Boehner: Back to Biden, Please

http://www.theatlantic.com/politics/archive/2011/07/boehner-back-to-biden-please/241676/

Boehner: Back to Biden, Please
By Steve Clemons
Jul 10 2011, 6:40 AM ET

When the Republican leadership orchestrated the Eric Cantor June 23rd walkout of the debt ceiling talks, led by Joe Biden, the strategy was to up the ante by forcing President Obama to engage them.

Obama offered a grand deal -- huge cuts across the board, including substantial rollbacks of Medicare, Medicaid and Social Security benefits -- but including the suspension of economically distorting tax benefits for the rich and highly profitable firms, particularly ethanol and oil, that were gorging themselves on public dollars.

David Brooks was right in stating the obvious in his provocative essay "The Mother of All No-Brainers" -- that the Republicans had won but are so paralyzed by Tea Party ideologues that they can't close the deal. Republicans have set the terms of debate, forced the Democrats to promise a sacrifice of holy commitments to their base, and would have been able to steal back the mantle of "fiscal conservatism" after Bill Clinton became the balanced budget guy and George W. Bush blew the hole out of the economy's bottom.

Now, John Boehner is showing that he is trapped in an ideological bind with his own constituents and that Obama is too overwhelming for him. The big deal won't work, Boehner says, because Boehner can't get his caucus to do the deal of the era because it involves minor revenue increases. They'd rather default on the national debt and undermine global trust in the United States as a political stunt.

Boehner has now rejected the course of negotiations with the President and wants Biden back and the smaller scale, more pragmatic plan that Joe Biden had been working on with leaders of both parties before Eric Cantor decided to capsize the effort.

Boehner said in a statement: "I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase."

The Obama-Biden team is working well in these negotiations. It's clear that they forfeited a lot of ground to the GOP in these talks -- and Obama may in fact be pulling off what Bill Clinton did with welfare reform and repositioning the Dems to forfeit much of their Great Society architecture as a way to institutionalize more access to centrist and independent voters who are skeptical of the LBJ-forged nanny state mandates.

But Obama-Biden also seem to know that the GOP is testing them as they move up and down the ladder, and now that Boehner is pining for Biden again, it shows how indispensable Joe Biden has turned out to be as a partner to Obama.

Biden also has revenue increases in his more workable, less grandiose plan. He's not soft on the GOP -- just pragmatic. And now the Republicans are essentially going mostly the direction with Joe Biden where Obama wanted them to go in the first place.

The stark difference is that the debt is out of control whereas it wasn't back during the Clinton years. It wasn't good then but nothing even close to now. The other thing is that we are in the worst recession since 1982. We weren't back in the Clinton years.

TexasBlue wrote:The stark difference is that the debt is out of control whereas it wasn't back during the Clinton years. It wasn't good then but nothing even close to now.

Indeed. And the Republicans have shown that they aren't serious about tackling it.

The other thing is that we are in the worst recession since 1982. We weren't back in the Clinton years.

Technically, it isn't a recession anymore. Though I'd say it is arguably a depression.

kronos wrote:

TexasBlue wrote:The stark difference is that the debt is out of control whereas it wasn't back during the Clinton years. It wasn't good then but nothing even close to now.

Indeed. And the Republicans have shown that they aren't serious about tackling it.

Yeah, to a point I'd agree. Personally, they need to play hardball, get out there and spell everything out to the American people. All of this bullshit going on in the media is stupid. They play the game to make it sound as if we don't really have a serious problem.

kronos wrote:

TexasBlue wrote:The other thing is that we are in the worst recession since 1982. We weren't back in the Clinton years.

Technically, it isn't a recession anymore. Though I'd say it is arguably a depression.

Yeah, at 9.2% unemployment with hardly any growth... naw, it's not a recession.

What they need to do depends on what their goals are. Deficit reduction clearly is not a serious goal of theirs. Rather, they seem to be concerned with maintaining their ideological purity. I'd say they're doing well with that, deficit be damned!

Not sure what the media has to do with this particular issue.

Recession is a technical term: two consecutive quarters of negative growth. If there's any positive growth at all, it's not a recession.

That's not to minimize the depression we're in.

(Depression has no technical definition, so this period qualifies, I think. Most of the Great Depression was non-recessionary).

I read a while back that it was actually Hoover who coined the term "depression"--as an euphemism. They used to be called "panics." Hoover basically said, 'this isn't a panic, folks, it's just a depression.' For some reason, the term just stuck.

The whole problem here is that the GOP bosses up there won't do any "revenue increases" which is another word for more taxes. The point being is that any "revenue increases" will not reduce the deficit. It won't help shit. The bullshit Obama was talking last week about corporate jet owners needing to pay more was nothing more than another class warfare line. Cuts need to be made and made big time. It's time to really look deep and trim some fat. There's lots of it. Balance the budget and then we'll talk taxes going up.

The media? It's not even portraying this stuff in a fair light based on what I sad above. Dishonest bastards.

TexasBlue wrote:The whole problem here is that the GOP bosses up there won't do any "revenue increases" which is another word for more taxes. The point being is that any "revenue increases" will not reduce the deficit. It won't help shit. The bullshit Obama was talking last week about corporate jet owners needing to pay more was nothing more than another class warfare line. Cuts need to be made and made big time. It's time to really look deep and trim some fat. There's lots of it. Balance the budget and then we'll talk taxes going up.

