Fox host Bill O’Reilly laughs off any calls for increasing government spending to help create jobs. Last week he derided Paul Krugman for
demanding more stimulus spending. And this guy teaches economics at Princeton University? Unbelievable.
People like Bill O’Reilly don’t pay any mind to the fancy pants Nobel Prize committee that gave Krugman one of their liberal awards. Why should he? He knows how the economy really works, as he explained last night (8/8/11):
Raising income taxes is not the way out of this. In 2001 and again in 2003, President Bush cut individual tax rates. And what happened? Well, from 2004 until 2008, tax revenue increased from about $800 billion to almost $1.2 trillion. That blows away the liberal argument that tax cuts starve the government of revenue. They don’t.
This has been, at times, a talking point among conservatives. But you don’t really get a sense of tax revenue without comparing it to something– as FactCheck.org noted in a piece in 2007 (when John McCain was saying much the same about the Bush tax cuts), revenues tend to increase every year as the economy grows.
A more useful measure would be how tax revenue looks relative to the size of the economy. As the Economic Policy Institute put it in a recent report (6/1/11) on the 10-year anniversary of the Bush cuts:
* Federal tax revenue fell from 20.6 percent of GDP in FY2000 (the last year of the 1991-2000 expansion and reflective of
Clinton-era tax rates) to 18.5 percent of GDP in FY2007 (the last year of the Bush economic expansion and reflective of
Bush-era tax rates).* From 2001 through 2010, the cuts added $2.6 trillion to the public debt, nearly 50 percent of the total debt accrued
during this period.* The decade of the Bush tax cuts had, on average, lower revenue levels as a share of the economy than any previous
decade since the 1950s.
That would be (part of) the “liberal argument” against the Bush tax cuts–and it doesn’t appear to be “blown away” by O’Reilly’s too-good-for-Princeton economic analysis.
How is this an argument against the Bush tax cuts? Of course tax revenue fell as a percent of GDP, that was the intention, to take less. And if the economy is growing fast enough that actual tax revenue increases, that’s good, isn’t it? The old — A bigger pie instead of a bigger slice. The goal was to promote growth.
As this is a website geared towards criticizing and correcting statements made by prominent members of the media, and not promoting talking points directly, I don’t find any problem with this article. O’Reilly was suggesting that we should lower taxes because it will increase the tax revenues, and there is absolutely no evidence to support that claim. Remember, correlation =/= causation. Also, don’t forget that the Bush recovery was built on top of the housing bubble….
See Roy, that is a fine argument — causation != correlation. Of course, it’s also an argument against any effort to promote economic growth. But the arguments in this article are not arguments against O’Reilly’s claim. If anything they support it.
“A more useful measure would be how tax revenue looks relative to the size of the economy.”
lol — Noooo. The tax cuts purposely reduced the tax revenue relative to the size of the economy. That was the whole idea, reduce costs so balance sheets will tell accountants and business owners that growing now is profitable enough to take the risk, so businesses grow and hire, and there’s more income to tax.
By any measure it worked. But like you said, causation does not always = correlation. But it usually does, as far as anyone can tell.
Yes, it is a good argument, and it happens to be right in this case. While it is certainly possible that lowering taxes could spur the economy enough to bring the government more money than it otherwise would have, that is not the case, as far as we know.
For the Bush era tax cuts, the government took in less money than it would have if the tax rate had stayed the same. This is widely agreed upon by those who study this, as pointed out in the factcheck.org piece linked by this article.
If all else stays the same, lowering taxes decreases revenues. You’re arguing that the reason the tax revenue increased is that the tax cuts made the economy rebound, but you have no evidence to explain why. All you have is one correlation, when the experts, common sense, and most correlation from history agree that tax cuts decrease revenue.
Roy, I didn’t argue that tax cuts caused a rebound. That’s just silly.
It might seem like common sense that lowering rates decreases revenue. But that’s not the case — fundamentally or historically. Although it is correlation, historically, time and time again, under Kennedy, Regan, and Bush, revenue increases followed rate cuts. And anyone with even a basic understanding or education in economics understands the fundamental reasons why rate cuts increase revenue depending where those rates are on the Laffer curve.
But regardless of the time machines and funny math you need to counter these correlations, there’s something else to consider. I think we can safely agree that there’s not going to be a rebound. It’s apparent that what we thought was a recession is actually a contraction. The consumer purchases using home equity money won’t snap back, regardless of stimulus or tax cuts. We’re undergoing an economic transition in the US and the wider world. Lower taxes will loosen up those balance sheet and allow businesses and investors to adjust to the new economy quicker.
Here’s a goofy article I wrote to a friend of mine a while ago about tax rates vs revenue, it has sources and graphs and so on. http://noisydove.com/noisy-dove-economics/noisy-dove-economics-chapter-3/