It depends on what the meaning of ‘half’ is

June 14, 2006

This article, from the Investor’s Business Daily, has the right all excited. I’m not sure if conservatives have really thought this one through.

Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in [tag]half[/tag] in 2006 — three years early. […]

The 2006 deficit through May was $227 billion, down from $273 billion at this time last year. Spending is up $130 billion, or 7.9%.

The CBO forecast in May that the 2006 deficit could fall as low as $300 billion. Michael Englund, chief economist of Action Economics, has long expected a deficit of about $270 billion this year. Now he thinks there’s a chance the “remarkable strength in receipts” will push the deficit even lower.

There are a few reasons Bush’s supporters might want to second guess their excitement about this. First, the deficit in 2004 was $412 billion. I don’t mean to sound picky, but a $300 billion deficit, as predicted by the [tag]CBO[/tag], is not half of $412 billion. Even if we’re really lucky, and the deficit for the year reached $270 billion, that’s still not even close to half.

Second, as ThinkProgress noted, if [tag]Bush[/tag]’s fiscal policies hadn’t been implemented, we were on track to have a $500 billion surplus for 2006. As TP put it, “The optimistic deficit number pushed by International Business Daily is still $775 billion worse.”

And third, as the Center on Budget and Policy Priorities explained two weeks ago, given this stage of the business cycle, the 4.5 years since the “recovery” began, and the national saving rate, the deficit needs to be much lower.

Note to the right: you’re supposed to be fiscal conservatives. A $300 billion [tag]deficit[/tag] is not good news.

Do those budget numbers include the $65.8 billion supplemental spending for Iraq & Afganistan that is poised to be passed by the Senate in the next few days?

  • “Note to the right: you’re supposed to be fiscal conservatives.” – CB

    Not quite right. The Republican’ts are supposed to LISTEN TO fiscal conservatives, like they are supposed to listen to theocratic reactionaries.

    But as these factions of the conservative base really don’t have the balls to go it alone, they are the enablers of the ‘country-club frat boy cut our taxes and stay out of the way of our rape of the environment conservatives’ Boy George II and his Texas mafia represent. And it should be clear by now, Dick Cheney and Karl Rove don’t listen to ANYBODY.

  • Supply side economics works.

    It is important for Democrats to understand that when you tax something you get less of it. Therefore, ANY reduction in tax rates will bring in some amount of additional taxable income.

    So if the Bush tax cuts amounted to $775 billion then it is reasonable to assume that some of those tax cuts actually produced additional tax receipts.

    The big question is how much.

    Was it $1 billion in extra receipts? Was it $10 billion in extra receipts? Was it $100 billion in extra receipts?

    I don’t have a clue but there was some increase.

    This is not to say that tax cuts pay for themselves. Obviously, they don’t. But maybe they pay for 5% to 10% of themselves.

    If you don’t admit that the other side has some facts on their side then your argument becomes significantly weaker since people can point out your errors.

  • This is the same old “exaggerate in February, announce progress in June” two step that Bush has been doing over and over, and it never gets too old for people who want to take the bait:

    Congressional analysis says Bush budget overstates deficit

    By Andrew Taylor
    ASSOCIATED PRESS

    2:02 p.m. March 3, 2006

    WASHINGTON – The budget scorekeepers for Congress predict that if lawmakers adopt President Bush’s budget, the deficit for the current year will fall short of the record figures projected by the administration.
    The Congressional Budget Office’s analysis of Bush’ budget for the current year predicts a $371 billion shortfall – $52 billion less than the record $423 billion predicted just last month by the rival Office of Management and Budget, the White House budget agency.

    All told, Bush’s budget would generate $1.1 trillion worth of budget deficits through 2011, assuming its policies are followed exactly. Many budget experts believe Bush’s budget in future years understates the deficits because it assumes the wars in Iraq and Afghanistan will cost just $50 billion next year and it contains no funding for the war for 2008 and beyond.
    The administration in recent years has consistently put forth deficit estimates in February that have turned out to be too pessimistic when the books are tallied in October. Last year, for example, the White House initially predicted a 2005 deficit of $427 billion; the year-end result was $318 billion.

    And in 2004, when Bush promised to cut the deficit in half by the end of his term, the White House projected a whopping $521 billion deficit. Even though the actual deficit for that year came in at $413 billion, Bush has used the higher figure as the benchmark for keeping his promise.

    “The administration highballs the deficit estimate for the current year so come July and then October, and the deficit’s not quite as high as they said it was, they can say, ‘Gee, look, things have gotten better,’” said Jim Horney, a senior fellow at the Center on Budget and Policy Priorities, a liberal-leaning think tank.

    “It should be no surprise that two different organizations, using different analysts, different methodologies and different assumptions come to different math at the end of the day,” said OMB Spokesman Scott Milburn. “Where there’s no difference, however, is that both OMB and CBO forecast that we meet the president’s goal of cutting the deficit in half by 2009.”

