Sensible and honest conservative Bruce Bartlett emails me the latest nonsense from Deroy Murdock:
Modest legislation to extend President Bush’s tax cuts for two years, rather than make them permanent, is trapped in a House-Senate conference committee. Such inaction might be understandable if tax cuts actually “ballooned the deficit,” as tax hikers always charge. In fact, the opposite is true: Federal revenues surged 15 percent last year. The Laffer Curve, economist Arthur Laffer’s oft-dismissed theory that marginal tax-rate reduction lifts revenues by accelerating economic activity, has been vindicated, yet again. While liberal critics giggle to themselves, Laffer gets the last laugh as the economy follows his model.
I guess Mr. Murdock forgot that the 2001 tax cut was followed by contined weak growth in real GDP. And does he not realize that real tax revenues per capita are still below where they were in 2000? Maybe he really believes this Laffer curve spin, which is why he resorts to blaming the large Federal deficits on higher government spending:
“Had the President and Congress limited federal spending increases to 4 percent each year since FY 2001, the budget would be out of the red next year and would yield a surplus of $58 billion instead of a $354 billion deficit,” says National Taxpayers Union president John Berthoud. “Considering that in 2010, the Administration still expects a shortfall of $183 billion, a little self-restraint would have gone a long way.” NTU’s Pete Sepp calculates that “the GOP Congress added $525 billion of inflation-adjusted federal spending between FY 2000 and FY 2007, an increase, after inflation, of 29 percent.” Simply put, limiting spending to inflation would have saved taxpayers more than half a trillion dollars since 2000.
President Bush during the 2001 State of the Union address promised to limit spending increases to 4% per year after inflation. A 29% real increase over a 7-year period amounts to an average annual increase of only 3.7%.
Dean Baker wisely advises that:
The impact of the deficit on the economy, and the potential debt burden it poses to taxpayers in the future, depends entirely on its size relative to the economy. This is the Bill Gates principle. If Bill Gates chooses to borrow $1 million for some reason, it is not a big deal for him, since he can easily repay this sum. However, if most of us had $1 million in debt, this would be a very big deal for us. It is entirely possible that Bill Gates actually has borrowed millions of dollars for various purposes, but a comparison of our wealth with Bill Gates’ wealth that focused only on his debts, without including his assets, would be ridiculous. That is effectively what reporters do when they compare budget deficits through time, without comparing them to the size of the economy. The proper measure is to describe the deficit relative to GDP.
This is a fair point, which should also extend to comparisons about spending and taxes. Taxes as a share of GDP have fallen since 2000. But with real GDP growth averaging 3.2% per year, government spending as a share of GDP has increased – SLIGHTLY.
My concern is less that we have the largest deficit in history – as Dean notes, that’s not true. My concern is that certain Republicans have no clue as to how to turn this deficit around. Not only do we get Mr. Murdock’s silly op-ed, we also get even more brazen fiscal dishonesty from the House Republican crowd – who wish to buy the 2006 election with even more tax cuts for the rich. Via Mark Thoma comes a very nice op-ed from the Washington Post:
But when Congress comes back from its recess, it’s expected to take up a deal to extend President Bush’s capital gains and dividend tax cuts. To make their budget-busting tax policy appear less costly than it is, the lawmakers are resorting to a gimmick that is even more egregious than their usual tactics. This one would, as usual, hide the cost of tax cuts that primarily benefit upper-income Americans. But it would accomplish that budgetary smoke and mirrors with a new tax provision, involving retirement savings accounts, that also benefits the well-to-do. And, to top things off, this new tax provision, while masking the cost of the tax cuts by bringing in more revenue in the short term, would in the long run worsen the fiscal situation by piling on more debt. No one who’s serious about controlling the deficit – whatever one’s position on extending the tax cuts – could support this dishonest approach.
Update: Mark Goldblatt finds evidence of the Laffer curve in the behavior of a cartoon character named Chadwick Worthington III. Goldblatt also adds this tired old canard:
After President Kennedy cut the top tax rate from 90 percent down to 70 percent, actual tax revenues rose from 94 billion dollars in 1961 to 153 billion in 1968. After President Reagan initiated across-the-board tax cuts, overall tax revenues jumped from $599 billion in 1981 to $909 billion in 1988. President Bush’s tax cuts seemed, at first, to break the pattern. Before he came into office, in 2000, tax revenues stood at a record $2,025 billion. They shrank to $1,991 billion in 2001, the first year of Bush’s presidency (and the year of the 9/11 attacks) . . . then shrank to $1853 billion in 2002 . . . then shrank to $1,782 billion in 2003. But that was the bottom. Tax revenues rose to $1,880 in 2004. The Congressional Budget Office estimates tax revenues for 2005 will hit $2,154 billion – in other words, the government is now hauling in more money in taxes than it ever has before. This would be impossible if “tax cuts for the rich” meant less overall tax revenues.
Even in Toontown, the characters understand concepts such as real taxes per capita and Keynesian business cycles, but not Mr. Goldblatt!