Centerfield

This has been well covered before. There is strong evidence that tax cuts can bring in more revenue, as the economy is stimulated and production increases as a result. Moreover, the current deficit is more the result of runaway spending (for which you are welcome to blame the entire Congress along with the President) rather than decrease in revenue.

Finally, as has been noted in every single thread on this topic in the past, the deficit is smaller, as a percentage of GDP, than our past deficits. It may be the largest by dollar amount, but not nearly by percentage of GDP.

As Tully noted in the last thread like this, the only time we've ever had a balanced budget is when we've been in the middle of a overwhelmingly surging economy. Now... let the repeated arguments begin!

...so wait, if tax cuts bring in revenue, then why are we running a comfortable DEFICIT?

As the man most guilty of this said, here we go again. Republican Presidents have run consistently way higher deficits since the late 70s than Democratic Presidents have.

If lowing taxes raised revenues, it'd be the other way around.

I'd like to start by pointing out a few of the things that alwasy come up that are a little bit "bee-essy."

As the man most guilty of this said, here we go again. Republican Presidents have run consistently way higher deficits since the late 70s than Democratic Presidents have.

We've only had 2 democratic presidents during this time, right? So let's leave aside picking an arbitrary period of time that provide one with a favorable period to allow the illusory proving of a point.

This has been well covered before. There is strong evidence that tax cuts can bring in more revenue, as the economy is stimulated and production increases as a result.

As we all know, past results are no guarantee of future performance. This argument is used to justify every single tax cut, but at some point there has to be a limit. Also, this argument completely dismisses the notion that equity should be an issue.

Moreover, the current deficit is more the result of runaway spending rather than decrease in revenue.

Folks, a dollar is a dollar is a dollar is a dollar. A deficit is a gap between revenue and spending, and there is no real way other than philospohical preference to attribute the deficit to one over the other. If we had either enough revenue or sufficiently curtailed spending, the budget would be balanced.

Finally, as has been noted in every single thread on this topic in the past, the deficit is smaller, as a percentage of GDP, than our past deficits. It may be the largest by dollar amount, but not nearly by percentage of GDP.

This is an idea I'd like to focus on. Serious discussion about the deficit should include an understanding about the reasonable extent to which carrying debt is sustainable and even desirable. It's really not necessary that the budget be completely balanced, but the amount of debt our nation carries must be manageable when compared to the rate at which the government collects revenue. Let's be fair and reasonable about this..many of us have credit car debt, a car loan, and/or a mortgage. So we know that it's not intrinsically financially irrresponsible to buy things before we can afford their entire cost. We know this sort of thing is theoretically indefinitly sustainable so long as the numbers work out. You can spend 3% more than you make every year, as long as you get a 4% raise every following year. Thew only time there's a growing probl;em is if your overall debt is growing in comparision to your overall worth. Or if you have looming expected financial burdens that you can't expect to be able to afford....which leads to...

IMO, the real problem with the deficits we currently face is not simply their current scope, but rather the extremely high likelihood of substantially growing demographic pressure upon some of the most costly items the government funds, social security and medicare. More people living longer and consuming vast quantities of government dollars by collecting social security, medicare, and support from other burgeoning government healthcare financing programs. We can reasonably forecast substantially growing costs for such current budget items whose price tags, so far as I know, continue to grow at rates well beyond the rate at which the government is collecting money to pay for all items.

That's the root of what's likely to be the biggest budgetary challenge America needs to face over the coming years. And we have to decide as a people to balance what we want with what we can afford to finance.

Guess we aren't going for the reasoned, centrist approach anymore. Seems that some of the recent postings on this blog are coming from flamethrowers, not those interested in reasoned discussion.

Brian, I absolutely agree. The strong wording of my first post about tax cuts leading to increased revenue was more in reaction to Oberon's broad attack, rather than an argument about the current tax cuts. To state the obvious, at 0% tax rate, you produce 0 revune. At 100% tax rate, you produce 0 revenue, because there is no reason for anybody to work; they can't keep any of it, so why bother. Somewhere between the 2 extremes are one or more happy middles.

I'm not an economist, so I won't pretend to know where those happy middles are, or to go back and forth with the strong and impassioned arguments made by supporters and critics of supply-side economics and the Laffer curve. You are absolutely right, though, in pointing out that a dollar "spent" on tax reduction is the same as a dollar spent on government programs in terms of its effect on the federal budget. Whether you prefer your money to stay with your or go to the federal government is a deep political belief everyone must work out for themselves.

If mindlessly repeating party talking points without actually analyzing issues raised revenue, we'd never have a deficit. By the way, Jon, the "man most guilty of this" would be FDR, who peaked out national debt at well over 100% of GDP. In modern times, the "man most guilty of this" would be Bill Clinton, who peaked out national debt at just a hair under 50% of GDP.

I'll give Clinton a free pass on that, though, as it really was out of his hands. FDR gets no pass. He exercised dictatorial power on a scale that Nixon clearly envied, and that Johnson tried to (but couldn't) match.

Look at the second table in the first link, the CBO baseline budget projection, and answer one question. Is revenue rising, or falling? Now do the same thing with spending. Overall, and then discretionary and mandatory. Do the same with the tables expressing same as a percentage of GDP.

Uh huh. Do read through ALL those tables. You'll find that revenues fluctuate with the economy, but that spending moves in only one direction. You'll find that the major driver of deficit spending isn't discretionary spending, but mandatory spending. (Not that Congress couldn't exercise some more discretion in discretionary spending. They certainly could. They certainly should.)

And if you insist on playing partisan blamemanship, ask yourself which party is responsible for creating the greatest spending in the budget--by creating the programs that make up mandatory spending.

But sound-bite blamestorming is so much more fun.

