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Bush May Meet Vow To Halve The Deficit Three Years Early

The title of this post was taken from the title of this Investor's Business Daily article which states:

Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 -- three years early.

Tax revenues are running $176 billion, or 12.9%, over last year, the Treasury Department said Monday. The Congressional Budget Office said receipts have risen faster over the first eight months of fiscal '06 than in any other such period over the past 25 years -- except for last year's 15.5% jump.

The 2006 deficit through May was $227 billion, down from $273 billion at this time last year. Spending is up $130 billion, or 7.9%.

The CBO forecast in May that the 2006 deficit could fall as low as $300 billion. Michael Englund, chief economist of Action Economics, has long expected a deficit of about $270 billion this year. Now he thinks there's a chance the "remarkable strength in receipts" will push the deficit even lower.

With the economy topping $13 trillion this year, a $270 billion deficit would equal less than 2.1% of GDP, easily beating the president's 2.25% goal. Bush made his vow when the White House had a dour 2004 deficit forecast of 4.5% of GDP, or $521 billion. The actual '04 deficit came in at $412 billion, or 3.5% of GDP, before falling to $318 billion, or 2.6% of GDP, in 2005.

A CBO analysis last week noted that withheld individual income and payroll taxes are up 7.6% from a year ago, with the gains picking up in recent months.

"Those gains suggest solid growth in wages and salaries in the national economy," CBO said.

While gains are broad, those at higher-income levels are enjoying bigger salary hikes. Because they pay higher rates, federal tax revenues soar when they do well.

Those making over $200,000 now pay 46.6% of total income taxes, presidential adviser Karl Rove recently said. That's up from 40.5% -- despite Bush's tax cuts.

Nonwithheld income tax receipts are up about 20% vs. a year ago. That may reflect year-end bonuses and capital gains.

Corporate income taxes are up about 30% from last year's pace.

In response to the line, "despite Bush's tax cuts" I would have pointed out that more likely it is because of Bush's tax cuts. It has been shown time and time again that cuts in tax rates result in increased growth, which in turn, results in increased tax revenue. It happened when John Kennedy cut taxes, and again when Ronald Reagan did. The fact that those on the Left, and those in the media, refuse time and time again to acknowledge that economic truth is very telling. If they did acknowledge it, politicians could no longer bluster about how we were going to "pay for" a tax cut. Politicians might even be forced to look at cutting spending as a way to balance budgets instead of raising taxes.

Thanks to Betsy Newmark for posting a link to and excerpt from the article above. On such a big news day as Tuesday was I expect stories like this one did not get much attention. It would not have gotten much anyway, though, judging by the attention good economic news has received over the past few years. Meg Kreikemeierwrote an excellent piece earlier this year about how miserably the good economic news has been reported.

So why with all the good economic news to report, do so many still believe we are in the midst of a faltering economy? In my column at the Examiner yesterday I quoted from a John Leo piece I read at Townhall. Leo said "This may not be breaking news, but if an assertion reflects a widely shared emotion, it can make great headway in this culture without any need to prove its truth. " That has certainly been the case with the economy. How many politicians and others do you suppose have blamed the deficit on the Bush tax cuts, when they have all the numbers in front of them saying otherwise? Showing (even with hard figures) that the tax cuts have resulted in record increases in revenue just isn't enough to convince those who have a vested interest in ignoring the truth.

Update: JB supplied this Heritage link to additional information on tax cuts and tax revenue.


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Comments (53)

You are half right. Tax cu... (Below threshold)

You are half right. Tax cuts do indeed result in economic growth. The evidence is clear, however, and so easy to graph that everyone should know it, that tax cuts do NOT result in increased tax revenues. In fact, just the opposite occurs. Repeating an urban myth often enough may make it more believable, but it is still a myth.

McCain (the moron posting h... (Below threshold)

McCain (the moron posting here...not the moron Senator): "tax cuts do NOT result in increased tax revenues. In fact, just the opposite occurs"

Treasury Department: "Tax revenues are running $176 billion, or 12.9%, over last year"

Since spending was UP, year to year...then tax revenues had to go UP in order to generate the $176 BILLION increase in revenue.

Repeating an urban myth (like tax CUTS don't increase revenues) often enough may make it more believable, but it is still a myth.

