Tax cuts DO NOT pay for themselves, Mr. Giuliani

[Puppycow]

Apparantly Rudy Giuliani has a new ad (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/30/AR2007113002190.html) in which he claims:

"I KNOW THAT reducing taxes produces more revenues. Democrats don't know that. They don't believe it."

There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. So either Giuliani is LYING or HE BELIEVES IN VOODOO. I tend to lean toward the former theory.

There's a good reason for that: It's not true. Produces more revenue than what? Than if taxes had not been cut? No -- and no matter how many times Republican politicians caught up in the thrill of supply-side thinking pronounce that tax cuts pay for themselves, they cannot will it to be correct.

[egslim]

There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. So either Giuliani is LYING or HE BELIEVES IN VOODOO. I tend to lean toward the former theory.
It does have a certain elegance to it. Reducing taxes without decreasing government expenditure increases the government deficit, that in turn causes inflation because more money (government plus private) competes for the same amount of goods. So instead of paying an additional $5 out of every $100 in taxes, you keep the $ 100 but watch it lose 5% of its value. And read my lips, no more taxes.

Meanwhile, this policy makes the Chinese, who I believe own some 1.3 trillion dollars, lose the equivalent of $ 65 billion dollars. That just might tee them off a little. Then watch the dollar lose further against other currencies.

[Nathyn]

Apparantly Rudy Giuliani has a new ad (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/30/AR2007113002190.html) in which he claims:



There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. So either Giuliani is LYING or HE BELIEVES IN VOODOO. I tend to lean toward the former theory.
Tax cuts can increase revenues, but not always.

It seems to me that left and right wing pundits both know little of economics.

What's most important is whether you're in a recession or not. A tax cut during high economic growth is likely to encourage inflation. A tax cut during a recession is likely to help unemployment.

The logic behind the laffer curve makes sense (heavier taxation crowds out investment, replacing private production with government waste), but it totally ignores the fact that how taxes are collected and used have a huge impact on what the tax will do. Hence, Martin Gardner's Neo-Laffer curve. http://upload.wikimedia.org/wikipedia/en/2/2e/Neo-Laffer-Curve.svg

So, overall either raising and cutting taxes won't have any general, predictable effect. It depends on the economy, it depends on the type of tax, and it depends on how the government is using the revenue.

[Cleon]

I still have yet to hear an explanation from the borrow-and-spend Republicans of how, exactly, they plan to pay for their little adventure in Iraq.

[BPSCG]

There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?

that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. Let's see your evidence.

In the meantime, here's some evidence to the contrary.

Federal Receipts by Tax Year (in millions) (http://www.whitehouse.gov/omb/budget/fy2008/pdf/hist.pdf)

1961 ... 94,388
1962 ... 99,676
1963 ... 106,560

Kennedy Tax Cuts (sign by Johnson in 1964)
1964 ... 112,613
1965 ... 116,817
1966 ... 130,835
1967 ... 148,822
1968 ... 152,973
1969 ... 186,882
1970 ... 192,807
1971 ... 187,139
1972 ... 207,309
1973 ... 230,799
1974 ... 263,224
1975 ... 279,090
1976 ... 298,060
TQ ...... 81,232
1977 ... 355,559
1978 ... 399,561
1979 ... 463,302
1980 ... 517,112

Reagan Tax Cut (1981)
1981 ... 599,272
1982 ... 617,766
1983 ... 600,562
1984 ... 666,486
1985 ... 734,088
1986 ... 769,215
1987 ... 854,353
1988 ... 909,303
1989 ... 991,190
1990 ... 1,032,094
1991 ... 1,055,093
1992 ... 1,091,328
1993 ... 1,154,471
1994 ... 1,258,721
1995 ... 1,351,932
1996 ... 1,453,177
1997 ... 1,579,423
1998 ... 1,721,955
1999 ... 1,827,645
2000 ... 2,025,457
2001 ... 1,991,426
2002 ... 1,853,395
2003 ... 1,782,532

Bush Tax Cut (2003)
2004 ... 1,880,279
2005 ... 2,153,859
2006 ... 2,407,254

Now, you can argue that revenue would have increased even more had those cuts not been enacted, and maybe that's true, but you'd have to show evidence that that is the case. Got any?

Or you could show evidence that revenues increased after tax hikes. Got any?

Or you could argue that cutting taxes to zero percent would in fact cause a decrease in revenue, but I'll bet Giuliani isn't advocating that.

By the same token, increasing the tax rate to 100% would also decrease revenue (who's gonna work if the government takes 100% of his paycheck?).

The fact of the matter is, economics is so complex that only a fool would make a blanket statement that "tax cuts don't increase revenue."
If that's your claim, show your evidence.

[BPSCG]

I still have yet to hear an explanation from the borrow-and-spend Republicans of how, exactly, they plan to pay for their little adventure in Iraq.Please stay on-topic. This thread is about federal revenue vis a vis tax policy, not expenditures. We certainly don't lack for threads about the Iraq war; no need to turn this thread into another one.

[Cleon]

Please stay on-topic. This thread is about federal revenue vis a vis tax policy, not expenditures. We certainly don't lack for threads about the Iraq war; no need to turn this thread into another one.

Yep, that's really about the only answer we ever get to that little question...

[Rob Lister]

Yep, that's really about the only answer we ever get to that little question...

Since you're a moderator, and since posting off-topic is a no-no, should I use the report feature to report you or just report you to yourself right here? :)

This is an interesting topic, why not stay on it so I can learn a thing or two.

[Dabljuh]

It does have a certain elegance to it. Reducing taxes without decreasing government expenditure increases the government deficit, that in turn causes inflation because more money (government plus private) competes for the same amount of goods.Wrong, it does not necessarily cause inflation. In order to pay for government expenditure, the government must have money in the first place. So it's either paid for by taxes, or by taking a credit from the privates. In this example we have the latter case, the money that the GVT spends is also taken from the regular supply. The only thing the GVT can do is gross mismanagement, by which I mean increasing the turnover rate where a private citicen would never invest. Say, paying 10% interest rates to privates, and investing in stuff that won't give more than 2%. This sort of mismanagement increases the turnover rate of money, as people who did not invest before (hoarded the money) are now going to invest in the government bonds. It's not the money supply that increases, but it may lead to a very minor amount of inflation at the cost of increasing the deficit. Or rather, it'll slightly reduce deflationary tendencies in the economy at the cost of a deficit.