PS--economists don't know where those "happy middles" are either, as they shift with conditions. The "Laffer Curve" concept actually goes at least as far back as 14th century Islam. The theory is both sound and obvious. The practical application is neither.

At each and every point on the curve, a shift to another part of the curve will extinguish some revenue while creating other revenue. The problem is knowing where you are on the curve, so that you can shift in a way that produces more than it extinguishes. Just to make it a bit more fun, you're trying to get long-term effects out of a one-time shift while the curve itself keeps moving. If you try to constantly diddle and fine-tune, the uncertainty factor wipes out much of the effect.

Yes, this has been well covered before. And we need to keep covering it until our political leaders doing something about this looming disaster.

Yes, I made a broad attack. I attacked the President and the Democrats. I should have attacked the Congressional Republicans as well, since they control the purse strings.

I purposely did not propose a solution, except to say no more "tax cuts". (The CBO predictions assume the "tax cuts" are not renewed.) So called mandatory spending (i.e. Social Security and Medicare) eats up the biggest portion of the budget. We also spend an enormous amount on the military and interest payments. In other words, if you want real cuts, you have to cut Social Security, Medicare, and the military. The "bridge to nowhere" is peanuts.

Yes, soundbite blame-storming is much more fun. Admit it: the "George W. Bush Grandchild Tax" is brilliant.

Now then, does anyone disagree with the following statement?

The federal government needs to cut spending and increase revenue.

The federal government needs to cut spending and increase revenue.

I'll take any one out of two. The problem being that raising taxes does not necessarily mean raising revenue, and cutting taxes does not necessarily mean lowering revenue--particularly when viewed as long-term effects on the economy. But spending restraint is always spending restraint. The easiest way to "cut spending" doesn't even actually require cutting spending. Just don't grow spending as fast as overall GDP growth. Easy to say, but politically tough to do.

We need to keep covering it until our political leaders doing something about this looming disaster.

No argument here, just on proposed methods. I started a thread on the big fly in the ointment.

"So called mandatory spending (i.e. Social Security and Medicare) eats up the biggest portion of the budget. We also spend an enormous amount on the military and interest payments. In other words, if you want real cuts, you have to cut Social Security, Medicare, and the military. The "bridge to nowhere" is peanuts."

Perhaps, but it seems to me that if it IS really only peanuts....the LEAST Congress can do is excersize the self-discipline to sacrifice those peanuts BEFORE asking me to dig into my wallet to come up with the coin for the big ticket items. I'll be willing to budge on tax cuts exactly 1 second AFTER they do on pork.... if they (who are supposed to be public servants) can't be expected to behave responsibly then certainly don't expect me to do so.

Exactly... give me the spending cuts first, then we'll talk about letting you take more of my money.

And no, the "George W. Bush Grandchild Tax' is no more brilliant than the Republicans labelling the inheritance tax the "Death Tax". Cutesy, perhaps, but not something which should be encouraged by a site devoted to more rational discussion and politer, saner politics. Let's focus on the actual policies rather than the sound-bite labels.

And I was just going to propose calling SS/Medicare the "Screw-Our-Grandkiddies-to-the-Wall Privileged Seniors Righteous Entitlement Program".

Shucks.

Never plan on running for office in Florida, eh Tully?

What?!? I said it was a righteous entitlement program! :-D

Seriously, having been an elected public official on more than one occasion, I can honestly say I've already used up my lifetime quota. More would just be masochism.

A few remarks:

Tax cuts do not ALWAYS bring in more revenue. Even many Republicans and conservative fiscal advocacy groups admit it. Tax cuts, done repsonsibly, can act as a short term stimulus but it's not upheld by any sound mathematical equation as viable revenure booster.

I liken tax cuts to asprin. A few asprin can relieve pain but too many can make you sick or kill you.

As far as facts and figures go, one telling stat that has been missed in that federal revenues in relation to the size of the economy are down DRASTICALLY size Bush's tax cuts. This information can be seen at the Concord Coalition website.

There is an equally strong, if not stronger, argument that interest rates have a far greater effect on growth than deep tax cuts as do balanced budgets which also tend to lower interest rates...not to mention lowering the amount of the budget that must go to debt service which in turn frees up funds for "good tax cuts".

I have to agree with Tully on this one. The elephant in the room is Social Security/Medicare. Everything else is icing. Only reason I voted for Bush is because he talked about Social Security reform. I wanted to phase it out in the 80's. I would be willing to give up my future SS just to phase it out to something less government controled. Not going to hold my breath on it.

As far as Medicare, the entire health industry is one giant snafu. Too many lawyers and regulations. At the same time, the medical industry does a horrible job of policing itself on the quacks. These two items need to be addressed now becuase Medicare will destroy the budget in the near furture. Managed care is a little bit of the answer. however, legal reform and better policing of bad Doctors would go a long way to reducing the hidden costs.

Anyway, to come back to the topic...

we should all recognize that there is no such thing as a "tax cut" when the budget is in deficit.

Hmm. So there is conversely no such thing as a "tax increase" when the budget is in surplus. So everytime the budget comes into surplus, we should immediately ramp up rates to 110% because it's NOT an increase. You simply MUST recognize that this can't be an increase.

Bull all around. If tax rates go up, it's an increase. If they go down, it's a decrease. If they don't go anywhere, it's neither. The conflation of rates and revenues is rhetorical dodgeball, meant to confuse and emotionalize issues, not clarify them or address them analytically.

The "death tax" is a wonderful example. The estate tax system needs serious reform, instead we get a ping-pong ball. It doesn't raise all that much money, and the bulk of what if does raise doesn't come from the Bill Gates-sized estates, but from estates in the $2 to $8 million range. Bill Gates has platoons of tax attorneys to minimize his tax. The "little rich" don't. Sounds like a lot of money, to be sure, that $2 to $8 million. But you can be just "wealthy" enough to own your ordinary home in California, have just enough retirement funds to support yourself there in your dotage, and get whacked with the estate tax under the old rules.

