Asymmetrical Information

FYI, the linked Economist article is restricted to paying subscribers.

So irresponsibility is now a justification for tax increases? Sorry, I don't see it that way. I think irresponsibility is a justification for holding the line on tax increases.

Let's assume for the sake of argument that the government is effective. Okay, now show me that it can be efficient as well.

Jane

Well said. Bush's, "Do the responsible thing and make the tax cuts permanent" would be like if Ted Stevens said, "Do the responsible thing and build a bridge from Washington to Alaska, so we don't have to bother driving through Canada." I would love to see the size of the government cut by 1/3 or so, but since no one seems to have an interest in cutting spending anymore, we have to raise taxes in the short run. In the long run, we have massive, massive Social Security and Medicare problems headed our way, which no one has the guts to address.

I'll be dead in 2037. Nyah-Nyah-Nyah.

wh,

Actually the Social Security and Medicare problems are being addressed. They are going to be allowed to devolve into welfare programs - which is what they should have been all along.

Ms Galt :-) your electronic persona is delightful. 20 years from now I bet you will appreciate tax cuts more.
My belief is that the fewer taxes collected the more free markets. I would like tax revenue to be collected via inflation.
I also believe that "money" isn't real and is just an idea in people's heads. With useful props such as currency and bank accounts.

I can give a four word summary of the budget; WARS, OLD PEOPLE, INTEREST,, it is enough to warm any libertarians heart.

Well except the old people!

I'm not paying one dime more for old people and dead people who are stealing all my money through the OASDI/HI Ponzi scheme. Reduce their thievery and we'll talk, Jane.

Exactly AT. Our parents should have revolted against high taxes. They didn't, allowing the government to continue behaving irresponsibly, and now we're getting the bills. And now I hear that we are behaving irresponsibly if we refuse to allow the government to continue to behave irresponsibly. Again, I disagree. The responsible thing to do is to force the government to behave responsibly. President Bush's statement is absolutely on target.

Jane,

Aren’t we forgetting about our friend David Ricardo, who suggested that what matters is the total level of government spending and not how the government finances that spending?

In other words, if you are concerned about deficits, then you should buy Treasuries and leave me out of it; I will make my own financing decisions.

Randy - you're getting the bills thanks to undertaxation for the last 40 years. An $8 trillion debt won't finance itself!

"At that time, the official White House projection of the budget deficit for the 2006 fiscal year was $341 billion, a substantial portion of which could have been erased by rolling back the tax cuts so dear to Mr Bush’s heart. "

I can't read the whole article, but hopefully the next paragraph explains to paying subscribers that the part about "a substantial portion of which could have been erased by rolling back the tax cuts" is a forecast based on one specific set of assumptions. Does the article say exactly what assumptions they're using, and discuss whether those assumptions are reasonable?

Perhaps Jane can explain why she feels that this particular prediction is likely? And, as a reporter, perhaps she can explain why an opinion is being reported as fact?

The figure comes from the CBO and the OMB itself. The various estimates are that between one quarter and something under one half of the current deficits stem from the Bush tax cuts. As the article continues, reversing the tax cuts alone wouldn't be nearly enough to close the deficit (nor would the Republicans' favourite target, domestic discretionary cuts). But they would certainly *help*--as would staging a meaningful attack on entitlement spending, which the government is equally unwilling to do.

Wallster,

Re; "...you're getting the bills thanks to undertaxation for the last 40 years..."

That's one way to look at it. Of course, another way is that the bill is due to over spending.

To reach your conclusion, one would have to assume that the government is both effective and efficient. To reach my conclusion one has only to assume that the government is inefficient (though it seems to me that there is considerable evidence that it is often ineffective as well).

If the government is 100% effective and 100% efficient, then surely you believe that we should have a 100% tax rate - yes?

Then again, if the government is not 100% effective or not 100% efficient, then certainly there must be a limit at which peak effectiveness and or efficiency is achieved. I suggest to you that we have reached that peak.

But what assumptions are you making regarding economic activity and spending? I would guess that you're assuming that both taxable income and government spending would have been exactly the same, with or without the tax cuts. Even if you believe that this would have been likely, you surely don't believe that it's inevitable, do you?