[Puppycow]

The fact of the matter is, economics is so complex that only a fool would make a blanket statement that "tax cuts don't increase revenue."
If that's your claim, show your evidence.
So you would presumably agree that Giuliani's blanket statement "I KNOW THAT reducing taxes produces more revenues" is equally foolish? I'll grant that when taxes are very high to begin with, reducing them would probably increase revenues. But it sounds to me like Giuliani's making a blanket statement and claiming that reducing taxes from current levels would increase revenue over what would be collected by leaving them the same.

Since history doesn't have a rewind button so that you can go back, change the tax rate and hit replay, we have to rely on economists' projections. If you read the editorial, it says:

You don't have to turn to Democrats to refute this point; just read the studies and comments by Republican economists, including many from the Bush administration. President Bush's Treasury Department, analyzing the "dynamic" effects of making the Bush tax cuts permanent, found that even under favorable assumptions, the positive economic impact would make up for no more than 10 percent of the tax cuts' cost.

"I certainly would not claim that tax cuts pay for themselves," Edward P. Lazear, chairman of the president's Council of Economic Advisers, testified last year. He's not alone. In the 2003 Economic Report of the President, the council concluded that "although the economy grows in response to tax reductions (because of the higher consumption in the short run and improved incentives in the long run) it is unlikely to grow so much that lost revenue is completely recovered by the higher level of economic activity."

How unlikely? N. Gregory Mankiw, another former Council of Economic Advisers head in the Bush White House, concluded in 2005 that cuts on capital gains taxes could generate enough extra growth to recoup half the lost revenue in the long run; cutting taxes on wages could recover just 17 percent of the costs. An analysis conducted by the Congressional Budget Office under the direction of Douglas Holtz-Eakin, who had been an economic adviser in the Bush White House, found that, under the rosiest of scenarios, a 10 percent reduction in the personal income tax rate would generate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five.

[geni]

Or you could show evidence that revenues increased after tax hikes. Got any?


UK goverment revinues since 1997 (yes both they and taxes have gone up but have fun figureing out how).

[Kerberos]

Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?

Let's see your evidence.

In the meantime, here's some evidence to the contrary.


That's not evidence that tax cuts do anything at all, that's simply evidence that tax revenu has increased steadilly for the last several decades. You have provided absolutly zero evidence for a causal relationship. The only thing that saves this from being a correlation equal causation falacy is that you haven't actually proved a correlation either. Recent events in Denmark has innoculated me against the nation that alledged tax cuts actually are the same as decreasing taxes.

[Dabljuh]

Consider the following: If the tax income increases (real, per capita, regardless of growth) is it really a tax cut?

[JoeEllison]

It is one of those lies that right-wingers are really fond of. It goes along with ignoring the fact that Reagan presided over the largest tax INCREASE in American history, and that Kennedy's tax cut was from 90% to 70%, and included closing a bunch of loopholes.

Look at this chart:http://www.brendoman.com/media/us%20tax%20revenues.JPG

Tax revenue increased under Clinton, decreased under Bush. No surprise there.

The surprise is why anyone would include the Clinton years under Reagan's tax "cut"? Seems incredibly dishonest to me.

[Nathyn]

Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?
Stick to the burden of proof.

He doesn't need to prove that tax cuts decrease revenues or that any given historical tax-cut led to less or no change in revenue, in order to rightly identify Giuliani's argument as nonsense, from a mainstream economic standpoint.

Let's see your evidence.

In the meantime, here's some evidence to the contrary.

Federal Receipts by Tax Year (in millions) (http://www.whitehouse.gov/omb/budget/fy2008/pdf/hist.pdf)

1961 ... 94,388
1962 ... 99,676
1963 ... 106,560

Kennedy Tax Cuts (sign by Johnson in 1964)
1964 ... 112,613
1965 ... 116,817
1966 ... 130,835
1967 ... 148,822
1968 ... 152,973
1969 ... 186,882
1970 ... 192,807
1971 ... 187,139
1972 ... 207,309
1973 ... 230,799
1974 ... 263,224
1975 ... 279,090
1976 ... 298,060
TQ ...... 81,232
1977 ... 355,559
1978 ... 399,561
1979 ... 463,302
1980 ... 517,112

Reagan Tax Cut (1981)
1981 ... 599,272
1982 ... 617,766
1983 ... 600,562
1984 ... 666,486
1985 ... 734,088
1986 ... 769,215
1987 ... 854,353
1988 ... 909,303
1989 ... 991,190
1990 ... 1,032,094
1991 ... 1,055,093
1992 ... 1,091,328
1993 ... 1,154,471
1994 ... 1,258,721
1995 ... 1,351,932
1996 ... 1,453,177
1997 ... 1,579,423
1998 ... 1,721,955
1999 ... 1,827,645
2000 ... 2,025,457
2001 ... 1,991,426
2002 ... 1,853,395
2003 ... 1,782,532

Bush Tax Cut (2003)
2004 ... 1,880,279
2005 ... 2,153,859
2006 ... 2,407,254

Now, you can argue that revenue would have increased even more had those cuts not been enacted, and maybe that's true, but you'd have to show evidence that that is the case. Got any?

Or you could show evidence that revenues increased after tax hikes. Got any?

Or you could argue that cutting taxes to zero percent would in fact cause a decrease in revenue, but I'll bet Giuliani isn't advocating that.

By the same token, increasing the tax rate to 100% would also decrease revenue (who's gonna work if the government takes 100% of his paycheck?).

The fact of the matter is, economics is so complex that only a fool would make a blanket statement that "tax cuts don't increase revenue."
If that's your claim, show your evidence.
BPSCG, are you sure the economic growth of the 20th century wasn't caused by a decline in the number of pirates? (http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation)

Prove that what I just said is NOT true or Marxist economics are valid!!