    CBO’s analysis assumes Congress enacts Bush’s $72 billion request for conducting the wars in Iraq and Afghanistan and a companion request for $20 billion in hurricane relief. The agency says Bush’s $50 billion request for 2007 would fall about $20 billion short if operations continue at this year’s pace.

    With war costs remaining at current levels, CBO predicts a deficit for 2007 of $355 billion.

    CBO’s analysis of the Bush budget plan is a prerequisite to lawmakers’ beginning work on the annual congressional budget resolution, which is the blueprint Congress follows when passing subsequent tax, spending and budget cut legislation.

    The House and Senate Budget panels are expected to take up companion budget plans next week, but they are likely to drop Bush’s plans for $36 billion in cuts to Medicare over five years, chiefly by reducing inflationary increases to providers like hospitals and nursing homes.

  • I’m not an economist, and I don’t even play one on TV. And I didn’t stay at a Holiday Inn Express last night either. But a few things stood out when I looked at the chart:

    1) Corporate tax income jumped 30.5% over last year to date. What does that say about corporate profits?

    2) It appears to me that these numbers lump together Social Security (I assume that’s part of what the “Social Insurance” line includes). If SS is included in the deficit calculation, doesn’t that misstate the true deficit? (Conveniently, the chart lumps all spending together.) My understanding is that currently SS is running a surplus of revenue to SS outlays.

    Comments welcome.

  • Neil Wilson — Supply side economists (actually I don’t think any of them are trained economists) argue that tax cuts pay for themselves. A 5-10% return on a tax cut is far from a 100+% return. Actually Greg Mankiw argues that the return ishigher than that for cuts to asset returns (30%), but it is hard to calculate the actual value.

    Bush often used the Keynesian argument that we needed to run a deficit when the economy was weak. Now that the economy is rebounding shouldn’t we actually be closer to parity between tax receipts and government spending? Its important to remember that when you are running a deficit that tax cuts are not actually cuts but simply deferred taxes. We will have to pay for these expenditures some day. The Republicans are like rich college kids who think that anything they put on the credit card is free because Daddy always covers it.

    See Angry Bear for more on this article:

    http://www.angrybear.blogspot.com/

  • I subscribed to IBD for awhile when I first started investing. Its investment advice is utterly worthless, its editorial policy is so far right that it seems almost parodic, and unlike the WSJ, tis loony editorial policy skews the news coverage. Never, never, never trust IBD for anything.

  • If you don’t admit that the other side has some facts on their side then your argument becomes significantly weaker since people can point out your errors.

    Maybe it’s the after-lunch drowziness, but I’m not sure that I get Neil’s point. Let’s use hypothetical round numbers. Tax receipts are $1 trillion. Spending is $1 trillion. Taxes are cut by 10% – receipts are now projected to be $900 billion – leaving a deficit of $100 billion. But, according to Neil’s illuminating point, the 10% cut will generate extra taxes – lets say, 10 billion. (“But maybe they pay for 5% to 10% of themselves.” ) so now the deficit is only $90 billion – big whoop – when there wasn’t a deficit at all before the tax cut. Is THIS the “fact” on the supply siders side that makes points out the “errors” and makes the non-tax-cutters argument “significantly weaker”? I don’t get it – what am I missing? “Supply side economics” works because you’ve moved the goalline to improving a $100 billion deficit instead of not creating a deficit at all? Is this bizarro world argument?

  • Supply side economics

    In theory, if you tax something at 0% or 100% then your receipts will be $0.

    Some number in between gets you the most revenue.

    I would guess that a marginal rate of about 60% gets you the maximum revenue but it is only my SWAG.

    I don’t know any serious economist who thinks that reducing marginal rates today on either the corporate or personal income tax by 1% would increase revenue.

    The Republicans, or anyone, who claims that the tax cuts pay for themselves are either not telling the truth or they are just plain wrong.

  • re #5, yes, corporate profits are up, but a large chunk of that might come from the tax amnesty granted US multinational corporations to allow them to repatriate their huge collected oversea profits (collected tax free by playing games with US and other coountry tax laws). Guess it is OK to allow amnesty for corporate law breakers. Also, the idea was that allowing the repatriation at very favorable rates would spur US investment and create jobs. Funny thing though, it did spur investment, but not in the US, and companies such as Ford motors slashed jobs after taking advantage of this amnesty.

  • “Supply side economics works.” – neil wilson

    That’s your argument? Deficit spending works! That’s mine.

    When you cut taxes and cut spending and the economy grows, give me a call. Until than, you have no proof of anything!

    Let’s try this lesson one more time.

