Worthy News: Bush says backs minimum wage raise with tax relief - ABC

[George]

President George W. Bush said on Wednesday that he supports a Democratic proposal to increase the U.S. minimum wage but said it should be coupled with tax and regulatory relief for small businesses.

http://www.worthynews.com/news/abcnews-go-...int-id-2740484/

[Marnie]

Well, bless his heart, he can't always get it right.

[forrestkc]

President George W. Bush said on Wednesday that he supports a Democratic proposal to increase the U.S. minimum wage but said it should be coupled with tax and regulatory relief for small businesses.

http://www.worthynews.com/news/abcnews-go-...int-id-2740484/

That is just stupid. We have huge deficits now. Bush has grown the size of government more than any other president in American history. By the time he leaves office, he will have added more to the National Debt than every previous president combined. Debt service as a percentage of Federal Revenue is through the roof. More and more of our debt is being floated by countries like China, which puts us in an impossible position trying to get them to quit artificially devaluing their currency. They are currently asking for another 100 billion for Iraq this coming year, and they want to grow the size of the Army and Marines by around another 70,000 troops.

I hate paying taxes as much as the next guy, but at this point another tax cut would be insane. They need to reign in spending and get us on the way out of Iraq before we can even think about it.

[Marnie]

I hate paying taxes as much as the next guy, but at this point another tax cut would be insane. They need to reign in spending and get us on the way out of Iraq before we can even think about it.

I would say that cutting taxes is always appropriate as the Federal income always goes up when the marginal rates go down. We do agree 100% on the spending, though.

[forrestkc]

I hate paying taxes as much as the next guy, but at this point another tax cut would be insane. They need to reign in spending and get us on the way out of Iraq before we can even think about it.

I would say that cutting taxes is always appropriate as the Federal income always goes up when the marginal rates go down. We do agree 100% on the spending, though.

Federal revenue goes up regardless of whether taxes are cut or not. However, it has yet to ever go up in proportion to the tax cut. Look at economic and revenue growth in the 80s following a huge tax cut, and in the 90s following a tax increase. During the 90s, the economy grew more and revenues grew more than in the 80s. Unless taxes are at such a level as to provide a disincentive for production, there is not a shred of empiracle evidence to suggest that marginal tax cuts have much of an effect on economic growth and thus increased revenue at all. Conversely, there is no historical empiracle evidence to suggest that marginal tax increases have ever stifled growth or reduced revenue. The economy is to big for moderate changes in fiscal policy to make a measurable difference in economic growth. Presidents get to much blame for when the economy falls and to much credit for when it grows. However, tax cuts without coresponding spending cuts have always resulted in higher deficits.

Besides, if we were just going to provide another tax cut, and thus pile on more debt, then why not forgo an increase in the minimum wage and increase the Earned Income Credit Instead. The majority of economists believe the Earned Income Credit is a far better way of helping the working poor than minimum wage increase are anyway.

[Marnie]

I guess what I am getting at is that every time the marginal tax rates were cut--JFK in the early 1960's and Reagan in the early 1980's--the money collected from taxes increased. This is undeniable. Every time taxes are cut, the Federal government actually takes in more money. This is also, not surprisingly, the case with the Bush tax cuts. An article here makes some very good points:

Many in the Washington establishment were shocked Aug. 17, when the Congressional Budget Office reported a surge of "unanticipated tax receipts" that will sharply push down this year's deficit. Those who had been proclaiming the Bush tax rate cuts would result in a big reduction in tax revenues tried to hide their disappointment. It was tough being proved wrong again after having said the same thing when Ronald Reagan cut tax rates in the early 1980s.

President Kennedy proposed major tax reduction before he was assassinated in 1963. Congress passed and President Johnson signed the tax cuts in the summer of 1964. Rates for all income groups were cut and the top rate was reduced from 91 percent to 70 percent. Economic growth averaged more than 5 percent a year for the three years after the tax cut, with very low inflation. President Johnson and the Democratic Congress raised taxes in 1968, ending the Kennedy experiment.

When Ronald Reagan took office in 1981, the economy was experiencing no growth and high inflation. As part of the solution, Reagan proposed a 30 percent reduction in tax rates. His critics claimed this would increase inflation and lead to economic disaster. Twenty five years ago this month, Congress passed a slightly watered-down version of the Reagan proposals, which reduced tax rates by about 25 percent over three years, and brought the top rate down to 50 percent.

In retrospect, the entire tax rate reduction should have been made in 1981, rather than dragging it out to 1983, which had the short-run effect of reducing growth by giving people an incentive to delay income realization. However, once enacted, the results were spectacular. Real economic growth averaged more than 4 percent per year, and inflation fell from double digits and averaged roughly 4 percent.

