Hilarious

"In related developments, a twelve inch black and white television has better picture quality than a player piano"

That's a very anti-semitic thing to say...

Uh, clicking on the link shows that they used 20 year, 40 year, and 60 year historical averages...

Wait: are they comparing against a historical average that includes years without the income tax?

Hmm. If they're using 20, 40, and 60 year historical averages, they're on much more reasonable ground than you made things out to be, Matt. It's Heritage, so they're fudging somewhere, but going back to 1789 doesn't seem to be it.

Heritage would have a reasonable point if it were true that tax revenues were "18.4% of GDP." But actually tax revenues were 17.5% of GDP in FY2006, which is a big difference. The last time tax revenues were that low was during the recession year of 1992. So I think the answer to "How did Heritage fudge the numbers this time?" is: they made them up.

The figures can be found, here [table 1.3 of the big pdf]. Heritage actually cites this table at one point.

CATO had a study out not too long ago that found that tax cuts, once you are already under 50% or so tax rates, don't really stimulate economic growth in a way that would lead to greater tax revenue. Makes one wonder whether Heritage is playing a bit of the correlation=causation game here.

Yeah, Ragout's finding is really really weird. They cite everything so carefully except the 18.4 percent number. I think my favorite part is the totally unnecessary and out of the blue reference to "French-style spending increases." Never miss an opportunity to make fun of the French!

The 18.4% number is from the CBO. I wrote an email to Sullivan about this and posted it on my website. The problem is that in 2000 taxes were 20.9% of GDP and spending 18.4%, while in 2006 taxes were 18.4% and spending was 20.3%. Taxes have gone down (contra Heritage, which was just using estimates), and spending as in fact gone up. But the increase in spending is in part due to defense (from 15 to 17% of the budget), but mostly due to medicare and medicaid, which have grown from 17 to 25% of the budget. Sullivan calls this a "middle class entitlements" problem, but it's really a health care problem. As usual.

"In related developments, a twelve inch black and white television has better picture quality than a player piano and our troops in Iraq are only insufficiently equipped if you forget that the historical average indicates that soldiers typically rely on horse-drawn transportation."

You forget--these people totally reject the 21st and 20th Centuries, and are't too thrilled by the 19th . . .

Sully posts this under the sub-head, "Some things the Left won't tell you..." And he has a point. Heritage is fond of saying, "The rich pay all the taxes". Indeed, the Left won't tell you this without adding, "They also make all the money."

Practically every "myth" listed by Heritage is a) a serious spin job and b) even so, symptomatic of the rich getting insanely richer, while the poor and middle classes stagnate. Sullivan somehow thinks this supports the idea that we need to cut middle class entitlements.

What Heritage and Sully are really skimming past in a big hurry is the distinction between on-budget and off-budget (Social Security and Medicare payroll tax) receipts. There has been, and continues to be, a serious shortfall in on-budget receipts, made up for by the long-expected surge in payroll taxes that we're supposed to be saving up for my g-g-generation's retirement.

Look at the last two pages (pp.33-34 in the text) of Table 2.3 of the 2007 budget (big-ass PDF) (same link as Ragout gave above), and you notice that, between WWII and the onset of the Reagan tax cuts, the on-budget revenues were between 13.7% and 17.9% of GDP.

During the Reagan-Bush years (excluding 1982, when the budget was still semi-Carterish), the on-budget revenues were between 12.6% and 13.8% of GDP. During the Clinton years, between 13.3% and 15.9%. In the Dubya years, 11.6% to 12.9%.

So Sully and Heritage are hiding fundamental untruths about the budget behind the false front of a technically accurate statement.

Also, I'm getting the average revenue-as-share-of-GDP for the 20 years preceding Dubya (1982-2001) as 18.5% of GDP. (That's for total revenue - on-budget plus off-budget.)

So Sully and Heritage are wrong there, unless their 20-year horizon that they're comparing Dubya to, includes the Dubya years. Which would make no sense at all, to compare Dubya's budgets to a group of years that includes Dubya's budgets.

The player piano must be an insidious allusion to Paul Lindbergh's.

Spending during the Bush Years measured in proportion of GDP is about the same as during the Clinton years, actually a tad lower.
Revenues are significantly lower, even if you ignore 1999, 2000 and 2001, the hight of the dot con (sigh) boom.
So there wasn`t a explosoin in spending, whatever Sullivan believes but were was a big reduction in revenues.

I'm Brian Riedl, the author of the article in question.

Actually, the 18.4% of GDP is not "made up." The OMB figure of 17.5% was their PRELIMIARY PROJECTION released in the last year's historical tables, back in February 2006

(in fact, that is OMB Table 1.1 says "2006 estimate")

At the time, they estimated 2006 revenues of $2,285 billion. In reality, revenues ended 2006 at $2,407 billion.

