A Bush league economy
It’s hard to believe how much damage Bush did to the US economy in 8 short years:
1. Massive increases in federal spending on education
2. Tax cuts without spending cuts.
3. A huge increase in the welfare state (Medicare drug benefit.)
4. A crackdown on immigration, especially high-skilled immigration.
5. A 40% jump in the minimum wage, right before the Fed squashes NGDP.
6. Massive increases in “defense” and “homeland security.”
7. Extended unemployment benefits.
And here’s one I forgot about:
The travel industry today became the latest to slam federal rules and bureaucracy, charging that tough visa rules for potential tourists have robbed the nation of $600 billion and hundreds of thousands of jobs.
Two grim facts: More Chinese now visit France than the United States, in part because it’s hard to get a U.S. visitors visa. And while the U.S. used to be the destination for 17 percent of the world’s tourists in 2000, that’s dropped to 12.4 percent and shows no sign of changing.
“Even as world travel grew by more than 60 million travelers between 2000 and 2010, the U.S. share of the market remained essentially flat. During this ‘lost decade,’ our economy squandered an opportunity to gain $606 billion in total spending from 78 million additional visitors””enough to support 467,000 more jobs annually,” said a new report out this afternoon from the U.S. Travel Association.
And the policy fiascos continue under Obama, as evidence by news of the Keystone pipeline being killed today. (Officially delayed until after the election, but that means it’s effectively dead.) Remember when Clinton and the GOP Congress cooperated to deliver growth enhancing policies? It seems like a lifetime ago.
I expect smaller English-speaking countries to continue gaining ground on the US. They aren’t perfect, but they don’t continually shoot themselves in the foot.
Tags:
10. November 2011 at 15:54
Keystone XL is a policy fiasco? Scott, do you not care about climate change?
10. November 2011 at 16:00
What a disaster.
But remember, McCain would have been “Bush’s 3rd Term.”
If Bush had not done so much damage to the economy and the size of government, I would be willing to vote for a moderate Republican or Democrat that only had a few pet issues and otherwise left the status quo in place. Because I think things are so monumentally screwed, I don’t want to mess around with candidates that aren’t thinking of big fundamental reforms. (I think this dynamic has manifested itself in polls as increasing polarization.) It’s increasingly clear to me that Ron Paul is the only one who can deliver these big changes.
Romney is more of the same as far as I can tell; Perry continues to implode and his best appeal is vague reverence for small business; Cain is entirely one dimensional and his positions on foreign policy, trade, and immigration are frightening; Santorum is more of the status quo; Johnson isn’t even getting into debates; Huntsman sounds reasonable and moderate, but he is still lagging.
10. November 2011 at 16:38
‘Keystone XL is a policy fiasco? Scott, do you not care about climate change?’
Oil usage is extremely inelastic. Increasing the price of oil doesn’t really lower its usage very much at all, while it does harm the economy quite a bit.
10. November 2011 at 16:38
@ RJ
My above comment was directed at RJ.
10. November 2011 at 16:50
i never really understood why Bush, and the equally complicit republican majority, did not get blamed for the massive increase in the federal footprint under his watch.
I hope the pipeline is not dead, just postponed. whats another year on a 7 Bn project.
10. November 2011 at 17:07
Actually, the bush tax cuts didn’t really reduce revenues. I know, sounds crazy, but look at the numbers. In 2000, the US government collected a record 2 trillion and change. Between then and 2003 revenues fell to just under 1.8 trillion. That means the absolute maximum the cuts cost was 200 billion in revenue per year. The tax cuts were passed in 2 rounds that didn’t go into effect until 2002 and 2004, respectively. But revenues had fallen almost 50 billion a year by 2001, and between 2003 and 2004 they increased almost 100 billion, despite the second round of cuts. In 2005 revenues were 2.15 trillion, and in 2006 they were exactly the same percentage of GDP as they were in 1996, when the economy was performing similarly. And if you graph revenues vs. the trendline we’re back above it by 2006 as well. In short, the bush tax cuts did little to nothing to revenues, we have a serious laffer plateau effect going on.
10. November 2011 at 17:45
RJ, I do care, and I favor a carbon tax to reduce coal consumption.
Cthorm, It’s crazy that Johnson isn’t getting into debates. He’s a former governor. Meanwhile we have all sorts of nutcases running for the GOP nomination.