Several others here seem to be committing the same fallacy:

UK goverment revinues since 1997 (yes both they and taxes have gone up but have fun figureing out how).

and:

It is one of those lies that right-wingers are really fond of. It goes along with ignoring the fact that Reagan presided over the largest tax INCREASE in American history, and that Kennedy's tax cut was from 90% to 70%, and included closing a bunch of loopholes.

Look at this chart:http://www.brendoman.com/media/us%20tax%20revenues.JPG

Tax revenue increased under Clinton, decreased under Bush. No surprise there.

The surprise is why anyone would include the Clinton years under Reagan's tax "cut"? Seems incredibly dishonest to me.
It's got nothing to do with Reagan or Clinton.

It was the pirates! Arr!

[JoeEllison]

I still have yet to hear an explanation from the borrow-and-spend Republicans of how, exactly, they plan to pay for their little adventure in Iraq.

Maybe they plan on cutting the tax rate to 0.1%. By their math, it would create the biggest tax windfall in world history. You know, the math they learned at Enron.

[JoeEllison]

It's got nothing to do with Reagan or Clinton.

It was the pirates! Arr!
Could have been ninjas... who can say?:cool:

[BPSCG]

So you would presumably agree that Giuliani's blanket statement "I KNOW THAT reducing taxes produces more revenues" is equally foolish? Standing naked in the wind like that, yeah. Might be helpful to see the context.

I'll grant that when taxes are very high to begin with, reducing them would probably increase revenues. But it sounds to me like Giuliani's making a blanket statement and claiming that reducing taxes from current levels would increase revenue over what would be collected by leaving them the same. Fair enough. I don't know if he has any way of knowing that. Cutting taxes from current levels may well increase revenue. It might not.

But you would agree then, that it is equally foolish to say "tax cuts increase revenues, period," and "tax cuts do not increase revenues, period"?

Since history doesn't have a rewind button so that you can go back, change the tax rate and hit replay, we have to rely on economists' projections. Correct. And since those projections have so many unpredictable and uncontrollable variables in addition to tax rates, there's an excellent reason economics is often called "the dismal science."

Just for example, what do you thank would be the economic cost of, say, jumbo jets crashing into two huge skyscrapers in New York City? What did that do to all the economic projections that had been made in the years just before September 11, 2001? (http://www.ccc.nps.navy.mil/si/aug02/homeland.asp)
Immediately after the attacks, leading forecast services sharply revised downward their projections of economic activity. The consensus forecast for U.S. real GDP growth was instantly downgraded by 0.5 percentage points for 2001 and 1.2 percentage points for 2002. The implied projected cumulative loss in national income through the end of 2003 amounted to 5 percentage points of annual GDP, or half a trillion dollars.Others have pointed out here that my earlier post is an example of the "correlation = causation fallacy," and they would be quite right, if I had claimed that the statistics I posted proved that tax cuts cause revenue growth. I did not. I simply claimed that that was some evidence that they caused revenue growth, and noted some of the limitations of that chart.

But it was evidence, certainly nowhere near conclusive enough to be called proof, but evidence nonetheless, as contrasted with your initial, evidence-free post.

JoeEllison, two things: 1) Thanks for graphing a tiny part of my far more complete table; why didn't you graph what happened in 2005 and 2006? I had it right there for you.

2) Please reconsider the significance of your complaint about revenue decreasing under Bush in light of the note about September 11, 2001 above.

Personally, my belief regarding the efficacy of tax cuts is similar to what Tommy Lasorda had to say about managing a baseball team. "Managing is like holding a dove in your hand. Squeeze too hard and you kill it; not hard enough and it flies away."

Cut tax rates too much, and you'll get less tax revenue. Raise tax rates too much, and you'll get less tax revenue.

Now let's get some more evidence, so we can figure out how hard to squeeze the dove taxpayers so as to maximize revenue.

[egslim]

So it's either paid for by taxes, or by taking a credit from the privates. In this example we have the latter case, the money that the GVT spends is also taken from the regular supply.
That is true if the money comes from national savings. But it is more likely to come from treasuries sold to foreigners, since the savingsrate is negative in the US. I am assuming lower taxes increase consumption instead of savings.

[JoeEllison]

JoeEllison, two things: 1) Thanks for graphing a tiny part of my far more complete table; why didn't you graph what happened in 2005 and 2006? I had it right there for you.
You mean your mislabled table? The one that counts Reagan's tax cut as lasting for 23 years, ignoring all of the tax increases over the intervening years?

[davefoc]

The rhetoric around this issue that comes from either party is just silly.

The notion that tax cuts would always increase or always decrease tax revenues is clearly wrong as has been pointed out several times in this thread already. But a lot of Republican and Democratic sound bite rhetoric claims one or the other to be true.

The standard Republican claim is that tax cuts raise revenues. This can't always be true or the government could just eliminate taxes and it would be awash in revenue. Conversely the Democratic claim that revenues can always be raised by taxing rich people more is not true because even if the government could grab all the rich people income there just aren't enough rich people with enough money to fund the federal government as it stands now.

There is another aspect of the Democratic claims about the advantages of taxing rich people more that is never considered with the endless repetition of their tax rich people more mantra. As tax rates increase rich people will change behaviors to reduce their tax burdens. They will redirect their wealth so as to shelter more income, they will change the way they are reimbursed to shelter more income, they will cheat more and they will work less as the financial incentive for working is reduced by increased taxation. So while it might serve to fire up the party faithful to advocate higher tax rates for rich people the fact is that rich people taxation may already be close to the revenue maximizing rates. Clearly the confiscatory rates in the sixties were counterproductive if the goal was to get money out of rich people and I haven't seen any evidence that the current rich people tax rates aren't close already to the revenue maximizing rates already.

The government itself seems to be fairly well aware of these concepts even if the rhetoric of the politicos suggests that it isn't. The fact that the capital gains tax rate is less than the rate on earned income strikes me as particularly unfair. The idea that Donald Trump pays a lower rate on the capital gains from his stock than the average joe pays on his earned income is really looney tunes on the fairness scale. But the people who run the government aren't so much interested in fairness as they are in maximizing government revenues and if the capital gain tax rate is high people will just defer capital gains by reducing the rate at which they sell capital goods. This is a simple enough concept and the government routinely keeps the capital gains rate fairly low to maximize the government's income from capital gains. This is true whether the government is Republican or Democratic.

