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themp
Supporter
Username: Themp
Post Number: 2882
Registered: 12-2001
| | Posted on Monday, May 15, 2006 - 10:16 am: | 
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This touches on one of the vexing aspects of discussing tax cuts with conservative - they often take the laffer curve to be an absolute with no limits, which is obviously ridiculous.
The Return Of Voodoo Economics
Republicans Ignore Their Experts on The Cost of Tax Cuts
By Sebastian Mallaby
Monday, May 15, 2006; Page A17
Nobody serious believes that tax cuts pay for themselves, as I noted last week. But most senior Republicans flunk this test of seriousness.
In January, George W. Bush declared that, "by cutting the taxes on the American people, this economy is strong, and the overall tax revenues have hit at record levels." Regrettably, this endorsement of what his dad called voodoo economics was not a one-time oversight. The next month, Bush told a New Hampshire audience, "You cut taxes and the tax revenues increase."
Voodoo Economics Returns
» Sebastian Mallaby | Nobody serious believes that tax cuts pay for themselves, but most senior Republicans flunk this test of seriousness. That's an economic problem we should worry about.
Bush is not alone in this. Dick Cheney, allegedly a serious person, asserted in February that the "tax cuts have translated into higher federal revenues."
Bill Frist is sometimes taken seriously, not least by himself. And yet the Republican Senate leader is capable of saying: "Many people in Washington have long known a dirty little secret about tax-cut measures: When done right, they actually result in more money for the government."
Chuck Grassley chairs the Senate Finance Committee and ought to know about this stuff. But he mouths the following nonsense: "There is a mindset in both branches of government that if you reduce taxes you have a net loss, if you increase taxes you have a net gain, and history does not show that relationship."
And just last week Sen. Rick Santorum (R-Pa.) celebrated the extension of the Bush tax cuts by saying, "We've put these tax provisions in place and they've raised money."
Okay, so let's review this issue with the help of some experts. I'd like to cite Richard Kogan of the Center on Budget and Policy Priorities, because his work inspired this column. But to win over reasonable conservatives, I'm going to choose N. Gregory Mankiw of Harvard, a proponent of tax cuts who chaired the Council of Economic Advisers in the Bush White House. Mankiw is a top-notch economist hired by Bush and Cheney to advise them. And last year he published a paper on how far tax cuts pay for themselves, reporting enthusiastically that this self-financing effect is "surprisingly large."
How large, exactly? Mankiw reckons that over the long run (the long run being generous to his argument), cuts on capital taxes generate enough extra growth to pay for half of the lost revenue. Hello, Mr. President, that means that the other half of the lost revenue translates into bigger deficits. Mankiw also calculates that the comparable figure for cuts in taxes on wages is 17 percent. Yes, Mr. President, that means every $1 trillion in tax cuts is going to add $830 billion to the national debt.
Let's engage in what Bush might call the soft bigotry of low expectations and cut Republicans some slack. Hey, maybe they just overlooked that Mankiw paper? Or maybe, despite hiring Mankiw to head the Council of Economic Advisers, they later acquired reasons to doubt his judgment? In that case they should at least have listened to Douglas Holtz-Eakin, another conservative economist who worked in the Bush White House and who went on to run the Congressional Budget Office.
In a study published under Holtz-Eakin's direction last December, the CBO estimated the extent to which a 10 percent reduction in personal taxes might pay for itself. The conclusions confirm that the free-lunch mantra is just plain wrong. On the most optimistic assumptions it could muster, the CBO found that tax cuts would stimulate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five. On pessimistic assumptions, the growth effects of tax cuts did nothing to offset revenue loss.
So Mankiw isn't with them. Holtz-Eakin isn't with them. Which raises a question: When top Republicans go around claiming that tax cuts pay for themselves, which economic authorities are they relying on? None, is the answer. These people's approach to government is to make economics up.
The Republicans' only argument is that tax receipts have boomed in the years since the 2003 tax cut. But the question is whether tax receipts increased because the tax cuts worked some kind of magic or because the economy was headed up anyway after the recession, thanks maybe to low interest rates resulting from the Asian savings glut. Friends, the reason we have economists is so that they can solve these puzzles for us. Ignoring their solutions is like ignoring the judgment of medical science in favor of faith healers and quacks.