Too bad Huntsman hasn’t gotten more attention–he’s probably the lesser of evils (excluding Johnson.)
dwb, If Obama’s re-elected, as I expect, it’s dead.
Cassander, I’m afraid I don’t buy that argument. But I agree that spending was the bigger problem.
10. November 2011 at 17:50
In order:
‘1. Massive increases in federal spending on education’
Paltry as a per cent of GDP, probably had no effect on the economy at all. Though I think even one dollar is too much federal spending on education. Reagan couldn’t kill the DoE, it’s a little bit much to expect it from Bush.
‘2. Tax cuts without spending cuts.’
Tax rate reductions, you mean. I liked them. Maybe they contributed to the moderation of the 2001 recession. Also, see what Cassander said. By 2006 we were over historic average levels of revenue to GDP, and below average deficits.
‘3. A huge increase in the welfare state (Medicare drug benefit.)’
Baked into the cake. Would have been worse if Gore had been elected. Bush could have done nothing to stop it.
‘4. A crackdown on immigration, especially high-skilled immigration.’
Not too sure how severe the crackdown actually was, but it’s always been difficult for foreigners to get into the US. Remember the Ship of Fools?
‘5. A 40% jump in the minimum wage, right before the Fed squashes NGDP.’
Again, hardly Bush’s fault. Congress loves to pander to unions on this. And, many states do worse. It’s about to rise to over nine dollars in Washington state.
‘6. Massive increases in “defense” and “homeland security.”’
Pearl Harbor had that effect too. Defense is still half what it was during Eisenhower’s peacetime years, and if Gore had been elected the Homeland Security employees would all be SEIU members.
‘7. Extended unemployment benefits.’
Again, the Democrats in congress would have been impossible to stop here.
‘And here’s one I forgot about:’
I’d be pretty skeptical of statistics provided by a trade ass’n. Again, this is a problem of long standing. When I was bouncing around Europe with only a passport in the 70s I met a lot of European kids who couldn’t get visas to visit the US.
10. November 2011 at 17:58
Scott> What’s not to buy? There was a big drop in revenue from 2001-3. Some percent of it was caused by the tax cuts, some from the dotcom bust. It’s hard to disentangle the two, of course, but the raw numbers suggest the bust was a significant majority of it, as do the inflation adjusted numbers. And despite 30 years of a republican party obsessed with cutting taxes 2007 taxes are the same percent of GDP they were in 1980.
10. November 2011 at 18:13
Patrick,
It’s always been difficult to get a visa to go to the US. It just became even way more difficult in the 2000s. I’ve talked to people only a few years older than me who remember when you didn’t need an interview at the embassy to get a simple tourist visa. Those days are gone. (And the interview is quite real, too; they look at your documents, ask you how you’ll fund your travel, etc. When I “interviewed” for my Canadian tourist visa, I answered a couple questions in 30 seconds.)
10. November 2011 at 18:45
It is remarkable that the GOP, which touts itself as a pro-business party, should have engineered the worst economic administration (Bush 2000-2008) since…well, Hoover, or whoever was worse than Hoover.
We now spend double, in real terms, on defense-homeland security-VA than we spent before Bush jr. And we face essentially zero military threats. A few punk terrorists, armed with homemade bombs and screwball plots, do not constitute a military threat.
The Soviet Union, with a blue-water navy, and air force, seemingly endless tank battalions, satellites, KGB, 24,000 warheads, etc. etc. etc was a threat. They are gone. Even if one assumes that China will become a military power, it would be good business to cut back now and save money. Impossible.
And yes, visitors to LAX report they are treated to long waits and insults, and they are not coming back. Just great, just great.
I wish there was another party for me to vote for.
10. November 2011 at 20:56
@doc
Yes, inelastic, but not sure about “extremely”.
http://marginalrevolution.com/marginalrevolution/2011/04/the-price-elasticity-of-demand-for-oil.html
10. November 2011 at 21:55
All it takes is a couple of failed Presidents and a handful of failed Congresses to really start rolling downhill. I’m extremely concerned about the growing police state we’re all living in, which Obama promised to end in many ways, but hasn’t, and has even expanded it along some dimensions.
10. November 2011 at 21:57
dwb,
Bush and the Republicans didn’t get sufficient blame for the damage they did, because Obama and the Democrats were too idiotic to blame them, the way FDR blamed Hoover and the Republicans for the Depression.
