Dan Among Den

Um, yeah. Sure. Lies, damn lies, and..

The reason those tax cuts were sunsetted was because the deficit picture looked too frightening (to Bush's people) on out past the end of his term, when demographics are guaranteed to put greater stress on the government.

I'd need to see a whole heck of a lot more data before I give creedence to a Wall Street Journal editorial page piece along these lines. It may be that the recent CBO data effectively refutes everything economists have beeing saying for the last three years, but knowing the WSJ, it may all be a bunch of spin.

Out of curiosity and interest in getting my numbers straight on the revenue side, what do the totality of federal tax receipts look like when compared to the 8 months prior to the enactment of the Bush tax cuts? 30% over the last two years in personal and corporate income tax balanced against what sort of drop in other revenues?

Why haven't I been hearing about a 15% annualized growth rate in the economy over the last two years, if income tax revenue is up 30%? Is it just that the super-rich are now collecting an even bigger slice of the pie, enough so that their now modestly higher tax bracket comprises this increase in revenue?

How many jobs have been lost since Bush took office? Who is it that can't afford to make the tax cuts permanent?

Yeah, we can all have fun with statistics, but these are a little harder to refute.

IMO, the sunset was put in because of a divided Senate.

As for WSJ spin vs. the CBO, I've seen independant articles on the wire quoting the same rise in total revenue that the WSJ is mentioning here.

Note that the 30% tax revenue rise mentioned here was specifically on the areas that received the described tax cut. This is an important consideration since the thrust of the article is about the Laffer curve. The economy as a whole has not been growing at 15% total.

As for jobs, it's inappropriate to measure the tax cut's effects by measuring since he took office. Instead, you must measure since the tax cut went into effect, and in that period the job growth has been significant. (The article went on about this, but it was in the section I excluded.)

As for balancing the rise against some other drop, the CBO numbers show an increase in the TOTAL revenue, so it's not a trade of one revenue stream for another.

Again, the article was specifically about a case where the Laffer Curve theory has been validated. If you're in the waning part of the curve, then lowering the tax rate will increase the revenue generated by that tax. Not all taxes are necessarily in that waning part of the curve, but many are. It's not about going easy on the taxpayers. It's about convincing them to do more of the economic activity that generates that revenue.

Let me reiterate what you said:

The deficits are being caused by spending.

I don't think that gets said often enough. When I see some of the dollar amounts that get tossed around, I have to wonder whether Congress has a clue about where the money comes from.

Yes, it's about spending, some legitimately required, some not, and we don't have agreement on which is which. (Ex: War on Terror vs. Medicare prescriptions)

It's been my greatest disappointment in the Republican Congresses of the last few years. Once gaining power, they forgot the smaller-cheaper-government philosophy that got them there, and Bush hasn't used the veto to restrain them.

Note that the 30% tax revenue rise mentioned here was specifically on the areas that received the described tax cut. This is an important consideration since the thrust of the article is about the Laffer curve. The economy as a whole has not been growing at 15% total.

That wasn't clear from what you quoted. If the 30% revenue rise was indeed measured over all the areas that received the tax cut, then that certainly may be significant.

Other things may be significant as well, however. For instance, the dollar has taken a beating against other, free-floating currencies, so that revenue increase may effectively be in cheaper dollars than the baseline that it is being compared against. For corporations which are receiving revenue from overseas denominated in Euros, for instance, you'd expect to see that tax revenue rise even in the face of constant value sales.

And no shame in that if that is influencing these numbers, by any means, but it'll take a lot more comprehensive data to attribute all the benefit to the tax reduction and the Laffer curve.

As for jobs, it's inappropriate to measure the tax cut's effects by measuring since he took office. Instead, you must measure since the tax cut went into effect, and in that period the job growth has been significant. (The article went on about this, but it was in the section I excluded.)

Okay, good to hear. The last I heard, the job picture hadn't improved all that much, particularly when you contrast it against the rate of population growth of the US.

Again, the article was specifically about a case where the Laffer Curve theory has been validated. If you're in the waning part of the curve, then lowering the tax rate will increase the revenue generated by that tax. Not all taxes are necessarily in that waning part of the curve, but many are. It's not about going easy on the taxpayers. It's about convincing them to do more of the economic activity that generates that revenue.

