot debate of American political economy for the better part of three decades. But it ended last week -- with a whimper.

The great argument got its start in 1974, when a White House chief of staff named Donald Rumsfeld sent his deputy, Richard Cheney, to have lunch with an ebullient young economist named Art Laffer and his journalistic sidekick, Jude Wanniski. According to local lore, Mr. Laffer sketched a curve on a cocktail napkin suggesting that a cut in income taxes could provide such a spark to the economy that government revenues would rise, not fall. The free lunch was born.

The problem with Mr. Laffer's graph, however, was that it had no numbers on the axes. How much would growth be boosted? At what level of taxation would tax cuts become self-financing? Those remained the big unknowns as the issue became a central question of American politics.

In Washington, the debate became a bureaucratic battle focusing on the Congressional Budget Office and Joint Committee on Taxation, the two agencies responsible for advising Congress on the costs of budget and tax changes. By convention, both use "static" scorekeeping that assumes budget and tax changes have no effect on overall economic growth. Supply-side proponents have criticized both agencies relentlessly for this, but to no avail -- until last week.

Enter Douglas Holtz-Eakin, an economist on leave from Syracuse University and an avowed advocate of supply-side "dynamic" scoring. A few months ago, Republican congressional leaders plucked him out of a job at the White House and made him director of the CBO. Last week, in his agency's analysis of President Bush's tax and budget plan, he provided his new bosses with their first taste of dynamic scoring.

The results: Some provisions of the president's plan would speed up the economy; others would slow it down. Using some models, the plan would reduce the budget deficit from what it otherwise would have been; using others, it would widen the deficit.

But in every case, the effects are relatively small. And in no case does Mr. Bush's tax cut come close to paying for itself over the next 10 years.

FOR THE HANDFUL of people who read the report in its entirety, there is another surprise. Of the nine different economic models used to analyze the president's plan, only two showed a large improvement in the deficit over the next decade as a result of "supply side" effects. Both those models got their results by assuming that after 2013, taxes would be raised to eliminate the remaining deficit. The theory is that people will work harder between 2004 and 2013 because they know that their taxes will be going up, and will want to earn more money before those tax increases take effect.

Using those same models, if the assumption is changed so that government spending falls after 2013 to close the deficit -- the outcome preferred by most supply-siders -- the economic benefits disappear. The president's plan would cause the deficit to become slightly wider over the next 10 years than it would have been otherwise.

Advocates of dynamic scoring have tried to make the most of these tepid results, calling the report a good first step. "You've got to crawl before you can walk, and you've got to walk before you can run," says economist Bruce Bartlett, a senior fellow at the National Center for Policy Analysis and former Reagan administration Treasury Department economist who pushed Mr. Holtz-Eakin for the CBO post. Democratic opponents are still at arms, fearing the report is the camel's nose under the tent.

But it should make both sides wonder what the hubbub of the past 30 years has been all about.

Mr. Holtz-Eakin says the new analysis, while costly and time consuming -- it took 35 government analysts a month and a half to complete the work -- is still a worthy effort, helping lawmakers to find the particular policies that encourage economic growth the most. Former CBO chief Robert Reischauer agrees that "it was a very useful exercise." And former CBO director Dan Crippen, who many think lost his chance for reappointment over the dynamic-scoring issue, says the results "validate what CBO has been saying all along, that depending on the assumptions, the effects could be positive or negative."

No doubt, a lot of questions will be raised about how far to push this analysis. Democrats, for instance, may start advocating "dynamic scoring" for education spending, which many believe also has positive effects on the economy.

But the great debate launched by Mr. Laffer and his napkin in 1974 is for the most part over. Certainly, tax cuts can improve overall economic growth. And certainly, revenues may rise as a result. But at current levels of taxation, those effects are relatively small. There is no free lunch. [emphasis added]

We know, of course, that the Times' reporters can't be bothered to question whether Dick's formative years experiences retain any validity. We also know, of course, that "deficits don't matter!" Why? Because, the Times would surely tell us, Mr. Cheney says so, that's why.

The Times' craptacular "profile" of Cheney makes even more painful the loss of Marjorie Williams. Sincere condolences to her widowed husband, Timothy Noah, and their two chidren.