The media? It's not even portraying this stuff in a fair light based on what I sad above. Dishonest bastards.

Actually, the problem is that far too many politicians see tax increases as revenue raisers when the exact opposite is true! The historical record proves that this is not true! Every time in our history when taxes were cut, revenue to the treasury increased! And every time taxes were increased, revenue to the treasury decreased! The media NEVER speak of this, EVER!

Every time I hear some politician call tax cuts "government spending" that must be offset in the budget I want blow my brains out! It's insanity! The federal government has gotten so overbearing, so arrogant, that letting people keep more of their own money equates in their minds as government spending, as though EVERYTHING that a private citizen earns becomes the property of the federal government immediately, and by not seizing it, the government is "spending" government money! It's like every one on the Hill has gone stark staring MAD!

And on one of the Sunday talk shows I heard, I think it was a clip of Obama, saying that corporations should be called on to pay more in taxes, to assume their "fair share" of the tax burden! And yet every damn penny in taxes that a corporation pays COMES FROM CONSUMERS!!! The President is playing the class warfare card to tax CONSUMERS more. And consumers are just ignorant enough of basic economics to buy this nonsense.

If Obama were serious about raising revenues he would CUT the corporate tax rate permanently (25% would be a good start), abolish the capital gains and windfall profits taxes and make the Bush tax cuts permanent (if not lower them more and then eliminate the loopholes).

THAT would give the private sector the confidence it needs to get back to the business of creating jobs and wealth for all Americans! And even though tax rates would be lower, this would be more than offset by more people paying more in taxes because of the growth!

You GROW your way out of trouble in an economic downturn, you do NOT TAX your way out of it!

THEN, you need to SLASH government spending and deal with the rampant waste, fraud and corruption present at the federal level. Every increase in revenue that past tax cuts have created have been frittered away by irresponsible increases in government spending - almost without exception!

Raising taxes in a stagnant economy is economic suicide - even Keynes would not recommend such an insane proposition. And he was a demand-side economist!

Oh, and by the way... those corporate jet owner tax breaks... those were instituted by Obama's own "stimulus" package!

Anybody think the economy was "stimulated" by it?

TexasBlue wrote:The point being is that any "revenue increases" will not reduce the deficit.

Since a deficit is the amount by which spending exceeds revenue, yes, increasing revenue would reduce the deficit, by mathematical definition.

dblboggie wrote:The historical record proves that this is not true! Every time in our history when taxes were cut, revenue to the treasury increased! And every time taxes were increased, revenue to the treasury decreased!

That's a false statement.

kronos wrote:

TexasBlue wrote:The point being is that any "revenue increases" will not reduce the deficit.

Since a deficit is the amount by which spending exceeds revenue, yes, increasing revenue would reduce the deficit, by mathematical definition.

Not if spending increases proportionate to the amount revenue is increased.

kronos wrote:

dblboggie wrote:The historical record proves that this is not true! Every time in our history when taxes were cut, revenue to the treasury increased! And every time taxes were increased, revenue to the treasury decreased!

That's a false statement.

No it is not. When Kennedy cut taxes, revenue to the treasury increased. When Reagan cut taxes, revenue to the treasury increased. When Bush cut taxes, revenue to the treasury increased. And thus it has ever been.

Andrew Mellon, Treasury Secretary in the 1920's said this:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.

When taxes were slashed from 70% to 25% in the '20's, revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

Kennedy was dealing with FDR-era tax rates, with the top rate being a criminal 90%. He implemented across the board tax cuts (with the top rate being 70% - still confiscatory, but better than 90%) and tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

Here is what Kennedy had to say on the subject:

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

I could go on, but I think you get the point. The historical record proves that cutting taxes increases revenue.

Now, could one cut taxes so low that revenue would be adversely affected? Sure! But we've got a long way to go before that becomes a problem!

Our main problem has always been the spending side of this equation! The more money Washington pulls in, the more money it want's to spend! This has been a serious problem since the Jacksonian era (with periodic periods of repentance - but never for too long).

We do not have a revenue problem, we have a spending problem!

dblboggie wrote:

kronos wrote:

TexasBlue wrote:The point being is that any "revenue increases" will not reduce the deficit.

Since a deficit is the amount by which spending exceeds revenue, yes, increasing revenue would reduce the deficit, by mathematical definition.

Not if spending increases proportionate to the amount revenue is increased.

True.



I'll address the larger part of your post when I get a sec.

kronos wrote:

dblboggie wrote:

kronos wrote:

TexasBlue wrote:The point being is that any "revenue increases" will not reduce the deficit.

Since a deficit is the amount by which spending exceeds revenue, yes, increasing revenue would reduce the deficit, by mathematical definition.

Not if spending increases proportionate to the amount revenue is increased.

True.



I'll address the larger part of your post when I get a sec.

I made a spreadsheet.

https://spreadsheets.google.com/spreadsheet/ccc?key=0AgwFmdsKirp0dGU0ejJCT3Uxbzd6YVFaR1Q1MUNxOUE&hl=en_US

Sources:

Top Tax Rates

Revenue in Constant (FY 2005) Dollars (Table 1.3)

As you can see, counterexamples abound. (Of course, since your statement was an absolute, I'd only need one.)