Politicians are always speechifying about how the United States must lead the world in research to maintain its edge. But having the world's best economics research isn't particularly helpful if those same politicians are silly enough to tune it out. The truth is that American business excels at turning university research into world-beating products; the paranoia on this score is overdone. But American government is often lousy at turning research into policies. That's what we should fret about.
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/14/AR2006051400806. html |
GOP Man
Citizen
Username: Headsup
Post Number: 383
Registered: 5-2005
| | Posted on Monday, May 15, 2006 - 10:28 am: |
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typical libs. everyone knows lower taxes lead to higher treasury revenues. it's not even worth debating. |
Hoops
Citizen
Username: Hoops
Post Number: 1343
Registered: 10-2004
| | Posted on Monday, May 15, 2006 - 10:32 am: |
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cjc - time to bring out whatever bogus argument you can to try and refute the above well recognized expert economists.
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themp
Supporter
Username: Themp
Post Number: 2885
Registered: 12-2001
| | Posted on Monday, May 15, 2006 - 11:00 am: |
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Is there an ACTUAL Laffer curve, or is it just a teaching tool? If you do a an image search on line, you get a lot of different versions, some parabolas, some canted to the left, some canted to the right. They all agree that 0% and 100% result in zero revenue, but where does it peak? |
cjc
Citizen
Username: Cjc
Post Number: 5612
Registered: 8-2003
| | Posted on Monday, May 15, 2006 - 11:02 am: |
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Increased tax revenues? The Republican argument is success, and we'll share that victory with JFK, and later with Reagan, and now with Bush.
The defense rests. |
GOP Man
Citizen
Username: Headsup
Post Number: 384
Registered: 5-2005
| | Posted on Monday, May 15, 2006 - 11:02 am: |
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it peaks far below where the current top marginal rates stand. everyone knows that. |
Chris Prenovost
Citizen
Username: Chris_prenovost
Post Number: 929
Registered: 7-2003
| | Posted on Monday, May 15, 2006 - 11:54 am: |
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Themp: There is an actual laffer curve, and it works - ONLY in the case where taxes exceed 60% of a nations GDP. And at that, it only seems to work if the tax cut brings taxes down below 50% of GDP, and - this is crucial - investors and taxpayers believe the tax cuts are permanent.
Neither of which apply to the Unites States, and never have. Period.
Those who argue that tax cuts lead to higher revenues are, simply put, LYING. The opposite is and has always been the case. Even Arthur Laffer himself admitted as such back in the 80's.
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dave23
Citizen
Username: Dave23
Post Number: 1761
Registered: 5-2001
| | Posted on Monday, May 15, 2006 - 12:05 pm: |
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cjc,
JFK wanted a demand-side tax cut coupled with an increase in government spending.
Bush and Reagan preferred supply-side cuts linked to their run-away spending. |
tjohn
Supporter
Username: Tjohn
Post Number: 4322
Registered: 12-2001
| | Posted on Monday, May 15, 2006 - 12:45 pm: |
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Thank you Chris P for the correct explanation. Contrary to what Bush supporters and alchemists believe, you cannot change lead into gold. |
cjc
Citizen
Username: Cjc
Post Number: 5613
Registered: 8-2003
| | Posted on Monday, May 15, 2006 - 3:55 pm: |
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I saw the Greenberg article you took that from, dave23. http://www.slate.com/id/2093947 The reason this explanation hasn't gotten a lot of play is because it's wrong. I found this amusing: "Yet the Kennedy-Johnson team saw the supply-side effects of the bill as secondary...." The article says supply-side is all about tax breaks to business and the wealthy. These cuts are across the board, and not only to businesses. Demand side is to the consumer to stimulate demand? Then why is the consumer spending so much with supply-side cuts? It makes no sense. Also telling is that government 'gives' money to constituents to spend, like the money is the government's in the first place.
