Proof
Ronald Reagan was vilified (Oddly enough, by the current President's own father) as a practitioner of "voodoo economics" for daring to propose that tax cuts would spur the economy. Except that after the tax cuts kicked in, the economy boomed. And boomed for a long time, too. Sadly, Congress kept spending. Bush and then Clinton raised taxes to help cover the enormous spending. Clinton's tax increases were truly enormous and included a retroactive tax increase - the first one ever. Then Congress changed hands and it became difficult to spend wildly. Deficit reductions resulted. But, by the end of the Clinton years, a recession had started.
The current President undid a lot of the massive tax increases that happened in the Clinton years. And the economy boomed again. Then came 9/11. The economy was shaken, and it's taken some time to settle. We've been in a war for a while now and deficits have climbed. Because, sadly, Congress has kept spending. But still, the favorable tax climate has led to a lot of growth. Even though you can hardly hear it in the MSM, the economy has been doing rather well.
Now comes news that April of this year was the second highest total tax income month in US history. Want proof that cutting taxes actually raises tax revenue? Just look.
I live next to a state that keeps raising taxes. Every time they do so, their total tax revenues fall. They simply do not get it. People cross the border to this state to spend rather than pay the high taxes. They are scrambling to keep young people in their state because, right now, many young people are leaving. For states with less draconian taxation.
UPDATE: I see Daou Report has linked again. Please read the comment policy here. Personal slurs will be deleted.
UPDATE: I took a lot of grief here from the folks who traveled over when Daou linked. Look at this and tell me why I'm wrong again?
By Maimonides, Thursday, 11 May , 2006 @ 7:37 am
Now compare revenues vs. expenditures over all the years of the tax cut. Taking a single data point is irresponsible statistical analysis. That’s why economists use regression analysis, not arithmetic.
By JRI, Thursday, 11 May , 2006 @ 7:49 am
You haven’t presented proof. You’ve pointed to a mere correlation. And the economy is not booming for me or anyone I know. We are all having to deal with much higher prices with wages that have not grown appreciably in years.
Get a brain, moran!
By Gaius, Thursday, 11 May , 2006 @ 7:56 am
Wow, can’t even spell an insult correctly. Impressive.
Spending too much is the issue. I understand a single data point does not an analysis make, Maimonides. But this is anecdotal evidence.
By zen_less, Thursday, 11 May , 2006 @ 7:58 am
Hey, I’ve got a great idea. Let’s get rid of all taxes and they tax revenues will be infinite!! This can’t fail! BWAHAHAHAHAHA!
By f, Thursday, 11 May , 2006 @ 7:59 am
Actually he hasn’t even presented a correlation. The article shows that April’s collections were still substaintially lower than they were 5 years ago, despite 5 years of tax cutting and growth. This is proof, proof that cutting taxes lowers revenue. If this was adjusted for inflation this would appear substaintially worse. It’s amazing how conservatives don’t let the facts get in the way of what they have to say.
By P, Thursday, 11 May , 2006 @ 8:06 am
Why are you guys so obsessed with tax cuts? Sometimes we need to pay taxes. You mention we have been at war for a while- how do you think we pay for that? oh right, cut taxes so as to increase tax revenue. Of course! Just like, right after Katrina, what was the first thing Congress did? Cut taxes to help rebuild the area and stimulate growth. That is obviously what people in the Gulf Coast needed at that time- no house, no job, no food, no infrastructure- what is the solution? Tax cut! War on terror? Tax cut! Recession? Tax cut! Economy overheating? Tax cut! Market bubble? Tax cut! In the future we will get rid of economics courses, and replace all the text books with a one page handout, which says only: TAX CUT.
By Sigmund Dali, Thursday, 11 May , 2006 @ 8:07 am
Another issue: I don’t see any of this claim presented in terms of inflation adjustment. It would be more enlightening to correct your figures for inflation. For instance, the 2001 revenue of $332 billion is actually around $360 billion after factoring inflation. That means that from only 5 years ago, there’s been a $50 billion dollar drop in revenues, which kind of contradicts your point of tax cuts increasing revenues. But I’m sure you didn’t consider that before you posted this.
$50 billion decreased revenues alongside huge spending increases…. And your party is the party of fiscal discipline? Hah
By Maimonides, Thursday, 11 May , 2006 @ 8:32 am
And anecdotal evidence is for anthropologists, poets other people who do not deal in hypothesis testing, not economists. Gaius, you seem a reasonable guy, come back to the side of balancing the budget, of paying our debts, rather than running up inflation.