There are lots of things that encourage that economic activity. Next to zero percent short term interest rates in inflation-adjusted terms certainly encourages a lot of activity, as does the state of our currency relative to certain of our trading partners.

I'll look forward with interest (*cough*) to seeing more analysis on these numbers. If our tax revenue has in fact increased, across the board, to the extent that you're suggesting in this post, I'll be relieved and fascinated. I will be looking to see what window such comparisons are drawn in, however. A lot of magic can happen based on where you place the baseline for comparison.

I don't think that gets said often enough. When I see some of the dollar amounts that get tossed around, I have to wonder whether Congress has a clue about where the money comes from.

Agreed on that. A lot of our current economic success is in danger of collapsing if the asian rim countries decide to stop financing our debt at such low rates. Having the government in deficit spending when the economy is as finely balanced as it is seems like a bad idea.

Other things may be significant as well, however. For instance, the dollar has taken a beating against other, free-floating currencies, so that revenue increase may effectively be in cheaper dollars than the baseline that it is being compared against. For corporations which are receiving revenue from overseas denominated in Euros, for instance, you'd expect to see that tax revenue rise even in the face of constant value sales.

There's some of that, but it goes both ways. At the beginning of the tax cut, the dollar was very strong against the Yen and Euro, then took a beating down to some lows, and has since been recovering nicely. IMO, this has had more to do with EU politics than US fiscal policy.

The last I heard, the job picture hadn't improved all that much, particularly when you contrast it against the rate of population growth of the US.

I don't think the unemployment rate has returned to the January, 2000 level yet, but that's not a fair comparison. We were in an unnaturally tight labor market then. I recall reading somewhere that 4% unemployment is actually good for an economy since it strikes the balance between too many out-of-work folks and companies being unable to hire the right people. As I recall, we had dropped below that 4% level, and a return to that situation is not necessarily a good thing for the economy.

There are lots of things that encourage that economic activity. Next to zero percent short term interest rates in inflation-adjusted terms certainly encourages a lot of activity...

Note that during the measured period, interest rates were raised 7 times in an attempt to reign in the growth rate that was threatening inflation. Long term rates have remained low, but short term rates have been far from zero for most of the measurement period. However, lower capital taxes (capital gain & dividend) have kept the rate of capital low, despite the rise in the cost of borrowing.

Having the government in deficit spending when the economy is as finely balanced as it is seems like a bad idea.

Strangely, I read an analysis once that suggested we should always have a budget deficit. I don't necessarily agree with it, but it was interesting. If I get the time, I'll write a summary of it.

Well, then again, this article from The Economist pretty much contradicts my musings about the dollar vs. the euro and the american employment situation.

I seem to remember a Bloom County cartoon that involved 3 economists in a room arguing..

BTW, you're right that the WSJ has a conservative bent to it. However, they are primarily a business and financial paper, so they live or die by the accuracy of their financial analysis. As a result, I consider their numbers (even those quoted on the opinion page) to be accurate and accurately represented.

Yes, well. The way they harassed and demonized the Clinton administration (Vince Foster, anyone?), and the spin they put on everything that intersected with their conservative ideology leads me to take what they say with a large grain of salt.

These were the editorialists who called poor people 'lucky ducks' for not making enough money to pay any significant federal income taxes, completely the actual grinding facts of life for people in that condition.

When The Economist hails this CBO report as an affirmation of the Laffer Curve, I'll be much more inclined to pay attention. I don't trust the WSJ to care at all about any larger economic picture than the short-term balance sheets of their investor class readers.

The Clinton Whitewater/Foster/Lewinsky thing is a subject for another blog entry, but I think that most of what the WSJ did was honest investigative reporting in the same vein as Watergate and Iran-Contra. They were also not alone in having those stories.

However, it had nothing to do financial or economic analysis. A medical journal might put out a controvesial piece on the politics of the drug war, but that would not IMO undermine their authority on medical matters. Over the years, I've just seen them to be "on the money" on financial and economic issues, in both predictive and after-the-fact analysis.

Did the WSJ predict the great fiscal results of the Clinton deficit reduction/tax increase initiative back in 1993? Or did they join with the Republicans in the Congress in declaring that it would crush the economy and lead to a prompt recession?