After having watched politicians from both parties go on a spending orgy in the last Clinton budget simply because they thought that there might be a pseudo-surplus (thanks to the social security accounting trick), I've formed the impression that politicians follow a rule of spending everything the government is expected to take in plus an extra percentage 'bonus'. If that's true (and if we assume that the 'bonus' doesn't simply increase to offset any drops in revenues), then cutting tax revenues is the only way to cut spending.

My point - I see no evidence that spending is independent of expected tax revenues, as you're suggesting. Plus, there's also the uncertainty regarding economic activity, which surely is affected by taxes.

Past outcomes may be 'facts', but saying what would have happened under totally different policies is opinion, based on assumptions.

So, if the Government, instead of taking around 33% of my income in taxes took 100%, they'd get 3X as much income? Or in other words, taxes don't affect the economy, and tax hikes have a clearly and easily measured benefit?

Of course, if this seems odd, perhaps taxes do affect economic actions. In which case there is likely an "optimum" tax rate at which the Government can maximize its income by finding and adhering to that rate.

Below this hypothetical rate, they aren't getting as much as they can without significant adverse affects, and above this rate the taxes slow the economy such that the Government fails to take in more actual dollars...

Odd that after the tax cuts, Government income rose (above & beyond inflation). Wouldn't that at least imply that the initial taxes were over the optimum number, and raising them above that number would decrease actual Government funds by reducing economic activity?

So, are we really interested in getting more money for the Government, or are we just raising taxes to "punish the rich"? If we really want to maximize Government funds it seems we'd be trying to determine the optimal tax rate, rather than simply assuming that taxes have no effect on the economy.

Jane,

If Bush's tax cuts are responsible for that much of the deficit then what is responsible for the biggest year for federal tax receipts in history?
There are many things I dislike about this administration, but their tax policy is dead on.

Link :
http://www.heritage.org/Research/Budget/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=93690

I can only say, "Its the spending, stupid".

Frankly, I don't see how entitlements can be cut back until there is a crisis, say in 20 years when workers rebel against the old folks. The "greatest generation" saw to it that they wouldn't have to take care of their parents in old age, then laughed at Goldwater in 1964 when he proposed S.S. reform, then voted for their own comfy retirement at the expense of their kids and grandkids. While the older boomers might make it through o.k., I think the younger ones will see the rug pulled out from under them. Count on living in a barracks and being kept alive until an illness serious enough to invoke a DNR order
comes along. Meanwhile, you youngsters seem to fall for AARP propaganda that keeps you from securing your own future through private retirement accounts. Dems and GOPers don't get it, and the Libertarians are mostly invisible.
I fear for the future after about 2030.

The CBO and OMB have never met a budget projection they couldn't screw up. They have been off an average of 3% of GDP the past five years. That is a deficit range of +/- $400. Seems to me like they need to revise their ability to project deficits. They also consistently UNDERestimate revenues after tax cuts and OVERestimate after tax increases. I was once an intern at the OMB a few years back, and if you saw how little work they actually performed, you wouldn't be surprised they can't get anything correct.

Russ,

The answer to your question would be normal economic growth and inflation.

Tom

'Asymmetrical,' the president probably would make sense if you were his primary audience. 'Geoerge Bush is Satan' doesn't get Democrats elected but that plus the group who notices 'he raised my gas taxes 10 cents' would. He is offering ideas to keep the free market philosophy in the game, and I believe it is looked at like a war game in which the Republicans need to have some institutional and ideologic positions as a crisis comes. Beyond that, he probably feels a rich boy (or nation) can have a bad year; so we can survive it.

wh
We can only hope Ted Stevens doesn't see that.
But what I really want to ask Jane is, do you own a cat? Have you ever priced Fancy Feast? It's not cheap. Nor is Alpo. No, after Bush bankrupts us it will be the store brand kibble.

OTOH, Bush's comments about 'addiction to oil' give the Democrats cover to be staesmanlike and propose and get enacted the gas tax increase, which would have the added benefit of maybe putting some slack in demand and cracking the monopoly rent.

Oh, no! Another meeting of the First Church of Free Market!! OK, libertarian geniuses, what would be left of the government in your ideal world? From what I've read from many of the libertarians here the following would be eliminated: Social Security, Medicare, Medicaid, OSHA, FDA, FEC, FDA, Department of Education, EPA...well, maybe it's just easier to list what would be left which is the military, intelligence services, the core of the executive branch and the legislature. Is that about it?