Perhaps the most surprising thing about Obama is how poorly he’s handled the politics of the Presidency, considering that he ran what seemed like a very smart campaign, displaying some tremendous political gifts in the process.
10. November 2011 at 22:07
Scott, you forgot that Bush put in place Ben Bernanke, the crazy inflationist.
11. November 2011 at 01:04
whats wrong with extending unemployment benefits during a depression?
11. November 2011 at 02:29
The only way your analysis is right is if Obama wins in 2012.
If he loses, the only mistake Bush made was allowing the Public Employees to see upside.
He should have cut taxes more, but the basic debt situation is an unfortunate must have.
We can however blame the Fed for being too loose with monetary policy. Had they stuck with a level target of 4% NGDP from 2000 on we wouldn’t be in this mess.
11. November 2011 at 03:14
I’m not entirely sure what to think of these stories linked to by Dave Weigel:
http://online.wsj.com/article/SB10001424053111903596904576518652783101190.html
http://www.bloomberg.com/news/2011-10-25/obama-wrote-5-fewer-rules-than-bush-while-costing-business.html
The measurements seem inherently imprecise, but maybe useless regulations will decrease at the federal level. Though Bush (nor any president really) can’t really do much about state, county and city regulations (Patrick mentioned this with regard to minimum wage) that are probably a bigger problem just considering the fact that far fewer people are paying attention to them. And, they also play a role in the difficulty in building infrastructure of any kind across state, county, or city borders. Probably not good for growth.
As to Bush’s culpability to the Medicare Modernization Act (Patrick above said it was “Baked into the cake”), the act passed the house by 5 votes. If Bush didn’t like it he could have vetoed it and it would be dead.
11. November 2011 at 05:12
Cassander’s comments fail to consider the counter-factual of what revenue looks like without the bush tax changes.
http://www.washingtonpost.com/wp-srv/special/outlook/votes-that-pushed-us-into-the-red/
Various estimates have been made(like the one above from WaPo using CBO numbers) and one can complain about methodology but Cassander doesn’t give us any reason to doubt these numbers. Cassander then tries to put the tax changes into a into historical perspective, but this is a different topic that doesn’t address the revenue counterfactuals given by the CBO and CBPP and others.
This historical perspective is also misleading as Cassander picks years from different points in the business cycle and then switches from absolute revenues to relative revenues. All this while saying something about a “laffer plateau”.
there are few things to keep in mind when talking about tax rates and revenues that Cassander fails to consider. First off if we are going to discuss revenue in terms of % of GDP then lets stick to that. This should correct for any growth or recessions and should preclude any discussion of Laffer curves. This is because a Laffer response (as I understand it) is when the government tax take is reduced as a % of GDP which precipitates GDP growth so large that it wipes out the nominal revenue decrease, but this still shows up as a drop in revenue as a percentage of GDP because you are dividing by GDP. So, if the Bush tax changes had any sort of Laffer effect then revenue as a % of GDP should have gone down and stayed down, but that’s not what happened. Here is the Graph we should be squinting at when trying to parse such comments:
http://graphics.thomsonreuters.com/F/12/US_TAXGDP1210.gif
With this graph it is easier to see the trends that seem to be leading to the confusing numbers from Cassander. The problem seems to be that tax take as a portion of GDP changes quite a bit even when we make no major changes to the rate structure of the US tax code. How is that possible? If the economy shrinks then revenues should shrink, but the rates should stay the same. So, what is going on?
Well the simple explanation is that we have a progressive income tax. If you look closely at the break down of the federal tax take over the years you will notice that most of the volatility is due to changes in personal and corporate income taxes. In fact employment taxes (light blue, mostly payroll tax) remain almost immune to changes in GDP. The changes in income taxes with changes in GDP are much larger then any rate schedule change implemented by Bush or any one else. For example, from 1999 to 2001 income tax receipts go from over 10% to less then 7% of GDP before Bush’s tax cuts are even passed! Also notice that payroll tax receipts are completely unchanged.
Whats happening here is that, in a recession, people make less money and there tax rates change because less of their income resides in higher tax brackets. Employment taxes don’t change because the rate structure is flat (even regressive). Robert Frank pointed this out when discussing highly progressive state tax rates:
http://online.wsj.com/article/SB10001424052748704604704576220491592684626.html?mod=WSJ_hp_mostpop_read&utm_source=twitterfeed&utm_medium=twitter
So long story short, Cassander might have an argument about a Bush tax cut counter-factual but he/she didn’t give one here.