The thing about the Laffer Curve is that one never knows where one is on the curve unless one actually attempts to lower (or raise) the tax rate and see what happens, right? There are a myriad of external factors that may be forcing the peak of the curve to the left or the right at any given time.

I just doubt that the WSJ has ever come out in favor of any tax increase, even if it would mean that the government would realize an increase in revenues which would help provide a salutatory decrease in deficit spending.

I still maintain that the WSJ cares not one whit for anything other than what will increase the wealth of their targeted readership, rather than what will actually make the country more prosperous as a whole.

Yes, they did predict economic slowdown from the Clinton tax increase, but then backed off when interest rates came down, and then did a complete reverse to predict a coming boom. However, they did not predict the boom until AFTER the Republicans swept Congress in 94 on the promise (and eventual delivery) of a tax cut. The boom did not really get going until 95. Much of that boom came from cheap capital financing new business ventures and capital purchases, and the 1995 tax cuts were geared towards the capital markets. (Yes, evil tax cuts for the rich!) Note, of course, that they predicted an economic crash after the Bush 1990 tax increases, and they were right. Have they ever been wrong? Yes, but their accuracy leaves most in the dust.

They actually have come out in favor of several things that I would call tax increases. More to the point, they have long favored the closing of many tax loopholes that the super-wealthy use to avoid or lower their taxes. However, in general, they promote a simpler and lower tax system on the theory that it will provide more incentive to work/invest/risk while minimizing the incentive engage in sub-optimal activities in order to avoid taxes.

Knowing where we are on the Laffer curver remains a mystery to me, so lowering taxes will not always move you higher on the revenue axis. And yes, there are external factors, primarily monetary policy (under control of the Fed) and the current momentum of the business cycle (under the non-control of mass psychology). However, of the two things you can control, tax policy is probably the bigger lever.

But the WSJ has long argued that the 1990 and 1993 tax increases moved us towards the waning end of the curve and that we should move back towards the 28% top marginal rate (or lower), and they base this on the fact that those two tax increases did not yield the promised increases in revenue. The CBO generally doesn't score with the Laffer curve, using a static model instead. As a result, the tax cuts always promise lower revenue in the CBO's eyes, and they "fail" to deliver on that promise too.

Of course, you are entitled to your opinions on the motives of the WSJ editors. However, it does not count as a counter-argument against their analysis. I don't expect anything I say will change your opinion of them, but you might try reading them for a year. Even if you don't agree with them, it's always envigorating to read the opposition.

Of course, you are entitled to your opinions on the motives of the WSJ editors. However, it does not count as a counter-argument against their analysis. I don't expect anything I say will change your opinion of them, but you might try reading them for a year. Even if you don't agree with them, it's always envigorating to read the opposition.

Oh, I have read them. And I do make a point of reading/listening to "the opposition", actually. I've spent quite a lot of time listening to KIXL (Christian Talk Radio) here in Austin, though I'm the farthest thing from a believer.

I do understand and appreciate the supply-side argument. I'm just not impressed by ideologues on either side jumping on a particular factoid and running with that, when it is so easy to jimmy with the statistics.

Your assertion that we should just get over the "over-used and false diatribe" that federal revenues dropped as a result of the Bush tax-cuts seemed rather too much of a "just-so" story, when the real economic picture is considerably more complex.

It's good to hear that you're listening to those you disagree with, but be sure to listen to the intelligent and reasonable ones you disagree with. [Insert knee-jerk reponse: If they were intelligent, they wouldn't espouse those views!] I don't know if KIXL qualifies (nor do I know if they don't), but I definitely think WSJ does.

I must also comment on the speed with which you're responding to my replies here. I get email notification of your response because it's my blog. How are you discovering my responses so quickly? Are you just monitoring it, or do you have a blog-reader that notifies you upon comment-updates?

I ask because I've had this kind of long comment thread before, but from the other side, and it was annoying to have to go back and check for replies when what I really wanted was the kind of email notification I would have gotten on LJ.

I've just been occasionally checking, sorry.

I don't know of any blog-readers that would actually do the screen-scraping required to do this sort of monitoring in the absence of an XML digest. The best solution, obviously, would be if the blog software handled the email notification.