Only more believable to the easily duped...i.e. the Left.

Via Instapundit:Th... (Below threshold)
Son Of The Godfather:

Via Instapundit:

The New York Times headline: "Bush deficit reduction plan falls off-schedule."

(I didn't see a sarcasm tag)

"Since spending was UP, yea... (Below threshold)

"Since spending was UP, year to year...then tax revenues had to go UP in order to generate the $176 BILLION increase in revenue."

And the relationship between your statement and tax cuts is what precisely?

While you work to clarify your unelightening statement, you can see what actually happens to federal revenue streams after tax cuts here:


The fact that revenues decline after tax cuts does not make tax cuts a bad thing. Economic stimulus is the goal of tax cuts. However, if you continue to believe in urban myths, it does make you a moron, and I mean that quite literally.

Tax Cuts Increase Federal R... (Below threshold)

Tax Cuts Increase Federal Revenues


Some anonymous guy with a website is hardly a credible source, McCain.

Sorry, not an anonymous guy... (Below threshold)

Sorry, not an anonymous guy.

Tom Huppi, whom you source, has never worked as an economist. The extent of his higher education is "various upper-division civil engineering courses" at Washington State.

Excuse me while I bust out laughing.

Liberal argumentation: believe us, we're like smarter than you. *snort*

Hey, McCain can you link me... (Below threshold)

Hey, McCain can you link me to some position papers on health care by the comedian Carrot Top?

I promise to take them reaaaaaal seriously.

I am a conservative you sno... (Below threshold)

I am a conservative you snorting pig. Explain to me which facts are wrong in the article please, rather than engaging in a fallacious argument. And while you are at it, tell me why the CBO concurs, or did you not read the report? Indeed, all the nuts come out for threads liek this one.

By the way, your heritage piece proves only the startling fact that economies grow, which isn't disputed. It doesn't isolate the variable (tax cuts) that they are pretending to analyze. Put another way for your simple mind, their same methodology also shows that tax increases raise revenue.

You are just a little over your head on economics aren't you?

Myth: Tax cuts increase tax... (Below threshold)

Myth: Tax cuts increase tax collections.

Fact: Tax cuts decrease tax collections.

Hmm, my puny little mind doesn't seem to reconcile the above two claims, and the argument that " It doesn't isolate the variable (tax cuts) that they are pretending to analyze."

So wait, he CAN isolate a tax cuts effects on tax collections? He claims they decrease them. What about those "other" factors?

How about just saying "it's an unknowable" in a multivariable economic picture instead of posing as a know-it-all skeptic genius?

Just a comment on the "in s... (Below threshold)

Just a comment on the "in spite of tax cuts" line. When I read it I thought it was referring only to the fact that the $200k+ people were now paying 46% of the tax burden up from 40%, since essentially they got the biggest tax cut. Obviously the upper income people would be paying a larger share of the burden since more people aren't paying anything.

JB, because the data shows ... (Below threshold)

JB, because the data shows otherwise. I refer you to the years following big tax cuts. deal wth the facts. There is a theoretical argument for your urban myth, but it would require us to be pretty high on the laffer curve. We;ve never been that high, not even when rates were in the 70% range that Reagan inherited.

Conservatism doesn't require phony math to win an argument. Tax cuts are a good idea because they empower individuals to make more purchasing decisions in an economy rather than a disembodied government, which almost always results in a more just distribution of goods and services.

So there is a moral justification for tax cuts. They also happen to spur economic growth. That increased economic growth from tax cuts may result in tax revenues making up some of the tax loss from the cut, perhaps 28% in the most optimistic models given the normal range of tax rates we have seen in the last decades (see the CBO study).

Are you getting any of this?

Mcain in post one: "Tax cut... (Below threshold)

Mcain in post one: "Tax cuts do indeed result in economic growth. The evidence is clear, however, and so easy to graph that everyone should know it, that tax cuts do NOT result in increased tax revenues."

Then later:
"They also happen to spur economic growth. That increased economic growth from tax cuts may result in tax revenues making up some of the tax loss from the cut"

Would you make up your mind? It's the increase in economic growth spurring more tax revenue that people are referring too--unless you are just trying to be cutesy with terminology.

