Posted on 04/29/2003 7:10:17 AM PDT by TLBSHOW
Bush Tax Cut Puny Compared to Reagan's
April 28, 2003
America's Gross Domestic Product, and how it has grown over the last 22 years, is the key factor when comparing President Bush's tax relief package with Ronald Reagan's. After all, if you owed $5 as ten-year-old, it's hardly equal to owing $5 as a 32-year-old - even with inflation. Likewise, our GDP has grown - and will be larger still in 10 years. The mistake people make is judging this ten-year tax cut based on today's GDP.
You should no more do that than you would plan to make the same income in 10 years than you do today, with no growth and no raises. The deficit as a percentage of GDP is tiny; you get out of deficits (pay your debts) through growing your income and reducing spending. (Note: a multi-year plan passed by one Congress has no binding power on future congresses.) An e-mailer sent me an example from his MBA study days illustrating how a GDP of $9 trillion can be predicted, counting on a moderate growth rate of 4%. Note that GDP for 2002 totaled $10.4 trillion according to the Department of Commerce, and based on the first quarter of 2003, we're on target for $10.7 trillion this year. The key point is, consider $350 billion in tax relief as a percentage of 10 years worth of $10.7 trillion GDP. That's 0.33% - even without any economic growth at all!
Politicians like Senator George Voinivich (R-OH) talk about whether the government can "afford" to lose that one third of one percent of their vote-buying cash. This puts it exactly backwards. The money is ours, and we decide what we can "afford" to pay the government for what it does. This is like a child telling his parents he can't "afford" a cut in his allowance when dad gets laid off. What's worse, our children in Washington deficit spend - running up debts in our names - and then demand that we pay their Visa bills! How is it that the workers of America are the greedy, selfish little SOBs when we're working for the money?
America Cannot "Afford" Being Taxed and Taxed When They Need Jobs
A caller from Mississippi said, "The tax cut really represents an infinitesimal percentage of the GDP, which supports my position that Bush's tax cut will have no positive effect on job creation of the economy because it's so tiny..." He was right up until this moment, and then he swerved off into class warfare with the line: "...it only amounts to a give-back to his wealthy friends." He then hung up and ran away. Fact #1: There's nothing wrong with a tax cut no matter who gets it, because politicians have no right to tell us to work as slaves for the government because they need our money more than we do. (See: Every Tax Cut Helps Always)
Fact #2: Bush's $1.3 trillion tax cut was phased in over ten years, and he wants to speed it up specifically so we can get the economic impact now. The Reagan tax cuts were serious: 15% to 25% marginal rate reductions across the board. No matter what your income was, the percentage of your net income rose dramatically and your spending power skyrocketed. That's what drove the largest peacetime recovery in history and it fed all through the 90s. Reagan cut the top tax rate from 70% to 36%. Bush wants to cut it from where it's creeped up to, 39.6% to 36%. Deficits went up in dollars (because the Democrat Congresses never cut spending as they promised) but Treasury revenues nearly doubled over Reagan's eight years!
The mistake of saying this $726 billion (Bush's initial tax figure, now slashed to $350b) is too small comes from scoring tax cuts statically, without growth. The dynamic method - with which we simply calculate something other than the zero-sum game of the static method - takes into account a growing pie. The $726b itself is chump change compared to the GDP but the activity it will spawn - the confidence that it will ignite - is not. It is pretty static on the deficit side, but it's still infinitesimal. The point is, tax cuts are always right. They are moral and they are economically sound and they have been proven to be so. They are not a sop to anybody, unlike vote-buying programs that perpetuate poverty.
Then tax cut as we grow.
In the last election, Bush and Gore saw a balanced budget, tax cuts and unlimited spending for as far as the eye could see. In just two years that is 'done gone with Rush's dymanic wind'.
Stop 'borrowing' from social security and the future's kids. Tax cuts aren't conservative, reducing the cost of Washington is.
With fiat currency we can and do inflate ourselves out of debt. We pay back dollars that are not worth as much as we borrowed. Of course with all that has been taken from social security and the total debt added up we all owe about $120,000.00!
Actually paying this amount is not going to happen until currency is inflated so that a dollar is worth about a dime. That would take about 30 years at the current and historical rates.
No, I'm just someone voicing their opinion on Rush's article. However, as I noticed that my analysis was quoted (and, I believe, misinterpretted) in another discussion on this board, I'll post most of my comments there. That discussion is at http://www.freerepublic.com/focus/f-news/902449/posts. However, I do have one comment on the following first paragraph in Rush's article:
America's Gross Domestic Product, and how it has grown over the last 22 years, is the key factor when comparing President Bush's tax relief package with Ronald Reagan's. After all, if you owed $5 as ten-year-old, it's hardly equal to owing $5 as a 32-year-old - even with inflation. Likewise, our GDP has grown - and will be larger still in 10 years. The mistake people make is judging this ten-year tax cut based on today's GDP.