Also be careful when talking about Laffer induced growth in revenues, because it usually boils down to claiming a rather large fiscal multiplier for tax cuts, and fiscal multipliers are not well regarded by most fresh water economists. (Does fresh water economist even mean anything anymore with the rise of market monetarism?)
11. November 2011 at 05:40
Patrick,
1. I don’t buy the small share of GDP argument, that’s true of almost every wasteful program. Total domestic spending rose rapidly during Bush’s first term.
2. We don’t need small reductions in tax rates, we need big time tax reform. Instead, Bush made the tax code more complex. Why didn’t Bush eliminate the marriage penalty? Why not go for much lower rates and tax reform, and Reagan and the Democrats agreed to do in 1986? Plus he made the deficit worse, when we should have been running budget surpluses.
3. Bush could have vetoed it.
4. The crackdown on immigration contributed to the housing bust in the 4 subprime states (where many immigrants move to.)
5. Bush could have vetoed it.
6. There’s a difference between being attacked by a ragtag group of terrorists and the Empire of Japan (plus Germany.) We defeated the Taliban government with a tiny military footprint. That’s not what the buildup was all about.
7. Bush could have vetoed it.
I presume the US government also keeps data on US export of tourism services, and the number of visas. It would be easy for someone to check. I’ve never seen a news article refuting this claim. And I’ve heard lots of anecdotal evidence from foreigners that confirms the nightmare it has become to visit the US.
Cassander, You aren’t doing “other things equal.” What has happened to payroll taxes since 1980, for instance? Also with real economic growth people tend to move into higher brackets over time. Those two factors could help explain the change vis-a-vis 1980. Also the greater income inequality, which boosts revenue in a progressive tax structure. Serious academic studies have reached the opposite conclusion from what you reached. I’m not saying you are wrong about there being some supply-side effects–I agree there are. But you can’t just throw out a few numbers and assume you have a persuasive proof of your Laffer curve claim.
Ben, Good points, but you forgot Nixon, who was even worse than Bush.
Mike, Yes, that’s been Obama’s biggest failure. And after all the moaning on the left about how Bush was producing a police state, there is almost total silence that the war on terror and war on drug using Americans continues at roughly the same pace under Obama.
Bob, You said;
“Scott, you forgot that Bush put in place Ben Bernanke, the crazy inflationist.”
I can’t wait until January, so I can hit these softballs out of the park. I won’t give away my complete answer now, but it involves the phrase “lowest since Kennedy was President.”
ChargerCarl, The problem is that the depression might never end, as the French recessions of 1974 and 1981 never ended. In France, unemployment stayed at 10% permanently.
Morgan, If the GOP was going to win they should be 10% ahead right now, as Obama’s had a terrible year. But they aren’t ahead at all in some polls. You can’t beat Obama with nothing. And right now the GOP has nothing. Actually Huntsman might be “something,” but where is he in the polls?
Thanks Claron, Those estimates seem plausible. Bush should have gone after more of the state regs–suing on the basis of the Commerce Clause. Many of them interfere with interstate commerce. For instance, I can’t buy health insurance from companies in other states.
11. November 2011 at 05:41
@ Claron –
http://www.economist.com/node/18678963
nice piece on “state, county and city regulations”.
surely the govt could outlaw these via the interstate commerce clause?
11. November 2011 at 05:53
Claron, Good point about the Laffer curve and share of GDP vs. total revenues. The strongest argument for the Laffer curve is from studies by people like Prescott. Mankiw had a nice post showing that the US raises about as much per capita as Western Europe, but with taxes being a lower share of GDP. The trick is that the high taxes in Europe make people work less, so their GDPs per capita are about 25% lower.
MMJ, My thoughts exactly.
11. November 2011 at 06:38
I think one reason why the current crop of presidential candidates is so dismal is the fact that not enough people are getting the economic history lessons they need from a young age, particularly the real lessons of the early twentieth century that everyone needs so much now. It used to be that a majority of people running for public office were exposed to more international studies but clearly that is no longer the case.
11. November 2011 at 06:51
Scott, if you are right, I will of course be wrong.
But, if Obama gets dumped, your calculus is fundamentally backward.
