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Tax Cuts Create Deficits

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Tax Cuts Create Deficits

Philadelphia Inquirer Editorial

from JoeUser Forums


Below is the Editorial today from the Philadelphia Inquirer titled, Tax Cuts and the Deficits which is 100 % in sink with the analysis I have included in my new book. In a nut shell, the Presidents former economic advisor, N. Gregory Mankiw admits that the NEW revenue generated from the Bush tax cuts have only provided 1/2 the revenue lost from the tax cuts and the other half have become part of the deficits. For those that claim the deficit is because of the added spending on hurricanes, terrorism and the War in Iraq. The Comptroller general, David Walker said only 1/3 of the growing deficit has been caused by that added spending.

In other words, the Bush Tax Cuts are driving America into debt that our children will pay for in the years to come! The sources of this analysis are the CBO and OMB. So please do not tell me it is some liberal conspiracy. What we have is just what Bush 41 said, Voodoo Economics. Another good reason to retire Senator Rick Santorum who supported the Bush Tax cuts including the $70 Billion raid on the treasury in early May.





Posted on Tue, May. 30, 2006



Tax Cuts and Deficits

Editorial | Bad math, slick politics: We'll pay, eventually


For the past five years, Congress and President Bush have been cutting taxes in the face of huge deficits, all the while peddling a math myth to the public.
Tax cuts won't make the deficits worse, they say. Tax cuts will stimulate so much economic growth that federal tax revenue will actually increase. Tax cuts, they are fond of saying, pay for themselves.
Actually, no. Economists of all stripes agree that federal tax cuts by themselves do not boost federal revenue back to the level before the cuts were enacted.
Tax cuts do boost economic activity. This growth does replace a portion of the revenue once generated by the eliminated taxes. But far from all. Very far. Researchers' estimates of this replacement effect vary from around 15 percent to 50 percent, depending on the type of tax cut and the prior rate.
Any responsible politician should know this, but polls persist in peddling the cozy myth. Sen. Rick Santorum (R., Pa.) played along earlier this month when Congress extended tax cuts on capital gains and dividend income for two years, at a cost to the federal treasury of $70 billion.
"We've put these tax provisions in place," Santorum said, "and they've raised money."
Even President Bush's former economic adviser, N. Gregory Mankiw, concedes that activity spurred by the capital gains tax cuts made up only about half of the lost revenue.
What do you call the other half? Under this administration, you call it "deficit."
Data from the president's own Office of Management and Budget refute the argument that tax cuts "pay for themselves." Over the past three years, with tax cuts in effect, federal revenue was $316 billion lower than OMB had predicted, in 2003, that it would have been without tax cuts.
The federal deficit this fiscal year is projected at more than $330 billion.
From 2001 to 2005, federal revenue fell at an average rate of 0.6 percent when adjusted for inflation and population growth, according to the left-leaning think tank Center on Budget and Policy Priorities in Washington.
Some Republican lawmakers point out that tax receipts through April were up about $137 billion, or 11 percent, compared with the same period last year. Credit tax cuts for some of that, if you want, but be aware that national economies are complex creatures that grow or shrink based on dozens of factors, of which tax rates are only one. Inflation, too, could partly explain it.
But that increase still is not nearly enough to offset recent losses to the federal coffers. Nor do the White House's own projections expect deficits to end anytime soon.
Again, the key point: No matter what you've been repeatedly told, an improved economy does not generate all the tax revenue that was lost due to cutting federal taxes in the first place. The evidence proving this basic point has been piling up since Ronald Reagan's tenure, but many tax-cut fans still won't admit it. Why? Because the pay-for-themselves theory was never based on fiscal evidence. It was a theology, a faith-based system defended all the more strenuously because of that.
(A side point: Tax cuts can come much closer to paying for themselves on a local stage, in a city such as Philadelphia, where comparatively high taxes really do discourage investment, and those seeking to escape those taxes do not have to leave the nation but merely take a step across City Avenue.)
The federal tax-cut mythology wouldn't have such dire consequences, if Congress and the president reduced federal spending in line with the lower revenues.
Since Reagan, that draconian balancing act has been the goal of some conservatives bent on cutting the social programs that always have irritated them.
Trouble is, that plan hasn't worked. In five-plus years of almost total domination of Washington by the self-described "conservatives" of the White House and Capitol Hill, federal spending has increased about 29 percent, even as tax cuts drained the Treasury.
And, no, not all that spending is due to hurricanes, terrorism and wars. (Let's not even get into the point that the wildly costly Iraq War was a choice, not a necessity.) David Walker, comptroller-general of the United States, says only about a third of the stated deficit can be traced to those causes.
Remember those golden days of the 2000 presidential campaign when the big issue was how to spend the roughly $5.6 trillion in federal surpluses projected for this decade?
Instead, surpluses turned to deficits, with a vengeance, once the Bush tax cuts went into effect. During the Bush years, the national debt has soared from $5.8 trillion to more than $8.3 trillion.
Why haven't the Republican powers inside the Beltway cut government more? Well, some of them were too busy throwing government money at the corporate friends who keep them in power and get them onto all the nice golf courses.
But the bigger reason is that every time budget-cutters hover their ax over any of the middle-class benefits where the big money flows, voters scream bloody murder.
Turns out people really like most of what big government provides.
They like the help with J.J.'s college tuition, and with Grandma's nursing home bills and prescription drugs. They like having a teaching hospital full of brilliant doctors and expensive equipment nearby. They demand a strong national defense and better homeland security. And they are really, really fond of the tax deduction for their home mortgage interest.
Taxpayers are human. They like a good deal. If politicians tell them they can get all the government benefits they secretly love at a discounted price, they'll cheer.
And, as some genuine fiscal conservatives are ruefully coming to realize, people who are getting government at what feels like a discounted price (i.e. lower taxes) aren't going to clamor for less government. They're going to clamor for more, for benefits like a prescription drug benefit that Medicare has no idea how to pay for.
But, in fact, these government benefits aren't really being bought at a discount. They're being bought with reckless borrowing. They'll get paid for, all right, but the payment will come down the road in higher taxes, higher interest rates and economic anxiety.
Tax cuts pay for themselves? That's just an irresponsible alibi for making our children and grandchildren pay for our self-indulgent little party.
politics
29,496 views 122 replies
Reply #26 from JoeUser Forums Top
YOu have no right to dictate to other people what taxes are due. You're a closet fascist, no doubt about that, but this is a democracy wherein our elected officials decide what taxes are due. I get so tired of your weird attitude that a person's office doesn't mean anything unless they are doing what you want them to do.

