CBO Forecast Shows Runaway Spending—Not Tax Cuts—Causing Deficits - VGF

Philip55 · 01-30-2005, 01:15 AM

http://www.taxfoundation.org/ff/cbo-forecast.html

The federal budget projections released January 25, 2005, by the Congressional Budget Office (CBO) show that runaway spending, not insufficient tax revenues, remains the cause of today’s nagging budget deficits.

While much of Washington’s attention will be on the $368 billion deficit that CBO projects for 2005, the real story is CBO’s forecast of tax revenue collections. CBO estimates that federal tax revenues will total $2.057 trillion for FY 2005—$177 billion more than was collected last year, an increase of 9.4 percent.

This surge of new tax revenues for the federal Treasury is having a limited effect on lowering the federal deficit because spending continues to grow at a relatively rapid pace. CBO projects FY 2005 outlays to top $2.425 trillion, a 5.8 percent (or $133 billion) increase above last year’s level.

This growth rate is two and one-half times the rate of inflation and excludes any forthcoming appropriations for the war in Iraq. If spending were held to the rate of inflation rate this year (2.4 percent), the budget deficit could be trimmed to $290 billion, rather than the projected $368 billion.

t* represents the rate of taxation at which maximal revenue is generated

Laffer curve, people. Laffer curve.

Jonathan Resop · 01-30-2005, 02:01 AM

Does anyone else have the feeling that Phil is really Bill o'Reilly or Sean Hannity?

Come on, Bill, step out of the closet already. We know it's you.-jay

Nick · 01-30-2005, 02:55 AM

Basic principle: You do not go into debt if you pay as you go. Lower tax revenue means lower government income, meaning less they have to spend.

Philip55 · 01-30-2005, 03:19 AM

Basic principle: a 0% tax rate and 100% tax rate give you roughly the same amount of revenue.

Basic principle: a 30% tax rate gives you more revenue than a 99% tax rate. Or 98. Or 97. Or 80.

Basic principle: the laffer curve exists. The debate is about where the "t*" point is.

The Missing Link · 01-30-2005, 10:45 AM

Quote:

Originally posted by Grinch1982:
Lower tax revenue means lower government income, meaning less they have to spend.

Provided that the increase in dollars that we get to keep doesn't stir the economy enough to be shuffled back to the federal governments as taxes of a different breed.

"There are some who call me... Link?"

"Carpe Gaium Domesticum!" (Seize the Cucco!)
Zelda: The Grand Adventures | Triforce MUCK
ザ行方不明リンク
悪いユウモアの賢人

Nick · 01-30-2005, 04:34 PM

If you want to dispute that less income + more spending = more debt than income + equalized spending = even/surplus, then you're foolish. How about this, get a credit card, lose your job, and then max it out and tell the company you were following the laffer curve to see what happens.

The Missing Link · 01-30-2005, 05:08 PM

Quote:

Originally posted by Grinch1982:
If you want to dispute that less income + more spending = more debt than income + equalized spending = even/surplus, then you're foolish.

If you'd read my post, that's not what I was talking about at all. I'm fiscally savvy enough to know that debt is a bad thing.

My point is that if you take in less income from one source BUT that loss of income comes back to you via another source (and possibly in greater quantities), then your generalisation doesn't hold true.

"There are some who call me... Link?"

"Carpe Gaium Domesticum!" (Seize the Cucco!)
Zelda: The Grand Adventures | Triforce MUCK
ザ行方不明リンク
悪いユウモアの賢人

Nick · 01-30-2005, 08:01 PM

Except the current political reality is that they're gashing all forms of taxes, so your hypothetical (which I do not dispute would work under the right circumstances) isn't applicable.

Philip55 · 01-30-2005, 09:50 PM

There's a difference between earning an income and taxing someone. The latter stunts productivity; the former is part of it.

If you want to dispute that a 30% tax rate gives you more revenue than a 99% tax rate, you're foolish. How about this, go take over a country, impose a 100% tax rate, and tell everyone you needed a lot of revenue.

EDIT: I think he's pointing out that if take a smaller percentage of a larger amount of productivity, you end up with more. Which isn't hard to figure out.