Frankly from what I've seen of many libertarians they can be bright motivated hard working people...who are extremely judgemental of anyone who's not just like them and know without a doubt that it's completely the fault of the lazy bums who just don't work hard enough because they'd rather whine about being poor. Did I miss anything?

Ooops, editing goof. The libertarians would leave the judiciary too.

Gekkobear says:

"after the tax cuts, Government income rose (above & beyond inflation)"

The facts say:

2000 - 2005:
Real GDP: UP 13.4%
Population: UP 5.0% (est)
Real Fed Govt Spending: UP 23.3%
Real Fed Tax Receipts: DOWN 5.2%

If this table looks familiar, it's because I had to correct the exact same factual error in the last discussion on this topic. Differences of opinion are fine. Differences of facts are not.

Randy --

4 years out from the Clinton tax hikes, real federal tax receipts were up. 4 years out from the Bush tax cuts, real federal tax receipts are down. That's pretty compelling evidence that we're on the left side of the Laffer Curve. If you want to tax at Mr. Laffer's "optimal" rate, I submit that you need to look higher, not lower.

Did I miss anything?

Not much, just a sense of perspective, a minimum level of respect for the people you propose to debate, and some small cache of evidence that your own set of views on the matter have factual advantages over the point of view you opposed in charicature. (Did *I* miss anything?) In other words, nothing that hasn't been absent in a supermajority of all material you have ever posted here.

Brendan,

Where did you get these numbers?

And do you know if they include Social Security taxes?

Thanks.

Frankly from what I've seen of many libertarians they can be bright motivated hard working people...who are extremely judgemental of anyone who's not just like them...

Lot of that going around.

Brendan,

You very well could be right as to where we are on the Laffer curve. But as I said in our last discussion, even if we haven't hit the objective limit (Laffer), we have hit the subjective limit (voters), which is why we are running up the debt. And I'll say it one more time, we need to hold the line on taxes to force the government to behave responsibly - that is, to force them to spend our tax dollars effectively and efficiently. When the government proves it can be trusted, we can take another look at giving them more money.

Jim S,

We're not talking about eliminating government. We're talking about balancing the budget. It can be done, and it will be done if voters force the issue.

... we need to hold the line on taxes to force the government to behave responsibly - that is, to force them to spend our tax dollars effectively and efficiently.

I disagree. We need to pay the full cost of our government in order to feel the pain of spending. We all speak of government as "them" but it's "us" that elects "them".

If you and I had to pay our full share today, we'd demand cuts.

The practice of borrowing and putting off the problem for another generation is the height of irresponsibility.

Michigander,

I hear you. But, we are the generation that the problem was put off too. And we are refusing to pay. Because we refuse to pass the problem to yet another generation. Crunch time isn't tomorrow - its today.

President Kennedy made it the center piece of his fiscal policy to cut astonomical tax rates, especially on the "richest" Americans )or what is more appropriate, High Earning American's). This is why Kennedy is my favorite conservative PResident, by the way. Result? the collapse of Social Security, Government programs, and civilisation as we know it? Nope, tax revenues exploded (and unfortunatly funded Johnson's Great Society, the genesis of today's sucking chest wound that is the National Debt). That is the same concept (and growing reality) of Bush's tax agenda. When consumers/investers/employers keep more of there money more money is made, and thus there is a larger pie for the govt. to get a (small) piece of.

Jim S
Let's not forget the intentions of the Founding Father's when it came to government: it really only consisted of the three branches, and really only funded the military and focused on few institutions, such as the treasury. The Alphabet Soup of spend thrift agencies in Washington are a reletively new and un-planned aspect of the US gov. While I'll never say that govt. entitlement is not neccesary, it's beyond obvious to anyone not glued to the taxpayer teet that it is way overblown.

If this table looks familiar, it's because I had to correct the exact same factual error in the last discussion on this topic. Differences of opinion are fine. Differences of facts are not.

Do you have a source for your "facts"?

But what I really want to ask Jane is, do you own a cat? Have you ever priced Fancy Feast? It's not cheap.

