A conservative news and views blog.

Location: St. Louis, Missouri, United States

Wednesday, July 19, 2006

19th Century Economics

One of the last bastions of Soviet Marxism in the world today is the St. Louis Post Dispatch. Ever vigilant to challenge the idea that people keeping their own money is good, the Past-Disgrace flipped their red-starred Ushankas over the news that the deficit has dropped substantially thanks to increased economic activity resulting from the tax cuts. In a July 14 editorial, Comrad Pulitzer had this to say:

Is Less Bad the Same as Good?


President George W. Bush last week celebrated the news that Uncle Sam will plunge only $296 billion deeper in debt this year, as opposed to $319 billion last year and $412 billion the year before. In other words, he'll be up to his belly in debt instead of up to his neck.

This counts as progress?

On the heels of three years of record budget surpluses, the nation plunged into a sea of red ink soon after Mr. Bush took office in 2001. And yet Mr. Bush says, "The tax cuts we passed work." Those tax cuts, which primarily benefitted the wealthy, set the economy on a roll, he claims.

But a look at the facts suggests otherwise. Mr. Bush took office during the 2001 recession and promptly cut taxes. The recession was a mild one followed by two years of a sluggish and jobless recovery. The economy finally picked up a little steam, and we're now seeing healthy growth in some sectors and low unemployment numbers overall.

So were the tax cuts responsible for the turnaround? Probably not. In 1993, Bill Clinton entered the White House and promptly raised taxes. Economic growth averaged 3.8 percent over the next five years. Since Mr. Bush cut taxes, growth has averaged 3.1 percent, according to figures from the Center on Budget and Policy Priorities. Clearly, taxes don't determine growth.

Despite the recent positive economic numbers, the average American worker isn't feeling much like cheering. In 2004, the latest year for which Census data are available, median family income was down 3 percent from 2001. It probably hasn't improved much since then. Adjusted for inflation, average wages today are still below their levels at the end of the 2001 recession, according to an analysis by the Economic Policy Institute.

So, who is getting the benefits of the economic rebound? Corporations and wealthy individuals. They're responsible for much of the deficit reduction. The IRS is collecting 11 percent more tax money than expected. About half that increase came from corporations whose profits are soaring. First quarter corporate profits were up 30 percent for the year, according to the Commerce Department, with the biggest gains realized in energy and health care.

Much of the rest came from the rich, who continue to get richer. In May, the Congressional Budget Office noted a 17 percent jump in taxes paid on "nonwithheld" income such as capital gains, dividends and interest. That sort of income goes overwhelmingly to the wealthy. And since our tax system is still progressive, what's good for the wealthy is great for the U.S. treasury. The wealthiest 10 percent of Americans pay more than half of federal taxes.

The hole we've dug ourselves is smaller than the hole we thought we'd be in. But the combination of tax cuts and increased federal spending, especially the huge sums spent on defense, is bad economic news for this generation and a terrible legacy for the next.

My brother Brian took great umbrage with this sophistry, and he responded with the following:

To The Editor,
The Post-Dispatch lead editorial of July 14th concerning the federal budget deficit is a study in misleading statistics and an example of the economic illiteracy of your newspaper's editorial staff. Your editorial claims to correct the misstatements of President Bush and claim that "...a look at the facts suggests otherwise", when the President credits his tax cuts for spurring economic growth. Your editorial then trots out some numbers and some arguments that you believe contradict Mr. Bush's claim. However, your own arguments are specious and "a look at the facts" proves this point.

Your argument that tax rates don't determine economic growth is patently ludicrous. In 1990 President George H.W. Bush blundered into supporting a tax increase that the Democrats insisted would retire the federal budget deficit. This tax increase did nothing to reduce the deficit, its only discernible effect was to choke off economic growth and push the economy into the recession of 1990-92.

Your editorial effort to credit the Clinton tax increase for the steady growth of the 1990s is also empty. The economy surged in the final two quarters of the first Bush Presidency, with economic growth rates in the 7.5-8% range. The Clinton Administration took office not with "...the worst economy in fifty years" as was often alleged, but with the economy soaring in a full fledged boom. The Clinton tax increase reduced 8% growth to 3.5% growth , essentially killing the economic boom the Administration inherited.

The purpose of this letter is not to debunk the myths propagated by the media on behalf of ex-President Clinton. The purpose is to illustrate the fallacious reasoning of the Post-Dispatch staff. If taxes have no effect on economic growth, as the Post-Dispatch insists, how does your staff explain the emergence of Ireland as an economic power? Ireland is a poor country with few natural resources but is booming today while the rest of Europe is moribund. Ireland does have a well-educated work force and, most importantly, the Celtic Tiger has low tax rates which encourage investment, entrepreneurship, and work. Likewise, Russia cut her her corporate tax rates severely in 2002 and is booming today,particularly in the all important energy sector. Low taxes explain the the success of Taiwan, Singapore and Thailand, while high tax rates explain the relative stagnation of Japan, Canada and the European Community. It may come as a surprise to the Post-Dispatch editorial staff, but tax rates clearly influence economic growth and if we reduce the tax penalty on investment the economy will grow and tax revenues will increase as well. It is high time for the Congress to make the Bush tax cuts permanent to further stimulate the already healthy American economy.

Brian E. Birdnow

It is unbelievable that we still have to fight this battle over what should now be completely obvious, yet the forces of liberalism will not surrender their beloved collectivist economic theory without a fight, and they are forced to sound like complete idiots to anyone who has any understanding of economics in their desperate effort to implant falsehoods in the minds of the ignorant. That they succeed in this at all is a testament to the power still held by their propaganda institutions-television, newspapers, public education, universities. Only an academic could possibly believe you can tax yourself to prosperity.

How many times is this fundamental economic point going to have to be illustrated before everyone comes to understand? Government does not create-it uses. The more tax money they have, the more they will spend, the less those who produce will have to produce with, and the more government will stifle initiative. It really should be obvious.

But then, when was anything ever obvious to a liberal?



Blogger I. Shawn McElhinney said...

Well said Tim (by both you and your brother).

4:49 PM  
Blogger TJ Willms said...

A government that robs Peter to pay Paul can always depend upon the support of Paul.

George Bernard Shaw

11:41 PM  
Blogger StaticNoise said...

Either the media counts on the public's short attention span or the conservatives have failed for the past 25 years in getting this message out succinctly enough to stick a fork in this debate. It is simple enough, if you want more of it ("it" can be anything)then lower the tax on it if you want less of it raise taxes.

4:56 AM  

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