True. However, Rush is making the exact same error in judging the cost of the tax cut based on today's value of that cost. Since we now have over a $6 trillion federal debt, the cost will obviously get added onto it. As the GDP increases, so will the debt and the interest on that debt. The average interest paid by the marketable portion of the public debt was 4.11 percent on March 31, 2003 (see http://www.publicdebt.treas.gov/opt/opdar032003.htm). On March 31, 2000, it was 6.477 percent. Hence, the idea that we can simply inflate or grow our way out of the debt is a myth. As long as the interest rate is as high as the GDP growth rate, the debt (including the additional debt required to make the interest payments) will keep pace.
True, it's tough to argue against a free lunch. Everyone's willing to be a patriot if it involves taking a larger tax cut or accepting more spending. Unfortunately, our children will have to live with the results of our free lunch policies, however well they're marketed. In any case, I've compiled the information about Rush's latest foray into mathematics and posted it at http://home.netcom.com/~rdavis2/cutpuny.html.
I have studied this issue for years and am yet to see any evidence that cutting tax rates increase revenues. In fact, I have seen a great deal of evidence to the contrary. For example, Rush likes to cite the old bromide that the Reagan tax cuts doubled revenues. Following is an analysis of the actual numbers:
Another serious flaw in the doubling of revenues argument is that it looks at all revenues. The FICA tax rate increased from 6.13 percent in 1980 to 7.51 percent in 1988. To include an increase in revenues gained through a tax hike in order to argue in favor of tax cuts would be the height of hyprocrisy. Hence, we need to look only at revenues obtained from individual income taxes. According to the second table, the real growth in individual income tax receipts was 12.84% from 1980 to 1988 and 13.80% from 1981 to 1989. These were the lowest growth rates of any of the 55 8-year spans from 1940 to 2002 except for four. These four 8-year spans were 1952 to 1960 (9.12%), 1953 to 1961 (7.72%), 1968 to 1976 (11.61%), and 1969 to 1977 (3.28%). The highest real growth rate was 78.55% from 1992 to 2000, following the 1993 tax hike.
Hence, the evidence is that the Reagan tax cuts DECREASED revenues over what they would have been, at least over the short (8-year) term. The only remaining argument in favor of the Reagan tax cuts, at least from a revenue point of view, would seem to be that they permanently raised the level of the GDP, thus bringing in slightly higher revenues far into the future. According to the graph and second table, the GDP reached a high 8-year growth rate of 34.3% from 1982 to 1990. However, the GDP seems to have reached a similar high about every ten years over the past several decades. It reached a high of 41.57% from 1958 to 1966, 29.20% from 1971 to 1979, and 32.58% from 1992 to 2000. Hence, these figures don't provide any strong evidence that the Reagan tax cuts permanently affected the GDP one way or the other.
I have studied the issue too. The numbers don't require a rocket scientist to determine that the lower rates of Reagan's "cut" resulted in a doubling of revenues. It was also demonstrated by the Kennedy cuts that the government actually received a smaller percentage of a much larger number. The deficits resulted from a tripling in spending by the Democratic Congress.
I have studied the issue too. The numbers don't require a rocket scientist to determine that the lower rates of Reagan's "cut" resulted in a doubling of revenues. It was also demonstrated by the Kennedy cuts that the government actually received a smaller percentage of a much larger number. The deficits resulted from a tripling in spending by the Democratic Congress.
It's clear to me that you're a card-carrying cult member of the Church of the Free Lunch. All of my numbers are correct and, except for the tax rates, they come straight from the Historical Tables of the last U.S. Budget. Which of the numbers do you disagree with?
Anyhow, I'll make if simpler for you by summing it up in the following facts. At 99.6 percent, revenues did nearly double during the 80s. However, they had doubled during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION! At 96.2 percent, they nearly doubled in the 90s as well. Hence, claiming that the Reagan tax cuts caused the doubling of revenues is like a rooster claiming credit for the dawn.
Yet even the 99.6 percent is overstated. If you look at the eight years from 1981 to 1989 (the budgets for which Reagan was responsible), total revenues went up 65%. However, individual income revenues went up just 56%. Social Insurance receipts, on the other hand, went up a whopping 97%! It's no coincidence that these revenues are funded by the FICA tax whose rate INCREASED in the 80s. Furthermore, if you correct the revenues for inflation, the total, individual income, and social insurance revenues increased by 21%, 14%, and 44%, respectively. As I said before, it would be the peak of hypocrisy to include an increase in revenues gained through a tax hike in order to argue in favor of tax cuts.