What is also easy to graph is that tax cuts have always resulted in economic growth because corporations and individuals have more money to spend in the economy. That's not an accident or coincidence. It's when the government then outspends or the Fed over manages the system to stifle the growth or overspend it that causes problems.

You have the wrong urban myth. The urban myth on tax cuts is that they will eliminate a deficit--which they won't--but it's not a strong one.

So, it is not a "myth" to say "tax cuts result in more revenue". It's actually accurate. It's also accurate to say "tax cuts will result in increased revenue unless the government screws it up."

So let's recap.Tax... (Below threshold)

So let's recap.

Tax increases get you an immediate boost in revenue on the short term, followed by a downswing in the economy, reduced economic growth and reduced long-term revenue, no other factors intervening.

Tax cuts get an immediate drop in revenue, followed by an upswing in the economy, increased economic growth, and increased long-term revenue - no other factors intervening.

Or to boil it down a bit further - you can shear a sheep many times, but you can only skin him once.


Faith, this isn't a very di... (Below threshold)

Faith, this isn't a very difficult english construction. If you lose $100 from a tax cut, you will make up (at most) $28 of that loss due to the stimulus effect in the long run. Get it? So quit the nonsense. To an economist, this whole thread is a laughable and demonstrably incorrect argument for why tax cuts are actually a good idea.

It's quite simple: tax cuts... (Below threshold)

It's quite simple: tax cuts generate wealth in the public, which generates more investment and jobs, which creates more taxpayers. There comes a point when the math works, as you'll have more taxpayers paying less dollars each in taxes opposed to having LESS taxpayers paying more dollars each in taxes.

Rising tide lifts all boats...and all that.

[email protected] McCain... (Below threshold)


@ McCain

Well then.

I suppose Massachusetts has the greatest revenue stream of all the states.

Sorry but you're wrong. Tax cuts do increase government revenue. This is because the government gets a piece of every transaction. And tax cuts spur economic growth, which you admitted, and thus there are more transactions. Which in turn results in more revenues.

It's nice you think otherwise, but frankly you're wrong.

[email protected] McCain... (Below threshold)


@ McCain

Also if you're using CBO's revenue projections or revenue growth projections, i.e. wild ass guess, then that's a serious mistake on your part.

I don't think there has ever been a time where any government's revenue projections ever matched reality in any way, shape or form.

Ed and JFK,They say ... (Below threshold)

Ed and JFK,
They say that ignorance is bliss, so you guys must be the happiest people on earth.

There certainly does come a point where the math would work -- at the top of the laffer curve. For example, if tax rates were 100%, nobody would work and income tax recepts would be zero. A cut to 90% would entice a few people to work and therefore revenues would increase. The empirical evidence proves that we have never been high enough on the laffer curve to produce this result.

At the other end of the extreme, if tax rates were 10% there would be some revenue. A cut to 0% would reduce receipts to zero. The data proves we are toward this end of the curve. See the data.

Is anybody getting this yet?

I see what you're saying, M... (Below threshold)

I see what you're saying, McCain - if you figure the economy as a zero-sum game, then the more you tax the more money you have. If the object is to generate the maximum amount of revenue in a limited economic environment, you've got to do some balancing.

But say Joe Sixpack's got a lawn service. Business is good, taxes are reasonable, he'd like to expand but doesn't see his way clear to hiring another guy. Bush cuts taxes, thereby reducing the amount of tax he has to pay.

Now he can hire another guy, and can take on more work. Even after paying the new guy (and paying tax on the new guy) he's making more money than before - so even with the lowered tax rate he pays significantly more taxes than he did before. Isn't the revenue lost on the tax cut made up by the extra tax generated by the extra employee and the extra tax on the earnings of the lawn service?

[email protected] McCain... (Below threshold)


@ McCain

Ok smartass.

*You* provide the data tables that prove your point. You're the one making the assertion. Prove your case.

JLawrence, you are building... (Below threshold)

JLawrence, you are building a response upon a false premise. The economy is not a zero sum game, which is one reason that tax revenues always go up in nominal terms over the long-run. The laffer curve doesnt require it, and the refutation of the laffer curve doesn't require it.