The GOP "frames" the issue with the "death tax" phraseology, which is technically correct but purposefully semantically loaded. And goes to have it totally repealed. Not reformed, repealed. Now the "rich" can live happily ever after! The Dems jump on the bandwagon of dueling rhetorics, and call it the "Paris Hilton" tax cut.

Hiding in the woodwork--a straight repeal would also eliminate the base estate exemption. Meaning that EVERY estate would be subject to capital gains taxes on ALL assets owned at time of death. You think Tax Day is fun now, that estate tax law is complicated only for those getting hit with it? How about the sight of everyone's estate, rich and poor, having to figure out the capital gains cost basis for everything owned at the time of death, from dime one of assets? Everyone.

Uh huh. Don't hear the GOP mentioning that little detail, do you?

(Prediction there: There will be a compromise "reform" passed that maintains the estate tax in the old form instead of either eliminating it or restoring it to the original, but expands the baseline exemption into the $3 to $5 million range and indexes it to inflation, and lowers the rates to match the capital gains tax rate. Both sides will claim victory.)

Exactly... give me the spending cuts first, then we'll talk about letting you take more of my money.

I understand, but my point is that they're already taking more of your money. The budget deficit = taxes that just haven't been collected yet. For 2006 along, the government will impose a half-trillion (plus interest) "tax increase" -- just not in 2006.

And no, the "George W. Bush Grandchild Tax' is no more brilliant than the Republicans labelling the inheritance tax the "Death Tax".

I did not claim it was more brilliant. In fact, I would say "Death Tax" was signficantly more brilliant. Maybe even in the Top 10 Marketing Strategies of All Time.

That doesn't make it a good thing or something to be emulated, Oberon. "Death Tax" was indeed a brilliant piece of marketing/propaganda-speak. It allowed the realities of an important issue to be obscured by its label. I really didn't think that's what we were trying to promote on this site.

As for it's already a tax... not necessarily. It may be that the revenues to bring the debt down will actually come from significant spending decreases rather than tax increases. It also overlooks the possibility that significant good can be accomplished with the money now than the costs of paying all that interest. Just like with buying a house or a car on credit. Would you rather pay $200,000 for a house or $430,000 for a house? Well, if you buy a house with a $200,000 mortgage, you'll pay $231,676.38 in interest over a 30 year loan at 6%. Boy, what a bunch of wasted money, huh?

Except that you can accomplish more good for yourself by buying the house now rather than throwing money away in rent and trying to save $1,200 each month for 12 or 15 years before finally getting your own place.

Some borrowing (credit cards) is mostly bad, while other borrowing (startup financing for a good business plan) is good. Whether the federal budget deficit is good or bad, then, depends on what we are using the borrowed money for... what Congress has decided to spend it on. The issue is spending, not tax cuts or deficits.

Never plan on running for office in Florida, eh Tully?

Suggestion from a native Floridian...Tully, you can use that as the first plank of your platform, with #2 calling for mandatory annual eye tests for all drivers over the age of 80. Heck, throw a hand-eye coordination test in there for even more votes. If you did that and called for a Shuffleboard tax, you'd win in a landslide!

Not!

Hmm. So there is conversely no such thing as a "tax increase" when the budget is in surplus. So everytime the budget comes into surplus, we should immediately ramp up rates to 110% because it's NOT an increase. You simply MUST recognize that this can't be an increase.

Bull all around. If tax rates go up, it's an increase. If they go down, it's a decrease. If they don't go anywhere, it's neither. The conflation of rates and revenues is rhetorical dodgeball, meant to confuse and emotionalize issues, not clarify them or address them analytically.

Oh c'mon. If the budget is in surplus, then we can have a REAL tax cut.

I don't mean this as rhetorical dodgeball (nice phrase BTW); I'm trying to get people to see the situation from another point of view -- the overall view instead of the individual view.

The overall tax burden is being shifted to the future. In the long run, government revenue has to equal government spending. To truly reduce taxes, government must reduce spending.

Yes, I personally got a nice "tax cut." It's real money in my bank account. But just for 2006 there's a another half-trillion that has to come from somewhere -- presumably from a "tax increase" later. With interest.

Changing "tax cut" to "tax delay" or "tax shift" is not trying to emotionalize the issue; it's trying to be more acccurate and less emotional. "Tax cut" and "tax increase" are already emotionally loaded phrases.

(My idea that Dems call the deficit a "grandchild tax" was all about political grandstanding, which is why I gave it to the Dems.)

The overall tax burden is being shifted to the future. In the long run, government revenue has to equal government spending. To truly reduce taxes, government must reduce spending....But just for 2006 there's a another half-trillion that has to come from somewhere -- presumably from a "tax increase" later.

Note the word bolded. The money for repayment and/or debt service must come from future revenues (assuming we actually pay all our debts) but that doesn't at all mean that it must come from either an increase in tax rates or even necessarily from taxes. That's where the presumption breaks down. The list of supporting assumptions for that one is simply too long and varied for me to list right now, as I gotta run out the door for lovely (not) evening of public hearings.

Maybe we should run a grandstanding cliche & demagoguery thread too--that could be fun!

I presumed that tax rates will go up on somebody because it seems blindingly obviously to me that tax revenues must go up AND spending must go down to fix the situation.

Theoretically, Congress could just reduce spending by a half-trillion to balance the budget, and whack another half-trillion to pay back 2006 debt. Seems unlikely though.

But it doesn't matter either way -- my point is that government has to get the half-trillion from taxes sooner or later. Unless I'm seriously overlooking something. Hence, "tax delay" is probably the correct the term.

