Republicans Reject the Republican Offer on Deficit

OBama capitulated on the extension of the BushIIe tax cuts, which will add $3trillion to the national debt over the next decade, according to the Repubs numbers. Why would the Repubs blink now? 

There is not enough discretionary spending to cut to even balance the budget much less make a dent in the national debt.  We are spending $500,000/active duty soldier without including VA health care or benefits.  DoD is going to be the source of the debt reduction funds. 

"As Bush tax cut resulted in increased revenue, there was no loss of tax revenue.  Personal income tax revenue only increased a bit, but corporate tax revenue increased substantially as people used their new found income to buy goods and services from corporations."

Actually, both income tax revenue and overall tax revenue shrank.  Income tax revenue as a percentage of GDP was always less after the Bush tax cuts.  It was only when the economy entered a bubble that tax revenue actually grew, and tax revenue as a percentage of GDP didn't really grow.  The GDP grew and tax revenue followed.  We now know that the GDP growth was not due to a strong economy, but bad policy.

I'm fine with the ethical argument for tax cuts - "it's your money, you should be able to keep it."  However, the economic argument for the Bush tax cuts has a quite few holes in it, to say the least.

Republicans hate America. They're a dying breed.

Perhaps, in the alternate universe you inhabit, revenue shrank, but not in this one.



Bush took office and passed the tax cuts in 2001.

Tax Receipts By Year:

2000 - $2.0 trillion

2001 - $1.9 trillion

2002 - $1.8 trillion

2003 - $1.7 trillion

2004 - $1.8 trillion

2005 - $2.1 trillion

2006 - present > $2.1 trillion

Income Tax Revenue:

2000 - $1.5 trillion

2001 - $1.4 trillion

2002 - $1.2 trillion

2003 - $1.2 trillion

2004 - $1.2 trillion

2005 - $1.5 trillion

2006 - present > $1.8 trillion

If you want to understand why it finally reversed course in 2006, you can consult any chart that shows housing prices or GDP.  Again, these weren't the results of a thriving economy, but bad policy.  No matter how you interpret the data, the cuts resulted in less revenue up until we entered a bubble.

I'll say again that, ethically, I support tax cuts.  I just think it's time we all accept the reality that the Laffer Curve is bad economics.

Per USgovernmentrevenue.com total federal revenue receipts from 2000 to 2008 were:

2000-$2 trillion

2001-$1.99 trillion

2002-$1.85 trillion

2003-$1.78 trillion

2004-$1.88 trillion

2005-$2.15 trillion

2006-$2.41 trillion

2007-$2.57 trillion

2008-$2.52 trillion

There is a well known interplay between individual income tax receipts and corporate tax receipts As people receive their increased take home pay, they perceive they are wealthier. That perception induces them to spend on goods and services.  Corporations provide goods and services.  Their income and resulting taxes increase.

Bush's tax cuts occurred in 2001 and 2003.  The decrease from 2000 to 2003 was the result of the dotcom bomb bubble collapse.  The housing bubble occurred over a much longer period (1990-2008) and not just over the last three years as you infer.  There was an actual increase in manufacturing and provision of services.

Similar tax revenue increases after tax cuts occured during the recession of the 1920's after WWI, after JFK's cut and Reagan's cut (yes, some targeted taxes did go up under Reagan).  Similar increases were noted in the UK under Thatcher and more recently in Poland, the Czech Republic and Russia. 

Knowing that there is a point at which increase taxes result in decreased revenue (point of diminishing returns) is a well know phenomena.  That was the reason for the Doomsday book.  The king knew the wealth of all his subjects and the point at which either a peasant rebellion would trigger the necessity for calling upon his barons and knights. Or, the point at which the over taxes barons showed up at his gates with their knights.   Magna Carta wasn't just about civil liberties.

Laff attempted to codify the point. Not perfect, but better than other attempts. 

