CBO: Congress doing Nothing is the Best Tax Scenario

According to a new report from the non-partisan Congressional Budget Office (CBO), the United States federal government debt is projected to peak in 2015 and then drop substantially over the coming decades, all by itself if Congress can just sit on its hands and stop handing out tax breaks to individuals and corporations. Unfortunately, Republicans are bent on extending all of the Bush tax cuts, which the CBO found earlier this year will add $5.4 trillion to the debt in the next decade alone. And the Democrats proposals aren’t much better. President Obama’s proposal to extend the tax cuts for the first $250,000 a family makes and the first $200,000 a single person makes would actually result in an extension of 78% of the Bush tax cuts and would cost $3.5 trillion in the next decade. (This is still preferable to House Democratic Leader Nancy Pelosi’s proposal to extend the tax cuts for the first $1 million of income a family makes.) Congress should, however, increase the budget deficit temporarily if the result will be greater economic growth. But extending the Bush tax cuts would provide very little boost in economic output (compared to proven measures like increased unemployment insurance, food stamps or other types of spending programs).

I’m all for letting the whole shebang expire, go back to the tax rates we had when the budget was balanced…and move forward from there. In every way, form, and fashion the Bush cuts have not worked…they need to die…soon. — Should Congress Just Go Home? http://ctj.org/taxjusticedigest/archive/2012/06/should_congress_just_go_home.php

Jon Stewart Points out Jim DeMint’s Tax Lies…To His Face

Extended Interviews – The Daily Show with Jon Stewart.

The link goes to the second part of the interview.  It includes the part ( a couple minutes into part 2) where Jim DeMint makes the easily disproved claim that the Bush tax cuts increased revenue.   Steward points out “that’s not true”…and then continues to do so every time DeMint makes up other b.s. figures.

Steward does a great job dismantling this liar.  Definitely worth a watch.


Why Bush’s Tax Cuts Didn’t Work, and Why Pawlenty, Bachmann, Gingrich’s Won’t Either : Simple Math

So here’s the Republican mantra: “Lower taxes will lead to higher economic output and ultimately increase government revenue.”

It sounds like it might work.   You think, well, if I take a smaller piece of a larger pie, I’ll get more pie, right?

Let’s a take a few simple assumptions, and see how they work out:

  1. Assumption #1 : We have a Ten Trillion Dollar Economy ($10,000,000,000,000)
  2. Assumption #2:  If we cut tax rates by 5%, we can see an increase of economic growth of 2% (over what we would have had anyway). 
  3. Assumption #3:  A “normal” rate of growth is about 3%. 

Remember, what we are testing here is whether or not tax cuts pay for themselves and/or increase government revenue (relative to higher tax rates) by stimulating economic activity.  

Now let’s run the numbers. 

Scenario A.  20% tax rate, 3% growth rate.

   GPD  Tax Rate Growth Rate Gov’t Revenue
Year 1  10,000,000,000,000 20% 3%  2,000,000,000,000
Year 2  10,300,000,000,000 20% 3%  2,060,000,000,000
Year 3   10,609,000,000,000 20% 3%  2,121,800,000,000
Year 4  10,927,270,000,000 20% 3%  2,185,454,000,000
Year 5  11,255,088,100,000 20% 3%  2,251,017,620,000
Year 6  11,592,740,743,000 20% 3%  2,318,548,148,600
Year 7  11,940,522,965,290 20% 3%  2,388,104,593,058
Year 8  2,298,738,654,249 20% 3%  2,459,747,730,850
Year 9  12,667,700,813,876 20% 3%  2,533,540,162,775
Year 10  13,047,731,838,292 20% 3%  2,609,546,367,658

 Scenario A: Cumulative Government Revenue : $22,927,758,622,942 

Scenario B. 15% tax rate, 5% growth rate.

   GPD  Tax Rate Growth Rate Gov’t Revenue
Year 1  10,000,000,000,000 15% 5%  1,500,000,000,000
Year 2  10,500,000,000,000 15% 5%  1,575,000,000,000
Year 3   11,025,000,000,000 15% 5%  1,653,750,000,000
Year 4  11,576,250,000,000 15% 5%  1,736,437,500,000
Year 5  12,155,062,500,000 15% 5%  1,823,259,375,000
Year 6  12,762,815,625,000 15% 5%  1,914,422,343,750
Year 7  13,400,956,406,250 15% 5%  2,010,143,460,938
Year 8  14,071,004,226,563 15% 5%  2,110,650,633,984
Year 9  14,774,554,437,891 15% 5%  2,216,183,165,684
Year 10  15,513,282,159,785 15% 5%  2,326,992,323,968

Scenario B: Cumulative Government Revenue : $18,866,838,803,323


Difference between Scenario A and Scenario B :  $4,060,919,819,618

Conclusion: Cutting tax rates to increase government revenue doesn’t work.  It can’t work.  Even with favorable assumptions and unprecedented continued economic growth, we can never recover the lost revenue without raising taxes.(and I haven’t even factored in the cumulative interest based on a balanced budget in year 0).


