BuSh's Silly Budget Logic

[JohnnyBz00LS]

http://www.latimes.com/news/columnists/la-oe-chait22oct22,0,6883716.column?coll=la-news-columns

Jonathan Chait: Bush's Silly Budget Logic

Why the president's assertion that his tax cuts are boosting revenue is wrong.
October 22, 2006


ALAN D. VIARD, a former Bush White House economist currently at the conservative American Enterprise Institute, recently told the Washington Post: "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that."

He's right. There's no dispute among economists. Conservative, moderate or liberal, every credentialed economist agrees that the Bush tax cuts caused revenues to drop. There is, however, a dispute between economists and pseudo-economists. Supply-siders may be laughed at by real economists, but they still enjoy a strong following among politicians, including, alas, the president of the United States. Here is what President Bush said a week and a half ago:

"They said that we had to choose between cutting the deficit and keeping taxes low — or another way to put it, that in order to solve the deficit we had to raise taxes. I strongly disagree with those choices. Those are false choices. Tax relief fuels economic growth, and growth — when the economy grows, more tax revenues come to Washington. And that's what's happened. It makes sense, doesn't it?"

Well, no, it doesn't make any sense at all. Bush, of course, is correct that tax revenues have risen over the last few years. This is normal.

Except in certain extreme theoretical conditions, tax cuts cause revenues to fall, and tax hikes cause them to rise. The economy also can affect revenues. During an expansion, revenues can rise unusually fast, and during a recession, they can drop unusually fast.

The latter is what happened following the first Bush tax cut. When Bush took office, tax revenues accounted for 19.8% of gross domestic product. After the tax cut, they collapsed to a low point of 16.3% — far lower than even the most pessimistic projection.

Yes, revenues have risen from that low level, but they still haven't recovered. The Center on Budget and Policy Priorities found that revenues currently lag $200 billion behind the revenue growth you would normally find during a recovery.

Now, Bush's reply to that is to say that if it weren't for his tax cuts, we would still be in a recession. Indeed, in the same Oct. 11 speech, he asserted, "I'm convinced that if we had raised taxes, it would cause there to be an economic decline, which would make it harder to balance the budget over the years."

Because Bush can veto any tax hike, we can't know for sure whether he's right. But there's another pretty good way to check that claim: Go back to the last time there was a major tax hike. That was in 1993. Just about every major elected Republican predicted the 1993 tax hike would slow down the economy, probably cause a recession and cause revenues to decline. Instead, they boomed, rising from 17.5% of GDP when Bill Clinton took office to 19.8% when he left.

Republicans say Clinton just benefited from a good economy. Of course he did. That's the point. Raising taxes on the rich, within reason, did nothing to slow down the economy. Moreover, that same logic applies to Bush. Clinton did not invent the business cycle, and neither did the current president. Both benefited from a growing economy.

But here's the difference. Clinton inherited a large deficit and, with the economy going full-tilt, turned it into a sizable surplus. Bush inherited a sizable surplus and, with the economy going full-tilt, he's still running a deficit north of $200 billion. If Bush had a responsible fiscal policy, we'd be paying off our debt right now, not adding to it.

In the same speech in which he claimed that his tax cuts have caused revenues to rise, Bush bragged that he's "restraining spending." So why do we still have a deficit? I mean, he says he's kept spending down, he's caused revenues to skyrocket and the economy is going great guns. Why are we still in the red?

And if Bush's own economists say his tax cuts caused revenue to drop — and Viard isn't the only one — then how can he continually get away with insisting the opposite?

 

[MAC1]

Interesting how the article doesn't attempt to explain the reasons for RECORD tax revenues--Oh, despite President Bush's tax cuts. Apparently President Bush is just better at economics than Clinton. Let the pundits criticize all they want, however, the reality is that the current economy is booming.

 

[fossten]

The only articles I've read that are dumber than this guy's article are the ones that Phil posts.

Clearly this guy, who knows nothing about economics, is doing somersaults to avoid showing his ignorance. "Pay no attention to the man (economics) behind the curtain! Listen to what I'm saying!" LOL

I don't care to waste the time to answer all his stupid points. But if Johnny believes what he says, I don't really give a rat's arse.

 

[MAC1]

Also, as long as there's out of control spending it won't make a difference how much tax revenue is raised. The article didn't address the spending problem, which is the fault of republicans and democrats alike. So, clearly congressional democrats are equally to blame for the deficit. However, since democrats tend to be nothing but complainers and refuse to take responsibility for their own actions, I don't expect them to admit that they are also part of the problem.

 

[JohnnyBz00LS]

Interesting how the article doesn't attempt to explain the reasons for RECORD tax revenues--Oh, despite President Bush's tax cuts. Apparently President Bush is just better at economics than Clinton. Let the pundits criticize all they want, however, the reality is that the current economy is booming.

Well, when you distort your perspective of "RECORD tax revenues" by ingoring the effects of inflation and population growth, it's easy to fall into the trap laid by the GOP hawkers of BuSh's tax cuts:

http://www.cbpp.org/7-10-06bud.htm

Weak Overall Revenue Growth During this Business Cycle Reflects the Impact of Tax Cuts

When discussing revenue growth since the enactment of the tax cuts, Administration officials frequently focus only on revenue growth since 2004. This provides a convenient “starting point” for their arguments, as it sets a very low bar. Measured as a share of the economy, revenues in 2004 were at their lowest level since 1959. Given this historically low starting point, it is not surprising that revenues have recovered significantly since then. Yet supporters of the tax cuts selectively cite revenue growth over just the past two years to argue that the tax cuts are fueling the large increase in revenues.

