December 12, 2005
Even NY City is in the black...
OpinionJournal repeats an important fact: Our economy is strong and growing steadily, and this started with the Bush tax cuts. Especially important because we are bombarded with fatuous propaganda stating the opposite. A large percentage of drooling idiots (which, when it comes to economics, is a large percentage of the populace) actually believe that Bush "is bankrupting the country with a combination of aggressive military spending and reduced taxation of the rich." Believing such stupidity should automatically remove a person from the voting rolls, (and from the ranks of Republican Congressmen) but alas does not...
...The very fact that it is proving so difficult to secure a mere two-year extension of President Bush's most notable first-term domestic-policy achievement underscores how far Republicans in Congress have stumbled of late. The 2003 tax cut is about as clear a policy success as has come out of Washington in many years:Finally, we wonder if any of the faux debt-hawks in Congress noticed that thanks to the sizzling economy, states and localities are now running hefty budget surpluses, reversing years of red ink and painful service cutbacks. Even New York City--which for years looked like the U.S. version of debt-plagued Argentina--is back in the black....(Thanks to Betsy Newmark)
- The stock market has risen by about $4 trillion in value, and an estimated 40% of that gain is directly attributable to increases in the after-tax return on equities, thanks to the tax cut. (If the tax cut expires, the market will instantly give back those gains.)
- Housing values have soared so rapidly that the fear is we now face a bubble. Household net wealth has climbed by $10 trillion.
- Business investment--which had sunk into the abyss during the recession, falling by 21% between 2000 and 2002--has roared back to life. Spending is up nearly 25% over the past 30 months.
- Dividend payments to shareholders have doubled in two years, according to data gathered by the American Shareholders Association. The cumulative impact of the tax cut and the higher dividend payments has put $100 billion into the pockets of America's burgeoning investor class. The macro-economic signs all point to a solid, sustainable expansion.
- Employment is up 4.4 million and real GDP growth has averaged 4%--or twice the OECD average--since 2003. Today's unemployment rate of 5% means there are now roughly one million more Americans working than were projected before the tax cut.
- Oh, and yes, there was a $120 billion reduction in the budget deficit in 2005. That's because tax receipts rose by more than in any previous year in U.S. history, even adjusting for inflation. Receipts were up by $55 billion above projections in 2004; $122 billion above projections in 2005; and are already running well ahead of projections so far in fiscal 2006 (which began in October). •
By the way, the percentage of taxes being paid by the upper brackets of income has been increasing for decades. Starting at least with the Reagan tax cuts. (I strongly suspect the Kennedy tax cuts had the same effect.) In fact, whenever you cut tax rates across the board, the "rich" end up paying more! (It's insulting to the high intelligence of RJ readers to explain why, but the reason is that, the higher your tax rate, the more incentive you have to eschew productive investment in favor of tax-avoidance schemes...or to just spend your money instead of investing it.)
Lower the tax rates, and investment is more attractive. And it is the poor who benefit most from this. The rich will still be rich either way, but the poor stand to gain jobs, raises, self-respect, and a chance to rise in the world, and to shed the welfare-dependency and weakness that results from "Democrat" policies..
Posted by John Weidner at December 12, 2005 09:46 AMThe interesting thing about the last point (about the deficit) is that it was so predictable. The return of deficits in ’01 and ’02 had nothing to do with Bush’s tax cuts (they had barely gone into effect by then.) The deficits were purely a result of the recession and the increased spending for homeland security and the Afghan war, which would have occurred no matter who was president.
Recessions always hit government revenue hard because there is less economic activity to tax. But the reverse is true as well. When the economy starts to grow again government forecasts always underestimate revenue because there is economic activity that is just coming into being – and right now there’s a lot of it.
If you remember, Bush’s tax cuts were phased in and we are just now entering the period that the critics said the most “damage” to government revenue would occur. Well, here we are, and revenues aren’t declining they’re rising and will almost certainly continue to do so. The lesson? Economic growth has a far bigger impact on government revenue (and thus the deficit/surplus) than does the absolute tax rate.
"The deficits were purely a result of the recession and the increased spending for homeland security and the Afghan war, which would have occurred no matter who was president."
I'd even go a step farther, and say homeland security and the Afghan War and the tax cuts and the Iraq war - they all had essentially nothing to do with the deficits, it was purely a function of revenue to the government going down.
Receipts to the IRS were $2.10 trillion in 2000. Receipts were $1.95 trillion in 2003. Let's add the entire cost of the tax cut back in dollar-for-dollar, assuming there was no stimulus effect - I went to this anti-Bush site for data during a pre-election discussion I was having with a friend - they say $431 billion for 2001-2005. That's $86 billion/year in tax cuts.
Then let's add the cost of the Iraq War back in, dollar for dollar. At the time, I used total appropriations divided by two years, which came to $75 billion/year. Add in continuing operations in Afghanistan and you maybe add $10 billion to that figure. So that would have put total revenues in 2003 at $2.12 trillion.
So independent of the tax cut, and independent of the wars in Iraq and Afghanistan, revenues to the federal government went from $2.10 trillion in 2000 to $2.12 trillion in 2003, and annual rate of 0.32%.
Oh, and don't forget homeland security - according to this wiki, its budget in 2004 was $36.5 billion. Let's assume that was all new, unnecessary spending, and the budget in 2003 was constant - that takes us to 2003 receipts of $2.16 trillion, for an annual rate of 0.89%.
Now, compare that with Clinton's years. In 1992, gross receipts were $1.13 trillion - in 2000, they were $2.11 trillion. That's an annual increase of 8.12%.
Based on all of this, I would suggest that the deficit numbers have very, very little to do with pet policies, and everything to do with economic growth. If tax cuts do help grow the economy (and I don't know enough to argue that either way, though my guess is that they do help), it's a very cheap price to pay to nudge growth numbers up.