This is a little off the topic, but I think it should be noted that on the hypocrisy scale the Republicans are now off the chart with any claims of fiscal conservatism. That train has left the station. Maybe the Republicans will spend money differently than Democrats but there is no evidence on the table that Republican claims of fiscal responsibility are anything but bald faced lies. Anything in the Republican party resembling fiscal conservatism has been replaced by the cynical support of a corporate aristocracy that has nothing to do with free markets or any other buzz words they put forth to cover up their greed and corruption.

[JoeEllison]

There is another aspect of the Democratic claims about the advantages of taxing rich people more that is never considered with the endless repetition of their tax rich people more mantra. As tax rates increase rich people will change behaviors to reduce their tax burdens. They will redirect their wealth so as to shelter more income, they will change the way they are reimbursed to shelter more income, they will cheat more and they will work less as the financial incentive for working is reduced by increased taxation.
That last bit is a little bit delusional, isn't it?

[BPSCG]

You mean your mislabled table? The one that counts Reagan's tax cut as lasting for 23 years, ignoring all of the tax increases over the intervening years?Fine, why don't you plug them in for us?

Right after you get done completing your graph by putting in 2005 and 2006.

[Rob Lister]

That last bit is a little bit delusional, isn't it?

No, not delusional. 'tis in fact a foundation of modern economic theory. After all, wouldn't you agree that if taxes were 100% then there would be no incentive to work?

What about 99%? 98% Draw your own curve. Clearly there is a relationship.

[Dabljuh]

Load of bull. I used BPSCG's data and corrected it against inflation, population growth, and GDP per capita.

[Nathyn]

The rhetoric around this issue that comes from either party is just silly.

The notion that tax cuts would always increase or always decrease tax revenues is clearly wrong as has been pointed out several times in this thread already. But a lot of Republican and Democratic sound bite rhetoric claims one or the other to be true.

The standard Republican claim is that tax cuts raise revenues. This can't always be true or the government could just eliminate taxes and it would be awash in revenue. Conversely the Democratic claim that revenues can always be raised by taxing rich people more is not true because even if the government could grab all the rich people income there just aren't enough rich people with enough money to fund the federal government as it stands now.

There is another aspect of the Democratic claims about the advantages of taxing rich people more that is never considered with the endless repetition of their tax rich people more mantra. As tax rates increase rich people will change behaviors to reduce their tax burdens. They will redirect their wealth so as to shelter more income, they will change the way they are reimbursed to shelter more income, they will cheat more and they will work less as the financial incentive for working is reduced by increased taxation. So while it might serve to fire up the party faithful to advocate higher tax rates for rich people the fact is that rich people taxation may already be close to the revenue maximizing rates. Clearly the confiscatory rates in the sixties were counterproductive if the goal was to get money out of rich people and I haven't seen any evidence that the current rich people tax rates aren't close already to the revenue maximizing rates already.

The government itself seems to be fairly well aware of these concepts even if the rhetoric of the politicos suggests that it isn't. The fact that the capital gains tax rate is less than the rate on earned income strikes me as particularly unfair. The idea that Donald Trump pays a lower rate on the capital gains from his stock than the average joe pays on his earned income is really looney tunes on the fairness scale. But the people who run the government aren't so much interested in fairness as they are in maximizing government revenues and if the capital gain tax rate is high people will just defer capital gains by reducing the rate at which they sell capital goods. This is a simple enough concept and the government routinely keeps the capital gains rate fairly low to maximize the government's income from capital gains. This is true whether the government is Republican or Democratic.

This is a little off the topic, but I think it should be noted that on the hypocrisy scale the Republicans are now off the chart with any claims of fiscal conservatism. That train has left the station. Maybe the Republicans will spend money differently than Democrats but there is no evidence on the table that Republican claims of fiscal responsibility are anything but bald faced lies. Anything in the Republican party resembling fiscal conservatism has been replaced by the cynical support of a corporate aristocracy that has nothing to do with free markets or any other buzz words they put forth to cover up their greed and corruption.
My understanding is that Democrats and Republicans favor tax schemes that benefit their constituents. They then convince their constituents to support them by telling them that such tax schemes are good for the economy.

In general, I agree with Democrats that:
-Progressive taxation is good
-Taxes on externalities (I.E., pollution taxes) are a good thing
-The bulk of taxation should come from income tax, not consumption taxes (consumption taxes are regressive)
-A variety of different taxation is good
-Higher taxes aren't necessarily bad (taxation overall should be increased in America)
-If there are new tax cuts, they should be for the poor and middle-class, not the wealthy

I agree with Republicans, though, that:
-The tax system is purposely complex to benefit the wealthy (though they're largely responsible!) and simplifying it is a good thing
-Excise taxes on tobacco, alcohol, etc. primarily harm the poor
-Consumption taxes are more efficient than income taxes
-Direct welfare and the minimum wage increase unemployment
-Corporate income taxes should be reduced
-Tariffs and trade barriers should be eliminated

[WildCat]

Look at this chart:http://www.brendoman.com/media/us%20tax%20revenues.JPG

Tax revenue increased under Clinton, decreased under Bush. No surprise there.

The surprise is why anyone would include the Clinton years under Reagan's tax "cut"? Seems incredibly dishonest to me.
Joe, your chart shows tax revenues decreasing before any of Bush's cuts occurred. Please explain.

[Nathyn]

Here's a good chart on taxes:

http://upload.wikimedia.org/wikipedia/en/f/fc/REAGANMONEYSPEECH2.jpg

Any Conservatives here see a problem with it?

[Dabljuh]

Joe, your chart shows tax revenues decreasing before any of Bush's cuts occurred. Please explain.This here explains it maybe?
http://www.ctj.org/html/gwb0602.htm

Only the richest 1% profit from the tax cuts after 2001.

The increase in tax revenue after 2003 is probably due to increased corporate profit, as the iraq war is basically a huge subsidy to a large number of corporations.

