As much as it may be contrary to common knowledge that appears to be the case.
The first line of the Investor’s Business Daily story says, “Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 – three years early.”
Instapundit jokes that the New York Times headline would be (if they actually reported on this): Bush deficit reduction plan falls off-schedule
With the recent Treasury Department figures we see other things that go against the grain of accepted thinking.
Tax cuts favor the rich – Maybe not. Since the Bush tax cuts, those making over $200,000 pay 46.6% of total income taxes. That is up 6.1%. The “rich” are paying more in taxes, both in actual dollars and as a percentage.
Capital gains tax cuts hurt the federal budget – Not according to the figures. Nonwithheld income tax receipts are up about 20% over last year. Those receipts include bonuses and captial gains.
Bush’s corporate tax cuts are bankrupting us – The Treasury says corporate income taxes are up about 30% from last year. We are getting more money, not less, due to the tax cuts.
It appears that John F. Kennedy and Ronald Reagan were right – tax cuts work. It appears they work every time they are tried, despite the media mantra.
I have no problem with a rich person getting a tax cut. Many, I would say most, worked hard to get to where they are. They should not be punished, in the form of high taxes, for success. That sends the wrong message.
Not only does it send the wrong message, according to the numbers, tax cuts both help the private economy grow and help the federal government raise more funds. This is a win-win for everyone, especially the individuals who get some more of their own money back.
The idea of tax cuts in of themselves are not the real issue. Fundamentally, I am not opposed to tax cuts so long as lost revenue can be offset through other program cuts, etc.
As you know, the Federal government comes up with various accounting explanations to rule in favor or dispute the numbers indicating a balanced budget and deficit reduction is possible.
Objectively speaking, this is purely an academic excercise. On one side you have the GAO projecting numbers that the deficit is being reduced, while the CBO somewhat contradicts those numbers. Each of these organizations are beholden to the administration (GAO) and the congress (CBO).
So, these sorts of discussions really become a circular and political argument not based upon economic reality due to each of these agencies political biases. The truth is probably somewhere in the middle.
In the light of national support for increased spending on national defense, border security, and basic human services the money has to come from somewhere. That somewhere is going to be through cutting of other programs at a wholesale level or through deficit spending.
For example, the last defense authorization for the war in Iraq was 60 billion dollars. The run rate of spending per month for the war is 6 billion. All of this is being deficit financed and also borrowed against the Social Security trust fund so it doesn’t count against the deficit (btw, this is a very common practice and has been done for years)
Regardless of how anyone comes down on these policy issues, there is no denying that the money has to come from somewhere. If spending continues at these levels unabated, no matter how much you cut taxes & generate growth, we will still be running a deficit in 10 years.
To save the budget, it is becoming clear to me that taxes are not the issue – spending is, and that is where we should focus.
Liberals and conservatives are both right when they say that cutting taxes lowers government income and spurs the economny (resp.). However, I think the link you provided makes it clearer that the latter effect is much more significant.
Tax cuts are in general, good for all. Spending is the problem.
Economist, I agree that the GAO and CBO numbers may be off somewhat and in reality no surplus is real except on paper, but I don't remember anyone making those same arguments during Clinton's term.
Spending is the issue, cut spending and cut taxes – perfect solution, IMHO.
Economist, I agree that the GAO and CBO numbers may be off somewhat and in reality no surplus is real except on paper, but I don’t remember anyone making those same arguments during Clinton’s term
Aaron, as with all things it depends on where you look. GAO was always overly optimistic when it came to spending and taxes with respect in revenue. Within the CBO during Clinton’s term there were a number of studies and reports published that criticised the level of spending and accounting methods made by the Clinton administration. At that time CBO was more in the conservative camp of economics with the election of the “Contract with America” Congress.
External NGOs also made similar criticisms…I seem to remember a couple reports originating from Heritage back then as well.
On tax cuts and impact on state and local taxation
Tax cuts and spending cuts are definitely the answer. But then that leads to which programs and also a detailed look at which critical programs we have now that are supposed to be fully funded and are not.
Ultimately some of the programs that are cut will slide down to the states to fund (based upon past program cuts). Resulting in state legislatures to a) raise local taxes for such programs that were partially funded through Federal subsidy, b) cut funding all together, or c) raise fund through a bond measure.
So while we may end up reducing taxes at the Federal level, those taxes may not realisticly be permanently reduced for all Americans due to State legislature & county tax increases to offset lost revenue.
We can certainly debate which programs to cut. Actually, we could spend the next 5 years debating it. However, this trickle down of tax increases from Federal to State level is a real possibility.
I think we agree on spending cuts. However, our tax burden (in inflation adjusted dollars) is as high as it has ever been in history. Pushing it higher will kill the economy and not significantly affect our deficit, me thinks.