Table 1: Total Real Per-Capita Revenue Growth in 22 Quarters after the Last Business Cycle Peak

Current Business Cycle
0.2%

Average for All Previous Post-World War II Business Cycles
9.7%

1990s Business Cycle
10.7%


Measured since the current business cycle began, however (in March 2001, shortly before enactment of the President’s first tax cuts), total per capita revenue growth has been near zero after adjusting for inflation and population growth, even after taking into account the stronger revenue growth now projected for 2006 (see Table 1). Based on OMB’s revised revenue estimate, real per-capita revenues in 2006 still will be only 0.2 percent above the level they attained more than five years ago at the start of the business cycle. In other words, the current revenue “surge” is merely restoring revenues to where they were half a decade ago. And in the case of individual income tax revenues, real per-capita revenues are 11 percent below where they were at that time.
<snip>

Bottom line, while a small portion of BuSh's tax cuts (which primarily benefited the wealthy and corporations, NOT the middle-class like you and I) can be credited for a nudge in economic growth, in terms of tax revenues we are just now getting back to where we were 5 years ago. It is preposterous to suggest we'd be further behind now had those tax cuts not been implemented. One could just as easily argue that the huge incentives offered by GM, Ford and D-C for the 2 or so years following 9/11 have spurred the economy as much or more as any tax gift to the wealthy.

 

[Calabrio]

You're in no situation to argue economics, Johnny.
Apparently, the author isn't either.

And what is this nonsense that supply-siders are laughed at by "real economists?" It's the Hayek models of economics that were finally embraced at the last have of the century leading to all the tremendous growth throughout the world. At last, the liberal, big-government, Keynsian approach, so loved by Democrats (who seem to love embracing all failed, idealistic 20th century theories) has been demonstrated as flawed.

The guy is missing the point. Tax revenues might be lower, compared to GDP, but the point is, the GDP is considerably higher in a more productive low tax enviroment. So, revenues consist of a smaller piece (percentage) of a much bigger pie (economy).

There's a short term drop in revenue, and then the economy expands.

It's not difficult stuff to demonstrate.

And in typical, ignorant, liberal fashion, they now use the tax hike under Clinton to demonstrate that tax cuts don't hurt the economy. This is dishonest, because the tax increase was immediately followed by a conservative congress, gov't spending was cut, regulation was cut, and the tech book (seeded during the economic boom of Reagan) was experiencing the bubble. It was a very unique situation. BUt that's not to say just how much BETTER things could have been economically had the largest historic tax increase NOT been passed by the Democrat President, through the Democrat House, through the Democrat Senate.

 

[MAC1]

Well, when you distort your perspective of "RECORD tax revenues" by ingoring the effects of inflation and population growth, it's easy to fall into the trap laid by the GOP hawkers of BuSh's tax cuts

What inflation? Did you mean the lack of inflation is creating increased tax revenues?

Also, the population has been steadily increasing for decades. Why is it only relevant now?

Bottom line, while a small portion of BuSh's tax cuts (which primarily benefited the wealthy and corporations, NOT the middle-class like you and I) can be credited for a nudge in economic growth, in terms of tax revenues we are just now getting back to where we were 5 years ago. It is preposterous to suggest we'd be further behind now had those tax cuts not been implemented. One could just as easily argue that the huge incentives offered by GM, Ford and D-C for the 2 or so years following 9/11 have spurred the economy as much or more as any tax gift to the wealthy.

Are you forgetting about the positive affects Bush's tax cuts had on facilitating the Stock Market's recovery, which ultimately helped to stimulate the economy? Or do you believe that the tax cuts did nothing to help the Market recover? Not that a robust Stock Market is the only measure of a strong economy; nevertheless, the Stock Market's recovery was spurred on by the capital gains tax cuts implemented by President Bush. Moreover, Bush's capital gains tax cuts are for everyone, not just the wealthy.

Also, just remember the ridiculous tax laws are a product of both parties. If you're concerned about unfair taxes then you should blame the democrats as well. For years democrats have been complaining about how the rich don't pay their fair share, yet they have done nothing to correct the problem. All they do is use the overburdened middle class talking point to try to win votes--They are full of it! What cuts for the middle class and working poor did Clinton implement that were so marvelous?--Answer, Nothing! If we still have an unfair tax system then Bill Clinton and the democrats are just as much to blame.

Also, when corporations benefit from a healthy economy, often the average person benefits as well. I know the anti-corporate democrats often say that Corporate America never shares its profits with the little guy because they are greedy. But the fact is that companies hire employees when they are making money and lay off employees when they are not making money. A strong economy is integral to companies being able to make money. For some reason the democrats don't get this simple fact; instead, they see corporations as nothing but a gigantic cash-cow to tax out of existence.

Further, the Bush tax cuts had an important positive psychological affect. I see a lot of polls sampling Americans about how they feel about this and how they feel about that indicating there is a psychological factor to growing a strong economy. Let's not ignore that even if Bush's tax cuts did nothing more than promote consumer confidence, which restarted the economic engine, then I would say it was a smart move. I don’t know the actual statistics, but we Americans must pay close to half of what we earn in taxes to the federal, state, and local government. As far as I’m concerned even a miniscule tax decrease is welcome. The bottom line is that the democrats are just pissed off that they didn’t implement the tax cuts.

Finally, remember the Clinton 1992 presidential campaign slogan: “The economy, stupid!” Well, the economy is doing just fine now and it’s obvious the democrats can’t stand it. Now, the slogan has changed to: “The stupid economy, stupid!”, which is one factor standing in the way of democrats taking over Congress.