First, note the 1940s and 1950s. Almost without fail, revenue rose and fell with the tax rate, the lone exception being 1941.

Fast-forward to Reagan. Compare 1981 to 1985. The top tax rate had been cut from 69.13% to 50%. Revenue fell from 1981 to 1983, and began growing in 1984, but by 1985, revenue still had not yet surpassed its 1981 level.

Then we have Clinton. He raised taxes significantly; not once in his term did revenue shrink.

Bush cut taxes in 2001. Revenue shrank. He cut taxes again in 2003. There was a short-term increase in revenue for the next 4 years (although the growth rate of the economy slowed every year starting 2004); it did not sustain itself. The economy imploded, and revenue fell back in 2008. Overall, half of the Bush years saw revenue grow a total of $510.8 billion, and half saw it shrink a total of $534 billion (both amounts in 2005 dollars). Contraction was the dominant trend for revenue under Bush, and in 2008, the government took in less revenue than it did in 2000--despite two tax cuts.

There are other minor counterexamples I could point to, but you get the idea.

dblboggie wrote:When taxes were slashed from 70% to 25% in the '20's, revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

I find it interesting that you stopped at 1928.

kronos wrote:I made a spreadsheet.

https://spreadsheets.google.com/spreadsheet/ccc?key=0AgwFmdsKirp0dGU0ejJCT3Uxbzd6YVFaR1Q1MUNxOUE&hl=en_US

Sources:

Top Tax Rates

Revenue in Constant (FY 2005) Dollars (Table 1.3)

As you can see, counterexamples abound. (Of course, since your statement was an absolute, I'd only need one.)

Good spread sheet. I checked the sources and this seems relatively sound. Clearly I overstated my position. Obviously absolutes don’t exist.

kronos wrote:First, note the 1940s and 1950s. Almost without fail, revenue rises and falls with the tax rate, the lone exception being 1941.

I will need some time to explore the reason for this; though I note that, while the top tax remained constant at 91% from 53-63, revenues fluctuated up and down – for instance, revenues dropped between 54-55, 57-59 and 60-61. These rises and falls in revenue are apparently unconnected to the tax rate as you note. Rather they are rising and falling despite a constant tax rate of 91%.

kronos wrote:Fast-forward to Reagan. Compare 1981 to 1985. The top tax rate had been cut from 69.13% to 50%. Revenue fell from 1981 to 1983, and began growing in 1984, but by 1985, revenue still had not yet surpassed its 1981 level.

First of all, you are disconnecting tax rates with events on the ground. Regan was dealing with the aftermath of a double-dip recession and an economy that was in tatters following the Carter years. It takes time for an economy to turn around – they don’t do that on a dime.

Second, the Reagan tax cut, though approved in 1981, was phased in over several years (as was the Bush tax cuts). As a result, bracket creep (indexing was not implemented until 1985) and payroll tax increases completely swamped Reagan's 1.25 percent tax cut in 1981 and effectively canceled out the portion of the tax cut which went into effect in 1982. The economy received an unambiguous tax cut only as of January 1983. Thereafter, personal income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

kronos wrote:Then we have Clinton. He raises taxes significantly; not once in his term does revenue shrink.

Bush cuts taxes in 2001. Revenue shrinks. He cuts taxes again in 2003. There is a short-term increase in revenue for the next 4 years (although the growth rate of the economy slows every year starting 2004); it does not sustain itself. The economy implodes, and revenue falls back in 2008. Overall, half of the Bush years see revenue grow, and half see it shrink.

There are other minor counterexamples I could point to, but you get the idea.

Again, as I noted above, the Bush tax cuts were phased in over several years. Not to mention that he entered office as the full impact of the dotcom bust was taking hold, creating a recession. Economies (and government revenues) do not just jump up immediately in a down economy on the implementation of a tax cut, particularly one which is rolled out over several years. The fact remains that revenues did begin to rise to levels above those of Clinton – despite the fact that we were involved in two wars during Bush’s term in office.

More to the point, I suppose, my hyperbole aside, are you suggesting that raising taxes in a down economy is a good idea? Or that it would produce, for any substantial period of time, increased revenues to the federal government and would have no impact on private sector growth?

After all, this is really the issue here. We have seen four instances in our country where taxes were cut when the private sector economy was down or stagnant – and in each of those instances the tax cuts spurred economic growth in the private sector and increased revenues to the federal government. The facts of this are right there in your own spreadsheet.

One wonders just how much more robust our economy might have been throughout the entire period of your spreadsheet had taxes not been so confiscatory.

The bottom line here is that cutting taxes does not necessarily mean that federal revenues will fall.

As an aside, I want to point out that even though CBO estimates will always say that tax cuts reduce revenue (and thus must be offset by cuts in the budget) there is a very good reason for this. The reason is that the CBO is not allowed to do anything but static modeling. They cannot consider the dynamic effects that tax cuts have on businesses in the private sector. Politicians make great political hay with this fact, that is little-known to persons outside the beltway or who don't follow politics closely.

This is probably why so many people believe that cuts in taxes means cuts in revenue. Thankfully we have four cases that disprove this assumption.

kronos wrote:

dblboggie wrote:When taxes were slashed from 70% to 25% in the '20's, revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

I find it interesting that you stopped at 1928.