"Fortunately" there is a simple, traditional solution to the deficit which does not require raising taxes: inflation. Notwithstanding the earlier comment of "a dollar is a dollar is a dollar," a dollar today is not a dollar a couple of decades away. To take one dramatic example: in the 1950s, $8,000 was a very comfortable middle class salary. Anybody want to try living on that today (especially here in Northern California)? Hah! A 1959 dollar is worth less than 10 cents in today's money -- compare basics like the price of a loaf of bread or a half gallon of milk.

Of course, solving the problem with inflation punishes those who save, and rewards the spendthrifts. But hey, gotta pay the price somehow.

The simple fact is Dubya has increased discretionary spending (when adjusted for inflation) at a faster rate than any recent president by a long shot.Here's a quick snapshot:

First Five Years, Percentage Changes in Real Discretionary Spending

LBJ: 25.2%
Nixon: -16.5%
Reagan: 11.9%
Clinton: -8.2%
Bush: 35.2%

The link below has the full article.

file:///C:/Documents%20and%20Settings/negaaj4/Desktop/the_latest_data.shtml.htm

There is strong evidence that tax cuts can bring in more revenue, as the economy is stimulated and production increases as a result.

I couldn’t disagree more. I have yet to read a study of this issue that wasn't either a theoretical model with not real world basis or a study that completely ignored other influences on the economy like deficit spending or things like oil prices. There are times where cutting taxes makes perfect sense, like when your running a surplus, or when capital is scarce and expensive like during the Kennedy administration. Otherwise it’s a bit of a zero sum game.

Fact is that Tully goes to great pains to mention that we are running close to half a trillion dollars in deficit (when SS liabilities are considered) yet he seems to think that the "tax cuts" are responsible for the current positive news regarding the economy. In other words if all we are talking about is returns to the federal treasury, the idea that stimulus from 30 or 40 billion dollars worth of “tax cuts” have more of an impact on federal revenues then a half a trillion of borrowed money being dumped on the economy is laughable on its face.

Currently Social Security is not only solvent but loaning money back to the treasury. If you gutted both SS and Medicare you would not solve the problem but simply expose the giant liabilities that treasury owes to SS recipients. Unless your scheme includes not cutting the payroll tax along with the program, which would be a tax increase of epic proportions.

Get the payroll tax out of the general fund and then we can talk about what to do with the social programs.

Rick, you seem completely unable to seperate what I say from what others say. Please confine your attributions to me to those things I have actually said, instead of putting words in my mouth. Your reading must not be very extensive if you failed to notice the effects of the Reagan-era tax cuts on federal revenues, GDP growth, and inflation reduction, or the effects of capital gains rates cuts on revenues and capital formation. (There are hundreds of other real-world cases using foreign data as well.) I suggest you broaden your reading to actual economic journals and obtain a calculator.

TN, your "link" is an address on your own hard drive. The original was by Nick Gillespie over at REASON, and can be found in its incomplete brevity here. Gillespie is being disingenuous, but then again the column IS called "Hit & Run." For example, by skipping the Ford and Carter years he somewhat loads the dice, as well as by not using the GDP guage. No doubt if inflation and GDP growth had been different he would have picked a different guage. Proper guage for gov't revenue and spending trends is %age GDP, and "discretionary" spending figures should definitely be seperated into defense, international, and domestic. You can find the relevant base figures for 1962-2004 cited here. Try Table 8.

SS is currently in revenue surplus, Medicare has slipped below breakeven into revenue deficit. In under 15 years both will be in current revenue deficit under current taxation schedules.

Oberon, wj nailed one of the classics, inflation. There's also what I already mentioned--economic growth that exceeds spending growth. Both shrink the relative size of debt, reducing it in practical terms. Which is exactly what happened in the 1986-2001 period. GDP growth outstripped spending growth. In %age GDP terms overall discretionary spending is still in the lower historical range. It's creeping up against GDP, though, which is bad unless constrained.

The elephant in the room remains mandatory spending growth (entitlements) which exploded in the mid-70's, is creeping up again, and will explode agin with the retirement of the baby boomers.

There are times when tax hikes are quite appropriate for economic reasons, though it's usually noticeable only in retrospect. The Clinton tax hikes were actually a good thing for the economy, restraining growth during a stock bubble. Unsustainable GDP growth can be a bad thing. Had Clinton not raised rates when he did, the 90's dot.com boom would have gone much higher--and the recession of 2000-2002 would have crashed us much lower. But revenues would still have risen sharply during the boom, and declined during the recession, regardless of who was in office or what the tax policy was.

But the Clinton tax hikes weren't planned for that purpose, as you can see if you go back to the CBO projections of the early 90's.

The partisans and ideologues all want their nice simple sound bites. The real world persists in being complicated.

"Currently Social Security is not only solvent but loaning money back to the treasury. If you gutted both SS and Medicare you would not solve the problem but simply expose the giant liabilities that treasury owes to SS recipients. Unless your scheme includes not cutting the payroll tax along with the program, which would be a tax increase of epic proportions.

Get the payroll tax out of the general fund and then we can talk about what to do with the social programs. "
===================================
Rick,

1) Yes CURRENTLY SS is running at a surplus but that is kinda like asking a guy who just fell of the Empire state building if he's doing ok as he passes the 25th floor.... CURRENTLY he's doing just fine. Unfortunately for SS, there is this little thing called demographics. At the time when SS was first initiatied no one anticipated any problems funding it because average life expectancy very conveniently happaned to match exactly retirement age. Which meant that most people would NEVER RECIEVE A DIME OF THE MONEY THEY PAID IN. That's no longer true today....and it's becoming less true every day as people are living longer, having fewer children and having those children later in life. Bottom line the ratio of people paying into the system compared with those drawing out is changing.... and fairly soon not only will SS NOT be running a surplus but it will be running a deficit.....and as you well know, that money is going to have to come from somewhere. Seperating SS taxes from the general fund is a good idea and I support it.... but the bottom line is that it won't solve the problem.... it only delays it.