Want a source? Table 1.3, page 8, of the new CBO baseline at http://www.cbo.gov/ftpdocs/77xx/doc7731/01-24-BudgetOutlook.pdf

Table 1.3, page 8
Revenues $2,407
GDP $13,065
Revenues as a Percent of GDP: 18.4%

Too bad some of the posters are better at hurling petty personal attacks, than actually understanding budget data.

Yawn.

Brian Riedl
The Heritage Foundation

Further to RT, here are my numbers for receipts as % of GNP:

1946-2005 17.9
1966-2005 18.2
1986-2005 18.4

Stripping out the GWB years:

1946-2001 17.9
1966-2001 18.4
1986-2001 18.7

Average for the GWB years:

2002-2006 17.3

I would note that the upshot of Riedl's claim is something like "GWB didn't really cut taxes," which is an odd claim indeed. Presumably whether GWB cut taxes is not at issue. The questions are whether the cuts were (i) sensible in light of spending obligations and (ii) equitably distributed.

The increase in tax revenues comes mainly from corporate taxes. Corporate profits -- before taxes -- have surged in recent years. However, with growth widely expected to slow this year, corporate profits won't rise as fast as in previous years -- or could even be flat.

Calling all smartypants! A similar discussion is taking place over at http://www.startribune.com/blogs/bigquestion/?p=500#comments right now! Go on over and join the fray.

Petey

Holy crap, that was funny.

By the way, Matt, I agree with your blog post title of "Hilarious."

It is hilarious when a blogger posts a criticism that can be easily disproved with 2 minutes looking at the OMB Historical Tables.

Historical Average Revenues:
60-year average 1946-2005 17.88
40-year average 1966-2005 18.25
20-year average 1986-2005 18.35
2006 18.42

Having to go back to the 1700s to get a historical average less than today's 18.42% of GDP? Oops!

I found your post hilarious too.

Brian Riedl
The Heritage Foundation

I love the title of this post - it is especially ironic in that Matthew's "gotcha" was debunked in about 15 seconds simply by clicking and reading the link he himself provided.

Hilarious indeed! I would like to thank Matthew for my first chuckle of the morning.

On topic - I think it is somewhat difficult to tell where revenues are, since that is usually somewhat dependant on business cycles. While 2006 revenues were clearly above the 20-, 40-, and 60- year averages, those averages include periods of rescession, during which revenues tend to be lower. (And of course we are not in rescession now.) A somewhat similar point is relevant to alkali's calculation, since his average for Bush's presidency includes the bad 2002 and 2003 years, bringing down the average revenues for Bush's tenure. And of course, looking at the average over Bush's tenure says nothing about where revenues are today.

Also, with respect to this claim:

Myth #4: Capital gains tax cuts do not pay for themselves. Fact: Capital gains tax revenues doubled following the 2003 tax cut.

Here are capital gains tax revenues for 2006 and the last 10 years (in , per CBO):

1996 54
1997 72
1998 84
1999 99
2000 119
2001 100
2002 58
2003 50*
2004 61
2005 84
2006 103*

(Riedl's analysis appears to be based on the figures with asterisks.)

We know that the economy did not double in size between 2003 and 2006 -- it grew at about 2.5% per year in real dollars. So what we are seeing here is mostly the fact that capital gains taxes vary a lot by reason of the business cycle, not any great macroeconomic lesson about how capital gains taxes supposedly pay for themselves. There's no reason to think that if capital gains taxes had been left alone in 2003, capital gains tax receipts in 2006 wouldn't have been something more like $134b.

(Amusingly, this Myth #4 immediately follows Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves. Fact: It assumes replenishment of some but not necessarily all lost revenues. Alas, the supply-siders just can't resist the temptation.)

Heritage Foundation is an "I'll take your money for nothing" scam not any better than the 700 Club. They need to get over themselves or find a new name. Lewis (of Lewis and Clark fame) was a drug adled dope fiend and a momma's boy worthy killer who looked for ways to appease and receive acceptance and false adoration long before it was popular with the Bonesmen of Yale University fame, (both being native american killers and psychopathic assemblages of persons prone to "spoiled rotten to the core", public displays of their insensitivity to anything but their concepts of, "I'll make history". Large part of the problem with the neo-conic view of today's woes, where fellas with nothing better to do but lift weights and take steroids decide .... sure why not.

Sadly, I'm forced to agree with Al on a non-NBA subject. MY appears to have been pantsed by his own snark, and that, sadly, really is funny.

My database says revenues were 17.5% of GDP in 20006, not the 18.4% number they report.

Spencer: see Summary Table 1 in this document. I believe 17.5% was the estimate for 2006, 18.4% the actual.

Spencer, your source is out of date, see my post above
Brian Riedl

i notice that brian, so eager to prove what a smart boy he is, completely ignores the single most relevant comment here: RT's at 9:49 a.m.

c'mon brian: you're a tough talker. go ahead and explain to us why you used payroll taxes to hide reality. we're all eager to hear what you have to say big boy....