C+I+G+(X-IM)=GNP
If G (gov’t exps) increases, with G = expenditures + revenues, the only places in the equation for to make up for any negative value of G (when exp > rev, which is all the other data points in your data set since 2002 if you look it up) are from X-IM (foreign investment, aka China and Japan buying up America) or in a change in the cost of money (it increases, we call this inflation)
If you’re a pro-inflation, pro-foreign ownership of US business kind of conservative, then keep up the Laffer curve defenses.
By Juggler, Thursday, 11 May , 2006 @ 8:37 am
Actually, after the Reagan tax cuts were passed the economy went into the tank, with the highest unemployment since the depression–9.7% in 1982 and 9.6% in 1983. GDP actually fell in 1982. The national debt increased by an average of 14% throughout his entire presidency (it only grew by 4.3% during Clinton’s 8 years. Unemployment decreased every year of Clinton’s presidency, starting at 6.9% (it was 7.5% the previous year under Bush 41) and ending at 4%. It went back up to 4.7% in Bush 43’s first year, to 5.8% in his second year, and 6% in his third.
The economy has after done worse after tax cuts, and done better after tax increases.
By Gaius, Thursday, 11 May , 2006 @ 8:39 am
I’m in favor of cutting spending - hard - in many categories. I’m frankly in favor of virtually starving the government.
By Juggler, Thursday, 11 May , 2006 @ 8:55 am
Actually, it’s unclear that huge deficits cause inflation. Reagan had huge deficits, with a rate of debt increase 50% higher than Carter, yet inflation was half that of Carters.
But then, the price of gasoline doubled in about a year under Carter, which caused inflation, just as it did at the end of Nixon, beginning of Ford.
So, we could see our gas prices double from what they were in January. Think some inflation will follow?
By Bruce, Thursday, 11 May , 2006 @ 8:58 am
From the article: “It marked the largest one-month receipt total since the government collected $332 billion in revenue in April 2001…”
So the article itself says the tax revenues were higher after the Clinton years, directly contradicting the point of this blog post. We’re only now catching up, raw dollar wise, and still quite far behind when adjusted for inflation. And this is something to be proud of?
By f, Thursday, 11 May , 2006 @ 9:00 am
Because starving government would accomplish what? A return to a time when 25% of america lived in poverty? Is that what you are in favor of? Government investment in roads, drainage, water, sewage, public health, libraries, schools, the internet and countless other things has been the foundation of our succesful economy. Without these government investments our country would look like pakistan, only the fundamentalists would be worse.
By Gaius, Thursday, 11 May , 2006 @ 9:22 am
No, f. That’s not what I am in favor of.
By John Gillnitz, Thursday, 11 May , 2006 @ 9:26 am
Trickle down economics is like disco. It is really bad and, for some reason, refuses to go away. Spending and running up debt like a drunken sailor is not sound economic policy and never will be.
By Gaius, Thursday, 11 May , 2006 @ 9:35 am
I love that line about disco - I agree spending is a real issue. Taxing an economy to stagnation is one, too. (See Europe or, closer to home, Canada).
By Maimonides, Thursday, 11 May , 2006 @ 9:37 am
Does the name of this blog make anyone else terribly hungry for crab legs? Thank Gauis, now I have to head over to Chesapeake Bay!
By Gaius, Thursday, 11 May , 2006 @ 9:46 am
Heh, the name has had that effect on a couple of people!
By Anne, Thursday, 11 May , 2006 @ 10:55 am
It’s amazing how repubs cherry pick data. How come if the economy is so great bankruptcy, home mortgages defaults are at an all time high?
It seems that most people work for minimum wage.
If your stocks are doing well…great…but I know way too many people in trouble to have your view of the economy.
Top five employers in the United States and number of employees in 2005*
Manpower, Inc 23,000,000
Wal-Mart 1,500,000
Kelly Services, Inc 707,900
Labor Ready, Inc 602,770
McDonald’s Corp. 418,000
Here are the top five employers and number of employees in 1995**
Manpower, Inc 1,206,700
Manpower International, Inc (Suby of Manpower, Inc) 1,200,00
General Motors Corp, 694,000
Kelly Services, Inc 634,000
Wal-Mart 528,000
In 2005, General Motors ranked no. 8 with 326,000 employees.