2) Trying to pretend that the money collected for SS from our payroll isn't a tax now is bunk. Can I opt out paying that fee? Do I have any control over how to handle the money collected? Can I assign it to my heirs if I die before I'm 65? Will I get exactly as much back as I paid in?

It's a tax, just like any other tax. The money recieved back after a retirement is an entitlement.... just like any other entitlement. It doesn't change the fact that the money paid up front is a tax. That's not to mention the fact that if the government let me keep that money in the first place.... I could keep it in a fully insured fund and still get back more then I'd get from SS upon retirement.

3) Yes, the treasury "owes" SS a huge amount of money. Guess what, it doesn't have anything to pay it with. Our Congress critters with all the fisical responsibility of a drunken teenager with mom & dads credit card have already spent that money.... it doesn't exist anymore. The entity that owes the money (i.e. the Government) is the same entity (the Goverment) to which the money is owed.

Your reading must not be very extensive if you failed to notice the effects of the Reagan-era tax cuts on federal revenues, GDP growth, and inflation reduction, or the effects of capital gains rates cuts on revenues and capital formation. (There are hundreds of other real-world cases using foreign data as well.) I suggest you broaden your reading to actual economic journals and obtain a calculator.

Tully,

If I have put words into your moth, my bad, please excuse me. As for the Reagan years analysis I have read many things on the subject and all of the ones I have read that so the tax cuts in a positive light completely and totally ignore the effects of the following items on the economy.

The fact that oil prices collapsed starting in 1980, huge effect on the ability of our economy to produce GDP. Billions of dollars were freed from record energy costs to spend elsewhere.

The effect of massive deficit spending, the huge amount of borrowed money and it’s stimulus effect on the economy.

The fact that Payroll taxes doubled in 1984 as a measure to “save” Social Security” while attendant benefits stayed the same.

The fact that many popular deductions were eliminated including one of the favorite middle class deductions, the credit interest deduction which meant that the actual “tax cut” for many was a lot less then the difference in marginal rates.

The fact that in the 80’s women started to enter the workplace in force, adding to family incomes and creating more demand in the overall economy.

If you don’t factor in these variables into the analysis then it is what we like to call crap. Regan’s so called tax cuts were a drop in the bucket compared to just the deficit spending. Every single penney, of the Regan’s so called tax cuts ultimately went to fund the deficit (and the same thing with Bush), and then more borrowed money was dumped into the economy causing the stimulus. And then there are more pedestrian arguments such as the fact that the business cycle simply came around.

The problem with this analysis is that sure you can point to GDP growth and all that other stuff but it’s when you start saying things like, and it was all because of the tax cuts that I get extremely skeptical of the conclusion, and so should any other thinking person. Frankly the 80’s data would have happened without the tax cuts given all of the other factors I mentioned and the current “recovery” is weak at best considering that we are priming the pump with a half a trillion dollars a year in deficit spending.

Again, you simply will not answer the fundamental question of how is it that 20 to 40 billion dollars in tax cuts can have a bigger effect on the economy then a half a trillion dollars in deficit spending. Look I am not saying that tax cuts are not a stimulus, I’m saying that the idea that they return more to the federal treasury then they take away is completely crackers and that tax cuts when the budget is in surplus is simply deficit spending by anther name.

You're shotgunning, Rick. If you don't know how to include all those variables in a proper economic model, throwing them out just demonstrates diffusion of the issue through distraction. But I thank you for getting a point I try over and over to make, that many ideologues simply can't grasp. Namely, it's ALWAYS much more complicated than the sound bite. Sound bites are for simpletons.

Look I am not saying that tax cuts are not a stimulus, I’m saying that the idea that they return more to the federal treasury then they take away is completely crackers and that tax cuts when the budget is in surplus is simply deficit spending by anther name.

Now there's some meat, in two parts. The amount of stimulus (and resulting revenue return) provided through a tax cut depends on many things, but it's not limited to a single one-time effect, whereas the instant revenue loss is. Every change in tax rates has a reverbrating effect. Whether or not a proposed tax cut will result in revenue return greater than that lost from the rate reduction is not a "given"--nor have I ever claimed it is. It depends on the cut specifics, economic conditions, etc.

That's kinda the whole point of the Laffer Curve, which I note has been demonstrated in action since at least 14th century Tunisia. Both the short and long term effect on revenues depends on where on the curve you are when you change the tax rate. And while in theory it's a simple concept, in practice it's tough to know where you are before you act, or where the curve itself will shift to in response to future conditions. Economies are not mechanistic systems, but organic ones. The Laffer Curve effect has been seen in action, and demonstrated innumerable times--going in both directions. (Supply-siders hate to notice the other side of the curve.)

Short term single-effect: If you're right at the peak of the curve, maximum taxation efficiency, then a rate cut will cost you revenue, and a rate hike will likewise cost you revenue. If you're on the front side of the curve, a rate cut will decrease revenue. If you're on the back side of the curve, it will increase revenue. The problem being you don't know where you are on the curve until you change the rate.

Long-term multi-effect: Single effect in short term, but tax rates affect other items, like GDP growth, which also affect revenues. Lower (or higher) taxes mean higher (or lower) GDP growth. And higher or lower GDP means higher or lower revenues at any given rate. Good luck quantifying that, it's an "ongoing area of research," meaning we know it's for real but can't slap certain predictive numbers on it. Indeterminate, but cuts themsleves are always stimulative of GDP, hikes always retardant to GDP. How much that relates to revenues in a given instance is the question.

Now, the second part. "tax cuts when the budget is in surplus is simply deficit spending by anther name." Semantics. Rhetoric. Definitionally incorrect. Revenues and spending are seperate entities, and conflating them conceals cause and effect. They HAVE to be examined in particulars for any meaningful analysis. Deficit spending is spending more than you receive. Assuming you start in balance, then it happens in one of two ways. Either your spending increases, or your receipts decrease, or some combination thereof. To go back to balance, you must either increase revenues or decrease spending, or some combination thereof. But revenues are not governed solely by tax rates, and spending is partially discretionary.