Wow, Brian! You found one year where Bush's economy returned an historically high return on revenue! Yeah, that really debunks Matthew's analysis. Please respond to alkali's numbers or show us your calculations with Bush's numbers taken out and averaged in comparison to the other historical periods. Just dumping Bush's 2001-2005 numbers in with the entire historical period and then comparing the one-year high doesn't prove your point and makes Matthew's snark all the more deserved!

as a broader construct, most of the "myths" that riedl is so frickin' proud of are artifical creations and not "myths" at all: they were selected to allow riedl to spout propaganda and are not, in fact, standard commentaries.

the ones that are standard commentaries are responded to by riedl in a less-than-forthright manner.

but my favorite is how well the 2003 tax cut "worked." that would be the one that was supposed to produce 5.5M new jobs between july 1, 2003 and december 31, 2004. somewhere in 2006, we made it.

where i work, we call that "failure."

And so, the thread becomes
A) Personal attacks;
B)"I know their data must be wrong...and yet I cannot point out any actual errors, so I'll just revert to lots of inflated rhetoric" and
C) Attempted factual criticisms from people who don't realize that the 2006 budget estimates from last year's OMB Historical Tables are outdated.

And that's where I head to the blog's exit.
Apparently, nothing to see here.

Brian Riedl
Heritage Foundation

P.S. Al: Myths 3&4 state that some tax cuts fully pay for themselves (like cap gains), while others do not. There is no contradiction. But you have to actually read the text, not just section heads to understand that.

Hilarious indeed! I would like to thank Matthew for my first chuckle of the morning.

At least you're here to provide all subsequent ones. And remember, Al: we're laughing at you, not with you. Because you're a twat.

So it seems like the bottom line is something like this:

There was a spike in tax revenue in 2006. So if you compare 2006 to previous years, it seems like tax revenues are higher now. But if you look at the Bush years as a whole, tax revenues are down compared to recent averages.

To Brian Reidl
I didn't see any personal attacks against you. You must be very sensitive to take as personal those comments. Perhaps you should reconsider ever publishing anything you write.

In the historical table provided by OMB the revenues in 2006 measured in shares of GDP are 17,7%, neither 17,5% or 18,4%.
Can somebody explain the difference?

And so, the thread becomes
A) Personal attacks;

Surely Brian Reidl must know that a conservative coming into the comments section of a lefty blog would involve some of that. You gotta have thicker skin. (Hey, pseudonymous in nc!)

P.S. Al:

Directed at alkali, I believe.

Shorter Riedl:
'If I can find one year of success in a Soviet-style economy, I will prove that Communism is great! To say otherwise or to question my methodology would be a personal attack on me.'

While Mr. Reidl claims may very well be spot-on, I am nonetheless left with a "so what"?

Since the nation's expenditures are still greater than the revenues (aka we're running a deficit), isn't there still a bit of a problem here?

Given the ease with which capital moves across national boundaries these days, I have a problem buying "the deficit doesn't matter because GDP will grow to compensate in later years" argument.

I found a government source that lists Revenue from 1962 to present. It includes the 18.4% actual number from 2006, not the estimate.

This totals 45 years of data. George Bush has presided over 5 of those budgets. The 10/20/30/40/45 year averages of total revenue as % of GDP are 18.7/18.4/18.3/18.3/18.2. ONE of Bush's revenue nimbers (2006) comes anywhere close to average. The ranks of those revenue streams (2002-2006) are 25/44/45/34/16. That's rotten. That's right, the two lowest revenue-as-%-of-GDP in the last 45 years. WHILE fighting a war.

If you exclude "Social Insurance" revenue (Social Security, Medicare, etc), the picture is even worse. Ranks: 40/44/45/41/29. This includes the ONLY two years the non-social insurance revenue stream was LESS than 10% of GDP. Bush's tax cuts tanked revenue.

Much of the revenue increase in the last 10 or so years has been the social security surplus. If you exclude the social security surplus (it's money already earmarked for the future, right?), George Bush is a miserable failure. Ranks: 42/44/45/43/35. That's right. The four LOWEST in the last 45 years. Simply put, George Bush's tax cuts have devastated government revenues. Ironically, the two next lowest are from his dad's last two years.

Clinton, on the other hand, had the 1-4 highest revenue, propped up by record social security surpluses. Clinton total revenue - 19/13/11/7/2/3/1/4.

If we remove "social insurance" we get 33/31/28/24/12/14/7/22. About what you would expect from a booming economy. Clearly, Clinton wasn't a taxing maniac wrt income tax.

If we remove the social security surplus (we are supposed to be saving it, right?) we get 28/21/15/10/6/7/3/12. During this period, we had record social security surpluses reaching 1.7% of GDP.