I have no doubt we could easily come up with enough waste in the government to balance the budget. No doubt in my mind, not one bit. Every single day you do the nation a disservice going to bat for a corrupt congress and distracting people from the real problems with our country.

You continue to do so now. You would pull more money out of the economy and inject it into a corrupt, self-perpetuating money machine. We need every dollar changing hands in our economy, not being shipped to Washington to be slid back to cronies in the form of earmarks, or wasted on $150 toilet seats.

You have some strange Joan of Arc syndrome, but sadly God didn't choose you to save the US, nor do you have his authority. This "They Must Be Stopped!!" syndrome needs to be seen for what it is, a sad inability to accept that they lost an election, and now the person who won doesn't have to ask their opinion anymore.
Reply #27 from JoeUser Forums Top
Bakerstreet

You fail to address the central issue-- WHY would anyone continue tax cuts that return only 1/2 the amount of tax revenue lost from the tax cuts?

I challenge you to list the cuts you think can be made that would total $600 Billion EVERY YEAR. I am not trying to dictate anything except that we NEED TO BALANCE THE BUDGET. I know that just cutting expenses WILL NOT do the JOB. I also know that the BEST segment to collect added revenue needed to balance the budget would come form the top 10% and not the bottom 90%.
Galactic Civilizations III
Reply #28 from JoeUser Forums Top
"You fail to address the central issue-- WHY would anyone continue tax cuts that return only 1/2 the amount of tax revenue lost from the tax cuts?"


No, I addressed that by saying that we need to keep as much money in the economy as humanly possible instead of watching billions leak into the corrupt government. Evidently you think the POINT of an economy is getting revenue into the government, which really makes me doubt your sanity.

Government revenue is a sad reality, not something we should all be working to expand. That money is OURS and it is best spent by the people who earned it, not by corrupt officials who steal it from us and then misrepresent where it goes.

"I challenge you to list the cuts you think can be made that would total $600 Billion EVERY YEAR."


You realize that there are literally BILLIONS in earmarks every year that don't go where the money was actually budgeted, right? You realize that only a percent of the money designated to, say "social security" actually GOES to social security, right?

You have a situation where the government takes X amount of money to do particular jobs, and the majority of it is spent on operating costs and corruption before it gets to those projects. It's like donating to a charity where only 40 or 50% gets to the poor.

That's why I made the comment about your chart above. It doesn't matter if you say that x percent goes to defense when that money is divided, earmarked, and squandered in the process of getting it TO national defense. Look at "Health and Human Services" on your chart. Do you really, in any stretch of the imagination, believe that that amount of money ends up as aid and service to citizens?