As for spending....that's an activity that isn't linked to how much revenues are in the Treasury. You can't say that increasing the take by X-amount a percentage is the reason Congress had to spend Y-amount a percentage more.
And if runaway spending was really an issue near and dear to Democrats they'd limit spending themselves. But they aren't, and it isn't. |
dave23
Citizen
Username: Dave23
Post Number: 1764
Registered: 5-2001
| | Posted on Monday, May 15, 2006 - 4:15 pm: |
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Actually, I didn't see that article. I was just repeating something I'd heard many times. (It is possible I read that article way back when it was published.)
Google "jfk tax cut" and you'll get a whole lot of back and forth.
Where did I say that reducing spending is near and dear to Democrats? It's the Republicans (you know who you are) that claim to want to reduce spending while increasing it. (The same conservatives claim that they also want a smaller, less intrusive government.)
And if conservatives were honest (hold the laughter) they'd align themselves with LBJ on that tax cut. So you should be saying, "Like Reagan, Bush and LBJ...". (This is something I learned from your link.) |
sylvester the investor
Citizen
Username: Mummish
Post Number: 126
Registered: 6-2004
| | Posted on Monday, May 15, 2006 - 7:58 pm: |
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do your research. since the tax cuts went into effect tax revenues are up significantly. Only problem is that this administration along with congress can not control their spending. If they actually practiced some fiscal responsibility and shot down a spending bill here and there it would be much more evident. I don't have the article in front of me, but a few days ago, there was a great article in the wsj that gave significant details around the increase in tax revenues that have been generated since the tax cuts went into play. |
Foj
Citizen
Username: Foger
Post Number: 1363
Registered: 9-2004
| | Posted on Monday, May 15, 2006 - 8:23 pm: |
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Voo -Doo. |
Chris Prenovost
Citizen
Username: Chris_prenovost
Post Number: 938
Registered: 7-2003
| | Posted on Tuesday, May 16, 2006 - 11:45 am: |
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Sylvester: I did my research.
And you are dead wrong.
In fiscal year 2000, the last year of the Clinton Presidecy, the US federal government brought in a total of $2,025,457,000 in revenues. Please have a look (numbers are in thousands) at the table below:
FY Total Revenues
2000 2,025,457
2001 1,991,426
2002 1,853,395
2003 1,782,532
2004 1,880,279
2005 2,153,859
Bush's tax cuts sent revenues into the tank and stayed there for years. Only last year did inflation push them up back to where they were, no matter how the WSJ fudges it's numbers.
Your boy Bush has not vetoed one single spending bill since he got elected. He is entirely to blame for this fiscal train wreck.
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sylvester the investor
Citizen
Username: Mummish
Post Number: 129
Registered: 6-2004
| | Posted on Tuesday, May 16, 2006 - 7:09 pm: |
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The latest evidence is Treasury's monthly budget report for May that tax receipts were up by $137 billion, or a remarkable 11.2%, for the first seven months of Fiscal 2006 through April. That's more than triple the inflation rate. And it comes on top of the $274 billion, or 14.6%, increase in federal revenues for all of Fiscal 2005, which ended last September 30.The current revenue rush also refutes the prevailing Washington consensus that the federal deficit is the result of the Bush tax cuts. In fact, this revenue tsunami is the direct result of the expansion that took off in earnest at about the time the 2003 tax cuts passed. Lower tax rates have since had precisely the result that supporters predicted, though don't look for that story on page one any time soon.
This explains why tax-cut opponents have tried to change the subject from the sluggish growth they first expected, to the "jobless recovery" that soon became the 4.7% unemployment rate recovery, to lagging wage growth that is also now increasing. The latest liberal themes are allegedly rising "inequality" and allegedly exorbitant executive compensation. These are subjects for other editorials, but their current political and media prominence means the critics are conceding that they can't credibly call the tax cuts an economic failure. So they have to find other election-year talking points.
This revenue wave has also come as a shock to the estimators at the Congressional Budget Office, whose May analysis is full of implicit amazement, not to say chagrin, since they predicted nothing of the sort. As recently as March, CBO was still advertising an expected increase in the baseline for individual income tax receipts of only $76 billion and merely $24 billion in corporate tax receipts for all of Fiscal 2006. Yet in only seven months, individual income tax revenues have already climbed by $56 billion and corporate receipts by $40 billion. (See nearby chart.)
