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You wouldn't, you're a Keynesian.
Those whom the Gods wish to destroy They first make mad. -- Euripides
A quick point:
The recovery in tax revenues, I think, results partly from some of the more minor tax cuts expiring. (See Krugman columns over the last two years for explanations that are better than anything I can cough up.) I also suspect that corporate tax revenues rising as something to do with earnings from overseas and imports. I question the words "inflation-adjusted," as well, because the WSJ has this strange tendency towards "Let's not and say we did" in its articles.
Now I'm a believer in the idea that a Laffer Curve -- a ridiculous name by the way -- exists, but also that we tax to the left of optimization. The Laffer Curve has been understood for centuries, if not longer. You can trace it back, at the very latest, to Islamic scholars in the Dark Ages. Keynesians working for JFK were already implementing supply-side economics ten years before Laffer wrote his big papers.
But enough of all of that. Here's the idea I really want to dig into, so think about this (and bear in mind that this is merely a theory of mine thought up in the process of about five minutes, so be nice):
Taking all that, let's think about the accounting: If you borrow a ton of money from abroad, and then spend it on goods and services in the domestic economy, it should be the case that the trade deficit widens, earnings rise, but that GDP growth will not change much. Remember, you have to deduct exports from GDP.
In other words, this, to me, sounds like an accounting gimmick rather than a genuine Lafferian change in behavior.
Be nice to America. Or we'll bring democracy to your country.
(By the way:
The Laffer Curve has been understood for centuries, if not longer. You can trace it back, at the very latest, to Islamic scholars in the Dark Ages.
It will definitely surprise a few folks I know to hear that one of their cherished economic policies can be traced back to medieval Muslims.)
Truth unfolds in time through a communal process.
The budget deficit is much more simple: The $250b deficit does not, I believe, include "emergency provisions" for Iraq and Afghanistan, which tend to run about $70-100b per year. It also does not include borrowing from the Social Security surplus, which runs about $125-150b per year. That borrowing from SSA is supposed to be paid back, not that it ever will be. Adding all of that yields a deficit of $445b to $500b, which, not surprisingly, is roughly the amount by which the national debt increased, according to the Bureau of Public Debt.
The WSJ has been pulling this stunt for years.
Be nice to America. Or we'll bring democracy to your country.
The $250b deficit does not, I believe, include "emergency provisions" for Iraq and Afghanistan, which tend to run about $70-100b per year.
It also does not include borrowing from the Social Security surplus, which runs about $125-150b per year. That borrowing from SSA is supposed to be paid back, not that it ever will be.
Adding all of that yields a deficit of $445b to $500b, which, not surprisingly, is roughly the amount by which the national debt increased, according to the Bureau of Public Debt.
Just to ensure we're both on the same page: What do the variables reference in your equation?
And for 3 PN points ....
Is that a conditional or identity equals sign? ;-0
Skepticism is the first step on the road to truth. -- Denis Diderot
But just to disect your comments a little:
the Journal says revenues rose by -- what? -- 76% over two years? The economy certainly has not grown by 76% since 2004.
But what the WSJ said was
One place it has come from are corporations, whose tax collections have climbed by 76% over the past two years thanks to greater profitability.
This will not be repeated in future years.
In the long run, we're all dead. John Maynard Keynes
First, on the Laffer Curve, you and I have traded comments on this, and i don't think we have a big disagreement. (I'm not going to comment btw on the appropriateness of giving the credit to Art Laffer, but more on the economic concept.) I believe we agreed that there are areas on the curve where the concept is clearly relevant. At some tax levels, say 50%, 60%, 70%, or whatever,,,,,at some high rates of marginal tax rates, there is clearly a disincentive to allocate one's time to money making activities. Lowering taxes from these high levels is very likely to have the impact implied in Laffer's model. At lower levels of taxation, lowering the marginal tax rate would have less of an impact. There is no data, that we have seen anyway, that allows us to understand the curve,,,,so it's hard to go beyond the intuitive statements made above.
But I would be interested on your view on the changes to tax rates on dividends and capital gains. The WSJ comments on the lowering of the rate on dividends:
More good news is that dividend-tax payments appear to be up as well, even though the tax rate was lowered to 15% from as high as 39.6%. A National Bureau of Economic Research study found that "after a continuous decline in dividend payments over more than two decades, total regular dividends have grown by nearly 20%" and that this reversal happened at "precisely the point at which the lower tax rate was proposed and subsequently applied retroactively." There hasn't been a purer validation of the Laffer Curve since Ronald Reagan rode off into the sunset.
Second capital gains taxes have been lowered. If my memory is right, from 28% to 15%. This is another area of unintended consequences, IMO. It certainly seems from a wealth distribution standpoint that taxing people, presumably the wealthier, when they attain profits from capital gains is extremely reasonable. The problem is that these investors have a choice regarding the capital gains tax--pay it, or don't pay it. I mean by that, that they don't have to sell the asset, but can continue to hold it, and let it grow in value. If they need cash, they can borrow against it. Obviously this doesn't stop the sale of capital assets, eventually you don't want to borrow, or you just want to get out of the asset. But at the margin, it reduces the sale of capital assets, and it prevents the flow of investment to the areas of the economy that can most benefit from investment dollars--the growing and profitable areas. Lowering the rate has lowered the "cost" of selling capital assets. Turnover of these assets more frequently, even at lower tax rates, is likely to generate more tax dollars, rather than less. and clearly be a very positive benefit for the overall economy.
As for the budget deficit, at $260 billion it is now about 2% of our $13 trillion economy, well below the 2.7% average of the last 40 years. Most states and localities are also afloat in tax collections, and including their revenue surpluses brings the total U.S. public sector borrowing down to roughly 1.5% of GDP. Not too shabby given that we're waging a war on terrorism and Congress spent $50 billion last year on Hurricane Katrina clean-up.
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