Hell no. Congress can finagle the budget any way they want to and no one notices because people like you shout over everyone else about the President not sending them enough money to waste. Your attitide is the first thing people learn to overcome when they bounce their first check or max their first credit card. When you want to get out of debt, STOP SPENDING MONEY.
Reply #29 from JoeUser Forums Top
Col, are you socialist? Just answer that question.

There is no reason the successful in this country should pay more in taxes to support people who are poor by choice. How much should the evil rich be taxed col, 60%?
Reply #30 from JoeUser Forums Top
" Col, are you socialist? Just answer that question."{/quote]

He'd just about have to be making a statement like: "WHY would anyone continue tax cuts that return only 1/2 the amount of tax revenue lost from the tax cuts?"

To him, evidently, our labor is for the benefit of makind as a whole, and the government is the arbiter of our happiness through the revenues we owe them. Sounds pretty pink to me...

Honestly, though, I think we'd be naive to think the Col believes this any more than Murtha or Sheehan cares about the troops. They have their little crusade, and try to paint themselves as standing up for something besides their own irrational vendettas.

I don't think the Col cares much about any of this, and in a different situation would probably be agreeing with me. It's just another anti-Bush angle to exploit.
Reply #31 from JoeUser Forums Top
It's great when he says "people who can afford it". I want to know who put him in charge to decide how much Americans that actually WORK should pay in taxes.
Reply #32 from JoeUser Forums Top
Bakerstreet

I have said we need to look at the budget and cut spending. However, all non-mandated non defense spending DOES NOT equal $600 Billion. Social security today generates a $170 Billion surplus and Medicare about $23 Billion surplus. Those two issues are separate from the general federal government budget and are paid for by separate taxes and are paid to those that meet the purpose for which they were designed.

I am not talking about expanding government spending but to bring Government spending into balance with tax revenue. There is always waste and we should insist that our government minimizes that waste. However the idea that when our government spends money either to employ someone or to purchase goods and services the money goes down a black hole is not true. Every dollar the Government spends and is paid as salaries or to companies that make THINGS or provide SERVICES stimulate the economy the same as if individuals spent the money.

The idea that individuals can better decide HOW or on WHAT to spend their money on is also not true in all cases. Many things we need to operate as a country would not be provided if left up to individuals. They would not pay for defense; build roads or a thousand other things. We must have the various functions of Government to prosper such as FBI, CIA DOD Commerce, Education, Homeland Security, Health etc. There is blatant spending that only benefits a few people and it is called PORK. That is at an all time high and is the FIRST place we should CUT. However making believe you could cut $600 Billion and insure the essential functions and services that the VAST MAJORITY want the government to provide is simply untrue. That is the position of people that do not want to face the issue. That issue is when we decide as a country what we will spend we MUST have tax Revenue EQUAL to the level of spending!!!!!!!!!!!!!!! You and others may feel certain expenditures are not needed. However, if the majority via the Representative type of government chooses to spend for example $2.6 Trillion in FY 2007, then there must be $2.6 Trillion in tax revenue to pay for that level of spending. That is what Bush and the SO CALLED conservatives are not doing. They want to SPEND but not PAY. They want to cut taxes and BORROW that money to make up for the loss in revenue from that tax cuts and then pay interest on the money borrowed to replace the tax revenue lost from the tax cuts. We give a $1.00 tax cut and see ONLY $.50 in new tax revenue develop from new economic activity from the tax cut. That is WAST and poor fiscal management!
Reply #33 from JoeUser Forums Top
I notice col you once again avoid everything towards you.
Reply #34 from JoeUser Forums Top
Those surpluses aren't enough when you look at how much will be needed by the people paying in now. They are not separate from the corruption of government, only tallied separately. The same greed and waste goes into managing them that goes into wasting money on every other part of government, because the same greedy, wasteful people manage it.

You are either talking about expanding government, or you are ignorant of the people you are supporting. There has never, ever in our history been a time when there was a surplus that they didn't expand the government to meet it. Your much-hailed balanced budget of the 90's was an invitation for Dems and Republicans alike to start a feeding frenzy on revenue that continues to this day.

Your asinine idea that people wouldn't see to the defense and care of their own country betrays your socialist attitude. You don't believe in real democracy, obviously, because we are all too ignorant to care for ourselves. It would be no different then if we chose people who really represented our wishes. People like you not only accept that we lack representation, but applaud it because we can't be expected to know how to care for ourselves.