Really?

Oh... you're being facetious.

I think most of us here know how 1929 ended.

I should certainly hope so at least.

I hope you are trying to draw a connection between tax rates and what happened in 1929.

I'll be discussing economic growth (defined as a percentage change in real GDP) a lot in this post. Here's the source all my statements are based on:

http://www.bea.gov/national/xls/gdplev.xls.

You've seen it before. I'm going to make some claims that I think you'll resist, but they're all backed up here.

EDIT: I made another spreadsheet showing annual growth 1929-2010, using the numbers from the above source:

https://spreadsheets.google.com/spreadsheet/ccc?key=0AgwFmdsKirp0dEtHbUF2emdVb0VjM2FYRU4wTDRNNmc&hl=en_US

dblboggie wrote:

kronos wrote:I made a spreadsheet.
https://spreadsheets.google.com/spreadsheet/ccc?key=0AgwFmdsKirp0dGU0ejJCT3Uxbzd6YVFaR1Q1MUNxOUE&hl=en_US

Sources:

Top Tax Rates

Revenue in Constant (FY 2005) Dollars (Table 1.3)

As you can see, counterexamples abound. (Of course, since your statement was an absolute, I'd only need one.)

Good spread sheet. I checked the sources and this seems relatively sound. Clearly I overstated my position. Obviously absolutes don’t exist.

Thanks! I wish the data extended further back, but ya gotta work with what ya gotta with.

dblboggie wrote:

kronos wrote:First, note the 1940s and 1950s. Almost without fail, revenue rises and falls with the tax rate, the lone exception being 1941.

I will need some time to explore the reason for this; though I note that, while the top tax remained constant at 91% from 53-63, revenues fluctuated up and down – for instance, revenues dropped between 54-55, 57-59 and 60-61. These rises and falls in revenue are apparently unconnected to the tax rate as you note. Rather they are rising and falling despite a constant tax rate of 91%.

Good catch. I was honestly focused more on the '40s, because the tax rate was changed so often in that decade, and revenue followed it in lockstep. The picture does get murkier in the '50s. It looks like the economy was behaving erratically--there were minor contractions followed by bursts of growth.

dblboggie wrote:

kronos wrote:Fast-forward to Reagan. Compare 1981 to 1985. The top tax rate had been cut from 69.13% to 50%. Revenue fell from 1981 to 1983, and began growing in 1984, but by 1985, revenue still had not yet surpassed its 1981 level.

First of all, you are disconnecting tax rates with events on the ground. Regan was dealing with the aftermath of a double-dip recession and an economy that was in tatters following the Carter years. It takes time for an economy to turn around – they don’t do that on a dime.

Second, the Reagan tax cut, though approved in 1981, was phased in over several years (as was the Bush tax cuts). As a result, bracket creep (indexing was not implemented until 1985) and payroll tax increases completely swamped Reagan's 1.25 percent tax cut in 1981 and effectively canceled out the portion of the tax cut which went into effect in 1982. The economy received an unambiguous tax cut only as of January 1983. Thereafter, personal income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

I'd be a liar if I said Reagan's growth was not impressive. Still: Clinton's growth numbers are higher (as are FDR's, but we've discussed that, to no resolution). Now, if we discount the lowest-growth years of both Clinton and Reagan, Reagan comes out ahead. If we discount their first years, Clinton comes out ahead. Reagan has the strongest single year by far, but if you rank their 16 years by growth, they are staggered with incredible symmetry. There are various ways you could crunch the numbers, but they come out pretty close to equal--despite very different tax rates.

dblboggie wrote:

kronos wrote:Then we have Clinton. He raises taxes significantly; not once in his term does revenue shrink.
Bush cuts taxes in 2001. Revenue shrinks. He cuts taxes again in 2003. There is a short-term increase in revenue for the next 4 years (although the growth rate of the economy slows every year starting 2004); it does not sustain itself. The economy implodes, and revenue falls back in 2008. Overall, half of the Bush years see revenue grow, and half see it shrink.

There are other minor counterexamples I could point to, but you get the idea.

Again, as I noted above, the Bush tax cuts were phased in over several years. Not to mention that he entered office as the full impact of the dotcom bust was taking hold, creating a recession. Economies (and government revenues) do not just jump up immediately in a down economy on the implementation of a tax cut, particularly one which is rolled out over several years. The fact remains that revenues did begin to rise to levels above those of Clinton – despite the fact that we were involved in two wars during Bush’s term in office.

Yes, revenue did surpass Clinton levels, as you would hope and expect (growth being the norm). But then, it dipped below them. Revenue was lower at the end of Bush's adminsitration than at the end of Clinton's, eight years earlier. All in all, revenue contracted more than it grew under Bush.

dblboggie wrote:More to the point, I suppose, my hyperbole aside, are you suggesting that raising taxes in a down economy is a good idea?

To close deficits, yes, along with spending cuts.

dblboggie wrote:Or that it would produce, for any substantial period of time, increased revenues to the federal government and would have no impact on private sector growth?