11. November 2011 at 07:48
Thanks MMJ,
that Economist article is great. As a former resident of Delaware I can testify that at least 50% of my commerce was necessarily interstate so congress could probably just sweep away all these pointless state rules. But for that to happen people have to care about it, which seems unlikely anytime soon.
Scott,
The Laffer stuff gets very complicated and very difficult to parse especially when comparing countries. I remember the Mankiw stuff because you commented on it:
http://www.themoneyillusion.com/?p=9417
and then I commented on your post and we got into it about PPP adjustment and eventually it got down to labor participation rates in various countries as plotted by Lane Kenworthy. Yglesias brought this up again yesterday talking about Italy and woman working:
http://thinkprogress.org/yglesias/2011/11/10/365705/women-and-the-italian-gdp-gap/
Cultural incentives may sometimes overshadow other incentives in the economy.
11. November 2011 at 08:21
I wouldn’t be too sure about Obama killing the pipeline if he is elected. He’s just looking to push the decision past the election so that he can keep the environmental voters on his side. Once they vote for him, he can sell them out.
11. November 2011 at 08:54
ChargerCarl,
A better solution for the unemployed would be for the government to give them jobs, rather than unemployment compensation, and do so at some fraction of their recent income to help encourage them to get private sector employment as it opens up.
Scott favors NGDP targeting, which he argues would obviate the need for extended unemployment compensation anyway.
11. November 2011 at 08:55
ChargerCarl,
Or better still, the government can use fiscal policy to help the private sector hire people at the same time.
11. November 2011 at 10:08
Scott, your ‘Bush could have vetoed it’ argument, which you use three times, is completely bogus. In none of those cases, prescription drugs, minimum wage and extended unemployment benefits, could he have sustained a veto. All he’d have gotten is political grief for doing so, to no economic benefit to the country at all.
Walter Williams tells the story of taking Jesse Helms out for lunch in order to convince him to oppose tobacco subsidies. After a few minutes, Helms stops him and says, ‘Walter, I know all that. I know the subsidies are wrong. But if I don’t vote for them someone else will be the Senator from North Carolina.’
11. November 2011 at 11:13
“4. A crackdown on immigration, especially high-skilled immigration.”
I’m open to being corrected, but I don’t think Bush ever cracked down on high-skilled immigration. I don’t think legal immigration declined during the Bush years. ICE “cracked down” on illegal immigration (i.e., began to enforce some laws), but the number of illegal immigrants in America exploded under Bush.
BTW, what is wrong with cracking down on illegal (almost all of it unskilled) immigration and extending unemployment benefits during poor economic times?
11. November 2011 at 11:25
Mike Sandifer
It is patently insane to claim that Obama failed to blame Bush/Republicans. All he did for 3 years was say “the crisis I inherited” etc. That and ram through much more big government than Bush ever dreamed of.
That a person could think Obama and the Democrats were “idiotic” in not blaming Bush, is just patently crazy.
You have to be a lying partisan of epic level to say such a thing.
11. November 2011 at 11:43
@Cassander
Recognize that in 2005 federal income was supplemented by taxes on capital gains from houses/assets being resold at higher nominal values. That was short lived, as 2007 proved.
The house bubble did not really begin until 2002.
11. November 2011 at 11:46
Cassander, note:
http://noetic-jabberwocky.blogspot.com/2011/04/fun-with-charts-graphs-comparing-us.html
This also suggests that the stock market boom helped Clinton out of his deficit too… The question is how much of that income is permanent, vs. temporary.
11. November 2011 at 13:15
We can all pull out our crystal balls and ouija boards and prognosticate where revenues would have been without the Pres. Bush’s tax cuts, but it does not alter the simple fact that revenues did increase after the 2003 rate cuts. Below are the numbers from the OMB in constant (2005) dollars (actually, billions of dollars).
year revenue outlays
2003 1,901.1 2,303.9
2004 1,949.5 2,377.5
2005 2,153.6 2,472.0
2006 2,324.1 2,563.8
2007 2,411.9 2,562.9
2008 2,286.8 2,702.3
2009 1,898.3 3,172.2
2010 1,919.0 3,066.7
The simple fact is that revenue increased. The problem was not a reduction in revenue, but the fact that spending increased far out of proportion to the revenue increases.
11. November 2011 at 14:19
Tino Sanandaji has done the math on the effect of the Bush tax cuts. They add up to about 1.7% of GDP.