[JoeEllison]

Why do Republicans pretend that Bush didn't make tax cuts in 2001,2002, and 2003? Oh, wait, I know... because they failed to have the expected effect, so they just lie about it. How pathetic is that?

[JoeEllison]

The increase in tax revenue after 2003 is probably due to increased corporate profit, as the iraq war is basically a huge subsidy to a large number of corporations.
What a shock. The Bush administration borrowed hundreds of billions of dollars and gave it to corporations, creating a mostly bogus economic upswing. Add the housing bubble, and you can explain most of it. So, the massive tax cuts had no obvious positive effect.

[Cain]

Federal Receipts by Tax Year (in millions) (http://www.whitehouse.gov/omb/budget/fy2008/pdf/hist.pdf)

1961 ... 94,388
1962 ... 99,676
1963 ... 106,560

Kennedy Tax Cuts (sign by Johnson in 1964)
1964 ... 112,613
1965 ... 116,817
1966 ... 130,835
1967 ... 148,822
1968 ... 152,973
1969 ... 186,882
1970 ... 192,807
1971 ... 187,139
1972 ... 207,309
1973 ... 230,799
1974 ... 263,224
1975 ... 279,090
1976 ... 298,060
TQ ...... 81,232
1977 ... 355,559
1978 ... 399,561
1979 ... 463,302
1980 ... 517,112

Reagan Tax Cut (1981)
1981 ... 599,272
1982 ... 617,766
1983 ... 600,562
1984 ... 666,486
1985 ... 734,088
1986 ... 769,215
1987 ... 854,353
1988 ... 909,303
1989 ... 991,190
1990 ... 1,032,094
1991 ... 1,055,093
1992 ... 1,091,328
1993 ... 1,154,471
1994 ... 1,258,721
1995 ... 1,351,932
1996 ... 1,453,177
1997 ... 1,579,423
1998 ... 1,721,955
1999 ... 1,827,645
2000 ... 2,025,457
2001 ... 1,991,426
2002 ... 1,853,395
2003 ... 1,782,532

Bush Tax Cut (2003)
2004 ... 1,880,279
2005 ... 2,153,859
2006 ... 2,407,254


I didn't know you could stack **** that high, BPSCG. I'm curious, why are you using aggregate figures when we're talking about federal income taxes? The dirty secret in American politics is that most people pay more in regressive payroll taxes than income taxes. Whenever it comes time to have a tax hike Republicans are "willing" to "concede" an increase in payroll taxes.

"Personal current taxes consist of taxes on income, including realized net capital gains, taxes on personal property, payments for motor vehicle licenses, and several miscellaneous taxes, licenses, and fees." Source: http://64.233.167.104/search?q=cache:ci5st3AGtDoJ:www.bea.gov/regional/pdf/spi2005/09%2520Personal%2520current%2520taxes.pdf+%22perso nal+current+taxes%22+%22income+taxes%22&hl=en&ct=clnk&cd=1&gl=us

I think we can fairly assume that taxes on personal property, licenses and other miscellaneous fees generally either remains the same or goes up year to year. More than anything else, capital gains is probably most dependent on the condition of the economy.

Go back to your link ~p. 300.
Personal current taxes
1957 (35.3)
1958 (35.0)
1959 (36.9)
1960 (40.9)
1961 (41.7)
1962 (45.3)
1963 (47.4)
1964 (48.2) <--Tax Cut
1965 (48.6)
1966 (54.4)
1967 (61.5)
1968 (68.3)
1969 (86.9)
1970 (90.2)
1971 (84.2)
1972 (95.0)
1973 (102.5) <----- oil shocks, inflationary period
1974 (117.7)
1975 (122.8)
1976 (131.6)
1977 (158.1)
1978 (180.6)
1979 (216.7)
1980 (243.1)
1981 (281.5)
1982 (300.4)
1983 (284.2)
1984 (293.9)
1985 (330.5)
1986 (345.6) <--- Don't forget the tax code was significantly re-engineered in 1986
1987 (388.6)
1988 (396.3)
1989 (446.8)
1990 (461.5)
1991 (461.9)
1992 (469.8)
1993 (496.6) <-- Tax Increase on highest m. bracket; supply-siders predict doom and gloom
1994 (535.8)
1995 (578.2)
1996 (648.2)
1997 (729.0)
1998 (814.1)
1999 (868.5)
2000 (987.4)
2001 (993.8) <-- Tax Cut
2002 (851.1) <-- Bush lies about hitting a "trifecta"
2003 (781.7) <-- Tax cut
2004 (787.2)
2005 (909.0)
2006 (1,028.6)

Then you have to account for inflation, increased worker productivity, and population growth (more people entering the work force). Supply-side "economics" has never taken hold in the academy because it's B.S. You might get some conditional concession from a respectable conservative like Martin Feldstein, but it's nonsense. Paul Krugman soundly demolished their arguments over a decade ago in his book _Peddling Prosperity_.

Remember that great economist, goldbug, and Ayn Rand follower, Alan Greenspan, "reformed" social security by jacking up taxes on the working class. Below is the more recent story with regard to Social Security, but back in the 60s the government performed a sleight-of-hand account trick when it created a "unified budget," which is essentially what BPSCG does above.

Social Security:
1983 217.1
1984 247.5
1985 271.9
1986 291.5 <-- I think payroll tax increases were phased in
1987 310.5
1988 346.6
1989 370.3
1990 395.1
1991 413.1
1992 434.9
1993 458.9
1994 487.8
1995 515.3
1996 535.3
1997 565.4
1998 604.4
1999 642.2
2000 687.8
2001 713.8 <-- Oh, so that's where the money's coming from
2002 729.6 and look
2003 749.9 it seems
2004 788.0 to be
2005 849.9 steadily
2006 890.1 increasing!

[BPSCG]

I didn't know you could stack **** that high, BPSCG. I'm curious, why are you using aggregate figures when we're talking about federal income taxes? The dirty secret in American politics is that most people pay more in regressive payroll taxes than income taxes.That's quite correct; most people pay more in Social Security taxes (the vast bulk of the "payroll tax") than in income taxes.