The latest major tax rate reductions were enacted in 2003, and the first three-year results are now in. The increase in tax revenues, as in the previous two experiments, has far outstripped inflation, and the economy is close to full employment. The economy was already falling into recession when George W. Bush took office, and he made the mistake then of giving small tax rebates (which had no positive economic effects) rather than cutting marginal tax rates on labor and capital as he did in the bigger tax cut of 2003.

Also, a good book by Thomas Sowell, On Classical Economics, is eye-opening on this subject.

Basic Economics, also by Sowell, is good and has a lot of charts.

[kat8585]

I guess what I am getting at is that every time the marginal tax rates were cut--JFK in the early 1960's and Reagan in the early 1980's--the money collected from taxes increased. This is undeniable. Every time taxes are cut, the Federal government actually takes in more money. This is also, not surprisingly, the case with the Bush tax cuts. An article here makes some very good points:

Many in the Washington establishment were shocked Aug. 17, when the Congressional Budget Office reported a surge of "unanticipated tax receipts" that will sharply push down this year's deficit. Those who had been proclaiming the Bush tax rate cuts would result in a big reduction in tax revenues tried to hide their disappointment. It was tough being proved wrong again after having said the same thing when Ronald Reagan cut tax rates in the early 1980s.

President Kennedy proposed major tax reduction before he was assassinated in 1963. Congress passed and President Johnson signed the tax cuts in the summer of 1964. Rates for all income groups were cut and the top rate was reduced from 91 percent to 70 percent. Economic growth averaged more than 5 percent a year for the three years after the tax cut, with very low inflation. President Johnson and the Democratic Congress raised taxes in 1968, ending the Kennedy experiment.

When Ronald Reagan took office in 1981, the economy was experiencing no growth and high inflation. As part of the solution, Reagan proposed a 30 percent reduction in tax rates. His critics claimed this would increase inflation and lead to economic disaster. Twenty five years ago this month, Congress passed a slightly watered-down version of the Reagan proposals, which reduced tax rates by about 25 percent over three years, and brought the top rate down to 50 percent.

In retrospect, the entire tax rate reduction should have been made in 1981, rather than dragging it out to 1983, which had the short-run effect of reducing growth by giving people an incentive to delay income realization. However, once enacted, the results were spectacular. Real economic growth averaged more than 4 percent per year, and inflation fell from double digits and averaged roughly 4 percent.

The latest major tax rate reductions were enacted in 2003, and the first three-year results are now in. The increase in tax revenues, as in the previous two experiments, has far outstripped inflation, and the economy is close to full employment. The economy was already falling into recession when George W. Bush took office, and he made the mistake then of giving small tax rebates (which had no positive economic effects) rather than cutting marginal tax rates on labor and capital as he did in the bigger tax cut of 2003.

Also, a good book by Thomas Sowell, On Classical Economics, is eye-opening on this subject.

Basic Economics, also by Sowell, is good and has a lot of charts.

[forrestkc]

I guess what I am getting at is that every time the marginal tax rates were cut--JFK in the early 1960's and Reagan in the early 1980's--the money collected from taxes increased. This is undeniable. Every time taxes are cut, the Federal government actually takes in more money. This is also, not surprisingly, the case with the Bush tax cuts. An article here makes some very good points:

Many in the Washington establishment were shocked Aug. 17, when the Congressional Budget Office reported a surge of "unanticipated tax receipts" that will sharply push down this year's deficit. Those who had been proclaiming the Bush tax rate cuts would result in a big reduction in tax revenues tried to hide their disappointment. It was tough being proved wrong again after having said the same thing when Ronald Reagan cut tax rates in the early 1980s.

Also, a good book by Thomas Sowell, On Classical Economics, is eye-opening on this subject.

Basic Economics, also by Sowell, is good and has a lot of charts.

1. Revenues went into free fall after the 1981 Reagan Tax cut, it was not until after TEFRA in 1983, which amounted to the largest tax increase in the history of the United States, that revenues started to increase again. Moreover, Kennedy cut taxes from a top rate of 91% to 70%. A 91% tax rate is obviously a disincentive for production. Thus, a cut at that level would result in greater production and greater revenues. However, for a tax cut to result in greater revenues, taxes prior to that tax cut have to be at such a level that they are disincentive to production. For example, durring the ninties, the economy was a strong as it has ever been, thus obviously the tax structure in place was not a disincentive to production.

2. The Bush Administration, like any Administration over-estimates deficits for the coming fiscal year, that way they can show they did better than projected.

3. If you want an intellectually honest look at taxes and their effects on economics and revenue, then you have to look at sources that are not ideological. Right wing sources are always going to claim that tax cuts increase revenue. Left wing sources are always going to claim that tax cuts automatically lead to deficits. To get the whole picture, you need to look to think tanks like the Brookings Institution, the Urban Institute, or their joint venture, the Tax Policy center.