After tax cuts, revenues fall off sharply. It is fact. See the data. Your little anecdotal story doesn't change the macroeconomic reality of what 200 million Joe Sixpacks actually do in an economy. Go study the laffer curve theory and get back to me. At least you'll understand the rationale behind the nonsense.

Ed, I did. Go study the ac... (Below threshold)

Ed, I did. Go study the actual data now and get back to me. Don't waste space.

The most optimistic numbers... (Below threshold)

The most optimistic numbers I've seen from actual economic researchers is that for the range of taxes the US has had historically, you can make up to half of the revenue lost by a tax cut due to economic stimulation.

NO researcher, other than some wingnut groups with political agendas, has ever said that you could completely make up the lost revenue.

As a nice little factoid, the US has almost doubled its debt since Bush became president. The above article is talking about when the DEFICIT might fall to half of what it is now. The debt , of course, will continue to grow rapidly during this period and into the distant future. To resolve this, government is either going to half to increase taxes or reduce spending, or probably both.

Regarding our current economy - economies go up and down even when you have constant taxes. That's known as economic cycles. Typical short-term cycles are around 3-6 years.

Or joe sixpack is CEO of a ... (Below threshold)

Or joe sixpack is CEO of a lawn equipment company. His taxes are cut, he buys a new boat and sends an extra donation to his state representative. No new jobs. No new services. Yes state gets a bit of revenue on the sales tax on the yacht but that's not your point is it.
PS: Joe has health insurance. The workers on his assembly line, those whose national guard units have not been activated, do not.

1). the increase in revenue... (Below threshold)

1). the increase in revenue does not begin to offset the cost of the cuts.
2). the deficit that may or may not be halved is a phony number. it's not counting the money taken out of social security, the future cost of the medicaid giveaway, or the gwot (global war on truth).

i'm just glad i don't have grandkids...i don't have to worry about them paying the bill for this administrations incompetence.

[email protected] McCain... (Below threshold)


@ McCain

Did you actually *read* what Huppi wrote?

That isn't actual data. That's data he mangled in his half-assed attempt at proving his supposition that tax cuts don't generate more revenue.

Frankly his comparisons are very suspect as they compare actual tax revenues with his "baseline" revenues. A comparison that doesn't compare tax methods but instead measures economic activity combined with inflation.

In addition his "comparison" ends just as the numbers for the actual tax revenues exceed his goofy baseline.

So if the entire extent of your "proof" is linking to a jackass. Well then, so can I.


Look specifically at the charts at the bottom.

I am slightly scared to sti... (Below threshold)

I am slightly scared to stick my neck out on this one, but I really don't care how it is done, or why, but the deficit AND the debt MUST GO DOWN. I recognize that taxes will ultimately have to go up, but spending MUST decrease. Cutting taxes before cutting cpending is just putting the cart before the horse, IMHO. Cut the spending, and then cut taxes to your heart's content.

There are still people out ... (Below threshold)
John Gillnitz:

There are still people out there that believe in voodoo economics? I wouldn't trust any source that selectively chooses numbers from the CBO and uses anything from Heritage. Also, wasn't Bush's promise to cut the national debt in half, not the yearly deficit?

The CBO report does say things are better compared to 2005, but does that mean 2006 is good or that 2005 was really bad?

Ed, yes, lets look at YOUR ... (Below threshold)

Ed, yes, lets look at YOUR chart. That chart shows clearly that federal revenues fell sharply after the 2001 tax cuts. Unless the booze has effected your memory, you will recall that the bulk of tax cuts took effect that year. Thank you for more data from a source that you trust.

By the way, your chart is making an entirely different point, which is that revenues rise during an expanded economy. Duh. Specifically, it is linking increased revenue to a jobs act signed in 2003, and NOT the tax cuts. John Snow isn't stupid enough to assert urban myths.

John, the heritage foundation does good work, but not on this topic. Their little study which Lorie blissfully seizes upon to prop up her error proves only one thing, which is that revenues generally increase over time. Double duh.

[email protected] McCain... (Below threshold)


@ McCain

Ed, yes, lets look at YOUR chart. That chart shows clearly that federal revenues fell sharply after the 2001 tax cuts. Unless the booze has effected your memory, you will recall that the bulk of tax cuts took effect that year. Thank you for more data from a source that you trust.

Where's the line in 2001?