[ January 30, 2005, 08:56 PM: Message edited by: Philip55 ]

Nick · 01-31-2005, 03:06 AM

it depends how you look at it. In the very basic form, taxation is government income. Its similar to me earning 400 bucks in one month that I then have to split between bills and living expenses. With current tax cuts combined with current spending, the government is living an upper class lifestyle on a working class wage. If you want to dispute that less income combined with more spending isn't bad, I suggest you take a basic business class.

Link2000 · 01-31-2005, 01:02 PM

But Lurch, it can actually result in more income. With tax cuts, a person who is on the verge of opening a small business for instance could then have enough cash flow to do just that, and say employ another 10-15 people. Won't that actually increase revenue?

***CaptHayfever*** · 01-31-2005, 02:19 PM

^^But aren't they talking about less spending?

And remember, "I'm-a Luigi, number one!"

Nick · 01-31-2005, 02:39 PM

^^Depends which side of the economy you're looking at. Tax cuts are beneficial to businesses for obvious reasons and frees up capital for expansion of further investment. That isn't what's being disputed here. What I'm disputing is the quite idiotic claim that tax cuts aren't responsible for deficits. It isn't a sole cause, as it works along with increased spending to get to deficits. However, to say that one is the only cause while the other doesn't effect it is similar to saying that when I breath in oxygen, it doesn't get exhaled as cardon dioxide.

Tax cuts as an economic theory aren't a long term solution. They're a short term measure designed to jumpstart the economy. The main reason they're not (theoretically) a permanent measure is because the government has problems getting revenue and operating out of the red.

Lets look at it this way, according to your article, they took in more money last year (likely from business expansion or something). If there were a higher tax-rate or more corporate taxes, they'd get MORE MONEY. If you'd like to argue that, I'd love to hear it.

[ January 31, 2005, 01:43 PM: Message edited by: Grinch1982 ]

Philip55 · 01-31-2005, 08:25 PM

That is correct. Had the tax rates been higher, that "business expansion or something" would not have occured.

I'm not going to argue it, but I will explain the theory.

Here's a hypothetical. A government taxes income above $200,000 at a rate of 95%. If that tax bracket is lowered to 30%, will the government end up with more or less?

Clearly, the answer is more. Productivity will skyrocket.

Historical data:

Quote:

In 1913, the federal progressive income tax was put into place with a top marginal rate of 7 percent. Thanks in part to World War I, this tax rate was quickly increased significantly and peaked at 77 percent in 1918. Then, through a series of tax-rate reductions, the Harding-Coolidge tax cuts dropped the top personal marginal income tax rate to 25 percent in 1925. The economy responded strongly to the tax cuts, with output nearly doubling and unemployment falling sharply.

Quote:

During the Depression and World War II, the top marginal income tax rate rose steadily, peaking at an incredible 94 percent in 1944 and 1945. The rate remained above 90 percent well into President John F. Kennedy's term. Kennedy's fiscal policy stance made it clear that he believed in pro-growth, supply-side tax measures:

"Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle--workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit--why reducing taxes is the best way open to us to increase revenues."

Quote:

President Kennedy proposed massive tax-rate reductions, which were passed by Congress and became law after he was assassinated. The 1964 tax cut reduced the top marginal personal income tax rate from 91 percent to 70 percent by 1965. The cut reduced lower-bracket rates as well. In the four years prior to the 1965 tax-rate cuts, federal government income tax revenue--adjusted for inflation--increased at an average annual rate of 2.1 percent, while total government income tax revenue (federal plus state and local) increased by 2.6 percent per year. In the four years following the tax cut, federal government income tax revenue increased by 8.6 percent annually and total government income tax revenue increased by 9.0 percent annually. Government income tax revenue not only increased in the years following the tax cut, it increased at a much faster rate.

Quote:

In August 1981, President Reagan signed into law the Economic Recovery Tax Act (ERTA, also known as the Kemp-Roth Tax Cut). The ERTA slashed marginal earned income tax rates by 25 percent across the board over a three-year period. The highest marginal tax rate on unearned income dropped to 50 percent from 70 percent (as a result of the Broadhead Amendment), and the tax rate on capital gains also fell immediately from 28 percent to 20 percent. Five percentage points of the 25 percent cut went into effect on October 1, 1981. An additional 10 percentage points of the cut then went into effect on July 1, 1982. The final 10 percentage points of the cut began on July 1, 1983.

