US Taxes

[One Winged Angel]

I'm done, sorry for sparking that argument there GameMaster.

[Professor S]

I love starting a brush fire.

I also love how I make one observation which is correct, post a link to numbers that are from the IRS, and I get attacked. That was a non-partisan observation. Now here is a PARTISAN one.

Any comments about Clinton's tax policy? I love how he gets a free ride and is considered the People's President and Bush is considered Darth Vader when he is actually taxing the poorest less. Funny how an agenda driven media can form public opinion.

I also fail to see how the fact that the rich received a tax cut has anything to do with the poor paying less than under Clinton. Does the fact that the rich received a tax cut put less money back in the pockets of the poor? No. In fact it helps actually CREATE tax revenue.

http://www.irs.gov/pub/irs-soi/04db31ps.xls

Check out the revenue when you compare the Clinton years to the Bush years. It tells an interesting story. Revenue and and taxes collected per capita have GONE UP under Bush, even though he lowered tax rates and eliminated some altogether. Also, the cost of collecting has dropped considerably. I'm sure many of you will come up with very interesting and mildly amusing reasons for the numbers and why they don't support Bush's tax plan.

And please keep in mind, I am not commenting on his spending, just his tax plan. Lets keep on topic.

[Xantar]

Originally Posted by Supply Sider

And please keep in mind, I am not commenting on his spending, just his tax plan. Lets keep on topic.

The two of them go hand in hand. The only purpose of taxing is to get some money for the government to spend. Talking about a tax plan without discussing spending is like teaching somebody how to get a car moving but not how to get it to stop where you want it to.

And it turns out that with the smaller budget and all, the national debt shrank during the Clinton years and expanded greatly during the Bush years. This is not to say that I think Clinton was the Beloved Economic Leader. I think that in the early years, he benefited from the first President Bush's infamous tax increase and then later on basically managed not to screw it up. Having a hostile Congress may also have been a contributing factor.

But if you want to talk only about your narrow subject...

Check out the revenue when you compare the Clinton years to the Bush years. It tells an interesting story. Revenue and and taxes collected per capita have GONE UP under Bush, even though he lowered tax rates and eliminated some altogether.

Revenue also rose during the Clinton years compared to Bush #41 whose government collected more revenue than Reagan who collected more than Carter etc. This is true both in gross and in per capita terms. So you're right. The numbers do tell an interesting story—when you look at only a small segment of them out of context.

I also couldn't really see this increase in revenues when looking at the spreadsheet you linked to. You will note that Clinton was still in office in 2000, and Bush's tax cuts certainly didn't come into effect yet. Per capita tax collected in that year was $7,404. It was higher than that in 2001 but never again. From 2002 to 2004, tax per capita reached nearly $7,000 but never quite made it over. That happens to coincide with Bush's first tax cuts going into effect.

But of course, it could be that we had a good year during Clinton's last months in office. And indeed it's true that on average, tax collected per capita during the Bush years was higher than Clinton's. But let's look at this another way. Clinton's worst year in terms of tax revenue collected was his first, 1993, in which tax per capita was $4,505. That's $6,123 in 2005 dollars according to the CPI's inflation calculator (and before you ask, yes I checked. The IRS's numbers in that spreadsheet are not adjusted for inflation). We did indeed manage more taxes than that during the Bush years. Even after his tax cuts took effect in 2002 (and after which revenue fell, but we won't get into that), the IRS still collected $6,977 per capita or about $7,616 in modern dollars.

But this shouldn't really be surprising. The economy grows. Even after adjusting for inflation, people on average almost always have more money in real spending terms than they did the year before. Let's assume an average GDP growth of 3% which is really pretty conservative. The French would be happy with a number like that, but Americans are used to something closer to 5%. But anyway, if you take that $6,123 from 1993 and grow it by 3% compounded yearly until 2002, you get $7,756.

So we find that this marked increase in tax revenue during the Bush years can be entirely explained away by inflation and natural GDP growth that took place before Bush even entered office. The only thing the tax cuts did was lower revenue relative to national growth. If you think about it, that really makes sense.

[Professor S]

Can you explain away how the cost of collecting taxes has gone down, or that all the claims that cutting taxes was going to lower revenue, when it in fact caused an increase? Bush increased revenue, at least to the norm of increases through the years as you pointed out, by making some of the most sweeping tax cuts in history. People said that would never happen, and yet here we are.

You also omit several factors that attributed to the loss of revenue after the tax cut... including the internet recession that killed the economy for a while and cost the US about 1 million jobs. Could that have had something to do with it?

As for the spending, it can be attributed to fighting a foreign war, but I also think he's spending too much in other areas as well, including subsidizing oil companies as of the latest energy bill. Tax cuts do work and a government can work in the black with them, but they need to have a more sensible spening plan. I will agree that Clinton's spending habits were much more "conservative" than Bush's, but I also understand that Bush has had to deal with a hell of a lot more than Clinton has.

My point in all this is that cutting taxes helps to increase revenue to the government. It does this by spurring the economy and increasing the revenue of companies and the general public. Essentially what you lose in per-dollar revenue, you get back in volume. True, you could probably reap the same revenues through punitive taxation and "getting those rich bastards", but why do it when you can actually make the same by taking less?