My numbers here are pretty straightforward, and although they could be tweaked a bit, they match up pretty well with  the amount of debt added since we had a balanced budget in 2000 and then cut taxes in 2001.   According to mainstream Republican thought, and their predictions at the time, we should be debt free by now, not facing a debt-driven disaster.

Of course this is all assuming those assumptions I mentioned above.  When we look at the real world, what we actually saw was closer to 5% growth with the higher tax rate, and a lower growth rates under the lower tax rate*.   There are a number of factors for this, not the least of which is underlying technology gains which allow smaller entities to leverage assets to act like big ones, and increase growth rates.    If you wonder how “spreading the wealth” can make it grow, watch this simple explanation.

One of the big factors that Republicans never mention is the drag that huge accumulated debt (from the tax cuts) does to our economy (well, never when they are talking about more and bigger tax cuts).   The uncertainty created by the current political shenanigans re: the debt ceiling continues to exacerbate the issue and undercut our recovery.  

Republicans are now (again) claiming that what we really need to fix the debt is more tax cuts.   As you can see from history, math, and what should now be common sense, that doesn’t work. 

It can’t work. 

Math won’t let it.


Geithner joins Greenspan in call to end Bush giveaway to wealthy

Geithner Says Tax Breaks Don’t Pay for Themselves as Expiration Considered – Bloomberg


Geithner said overseas investors would view even a short- term extension of tax cuts for top earners as a sign that permanent tax breaks were on the way. That could hurt the economy in the long run by suggesting the U.S. government is not committed to bringing down its deficits over time, he said.


Households affected by the top-end tax breaks earn an average of $800,000 per year, Geithner said. Less than 3 percent of small-business owners would see any impact if tax breaks expire, he said.

“Borrowing to finance tax cuts for the top 2 percent would be a $700-billion fiscal mistake,” Geithner said, adding that the Treasury would have to borrow an extra $30 billion to extend the tax cuts for the wealthiest for even one year.

That first point up there re: foreign investment is a big one. One of the greater fears in the international community is that the U.S. can’t make hard decisions about fiscal responsibility. There is a real danger here, as the continued role of the dollar as the reserve currency of the world is in real danger.   Were we to lose that huge “natural” advantage, the results would likely be quite dire.

So it will interesting to see if the Democrats can take the political hit, end the giveaway to the wealthiest among us, and overcome the inevitable Republican opposition to being fiscally responsible.

BTW, if any future world leaders are reading, please learn from Bush. Cutting taxes and going to war simultaneously is a proven recipe for economic disaster. Let’s go ahead and end that ongoing mistake, post-haste.

UPDATE: Greenspan called for this same thing here…

Meanwhile on NBC’s Meet the Press, Alan Greenspan, the former Federal Reserve chairman who famously idolized libertarian Ayn Rand, echoed Stockman’s sentiments. “I’m very much in favor of tax cuts, but not with borrowed money, and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money,” said Greenspan. “And at the end of the day that proves disastrous.”

The “end of the day” was literally the end of the Bush Administration, and it did.

The article also mentions that Reagan’s Office of Management and Budget Director David Stockman has noticed the end result of modern Republican “tax” policy.

The Bush era that followed the tax cuts had a mixed economic record and a massive increase in the structural budget deficit, which is more attributable to the tax cuts than any other single factor.With that record—and the traditional conservative concerns about deficits causing inflation—in mind, leading former Republican administration economic experts have been calling on Congress not to extend to the Bush tax cuts for the wealthiest Americans, as Democrats propose. On Sunday it reached fevor pitch with former Reagan Office of Management and Budget Director David Stockman declaring in a New York Times op-ed that the current deficit is primarily the fault of Republican policies, and that the GOP must return to its fiscally responsible roots.

The funny thing for me is, well, those Republican fiscally responsible roots go back to before my lifetime.  During my whole lifetime, the GOP has been hellbent on running up on the debt (or as they call it, “cutting taxes”).   They do this under the rhetoric that the Democrats are the party of “tax and spend”.   Given that the Republican policy could be accurately categorized as “borrow and spend” (and they’ve racked up the debt to prove it) the choice here seems pretty obvious.

And of that is before you look at real wages over the last 20 years and how, for those same people who got the Bush Giveaway, wages have risen tremendously while remaining stagnant for the other 80% of the population.

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”

[full story, from back in 2005]

So the plebes work longer and harder for the same amount of money, and all that profit-cream rises right to the top.

Bonus tidbit from that story, Frank Luntz projecting (recall this was *before* the 2006 election…)

“Some people who aren’t partisans say, ‘Yes, the economy’s pretty good, so why are people so agitated and anxious?’ ” said Frank Luntz, a Republican campaign consultant. “The answer is they don’t feel it in their weekly paychecks.”

But Mr. Luntz predicted that the economic mood would not do significant damage to Republicans this fall because voters blamed corporate America, not the government, for their problems.

Sorry Franky, but “Corporate America” and “Republicans” are pretty much synonymous, and the 2006 results illustrated that.   This November we’ll get to see how that blame game plays out.  In the primary season we’ve seen a backlash mainly against *incumbents*, not a particular party, and the D’s have won pretty much every actual special election during the past couple years.