Clinton's record revenues are artificially inflated by social security surpluses, and his budgets, to a large degree, reflected this as spending was continually reduced. By the end, we more or less had a balanced budget EXCLUDING social security surplus (think "Lock Box")

Andrew Sullivan is WRONG when he says we don't have a revenue problem.

Guachi,

Guachi is the man. Great post. It's remarkably noticeable how Reidl left the moment someone asked him to respond to specific criticism. I've seen it quite often in blog comments, suddenly the person taking the heat is offended by the tone and can't take it any longer. I was interested in what he had to say until he turned into sensitive boy and refused to answer the tough questions.

I am open to listening to this debate because I am not an economist or a number cruncher of government statistics. Would Mr. Riedl like to respond to Guachi's post? Specifically, I would like a comment on the fact that Guachi used ACTUAL numbers as opposed to estimates. To be fair, I think Guachi should provide the name, link, etc., of the "government source" that provided actual numbers so that the numbers can be independently reviewed and verified.

See, I just knew Heritage was cooking the books, but not being at all competent to speak on these issues, I had to wait for guachi to bring the smackdown. Well, done sir/madam!

Here is a good reference when debating these topics (I would guess it's the doc that guachi found). See table E-2 (p3).

As a working class man who lives paycheck to paycheck and doesn't have the comparatively generous British welfare state to fall back should he ever be unable to find a job or be deported, it is perfectly rational for Sully to support the Bush tax cuts.

So Brian takes his ball and goes home. What a tough guy!

Seriously, 99% of the time wingers act like little boys who never got past the girl-hating stage.

Gauchi,

What was the government source? Can you provide a link or cite so we can run this down? I would like an answer from those that are more knowledgeable why this doesn't refute the bulk of Riedl's claims?

Sujal

Foo Bar wins!!! I made up my Excel chart earlier (I work nights) and didn't save the .pdf I used for the data. Thanks, Foo. All data I used did, in fact, come from table E-2.

I searched "Government revenue as a percent of GDP" (I think) using Google and picked the first or second choice. It's CBO numbers.

There are, of course, a variety of ways of looking at the numbers, which is why I gave the info three different ways. I used rankings because we can all relate to that without needing to be economists.

We need to remember that the Heritage Foundation is a Belief Tank (Thank you Doonesbury.)

In typical Conservative fashion Reidel comes along makes a few pedantic statements about how his nonsense is technically true while totally ignoring the relevent data posted above about looking at on-budget vs off budget.

Rather he simply dismisses all criticism as a personal attack and leaves.

It's great that Riedl was willing to stop by, but too bad he couldn't address alkali's main point (only his parenthetical about section heads) or howard's point about job creation.

I don't see any comments that would warrant Riedl's emotional response and departure. There were some more-heat-than-light comments that might provoke irritation, but there weren't any particularly obnoxious ones.

It leads to the inference that he would rather not defend his study, except against weak arguments.

It seems to me that even if the Heritage study were valid, it still would be a trivial means of assessing our nation's economic health and tax policies, for the tax revenue needs to be put in perspective with the nation's increasing debt. After all, what difference would it make if you received a small raise at work but went on an unprecedented and unsustainable spending spree?

Continuing to muse on Riedl's work, I looked at the following:

Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.

Riedl explains:

"The best way to measure the swing from surplus to deficit is by comparing the pre–tax cut budget baseline of the Congressional Budget Office (CBO) with what actually happened. ... [In 2006,] 90 percent of the swing from surplus to deficit resulted from higher-than-projected spending, and only 10 percent resulted from lower-than-projected revenues."

Here is that same analysis presented over all of 2002-2006. (The first column is the percentage of change from baseline resulting from higher spending, the second is the percentage resulting from lower revenues.)

2002 34% 66%
2003 35% 65%
2004 42% 58%
2005 65% 35%
2006 90% 10%
Total 54% 46%

In short, if you don't look at just 2006, it's clear that revenue shortfalls are responsible (under Riedl's metric) for just under half of the deficits versus baseline.

Just out of curiosity, I stripped out Iraq war spending for 2003 through 2006 (see this source for the data) and re-ran the analysis for those years:

2003 29% 71%
2004 34% 66%
2005 58% 42%
2006 88% 12%
Total 50% 50%

Regarding this post from Alkali:

So what we are seeing here is mostly the fact that capital gains taxes vary a lot by reason of the business cycle, not any great macroeconomic lesson about how capital gains taxes supposedly pay for themselves. There's no reason to think that if capital gains taxes had been left alone in 2003, capital gains tax receipts in 2006 wouldn't have been something more like $134b.

I can speak anecdotally about recognition of capital gains. As someone who advises wealthy people on when to realize capital gains as a part of my job, I can assure you that the biggest factor in deciding when to do so is . . . the capital gains tax rate.