So saying that tax cuts ARE deficit spending is incorrect, sound-bite rhetoric. They may be a contributor, but not with certainty. They're on the other side of the equation. Since not all spending is mandatory, the two cannot be treated as equivalents.

So saying that tax cuts ARE deficit spending is incorrect, sound-bite rhetoric. They may be a contributor, but not with certainty. They're on the other side of the equation. Since not all spending is mandatory, the two cannot be treated as equivalents.

Exactly. Tully beat me to it. Rick, you keep trying to overstate your case here, leaving Tully and I both (and probably many others lurking here) with little choice but to assume that you are trying to gain rhetorical advantage. When I say "tax cut," I say tax cut because I'm talking about a change in a tax rate, and I want everyone to know what I'm talking about. And when I say "spending" it's because I want everyone to know I'm talking about something the government bought or paid for.

tax cuts when the budget is in surplus is simply deficit spending by anther name.

[Aside, you had to have meant "when the budget is running a deficit" of course.] The problem I have is that while it's uncontroversial to notice that tax cuts may contribute to deficits every bit as negatively as spending increases, it's still unproductive to conflate the two.

Notice that above Tully has cheerfully acknowledged that one cannot predictably detemine the effect of a given tax cut before it has been made, and that it may even conceivably contribute more to the deficit than a spending increase, depending on where you sit on a theoretical curve. However, since Tully is data-driven, he is always also going to point out that you can often make some sort of semi-reasonable measurement of the effects of such actions AFTER they have been taken. And he also cheerfully admits that this is a difficult and complicated thing to do. My take of his views is that when he has himself undertaken this complicated task, the imperfect measurements do tend to support the notion of tax cuts having net-beneficial effects compared to spending adjustments. And notice even further that he even cheerfully acknowledges that the contributary factors you've pointed out MAY indeed effect the evaluations. His only genuine "however point" is that he's saying to you that if you wish to account for the role of such factors, get busy quantifying, because he's not willing to abandon what his studies have so far suggested, simply because you are able to float a plausible hypothesis.

And that strikes me as a very fair position. Now if you aren't an economist, then that's too bad. But if that's so, then it must leave you believing your position (that the contributary factors to 80s gov't revenue are the true cause of revenue growth, not tax cuts) on either wishful thinking or faith. Or both.

Let me hasten to add that I myself conditionally trust Tully's view mostly on the faith he's built here. I'm no economist either. And perhapsTully's continued demonstrable reasonableness and relentlessly data-driven behavior are truly just a plot to get me to believe in the virtue of tax cuts. I doubt it, but even if true, that's still OK, because I don't think revenue should be the sole basis for determining tax policy, and I have reason to believe that Tully doesn't think so either.

OK, I'm done blowing you, Tully. How was it for you?

Guys,

What I am taking about is the net effect on the economy or, more specifically to federal revenues of deficit spending vs tax cuts in the short term, and my position is that they are exactly the same. The long term is another story, in the long term we're all dead anyway so…

If you don't know how to include all those variables in a proper economic model, throwing them out just demonstrates diffusion of the issue through distraction.

I’m not just “throwing them out” what I said is I have not seen any analysis on Reagan's tax cuts that even addressed them. If you know of some that specifically took those variables into account, I would be happy to look them over.

Look economic models simply can't deal with all the variables and most of them don't and they are horrible at answering questions such as “did Reagan's tax cuts cause the economic growth in the 80’s. You seem to be saying that all economists agree on the notion that Reagan's tax cuts were the prime driver of growth and that's simply not true, for every analysis that show that Reagan's tax cuts "caused" the economic growth in the 80’s there is another that tells us the opposite. (and if I have mischaracterized your position please feel free to correct me, I’m not doing this to score rhetorical debate points as much as you seem to be convinced I am)

Frankly, any economic model that tells us that a few billion dollars in tax relief has more influence on economic performance then hundreds of billions of dollars in deficit spending combined with energy prices in fee fall is bogus on its face.

Whether or not a proposed tax cut will result in revenue return greater than that lost from the rate reduction is not a "given"--nor have I ever claimed it is. It depends on the cut specifics, economic conditions, etc.

Agreed … and I am sorry my comments in this regard were aimed at PatHMV who said “There is strong evidence that tax cuts can bring in more revenue, as the economy is stimulated and production increases as a result.”

Now, the second part. "tax cuts when the budget is in surplus is simply deficit spending by anther name." Semantics. Rhetoric. Definitionally incorrect

Look semantic gymnastics aside, both the Reagan and Bush tax cut did exactly the same thing as deficit spending from a short term stimulus point of view (Bush sold his cut on the stimulus that the cut would provide the economy, he called it jobs and growth), they collected money from taxpayers, spent it all, then borrowed more and cut people refund checks. Hell calling that a tax cut is semantic gymnastics, all they did was borrow money and give it to people and called it a tax cut so that it wouldn’t seem like welfare (again from a short-term stimulus perspective).

Now if what you are saying is that in the long run these lower marginal rates will have a net benefit on the economy I might agree with that (but the longer out you look the more and more variables enter into the picture so it’s not really possible to know what variable had the most influence), but that is a completely separate and different argument then whether or not they will return more money to the federal treasury in the long run then would have been collected had the cut not happened. Those are two different discussions.

Look your right, I’m all over the map because as these discussions people start bringing more and more into the discussion and I can’t respond to it all, so please excuse me for that, but we are talking about complex subjects for which there is serious disagreements from economists all across the spectrum, not agreement. But listening to you one would never know that.