Why would anyone substitute cat food for human food when canned tuna is much cheaper?

I disagree. We need to pay the full cost of our government in order to feel the pain of spending. We all speak of government as "them" but it's "us" that elects "them".

And that's where you're wrong it is in fact a case of "us" versus "them" with "us" being net taxpayers and "them" being net tax eaters.

So long as "them" decide that they have some inalienable right to live at the expense of "us," there's going to be some well-deserved resistance to any attempt to by "them" to take even more from "us."

Brendan,

Try using 2003 +, when then tax cuts went into effect.

Or maybe numbers from 1993 to 1997 vs 1997 to 2000.
Clinton's tax hike vs. Gingrich's Capitol gains reduction.

Differences of opinion are fine. Differences of facts are not. Relevance of facts is better.

pndragon -

Good question. The data sources are all government publications, and the calculations are usually my own.

Data reposted with sources
2000 - 2005:
Real GDP: UP 13.4%
- Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.5
Population: UP 5.0% (est)
- Census Bureau, Annual Population Estimates, NST-EST2005-01
Real Fed Govt Spending: UP 23.3%
- Govt Spending: Congressional Budget Office, The Budget and Economic Outlook, The Spending Outlook, Jan. 2006 Publication and Jan. 2001 Publcation
- Conversion to Real Dollars: Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.9, GDP Deflator
Real Fed Tax Receipts: DOWN 5.2%
- Govt Spending: Congressional Budget Office, The Budget and Economic Outlook, The Revenue Outlook, Jan. 2006 Publication and Jan. 2001 Publcation
- Conversion to Real Dollars: Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.9, GDP Deflator

I hope this helps.

pndragon --

The federal receipts and spending data are also available from a CBO report called Historical Budget Data. It's possible that I took some numbers from there (I don't recall since I was posting a lot of data over several posts in that thread). Nevertheless, the numbers should be the same and the source remains the CBO.

Tom -

I'm working on a longer post addressing your first point, but your second one is simple, so I'll knock it out now. The Gingrich capital gains tax cuts are too small to compare to the Bush or Clinton tax changes.

At less than 1% of tax receipts, the capital gains tax cuts in 1997 were absolutely trivial in size compared to Clinton's tax hikes (4.5%) or Bush's tax cuts (4-8%). It is pointless to compare them for Laffer Curve purposes. The only substantial tax cut in the Taxpayer Relief Act of 1997 was the refundable child tax credit (1.5%).

All of the data I'm citing come from reports by the Joint Committee on Taxation on the revenue effects of each bill. The report numbers for each bill are noted below.

Clinton: JCX 11-93
Gingrich: JCX 39-97
Bush: JCX-51-01, JCX 13-02, JCX 55-03, JCX 58-03, JCX 69-04

pndragon -

I had used overall govt receipts to try to give the Bush tax cuts the benefit of the doubt. After all, payroll taxes were never cut, but payroll tax receipts would be increased by the increased economic activity following tax cuts.

Not surprisingly, excluding payroll taxes makes the decline in tax receipts more severe:
Real Federal Tax Receipts (2005 dollars):
2000: $1,539.2 billion
2005: $1,359.8 billion

2000 - 2005:
Real GDP: UP 13.4%
Population: UP 5.0% (est)
Real Fed Govt Spending: UP 23.3%
Real Fed Tax Receipts: DOWN 5.2%
Real Fed Tax Receipts ex-Payroll: DOWN 8.8%

Again, the source on these data are CBO and BEA.

JCT scorings are static and don't take into account real tax receipts. The '97 capital gains tax sparked a boom in capital gains tax receipts. I'd read the CBO's report on taxes on capital gains, how it contributed to the budget surplus by blowing away all revenue projections and finally how cap gains contributed to the tax revenue shortall in 2000+.

After the '97 tax bill, cap gains receipts grew so fast they provoked a discussion on whether the growth rate assumptions built into revenue should be revised upwards.

I'd use JTC for some pre-model scoirngs, but CBO shows what happens in reality.

BTW, as I recall tax receipts increase when cap gains rate is cut and decreases when it is raised due to an unlocking effect. This was true empirically after the tax changes in 80's and 90's.

