The Bush tax and budget clown show

The New York Times points out that President Bush is once again peddling the supply side myth that cutting taxes increases revenue:

One of the interesting things that I hope you realize when it comes to cutting taxes is this tax relief not only has helped our economy, but it's helped the federal budget. In 2004, tax revenues to the Treasury grew about 5.5 percent. That's kind of counter-intuitive, isn't it? At least it is for some in Washington. You cut taxes and the tax revenues increase. See, some people are going to say, well, you cut taxes, you're going to have less revenue. No, that's not what happened. What happened was we cut taxes and in 2004, revenues increased 5.5 percent. And last year those revenues increased 14.5 percent, or $274 billion. And the reason why is cutting taxes caused the economy to grow, and as the economy grows there is more revenue generated in the private sector, which yields more tax revenues.

No, no, a thousand times no! As I've explained ad nauseum, the fact that revenues increased somewhat in 2004 after declining massively does not mean the tax cuts boosted revenue overall. Here's the Center on Budget and Policy Priorities:

[R]evenues declined in nominal terms for three straight years in 2001, 2002, and 2003 (the first time this happened in the U.S. since the 1920s) and in 2004 reached their lowest level as a share of the Gross Domestic Product since 1959... Even with the unexpected gains, projected revenues remain low by historical standards. CBO's estimates show that, if the tax cuts and AMT relief are extended, revenues as a share of the economy over the next decade (2007-2016) will be lower than they were in the 1960s, 1970s, 1980s, or 1990s.

Bush's claim is equivalent to saying a car that slowed from 55 to 25 and then sped back up to 35 is going faster than when it started. Indeed, CBPP reports that the tax cuts played a major role in the deterioration in the nation's fiscal position:

Despite claims that the main culprit in this fiscal deterioration is “runaway domestic spending” or growth in entitlement spending, the primary reason for the change from surplus in 2000 to the deficit in 2005 is lagging revenues. In 2000, the surplus equaled 2.4 percent of GDP. In 2005, the deficit equaled 2.6 percent of GDP. This is a negative swing in the nation’s fiscal position of 5.0 percent of GDP. During this period, revenues declined from 20.9 percent of GDP in 2000 to 17.5 percent of GDP in 2005, a drop of 3.3 percent of GDP. Thus, 66 percent of the downturn in the fiscal situation since 2000 (some 3.3 percent of GDP out of the total deterioration of 5.0 percent of GDP) is attributable to the drop in revenues.

Moreover, revenues in 2005 were lower as a share of GDP than the average for the 1960s, the 1970s, the 1980s, or the 1990s. By contrast, total spending was 20.1 percent of GDP in 2005, up 1.7 percent of GDP from 2000 but lower than in any year from 1980 through 1996.

Similarly, data that the Office of Management and Budget released in conjunction with the budget shows that increases in domestic discretionary, international, and entitlement spending (including the prescription drug benefit) account for only 28 percent of the cost in 2006 of legislation enacted since January 2001. Tax cuts account for 36 percent of the cost of that legislation, with the remaining 35 percent attributable to increased funding for defense and homeland security.

Although increased spending for domestic programs has played a relatively modest role in the return of deficits since President Bush took office, the President’s budget puts virtually the entire burden of budget-tightening on those programs.

Nonetheless, the White House has made this claim over and over again. I posted about a similar claim by Bush in August. Back in 2003, I also noted here and here that the administration continued to make the claim that tax cuts increased revenue even though Bush's own Council for Economic Advisers cast doubt on it in the 2003 Economic Report of the President [PDF], writing, "The modest effect of government debt on interest rates does not mean that tax cuts pay for themselves with higher output. Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity."

Meanwhile, the administration is also pushing the latest version of its absurd plan to allegedly cut the deficit in half. We covered the 2003 version of this plan in All the President's Spin (pp. 138-139) and repeatedly debunked the 2004 version (which shifted the goalposts by using inflated 2004 deficit projections as a benchmark) on Spinsanity. The latest version is just more of the same -- a misleading claim that ignores likely costs before 2009 as well as the massive cost of renewing President Bush's tax cuts after 2009. As CBPP notes, "The budget conceals or omits information essential to assessing its impacts on deficits and on programs and services that affect millions of Americans," including funding for US operations in Iraq and Afghanistan after 2007 and Alternative Minimum Tax relief after 2006.

Some members of the press are finally starting to scrutinize the supposed budget-cutting plan now that it's in at least its fourth version. In particular, Jonathan Weisman did a good job at the Washington Post. But many others are not -- only a handful of articles on Bush's budget mention its omission of alternative minimum tax relief in the context of the plan to cut the deficit in half.

Time to do better.

Comments

[Whip Scrap]

Education amounts to .02% of the budget, and that's after the cuts for more computers in schools, more parent involement, school lunches, and safe environments. I guess the child's not left behind, only everything that would help the child succeed is left behind and handed over to the Pentagon and Homeland Security.