People will decide not to sell assets, or will utilize tax planning, if the rate is too high. How high is too high? It depends on the person. There are a variety of methods that can be used to avoid or postpone capital gains. When someone is considering whether or not to utilize one of those methods (which all have tradeoffs), they weigh the cons against the prevailing tax rate. Before the long term rate dropped, people avoided outright sales of assets or used these strategies. Since it is currently so low, we have been advising people to sell assets outright that they otherwise might not have sold, or might have utilized some device to avoid or postpone paying the tax. I've never seen the "business cycle" enter into such a decision. Of course, that is anecdotal.

I've seen other people in our industry, and other related industries giving the same advice. A marked increase in recognition of gain, caused by the incentive of a lower tax rate, could easily bring in higher capital gains tax revenues.

It's not that lower taxes always create more revenue. It's that there is some tax rate, which may be lower, or even higher, than the current rate, that maximizes revenue. In the case of capital gains, if rates are too high, people will be incentivized to avoid selling or utilize tax planning to avoid or postpone the tax.

It leads to the inference that he would rather not defend his study, except against weak arguments.

Posted by: Elvis Elvisberg on January 31, 2007 12:45 PM

This situation obtains with all Heritage babies. They are weak tea. Perhaps they will see this as a 'personal attack' but when you look at AEI, Heritage, etc., all you find are thin-skinned bullies like Brian and Lott.

Conservative Liberal (1:00 pm): It is true that people can time when they take capital gains and that this affects when they pay capital gains taxes. But the biggest factor in whether people pay capital gains taxes in a given year is whether they have realized any capital gains in the first place. That's where the business cycle comes in: in a recession, people aren't going to have capital gains to realize; in an expansion, they will, and they'll pay taxes.

It is true that one sometimes sees a surge in capital gains tax revenues immediately after rates are lowered, but that wouldn't affect the 2003 vs. 2006 comparison Riedl was making.

I would further note that one would expect that timing decisions would tend to offset one another: for every Alan and Audrey who decide to postpone realizing capital gains (and paying taxes) to a future year, there is a Bob and an Bernadette who made that decision in a prior year and are going to take capital gains (and pay taxes) this year.

Now, I passed my undergraduate economics classes by the skin of my teeth and need a calculator to balance my checkbook, so take what I say with a nice chunk of salt, but it seems to me that there's a historical factor missing from Dr. Reidl's (and most other) discussion on tax cut revenue generation: Has a tax cut premised on supply-side economics, "meant" to fuel economic growth, ever been attempted or successful without massive deficit spending on the part of the government? That is to say, the only times these theories have been tried were during two periods - the Cold War and the Global War on Terror - where the government was increasingly spending on the military-industrial and other sectors of the economy. It seems to me that there is some indication, perhaps, that supply-side economics does increase aggregate wealth to the economy only if the government is also spending huge amounts of money.

Or I could be completely off-base. But it seems logical to my sad little mind.

Come on people, supply-side economics works. Bush and Heritage are right. Lower taxes = higher tax revenue.

I therefore propose a tax rate of 0%. By Heritage's calcluations that should mean infinite tax revenue right?

i too find it remarkable that brian doesn't deign to respond to the specific critiques of his propaganda piece. for the record, here's one man's scorecard:

Myth 1: historically low revenues, is, in fact, a true statement as long as you honestly concern yourself with income taxes and don't use the prefunding rate of FICA taxes to obscure reality.

myth 2: specific to 2006, is a completely bogus point, not a myth at all. insofar as this is an attempt to defend supply-side thinking (and responding to james elliot), then it is the responsibility of the supply-side thinkers to explain why it is that their man couldn't control spending better (and indeed, to explain whether their man was delusional about controlling spending, which alkali's iraq-free spending table points to)

myth 3: is a myth clung to by the right, not by the left. insofar as brian's fellow traveller's don't understand supply side thinking, that's not a myth pertaining to bush's tax cuts.

myth 4: capital gains tax cuts is not a myth. i'd like brian to provide us one citation concerning the notion that "capital gains tax cuts do not pay for themselves."

myth 5: is incomprehensible. it is true that health-care spending is a problem that the US economy faces, but the american people, through their elected representatives in congress have chosen to take on part of that burden. it is therefore the responsibility of fiscal policy to meet those costs or find a way to control them, not wish they didn't exist as a means of arguing that really, bush's tax cuts are the all-time most awesome.

myth 6: is another bogus myth. again, brian is welcome to come up with an example that says "raising tax rates is the best way to raise revenue." it is, however, a fact that the last tak hike we had, the clinton hike, brought us better growth than the bush tax cuts have brought us, and revenue was not a problem, either.

myth 7: is meaningless piffle.

myth 8: is meaningless piffle.

myth 9: regarding whether the bush tax cuts have "helped" the economy is another phony "myth." the actual fact is that the growth we have seen over the 21 quarters has been substandard despite the bush tax cuts. no one doubted that keynesian stimulus (what we've actually had) would have a multiplier effect that a balanced budget would not have had.

myth 10: regarding the distribution of the bush tax cuts, is true. the way we judge this is not by the relative share of tax paid by an income group but by the pre and post tax distribution of income. If those tables are precisely the same, the effect was neutral; if the upper 1% have more of a share of national income post taxes than pre, the tax cuts favor the upper 1%; and if the remaining 99% have more of a share of national income post taxes than pre, the tax cuts favor the other 99%.

the tax cuts favor the upper 1%.

so, my scorecard shows brian full of it on 2 points, fighting a right-wing myth on 1 point, and meaningless, bogus, or incomprehensible on the other 7.