Where's the line in 2005?

It's **higher** in 2005 than in 2001.
In fact it's **higher** in 2005 than in 2000.

By the way, your chart is making an entirely different point, which is that revenues rise during an expanded economy. Duh. Specifically, it is linking increased revenue to a jobs act signed in 2003, and NOT the tax cuts. John Snow isn't stupid enough to assert urban myths.

Hey dumbass!

The entire point behind cutting taxes is to *stimulate* the fucking economy. If the taxes are cut and the economy is stimulated, then the fucking plan works.

As for the reference to the jobs legislation, that's immaterial. The chart clearly shows the rise in federal revenues that exceeds the 2000 figures in 2005.

John, the heritage foundation does good work, but not on this topic. Their little study which Lorie blissfully seizes upon to prop up her error proves only one thing, which is that revenues generally increase over time. Double duh.

Well. If revenues generally increase over time then where's the downside of tax cuts?

And nothing else aside from... (Below threshold)

And nothing else aside from the tax cuts happened in 2001 that just might have had an impact on the economy? Like the recession we were already sliding into before the 2000 election? Or the economic fluctuations post 9/11 causing a pretty significant fall in revenue? Heck, what was the impact to the airlines alone from that event, and how much did it drop their receipts to the government, for example?

According to this report, 9/11 alone was estimated to cause a loss of 108,000 jobs in NYC. That's a lot of lost revenue. Guess we should have cranked up the taxes to compensate?

My bad. <a href="http://ww... (Below threshold)
A lot of people confuse cut... (Below threshold)

A lot of people confuse cutting the deficit with cutting the debt. (Analogy in this lastest proclamation of fiscal victory: "I will only open new credit card accounts half as fast I have been the last 5 years" versus "I will pay off half of my credit cards three years early.") To cut a deficit incurred on your watch is the only honorable thing to do. Now to actually cut the national debt...that would be a true leader. Don't see that in DC currently.

I think many of you have lo... (Below threshold)

I think many of you have lost sight of McCain's original criticism of the Lorie's post. Lorie claims that the tax cuts have resulted in increased tax revenues which in turn will help to offset the massive spending the government has been engaged in over the past 5 years. McCain makes a very valid point when he states that tax cuts will at most result in a 28% (i've heard projections as high as 50% but those seem like wishful thinking more than anything else) reclamation of lost reciepts over a 10 (not sure on the time frame but 10 is a typical revenue period) year period. Any further tax revenue on a constant currency basis must be attributed to economic expansion independent of any growth spurred by the tax cuts.
So to summarize, tax cuts do result in more money being put into the economy and help the economy to grow at a faster pace than it would without the cuts. However, the economic growth fueled by the cuts will only reclaim 28%/50% of tax revenue that would have been collected had the cuts not been implemented and the economy allowed to grow at a slightly slower pace.

Ed, you must have graduated... (Below threshold)

Ed, you must have graduated from the school of liberalism, in which all formulas are reduced to single variable equations.

Yes, tax cuts stimulate the economy. No, tax cuts do not increase tax collections. Tax cuts are a good thing from a conservative perspective. However, they do not increase federal tax confiscation.

Re your last question, "If revenues generally increase over time then where's the downside of tax cuts," the logical fallacies in that question make an answer difficult to begin. Let's just say that tax confiscation is NOT a worthy conservative goal -- high government revenues are NOT to be celebrated. And that is one of the reasons why tax increases are bad -- because they DO raise MORE federal revenue in the long run. In other words, revenues always rise in the long run, but they rise to even loftier heights after tax increases. After tax cuts, revenues fall dramatically and eventually rebound from a zillion macroeconomic factors.

How about this for a final... (Below threshold)
USMC Pilot:

How about this for a final answer?

I don't want the federal government taking my money that I earned from working, and giving it to some lazy shit that doesn't. I'd rather waste it myself!

The problem with the analys... (Below threshold)

The problem with the analysis is that you're comparing current tax revenues to those of the previous few years. Check out this website:
Towards the bottom, you can see the total Tax the IRS recovered each year between 1998 and 2003.

The values are all nominal, i.e. not adjusted for inflation. You would expect these numbers to rise every year due only to inflation, even if there were no baseline growth in the economy.

