Wednesday, January 03, 2007

A New Year's Plea

To anyone in the Administration who may read this blog, I have one small wish for the new year. Please stop your boss from writing or saying the following:

It is also a fact that our tax cuts have fueled robust economic growth and record revenues.
You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.

If I'm wrong, show me the evidence ... and tell me why the tax cuts were so small given their effects on revenues.

8 comments:

Anonymous said...

Does the President mean record federal government revenues or record revenues for the families and businesses for whom taxes were cut?

-joe

eightnine2718281828mu5 said...

---
No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.
---

You might want to check with Larry Kudlow and Art Laffer.

PGL said...

I wanted to see what Brad DeLong had to say about this silly oped and Brad was smart - he turned the microphone over to you. Well done!

spencerengland said...

Because of the nature of our tax system as income grows it pushes people into higher tax brackets --especially now with the ATM.

So it is normal as the economy recovers for tax receipts to grow faster then the economy -- it has nothing to do with supply-side economics, it is simply the consequence of a graduated income tax system.

If you look at the historic record in the first three years of an economic recovery-expansion the norm or average is for federal revenues to expand about 20%. But in this cycle at the end of three years of economic recovery federal receipts were still below were they were at the economic bottom. At 20 quarters, or 5 years
into the recovery federal receipts have just now exceeded the 20% expansion they normally achieve in three years.

So again, this administration is bragging about having the worse economic recovery on record and no one thinks to check the data and call them on it.

They get away with putting out some number and making it sound great when by historic norms it is terrible, but they feel safe in the assumtion that no one will but the number in perspective and call them on their spin.

alphie said...

Maybe Bushie means his tax cuts fueled robust economic growth and record revenues...in China?

Anonymous said...

Oh, that's right, Alphie. Because as we all know, every dollar gained by China is a dollar irrevocably stolen from the United States.

alphie said...

I'm not saying economics is a zero sum game, anon.

America is the world's leading consumer of oil, drugs and other people's savings, though.

If you want to run a crack whore economy, you have to expect your suppliers will ask you to perform some unsavory fiscal acts once in a while...like balancing your budget.

Anonymous said...

I have found that "record revenues" is easily described this way. Any discussion of numbers, be it revenues or expenses, be it Federal revenue or local school board expenses, must include
1) inflation
2) population growth

On a per-citizen inflation adjusted basis, Federal revenues are down about 20%. From what I can tell, this is about the amount we had been borrowing. Thus this proves that tax cuts provide effectively 0% return to the Feds, not 100% much less > 100%.

We also have record expenses under this administration, on per-capita and inflation adjusted basis.