"Various types of personal income not automatically subject to tax withholding may have increased faster than expected in 2005," explains CBO, in as much of a mea culpa as the bureaucrats allow themselves. "Sources of such income could include capital gains, noncorporate business income, interest, and dividends. In addition, growth in incomes in 2005 may have been concentrated more than expected among higher-income taxpayers, who face the highest tax rates."
Translation: CBO completely missed that lower tax rates on income, capital gains and dividends would produce greater tax revenue. Their static-revenue calculations missed the dynamic impact that greater incentives would have on individuals to work, invest and to declare income and stock-market profits. To put it another way, they failed to see that the Bush tax cuts would do more to soak the rich, and fill the Treasury, than keeping the higher rates would have.
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sylvester the investor
Citizen
Username: Mummish
Post Number: 130
Registered: 6-2004
| | Posted on Tuesday, May 16, 2006 - 7:11 pm: |
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Between May 2003 and May 2006, asset values in the U.S. have also risen by $13 trillion thanks to the stock and housing market rallies. Just the growth in asset values since 2003 exceeds the entire net worth of all but a handful of nations. Democrats who want the 15% rate on dividends and capital gains to go back up to 39.6% and 20% are saying that a big tax increase won't affect any of this.
As for whether the tax cuts favor "the rich," this deserves longer treatment on another day. For now, suffice it to say that one reason tax revenues are rushing into the Treasury at a record pace is because the rich are paying them. The tax payments of the wealthiest 3% of Americans increased at twice the rate of the tax payments by everyone else from 2001-2004. And those richest 3% now pay nearly as much income taxes as the other 97% combined. While the incomes of the rich have risen, the lower 2003 tax rates are still soaking them for the government's benefit.
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cjc
Citizen
Username: Cjc
Post Number: 5614
Registered: 8-2003
| | Posted on Tuesday, May 16, 2006 - 7:33 pm: |
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Recessions will hurt revenues to the Treasury. I didn't start really making money (and in essence rebounding) until we began coming out of recession in 2003-4, and I didn't start to take gains until later in 2004.
But the good thing about recessions is that they achieve one of liberals dearest dreams -- lessening income 'disparity.' As with most of liberalism, outcomes are more equal by spreading misery all around the board.
Outside of the war, conservatives are reticient to spend. You can't blame record spending on people I support wholeheartedly. Those responsible are squish republicans, democrats and anyone from a farm state. Bush? He'll sign whatever crosses his desk after his empty threat of a veto over excessive spending. I have no answer for that. |
Bob K
Supporter
Username: Bobk
Post Number: 11530
Registered: 5-2001
| | Posted on Tuesday, May 16, 2006 - 7:45 pm: |
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Sylvestor, the reason tax payments for the top earners increased more than for less well off folk is that the income for the "wealthy" increased at a much faster rate than for us poor workin' folk.
I am not convinced that tax cuts, especially those in the Bush years where government spending also increased rather dramatically, helped the recession, which was long and nasty and a lot of people in middle and lower income brackets still think we are in recession because they ain't doin' very well.
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cjc
Citizen
Username: Cjc
Post Number: 5617
Registered: 8-2003
| | Posted on Tuesday, May 16, 2006 - 7:49 pm: |
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The Bush recession was 'long and nasty'? You can't be serious. |
Bob K
Supporter
Username: Bobk
Post Number: 11544
Registered: 5-2001
| | Posted on Wednesday, May 17, 2006 - 2:14 pm: |
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Cjc, the recession lasted at least three years and argueably closer to four. Even now the recovery is uneven. Most recessions last a year to a year and a half. |
cjc
Citizen
Username: Cjc
Post Number: 5626
Registered: 8-2003
| | Posted on Wednesday, May 17, 2006 - 3:17 pm: |
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The recession lasted 8 months according to economic data, which saw unemployment eventually reaching Depression Era proportions of over 6% |
Bob K
Supporter
Username: Bobk
Post Number: 11546
Registered: 5-2001
| | Posted on Wednesday, May 17, 2006 - 3:44 pm: |
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Cjc, was that before or after the Bushies changed the start date to the Clinton Administration. 