11. November 2011 at 14:21
Claron> I absolutely agree that personal income tax receipts are affected more by the state of the economy than tax rates, that was what I was trying to show. My comment about a laffer plateau was meant to indicate that there seems to be a fairly wide band where changes in personal income tax rates don’t affect overall revenue much one way or the other. There are a lot of potential explanations for this effect, and I don’t make a claim for any one of them, but it definitely seems to be real.
Scott> My point isn’t about supply side effects. I don’t claim to know why rate reductions don’t seem to be reducing actual tax collections, or at what level this would start to change, just that it seems to be happening. I was surprised myself when I looked at the actual numbers. I forget why I was looking up tax statistics, but I remember I expected a far larger drop in revenue than I found.
Statsguy> A good point, comparing over time is always tricky. I compared 1996 to 2006 because the unemployment rate in both years was about the same, as were tax revenues as a % of GDP, but obviously it’s a rough comparison.
11. November 2011 at 15:06
Bush bashing? I’m late to the party but can I join in?
I examined the Bush record on fiscal deficits a while back and came up with the following:
FY 2001 was Clinton’s last budget. The surplus was $128 billion. Net interest was $230 billion. The effect of off budget items (SS and PS) was $161 billion. Thus the on-budget primary surplus was $128 billion + $230 billion – $161 billion = $197 billion.
Now EGTRRA (2001 tax cut) subtracted $61 billion from revenues in FY 2001 so Bush actually inherited a $258 billion on-budget primary surplus.
Now fast forward to FY 2009 (Bush’s last budget). The deficit was $1413 billion. Net interest was $187 billion. The effect of off budget items was $137 billion. Thus the on-budget primary deficit was $1413 billion – $187 billion + $137 billion = $1363 billion.
Now ARRA (the fiscal stimulus) added $84 billion to spending and subtracted $98 billion from revenues so Obama actually inherited a $1181 on-budget primary deficit.
So how much did our fiscal situation get worse under Bush? Well $1181 billion + $258 billion is $1439 billion. And how much of this was legislated changes? Well the Bush tax cuts (EGTRRA and JGTRRA) subtracted $364 billion from revenue in FY 2009. TARP (the financial bailout) and Fannie and Freddie added $249 billion to spending. The wars in Afghanistan and Iraq added $178 billion to spending. Medicare part D added $51 billion to spending. Homeland Security added $52 billion to spending. So all told legislated changes under Bush added $894 billion to the deficit in FY 2009. That’s nearly five times the contribution of ARRA to the FY 2009 deficit.
Are the Tea Party aiming their fiscally conservative cannons at the right political party and president?
11. November 2011 at 16:42
I’m in fort mcmurray. Best quick take on Keystone is Andrew Leach.
12. November 2011 at 02:30
Patrick,
If everything is baked into the cake then none of us could do anything differently because we would have done it. Is that what you are saying? Or is your fatalism only applied to politicians? It may be that none of have free will but that seems like a broader discussion of philosophy that has far more interesting consequences then tax policy (like its no ones fault they did anything because free will is an illusion)
The fact remains that few of these measures passed by veto proof majorities so, if we are allowing counterfactuals then the all Bush would have had to say was he was not happy with the Bill and it is done for.
Ng,
Calculators may seem mysterious to some but they hardly qualify as Ouija boards. This game is not hard to play. Absolute revenue numbers are not at whats issue here. What Scott is implying (with considerable support from almost any estimate) is that if Bush had not lowered the tax rates in ’01 and ’03 then the revenue in 04 would be higher than it actually was.. in O4. What you are doing is comparing actual revenue from ’04 and ’05 and saying Bush raised taxes.
So are you really arguing that Bush passed 2 large tax hikes? Most people (including Cassander) realize that revenue changes from year to year are almost entirely driven by GDP changes. The simple thing to do is divide by GDP. Even revenue as % of GDP can vary greatly year over year because our progressive rate structure means that the effective rate depends on the income distribution in that particular year. Which is ultimately why most analysis involves comparing two tax policies to the income distribution of a given year. You can do it yourself or you can just look at a chart someone else has made:
http://www.washingtonpost.com/wp-srv/special/outlook/votes-that-pushed-us-into-the-red/
Cassander,
I agree completely that changes in revenue year over year are due mostly to changes in GDP, but you don’t have to compare ’96 and ’06. Just compare ’06 to ’06 with slightly higher rates. You can say that it would change growth to have higher taxes which might be the case but I suspect that Scott doesn’t think that the change is big enough to wipe out revenue losses and I agree with him on this one.
