T Nation

It's The Economy, Stupid


#1

http://www.nationalreview.com/nro_digest/nro_digest_070904.html

Article is halfway down the page.

Looks like tax cuts do actually bring in more money, and when things are going good in the economy - EVERYONE makes more money, even the US Treasury. Maybe the push to get out of Iraq is more for selfish reasons than for saving lives. No...the left would never want more of our money.

[i]The Democratic presidential candidates repeat ad nauseam that the Bush tax cuts of 2001 and 2003 have caused massive deficits, and therefore taxes should be raised to pre-2001 levels. But what will they say now that Congress�??s revenue forecast has been raised by $700 billion over ten years, presaging a balanced budget and even surpluses in the near future as long as the U.S. military gets out of Iraq soon?

The Congressional Budget office, in its August update to its revenue and outlay projections, has caught up with the reality already long recognized by the White House Office of Management and Budget. American taxpayers are already doing more than their part to fund our massive and unwieldy government. CBO has revised anticipated revenues upward by almost $700 billion over what was previously expected, thanks mostly to strong corporate profits. So if the government is in surplus and we�??re out of Iraq by 2010, are the Democrats still going to insist on raising tax rates to their pre-2001 levels if we have a government surplus?

The March revenue projection had already forecast a $586 billion surplus over ten years, assuming that the Bush tax cuts expire. The August revision, however, forecasts a new, additional $691 billion in revenues. That would make for a $1.3 trillion surplus between now and 2017.

There is a catch -- sort of. The new forecast adds a lot of extra spending, because it assumes that we will still be spending over $100 billion every year in Iraq through 2017, plus interest. The net result of the new revenue and that assumption -- which is absurd but also required under under the non-partisan CBO�??s arcane rules -- is that the government�??s hole has gotten larger by $343 billion.

But of course, we won�??t be in Iraq forever, so the fiscal picture is suddenly looking a lot better for after we leave. The coming battle will be whether the Democrats, assuming they�??re in power three years from now, will still insist on raising taxes in spite of the �??peace dividend,�?? perhaps so that they can use the money for new pork and social spending.[/i]


#2

Once again, "trickle down economics" shows it's effectiveness. First, the IRS/Treasury departments show an all time high in revenue, and now CBO confirms long term projections.

One thing for sure, the Dems will not be talking about the economy in the next election cycle. It's their doom. Finally, evidence that increased taxation leads to decreased revenue. Taxation is the only way they see to promulgate more social programs. Tax and Spend. It's been their mantra since the New Deal.

Get out of Iraq and cut back big government.


#3

How did invading Iraq save lives?


#4

It's good to know there is short/mid-term hope of the US budget coming back in line. A balanced budget will be good for the US and world economies as it should add some stability to markets around the world.

I'm not familiar with US revenue/budget forecasts, how reliable are they? Obviously the numbers always differ, but are they typically "directionally" correct?

As for the potential Democrats raising taxes. If they are in power why would they, they're spin will be a to claim a balanced budget and a strong economy...something the Republicans were unable to deliver.

Situation reversed the Republicans would make the same claim, as would almost any party from any country.


#5

It is their nature to raise taxes. They play on class envy. They want to soak the rich.


#6

The Left and The Right...two arms of the same monster.


#7

No, lixy. Getting out of Iraq may be observed as not primarily to save lives, but for economic reasons. Get it?


#8

Even in a balanced budget environment? Which mechanism do they regularly choose? Personal Income/ Corporate Income/ Investment Income/ Other/ All?

I ask out of interest. I understand playing the class envy card, but I'm surprised they would actually increase taxes.

It's a odd contrast with in Canada that actually has the Conservative government less rich/corporate friendly than the Liberal positions (I know I was surprised).


#9

Democrats raise taxes. They play the class envy card and get all the McJobbers to thinking that everything will be berries and cream if the rich are punished.

Name the last real tax cut offered by the left.

Reagan cut taxes and the economy took off.

Bush I raised taxes and it cost him the election.

Clinton offered the "middle class tax cut" which raised taxes on everyone making over 32K - But no one cared because we were riding the tech bubble.

BushII cut taxes, and it is working The economy is not nearly as bad as some would have you believe. You can't have statistical full employment, single digit inflation, low interest rates, and think the economy is in the tank.

One would only have had to live through the 70's to know that however bad we think the economy is now - it is a freaking money machine compared to Ford/Carter's 70's.

The war is draining us - and but for that, we would have a budget surplus. Them left smells the money and would love to get us out of Iraq so they could spend the surplus on themselves.

Notice how I am not making a distinction between rep and dem - lest vroom think I am cheerleading.


#10

US statistics lie, by using hedonic statistics, underreporting inflation, overreporting rises in prodictivity and evaluating unemployment through telephone polls.

The situation is definitely worse than the official pictures.


#11

Thanks Rainjack.

I casually follow US politics, but as far as fiscal policy is concerned I would only be somewhat familiar with the mid/late Clinton administration and afterward.

Question for you (and others). What was your take on the dividend tax cut when Bush introduced it? Personally I'm against taxes on dividends in general, but I remember talking to a tax expert and it seemed to go against the popular theory for stimulating the economy.

The theory mentioned was that if you cut income taxes for the working class it basically gets spend (fueling economic growth), whereas a tax cut to the upper class (such as a dividend tax cut) may lead to further investment in capital markets, but would not influence the spending habits.