Here's a little table:
Year Total Tax Revenue
1998 1,769,408,739,000
1999 1,904,151,888,000
2000 2,096,916,925,000
2001 2,128,831,182,000
2002 2,016,627,269,000
2003 1,952,929,045,000

As you can see, nominal tax receipts fell for two straight years. Setting a record in tax revenue growth from 2003 to 2004 isn't that great an accomplishment when you consider that 2003's tax revenues were FAR below what they should have been without the tax cuts.

The other thing worth noting is that Bush supporters have a way of gloating about "good news" that is good only in the context of the ridiculously poor expectations that were set. A $500 Billion deficit is a tragedy. Coming in slightly below that is not cause for celebration. I believe we call that "the soft bigotry of low expectations". I know Bush and the Republican Congress can do better than that. If only they'd try.

If revenues generally incre... (Below threshold)
John Gillnitz:

If revenues generally increase over time then where's the downside of tax cuts?
Posted by: ed at June 14, 2006 03:22 PM

Massive federal debt and decaying national infrastructure.

In 2000 the budget was runn... (Below threshold)

In 2000 the budget was running a surplus of $263 billion dollars and tax revenues were $2,096 billion dollars. In 2003 the deficit was $374 billion and tax revenues were $1,952 billion dollars.

So, tax receipts decreased by $144 billion dolars but spending increased by $637 billion.

Borrow and spend Republicans is what this administration is. Borrow and spend. A joy ride with the family credit cards.

Any boost in the economy attributable to the government is probably being caused by the massive amount of increase in government spending, not by the small (in comparison) tax cuts.

Bleacher bum commentary - T... (Below threshold)

Bleacher bum commentary - Technically I think both sides are right. Tax cuts on a per capita basis results in lower government revenue. However, in gross terms they often result in higher overall revenues.

This is classic suppy/demand cost curve analysis. The question governments grapple with - is if I cut taxes X percent - will the economy excepand suffiecently so that my overall revenue is greater at the lower tax rate then at the higher tax rate.

Its not a linear relationship. If the tax rate falls to zero - governement revenue does not go to infinity.

That said - We beed a real tax break. Not the cuts proposed, but tax reform. Taxes should not be the determinate factor in business operations. The current tax system creates 500 billion dollar industry just to the reporting requirements. Creating a simplified flat tax structure for individuals and corporations would be a real benefit to the economy (That would give US firms a decsive advantage in world trade - productivity would sky rocket along with wages).

Given that Bush has DOUBLED... (Below threshold)

Given that Bush has DOUBLED the national debt, and the big accomplishment you are speaking of is his desire to HALVE his deficits (probably NOT including the expense on the war, which is always conveniently left out), I am duly unimpressed.

If we had stayed where we were as of 2000 and had not racked up another trillion in national debt, we would as a country have had the money to fix social security and medicaire, paid for this war, and done the prescription drug plan RIGHT. you may want to ignore the simple truth, but we were far better off under Clinton, this county's fiscal health was far better off, and right now, the only people better off are me and the other 2% making $200K or more. The rest of your suckers, well, sorry for the fish.

Yeah, Bush did a great job. Suckers. And great on that morality thing too. Nice going.

No James, they do not "ofte... (Below threshold)

No James, they do not "often result in higher overall revenues" in groess terms or any other terms.

This entire post and thread is probably the dimmest I have ever read on Wizbang.

Speaking of dimwits, I love... (Below threshold)

Speaking of dimwits, I loved this little gen from ignorant ol' ed:

"I suppose Massachusetts has the greatest revenue stream of all the states."

As a proud Masshole, let me be the one to point out that our state income tax rate is lower than many of the other states as we have only one flat rate:


And that our sales taxes are among the lowest rate in the country, especially as we do not tax sales of food, prescriptions or even clothing:


Sorry, but as we also have no local income tax, country tax or school district taxes, our overall tax burden is generally less than many other states.

McCain - You really need to... (Below threshold)

McCain - You really need to need to go back to basic economic theory. The modification of marginal tax rates and its effects on revenue, is a primary rational for tax policy. Tax rate to revenue is a not a linear relationship. The fallacy you are making is treating government revenue as a whole and not as a part of the overall GDP.