I would like to see taxes implemented as inflation by allowing the govenment to spend by printing money. The money the government prints/spends would be restricted to a specific percent of GDP.

HOO -

JCT's estimates were staticly scored in the 90s although I think that they're dynamicly scored now.

You're correct, of course, that capital gains tax receipts tend to increase after a cut and decrease after a hike. That's one more reason that the 1997 tax cut is not a useful comparison to the 1993 and 2001-2004 tax changes. CBO reports note that capital gains taxes are much more volatile than other revenue streams and not particularly tied to the economic cycle. They are a poor base from which to extrapolate.

I can't find a CBO report on cap gains and their role in the federal budget surplus. I'd be interested in reading it if you could point me in the right direction. However, after further research, I remain convinced that the 1997 tax cut (especially when limited to cap gains) is just too small to be compared to the 1993 and 2001-2004 tax cuts.

Finally, I did find CBO's conclusion on the value of capital gains tax cuts as economic stimulus (as opposed to their effect on capital gains tax receipts):
"In general, however, capital gains tax cuts would provide little fiscal stimulus."
-- CBO: Evaluating Proposed Changes in Tax Policy, January 2002

Try using 2003 +, when then tax cuts went into effect.

Or maybe numbers from 1993 to 1997 vs 1997 to 2000.
Clinton's tax hike vs. Gingrich's Capitol gains reduction.

Differences of opinion are fine. Differences of facts are not. Relevance of facts is better.

Is this what you're looking for?

1993 1,154.5 (1323.2)
1994 1,258.7 (1414.0)
1995 1,351.9 (1482.4)
1996 1,453.2 (1557.9)
1997 1,579.4 (1661.2)
1998 1,722.0 (1793.1)
1999 1,827.6 (1874.9)
2000 2025.5 (2025.5)
2001 1991.4 (1946.1)
2002 1853.4 (1777.8)
2003 1782.5 (1667.0)
2004 1880.3 (1712.5)
2005 2153.9 (1898.3)

All numbers given in billions of dollars. The numbers in parenthesis are given in constant 2000 dollars.

Source:
http://www.gpoaccess.gov/usbudget/fy07/sheets/hist01z3.xls

HOO --

I'm sorry. I didn't address your main point. I used JCT reports because it's the source for all government projections on tax changes and because its archive was easy to use. If you'd put together some numbers showing that the CBO retrospective reports gave a much different comparison of the 1993, 1997 and 2001-2004 tax bills, I'd be interested to see them. However, I think that the JCT numbers give a good apples-to-apples comparison from a recognized authority, and it's much more data than we were working with before in this thread. It's good enough for me.

Eventually some taxes will need to go up and spending will need to go down (actually very soon). Right now (or up until now), deficits have been benign.

Thorley and Tom -

Under the five major tax change plans passed under Bush, we have the following effects:
2000: no major tax changes
2001: major tax cut
2002: changes cancel out
2003: major tax cut
2004: major tax cut
2005: major tax HIKE

Sources: Joint Committee on Taxation reports JCX-51-01, JCX 13-02, JCX 55-03, JCX 58-03, JCX 69-04

I used 2000 for my baseline because it's the last "clean" year we have. In every year since, we've got phase-ins, sunsets and tax year shifting.

Different tax changes phase in at different times (see list above), but, if Milton Friedman is right, the economic stimulus should begin at the time that the legislation is passed, not when it goes into effect. Since Bush's largest tax cut was the 2001 EGTRRA one, I thought that was the best year to begin the comparison.

However, it's worth noting that tax receipts in 2005 were boosted by tax hikes for that year. I think it's odd to justify the success of a tax cut by pointing to the leap in collections that occurs after a tax hike.

Additionally, about the CBO:

They consistently understate the expected growth of the economy. I did a little research, and for the 90's, on average they estimated a full percentage point lower growth than actual results. Around 2.6% vs 3.6%. If we are comparing the size of the economy compared to what the CBO expects, we should probably add 1% per year to their expected growth rates.

Mickslam -

All of the CBO data cited have been historical data, not projections.

anony-mouse, I've read your posts too. That's why I show so little respect.

Randy,

My point is that to balance the budget at what you and your fellows seem to consider an acceptable level of taxation my post is pretty accurate in terms of what would have to be eliminated.