And Tully you still won’t answer the one question that I have asked over and over again which is:

Why do you think that 20 or 30 billion dollars in tax cuts has more of an influence on economic performance then a half a trillion dollars in deficit spending?

Oh and one last thing Tully if I’m an ideologue then you simply the other side of the very same coin. I understand what you believe, but you seem to think that the notion that Reagan’s tax cut was the single most influential driver of the 80’s economy is fact. It’s not fact, its opinion pure and simple and to state it as fact means you have to ignore a lot of economists who would beg to differ with that analysis.

I understand your side of the argument pretty well, what you don’t seem to understand is that I am talking mostly about the use of tax cuts as short-term stimulus; you seem to be talking about the effect of lower marginal rates on the economy in the long run. I actually agree with more of what you’re talking about then you seem to think. Nevertheless, the fact is that cutting marginal tax rates are not a very good tool for short-term stimulus in my opinion. It’s better to have rates that are stable and constant rather then fooling around with them every time a politician want’s to juice his vote count (an US taxation rates are and have been the lowest in the developed world forever). There are other tools to use to stimulate economic growth and Bush has proved that massive deficit spending will make a pig’s ear of an economy into a silk purse, for a while anyway.

I understand what you believe, but you seem to think that the notion that Reagan’s tax cut was the single most influential driver of the 80’s economy is fact.

I have absolutely no idea where you picked up that notion, Rick. Honestly. I think you're reading well past the data--my own comments in this thread.

I can point to one Reagan tax cut that unambiguously demonstrates the Laffer revenue principle in action, both coming and going. The capital-gains cut. Coming and going, it clearly showed in that case of that tax at that point in time, we were on the "back side" of the curve.

If I don't answer a question, it's because [1] it isn't a clear question, properly framed, [2] it isn't a relevant question, or [3] life is too short, and I don't feel like it. No one pays me to blog here, and life is short, and busy.

But thank you for noticing that reality is complicated, not simple, and I'll try to address the revenue/deficit topic later when I have more time.

To pick up, Rick, you don't seem to understand my "side" at all, because you keep attributing to me views I have not expressed and demanding that I answer questions relating to views I have not expressed on the grounds that they're "my" views! I haven't called you an ideologue, for example--indeed, I've noted that you were thinking in terms more complex than the sound bites of ideologues. So when you head into things I've not addressed at all, or assign non-attributed specifics to broad generalities, it's tough to understand where you're coming from, and why the questions are addressed to me. So yes, you ARE mischaracterizing my views. You have actively misrepresented them from your first post in the thread.

Fact is that Tully goes to great pains to mention that we are running close to half a trillion dollars in deficit (when SS liabilities are considered) yet he seems to think that the "tax cuts" are responsible for the current positive news regarding the economy.

Never said it. Attributed without evidence on data unknown. What I said before that was that deficit spending is largely driven by mandatory spending, that it is possible for deficits to be reduced without raising tax rates, and that debt can shrink in absolute GDP terms without tax hikes. What I said AFTER you said the above was that the Reagan tax cuts had a stimulative effect on "federal revenues, GDP growth, and inflation reduction." Two out of those three things are indisputable, the third is axiomatic from the other two. From there it was downhill--your representations of what I had said (and more especially never said) got more bizarre.

I have gone to extreme lengths to point out that national income economics is not a cut & dried mechanistic field. That economies are organic in nature and behavior, not mechanistic. (They are, indeed, living meta-organisms.) That the effect of any tax cut on gov't revenues is highly dependent on the factors in play at the time if the cut, that tax cuts do NOT have completely quantifiable unambiguous revenue effects, and that while a tax cut MAY produce more net revenue, it might also produce less, or the same.

If you want to see one of the better models, the CBO's is here. This is the one used by Congress, and it's only wrong some of the time. These folks have a slightly better model, and it's only wrong some of the time. But they actually want money for using it. There are many others, of lesser degress of reliability. The better ones are only wrong some of the time.

So back to square one. Did you have a question on national income or taxation economics? I can not promise any simple answers--or at least no simple answers that don't require complex qualifications and backgrounding.

Tully,

As I have said if I have misrepresented anything you say it is not because of an effort to "reframe" the discussion or engage in any obfuscation. I tend to address “the room” and I make the assumption that anything you don’t explicitly argue against you agree with and that is not a fair assumption. So once again, my bad.

The fact is that there are many assumptions that we are both operating on which are not apparent to either of us and before we can even wade substantively into some of the things that are being said here we have to know what those assumptions are. And I don’t have all day either. But to pick one point…

First you say:

… the Reagan tax cuts had a stimulative effect on "federal revenues, GDP growth, and inflation reduction." Two out of those three things are indisputable, the third is axiomatic from the other two.

To which I argued that any stimulative effect that the Reagan tax cuts may have had were utterly dwarfed by the effect of the other variables to economic growth that I mentioned (the deficit spending, the collapse of oil prices and so on) to the point where even taking about the effects of the tax cut is / was a waist of time. My god the billions that were freed up in energy costs alone in the 80’s due to the collapse of world oil were several times greater then even the most generous estimates of the amount of savings by individuals on their taxes. So it would be much more accurate to say that economic growth in the 80’s was a function of massive deficit spending on a scale not seen since WWII and collapsing oil prices. Yet you say the effect on federal revenues and GDP growth was indisputable.

Well… no their not indisputable, unless what you’re saying is that the tax cuts had some positive effect, however small, and it’s the size of those effects that are not completely quantifiable or unambiguous which is the only thing I can think of that would reconcile you previous point with your next point.

That the effect of any tax cut on gov't revenues is highly dependent on the factors in play at the time if the cut, that tax cuts do NOT have completely quantifiable unambiguous revenue effects, and that while a tax cut MAY produce more net revenue, it might also produce less, or the same.