Here is The Tax Foundation describing the dynamic scoring problem:
http://www.taxfoundation.org/news/show/26314.html
Lets just do a simple calculation to illustrate the limits of any Laffer effect here. In 2004 the approximate change in revenue applying pre and post Bush tax rates was 276 billion dollars (thats a CBPP estimate: http://www.cbpp.org/cms/index.cfm?fa=view&id=1811 so we’ll assume it is a little high) so lets just say 250 billion and ignore interest on any additional debt. If we assume that each of these tax dollars each generated 2 dollars in growth (that’s a pretty generous multiplier) then this should have increased GDP by 500 billion from what it was. Taxes collected 16.1% of GDP so 80.5 billion of the 250 billion tax cut was recouped by stimulus from the tax cuts. So we only lost 169.5 billion in revenue. As you can see if you are only collecting 16.1% of GDP you must apply a multiplier of 7 for the tax cut to wipe out the revenue loss. Even the most bonkers old Keynesian wouldn’t suppose a multiplier of 7.
The most reasonable dynamic scoring would assume a multiplier of around 1. The lowest estimates of the Bush tax cuts costs through 2009 (the last budget Bush presided over) are still over 1 trillion. Reducing that by 16.1% puts it the 839 billion. That’s a pretty big contribution to the debt.
Anyway this all this is pretty out there. As I understand it, deficit financed tax cuts are Keynesian policy if there is slack or whatever. In good times Keynes said we should run a surplus. Friedman said to spend is to tax so I really see no economic school of thought that advocates deficit spending during normal employment. There is starve the beast but that’s political theory not economic theory. Normal employment is 5 years away according to the Fed so I guess now everything is just a crap shoot.
12. November 2011 at 03:31
It is also good to mention that deficit financed tax cuts can’t increase savings as Yglesias pointed out last year:
http://thinkprogress.org/yglesias/2010/09/13/198512/extending-bushs-tax-cuts-for-the-rich-wont-boost-savings-and-investment/
12. November 2011 at 03:45
Yglesias followed up the next day describing in more detail why this matters:
http://thinkprogress.org/yglesias/2010/09/14/198516/why-conservatives-equivocate-on-taxes-and-saving/
12. November 2011 at 12:25
Becky, I think the GOP field is a mess because the GOP voters are deeply confused. They don’t know whether they want more government or less.
Claron, I agree that the cross-sectional stuff is tricky, but time series analysis is far worse, as it basically ignores the long run effects–which may be the most important.
RA, I think he probably opposes it himself.
Patrick, I don’t agree, I think he could have sustained vetoes. he never tried, not once until the very end of his 8 years. One commenter mentioned that at least one vote was really close. The problem is that Bush favored this stuff, I could add bailing out the auto companies to the list.
Jim, I read that H1B visas fell sharply under Bush (compared to Clinton.)
You asked;
“BTW, what is wrong with cracking down on illegal (almost all of it unskilled) immigration and extending unemployment benefits during poor economic times?”
Both of those policies contributed to the “poor economic times.” The UI was defensible on ethical grounds, but it certainly hurt the economy. A different type of assistance would have been far better. The immigration crackdown occurred when the economy was booming, and contributed to the subprime crash.
dg, You said;
“The simple fact is that revenue increased.”
Simple facts aren’t very relevant, at a minimum you need share of GDP.
Cassander, A big part of the Bush cuts was things like the child tax credit, with zero supply-side effects. I find it highly implausible that the total package could have had Laffer curve effects. That would suggest that the top rate change, taken alone, had extraordinary effects. But that’s refuted by the Clinton increases.
Claron, Yglesias is wrong, he’s confusing saving with money hoarding. Saving doesn’t hurt growth, money hoarding does. Growth can come from more consumption or more investment spending.
14. November 2011 at 08:02
Scott, your wrote “…at a minimum you need share of GDP.” I disagree, one’s expenses are not tied to one’s income. The deficit did not increase b/c GDP grew faster than revenue, it increased b/c spending grew faster more than revenue.
14. November 2011 at 18:33
dg, Lots of expenses are tied to income. Government salaries, social security, etc.