Yes, I do think it would do those things, in all likelihood. I think the data shows that that is what happens, more often than not. Obviously there is a threshold beyond which it will start to hurt; we can raise taxes without going anywhere near it.

dblboggie wrote:After all, this is really the issue here. We have seen four instances in our country where taxes were cut when the private sector economy was down or stagnant – and in each of those instances the tax cuts spurred economic growth in the private sector and increased revenues to the federal government. The facts of this are right there in your own spreadsheet.

What are the four instances again? I'd agree the Kennedy and Reagan cuts are examples in your favor; what else?

Bush is much more debatable. Yes, the economy grew on his watch--so in the narrowest technical sense, this is a valid example--but growth is the norm; the dominant, big-picture trend. It's what our economy generally does. Contraction is much rarer. I don't think the mere fact of acheiving growth is much of an achievement. Almost all the presidents can claim some measure of positive growth (and revenue expansion) on their watch. The question is, how much growth was achieved?

Well, look at the BEA link above. If you're willing to do some math (I might make another spreadsheet), you'll see there was less growth under W. Bush than there was under Clinton, and Reagan, and even--once you adust for the fact that he had only one term--Carter. (In other words, the economy grew more in Carter's single term than in either of Bush's terms). On average, there was more growth under Nixon, Johnson, Eisenhower and FDR (even if you count only his first two terms) as well.

But this discussion isn't about presidents; it's about tax rates. So, to make my comment relevant: during all the presidencies listed above, except for Reagan's, taxes were higher (sometimes much higher) than they were under Bush. And yet, there was more economic growth. As for revenue, that's noted above.

I don't know what your fourth example is. The 1920s? That is a really bad example. Yes, the economy grew, but it was unsustainable--structurally doomed to crash and burn, which it did, and it sank lower and lower while the 25% rate remained in place, despite that rate remaining in place, and it began recovering only after the largest tax hike in US history was passed in 1932. This is the complete opposite of your predicted pattern in every particular.

dblboggie wrote:One wonders just how much more robust our economy might have been throughout the entire period of your spreadsheet had taxes not been so confiscatory.

The bottom line here is that cutting taxes does not necessarily mean that federal revenues will fall.

Which I never said they would (and I am not saying that now). All I said was, your absolute statement was false. I never said the reverse absolute statement was true.

dblboggie wrote:As an aside, I want to point out that even though CBO estimates will always say that tax cuts reduce revenue (and thus must be offset by cuts in the budget) there is a very good reason for this. The reason is that the CBO is not allowed to do anything but static modeling. They cannot consider the dynamic effects that tax cuts have on businesses in the private sector. Politicians make great political hay with this fact, that is little-known to persons outside the beltway or who don't follow politics closely.

This is probably why so many people believe that cuts in taxes means cuts in revenue. Thankfully we have four cases that disprove this assumption.

Didn't know that about the CBO (though I have not cited them here anyway). I suppose it's because numbers are safe and predictable, and the human element, somewhat less so?. I'll keep that in mind.

dblboggie wrote:

kronos wrote:

dblboggie wrote:When taxes were slashed from 70% to 25% in the '20's, revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

I find it interesting that you stopped at 1928.

Really?

Oh... you're being facetious.
I think most of us here know how 1929 ended.

I should certainly hope so at least.

I hope you are trying to draw a connection between tax rates and what happened in 1929.

I was making an ironic understatement, but I had a serious point. As you know, the the 25% tax rate did not end in 1928. It ended in 1932. And yet the period of economic growth you chose to focus on mysteeeeeriously ends in the year 1928. I submit that including the last three years of the 25% rate would've made your point somewhat less effectively, if at all.

Again, the tone is facetious. My point here is really that under the 25% rate, there was growth (though the economy was a house of cards), and then there was the worst crash in our nation's history. And it kept getting worse and worse for three years until it hit rock bottom in 1932, all while the 25% rate was in effect. And it started getting better after the largest increase in history (new top rate of 63%) was passed. World War II pulled us out of the Depression, but it did so in a tax environment you would call "confiscatory."

No, I'm not trying to draw a connection between tax rates and the crash, or the recovery. I'm just pointing out that 1) low tax rates are no safeguard against economic collapse, as we saw again in 2008, 2) low tax rates are not a panacea, and 3) high tax rates are not neceassrily inimical to economic recovery, as we saw during the Depression and again during Clinton's presidency. In other words: the inverse or nearly-inverse relationship you are claiming exists between tax rates and revenue intake, doesn't.

Excellent posts Kronos. Naturally, I'll need a little time to respond, but I should have something to you tomorrow or by Friday latest.

I will say this, you are quite right that low tax rates are no safeguard against economic collapse and are not a panacea, but I would not agree on the third point. I'll leave a more detailed response for the coming days.

Looking forward to it!

I made another spreadsheet for growth:

https://spreadsheets.google.com/spreadsheet/ccc?key=0AgwFmdsKirp0dEtHbUF2emdVb0VjM2FYRU4wTDRNNmc&hl=en_US

I edited my first post on this page to add the link there as well.

The growth numbers are my own calculations based on the real GDPs cited in the BEA link. This'll make it less of a pain in the ass for you to verify my claims. I believe the calculations are accurate, but it's always possible I made mistakes; please lemme know if you catch any.

Enjoy!