*Dun & Bradstreet Business Rankings, 2005
** Dun & Bradstreet Business Rankings, 1995
By Robert, Thursday, 11 May , 2006 @ 11:04 am
Here’s another one Gauis:
If you overfund Amtrak, it’ll be cheaper in the long run.
We don’t fund Amtrak too much, we fund it too little!!
Are you ready to get behind that one?
By Gaius, Thursday, 11 May , 2006 @ 11:33 am
Anne, according to Manpower’s site they helped place 4,000,000 in the last year. 23,000,000 seems a bit high. Don’t you think?
By Craig, Thursday, 11 May , 2006 @ 11:53 am
When you elect crooks, the last spending to go will be the corrupt spending and the spending for the donors who buy them their offices.
In other words, the spending that hurts the society rather than helps it.
I’m sure Gaius, when he wants to slash spending, wants to slash the ‘worst’ spending before the ‘best’ spending.
That’s not an option, because the people in office are crooks, elected by interests at odds with the society’s interests.
I need not even get into the issue that much of the government’s spending is good for society to point out that he’s chasing an impossibility.
People with Gaius’ politics will bring great harm, if their votes win.
By Gaius, Thursday, 11 May , 2006 @ 11:57 am
Cutting waste brings great harm? Interesting take.
By JT, Thursday, 11 May , 2006 @ 12:53 pm
“according to Manpower’s site they helped place 4,000,000 in the last year. 23,000,000 seems a bit high. Don’t you think?”
That just means that the other 19 million have been working a temporary job for over a year or more. Most without health insurance. Now, if you want to talk about a drag on our economy, let’s look at how much health costs have skyrocketed under this administration. All permanent employers have to foot half of that bill. Which is why half of the nation is (apparently) classified as a temp. Temp! (sorry, Kids in the Hall reference).
By Gaius, Thursday, 11 May , 2006 @ 1:03 pm
I can’t find any evidence of that high a number, anywhere.
By Black Jack, Thursday, 11 May , 2006 @ 1:38 pm
Maimonides, there’s very little to eat in the legs of a Chesapeake Bay Blue Crab, although a few of the larger joints do have a tidbit that’s worth going after if you know how, and can work fast.
Likely, you’re more familiar with the Alaskan Snow Crab and the King Crab. They’re the ones with the big legs you see in grocery stores, sold frozen and thawed. They’re greatly overpriced, and much overrated, compared to fresh steamed Chesapeake Jimmy Crabs.
The West Coast’s Dungeness Crab and the Rock Crab also are larger than the Blue Crab but have thicker shells, and unfortunately most often have been frozen, unless you get them live from the crabber. Then they’re almost as good as Blue Crabs.
By Anne, Thursday, 11 May , 2006 @ 1:38 pm
I used D&B’s numbers not mine!
By Gaius, Thursday, 11 May , 2006 @ 1:52 pm
I can’t find anything on that at all. Now, I seem to recall a few years back that there was a trend for small to midsized businesses to start using Manpower and agencies like that not to do anything bad, but to do good. They could get benefits for the employees that way. Is it possible that’s what you’re seeing?
Also, I have been trying to dig out the numbers of government employees (Which used to be in the statistical handbook of the US, but I can’t seem to find them anywhere. I remember once being completely stunned when I found out how many people work for the government).
By Gaius, Thursday, 11 May , 2006 @ 2:02 pm
Found it, finally. Government employment is around 22,000,000. Over 16% of the total labor force. Got that? Almost one in five people work for the government.
http://www.bls.gov/news.release/empsit.t14.htm
By Juggler, Thursday, 11 May , 2006 @ 9:57 pm
Actually, the U.S. labor force is about 150 million, which makes the Government employment slightly under 15%, or a little more than one in seven.
By Gaius, Friday, 12 May , 2006 @ 4:26 am
The table says 135. But even if you’re right - do you think that’s a good figure?
By Juggler, Friday, 12 May , 2006 @ 7:45 am
Gaius,
It depends on what those 22 million people are doing. It’s really a meaningless statistic all by itself. It would also be helpful to know how that compares to 5 years ago, 10 years ago, 20 years ago.
Frankly, I’m more concerned with private government contractors who are over-charging for services. Of course, you don’t often hear to many complaints about that from conservatives.
By Gaius, Friday, 12 May , 2006 @ 8:04 am
I don’t like any waste, Juggler. I think we have a tremendous problem with spending in almost all areas right now. And keep in mind that Congress spends.
By Juggler, Friday, 12 May , 2006 @ 9:26 am
Gaius,
Do you really think that it’s possible to eliminate waste from human endeavors?
