Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Monday, April 21, 2014

Republicans: All Wrong, All the Time, Pt. 12 - Taxes and Revenues

While mucking around in the archives, I somehow made this old post from 2/25/10 inaccessible.

So, I'm reposting it now, because it has important information.


 The liars at the Heritage Foundation will tell you that lowering taxes increases federal Revenues.

A New York Times article, Deficit Spending Can Help Republicans, by Daniel Altman, shows that old, wrong assumptions die hard. The article reports that:
"From the beginning of 2001 through the third quarter of 2002, the federal government leapt from a surplus (including Social Security) amounting to 2.3 percent of gross domestic product to a deficit of the same size. By itself, the current deficit is not terribly threatening. Indeed, running a modest deficit during an economic downturn can be useful, as long as the policies behind the deficit — lower taxes and higher spending — benefit consumers and businesses."
The article then claims that the 1980s Reagan tax cuts failed to increase tax revenues;
"The White House says lower tax rates will lead consumers to work more and businesses to expand, resulting in higher tax revenues and eventually closing the budget gap. That notion, chided as "voodoo economics" by critics, turned out to be false when it was last in vogue, during the 1980's."
However, the numbers, crunched by Heritage's Brian Riedl, show otherwise (see chart below). In 1980, the last year before the tax cuts, tax revenues were $956 billion (in constant 1996 dollars).
Revenues exceeded that 1980 level in eight of the next 10 years. Annual revenues over the next decade averaged $102 billion above their 1980 level (in constant 1996 dollars).

They even offer this chart as proof!  (Click the link, expressed in constant 1996 dollars.)  But the real Voodoo is in achieving an actual reduction in revenues, as they did according to the Heritage Foundation figures in 1982 and (quire dramatically) 1983, in the context of an economy that has achieved 3.7% annual growth for 200 years!

And that is key.  Every year the population grows.  Almost every year the economy grows.  There is inflation in the background, most of the time.  In fact, the compounded annual growth rate of federal tax revenues from 1970 through 2008 was just slightly over 7%.   (Current dollars, not inflation adjusted.)

Here is reality, presented in non-inflation adjusted dollars   Data from the Congressional Budget Office.

Actual revenues are shown on the broken red and blue line, with segments color-coded to indicate the party of the White House occupant.  The purple curved line is the 7% growth line, starting in 1970.   The pink line is the best-fitting straight line.  Each President's term has also been overlayed with a best fitting straight line. In retrospect, these straight lines don't tell us much of anything. 

One interesting facet of this display is that most of it lies well above the 7% growth curve.  This is entirely due to increases during the Carter and Clinton administrations, as a visual inspection reveals, and we will also prove mathematically.

Here is the compounded  annual growth rate of tax revenues, by President, over the 1970 to 2008 period.

Well, Nixon and Ford managed to top the long period average by a slight margin, but they were not under the thrall of Voodoo Economists.  Neither was Clinton.  Bush I wasn't either, but he inherited Reagan's vultures.  Look at Reagan's revenue growth rate: 5.35%.  Consider that average inflation over Reagan's years was 4.56%, and GDP growth averaged 3.4%.  Under those circumstances, revenue growth should have been at least 7.96%, not a paltry 5.35%.  The average compounded growth in constant 1996 dollars, using the Heritage Foundation table is 2.38%.  This is more than a full percentage point below real GDP growth. 

Bush II's revenue growth rate was 3.01%.  But inflation averaged 2.84% and GDP growth averaged an anemic 2.16.  Together they total 5.0%.  So, Republican tax revenue growth cannot even match the inflation adjusted level of growth in the economy.

Many years ago, my dad told me that figures don't lie, but liars sure know how to figure.  The bullshit you get from the Heritage Foundation is exactly what he was talking about.  It's another example of the conservative ploy of willfully denying reality.

Which is just one more reason why WE ARE SO SCREWED.

1 comment:

Cirze said...


Thanks for your fine work.