I am not at Davos (thank God). I have, however, been seeing snippets, including Steve Mnuchin still claiming that the Trump tax cut is paying for itself. So this seems like a good time for a brief thread on tax cuts, zombies, and cockroaches 1/
A zombie idea is a view that should have died long ago in the face of negative evidence, but just keeps shambling along, eating peoples' brains. The claim that tax cuts pay for themselves is the ultimate zombie; never right, never abandoned 2/
A cockroach idea is slightly different: it's a bad idea that you sometimes do manage to get rid of — for a while. But it just keeps coming back. (Note, since some people are sensitive about such things: I am not calling any individual a cockroach — just some of their ideas) 3/
The big cockroach you often encounter in tax policy is the claim that tax cuts can't have increased the deficit because revenue has increased over the past year or two 4/ 
Why is this stupid? Because we have a growing economy with at least some inflation. In a normal year dollar GDP rises around 4%, so we expect revenues to go up every year there isn't a recession. 5/
If you want to assess the Trump tax cut, you want to compare actual revenues with what might have been expected otherwise. One easy way to do this is to compare what actually happened with CBO projections made in June 2017, before the tax cut 6/
Here's what that comparison looks like. Revenue is about $220 billion less than expected, spending about $70 billion higher, so the overall deficit has gone up almost $300 billion relative to expectations 7/
Now, $300 billion at an annual rate is a lot of money. It's almost as big as the annualized rise in the deficit associated with the Obama stimulus at its peak — but taking place in an economy with low unemployment 8/
And for those wondering why the economy is still chugging along, that's why. Trumpism in practice is very Keynesian. It's a highly inefficient stimulus, with not much bang for the buck (multiplier about 0.7, for the nerds). But it is stimulus. 9/
Anyway, ignore both the zombies and the cockroaches. Yes, the tax cut blew up the budget deficit 10/
Oh, and my publisher will yell at me if I don't mention that you can read much more about zombies and cockroaches in my new book, coming out next Tuesday 11/
