Don’t worry, I haven’t gone back to the dark side. I just wanted to point out the one argument that every conservative will make in response to bonddad’s accurate diary on why tax cuts don’t pay for themselves.
So, you’ve printed out that little chart thingie, and you walk over to your favorite dittohead’s cubicle, slam down the chart and shout "Checkmate, beeotch!"
His response?
"Then how come federal revenues are at an all-time high right now?"
So you go and try to look it up, because that can’t be right, can it? After God knows how long of searching, you finally stumble across the Congressional Budget Office’s numbers, and sure enough Federal Revenues are currently at an all-time high with the most recent numbers (sadly being for 2006) at $2.407 trillion vs. $2.025 trillion when he took office.
Nothing in chess so frustrates like the move you didn’t see coming. While this fact represents a "Check" for the dittohead nation, it’s not a "mate" by any stretch of the imagination. Here’s the series of moves you can use to win the game.
For starters, when having this discussion with an economic conservative, you and he are typically talking about two different things. To a conservative, the hypothesis is "tax cuts = more federal revenue," and any evidence that federal revenues are higher is sufficient to prove it. The theory being that, when taxes are cut, consumers spend more. This leads to increased demand for products and services, so companies have to hire more workers (creating new taxpayers), or offer more compensation to existing employees to keep them (increasing the tax base). This increased demand drives up federal revenues through economic expansion. Therefore, any dittohead worth his salt will simply bring up the fact that in absolute dollars federal revenues are at an all-time high thus proving the hypothesis.
From the left, our hypothesis is slightly different. The point we’re trying to make is that tax cuts don’t pay for themselves, a subtle change to be sure, but one that makes all the difference in the world. To illustrate our point, let’s do an "apples to apples" comparison of Reagan, Clinton, and W. We have data for the first 6 years of W’s presidency, so let’s see how each of those three presidents did during their first 6 years in office.
Going in alphabetical order, we start with Clinton. When William Jefferson Blythe Clinton was sworn into office he inherited federal revenues of $1.09 trillion. The Clinton tax increases of the early 90s were supposed to spell doom for the U.S. economy. Rush provided a daily deluge of predicted woe saying these tax increases would send the economy into collapse, driving down corporate profits, which in turn would result in lower wages for workers, and thus, lower federal revenues. How’d that prediction hold up? Not well. When Clinton left office GDP had grown by an average of 5.6% per year, and Federal Revenues had almost doubled to $2.025 trillion.
The tale of the tape for his first 6 years in office? Average Annual GDP Growth 5.5%. Average Annual Federal Revenue Growth 8.19%. Clearly the opposite of the hypothesis that "tax cuts increase federal revenue" is false.
Up next, we have W’s record. In absolute terms, Bush’s first term was a Federal Revenue nightmare. Inheriting a surplus, Bush also inherited revenues of $2.025 trillion. Here are the revenue numbers for the next four years: 2001: $1.991 trillion, 2002: $1.853 trillion, 2003: $1.7825 trillion, 2004: $1.880 trillion. In so doing, Bush became the first President in American history to never exceed his predecessor in terms of federal revenue during his first (and should have been only) term. In the succeeding two years, W’s record gets off the schnide as it were, increasing to $2.153 trillion in ’05 and $2.407 in ’06. That represents a paltry 3.14% growth rate in federal revenues.
And you know darn well what the dittohead will say to that. "What about 9/11? What about the dot-com bubble bursting? What about the Clinton Recession?" Fair point (except for calling it the ‘Clinton recession,’ as I don’t think politicians have a whole lot of pull with the economy in general). Except for the fact that GDP growth was virtually identical during Bush’s first 6 years in office. Average annual GDP growth from 2001 to 2006 was 5.06%. So those 44 little basis points are the difference between 3% growth and 8% growth in federal revenues!? I think not.
Finally, Ronaldus Maximus. Cap’n Tax Cut outdid W in terms of federal revenue growth during his first 6 years in office. Under his watch federal revenues grew at an average annual rate of 4.73%. And what about the economy? Well, that grew too – at an average annual rate of 8.19%.
Here’s what all that information tells me – when you raise taxes federal revenue grows very quickly. When you cut taxes, federal revenue either declines or grows at a lower rate. Sexy, huh? I’d like to see that on a bumper sticker.
Still, if all this fails to impress your intrepid dittohead buddy, you’ve always got Bush’s own Treasury Secretary, Henry Paulson who said during his confirmation hearing - "As a general rule, I don't believe that tax cuts pay for themselves." Hopefully the info above helps explain why.