Nevertheless, pulling FICA out of the total still leaves you with numbers that do not make a convincing case for the argument that cutting taxes does not increase revenues. The revenue changes, up or down, are in the same direction, only smaller because FICA is excluded. So really, you're left with the same argument I made earlier: This is evidence - not proof, evidence - that tax cuts at least sometimes increase revenue.

Then you have to account for inflation, increased worker productivity, and population growth (more people entering the work force).Again correct. How can you possibly quantify how much of the increased revenue is due to a tax cut, when there are so many other variables at work? Indeed, how can you quantify the alleged cause of any change in revenue, up or down, if you can't control for multiple variables?
A physicist, chemist, or biologist who tried to draw conclusions without controlling for so many variables would be laughed out of his profession. Unfortunately, that's the nature of the "dismal science" of economics.

Remember that great economist, goldbug, and Ayn Rand follower, Alan Greenspan, "reformed" social security by jacking up taxes on the working class. Funny, I thought only Congress had the power to raise taxes. Live and learn.

2001 713.8 <-- Oh, so that's where the money's coming from
2002 729.6 and look
2003 749.9 it seems
2004 788.0 to be
2005 849.9 steadily
2006 890.1 increasing!

Well, no, as your own segregating of the two taxes - income and Social Security - shows. Revenues from both income taxes and Social Security taxes are both increasing.

Please don't misunderstand and impute to me more than what I am arguing. I am not trying to sell the idea that cutting taxes always increases revenue. That would be as nonsensical as saying that raising taxes would always increase revenues. I'm saying I haven't seen convincing evidence of the claim that cutting taxes never increases revenues.

If that makes me a Clausean ("Evidence?"), then I'll have to shrug my shoulders and say, "Okay..."

[Dabljuh]

So really, you're left with the same argument I made earlier: This is evidence - not proof, evidence - that tax cuts at least sometimes increase revenue.What?Please don't misunderstand and impute to me more than what I am arguing. I am not trying to sell the idea that cutting taxes always increases revenue. That would be as nonsensical as saying that raising taxes would always increase revenues. I'm saying I haven't seen convincing evidence of the claim that cutting taxes never increases revenues.I haven't seen convincing evidence that cutting taxes EVER increases revenues.

Or using the same methodology: Poking your nose 5 times a day increases tax revenues as well, if you don't correct for growth per capita, population growth, and inflation.

Check this excel sheet. It contains your figures, as well as GDP per capita, population, and inflation.

[Elind]

By the same token, increasing the tax rate to 100% would also decrease revenue (who's gonna work if the government takes 100% of his paycheck?).


As you say, the variables are many, but there is certainly evidence that there is a point, depending on social attitudes, where tax levels discourage any additional "work" by individuals, as opposed to investment related factors. If you work hard enough to bump up to the next tax bracket you realize that your hourly net wage just went down and you are working harder to earn less. :(

[Dr Adequate]

Personally, my belief regarding the efficacy of tax cuts is similar to what Tommy Lasorda had to say about managing a baseball team. "Managing is like holding a dove in your hand. Squeeze too hard and you kill it; not hard enough and it flies away."

Cut tax rates too much, and you'll get less tax revenue. Raise tax rates too much, and you'll get less tax revenue.

Now let's get some more evidence, so we can figure out how hard to squeeze the dove taxpayers so as to maximize revenue. Why would you want to maximize revenue?

I didn't have you down as a fan of big government.

[BPSCG]

As you say, the variables are many, but there is certainly evidence that there is a point, depending on social attitudes, where tax levels discourage any additional "work" by individuals, as opposed to investment related factors. If you work hard enough to bump up to the next tax bracket you realize that your hourly net wage just went down and you are working harder to earn less. :(Problem there is, that optimal rate varies from person to person. There are people who'll work even when government takes 90% of their salaries, commonly known as Swedes, and there are people who won't work no matter how low taxes might be, commonly known as my <rule8> cousin.

[davefoc]

Why would you want to maximize revenue?

I didn't have you down as a fan of big government.

I think it is possible that the nature of human beings will always lead to governments that will raise taxes to revenue maximizing rates at a minimum.

I don't think BPSCG was advocating this but I suspect he might be resigned to the reality of it. There are no doubt some fiscal conservatives who vote Republican because they still believe the Republican party rhetoric but the reality is that Republicans are no more thrifty than Democrats. What those of us who vote are left with is deciding which party is going to spend the money in the way that is most consistent (or least inconsistent) with our beliefs. Republicans will spend more money on wars, corrupt agricultural subsidy programs, corrupt ethanol schemes, corrupt drug reimbursement plans, and corrupt corporate welfare projects. Right now, I have some hope that Democrats will do less of this. But in California the Democrats have created a criminal enterprise devoted to the transferral of wealth to their connected union cronies and their connected trial lawyer cronies so I am not optimistic that much of my tax dollars are going to be spent in ways that I deem useful whichever party is in power.

[BPSCG]

Why would you want to maximize revenue?

I didn't have you down as a fan of big government.How else are we supposed to pay for the aircraft carriers we need to invade Great Britain and ensure the free flow of bad weather and jellied eel to the U.S.?

[Elind]

Problem there is, that optimal rate varies from person to person. There are people who'll work even when government takes 90% of their salaries, commonly known as Swedes, and there are people who won't work no matter how low taxes might be, commonly known as my <rule8> cousin.

I don't have the dates, but what you quote was the case in Sweden quite some time ago, although it was not 90% of everything, but could be 90% of an "incremental" earning above a lower level. That in fact discouraged many to work beyond a certain level, but I believe was abolished as such some time ago. They are more capitalist than socialist today.

There was an article recently somewhere (Time?) about the Danes, having one of the best economies and highest tax rates and satisfaction with taxes, of anyone. I guess the point is that they get good value for their taxes. Maybe we could hire their bureaucrats?

[Dabljuh]

The statement that "decreasing taxes will (sometimes) lead to higher revenue" has shown to be patently false in the past.

The idea behind the laffer curve is to get the government to do deficit spending. I.e. the thing that Keynes gets attacked for (but never advocated it himself) - How else are you supposed to pay for subsidies to corn, israel, and the aircraft carrier industry that the real life 'small government' politicians always have.