Thanks Kronos. I'm almost done with my reply. Should have it up this evening.

kronos wrote:I'll be discussing economic growth (defined as a percentage change in real GDP) a lot in this post. Here's the source all my statements are based on:

http://www.bea.gov/national/xls/gdplev.xls.

You've seen it before. I'm going to make some claims that I think you'll resist, but they're all backed up here.

You are bound and determined to make me do much more math than I care to, aren’t you?

kronos wrote:

dblboggie wrote:

kronos wrote:I made a spreadsheet.
https://spreadsheets.google.com/spreadsheet/ccc?key=0AgwFmdsKirp0dGU0ejJCT3Uxbzd6YVFaR1Q1MUNxOUE&hl=en_US

Sources:

Top Tax Rates

Revenue in Constant (FY 2005) Dollars (Table 1.3)

As you can see, counterexamples abound. (Of course, since your statement was an absolute, I'd only need one.)

Good spread sheet. I checked the sources and this seems relatively sound. Clearly I overstated my position. Obviously absolutes don’t exist.

Thanks! I wish the data extended further back, but ya gotta work with what ya gotta with.

I wish it extended further back myself. I found a site called usgovernmentrevenue.com – not a government website, but the guy derives his figures from US budget data and US Census reports – which go back as far as 1902, with some data going back as far as 1792! And while much of the figures for the earlier years are interpolated by extant data, it’s still an interesting site to explore.

You might want to check it out.

Good news! In the process of writing this I found a site that actually gives individual income tax rates going back to 1913 – the year the income tax was enacted. I think you’ll find it very interesting – particularly how quickly the lie that rates would remain low and most people would pay very little if anything in taxes was exposed. The top rate more than doubled in 3 years (to 15%) and exploded in 1917 to 67%!

You can find the site HERE.

kronos wrote:

dblboggie wrote:

kronos wrote:First, note the 1940s and 1950s. Almost without fail, revenue rises and falls with the tax rate, the lone exception being 1941.

I will need some time to explore the reason for this; though I note that, while the top tax remained constant at 91% from 53-63, revenues fluctuated up and down – for instance, revenues dropped between 54-55, 57-59 and 60-61. These rises and falls in revenue are apparently unconnected to the tax rate as you note. Rather they are rising and falling despite a constant tax rate of 91%.

Good catch. I was honestly focused more on the '40s, because the tax rate was changed so often in that decade, and revenue followed it in lockstep. The picture does get murkier in the '50s. It looks like the economy was behaving erratically--there were minor contractions followed by bursts of growth.

Thanks. These revenue fluctuations in the ‘50s and early ‘60s absent tax rate changes leads one to conclude that other economic factors, besides taxes, are at play when it comes to how much revenue the government gathers in. A statement of the obvious of course, but one that has been absent from our debate, so I thought it worth mentioning.

Another observation about the ‘40s, between ’46 and ’47 the rate remained the same and yet revenues fell. Then the rate was cut slightly in ’48 and revenues rose again, falling the next year (’49) despite no rate change. The rate is increased in ’50 to 91% and revenue falls below the previous year’s level. In ’51, with the rate the same, revenue makes a substantial recovery. In ’52 the rate increases to 92%, yielding another substantial increase in revenue, only to fall in subsequent years (’53-55), and it doesn’t reach the ’52 level again until ’60.

Then revenues make very substantial gains after the enactment of JFK’s tax reduction package in ’64.

As for the massive increase of revenues through the ‘40s, I would submit that this had far less to do with tax rate increases and much, much more to do with war production and the fact that millions of new factory workers, military recruits and conscripts were now drawing a wage (many for the first time in quite some time thanks to the Great Depression) and were, thus paying taxes.

kronos wrote:

dblboggie wrote:

kronos wrote:Fast-forward to Reagan. Compare 1981 to 1985. The top tax rate had been cut from 69.13% to 50%. Revenue fell from 1981 to 1983, and began growing in 1984, but by 1985, revenue still had not yet surpassed its 1981 level.

First of all, you are disconnecting tax rates with events on the ground. Regan was dealing with the aftermath of a double-dip recession and an economy that was in tatters following the Carter years. It takes time for an economy to turn around – they don’t do that on a dime.

Second, the Reagan tax cut, though approved in 1981, was phased in over several years (as was the Bush tax cuts). As a result, bracket creep (indexing was not implemented until 1985) and payroll tax increases completely swamped Reagan's 1.25 percent tax cut in 1981 and effectively canceled out the portion of the tax cut which went into effect in 1982. The economy received an unambiguous tax cut only as of January 1983. Thereafter, personal income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

I'd be a liar if I said Reagan's growth was not impressive. Still: Clinton's growth numbers are higher (as are FDR's, but we've discussed that, to no resolution). Now, if we discount the lowest-growth years of both Clinton and Reagan, Reagan comes out ahead. If we discount their first years, Clinton comes out ahead. Reagan has the strongest single year by far, but if you rank their 16 years by growth, they are staggered with incredible symmetry. There are various ways you could crunch the numbers, but they come out pretty close to equal--despite very different tax rates.