Alkali, regarding this:

“But the biggest factor in whether people pay capital gains taxes in a given year is whether they have realized any capital gains in the first place. That's where the business cycle comes in: in a recession, people aren't going to have capital gains to realize; in an expansion, they will, and they'll pay taxes.”

You say the “biggest” factor in determining whether or not capital gains taxes are paid is whether they have “realized” any capital gains. I submit that the “ONLY” factor – not just the biggest - in whether the tax is paid is whether or not a gain was realized (i.e., the asset was sold). If you have 1 trillion dollars of gain, but you don’t sell the asset, you don’t pay a tax.

Wealthy people have large built-in gains in all types of assets, whether there is a recession or not. Yet another reason why it’s nice to be wealthy. In an expansion, those gains are just larger.

I don’t believe timing decisions are creating a zero sum game. My experiences indicate that current realizations are dramatically outpacing realizations from prior years. Regarding Alan and Audrey, my anecdotal experience is that Alan and Audrey are NOT postponing capital gains realization anymore. They are realizing it now, in addition to Bob and Bernadette’s realization from prior postponements.

I've got an idea, raise the highest marginal rates to 90%. That will send revenues through the roof, right?

Regarding Capital gains taxes: Note how the fluctuations of the stock market during this period. The DOW and NASDAQ had their initial highs in around 2000, thus the high capital gains tax revenues (CGTR) at the time. The stock market dropped significantly from mid-2002 to early 2003 (during the March to War period) and subsequently hit rock bottom in early 2003. Therfore, in 2003 CGTR were low. Now, we are at record highs again (It only took 6 years!! Those tax cuts are miraculous!!) and, wouldn't you know it, CGTR is also very high. Shocking, I know.

And of course we are not in rescession now

Don't be so sure...

conservative liberal, here's a little thought experiment for you.

i'm 21 and i invest $1 in a stock that doubles every 6 years (i did this to keep the numbers simple). i pursue 2 alternate realities.

in reality 1, i keep the value growing and pay a 35% cap gains tax when i turn 63 (the stock has gone up to 128 in the 42 years). my cap gain tax is $44.45, meaning i've got $83.55 left.

in reality 2, i sell the stock every time it doubles at a 15% cap gains tax, then reinvest. By the time i turn 63, the stock will be at (roughly - i did this by paper and pencil, not on a spreadsheet) $82.60, and i'll have a final cap gains tax of $6.20, meanig i've got $76.40 left, even though i've only paid $12.60 in cap gains taxes over the years.

in short, insofar as people are taking advantage of lower cap gains taxes to sell more frequently, they aren't, actually, doing themselves as much good as if they simply let the cap gain grow (nor is the revenue replacing the revenue, fwiw). i learned this long ago from warren buffett.

of course, cap gains revenues are a very small part of the total revenue picture anyhow, despite the efforts of brian to pretend otherwise.

Note to my 12:56 pm post: here is a spreadsheet showing my calculations.

alkali, over at angrybear (http://www.angrybear.blogspot.com/), cohost cactus (cactus4321@yahoo.com) is accepting point-by-point rebuttals to the myths, which he will post. i'd suggest you send him your spreadsheet (tell him howard sent you!).

Let's not forget to include this great report put out by the CBO detailing how supply-side economic theory is shit, at least the way most of the Right talks about it:

http://www.cbo.gov/showdoc.cfm?index=6908&sequence=0

The Laffer curve is a sound simple theory, it's just that we are very very far to the left of its pinnacle, i.e. we'd have to do a lot of tax raising before revenues started to fall. Of course, tax policy isn't all about maximizing government revenue, it's about providing services the public wants, so even crazy liberals like me don't want to find the magical tax rate that maximizes government revenue. That would likely be too high. And now it is quite obviously too low.

i want to second simulatedoutrage's praise for that report (which i linked to at angry bear but not here): it is required reading for anyone who wants to participate seriously in this kind of discussion.

I wonder, did they calculate the average dating back to independence in 1776 or only back to the constitution taking effect in 1789?

I wonder: are they talking about income taxes only, which is what they should be talking about, or are they talking about income and Social Security taxes together? (Latter is running a surplus...)