Brendan,

You said:

"4 years out from the Clinton tax hikes, real federal tax receipts
were up. 4 years out from the Bush tax cuts, real federal tax receipts
are down."

[and]

"I used 2000 for my baseline because it's the last "clean" year we have."

You do realize and I hope others have noticed that you've chosen
the peak of the last economic boom as your standard for what you claim
the Clinton years were like and as the base point of comparison
for the Bush years. Are you aware of this or did it skip your
notice?

A year in which as I recall, various things, employment, income,
federal revenue, all ballooned up at an extraordinary and as it
turned out unsustainable rate.

I'm actually trying not to be rude but can't figure out how to
state it more delicately.

Do you really feel it makes sense to compare the present to the
peak of the last economic boom and not even mention, like it's the
furthest thing from your mind, that that there was a recession
in your explanation of where we are now and how we get here?

Look, I'm not an economist, I'm just trying to use my head to
understand what's going on. But quite apart from the question
of an appropriate frame of comparison to determine the impact
of differing rates of federal taxation there's a whole other
issue I see with making any comparison at all over the last
decade of so.

That is, we are in the middle of an economic revolution. My
understanding is that the bulk of federal revenues comes from
middle-class incomes. Therefore if we speak of revenues
increasing or decreasing because of changing rates we first
need to subtract out changes in those middle-class incomes
independent of rates of taxation.

Such as, for example, quote:

"The net result of these trends has been a significant compression
of the share of output remunerated to labor in the developed
world. In the US, for example, inflation-adjusted worker
compensation in the private sector -- which includes wages,
salaries, and benefits and is, by far, the biggest piece of overall
personal income in the US -- has risen only 12% in the 49-month
time span of the current expansion. By our calculations, this
falls about $365 billion short (in real terms) of the 20% increase
that occurred, on average, over comparable intervals of the past
four expansions. Nor is the US an outlier. According to our
estimates, the combined compensation shares of the US, Europe,
and Japan fell to 54.4% of gross national income in late 2005 -- a
record low since the inception of this series in 1991 (see
accompanying chart). Labor’s share of industrial world output
is under unprecedented pressure."

"These are all unmistakable signs of the global labor arbitrage
at work. As trade in manufactured goods continues to grab an
ever-increasing record share of world GDP -- 23% by IMF estimates
in 2005 -- and as the cross-border exchange of once-non-tradable
services accelerates, a harmonization of labor costs can be expected."

from http://www.morganstanley.com/GEFdata/digests/20060206-mon.html

Could it be that this downward pressure on middle-class incomes
has a corresponding downward pressure on federal revenues? And
that this is a far bigger effect than whatever unknown impact
a 3% change in the rate of taxation would have?

Now, isn't part of the argument that decreasing taxation would
redistribute resources more efficiently and thus increase
productivity.

Yet look at this:

"This runs against the grain of one of the basic axioms of classic
macro -- that workers are ultimately paid in accordance with their
marginal product. Yet that hasn’t been the case in the US for
quite some time. Over the 2001-05 interval, for example, productivity
growth averaged 3.3% in the nonfarm business sector [really he means
the large institutional sector, some 40 million workers, and I don't
understand why economists describe this as 'nonfarm business'
when the great majority of nonfarm business is not included] of the
US economy -- basically double the 1.6% gains in real hourly
compensation over the same five-year period. I don’t think this is
a coincidence. Only a mega-force like the global labor arbitrage could
drive such a wedge between productivity and worker rewards."

So productivity has been rising at a rapid rate, yet real income
(and likewise real federal revenues) has not been rising correspondingly.

Why? Because every year, what is it?, say something over 30 million
new workers are being integrated into the global economy (largely in
China and India) and yes this does have many side effects and we are
feeling them and surely this is one of them.

In that case what sense does it make to compare 2000 to 2005? Or
1998 to 2005? In either case we're ignoring the elephant in the room.

Thorley-re: Fancy Feast

Because that's what Jane has us eating in 2037. And it will be too expensive as will canned tuna. The store brand kibble--don't eat too much!

Mark Amerman --

I understand your question. It's a fair one; however, I think that you might be confusing the performance of the economy and the stock market.