As a share of GDP, the U.S. had the second lowest tax rate, behind only Iceland. This statistic flips on its head the often-repeated Republican charge that America has the second highest corporate tax rate in the world (which is only true on paper). In 2009, U.S. corporate taxes had fallen to only 1.3 percent of GDP, from 4 percent in 1965.

Ditzy,

I fail to see the reason for your last post, except for purposes of ideology.  It does not add to the arguments about tax cuts made in this thread.  The Republicans have stated that in consideration for a lower corporate tax rate, they would be for closing many of the loop holes and stopping the offshoring of US profits.  Results would be more revenue.  But, more unemployment for lawyers and CPAs. 

As a share of GDP, the U.S. had the second lowest tax rate, behind only Iceland. This statistic flips on its head the often-repeated Republican charge that America has the second highestcorporate tax rate in the world (which is only true on paper). In 2009, U.S. corporate taxes had fallen to only 1.3 percent of GDP, from 4 percent in 1965.

 

 Nice charts from "Think progress" ( More likely a peyote vision than a thought!), but taxes aren't paid on GDP, they are paid on profits. If a corporation resides in a nation with lower labor and regulation costs, it can produce less stuff (GDP) but make more taxable income. It is true that with the exemptions targeted for larger corporations, that they don't pay the top tax rate on their profits. It pays to have politicians in ones pocket ( Like Obama is Jeff Immelt's beech) and a large troop of lobbyists. Also most corporations pay out the profit as dividends to the stock holders who then pay the taxes on the corporate profit as individual taxes.

Corporate taxation is a talking point, not an issue.  Worldwide corps just move their profits to countries with the least tax implications.  Take Google, which makes use of the Irish tax laws to pay only 2% tax on profits worldwide. 

Take not of the other half of the chart which shows that the US is near the bottom of the total taxes paid versus GDP.  If you want the USA to be the greatest country to live in, then someone has to pay for it.  And someone has to pay for 50 years of deficit spending too.  The USA has never, ever paid down one cent of the accumulated national debt, there is not even a mechanism ti the budget process to do so, as no one in the fedgov has any intention of doing so. 

Corporate taxation is a talking point, not an issue.  Worldwide corps just move their profits to countries with the least tax implications.  Take Google, which makes use of the Irish tax laws to pay only 2% tax on profits worldwide. 

Take not of the other half of the chart which shows that the US is near the bottom of the total taxes paid versus GDP.  If you want the USA to be the greatest country to live in, then someone has to pay for it.  And someone has to pay for 50 years of deficit spending too.  The USA has never, ever paid down one cent of the accumulated national debt, there is not even a mechanism ti the budget process to do so, as no one in the fedgov has any intention of doing so.

OK, your first paragraph is a statement, not a particularly relevant one,at that.

Your second paragraph is partially ideology, but not a coherent one. The second portion of that paragraph states there is no mechanism in the budget process to pay down the debt.  Sorry, but there is, if used.  The annual budget includes payment of interest and principle dues during that year -- retiring that. The budget also includes revenue and expense, plus funds needed to borrow to meet the gap between the two.  Lower spending and increase revenue in a manner that closes the gap and the deficit closes.  Pay off the debt due, don't borrow as much as you've paid off in that year and the debt is lowered. Continue for a number of years and the debt decreases accordingly.

Ya make ma brain hurt.

Do I have to spell out everything?...if so I dont have the inclination.

The current huge deficit is mostly due to revenue decline, not additional spending.  Corp tax revenues have been decreasing for 50 years. 

The USA has never, ever paid down a single cent of the national debt.  What your are describing is a refi of the outstanding debt.  

Spending, as shown by your second char,t almost consistently outpaced revenue.  The last few years, spending, as shown on your second chart, rose well above revenue.  Sorry, Ditzy, its spending that must be controlled.  After a return to better economic times, if it happens, then increased revenue will be needed to pay down the debt.

interventor-

You accused me of living in an alternate universe when I accurately pointed out that revenue shrank after the Bush tax cuts.  When I proved it, rather than retract your statement, you blamed the revenue contraction on something else.  You seem willing to blame one bubble (dot-com) for declining revenue, but not willing to credit another bubble (housing) with increased revenue.  You can't have it both ways.