So, unless I’m mistaken, what you are saying is that tax cuts have a positive effect and that point is indisputable, but the size and influence of that effect is much more difficult to quantify. OK I can agree with that if that is in fact what you are saying, but only in a very narrow sense. I would not agree at all that tax cuts always enhance federal revenue, because, as you said, the cuts could put us on the wrong side of the curve. So I am struggling to understand how your first point is even relevant since it has to be qualified to A Fair-the-well in order to be accurate.

My main point was about Bush’s tax cuts in light of the fact that we are running deficits, this was Oberon’s comment as well. I have attempted to make the case that in the short term, tax cuts and deficit spending are exactly the same thing, especially when you consider that the cuts were set to expire, so any long tear advantage that might come with lower marginal rates in the long run are mitigated to a large degree. Unless you want to argue that the old marginal rates were on the bad side of the Laffer curve and now the marginal rates are on the good side of the curve I don’t see how you can sat that Tax Cuts always have a stimulative effect. Unless your going to tell me that the the optimal rates from a Laffer perspective are knowable which you already stated can only be know in retrospect.

If you trying to say that the current economic conditions somehow proves that the marginal rates are on the good side of the curve then you have to explain how you know that current economic performance is due to the 30 or 40 billion per year in tax cuts rather then the half a trillion dollars in deficit spending.

To which I argued that any stimulative effect that the Reagan tax cuts may have had were utterly dwarfed by the effect of the other variables to economic growth that I mentioned

I disagree with that to a certain extent because they're inter-related variables. Another reason I keep mentioning sound-bite economics. Everything affects everything else. So we can point to one thing and claim "it" was responsible, but the truth is that many things come together and affect each other. Claiming one thing was responsible is dumb, and almost always wrong--which is why I was happy to see you not doing so.

So, unless I’m mistaken, what you are saying is that tax cuts have a positive effect and that point is indisputable, but the size and influence of that effect is much more difficult to quantify.

Yep. Precisely. Theory and model-juggling only gives you answers in isolation. In real life it's tough to isolate and quantify the systemic effect of any one variable. So you're left with direction, but no numbers and no knowledge of the secondary and terttiary effects that can change the overall effect.

I would not agree at all that tax cuts always enhance federal revenue, because, as you said, the cuts could put us on the wrong side of the curve.

No argument, and why I mentioned that repeatedly. You have to seperate two concepts out there, and I think that's precisely where you're missing me. First, tax cuts will ALWAYS stimulate GDP, and (axiomatic) enhanced GDP will ALWAYS positively impact revenues from baseline. That's completely seperate from the supply-side bit of Laffer Curve theory--it's a secondary effect of economic stimulation. But it's measured against the NEW baseline of post-tax-cut rates, not pre-tax-cut, so the "net" being positive pre- versus post- is a potential, not a given. Second is the Laffer Curve effect.

People are more willing to generate taxable income if taxes are lower. Whether or not that by itself produces positive (or negative) net revenue is dependent on where you are on the curve and the shape of the curve itself, and the extent of that added willingness. I'll skip getting obtuse with technical language about marginal propensities to produce, yada yada, as I'm pretty sure you get the concept and eyes are already glazing over and we're out of doughnuts.

But the specific point of confusion seem to be the difference between stimulating GDP measured from initial (pre-tax-change) baseline, and increasing net federal revenue from initial (pre-tax-change) baseline revenue, which are two very different things. To make it more confusing, as I noted, everything affects everything else.

So no, I haven't made that claim for the Reagan cuts, and never would. I would claim that Reagan's policies in general produced a long-lasting stimulative effect on the national economy (and IMHO I believe they did) but I would certainly not attribute everything to one set of tax cuts. I'd also include the restoration of sound monetary policy leading to consumer and investor confidence levels that reduced perceived investment risk (and thereby interest rates), the reduction in market uncertainties (and interest rates) that choked off inflation, the perception of American strength that helped break OPEC's resolve and cheapen oil, and maybe a half-dozen other major factors.

Which would bring us around to the current admin's deficit spending. I'd start with identities--spending and revenues are different sides of the balance sheet. If you look at the trend line of gov't spending, you'll see that it's a remarkably smooth one. It's revenues that bounce around. And if you look at the revenue line, you'll see that we took a major whack from the collapse of the dot.com bubble, followed by the whack of 9/11. All of which occured well before the Bush tax cuts took effect. So reflexive finger-pointing and blamestorming kind of ignores some very crucial items, and doesn't ring my chimes. Revenue in the first two years since the tax cuts took effect has risen--from the pre-cut baseline.

No way to seperate out all the effects there. GDP stimulus by deficit spending certainly had something to do with it--but the last time we had an administration that tried to "treat" a recession by tax hikes and tightened spending, we had this little thing called the Great Depression. Ever since then it's been impossible to stop Congress from Keynesian-style stimulatory deficit spending during downturns--or first-term Presidents from going along. (Even though the real cause of the GD had more to do with really lousy monetary policy.) So while I rail about Congress' habit of spending more than handy and the President's apparent inability to find a veto pen, it doesn't send me into a rage.

Which brings us back to current components. Spending and revenues are still seperate sides of the balance sheet, and it's just about impossible to reduce overall spending. The best you can do is slow down the growth. The major part of that spending growth is mandatory spending--and you saw how far entitlement reform went last year. That doesn't excuse Congress from being porkers on the discretionary side, but it needs to be acknowledged.

In discretionary spending, the major split is between defense and domestic. A major part of the miracle balance of the late Clinton years was the gutting of the military. Then 9/11 happened. If you break out all spending into mandatory, defense, and domestic discretionary, you'll see that the highest %age increase has been in defense, followed by mandatory spending, with domestic discretionary bringing up the rear. Once again, that doesn't excuse the porkers or the president, but it does provide some perspective.

More later, I need my evening sustenance and have much work to do.