In reality people like you just blindly hire wolves to care for sheep. Every single part of government you point to is surely beneficial, but also plagued by malfeasance and waste. It doesn't matter to me that you can point to x amount of money going to a necesary service. You ignore that funds so allocated can be hijacked, earmarked, and sent other places after the fact, and that those services themselves don't give us our money's worth in terms of services.

You can rattle on and on but the first place anyone, individuals, businesses, governments, look when they want to balance their budgets is to cut out waste. Pouring water into a leaky bucket doesn't fix the bucket, and pouring money into a wasteful, corrupt government only makes it more wasteful and more corrupt. We shouldn't be borrowing money, no, nor should we be stealing it from the taxpayers.

Money taken out of the economy is less money moving within the economy, which is a less healthy economy. You would have the government eat a larger and larger hunk until the economy was just about perpetuating a babysitter government. You can't for a moment pretend that is fiscally responsible.

Reply #35 from JoeUser Forums Top
BakerStreet

Bottom line- If the Congress agrees to spent $2.6 Trillion next year we MUST tax $2.6 Trillion next year. You are blowing hot air when you say people will provide the services and provide for things like defense, roads, infrastructure that are ESSENTIAL to maintaining our society. I am all for trying to operate Government in an effective way which is NOT what Bush is doing. However, making believe ANY Congress or the vast majority will agree to cutting $600 Billion per year is a fantasy ride in Disneyland. WE need some cuts, better enforcement of tax laws and higher tax rate on the people that can afford to pay a little more. Let’s get back to what Greenspan and O’Neil said continue the tax cuts so long as there is a surplus to pay for them!
Reply #36 from JoeUser Forums Top
"Bottom line- If the Congress agrees to spent $2.6 Trillion next year we MUST tax $2.6 Trillion next year. '


On the contrary, I seem to recall a war fought over taxation without representation. If they are stealing our money we are under no obligation to keep their purse full.

"You are blowing hot air when you say people will provide the services and provide for things like defense, roads, infrastructure that are ESSENTIAL to maintaining our society."


And you are blowing hot air when you say such and then claim to be devoted to representitive government. In reality you must think government is there to direct us, not the ther way around. In reality it is our money, and our government that has been hijacked. You would applaud that by claiming we are too greedy or stupid to see to our own care.

You've most certainly shown your stripes here, Col. Your claims about being conservative have pretty much been exploded now.
Reply #37 from JoeUser Forums Top
BakerStreet

ARE YOU ON DRUGS?

IF The SAME Representatives that WE ELECTED agree to spend the money they also have the OBLIGATION to raise taxes to pay for that spending! Where the HELL is the Taxation WITHOUT REPRESENTATION?

The people we ELECT under this Republic VOTE on what to spend and then must find the way to pay for that spending. That DOES NOT include borrowing the money and putting the responsibility on future generations to pay for that spending!

You do not have the most basic understanding of Financial Management. No one and No country can just spend without regard to how the spending will be funded.
Reply #38 from JoeUser Forums Top
You say, we are spending a lot more than we tax, so we must take more money out of the economy to fix it. Then you say I don't have any understanding of "Financial Management".

Oh, I think it would be obvious to anyone that a man who thinks that we are being accurately represented by this kind of gross malfeasance is the one on drugs. You think the folks who sent Mallohan to Congress wanted him to send millions back home to his pet projects run by his flunkies? Do people usually react favorably to stories of government waste and congressional pork?

Of course not. You are blind if you call what is going on in Congress real representation, and you are insane if you think that most people believe the government is there because we can't make good decisions for ourselves. It's insulting to see you keep banging the ultra-liberal drum of government oversight of our wealth. If they earned the responsiblity, maybe, but they are a failure at managing it.
Reply #39 from JoeUser Forums Top
I mean, you have the gall to say I don't know about finances with a title like "Tax Cuts Create Deficits"? That's like saying wage cuts create bounced checks. I think there's an important step there in the middle that you are overlooking...
Reply #40 from JoeUser Forums Top
kerstreet

What is taking money out of the economy is sending 40% of the increased interst to invstors outside the US we are paying on the increased debt becsause we do not pay for what we spend.
Reply #41 from JoeUser Forums Top
People who put money in US investment are the ones who make the jobs that pay your taxes. It's infantile and dishonest to blame them for not making paying enough toward our society when they are investing IN our society. When they stop investing, and people lose their jobs, then see how much you make in tax revenue.

The problem you overlook is that every increase in taxes is not only matched by an increase in spending, but overtaken by it. Your excuse that we wouldn't pay for roads and schools is dishonest considering we pay probably twice as much for roads and schools as they cost, and fund government malfeasance with the excess.