For example, tax revenues surged this year, but and here is the kicker, a higher percentage of revenues came from surpluses in the Social Security trust funds than in previous years. So the reason why we are seeing increased revenues is that payroll taxes surged in revenue, not personal income.

http://www.gpoaccess.gov/usbudget/fy05/sheets/hist02z1.xls

Moreover, the question is not whether revenues are higher this year than the previous year. The question is whether tax cuts resulted in higher revenue than what would have existed absent those tax cuts. For tax cuts to actually increase revenue, they must result in much higher economic growth that would have existed absent the tax cuts. How could that be the case, when economic growth year over year since the tax cuts, has been lower than it was year over year 1993 to 2000. That alone would be indicative of a failure in the Bush Administration fiscal policy. Moreover, the Feds would raise interest rates to moderate GDP growth long before the GDP growth rate would be high enough to generate more tax revenue than would have existed absent a tax cut.

Some more numbers to chew on:

Average annual real growth in the 50s = 4.15%.

Average annual real growth in the 60s = 4.44%.

Average annual real growth in the 70s = 3.26%.

Average annual real growth in the 80s = 3.07%

Average annual real growth in the 90s = 3.11%

Average annual real growth in the 00s = 2.49%

Average annual real growth during Reagan: 3.42%

Average annual real growth during Reagan & Bush1: 3.0%

Average annual real growth during Clinton: 3.71%

Average annual real growth during Bush2 (thru 2005): 2.49%

If those tax cuts are so effective, then why is it over the last 25 years that the Clinton Administration is leading the pack in terms of GDP growth?

Lets look are revenues:

Total revenues

2000 2025.2

2001 1991.2

2002 1853.2

2003 1782.3

2004 1880.1

Income tax revenues

2000 1004.5

2001 994.3

2002 858.3

2003 793.7

2004 809.0

2005 927.2

Source: CBO.gov.

Sure, after the Govt stopped cutting taxes revenues have gone up (mostly thanks to growth in SS revenues (which weren't cut) and corporate revenues (which were marginally cut), but they are still way behind GDP growth and have barely kept up with inflation.

And finally, an estimates of what Tax Revenues would have been absent the Bush Tax cuts assuming that tax revenues only kept up with GDP:

Actual GDP [bEA.gov] since 2000 and percentage growth:

2000 9817.0 5.92%

2001 10128.0 3.17%

2002 10469.6 3.37%

2003 10960.8 4.69%

2004 11712.5 6.86%

2005 12,455.8 6.35%

Actual income tax revenue:

2000 1004.5

2001 994.3

2002 858.3

2003 793.7

2004 809.0

2005 927.2

Income revenue if it kept up with GDP:

2001 1,036.3

2002 1,071.3

2003 1,121.5

2004 1,198.5

2005 1,274.5

Diffference between actual and GDP income revenue:

2001 42.0

2002 213.0

2003 327.8

2004 389.5

2005 347.3

Total difference through FY05: 1,319.6.

If income tax revenues had kept up with GDP, there would have been an additional $1.3 trillion in revenues through FY05 (GDP for FY06 is not out yet).

As of the end of FY05, the total debt was 7.9 trillion, about a $2.2 trillion increase from when Bush took office. About 60% of the growth in the debt is attributable to the income tax cuts. The rest is from additional spending.

[Marnie]

Are we playing "My ledger is bigger than yours?", now? I certainly don't want to argue economics with one so learned. Some of your claims, though, seem a tad dubious to me. Some day, we'll line up our economists, toe to toe, and let them go at it.

I would direct your attention to the tons of essays written by Milt Friedman (rest his soul) that support my hypothesis.

For a libertarian, you do have curious views!

[forrestkc]

Are we playing "My ledger is bigger than yours?", now? I certainly don't want to argue economics with one so learned. Some of your claims, though, seem a tad dubious to me. Some day, we'll line up our economists, toe to toe, and let them go at it.

I would direct your attention to the tons of essays written by Milt Friedman (rest his soul) that support my hypothesis.

For a libertarian, you do have curious views!

I am not a libertarian. I am a moderate on economics issues. Milton Friedman was not a Supply Sider. He was a conservative economist, but there is a big difference between a conservative economist and a supply sider. The numbers I posted are CBO numbers. All I am saying is that every tax cut does not lead to higher revenues than what would have otherwise existed. Any mainstream economist will tell you that taxes prior to a tax cut have to be a disincentive for production for a tax cut to lead to higher revenues. For example, you probably would not be as productive if your taxes were say 50% as you would be if your taxes were 30%. However, that does not mean that you would be more productive if your taxes were 20% instead of 30%. So at some point, tax reductions would not lead to higher productivity and thus higher revenues.