Put simply, the economy was never a bubble in the late 90s -- the rates of growth were similar to what we're seeing today, inflation was well-contained, and the recession that followed was remarkably brief and shallow.

Stock Market:
- From 1996-2000, the stock market soared. Different broad indexes recorded gains of 150-400%.
- After the peak in Feb/Mar 2000, broad indexes showed declines of 30-80%
- Most of the broad indexes still have not regained their highs of early 2000

Economy:
- From 1996-2000, the economy (real GDP) increased by 18%
- Although the economy never registered two consecutive quarters of consecutive GDP decline, the NBER has determined that the economy was in recession from March 2001 to November 2001.
- The recession was very mild. The drop off in quarterly GDP from peak to trough was less than 0.5%
- By Q4 2001, the economy had regained the previous highs, and in every subsequent quarter, we have had the highest real GDP in our history.

If you'll look at the tax receipts data from 2001 and add back in the $80B in advance refund checks that were sent out, you'll see that 2001's tax receipts would have exceeded 2000's.

The "bubble" was limited to the stock market (and the relatively small portion of federal receipts that comes from capital gains).

Mark Amerman -

Regarding your second post ...

Well, for starters, your premise is invalid. The top 10% of incomes pay about 49% of the taxes, and the top quintile pay well over 60% -- these shares are roughly the same as the late 90s.

Second, increases in national income that don't go to labor have to go somewhere -- e.g. executive compensation, corporate profits, etc -- and those things are taxed as well. Under a rational tax policy, tax receipts would be well correlated with national income but could be agnostic as to shifts in the components of the income.

Third, FWIW, suffice it to say that the surveys that go into generating the productivity report cover a lot more than the large institutional sector. However, productivity is exceptionally difficult to measure, so the numbers are less reliable than the other ones we've been working with in this thread.

anony-mouse, I've read your posts too. That's why I show so little respect.

Randy,

My point is that to balance the budget at what you and your fellows seem to consider an acceptable level of taxation my post is pretty accurate in terms of what would have to be eliminated.

You had nearly sixteen hours to come up with a response and this is the best thing you contrive? Two more garden variety hit-and-runs?

Explain again how this mode of argument preaches to anyone but the choir, because I'm failing to see it. If all I wanted was to hear my opinions mocked by someone who displays no evidence of intellect beyond the obvious basic keyboarding skills, I know where to find those websites. Here, there is generally a higher standard, even by those who openly disagree with each other; contemplate aspiring to it.

Alternately, if your goal from the beginning was merely to troll, then congratulations -- roughly five successful hits!

"President Kennedy made it the center piece of his fiscal policy to cut astonomical tax rates, especially on the "richest" Americans )or what is more appropriate, High Earning American's)... Result? ... tax revenues exploded... That is the same concept ... of Bush's tax agenda." Kennedy cut the top rate from about 90% to 70%. Think of how hard you would work to make $10 if the government was going to take $9 of it from you, and you can see which side of the Laffer curve they were on. Bush started with top rates in the 30's. That might be on the lower side of the Laffer curve.

Not that it should matter. Except when we're in a fight for national survival (WWII, not the war on terror), taxes should be well down on the lower side of the Laffer curve. To worry about how to extract the largest possible tax revenue from the American people is to assume that the people exist to serve the government. Our ancestors picked up their muskets and started shooting government agents the last time that notion arose.

Brendan,

Re; "The top 10% of incomes pay about 49% of the taxes, and the top quintile pay well over 60% -- these shares are roughly the same as the late 90s."

I only object to the word "pay". I think it would be more accurate to say that the top 10% of income earners "collect and turn in to the government" 49% of the taxes.

The less power a person has, the more likely that person is to actually have his or her standard of living reduced or retarded by taxation. Taxes are not taken from the rich, or even primarily from the rich. They are taken from the economy.

So why do I keep bring this up? Because progressive taxation is the idea that drives our willingness to overspend. And progressive taxation is a myth.

To worry about how to extract the largest possible tax revenue from the American people is to assume that the people exist to serve the government. Our ancestors picked up their muskets and started shooting government agents the last time that notion arose.

True, but the last time that notion arose, people weren't all about extracting as many goods, services, or outright distributions from the government as possible. Somewhat different context methinks.