Yes, government should operate efficiently, but many on the right seem to argue that because government isn’t perfect, it should mostly be eliminated.
The assumption that private business is more efficient than government isn’t valid. I’ll give you three examples.
People like to complain about the Postal Service, but in the areas where they face competition (parcels and express delivery) they’re much cheaper than competitors such as FedEx and UPS. We’re not talking 10%-20% cheaper, it’s more like 50%-70%. That’s probably why Amazon.com ships via USPS and not UPS. Every time you buy from Amazon, you’re benefitting from government. And that’s not even counting the road construction and maintenance (and if it’s express delivery airport construction and maintenance) that allowed your parcel to make it from a warehouse to your house.
Places that have publicly owned utilities generally pay much less than those places where the utilities are private companies. When much of California was experiencing brown-outs and soaring prices, LA and Sacramento, with municipal power companies, experienced neither.
Countries with “socialized medicine” pay much less for their medical care than we in the U.S. do, and in many cases they’re much healthier, too, and experience longer life spans and lower infant mortality.
Finally, I’d like to put in a good word for government regulation. Do you enjoy breathing clean air? If so, you can thank government regulation. Do you enjoy having a safe work environment? You can thank government regulation. Do you enjoy clean water? You can thank government regulation.
In many cases, government regulation is a way to make those who benefit from certain economic activities pay as many of the costs incurred as possible.
When a company pollutes the air, all of those who breathe that air pay a cost, whether they benefit economically or not.
By Gaius, Friday, 12 May , 2006 @ 9:35 am
At this point there are few - if any - government “social” programs that really work well - that’s my problem. I do not think they need to be junked in all cases, just overhauled.
The post office does not get government subsidy, that changed years ago. They’re an independant authority for all intents and purposes. (And they show how getting off the government payroll actually improves performance.)
Countries with socialized medicne have abysmal records, I have no idea where you are getting this rosy picture.
Public utilities have lower rates primarily because they do not pay taxes. I was in that field for a very long time. I know. The average rate of return to private utilities is between 8 and 12 percent, with very, very few reaching the higher figure. Taxes generally account for up to 1/2 of the private utilities bill.
By Juggler, Friday, 12 May , 2006 @ 10:18 am
Gaius,
Didn’t you see the news article recently saying that the British are significantly healthier than Americans.
By Gaius, Friday, 12 May , 2006 @ 10:30 am
Did you see the news article about Brits having to yank out their own teeth because they couldn’t get in to see a dentist?
Did you see the reports of how long the average wait is to get to see a doctor? I’d have to find that one, but it was saying the district was working diligently to get the average wait time down to only several months.
By Anandakos, Friday, 12 May , 2006 @ 11:38 am
Sir,
A large part of the near record taxes paid in April were the result of the foreign earnings repatriation of 2005. That tax holiday has now expired. Expect a symmetrical plunge next April.
By Gaius, Friday, 12 May , 2006 @ 11:46 am
We’ll see. As I pointed out above, one data point does not make an analysis.
By Juggler, Friday, 12 May , 2006 @ 2:34 pm
Gaius, no, I didn’t see that article. Could you point me to it?
My understanding is that it works much better in France, where they fund it 50% better than in Britain (and still pay much less than in the U.S.)
Just because it has problems in some locations doesn’t mean it’s not worth pursuing.
By Gaius, Friday, 12 May , 2006 @ 2:42 pm
http://bluecrabboulevard.com/2006/05/07/smile-at-the-future/ for the dentist story.
It’s also not working in Canada. And if it works better in France, is it worth the really high unemployment rate they have there?
By Juggler, Friday, 12 May , 2006 @ 2:47 pm
If you really care about keeping the deficit down, you should want a Democrat in the White House, unless you can bring back Eisenhower. Here’s the average annual increase in the national debt for each President going back to Ike:
Eisenhower: 0.8%
Kennedy: 2.1%
Johnson: 3.0%
Nixon: 5.5%
Ford: 15.2%!
Carter: 9.2%
Reagan: 14.2%! (over eight years!)
Bush 41: 11.8%
Clinton: 4.3% (it went down every year but one, and increased by a mere 0.3% his final year), the best since 1960, when the national debt actually decreased)
Bush 43: 7.0% through his first five years
Bush 41’s last year the debt increased 10.9%. Clinton’s first two years, still with a Democratic Congress, the debt increased 8.5% and 6.4%.