Provided that the country has a GDP growth rate greater then the inflation rate that actual tax revenue will effectively increase.

Taken as a whole each dollar spent by the government decreases the total potencial economic output of the country. The reason for this is that government productivity is much less then private sector productivity. The trick is to adjust government taxation, so that the decrease to government revenue is offset by the increase to total effective output due to private sector productivty.

By only looking at taxes you analysis fails to account the productivity multiple effect on private sector GDP output.

A good example is the Reagon tax cut. His tax cut directly lead to the private sector investment boom that dominated the 90's. So to measure Reagan's tax cut revenue on a year by year comparison (81 vs 82) fails to take into account its long term effects on the overall economy.

PS: As a side note - calling people idoits because they do not agree with you is not a great way to make friends and influence people.

GWB has never passed a doll... (Below threshold)

GWB has never passed a dollar of tax cuts.

What he has done is to massively increase taxes by borrowing to increase our tax debt, in order to tax less than we need to pay our bills now. For every dollar in his policy put in someone's pocket now, a dollar plus interest has been added to the tax burden we owe later.

A real tax cut can only occur when taxes are cut and not borrowed to pay for the 'cut'.

A little knowledge is dangerous, as most of the posters here show - propaganda is only effective not when it's a black and white lie usually, but when it builds on a grain of truth or existing belief. The people here cite the Heritage foundation, which is simply a propaganda machine.

These posters are misled into taking a truth such as that tax cuts have *some* benefit in increasing the economy's productivity, which has *some* increase in the tax revenue from the increased productivity, and twisting it into a lie by simply claiming that that small increase is greater than the actual loss of tax revenue from the cut, when I haven't seen a person here yet making that claim who shows any facts to back it up. They just take the propaganda saying it and swallow it, and then spit it back up here.

McCain has made a good effort to explain it, other than his wrongheaded dig at liberalism.

A poster who misnamed himself JFK paraphrased JFK: "Rising tide lifts all boats...and all that."

When he said it, it was true. I can't put a link to the charts now but you can find them - under democrats from FDR to LBJ, and Ike, you can see the middle class skyrocket, and all segments of the population rise together in income.

Starting with Nixon in part and especially with Reagan, that was no longer true. You can see the bottom 90% of Americans with flat incomes for the last 25 years, while the 0.1% most wealthy skyrocket hundreds of percent in inflation-adjusted dollars.

This is a massive, historic class warfare waged by the rich, with all the Americans on the right in the bottom 90% told that to notice the warfare is the real 'class warfare', and to shut up and take it.

From 1977 to 1998, the bottom 90% and the top 10% went from a 50-50 split of the wealth in the nation to a 27-73 split, and it's gotten worse under GWB. These are historic, disastrous changes to our society - even Alan Greenspan has said they are a threat to our society.

The ignorance of the public is exemplified by 'USMC pilot', who misses the real, huge threat to his financial health from the people above him, and falls for the propaganda that the poor people are the threat to him. Poor sucker.

My one post won't likely make many see the facts, but we must lay out the truth for others.

Hopefully, some will benefit and keep a little more eye open to the facts which they'll find support the points I've made, as soon as they can stop just swallowing the propaganda.

James, that (marginal) tax ... (Below threshold)

James, that (marginal) tax rate cuts happen to stimulate economic growth is not at issue. That is one of the purposes of tax cuts, the other being the moral reason I outlined earlier. Stimulus means more people working and paying taxes, entering higher brackets, etc etc. that is obvious to any bonehead. So the generaly theory you outline is correct, but your conclusions are KNOWN to be wrong. At most, the economic stimulus created from tax cuts will make up only 28% of the revenues lost be lowering the rates. That is a fact, period. So you clearly do not understand the model your are outlining and its application to fiscal policy.

McCain - I refer you to Opt... (Below threshold)

McCain - I refer you to Optimal Capital Gains Tax Policy:Lessons from the 1970s, 1980s, and 1990s *


Of course since it does not support your position I doubt that you will belive it.