The reason we’ve not resolved FDR’s growth is that in the face of this supposed economic growth unemployment was at astonishing levels as was the utter misery of the people. Unemployment never fell below 14% and was much higher than this for much of the Depression. I just cannot reconcile these conflicting facts. It wasn’t until FDR began gearing up for war (1938) that the economy started turning around and unemployment levels began dropping (production was in full swing by 1940). Truth be told, it was WW2 that saved FDR’s hide when it came to the Depression – not his economic policies, which were all over the place with no consistency whatsoever. Much of this is fresh in my mind as I’ve just covered this period in two US history books I’m currently reading.

As for Clinton, he was the recipient of two boons not of his making (well, at least one of those wasn’t of his own making – HillaryCare was the catalyst that swept the Republican’s to victory and a takeover of the Congress). One was the Regan economy, chugging along like the little train that could on nitrous. The second was the Republican takeover of Congress. It was the Republican’s that forced Clinton toward the center in order to secure his reelection to a second term. Another thing you might recall is the tech boom of the ‘90s. IPO’s of money-losing but promising sounding dotcom businesses were creating billions in new wealth – at least until the wheels came off in 2000. So again, I would not attribute the growth of the economy to Clinton or his tax hikes as much as I would to the boom in tech and the resultant wealth it created and spread around. In fact, I was an indirect recipient of much of that wealth as the huge growth in the size and number of tech publications in this period gave me fertile grounds in which to get coverage for my many tech clients who weren’t top tier companies – more pubs and more pages made getting coverage much less competitive; at least for clever PR types.

kronos wrote:

dblboggie wrote:

kronos wrote:Then we have Clinton. He raises taxes significantly; not once in his term does revenue shrink.

Bush cuts taxes in 2001. Revenue shrinks. He cuts taxes again in 2003. There is a short-term increase in revenue for the next 4 years (although the growth rate of the economy slows every year starting 2004); it does not sustain itself. The economy implodes, and revenue falls back in 2008. Overall, half of the Bush years see revenue grow, and half see it shrink.

There are other minor counterexamples I could point to, but you get the idea.

Again, as I noted above, the Bush tax cuts were phased in over several years. Not to mention that he entered office as the full impact of the dotcom bust was taking hold, creating a recession. Economies (and government revenues) do not just jump up immediately in a down economy on the implementation of a tax cut, particularly one which is rolled out over several years. The fact remains that revenues did begin to rise to levels above those of Clinton – despite the fact that we were involved in two wars during Bush’s term in office.

Yes, revenue did surpass Clinton levels, as you would hope and expect (growth being the norm). But then, it dipped below them. Revenue was lower at the end of Bush's adminsitration than at the end of Clinton's, eight years earlier. All in all, revenue contracted more than it grew under Bush.

Indeed, it did contract more than it grew. Of course it did not help that the mainstream media went on a nonstop 8 year tear on the “Bush economy” with story after story of the “jobless recovery” (even in those years where unemployment was falling steadily).

But it is worth noting again that Bush was heir to a recession that Clinton didn’t have to deal with – a recession that was created by the very industry that provided so much economic wealth during the Clinton years. And rather than lasting for years, the Bush tax cuts reinvigorated the economy which bounced back once the cuts were fully implemented. Sadly, we knew the wheels had to come sooner or later thanks to the subprime mortgage mess. Bush and McCain (hardly solid conservatives by the way) were warning of the mess that Fannie and Freddie were creating through the securitization bundled subprime mortgages and selling them worldwide. Starting in 2005 both had called for a more vigorous and forceful regulation of these two GSA’s – warning of the very real damage that could result if they were not reined in and reined in fast. Unfortunately the Democrats mounted a vicious counter attack to increased regulation – primarily by Barney Frank (who was in charge of the nation’s housing and banking laws and whose significant other was an executive at Fannie), Chris Dodd and Maxine Waters. Had we gotten tighter regulations

kronos wrote:

dblboggie wrote:More to the point, I suppose, my hyperbole aside, are you suggesting that raising taxes in a down economy is a good idea?

To close deficits, yes, along with spending cuts.

Well we’ll just have to agree to disagree on this point. To raise taxes in a down economy, no matter how much spending one cuts, will do nothing to encourage economic growth in a down economy. Even current Keynesian economic practices have tax cuts in its arsenal to deal with an economic trough.

I believe that the best way to close deficits is to grow the economy while cutting spending. Sadly, this is something we’ve seldom done and certainly not in the last 90 or so years.

kronos wrote:

dblboggie wrote:Or that it would produce, for any substantial period of time, increased revenues to the federal government and would have no impact on private sector growth?

Yes, I do think it would do those things, in all likelihood. I think the data shows that that is what happens, more often than not. Obviously there is a threshold beyond which it will start to hurt; we can raise taxes without going anywhere near it.

Again, I do not agree. I think the current state of our economy speaks volumes about the soundness of that observation. But we’ve been focused on taxes in this debate and I’ve neglected to mention (I think) another factor that retards economic growth – regulations.

Massive increases in regulations result in hidden costs to businesses that are every bit as detrimental to growth as taxes. When you have both increased taxation and increased regulation you have the makings of an economic disaster.

In our case, we have the massive growth of regulations under Obama with ObamaCare and Dodd/Frank finance “reform” (which exempted Fannie and Freddie as a side note). These two bills alone represent massive new costs to businesses, many of which businesses are still trying to ferret out. Coupled with the threat of higher taxes at the expiration of the Bush tax rates at the end of this year we’ve got a climate of utter hostility towards private sector business that is not going to inspire or encourage much in the way of the robust growth we’ll need to lower unemployment to any acceptable level.