You say, "The housing bubble occurred over a much longer period (1990-2008) and not just over the last three years as you infer."  The evidence suggests otherwise.  Housing prices were relatively low in the 90's.  The unprecedented gains occurred from roughly 2000 until the bubble collapsed.

Finally, to address this: "Knowing that there is a point at which increase taxes result in decreased revenue (point of diminishing returns) is a well know phenomena."  I haven't said otherwise.  I've said that the Bush tax cuts did not stimulate the economy.  We could return to the pre-Bush rates (I'm not saying we should) and we would not surpass that point of diminishing return.

dolemitejb,

I showed that, yes, there was a dip in revenue from 2001 to 2003.  Again, due to the dotcom bomb bubble. Its effects are well known.  Without the 2001 tax cut, the effects would have been worse. 

From the table shown below, there was a constant rise in housing costs, which admittedly took off in 2004.  However, you overlook the complete equation. Housing costs rose, which did increase corporate tax income.  The rise in costs caused a corresponding rise in the deduction for housing costs on individual income taxes.  Again, an interplay of corporate vs. individual income tax, which cancels out the effect of one against another.  Especially since corporate income tax is much smaller than personal income tax.

I gave you a number of examples, historic and present in this nation and others that experienced the same phenomena of reducing tax rates and increasing revenue.

Period Median Average

1990 $122,900 $149,800
1991 $120,000 $147,200
1992 $121,500 $144,100
1993 $126,500 $147,700
1994 $130,000 $154,500
1995 $133,900 $158,700
1996 $140,000 $166,400
1997 $146,000 $176,200
1998 $152,500 $181,900
1999 $161,000 $195,600
2000 $169,000 $207,000
2001 $175,200 $213,200
2002 $187,600 $228,700
2003 $195,000 $246,300
2004 $221,000 $274,500
2005 $240,900 $297,000
2006 $246,500 $305,900

http://www.census.gov/const/uspriceann.pdf

Housing costs rose, which did increase corporate tax income. 

Real estate appreciation causes corporate income tax revenues to increase???? Ridiculoose

Taken straight, you've just undercut dolemitejb's argument and added to mine.  However, you are, of course, wrong.  Borrowing at at higher cost caused a higher profit to be reported by banks and other lending institutions, which, being corporations, increased their income, corresponding profits and resulting corporate income taxes.  The same might be said for sale of derivatives based upon those mortgages.  The builders also made a profit, larger, from the inflated cost of the homes.

I'm really glad I earned a physics degree before my business major.  The idea of several forces acting upon a particle simultaneously is common in that science.

Lefties have a hard time realizng there are several market forces working at once. That's one reason the business plan trumpeted by Obama's planners didn't result in the lower unemployment numbers.  And, why most of them have resigned in frustration and hied back to academia where Marx's and Keynes' ideas work and unicorn farts will power a green revolution. 

interventor-

Yes, nominal housing prices have pretty much always risen.  Real housing prices (inflation adjusted) only got out of hand post-2000.  Here's a quick, simple breakdown of median housing prices (based on your link), adjusted for inflation.

*in 2005 dollars

1975 - $142,254

1980 - $152,401

1985 - $152,250

1990 - $182,850

1995 - $171,361

2000 - $192,389

2005 - $240,900

The difference in the 2000 price and the 1980 price is a 26% increase.  The difference in the 2005 price and the 2000 price is a 25% increase.  20 years worth of previous price increases occurred in 5 years.  There's your bubble.

As for tax revenue, I'm not denying that the dot-com bubble had an impact on the economy.  Remember, this started with you challenging my claim that revenue shrank.  It did.  As for a metric to gauge the effectiveness of tax rates and normalize for the economic conditions, I would suggest income tax revenue as a percentage of GDP.  This ranged from 8%-10% prior to the Bush tax cuts, and 6%-8% after the Bush tax cuts.