"Frankly from what I've seen of many libertarians they can be bright motivated hard working people...who are extremely judgemental of anyone who's not just like them and know without a doubt that it's completely the fault of the lazy bums who just don't work hard enough because they'd rather whine about being poor. Did I miss anything?"

Yeah, Jim, you did. It's the fact that crumbs like you keep insisting that I pay for what you want.

Go fuck yourself.

Have an ice day.

The context is different - but there are some parallels.

The British raised taxes with the belief that the colonists should pay for their own defense (the French and Indian Wars). The colonist were under the impression that they were "entitled" to the support of British arms.

The complaint was "no taxation without representation", and with today's practice of intergenerational debt financing, the same complaint applies today.

*Nobody* "representives" me without my explicit say-so, Randy.

Randy --

I know where you're coming from on the relative success of progressive taxation, but I was responding to Mark Amerman's suggestion that poor wage growth among the middle class was responsible for the decline in tax receipts. Regardless of where the tax burden ultimately falls, the relevant facts for discussing his point are who actually delivers (to use your term) the tax payments to the government.

To the namecallers --

This is an ultimately powerless discussion about philosophical differences on government finance. Is it really worth insulting people over?

anony-mouse,

Do you actually think that I read the posts of yourself and Randy and then thought about them for 16 hours before posting? Please. As far as not respecting your opinions, I've just had it with libertarianism. It's not a school of thought anymore, it's just blind religious faith. Capitalism is perfect. The Free Market makes no mistakes. Any problems are the fault of the lazy poor and/or the government. As far as my comment to Randy goes, it's very simple. He and many others here who share his opinions have made it clear that they consider our current rates of taxation to be onerous. They want not only more cuts than the Republicans have already made but a great deal more. If they are to have the tax cuts they want and a balanced budget then the draconian cuts that I listed would be necessary. What is wrong with that logic? Am I wrong about the desire for tax cuts? Wrong about the levels desired? Or is it the desire to balance the budget that I'm wrong about?

Billy,

In spite of the lovely name calling you engage in and your obvious belief that I'm on the receiving end of government largess you're amazingly wrong. As far as you not having to pay for anything someone else might want it's called representative democracy in the 21st century in an economy verging on the post-industrial. Get over it.

"As far as you not having to pay for anything someone else might want it's called representative democracy in the 21st century in an economy verging on the post-industrial. Get over it."

If "post-industrial" means wholesale plunder of some for the sake of others, then you are absolutely correct, but have not said anything. And if you are implying that "representative democracy" is carte blanche for arbitrary and unbounded intrusion into an individual's life, then I'd add that you are forgetting that it is also a *Constitutional* republic. We should try to abide by it, or formally throw it in the trashbin of history.

---
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. -- Alexander Tytler(?)

As far as not respecting your opinions, I've just had it with libertarianism.

Well and good, but I'm not a libertarian. I do happen to understand government as being a vehicle, first and foremost, for restraining the vices of men who will not govern themselves -- typically in the public sphere, but sometimes at the individual level in ways that will eventually work back to the public if left unchecked. No "real" libertarian is comfortable with the second half of that.

I am also not ignorant of the fact that the society we have gotten ourselves into requires government to function as more than that; the modern city presents unique challenges that were less of an issue in a predominantly rural/agrarian society. Moreover, once a dependency upon a public service has been created (regardless of the wisdom or efficacy), one cannot just throw it out wholesale and hang the ex-recipients out to dry until the wolves find them.

That doesn't mean that any redistributive government program is a sacred right, though. The ability of a large, cumbersome, inefficient entity to dip into the pockets of its constiuency anywhere and everywhere, and redistribute that money with relatively poor accountability mechanisms, is one of the more damaging things we have created in this present age.

Private church and charity have admittedly failed to properly provide for the poor, but they have failed partly because well meaning social-justice types told them they didn't have to do it anymore -- government could handle the task. Unfortunately, that also removed levels of accountability. Serial beggars aside, there's a lot more incentive to give or take a handout responsibly when you have to look the other party in the eye.

Sorry, anony-mouse but many of your postings seem to impart an impression that what you want from the government would necessarily require a gutting of social programs. As far as the charities failing because they were told they didn't need to it's more like the demand is just too high. At least that's what I hear from them.

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