It’s The Tax Cuts, Stupid – Part Four
We’ll get back to the NSA/phone database story soon enough, but now for a friendly reminder:
Tax Cuts = Jobs + Income
Writing in the American Spectator, R. Emmett Tyrrell, Jr., weighs in on the strong economy and why, exactly, tax cuts are so crucial to its inception and continuation:
We cut taxes to increase economic activity, to reduce the burden of taxation on workers to encourage their increased output. We cut taxes on investments, stocks, and dividends to increase investments, stocks, and dividends — to increase wealth. That is what has been happening — FOR TWO DECADES.
Democrats — and I fear many Republicans — think we cut taxes to reward the rich. Democrats would raise taxes to punish the rich and to increase tax revenue for their favorite projects. Perhaps they could find some other way to punish the rich. Their demagoguery impedes economic growth and — as their phrase has it — “revenue enhancement.”
Those of us who favor tax cuts can now look proudly at the recent record of tax payments. According to the Treasury Department’s monthly report, tax receipts were up 11.2 percent for the first seven months of Fiscal 2006. That is $137 billion. In Fiscal 2005 tax receipts were up 14.6 percent, which is $274 billion. These increases come as a great surprise to those Democrats and Republicans who insist tax cuts cause deficits. Holed up over at the Congressional Budget Office (CBO), their minions issue predictions of puny revenue growth following tax cuts that are always gloomy and always wrong. The CBO’s recent predictions for Fiscal 2006 were $76 billion for the whole year for individual tax receipts and $24 billion for corporate receipts. Seven months into the year the respective figures are already $56 billion and $40 billion.
Unburdened by high taxes, the rich paid more in taxes. By lowering marginal tax rates we have encouraged economic vigor and put more money in the government’s hands. This we call Supply-Side Economics. Yet many Republicans remain agnostic and many more Democrats are contemptuous of it. This is a cultural problem. In the culture of economic ideas many on Capitol Hill will not look at the evidence of the past two decades. They are living in an era of great prosperity and do not know how they arrived at it.
Amen, brother…
Perhaps this would be a perfect time to run an experiment to add more levity to your argument. Why don’t we repeal the tax cuts next year and see what happens to tax revenue. Then, two years later, reinstate them and see. Repeat until everyone is satisfied (everyone = 70% of the country since Bush’s approval numbers shows 30% of the country has their head…oh, I’m just kidding about that). Seriously though, repeat until point is succifiently proven and we can all live happily ever after.
To add levity or gravity? You can add levity by just making fun of my argument…
That’s funny. I’m an engineer. What do you expect?
Who knows what I was thinking. In any event, I meant “weight” or “gravity”. Or some other such word. But, you knew what I was trying to say. I even screwed up “sufficiently”. Ha. Wow. I need another cup of coffee or something…
In the interest of responding to your broken record postings with broken record responses, I think you are being very optimistic and that’s great, but I am choosing to be a bit more cautious about my assumptions regarding this data. I’ll be glad to admit I’m wrong if an actual “turn off” “turn on” method were tried. But, I think any time you have a tax cut after a long amount of time being close to a fixed level, it will necessarily drive growth in the short term, but not necessarily the long term…
Hey, eventually I’ll tire of beating that drum – but like my obnoxious frequent referrals to the Nutroots®, I’m hoping that sheer repitition will implant the idea firmly in the place where new memes reside and propagate (if that sounds like I’m a budding propagandist, so be it)…
I suspect an experiment as you’ve described would be a terrific waste of time because even in the face of 40+ years of experiment (beginning with the Kennedy tax cuts), you will never be convinced.
Hardy har har TMS. Hardy har har. Damn right I’m not convinced as there was not a planned experiment. Off/on/off/on at least 3 times. Hardy har har.
Why are you laughing? Engineers are so strange.
You couldn’t possibly eliminate all the variables and isolate for the effect of the tax cuts. Which is why there is disagreement on this topic among the experts (i.e.; economists).
You’re right, that’s why you turn on/off/on/off a few times, to increase your level of belief (or, in my case, decrease my level of disbelief).
I’m laughing because you keep saying I’m not willing to be convinced. I am, however, indeed willing to be convinced. I’m telling you what it would take. A controlled experiment, something economists are unwilling to do.
[...] Decision ‘08 [...]
Ok, I’ll take you at your word that you are willing to be convinced (just stop laughing). But the controlled experiment you want is impossible. And running it several times won’t prove anything, even if the results are always the same, because there are too many externalities and, thus, too much risk of spurious effects that won’t be smoothed by running the experiment four or five or ten times.
But economists would love to run your experiment, unfortunately they don’t have the power, that resides with the Congress and the President.
P.S. Pretty good opinion piece in the WSJ (for a believer anyway):
http://online.wsj.com/article/SB114739867483150965.html?mod=opinion_main_review_and_outlooks
Here is the beginning, in case you don’t subscribe:
“The Tax Cut Record
May 12, 2006; Page A18
Our late editor Bob Bartley used to say that critics might forgive you for being wrong, but they’ll never forgive you for being right. That psychological insight may be the only way to explain the fierce and bitter opposition this week to extending the tax cuts of 2003 for another two years through 2010.