These across-the-board marginal tax-rate cuts resulted in higher incentives to work, produce, and invest, and the economy responded. Between 1978 and 1982, the economy grew at a 0.9 percent annual rate in real terms, but from 1983 to 1986 this annual growth rate increased to 4.8 percent.

Nick · 02-01-2005, 12:53 AM

Why would you tax at a 95% bracket?

The Missing Link · 02-01-2005, 02:18 AM

It'd be really hard to get to a 95% tax bracket. History has shown that revolutions tend to break out once taxes get over 1/2 of average gross income.

"There are some who call me... Link?"

"Carpe Gaium Domesticum!" (Seize the Cucco!)
Zelda: The Grand Adventures | Triforce MUCK
ザ行方不明リンク
悪いユウモアの賢人

01-30-2005, 01:15 AM	#1
Philip55 Junior Member Join Date: Nov 2004 Posts: 142 Thanks: 0 Thanked 0 Times in 0 Posts Points: 4,573.00 Bank: 500.00 Total Points: 5,073.00 Donate	http://www.taxfoundation.org/ff/cbo-forecast.html The federal budget projections released January 25, 2005, by the Congressional Budget Office (CBO) show that runaway spending, not insufficient tax revenues, remains the cause of today’s nagging budget deficits. While much of Washington’s attention will be on the $368 billion deficit that CBO projects for 2005, the real story is CBO’s forecast of tax revenue collections. CBO estimates that federal tax revenues will total $2.057 trillion for FY 2005—$177 billion more than was collected last year, an increase of 9.4 percent. This surge of new tax revenues for the federal Treasury is having a limited effect on lowering the federal deficit because spending continues to grow at a relatively rapid pace. CBO projects FY 2005 outlays to top $2.425 trillion, a 5.8 percent (or $133 billion) increase above last year’s level. This growth rate is two and one-half times the rate of inflation and excludes any forthcoming appropriations for the war in Iraq. If spending were held to the rate of inflation rate this year (2.4 percent), the budget deficit could be trimmed to $290 billion, rather than the projected $368 billion. t* represents the rate of taxation at which maximal revenue is generated Laffer curve, people. Laffer curve.

01-30-2005, 02:01 AM	#2
Jonathan Resop Banned Join Date: Dec 1969 Posts: 1 Thanks: 0 Thanked 0 Times in 0 Posts Points: 34,166.00 Bank: 500.00 Total Points: 34,666.00 Donate	Does anyone else have the feeling that Phil is really Bill o'Reilly or Sean Hannity? Come on, Bill, step out of the closet already. We know it's you.-jay

01-30-2005, 02:55 AM	#3
Nick Banned Join Date: Dec 1969 Posts: 0 Thanks: 0 Thanked 0 Times in 0 Posts Points: 10,345.00 Bank: 500.00 Total Points: 10,845.00 Donate	Basic principle: You do not go into debt if you pay as you go. Lower tax revenue means lower government income, meaning less they have to spend.

01-30-2005, 03:19 AM	#4
Philip55 Junior Member Join Date: Nov 2004 Posts: 142 Thanks: 0 Thanked 0 Times in 0 Posts Points: 4,573.00 Bank: 500.00 Total Points: 5,073.00 Donate	Basic principle: a 0% tax rate and 100% tax rate give you roughly the same amount of revenue. Basic principle: a 30% tax rate gives you more revenue than a 99% tax rate. Or 98. Or 97. Or 80. Basic principle: the laffer curve exists. The debate is about where the "t*" point is.

01-30-2005, 04:34 PM	#6
Nick Banned Join Date: Dec 1969 Posts: 0 Thanks: 0 Thanked 0 Times in 0 Posts Points: 10,345.00 Bank: 500.00 Total Points: 10,845.00 Donate	If you want to dispute that less income + more spending = more debt than income + equalized spending = even/surplus, then you're foolish. How about this, get a credit card, lose your job, and then max it out and tell the company you were following the laffer curve to see what happens.

01-30-2005, 08:01 PM	#8
Nick Banned Join Date: Dec 1969 Posts: 0 Thanks: 0 Thanked 0 Times in 0 Posts Points: 10,345.00 Bank: 500.00 Total Points: 10,845.00 Donate	Except the current political reality is that they're gashing all forms of taxes, so your hypothetical (which I do not dispute would work under the right circumstances) isn't applicable.

