Even though Dr. Novak has been a busy person countering all those who would dare spread vicious lies about his role in PlameGate, he has taken the time to explain the economic principles behind Bush’s fiscal fiasco for us:
The White House Office of Management and Budget had originally forecast a deficit of $423 billion for fiscal 2006 – instead, increased tax revenues have pushed the estimate down to about $296 billion.
1. Accusations that the administration is employing the famous UPOD business principle – “under-promise, over-deliver” – are not entirely unjustified, considering that the non-partisan Congressional Budget Office had originally forecast a deficit of just $350 billion. Still, both were wrong by a very large margin (15.4 percent for the CBO and 30 percent for the White House), and the positive reversal of fortune clearly had nothing to do with fiscal discipline in the Congress.
2. The real culprit here for the errors is the practice of static scoring of tax revenues, which is still employed by the government despite experience. Both the White House and the CBO score the loss of tax revenue from tax-cuts as though they did not affect the behavior of business owners, shareholders and other investors – a sure recipe for missing the mark.
3. Setting aside the obvious fact that most of the Bush deficits are 9/11-related, the principles of supply-side economics are vindicated both by the success of the 2003 tax cuts in maintaining and even raising tax revenues, and the failure of the 2001 across-the board income tax cuts to do the same. Large cuts in the top marginal tax rates have the greatest effect on economic growth, and the growth is augmented when cuts are closest to the investment side of the economy.
4. The lesson is that tax cuts that focus on investment – such as the 2003 dividend and capital-gains tax cuts – really do affect investor behavior. More money pours into capital markets when investors realize a greater after-tax return. Corporations are, therefore, freer to expand business and profits. Moreover, investors are less hesitant to realize smaller gains when those gains are taxed at a lower rate – the top rate now being 15 percent. This results in a greater number of transactions, meaning more tax revenue that would not have been collected under a high-tax regime. This explains why the tax-rate cuts’ overall effect on tax revenues, depending on who is doing the measuring, has been negligible or even positive.
5. CBO’s estimate for the fiscal 2007 deficit is $337 billion. In January 2004, President Bush made the rather weak promise of halving the budget deficit by 2009. It is not exactly clear when that promise can be considered fulfilled – the fiscal 2004 budget deficit ended up being $413 billion, but the projection had been $477 billion. Either way, he is already within striking distance. The problem in the long- and even medium-run is that as entitlements become more expensive with an aging population, a balanced budget becomes less possible.
Now – I feel MUCH better!
Update: As Mark Levin opines on the civil suit filed by Joe Wilson and his wife, he seems to not know something here:
To the extent possible, through depositions and document production, Cheney and Lewis’s lawyers should get to the bottom of the real scandal, e.g., who exactly is Valerie Plame, what was her role in sending her husband to Niger, who were all of her contacts, what media sources did she speak to, what politicians did she speak to, and on and on.
Let’s help Mark out. Plame did not talk to media sources or politicians and her sources are (or should I say were) national security secrets. But if Mr. Levin does not know what she is by now, maybe Dr. Novak can explain that one to him since he let the rest of the world know back on July 14, 2003.