Yesterday, I was delighted to discover that someone had posted a lengthy reply to one of my recent columns. Because the commenter, identified as “GladYouWrote”, sounded much more informed, erudite and honest than Austan Goolsbee did in last week’s interview on The Colbert Report, I felt I could do no less in the way of a response than a new article on my home page.
First of all, I did not mean to attribute the growth in tax revenues under George W. Bush “singularly to lowering the top income tax rate,” but the federal income tax is the government’s main source of revenue; in any given year, individual income taxes alone account for between 45 and 50% of the government’s haul. Also, consider that, because some other major sources of revenue–such as payroll taxes–are (supposed to be) set aside for specified purposes, when the gov’t thinks we need more revenue, it’s only logical to focus first and foremost on the income tax.
GladYouWrote also took issue with my statement that “clearly, the government took in more revenue per annum under George W. Bush than it did under Bill Clinton,” saying, “without context that claim is disingenuous. As a proportion of GDP, 1992-1999 saw 18.7% return in the form of federal revenues, contrasted with only 17.6% return during the years 2001-2008.”
As the graph I displayed in one of my posts shows, tax revenues as a percentage of gross domestic product did hit a historic a historic high in 2000, while the old income tax rates were still in place, but this was obviously an unsustainable level of tax revenues, no matter what the rate structure. Notice that, even before the first round of tax cuts (EGTRRA) was enacted, revenues started to decline because of the recession. Perhaps this graph from OMB, which shows revenues and spending as a percentage of GDP over the past 60 years, may shed some more light on the historical levels.
GladYouWrote also says that I should “include significantly more analysis” to validate their success of the Bush tax rate cuts “than general unemployment and GDP growth.” I think that’s fair, but this suggestion was followed by somewhat of a non-sequitur: a series of references to a report by the CBO entitled “Policies for Increasing Economic Growth and Employment in 2010 and 2011.” I checked out this report, and, I have to say, I almost ended up forgoing this blurb in favor of a much more in-depth article critiquing the CBO’s report. (I have a tendency to get sucked down rabbit holes, which is one reason I prefer this to an in-person debate where one’s opportunities to make effective arguments & counter-arguments are undermined by cumbrous time restraints.) Thankfully, I was able to control myself, and at the risk of interrupting the flow of this column, let me make 3 quick remarks before I resume my reply to what GladYouWrote actually said:
- The report was mostly well-written, and I realize that the CBO is meant to provide objective analysis and not to author normative policy statements, but as I was reading this, I couldn’t help but wonder who, if anyone, edited it? For example, it began “After the most severe recession since the 1930s, the U.S. economy appears to be recovering.” What? Look, I’m not going to claim that an entire report is worthless just because the author made a few mistakes, but this particular report contained several highly suspect obiter dicta that could just as easily have been typos as evidence that whoever wrote the report is a very poor student of history.
- In the report’s Introduction and Summary, the CBO states that it is measuring the cost-effectiveness of the analyzed policies “by the cumulative effects on GDP and employment per dollar of budgetary cost and in the time patterns of those effects,” so it seems odd that that GladYouWrote would suggest that I use more ”than general unemployment and GDP growth” to evaluate the success of fiscal policies and then cite to a report that does just that.
- I can’t remember the last time I heard/saw someone who wasn’t an economics professor, gov’t-employed bean counter or policy analyst @ a think tank refer to the tax acts of 2001 and 2003 as EGTRRA and JGTRRA, respectively. I stopped using the terms myself years ago in favor of the commonly understood, if technically inaccurate, “Bush tax cuts.” Most people don’t seem to care about the distinction(s) between “tax cuts”/”tax rate cuts”/”tax relief”/”tax reform”/etc. This is a really minor point, but I think I’m glad to see there’s someone out there who is familiar with the correct names of the legislation.
Now then, back to the matter at hand: I could not find anything in the entire report stating that “EGTRRA and JGTRRA tax decreases produce less than 40 cents of economic output over five years for every dollar spent, as opposed to increased aid to the unemployed and low-income earners and direct government investment in short-term infrastructure and job creation, both of which produce an average of 75 cents more than straight-up tax relief.” The closest thing I could find to such a conclusion anywhere in the report was this statement: “CBO estimates that a two-year AMT patch and one-year deferral of the EGTRRA and JGTRRA tax increases would raise output cumulatively between 2010 and 2015 by $0.10 to $0.40 per dollar of total budgetary cost.” As for the part about “increased aid to the unemployed and low-income earners and direct government investment in short-term infrastructure and job creation” (which some of us prefer to refer to sardonically as “welfare & waste”), the CBO analyzed what the impact might be of, inter alia, “increasing aid to the unemployed” (from March 2010 until July 2011), “providing additional refundable tax credits for lower- and middle-income households in 2011,” and “investing in infrastructure.” In addition to “cost-effectiveness,” the CBO identified “timing” and “consistency with long-term fiscal objectives” as the key criteria for judging policy options. Before I go any further, I should just point out that the post GladYouWrote replied to was meant to be a repudiation of what Goolsbee said on Colbert, not a pitch for any particular policy going forward. I supplemented it with historical facts to prove that many of Goolsbee’s arguments lacked merit, and in doing so I suppose I ended up defending the soundness of EGTRRA and JGTRRA.
As I said, I don’t want this to become a deconstruction of the CBO report, so for now, let’s just remember that, like many other CBO reports, this was a policy analysis based on predictions/projections of what it thinks will happen if certain policies are implemented. My previous posts on this subject concerned the actual effects of past and current policies. To what extent the economic circumstances, as indicated by the various facts and figures I included, are/were attributable to those policies is not something I profess to know. Finally, I’ve never been one to begrudge wealthy individuals for their (legally compliant) success, which I suppose explains my political affiliation. It’s fair to say that many of these individuals don’t care to distribute the fruits of their labors to people who don’t need/deserve it, but GladYouWrote’s assertion that “the rich (despite what conservatives want desperately to believe) care little about distributing their acquired wealth to the overall economy” is too dubious to simply stand by itself, unsupported by any stated premises. Before I rebut that assertion, I’d like to know what the author meant by that.