    Over time, maximum tax revenues are achieved by setting the tax rate somewhere between 0% tax rate and 100% tax rate. At 0%, you get no revenue. At 100%, you get no revenue because everybody stops working. Put the tax rate somewhere in between, and the tax will generate revenue. Set it at exactly the right point, and you generate more revenue over time than you might otherwise.

    Bill Clinton changed the tax rate and the tax revenue over time grew. That kind of proves that he moved it towards the optimum. Boy George II moved it away from the optimum and we have deficits as far as the eye can see.

  • Lance, don’t forget, to bolster your argument, Saint Ron Reagan moved the rate one way, in the same direction that Bush has, causing significant problems and gnashing of teeth. He then adjusted it in the same direction Clinton did, and there were economic benefits and rejoicing in the streets.

  • just to be clear, real supply-side economists say that thanks to the dynamic effects of lower-tax rates, you don’t lose as much revenue as a static analysis would suggest when you cut taxes.

    but real supply-side economists (say bruce bartlett) do not for a second pretend that tax cuts increase revenue as such.

    which is why real supply-side economists call for expenditure cuts to offset the tax cuts: they want the government’s share of the economy to become smaller because they think the economy grows better when the government’s share is smaller.

    the disaster of bush league economics is that they have given us supply-side tax rates and centrist democratic spending rates (i.e., tax revenues at some 16 – 16.5% of GDP; spending at some 20 – 21% of GDP), which means we haven’t had tax cuts at all: just tax shifts, since someday the debts will have to be paid.

    Meanwhile, as someone else said above, we are now 18 quarters into expansion: we should be running surpluses, not deficits of some 3%+ of GDP.

  • “Supply side economics works.”

    Um, no it does not. Econimics does not occur in a computer model, it happens in the real world. As I understand it the idea is to lower tax rates (put more money in the people’s pockets or take less in this case) and that will increase spending and improve the economy because you will do more business and thus generate more tax revenues. This is the econimic version of the perpetual motion machine. You cannot use lower taxes to create higher tax revenues.

    Here is the rub…Republican supply side economics puts large amounts of money in the pockets of the rich and in the coffers of corporations. There is no reason for them to distribute that wealth to anyone else. The theory goes that they will hire more or invest more or donate more money to charity etc. (trickle down Reaganomics) Hmmmm. I’m waiting to see that happen. How rich do the rich need to get before the not so rich start seeing results of this economic alchemy?

    Assuming I am wrong and supply side works, why cut taxes on the rich and the Exxon Mobil crowd? Why not lower taxes on the middle class and the small business owners? Seems to me that 10% more in the pockets of middle class Americans would provide much more economic stimulus than giving the same amount to the super rich. This is the case regardless if tax receipts go up or not.

    Now look at Bush. He has not cut taxes on the middle class. He has not stopped spending. The economy is not really that healthy unless you happen to be really wealthy.

    Apart from that let’s not forget the fact that the deficit and the debt are not the same thing. These numbers tell us that we will go $300 Billion farther into debt this year. When the national debt starts to go down and we no longer owe large amounts of money to China then let’s talk.

    Any idiot can live well by running up his credit card. It takes a special kind of idiot to think that is a good thing.

  • Oh and by the way…..

    The Laffer Curve is the poster child for supply side econimics. It was introduced to me by Ben Stein in Ferris Beullers Day off but apparently it was known to others earlier than that.
    Turns out “Laffer also does not claim to have invented the concept, attributing it to 14th century Islamic scholar Ibn Khaldun and, more recently, to John Maynard Keynes.” http://en.wikipedia.org/wiki/Laffer_curve

    Who is the Keyens guy? Well he is a Brit and is the founder of Keyesian Econimic theory. Why do we care? His theory wa sthat goverment take an active role in econimic policy to mitigate the effects of economic fluxuations. He proposed it be used thusly “activist economic polic[ies] by government to stimulate demand in times of high unemployment, for example by spending on public works.” “Historians agree that Keynes influenced U.S. president Roosevelt’s New Deal.”

    So, this fountation of Neocon economic policy was arrtibuted to a brit who proposed governments increase spending on public works to boost the economy during rough economic times.

    Laffer’s other attribution is to a 14th Century ISLAMIC scholar!

    Am I to conclude that Bush believes in economic theory created by a Muslim, and extrapolated on by a non-American who adovocated for increased government spending on public works projects. The man even inspired FDR! FDR the anti-christ himself!???

    Sounds like someone has been busy “catapultin’ the propoganda”!

  • MNProgressive,
    Your line – “Any idiot can live well by running up his credit card. It takes a special kind of idiot to think that is a good thing” is the best explanation of supply side economics I’ve ever seen. Well done.

  • I don’t have the right tools to do historical media research.

    Someone should check how many times the Bush administration has promised to cut the deficit in half.

    Someone should also compare Bush administration future budget+revenue projections compared to Clinton era budget+revenue projections.

    • Comments are closed.