Ordinarily you had to decrease spending when you wanted to decrease taxes. Laffer and Reagan simply aimed to excuse a deficit while increasing spending for important things like Star Wars.

[Cain]

That's quite correct; most people pay more in Social Security taxes (the vast bulk of the "payroll tax") than in income taxes.

Nevertheless, pulling FICA out of the total still leaves you with numbers that do not make a convincing case for the argument that cutting taxes does not increase revenues. The revenue changes, up or down, are in the same direction, only smaller because FICA is excluded. So really, you're left with the same argument I made earlier: This is evidence - not proof, evidence - that tax cuts at least sometimes increase revenue.

You padded your numbers, the last six years in particular. I do not think anyone disputes the essential, trivially true logic underlying the so-called Laffer curve.

Again correct. How can you possibly quantify how much of the increased revenue is due to a tax cut, when there are so many other variables at work? Indeed, how can you quantify the alleged cause of any change in revenue, up or down, if you can't control for multiple variables?
A physicist, chemist, or biologist who tried to draw conclusions without controlling for so many variables would be laughed out of his profession. Unfortunately, that's the nature of the "dismal science" of economics.

Economists have investigated the claims of supply-siders for 30 years. Reaganomics is ********.

Funny, I thought only Congress had the power to raise taxes. Live and learn.

Wrong again. Alan Greenspan has these powers... he's like elf-wizard.

Well, no, as your own segregating of the two taxes - income and Social Security - shows. Revenues from both income taxes and Social Security taxes are both increasing.

Are you crazy? You presented figures for the Bush administration that showed tax revenues sloping up, but it's a false image that had nothing to do with the tax cuts. Look at the more precise figures I quoted and then take into consideration inflation, population growth.

Please don't misunderstand and impute to me more than what I am arguing. I am not trying to sell the idea that cutting taxes always increases revenue. That would be as nonsensical as saying that raising taxes would always increase revenues. I'm saying I haven't seen convincing evidence of the claim that cutting taxes never increases revenues.

See, this is the B.S. I'm talking about; the false sense of balance. Really, it would be as nonsensical? In liberal democracies, where people have some decision-making power in electing their leaders, I am guessing, supposing, that taxes will be brought down to semi-tolerable levels (90 or 95%). Have you learned nothing from the Reagan years? You're setting this up as if it's a 50/50 situation when decreasing taxes to increase revenues is more of an exception. You're like one of those annoying agnostics who says theists and atheists are "equally full of themselves."

[Father Dagon]

The great mystery is why politicians who wants to lower taxes doesn't start with lowering expenses.

As a libertarian, I'm appalled by the "cleverness" of right-wing economists. Not only will the elitism cast libertarianism in a bad light, but it will also raise calls for "counter-elitism".

I think that any respectable economy degree should include one year of running a company. Good luck with cooking the books, you bastards!

[davefoc]

My understanding is that Democrats and Republicans favor tax schemes that benefit their constituents. They then convince their constituents to support them by telling them that such tax schemes are good for the economy.

In general, I agree with Democrats that:
-Progressive taxation is good
-Taxes on externalities (I.E., pollution taxes) are a good thing
-The bulk of taxation should come from income tax, not consumption taxes (consumption taxes are regressive)
-A variety of different taxation is good
-Higher taxes aren't necessarily bad (taxation overall should be increased in America)
-If there are new tax cuts, they should be for the poor and middle-class, not the wealthy

I agree with Republicans, though, that:
-The tax system is purposely complex to benefit the wealthy (though they're largely responsible!) and simplifying it is a good thing
-Excise taxes on tobacco, alcohol, etc. primarily harm the poor
-Consumption taxes are more efficient than income taxes
-Direct welfare and the minimum wage increase unemployment
-Corporate income taxes should be reduced
-Tariffs and trade barriers should be eliminated

FWIW, I'd agree with most of that. Although I think higher taxes (meaning increases in government revenues) are probably a bad thing. The return on a dollar spent by the government is not very good for the average citizen. I also think the average citizen would be better off if the federal government got completely out of social spending and social programs. These dollars could probably be more effectively directed by the states, IMHO, but the growth of the federal government has largely dried up the possibility of state funded social spending.

I also quibble a bit with your criticism of consumption taxes. In a few primitive ways it is possible to make consumption taxes at least partially progressive. Start with not taxing food and perhaps lower value housing. With just this simple mechanism poorer people will end up paying taxes at a much lower rate than a rich person.

[davefoc]

The great mystery is why politicians who wants to lower taxes doesn't start with lowering expenses.



Perhaps you meant this humorously, but this is no great mystery. As I understand it the size of the federal government lobbies have doubled under Bush. Clearly, the Republicans figured out that taking bribes in return for government favors is a lucrative business and with a corrupt president in place there was almost no restriction on their ability to reward the lobbyists' largess with government favors.

I believe there are efforts underway to moderate the Republican party excesses with regard to this, but, IMHO, they are doomed to failure unless the Republican Party suffers overwhelming defeat. Right now, the cynical, corrupt wing of the party is in charge and nothing is going to pry them out of power except abject failure to win elections.

[Nathyn]

FWIW, I'd agree with most of that. Although I think higher taxes (meaning increases in government revenues) are probably a bad thing. The return on a dollar spent by the government is not very good for the average citizen. I also think the average citizen would be better off if the federal government got completely out of social spending and social programs. These dollars could probably be more effectively directed by the states, IMHO, but the growth of the federal government has largely dried up the possibility of state funded social spending.

I also quibble a bit with your criticism of consumption taxes. In a few primitive ways it is possible to make consumption taxes at least partially progressive. Start with not taxing food and perhaps lower value housing. With just this simple mechanism poorer people will end up paying taxes at a much lower rate than a rich person.
Well, existing taxes should be reformed first.

[Puppycow]

If you work hard enough to bump up to the next tax bracket you realize that your hourly net wage just went down and you are working harder to earn less. :(

I'm pretty sure that when you "go up the next tax bracket" it only increases that tax rate on the additional income, not all income. So there is no point where earning one extra dollar will increase your taxes by more than a dollar.