If ever there was a market test of economic policy, the last three years have been it. The stock market has recovered from its implosion in Bill Clinton’s last year in office, unemployment is down to 4.7%, and growth has averaged 3.9% in the three years since those tax cuts passed — well above the post World War II average and more than twice the growth rate in Euroland…”
Economists do have the power as it turns out. Knowledge is power. They would all have to agree that it is a valuable thing to do and then propogate the knowledge and convince the country it was good and then the leaders would have no other choice. It really ought to be the number one priority of the country, to come to a definitive conclusion on things such as this.
I agree though, it would “prove” nothing, only increase belief or decrease disbelief as I previously stated…
Also, what’s wrong with laughing? It reduces stress (especially at work).
I love how the article is so great in that in the second paragraph it blames Clinton for the bad stock market in 2000. Did Clinton cause the bubble to burst? Wouldn’t that mean you would have to give Clinton credit for the great stock market performance up until that point? You know, when the Dow went from 3500 to over 11000? Or, are does the Republican Congress get credit for the economic boom while Clinton ought to be blamed for the fact that for one year it dropped because of the bubble bursting? You might as well argue Greenspan did it! And then, they quote the post World War II average instead of comparing to Clinton’s numbers. Quite funny. Hardy har har. There I go again though… (and no, don’t subscribe to WSJ, so I can’t read the rest of it and laugh even harder).
It’s not really the fact that you laugh, it’s the style that bugs me. j/k
The Clinton thing isn’t an attack on him or his presidency, it is a defensive tactic in response to the recession (2000) being widely, broadly, and often blamed on Bush.
I must confess that I don’t know what the annual growth rate was for the economy in the Clinton years. Was it greater or lesser than the post WWII average (which I understand to be the average for all the years since WWII) and was it greater or lesser than the 3.9% they cite?
Well, it sort of depends on how one measures “economic growth”…
According to this NRO article WWII average was 3.5% and Clinton was 3.6%, so 3.9% is indeed higher, but not “well above” either. Also, Clinton’s second term was 4%, so that was obviously a 4 year period where it was higher.
In any event, the numbers are so close I don’t think they’re statistical significant differences (i.e. it could very well be noise). If the tax cuts were repealed and it went back to 1.4% like the 2 years prior to tax cut, I would definitely be closer to a “believer”. It still would not change my views on fiscal restraint though.
P.S. I just like the sound of “hardy har har” as a sarcastic type laugh, but showing that it’s all in good fun.
Have a terrific weekend!
Looking to the National Review for accurate economic statistic is like looking to RJ Reynolds for health information.
Go to the Bureau of Economic Analysis. You will find that from 1946-2005, annual Real GDP Growth was 3.35%. During the 8 years of the Clinton Administration, it was 3.71%. During Clinton’s 2nd term, it was 4.20%.
Over the first 5 years of the current Administration, annual Real GDP Growth was 2.55%.
Sure, and that includes the recession and 9/11. The Bush tax cuts are – at least that’s my argument – a spur for the real growth, and that’s the time frame I’m concerned with. I’ll also admit that the war, which occurred at roughly the same time, was a big factor…
Fine.
Drop the first two years of the current Administration as “bad data points”. Average Real GDP Growth for the subsequent 3 years was 3.48%.
Better than the postwar average, but pathetic compared to similarly cherry-picked “good years” from the Clinton era.
Well, but my point here, believe it or not, is not to compare Bush versus Clinton – the economy did great in the Clinton years – but rather to argue for making the tax cuts permanent. Are tax cuts the only spurs to a great economy? No – Clinton did well with deficit reduction and NAFTA and benefited from the dot.com boom – there is more than one way to skin a cat. Tax cuts, however, are a net boon (but let me repeat for the record that we need spending disclipline, and the Republican leadership, and the President, have been pretty pathetic on that score)…
Your point, I thought, was to demonstrate that the tax cuts led to a spectacular burst of economic growth.
They didn’t.
Even cherry-picking what years you want look at, economic growth under Bush II has been mediocre, at best.
What the tax cuts have led to is large structural deficits. Now, I know Ryan B. will disagree, but most economists will tell you that chronic deficits lead (ceteris paribus) to higher long-term interest rates. Which hurts economic growth.
All the fine talk about fiscal discipline on the spending side is just that — talk. Revenues dropped from 20.9% of GDP in 2000 to 16.3% of GDP in 2004, before rebounding slightly to 17.5% in 2005 (whoop-dee-do!). Meanwhile, spending climbed from 18.4% of GDP to 20.1%.
(N.b.: the on-budget numbers are even more dismal.)
If you think that a return to fiscal responsibility is possible without rolling back, at least part of the Bush tax cuts, you are either a visionary or a dreamer.
I’m going to take that as a compliment…
Call me utopian if you will, but I’m dreaming of a major reduction in spending as the means of returning to fiscal responsibility.
Call me dystopian if you will, but I’m expecting that the government will tacitly allow the currency to be inflated as the only way to repay the debt.