"From 1980 to 1985, when the top capital gains tax rate fell from 28 percent to 20 percent, the average annual rate of growth in real capital gains was 19 percent for the upper 1 percent of income earners, and 15.7 percent for the upper 5 percent. Then, from 1985 to 1994, when the highest capital gains tax rate rose to 28 percent (beginning in 1987), the average annual rate of change in realized capital gains dropped to minus 5.3 percent for both groups. 7 Measured in constant dollars, the capital gains realized by both the top 1 percent and top 5 percent of income recipients in 1994 were only three-fifths (61 percent) of their 1985 level. This reduction in capital gains realizations came during a decade when rising incomes, and especially rising equity values in the stock market, should have led to sharply higher capital gains. However, the higher tax rate provided a disincentive for the realization of the capital gains."

The dramatic growth of the income base, exclusive of capital gains, during 1986-1990 illustrates the responsiveness of high-income taxpayers to changes in the rate structure. Unfortunately, this growth was largely concealed by the strong negative impact of the higher capital gains rates on the income base of this same group of taxpayers. The 1986 rate reductions on ordinary income had a much larger impact on the income base in the upper tax brackets than is generally realized. Had the capital gains rate not been increased by the same legislation, the growth of income in the upper brackets and increase in taxes collected from these taxpayers would have been truly phenomenal during the late 1980s and into the 1990s.

James, you are losing track... (Below threshold)

James, you are losing track of the forest through the trees.

Bottom line is that federal tax revenues from ALL sources, capital gains + income tax + other, fell dramatically after the 2001 tax cuts. Same after the Reagan cuts and same after JFKs. That is a fact, and is contrary to the entire premise of this post which asserted a famous urban myth.

Now to capital gains. It is true that cutting capital gains spurs a short-term increase in capital gains revenues because people take advantage of the lower rates to finally take profits. Note that empirically it is a SHORT-term gain -- the source you sided looked at 3-year market behavior. Over the long-term, revenue from capital gains falls with falling rates. This curve (shaped roughly like a parabola) is well known in tax policy.

It is also true that cutting capital gains spurs more investment, which is another factor in economic growth. So as it is with income tax rate reductions, some of the lost revenue will be made up by higher returns on investments that are sold. But it is only SOME, not all.

"So as it is with income ta... (Below threshold)

"So as it is with income tax rate reductions, some of the lost revenue will be made up by higher returns on investments that are sold. But it is only SOME, not all."

Exactly; money put into the hands of the ultra wealthy first and foremost simply increases the amount of the total wealth they own. Some of it also goes into investments which spur economic activity.

But money to the poor spurs economic activity even more: they spend it all.

Whenever I stumble on a thr... (Below threshold)

Whenever I stumble on a thread like this, I wonder... how do the rightwing nutters deal with the fact that under Clinton, economic growth and tax revenue were at record rates, permitting reduction of the annual deficit to zero?

In other words, how do they manage to ignore a reality that so thoroughly explodes their simple notions that only unsustainable borrowing can stimulate growth?

Fiscally, the Clinton admin was pragmatic and conservative, while the current admin is unrealistic, ideological, and deceptive to conceal partisan greed.

Forgot to point out that th... (Below threshold)

Forgot to point out that the Investor's Business Daily article in fact remarks that under the present conditions, annual deficits of $600B to $800B are anticipated.

This post dishonestly ignores that part

McCain - I think you are mi... (Below threshold)

McCain - I think you are misinterpreting your facts. You are taking federal revenue in isolation without taking into account the general macroeconomic climate.

The error you are making is assuming that tax rates vs revenue is an inelastic relationship and due to destortions (applications of various credits and write offs) in the tax laws cyclical industries have a disporportionate impact on revenues.

Yes Federal revenue's fell when you compare 2001 to 2002. However the same is true with 38 of the 50 states. These states too had revenue drops. For example while federal revenue dropped by 5%, both CA and MA tax revenues dropped by 14%.

The general macroecomonic state of the counrry was a recession (which historically results in lower tax revenues).

Of the 12 states where tax revenue was flat or increase. 7 states had reduced their effective tax rates (comparing 2002 vs 2001 tax rates) In two states the rates remained the same, and in 3 states the tax rates went up.


"It has been shown time and... (Below threshold)

"It has been shown time and time again that cuts in tax rates result in increased growth, which in turn, results in increased tax revenue."

Sources please? Can you cite any economic study that uses actual economic data, as opposed to wishes and horses, that supports your statement? Because I can find dozens that refute it.






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