So I say we’ve already hit that threshold with the hidden taxes in ObamaCare and the regulatory costs of that and Dodd/Frank – and that’s even before the actual tax rates go back up in 2012 or 13 (I forget when those are set to expire now).

kronos wrote:

dblboggie wrote:After all, this is really the issue here. We have seen four instances in our country where taxes were cut when the private sector economy was down or stagnant – and in each of those instances the tax cuts spurred economic growth in the private sector and increased revenues to the federal government. The facts of this are right there in your own spreadsheet.

What are the four instances again? I'd agree the Kennedy and Reagan cuts are examples in your favor; what else?

The Mellon tax cuts in the 1920’s and the Bush tax cuts starting in 2001. The Bush cuts were admittedly less spectacular coming at the beginning of the dotcom bust and followed by the economic havoc of 9/11 and two subsequent wars (and Bush’s own proclivity for big government spending) and book-ended with the Democratic takeover of Congress in the 2006 mid-terms followed by another recession a-la the collapse of the housing and financial sectors along with the bust of GM and Chrysler. So yeah, perhaps it’s not the best example of the power of tax cuts, but I would submit the above as extenuating circumstances.

kronos wrote:Bush is much more debatable. Yes, the economy grew on his watch--so in the narrowest technical sense, this is a valid example--but growth is the norm; the dominant, big-picture trend. It's what our economy generally does. Contraction is much rarer. I don't think the mere fact of acheiving growth is much of an achievement. Almost all the presidents can claim some measure of positive growth (and revenue expansion) on their watch. The question is, how much growth was achieved?

I would agree with you on this. Growth has historically been the norm. Just population growth alone militates against contraction.

kronos wrote:Well, look at the BEA link above. If you're willing to do some math (I might make another spreadsheet), you'll see there was less growth under W. Bush than there was under Clinton, and Reagan, and even--once you adust for the fact that he had only one term--Carter. (In other words, the economy grew more in Carter's single term than in either of Bush's terms). On average, there was more growth under Nixon, Johnson, Eisenhower and FDR (even if you count only his first two terms) as well.

But this discussion isn't about presidents; it's about tax rates. So, to make my comment relevant: during all the presidencies listed above, except for Reagan's, taxes were higher (sometimes much higher) than they were under Bush. And yet, there was more economic growth. As for revenue, that's noted above.

I think we’re missing some information here to consider that FDR or Carter had more growth. I lived through the Carter years as a taxpaying adult. I can certainly tell you that if there was growth, I certainly didn’t see it or experience it!

There’s just something hinky going on here and the raw numbers you’re producing just don’t match the reality on the ground – at least with the FDR/Carter years.

kronos wrote:I don't know what your fourth example is. The 1920s? That is a really bad example. Yes, the economy grew, but it was unsustainable--structurally doomed to crash and burn, which it did, and it sank lower and lower while the 25% rate remained in place, despite that rate remaining in place, and it began recovering only after the largest tax hike in US history was passed in 1932. This is the complete opposite of your predicted pattern in every particular.

Actually, the growth was neither unsustainable nor structurally doomed to failure. The market crash would have turned around if only the Fed and the government had done their jobs. The Fed allowed some key banks to fail and also failed to address the severe contraction of the money supply – two key components that greatly exacerbated what would have been a normal cyclical trough in the economy. To heap injury on insult, the government passed the Smoot-Hawley Tariff Act which many historians peg with doing the most lasting damage to the economy during that time.

kronos wrote:

dblboggie wrote:One wonders just how much more robust our economy might have been throughout the entire period of your spreadsheet had taxes not been so confiscatory.

The bottom line here is that cutting taxes does not necessarily mean that federal revenues will fall.

Which I never said they would (and I am not saying that now). All I said was, your absolute statement was false. I never said the reverse absolute statement was true.

Agreed.

kronos wrote:

dblboggie wrote:As an aside, I want to point out that even though CBO estimates will always say that tax cuts reduce revenue (and thus must be offset by cuts in the budget) there is a very good reason for this. The reason is that the CBO is not allowed to do anything but static modeling. They cannot consider the dynamic effects that tax cuts have on businesses in the private sector. Politicians make great political hay with this fact, that is little-known to persons outside the beltway or who don't follow politics closely.

This is probably why so many people believe that cuts in taxes means cuts in revenue. Thankfully we have four cases that disprove this assumption.

Didn't know that about the CBO (though I have not cited them here anyway). I suppose it's because numbers are safe and predictable, and the human element, somewhat less so?. I'll keep that in mind.

Yeah, most people are not aware of this and it is never spoken about in the media. I learned this the hard way during my battles over trying to get the Fair Tax kicked out of committee on the Hill.

Apparently the government once did dynamic modeling but this was abused with excessively rosy predictions on various measures which failed to produce anything even close to the dynamic predictions.

Now they can only look at the static figures given them. Unfortunately this is not how the real world works. Federal actions always have unanticipated consequences – sadly the CBO may not consider these.

A final response is coming. Gimme 2-3 days.

kronos wrote:A final response is coming. Gimme 2-3 days.

No worries mate.