Huh. guachi already made the point better.

al wrote, On topic - I think it is somewhat difficult to tell where revenues are, since that is usually somewhat dependant on business cycles.

See CBO's Appendix E: Historical Budget Data, particularly Table E-13 "Standardized-Budget Surplus or Deficit and Related Series, 1962 to 2006 (Percentage of potential gross domestic product)", for numbers which attempt to correct for the business cycle.

AFAICT those numbers don't correct for the Social Security surplus, however.

The Laffer (apt name) Curve is grim nonsense.

We've nearly gone bankrupt for a tautology.

Guys & gals,

If you shift $500 billion dollars into tax cuts that favor the
rich, why gosh almighty, they're going to invest much of that
money, and what do they get? Capital gains!!!! Whoo hoo!!!
$500 billion spent a year and we get $50 billion more a year!
What a bargain!!!

Now, what happens when oil and gas prices double?
Whoo hoo!!! More capital gains, amongst other effects.
Whoo hoo!!! Now we're cooking with gasoline. And oil.
And I guess we need $100 billion for war spending to even it
all out.

Okay, here's another one - you're now running deficit spending,
heating up the economy by $500 billion more a year, and look,
you get another what, $200 billion a year? Hey, only $300 bill
in the red, not bad, revenue's on the rise and we can pay it
all off in the 22nd century.

Now, perhaps I read the numbers wrong, but I see that between
the 6 years 1994-2000 revenue increased 60%. And then in 2000 someone predicted a 20% increase over the next 6 years to 2006.
And you know what we did? We went out and beat that miserable
pessimistic estimate by 2%!!! Whoo hoo!!! Revenue increased
by 22% over 6 years!!! Forget that working age Americans
increased by about 6 million during that time - no need for
sour grapes.

By the way, what exactly happened to the SS lock box?
Anyone seen it?

Oh, by the way, from 1995-2000 real GDP increased over 15%.
From 2000-2005 real GDP increased 7%.
So if GDP growth sucks, should I be happy that tax revenues
as percentage of GDP is above historical average? Or be pissed
that GDP growth as well as concomitant tax revenues growth sucked
over the last 6 years? I'm just asking.

"As you go through life, make this your goal,
watch the donut, not the hole"

The "10 Myths" should be renamed "10 Strawmen knocked down via Cherry Picked data and/or unsubstantiated assertions".

Imagine, propaganda like this out of Heritage. Talk about "YAWN".

Given their track record, who can blame Matt for not bothering to read all the way down to the bit about 20-40-60 year averages. They may not be relying on averages from the 1700's, but, hell, what they've got here is no more worthy of serious attention.

See CBO's Appendix E: Historical Budget Data, particularly Table E-13 "Standardized-Budget Surplus or Deficit and Related Series, 1962 to 2006 (Percentage of potential gross domestic product)", for numbers which attempt to correct for the business cycle.

That's fascinating - thanks, liberal.

Taking these numbers, we can see that FY2003 and 2004 really did have low revenue (among the lowest in the last 44 years), even correcting for business cycles. However, in those years, spending wasn't all that high, so the deficit, correcting for business cycle, wasn't too bad. FY2002 and 2005 revenues were somewhat low, but there are plenty of years lowers, correcting for business cycle. And revenues in FY2006 are really relatively high.

Also, I don't get what alkali is trying to prove with his tables. Reidl said that revenues were pretty much fine in 2006. Alakali responded with charts that examine 2002-2005. So alkali's objections are irrelevant to the claim Reidl actually made.

al, let's return to the key point: you can't look at revenues inclusive of a period with prefunding of social security and compare them to revenues in a period without prefunding of social security.

and you need to bear in mind that the prefunding is increasing as the years go by.

meanwhile, alkali's chart does include 2006, so i'm not sure what your point is, anymore than i'm sure (as i noted at 1:26) what riedl's point is supposed to be: where is the evidence to support his notion that there is some specific "myth" about 2006? since he went into a pout, maybe you can help him out: where are the citations of people saying what riedl claims they are saying?

On a very basic level, I'm just tired of the game where every time we have a good quarter or a good year, conservatives point to the most recent tax cut and say, "See? It worked!"

A better measure of revenues and outlays is when the "noise" of economic cycles are taken out. The CBO does it every year in its "The Cyclically Adjusted and Standardized Budget Measures" document. And according to it, the Bush tax cuts are the primary force behind the deficits.

More better explained here - http://www.ombwatch.org/article/blogs/entry/2770/48

Conservative Liberal - You stated, "I don’t believe timing decisions are creating a zero sum game. My experiences indicate that current realizations are dramatically outpacing realizations from prior years. Regarding Alan and Audrey, my anecdotal experience is that Alan and Audrey are NOT postponing capital gains realization anymore. They are realizing it now, in addition to Bob and Bernadette’s realization from prior postponements."