Seriously, it took four years for tax revenue to get back to 2000 levels and the stock market five years to get to its previous highs. Unemployment is an interesting statistic and I don't think it includes the people who gave up on looking for work and joined the underground economy. |
cjc
Citizen
Username: Cjc
Post Number: 5627
Registered: 8-2003
| | Posted on Wednesday, May 17, 2006 - 3:53 pm: |
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Tax revenues and the market did take some time getting back to the feverish levels at the top of The Bubble, but the recession was over in 8 months. |
Rastro
Citizen
Username: Rastro
Post Number: 3153
Registered: 5-2004
| | Posted on Wednesday, May 17, 2006 - 3:56 pm: |
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You are the first person I have seen say that the recession was only 8 months. When did it start and when did it end? After all, we have been told time and again that the recession started before Bush took office. That would imply that it was over before 9/11 (actually about 8 days after, at the latest).
edited: I just found the data you refer to (a link woul dhave been nice). So I guess the recession did not start while Clinton was in office. A few years late, but nice to know... |
Bob K
Supporter
Username: Bobk
Post Number: 11552
Registered: 5-2001
| | Posted on Thursday, May 18, 2006 - 8:31 am: |
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OK, so it was eight months. However, the recovery in many areas has been so slow it is hard to realize that happy days are here again. Here is a link on the subject. In most recessions the bad period is followed by major growth that effects most everyone. In this recession that wasn't the case.
Look at the charts at this link: http://www.nber.org/cycles/recessions.html |
themp
Supporter
Username: Themp
Post Number: 2915
Registered: 12-2001
| | Posted on Thursday, May 18, 2006 - 1:01 pm: |
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Supporters of these tax cuts have touted them as great contributors to growth in jobs and pay. But, in reality, private-sector job growth since 2001 has been disappointing, and a closer look at the new jobs created shows that federal spending—not tax cuts—are responsible for the jobs created in the past five years.
If tax cuts have created jobs at all since 2001, it will have happened in the private sector. Assuming that job growth in 2006 matches the Bush Administration's projections, the economy will have added about 2.0 million jobs to the private sector from FY2001 through FY2006. But how many of these two million jobs actually can be attributed to tax cuts and how many to increased government spending—particularly increased defense spending—in this period?
Private-sector job growth from FY2001 to FY2006
Based on Defense Department estimates of the number of private-sector jobs created by its own spending, we project that additional defense spending will account for a 1.495 million gain in private sector jobs between FY2001 and FY2006. Furthermore, increases in non-defense discretionary spending since 2001 will have added yet another 1.325 million jobs in the private sector, for a total of 2.82 million jobs created by increased government spending. Increased mandatory government spending—which is not even included in these estimates or the accompanying chart—would account for even more job creation. The mere fact that the projected job growth resulting from increased defense and other government spending exceeds the actual number of jobs projected to be added to the economy through 2006 clearly indicates that the tax cuts hardly seem plausible as the engine of the modest job growth in the economy since 2001.
http://www.jobwatch.org/ |
sylvester the investor
Citizen
Username: Mummish
Post Number: 133
Registered: 6-2004
| | Posted on Saturday, May 20, 2006 - 7:51 pm: |
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WASHINGTON -- As America's rich get richer, the taxes they pay on their increasing income is yielding a windfall for the U.S. Treasury.
The Bush administration and its supporters point to a recent surge in tax receipts as vindication of the 2001 and 2003 tax cuts that critics say favored the wealthy. And even opponents of the tax cuts acknowledge that the surge in unanticipated revenue is coming from the rich.
With wealthy Americans taking an increasing share of total household income and paying a greater share of total taxes, "what we're seeing is a repeat of the late '90s, where you get a flood of tax revenues from the hyper-rich," said Rudolph Penner, a former Congressional Budget Office director now at the Urban Institute think tank. "It may raise some worries socially, but it certainly is good for revenue."