My key concern is not that the government has enough money to pay for all of the BS you want them to, I only want them to pay for the things they can afford within the tax rate constraints proposed. The government should only do those things that only the government can do. If it's not in the constitution they need to leave it alone. Deficits don't occur because we are taxed too little, they occur because the government spends too much. The money doesn't belong to the government and no body has to "pay for a tax cut". That is just Keynsian psycho-bable. If every family and small business can learn to prioritize and live within a budget so can Washington. Cut the rates further!
And me thinks thou doth protest too little! As with every other supply-sider that I have run across, you don't contradict any of my figures. It makes me wonder what your true agenda is. I know that many supply siders have the agenda summed up in the following excerpt:
Tax Plan Argument Five: Let's be honest. The ultimate purpose of the Administration's tax cut plan has nothing to do with economics. It's about politics or political philosophy. The purpose is to starve the government of revenue so that, in the long run, Congress will have no choice but to cut back spending and, with that, diminish the size of government. Some Republicans argue that tax cuts are the only way to reduce government spending in a world in which powerful interest groups, allied with the opposition party, stand ready to punish any attempt to cut off the flow of government largess. A direct approach, they say, is futile. The only practical option is to pursue the indirect but more popular course of revenue reduction, choking off government's resources at the source. True, deficit financing can keep outlays flowing for a time. But as in the famous story of Solomon, these strategists hope that Democrats will agree to cut spending rather than punish our children by smothering them with debt. This is a seductive apologia. But I have three objections to it: It is unfair, it is cynical, and it is hypocritical.
It is unfair because no end, however legitimate, can justify such means. Nothing excuses holding the next generation hostage-any more than your own children-on the dubious bet that another party will have the good will to relent. What if instead they employ your strategy in reverse? What if they call your bluff, raise your ante, and allow a floodtide of debt to sweep forth? What next step do these partisans suggest?
It is cynical because it assumes that our democratic process is broken and that we can no longer directly advocate a policy for the common good, but must instead rely on subterfuge to achieve our purpose. It assumes a political system in which the two parties are so polarized that they no longer share any common values or aspirations on which open agreement can be reached. I, for one, refuse to accept this dismal view. And it is hypocritical. One could take the ostensible goal of the tax cutters-smaller government-more seriously if we saw that the party pushing the tax cut were also trying with great energy and diligence to reduce government spending in the near-term and especially in the long term with genuine reform of what OMB itself calls our unsustainable entitlement programs. But we see nothing of the sort.
If you doubt me on this point, listen instead to Urban Institute tax expert Eugene Steuerle, respected by both parties for his long track record of dispassionate objectivity. To date, Steuerle writes, the Bush administration has assiduously tried "to avoid budget choices that might take some tax or benefit expenditure away from anyone. Thus it has not pushed to enact any systematic reform that almost inevitably creates losers as well as winners. Every significant enactment so far has involved losing revenues by more spending or more tax cutting-whether this issue has been domestic discretionary spending, defense spending, or tax cuts. So far, few benefits, however unworthy, have been taken away from interest groups-as reflected in the dearth of base broadening tax proposals. Preferences sought by many groups-farmers, steel workers, and railroads, among others-have often been expanded."
In other words, it's hard to find the small-government argument persuasive when, on the spending front, the budget does nothing to reform entitlements, allows debt-service costs to rise along with the debt, and urges greater spending on defense and indispensable homeland security-and when these functions comprise over four-fifths of all federal outlays.
Source: 4/30/03 Testimony by Peter G. Peterson before the U.S. House Committee on Financial Services, entire testimony is online at:
http://www.concordcoalition.org/federal_budget/030430petersontestimonyfull.htm
I reject your initial maxim that the government is preferrentially entitled to the fruits of my labors because of a general or public need. That is the fundamental issue of fairness, not at what rate the government confiscates. From my abilities to another's needs, no matter how the arguement is couched, is a failed concept. There is now sufficient emperical data to quell your asertions. The "Invisible Hand" takes better care of a general population than a "Socialist Fist".
Believe it or not, convincing you of anything is very low on my list of priorities. My main goal in engaging in online conversations is to increase my own knowledge, either through a specific critique of my arguments or by a coherent presentation of new arguments, along with some sort of evidence and/or sources. I have heard neither from you. Hence, unless you have a specific critique of my arguments or have evidence of your own to present, I suggest that we end this conversation.
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