So, let's say that everyone is "cashing out" now to take advantage of the lower rate, as you state. They are essentially doing this because they expect the rate to be higher later, in other words, that Congress will rate the Cap Gains tax at some point in the future. If we assume this as true, then basically the government is loosing money in the long run. In the short run, Yipee we have a dramatic increase! Presenting this as a positive effect is irresponsible, which is where I see Heritage's position.

That is so funny, we have Riedl fighting his corner, he then is faced with a couple of facts and gets fisked and all of a sudden he disapears and is nowhere to be found!.

Also in one of his comments he yawns as if he is bored. Well Riedl prehaps you would like to explain how come your employer the Heritage Foundation was so wrong on nearly everything they predicted about Iraq and one reason why anyone should ever listen to them again about this or anything else?

In typical Conservative fashion Reidel comes along makes a few pedantic statements about how his nonsense is technically true while totally ignoring the relevent data posted above about looking at on-budget vs off budget. Rather he simply dismisses all criticism as a personal attack and leaves.

Thank you, Eric, for calling this out. I can't tell you how many times I've seen a right-winger serve up a line of bullshit, get called out on said bullshit, and then instead of actually answering any of those arguments, sniff "Oh, I see all you've got is personal attacks" and then completely disappear, even as more and more refutations come flying his way.

I guess we should just be glad he didn't invoke the "liberal thought police" canard or accuse all of us of "censoring" him simply for disagreeing with him, another favorite right-wing non-strategy.

Too funny. Now my 2nd update to my Angrybear post is a hat tip to your humor!

al, let's return to the key point: you can't look at revenues inclusive of a period with prefunding of social security and compare them to revenues in a period without prefunding of social security.

But, of course, pre-funding is a myth. FICA revenues goes to the same exact place as income tax revenues: the federal coffers, to be spent on the Iraq war, welfare, interest, whatever, all the same. Revenues are revenues.

meanwhile, alkali's chart does include 2006, so i'm not sure what your point is

Alkali's numbers for 2006 are the same as Reidl's, so obviously they can't rebut anything Reidl said. So I'm not sure what Alkali's point is regarding 2006. If Alkali wants to make a point about 2002-2005, that's fine - I just noted it has noting to do with Reidl's point.

But, of course, pre-funding is a myth. FICA revenues goes to the same exact place as income tax revenues: the federal coffers, to be spent on the Iraq war, welfare, interest, whatever, all the same. Revenues are revenues.

So you angrily called out Bush and the Republicans as liars for claiming Social Security will be insolvent in 2047 or whatever year it is, right? Because it's all part of the same big pool of money?

I wouldn't say "angrily".

It's not the same pool of money, though. If the general fund wants to take advantage of the leftover revenues from FICA, it needs to borrow them, and pay a rate of return, through the sale of Treasury Bonds to the Social Security Trust Fund. Whereas if the general fund wants to take advantage of revenues from, say, the capital gains tax, no problem, the money is right there for the taking.

Al, the supreme court has ruled that a special-purpose tax (in the case of the highway trust fund) is not fungible. i suspect that even the roberts court would rule the same, so the notion that "revenue is revenue," which relies upon fungibility arguments, isn't, in fact, true.

basically, there are two versions of what the greenspan commission was doing: some say it was pre-funding, others say it was bringing the trust fund into 75-year balance, which is a distinction without a difference.

the point is that the social security trust fund began running a surplus in the early '80s, and every year since then the surplus has gotten larger.

riedl's argument is that revenues are at historic norms as a percentage of gdp, but if we were funding social security on a true pay-as-you-go basis, as we used to, then riedl's argument is, of course, full of shit. which is my point.

i guarantee you that when the FICA increase was voted on, there was no one who thought they were voting for a regressive subsidy to the income tax, so counting those dollars as though that were the policy is a bogus argument.

as for 2006, as i've noted already, riedl grabbed a year and pretended there is a "myth" about it. alkali was contextualizing the phoniness of riedl's argument. that's the point.

Brian Riedl responds to Matt but he seems to be ducking the replies to his nonsense from: (a) Max Sawicky; and (b) this Angrybear. Brian - you will be happy to know that the dumbest rightwing troll who infects our blog with his incessant stupidity scooped your Myth #1. Having to cut and paste from a really dumb rightwing troll. Good luck on finding a new job when Heritage has to dump you.

Ok I admit I am not an economist, but are people really complaining that during Bush's presidency that the taxes have not been high enough? You make it sound like it is a bad thing that the government is taking less of your money. The US government does not have a revenue problem - it has a spending problem. Bush has been the worst offender on this and the Republican party went along trying to buy themselves the next election. Cut all the wasteful spending, then the revenues could be cut even more. The goal should be to reduce revenue and spending as a percentage of GDP. The lower those numbers are, the better the government is doing.

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