In general, I agree with Democrats that:
-Progressive taxation is good
-Taxes on externalities (I.E., pollution taxes) are a good thing
-The bulk of taxation should come from income tax, not consumption taxes (consumption taxes are regressive)
-A variety of different taxation is good
-Higher taxes aren't necessarily bad (taxation overall should be increased in America)
-If there are new tax cuts, they should be for the poor and middle-class, not the wealthy

I agree with Republicans, though, that:
-The tax system is purposely complex to benefit the wealthy (though they're largely responsible!) and simplifying it is a good thing
-Excise taxes on tobacco, alcohol, etc. primarily harm the poor
-Consumption taxes are more efficient than income taxes
-Direct welfare and the minimum wage increase unemployment
-Corporate income taxes should be reduced
-Tariffs and trade barriers should be eliminated
Sounds reasonable, but can't taxes on alcohol and tobacco be considered externality taxes?
I think progressive is good, but that negative externalities should be taxed even if they aren't progressive. (And positive externalities could be subsidized in certain cases). However, one has to be very careful about calculating the true cost of externalities. It may not be so easy, and the benefit of any real doubt should probably go in favor of not overtaxing.

[Kerberos]

I'm pretty sure that when you "go up the next tax bracket" it only increases that tax rate on the additional income, not all income. So there is no point where earning one extra dollar will increase your taxes by more than a dollar.


Sounds reasonable, but can't taxes on alcohol and tobacco be considered externality taxes?
I think progressive is good, but that negative externalities should be taxed even if they aren't progressive. (And positive externalities could be subsidized in certain cases). However, one has to be very careful about calculating the true cost of externalities. It may not be so easy, and the benefit of any real doubt should probably go in favor of not overtaxing.
Well externalities are things that hurt others, while alcohol and tobacco primarilly hurt yourself. You could argue of cause that if you have socialized medizine the inividual doesn't bear the true cost of his smoking or whatever. On the other hand people who die when they're 55 for example don't draw pensions. IN summery I'd say that a defence of those kind of taxes probably have to relly primarilly on public health ground rather than externalities.

[GodMark2]

BPSCG's list, as a chart, corrected for inflation (values are in 1961 dollars)

http://www.spiritone.com/~godmark2/Pics/TaxRevenues.PNG

The dotted line is a simple exponential regression. A baseline to compare the actual revenues to.
The green pointers are (from left to right)
Event|Short Term Effect (2 years)|Long term Effect (4+ years)
Kennedy Tax Cut|Possible small increase in effective revenue|Returns to regression reference
Reagan Tax Cut|Decrease in effective revenue|Returns to regression reference
Bush I Takes Office|Decrease in effective revenue|Not enough data before Clinton Tax increase
Clinton Tax Increase|Increase in effective revenue|Increase in effective revenue
Bush II Tax Cut 1|Decrease in effective revenue|Not enough data before Tax cut 2
Bush II Tax Cut 2|Increase in effective revenue|Not enough data in set

From that, the tax cuts don't seem to be doing too well overall.

[Elind]

I'm pretty sure that when you "go up the next tax bracket" it only increases that tax rate on the additional income, not all income. So there is no point where earning one extra dollar will increase your taxes by more than a dollar.

Sorry, I should have been more clear. You end up earning less and less, for the time that you work.

[pgwenthold]

What a shock. The Bush administration borrowed hundreds of billions of dollars and gave it to corporations, creating a mostly bogus economic upswing.

This is the part that usually gets missed (especially wrt to Reagan's era). Supporters say, "tax cuts ---> increased tax revenues." However, why shouldn't we attribute those increased tax revenues to the massive increases in government spending? Empoyees of defense contractors pay taxes, too.

It's like if I claimed that a savings account is better than a CD because I got $200 dollars in interest with my money in a savings account but only $100 with my CD. Of course, I fail to mention that I had tied up $10000 in savings, but $2000 in the CD.

I would expect tax revenues to go up significantly any time the government spending is increased as much as it was with Reagan or Bush, Jr.

[Random]

Sorry, I should have been more clear. You end up earning less and less, for the time that you work.

You're still making more and more money for the time that you work. There are only a certain number of hours in a day. A studio executive might make ten times as much money as me, but I seriously doubt they are putting in a four hundred hour work week.

[Elind]

You're still making more and more money for the time that you work. There are only a certain number of hours in a day. A studio executive might make ten times as much money as me, but I seriously doubt they are putting in a four hundred hour work week.

I don't know about you, but in the kind of extreme case that was mentioned (90%) or something significantly related, I would find it a considerable disincentive to work serious overtime when I might as well be doing it for minimum wage. I could also sell chewing gum on a street corner after knocking off from my $100k job in the office, and still be making more money. Unless I was financially desperate, I would be likely to value my free time at a certain minimum income rate.

What can happen in reality is that many people will instead look to "black market" work at a second job where they pay no tax, hence at some point high tax rates will create black markets that reduce tax revenue. Therefore reducing tax rates can increase revenues, but there will be a balance point below which rates cannot go and still increase tax revenues. Therefore blanket statements like "reducing taxes increases revenues" can be true, but cannot always be true as they seem to be held by the religiously conservative.

[Lurker]

Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?

Let's see your evidence.

In the meantime, here's some evidence to the contrary.

Or you could show evidence that revenues increased after tax hikes. Got any?

I have the same evidence you have, that after rate increases we see revenue increse as well. Clinton raised taxers for example and we saw revenue rise.

Causation/Correlation is the problem. I recall one website I found did a statistical analysis to determine if there was correlation between revenue nad tax rates and found none.

See this page for some related details, expecially Figure 8. http://www.faireconomy.org/press/2006/No_Thanks_Report_01.06.pdf

[Dabljuh]

I have the same evidence you have, that after rate increases we see revenue increse as well. Clinton raised taxers for example and we saw revenue rise.

Causation/Correlation is the problem. I recall one website I found did a statistical analysis to determine if there was correlation between revenue nad tax rates and found none.Breaking News: Scientists discover a link between tax revenue and tax rates!

Here's an unexpected thing that does increase tax revenue: Government spending.

And that way, the bush government has really done something for tax revenue that almost neutralizes the huge tax cuts from 2001.