01-30-2005, 09:50 PM	#9
Philip55 Junior Member Join Date: Nov 2004 Posts: 142 Thanks: 0 Thanked 0 Times in 0 Posts Points: 4,573.00 Bank: 500.00 Total Points: 5,073.00 Donate	There's a difference between earning an income and taxing someone. The latter stunts productivity; the former is part of it. If you want to dispute that a 30% tax rate gives you more revenue than a 99% tax rate, you're foolish. How about this, go take over a country, impose a 100% tax rate, and tell everyone you needed a lot of revenue. EDIT: I think he's pointing out that if take a smaller percentage of a larger amount of productivity, you end up with more. Which isn't hard to figure out. [ January 30, 2005, 08:56 PM: Message edited by: Philip55 ]

01-31-2005, 03:06 AM	#10
Nick Banned Join Date: Dec 1969 Posts: 0 Thanks: 0 Thanked 0 Times in 0 Posts Points: 10,345.00 Bank: 500.00 Total Points: 10,845.00 Donate	it depends how you look at it. In the very basic form, taxation is government income. Its similar to me earning 400 bucks in one month that I then have to split between bills and living expenses. With current tax cuts combined with current spending, the government is living an upper class lifestyle on a working class wage. If you want to dispute that less income combined with more spending isn't bad, I suggest you take a basic business class.

01-31-2005, 01:02 PM	#11
Link2000 Senior Member Join Date: Aug 2000 Location: Ontario, Canada Gender: Posts: 8,052 Thanks: 1 Thanked 1 Time in 1 Post Points: 15,849.15 Bank: 804.22 Total Points: 16,653.37 Donate	But Lurch, it can actually result in more income. With tax cuts, a person who is on the verge of opening a small business for instance could then have enough cash flow to do just that, and say employ another 10-15 people. Won't that actually increase revenue?

01-31-2005, 02:19 PM	#12
*CaptHayfever* Smash Supermod Join Date: Jul 2002 Location: (n) - the place where I am Gender: Posts: 19,297 Thanks: 161 Thanked 741 Times in 479 Posts Points: 105,913.07 Bank: 942.27 Total Points: 106,855.35 Donate	^^But aren't they talking about less spending? And remember, "I'm-a Luigi, number one!"

01-31-2005, 02:39 PM	#13
Nick Banned Join Date: Dec 1969 Posts: 0 Thanks: 0 Thanked 0 Times in 0 Posts Points: 10,345.00 Bank: 500.00 Total Points: 10,845.00 Donate	^^Depends which side of the economy you're looking at. Tax cuts are beneficial to businesses for obvious reasons and frees up capital for expansion of further investment. That isn't what's being disputed here. What I'm disputing is the quite idiotic claim that tax cuts aren't responsible for deficits. It isn't a sole cause, as it works along with increased spending to get to deficits. However, to say that one is the only cause while the other doesn't effect it is similar to saying that when I breath in oxygen, it doesn't get exhaled as cardon dioxide. Tax cuts as an economic theory aren't a long term solution. They're a short term measure designed to jumpstart the economy. The main reason they're not (theoretically) a permanent measure is because the government has problems getting revenue and operating out of the red. Lets look at it this way, according to your article, they took in more money last year (likely from business expansion or something). If there were a higher tax-rate or more corporate taxes, they'd get MORE MONEY. If you'd like to argue that, I'd love to hear it. [ January 31, 2005, 01:43 PM: Message edited by: Grinch1982 ]

02-01-2005, 12:53 AM	#15
Nick Banned Join Date: Dec 1969 Posts: 0 Thanks: 0 Thanked 0 Times in 0 Posts Points: 10,345.00 Bank: 500.00 Total Points: 10,845.00 Donate	Why would you tax at a 95% bracket?

02-01-2005, 02:18 AM	#16
The Missing Link Professional Lurker Join Date: Dec 2000 Location: New Hyrule, Washington, US Gender: Posts: 15,575 Thanks: 80 Thanked 183 Times in 110 Posts Points: 6,922.45 Bank: 55,328.64 Total Points: 62,251.09 Donate	It'd be really hard to get to a 95% tax bracket. History has shown that revolutions tend to break out once taxes get over 1/2 of average gross income. "There are some who call me... Link?" "Carpe Gaium Domesticum!" (Seize the Cucco!) Zelda: The Grand Adventures \| Triforce MUCK ザ行方不明リンク悪いユウモアの賢人