At some point you have to say no. At some point you have to insist that Congress and government in general live within their means. They won't do that as long as you give them everything they ask for. If you want real change and you are worried about real debt, then stop allowing the government to borrow money when we refuse.
Reply #42 from JoeUser Forums Top
I have no doubt col is a socialist. Any person in America who is successful should NOT pay for others peoples mistakes.

Will you just admit you want income redistribution? Let's tax poor people since they use governments services. A minimal tax will not affect them.
Reply #43 from JoeUser Forums Top
What part of the conclusions of the president's economic advisor and the Comptroller General's that the tax cuts are ADDING to the Deficit do you not understand? We cut taxes by $1.00 and that tax cuts produces ONLY $.50 in new Federal revenue from the growth produced. WE HAVE A NOT LOSS OF 50%!

What part of we are BORROWING the money to continue the tax cuts do you not understand?
Reply #44 from JoeUser Forums Top
"What part of we are BORROWING the money to continue the tax cuts do you not understand?"


Why we tolerate it instead of insisting they cut that 50 cents?
Reply #45 from JoeUser Forums Top
I agree that col just does not understand. He doesn't care about the revenue at all. All he cares about is taxing successful Americans.

Why don't you put your efforts into getting the poor to work? That would be something that would actually help.
Reply #46 from JoeUser Forums Top

Why don't you put your efforts into getting the poor to work? That would be something that would actually help.


The ignorant do "not" create jobs....they only destroy them!
Reply #47 from JoeUser Forums Top
Demand creates jobs. Tax cuts to the wealthy DOES NOT CREATE DEMAND! Increasing the amount we must spend on interest because we refuse to balance the budget does not help the economy or create JOBS.

There is not one of you that could run a business the way you support the way Bush and the GOP is running this country.
Reply #48 from JoeUser Forums Top
" Demand creates jobs. Tax cuts to the wealthy DOES NOT CREATE DEMAND!"


Without innovation and attractive products there is no demand. Without investment there is no innovation or attractive products. Without the wealthy there is no investment. You'd be hard pressed to find a major innovation in the last 150 years that didn't require venture capital to perfect, and capital the inventor themselves never, ever seems to have.

"Increasing the amount we must spend on interest because we refuse to balance the budget does not help the economy or create JOBS."


I think it is funny how you keep banging on the old strawman pretending we want to borrow money when you are the person claiming that it is necessary. Stop dragging me into your debt. I don't want higher taxes, and I don't want the government borrowing money. I want them to rip as many holes as necessary in what they do to make it an efficient operation.

Granted, you have the stereotypical 'housewife with a credit card' mentality, but for the life of me I can't figure out why you'd want to reiterate it over and over. Most people would be ashamed to say in public that the answer for being in the red throwing money onto the fire. Tap the credit cards hard, honey, and then complain that the hubby needs a higher paying job.

I think it is cute that you claim no one with these opinions could run a business when the guy who pays the bills for the site you post your drek on... for free... does so with the proceeds that he makes from a very successful business. Guess what! He thinks your 'tax us to end the debt' stuff is garbage, too.

Feel free to tell Mistah Wardell that he couldn't run a business. Some of us are slackers, sure, but you'll find a LOT of fiscal conservatives in our culture actually do pretty well in business. You certainly won't find a lot of people doing well who believe the answer to spending more than you make is sticking up your neighbors.
Reply #49 from JoeUser Forums Top
Tax cuts to the wealthy DOES NOT CREATE DEMAND! Increasing the amount we must spend on interest because we refuse to balance the budget does not help the economy or create JOBS.


Col and his DNC talking points.
Reply #50 from JoeUser Forums Top
Bakerstreet

Innovation and capital spending is an element that impacts Growth. The term is Supply Side Economics. The much more powerful factor is to increase DEMAND. If a new business or the expansion of an exiting business is due to new investment, the success is the ability of the consumer to BUY that product. Without that ability to purchase the new goods or service the venture will fail. If the buyer substitutes the purchase of the NEW item at the expense of some other items, then it is a replacement and the economic impact does not result.

That is what the Bush tax cuts are doing. Because about half of the total dollars flow to 5% that do not SPEND the added disposable funds they receive from the tax cuts, it does not stimulate the economy enough to replace the loss in revenue from the tax cuts. This editorial and the data from OMB and CBO has documented the fact that we have LOST a dollar of tax revenue from the Tax Cuts and the NEW economic activity has only produced new tax revenue from the growth to replace $.50 of the $1.00. In other words the Bush tax cuts have STIMULATED some economic growth but NOT at a rate that will even replace the lost revenue from the tax cuts!
That means we go further into debt BECAUSE the tax cuts are not PUL:LING THEIR WEIGHT!