[Xantar]

Can you explain away how the cost of collecting taxes has gone down, or that all the claims that cutting taxes was going to lower revenue, when it in fact caused an increase?

You either misunderstood me or you misunderstand your own numbers.

The cost of collecting taxes has gone down, and I never disputed that. But revenues have in fact gone down in real terms. Your own numbers say so. Grab an inflation calculator and look at 2002-2004 for yourself. Gross tax revenue remained static which means revenue went down thanks to inflation. Taxes collected per capita went down both in real and nominal terms after 2002. So I say once again that the tax cuts did in fact lower revenues.

Secondly, you are confusing correlation with causation, and frankly I'm disappointed to see you making an amateurish mistake like that. The fact that tax revenues are up during the Bush years compared to the Clinton years means squat. I could just as easily argue that Bush #41's tax increases raised revenues as well. That's what the numbers say. Clinton didn't lower taxes after coming into office by any significant amount, and yet his administration pulled in more tax revenue than Bush or even Reagan (who was a big tax cutter). It simply doesn't work that way. You can't say, based on this data, that Bush's cuts caused an increase in revenue (even if the increase in revenue existed).

Bush increased revenue, at least to the norm of increases through the years as you pointed out, by making some of the most sweeping tax cuts in history. People said that would never happen, and yet here we are.

As I just explained above, revenue went down. And I did not in fact point out that revenues increased at a normal rate. What I said was that the increases could be accounted for entirely by inflation and a GDP growth rate of 3% which is actually tiny. That 3% number was just an underestimate I was using to make things simple. Look it up sometimes. If we had 3% growth year on year, the President would get slammed for presiding over a "sluggish economy."

My point was that these revenue increases you're so enamored of could have just as easily been accomplished if Bush had walked into office and sat there twiddling his fingers. Inflation happens regardless of what he does. A GDP growth of 3% is basically guaranteed in the American economy unless Bush accidentally drops a nuclear bomb in a major city or something. You cannot say that his tax cuts caused an increase in revenue. If anything, the evidence points the other way: Bush could have gotten even more revenue by simply leaving the tax code alone. I'm not saying that would be a smart thing to do either, but if more revenue is what you want, that's the way to do it.

My point in all this is that cutting taxes helps to increase revenue to the government. It does this by spurring the economy and increasing the revenue of companies and the general public.

Unfortunately, the best evidence that anybody has come up with is that this process takes over a decade. Spurring the economy, if it can indeed be done, is not instantaneous. The trickle down effect takes time. Hiring people, managing inventories, realigning capital and all sorts of other processes I don't understand takes time. The most widely accepted argument anybody has ever made in favor of Reagan's deficit spending was that we reaped the benefit in the form of a boom economy...during the Clinton years. Meantime, the first President Bush had to raise taxes or else the out of control spending would have sent us into 6% inflation or higher.

So if you want to argue that Bush's tax cuts have increased revenues, wait until his successor comes into office and look at some data. Your current evidence simply doesn't back you up.

[Professor S]

I was under the impression that inflation had remained pretty much static over the last few years. At least that is what the economist said I was watching on CNN. He was talking about how the new gas prices were finally causing an increase in inflation. So if inflation has remained static, why have revenues gone up?

And yes, while correlation does not necessarily mean causation... it also means that there could very well be a connection. Causation vs. Correlation can also be an excellent excuse to ignore anything good that comes out of a new tax system. The numbers and laws involved, when combined with changes in the populace, are so complicated that you could never really PROVE that changes in tax law caused anything.

My point was that cutting taxes causes increase in revenues. It did and does. Its the spending that causes the debt. and operating defeceit.

[Xantar]

Originally Posted by Not Professor X

I was under the impression that inflation had remained pretty much static over the last few years. At least that is what the economist said I was watching on CNN. He was talking about how the new gas prices were finally causing an increase in inflation.

I'm not sure what you're asking here. If inflation has remained static (and I wouldn't really know), that means that the price of everything still goes up. And anyway, I calculated all my inflation using the calculator on the website of the people who calculate the CPI. I just entered a number for 1993 and it gave me what that amount is worth in 2005. Seeing as it's the CPI that determines the official rate of inflation, I'm pretty sure it's accurate.

So if inflation has remained static, why have revenues gone up?

Ok, I'll go over this just one more time.

Gross revenues according to your spreadsheet:

2002 - 2,016,627,269,000
2003 - 1,952,929,045,000
2004 - 2,018,502,103,000

There is no increase in revenues there. I don't even have to do any calculations. Just look at the numbers. And you will note that before 2002, gross collected taxes always increased by a hundred trillion dollars.

And now per capita:

2002 - 6,977.92
2003 - 6,691.47
2004 - 6,848.87

6,848.87 is smaller than 6,977.92. Even without taking inflation into account, any fourth grader can see that your claim that "Revenue and and taxes collected per capita have GONE UP under Bush" is clearly false. I don't know how much more clearly I can say it.

I'm not trying to attack your political viewpoint or your stance on tax policy. It's just that the facts you're using to make your case are unequivocally wrong. I can only hope that you're actually reading this post instead of just skimming through it and getting the general gist.