The real champ of increasing the debt was Ronald Reagan. His first year, the debt increased 10.6%, just a little worse than Carter’s last year (10.1%), but then it went wild. The next four years the debt increase 16.4%, 17.8%, 17.9%, and 17.0%. Those are the first, second, tied for third, and fifth worst debt increases since the end of WWII. (Also tied for third was Ford’s first year).
By Juggler, Friday, 12 May , 2006 @ 2:52 pm
France’s unemployment is at Reagan’s levels.
By Gaius, Friday, 12 May , 2006 @ 3:02 pm
Jugler, you know that comparison is bull. The dems controlled congress all through that period until 1992. Congress spends. President executes.
And Reagan sure did not have youth unemployment hovering in the 40% range.
By Juggler, Friday, 12 May , 2006 @ 3:13 pm
Gaius,
Actually the Republicans gained control of the Senate in 1980 when Reagan won the Presidency, and with the help of conservative Democrats like Phil Gramm had effective control of the House. Reagan didn’t complain that he wasn’t able to implement his agenda.
The Democrats regained control of the Senate in 1986.
So the worst years of the deficit happened with Republican control of the Senate and a Republican in the White House.
So, I know that comparison is not bull.
It’s a bit of a stretch to blame France’s unemployment rate on their health care system. Maybe the problem is that Jacques Chirac is a conservative with an agenda of privatization.
By Gaius, Friday, 12 May , 2006 @ 3:20 pm
Congress controls the purse, you know it.
France’s problems are caused by it’s socialist policies, including the health care system.
By Juggler, Friday, 12 May , 2006 @ 5:38 pm
Gaius,
What part of “The Republicans gained control of the Senate in 1980 when Reagan won the Presidency, and with the help of conservative Democrats like Phil Gramm had effective control of the House” did you not understand?
And the President is often able to set the agenda, and can veto spending bills if he doesn’t like them. Reagan pretty much had his way with Congress in his first term.
And what part of “Jacques Chirac is a conservative with an agenda of privatization” did you not understand?
By Gaius, Friday, 12 May , 2006 @ 7:16 pm
In his first term.
He has undone none of the socialist programs - now has he? He couldn’t even get the ablity to fire young workers in place.
By Juggler, Friday, 12 May , 2006 @ 11:46 pm
In Reagan’s first six years he had a Republican Senate, and effectively a Republiican House, and there were record deficits.
The tax cuts that supposedly made the economy boom are called the Reagan tax cuts, not the Democratically-controlled House tax cuts.
And the economy went in the tank after they were passed–a recession the next year, and unemployment nearly 10% for two years in a row. In his fourth year we had 7.2% real GDP growth, but unemployment of 7.5%, and the debt increased by 17.9%, the most since WWII.
So much for growing out of the deficit.
By matt, Saturday, 13 May , 2006 @ 2:23 pm
A significant portion of the higher revenue has come from higher capital gains tax revenue. and that is largely because one, corporate profits are way up, and two, lots of people made capital gains in real estate in the past five years. House prices went up partially due to mania, but also because your dollars sudenly financed a whole lot more than it used. Coroporate profits are up for related reasons. A big chunk of corporate porfit growth is due to technology that has greatly improved productivity. and “free money” in the form of cheap financing has allowed business to invest in the productivity saving technology. By ignoring the role of cheap money, you see only the tree of lower taxes, and not the forest of low cost financing.
By Gaius, Saturday, 13 May , 2006 @ 2:37 pm
Again, one data point does not an analysis make. Of course there are a lot of factors.
By Juggler, Saturday, 13 May , 2006 @ 4:45 pm
Gaius,
You keep making that “one data point does not an analysis make”, but the fact is that you don’t have any data points at all to make your original claim.
“The economy boomed” in Bush’s first eight months? I don’t think so. Average unemployment in Bush’s first year was higher than in Clinton’s last year, and GDP increased by a mere 0.8%, compared to 3.7%
Unemployment went down every single year of Clinton’s presidency. That hasn’t happened with any other post WWII President. In Bush’s first four years GDP grew an average of 2.3% per year, compared to Clinton’s average of 3.7%. Clinton didn’t have a single year with GDP growth as slow as Bush’s average through four years.
So the tax increases in Clinton’s term didn’t seem to hurt the economy much.
I also find it amusing that you’re quick to refer to “Reagan tax cuts”, “Bush tax cuts”, and “Clinton tax increases”, but also want to foist Reagan’s huge deficits onto Congress. A little consistency would be most welcome.