The Treasury reported last week that tax receipts in April jumped 13.5% from a year earlier to $315.1 billion -- much of that increase coming from taxes on investments and other sources of income more important to the wealthy. Receipts from these so-called nonwithheld taxes in April, a month when many tax returns are filed, were up about 17% from a year earlier. (Most Americans have the bulk of their taxes withheld from wages paid through the year.)
Treasury Secretary John Snow, in a speech to the Bond Market Association Friday, said: "The results are in, and they are clear: Economic growth has led to a surge of tax revenues and shrinking deficits. Despite the cries from our critics, it cannot be denied that low taxes truly are consistent with rising federal revenues, which of course help bring the deficit down."
Surging tax receipts have led government and Wall Street analysts to scale back their projections of the federal budget deficit. The CBO said earlier this month that it expects the budget deficit for the fiscal year ending Sept. 30 to be significantly narrower than $350 billion, an improvement over its previous $371 billion projection.
A surge in corporate profits is also helping to fill Treasury's coffers. Corporate income-tax receipts are up $40 billion, or almost 30%, so far this year, well above the CBO's projected 9% increase.
Some states are enjoying a similar windfall. California is expecting a $7.5 billion surplus. Much of that, state finance officials say, is coming from an increase in personal income taxes fueled in part by the exercise of stock options by Google Inc. employees.
Mr. Bush earlier this week signed legislation extending for two years, until 2010, the 15% tax rate on capital gains and dividends. And he has been pressing Congress -- without success -- to extend lower tax rates on ordinary income, which are set to expire in 2010.
Because the U.S. taxes each additional dollar of income earned by the best-off families at rates of up to 35% while taxing a dollar earned by others at 15% or, in some cases, zero, the Treasury benefits when the fruits of economic growth go disproportionately to those at the top, as they have in recent years.
Tax collections are up "not because economic gains have been dramatically faster than expected," said Issac Shapiro of the Center on Budget and Policy Priorities, a liberal advocacy group critical of Bush policies, "but [because] the gains that have occurred have been concentrated among high-income people." Put another way, he said, it's "a good thing for the federal Treasury, [yet] the rich are getting richer but the middle is not benefiting."
Administration officials argue that the Bush tax cuts were necessary to spur the economic growth that has produced rising tax receipts -- proving, they say, that critics of the tax cuts are misguided. "Part of our strategy to cut our deficit in half is to continue to grow this economy," President Bush said earlier this week. "Tax relief has helped a growing economy, which means more tax revenue for the federal Treasury."
Though the Bush tax cuts mean that the best-off Americans face lower effective tax rates than under President Clinton, they do pay a bigger share of all federal taxes. Data from the CBO and projections by the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution think tanks, show that the top 10% of income earners (with incomes above $251,400) will pay 56.2% of all federal taxes this year, up from 52.2% in 2000. That includes income and payroll taxes, Social Security and the like. The growing tax take from the rich reflects their growing share of the nation's income. In 2006, the top 10% is projected to receive 44.7% of all household cash income, up from 40.6% in 2000.
Despite the strong economy, wage growth among most Americans has barely kept up with inflation even as income at the top level has continued to rise as corporate executives, athletes, celebrities and other highly paid individuals enjoy fatter paychecks.
Though reliable data on the incomes of the best-off Americans aren't yet available for 2005, there are indications that the past few years have treated them well -- better than those in the middle and the bottom. According to the Census Bureau, the top 20% of households in terms of income received 50.1% of total household income in 2004, up slightly from each of the two previous years -- and that tally doesn't include all income that accrues to the very richest.
Estimates, based on tax and other data, by economist Emanuel Saez of the University of California at Berkeley suggest that the share of income going to the top 1% of households (excluding capital gains, which are taxed at a lower rate) fell when the boom of the 1990s ended, and then rebounded after 2002. Mr. Saez estimates the top 1% got 16.2% of all income (excluding capital gains) in 2004, just shy of the 16.5% peak reached at the top of the boom in 2000.
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