Since investment generally isn't seen as a problem in the US (considering the level of foreign investment), it seemed odd that a dividend tax cut was chosen over an income tax cut.


#12

If you listen to their rhetoric they would raise taxes on the rich (which usually translates to middle class and up when they breakout the numbers). This usually translates to all of the above type taxes.

We have only had a very short time that we had a balanced budget so it is hard to say what they would do but if I was a betting man I would say they would selectively raise taxes that were earmarked for new or expanded programs.


#13

You have to have more proof than, "everyone knows the government lies".

How bad is it, Orion? How do you substantiate this worse-than-being-reported situation?

Try harder.


#14

I thought unmployment was determined by the actual number of claims.


#15

It is not exactly lying.

It is tampering with statistics until they tell what you want them to.

For example as far as I know gas and food are no longer part of the weighed sample that is used to measure inflation because their prizes are "too volatile".

They are of course 2 of the big three, gas, food and lodging, so what really drives prizes up for the average consumer isn`t even measured anymore.

Hedonic statistics mean for example that if a computer chip is 10 faster at the same prize than it was 3 years ago that it is counted as 10 more productive and 90% cheaper.

If your computer industry is large enough such, let´s say, optimistic statistics add up and hedonic statistics are used fo more and more areas.

The unemployment is actually measured by telephone polls and if someone answers that he has even workd a few hours that week he is not counted as unemployed. This does not even take into cosideration that this is a sensitive issue and people lie.

http://mwhodges.home.att.net/statistic-wizardry.htm

"If the GDP methodology of 1980 were applied to today's data, the 2004 second quarter's annualized inflation-adjusted GDP growth of 3.0% would be roughly three percent lower (effectively netting to zero percent or below). In like manner, current annual CPI inflation is understated by about 2.7% against the pre-Clinton CPI methodology (would be about 5.7%), and the unemployment rate is understated by about seven percent against its original design and what many people would consider to be actual unemployment (would be about 12.5%)."


#16

People have such a better standard of living today than in 1980 it is amazing.


#17

Tax cuts only help grow wealth--they do not "grow the economy". The economy is set with the environment as our entire ability to produce and consume is contained therein. The economy exists simply as the natural laws the govern production, consumption, and competition in an environment fraught with scarcity.

Wealth can only be grown from production--consumption does not grow wealth--it depletes it. Now, to distinguish between outright consumption and consumption in the manufacture of capital goods: obviously, if the consumption results in the potential to produce more then that is in fact growing wealth, assuming these goods are "useful" and can produce a demand.

Tax cuts allow for greater consumer spending which creates demand in the market--this in turn signals to the market to increase production thus driving down prices which helps move the newly created surplus of goods--that is a win-win for the consumer.

The caveat is that if there is no savings (or tax-cuts) it results in inflation as banks (fractional reserves) go to print money that they do not have on hand for consumer spending--this is why tax cuts are good. Tax cuts prevent inflation as long as the State slows spending at the same time. Otherwise they are just creating inflation--which is what they are doing currently. We need both tax and budget cuts to grow wealth and contribute to the quality of life for all consumers.

Using the money supply as a measure of the "economy" is fallible. Money is nothing. It is an exchange mechanism and nothing more--if you had nothing to exchange for money it would serve no purpose. It doesn't matter how much money is floating in the system as prices will always reflect the total amount in the system.

What matters is the inflation that is caused by printing money out of thin air that depletes purchasing power. Poor people are always affected by this inflation the most as they have no access to newly printed money. Go ask a poor person how they feel about "tax cuts" and the "economy".

Some food for thought from Frederic Bastiat for those that think war "grows the economy":

"society loses the value of things which are uselessly destroyed," or, "destruction is not profit."


#18

I'm pretty sure unemployment figures are a function of the number of people filing for unemployment.

Self-Employed sole proprietors, such as myself, don't show up on the numbers. We are not counted as being employed, or unemployed since we have no right to claim unemployment benefits.

You have the numbers you want to believe, I have the numbers I want to believe. Who is right? I know I am doing exponentially better now than I was doing in 2000.

You can argue the economy all day, but the amount of new construction going on even in my hick-assed corner of the world tells me that there is money to spend, and people are spending it.

Now if you want to factor in unsecured consumer debt - we might not be doing as well as some report. But until that sort of debt is viewed as a bad thing by more than a handful of people, it will never be reflected in the numbers.

My original point was, however, that there is going to be a $700 billion increase in revenues to the treasury.

Trickle down works.


#19

But it is slipping. The disparity between the uber-wealthy and the poor grows by leaps and bounds. This is bad for overall quality of life as it creates inflation.


#20

You mis-read. Or I was not explicit enough. Because the economy is good, we have an expected 700b in extra reveune. When the economy is good - everyone makes money, including the government. At a tax rate lower than that of 2000, we are increasing the revenue to the treasury.

Tax cuts can mos certainly be a means by which one can build wealth.

if I have a business and the my personal tax rate is lowered I can use the tax savings to either hire more people, or buy more stuff. If I hire more people, I create a new revenue stream for the economy. If I buy more stuff, I increase the bottom line of someone else that can hire more people or buy more stuff.

People that think the economy is a zero sum game will never share their pie.

Those that understand that the pie will always grow if the climate is right - build wealth as a direct result of tax cuts.

Does it make the economy better? You be the judge.