Goolsbee Vs. Heraclitus
Professor Austan Goolsbee keeps telling anybody who will listen that Senator Obama's tax cuts won't hurt because he will be raising them to near or below the rates of the 1990s (fish jump; cotton high). If he won't listen to Milton Friedman or Art Laffer, I'd suggest he might give a little weight to Heraclitus. Heraclitus said "you don't step into the same river twice."
Since President Clinton presidented over prosperity, the rest of the world listened to Friedman and Laffer and lowered their tax rates. James Pethokoukis points out that the direction of rate change and the state of the economy is as important as rates. The Wall Street Journal Editorial page (I sense Stephen Moore's hand in this) points out that the relative rates of world countries is important:
Back to Heraclitus, you can't step into that 1998 river in 2008. You're going to increase the uncompetitive differential of locating business in the United States.
2008
Posted by jk at August 15, 2008 10:47 AM
Liberal idiots who keep parroting Paul Krugman's 1995 line, "And remember President Clinton's tax hike ushered in an economic boom" need to be taken out and clubbed to death, just like we used to do to seals.
There were three main reasons the 1990s were prosperous. Only two was within the powers of the federal government, and they sure as hell weren't tax hikes:
1. NAFTA. To his credit, Bubba bucked his own party in pushing for this.
2. The cut in capital gains taxes, which didn't occur until toward the end of Clinton's presidency. This only because a Republican Congress pushed for it.
3. The massive growth in technological globalization, not just the Internet, but the fiberoptic lines allowing cheap, large-volume communication lines around the world. This wouldn't have happened to the same extent had it not been for the second reason. Putting aside the stock market bubble (which the Fed created), the massive investment in new technology wouldn't have happened if investors didn't have the incentive of lower taxes on their investment.
Paul Krugman and Robert Rubin claim that tax hikes created the "economic boom" this way: by reducing budget deficits, interest rates
There are two reasons why this is horse manure. First, "crowding out" is a myth insofar as federal borrowing and interest rates. It would be true if the U.S. economy were a closed box, but the federal government borrows so much from international sources. And think about it: the federal government borrows from China, which got the money from American consumers in the first place.
Second, even were this true, the economic growth began before the budget deficit supposedly started shrinking. Bubba's tax hikes never balanced the federal budget, anyway. Even in the late 1990s, the "surplus" was a lie: the Social Security surplus is always used to mask the true deficit. Oh, and the increase in economic growth produced higher tax revenues, but for the reasons stated above and NOT tax increases. The higher tax revenues included...Social Security payroll taxes! So what really happened with the "incredible shrinking deficit" wasn't because of tax hikes or sudden spending restraints, but because of increased tax revenues from increased prosperity.
The CBO data (http://www.cbo.gov/budget/data/historical.shtml) proves it. Year-on-year growth in federal spending was 2.2%, 3.4% and 5.8% in 1991, 1992 and 1993. Bubba gets elected, and suddenly spending grows (again year-on-year) at 9% in 1994, 7.4% in 1995, 7.5% in 1996, 8.7% in 1997, 9% in 1999, and TEN POINT EIGHT PERCENT in 2000.
A lot of conservatives claim that the "gridlock" of Clinton and the GOP Congress helped check federal spending, but the numbers just don't show that. It was the *budget* that went down, but federal spending went up astronomically.
Another thing the budget numbers show is that the initial 1993 tax hike admittedly *did* increase federal revenues...for just a couple of years. There was 3.7% year-on-year growth in 1994 and 1995 federal tax revenues. But once people started noticing the taxes hitting them, federal tax revenues started increasing at a slower pace: only 2.9% and 2.6% growth in 1996 and 1997. In other words, people didn't want to produce as much. But then in 1998, back to 3.2% growth -- now was it really a coincidence it happened just as cap gains taxes were cut?
Liberal idiots who keep parroting Paul Krugman's 1995 line, "And remember President Clinton's tax hike ushered in an economic boom" need to be taken out and clubbed to death, just like we used to do to seals.
There were three main reasons the 1990s were prosperous. Only two was within the powers of the federal government, and they sure as hell weren't tax hikes:
1. NAFTA. To his credit, Bubba bucked his own party in pushing for this.
2. The cut in capital gains taxes, which didn't occur until toward the end of Clinton's presidency. This only because a Republican Congress pushed for it.
3. The massive growth in technological globalization, not just the Internet, but the fiberoptic lines allowing cheap, large-volume communication lines around the world. This wouldn't have happened to the same extent had it not been for the second reason. Putting aside the stock market bubble (which the Fed created), the massive investment in new technology wouldn't have happened if investors didn't have the incentive of lower taxes on their investment.
Paul Krugman and Robert Rubin claim that tax hikes created the "economic boom" this way: by reducing budget deficits, interest rates
There are two reasons why this is horse manure. First, "crowding out" is a myth insofar as federal borrowing and interest rates. It would be true if the U.S. economy were a closed box, but the federal government borrows so much from international sources. And think about it: the federal government borrows from China, which got the money from American consumers in the first place.
Second, even were this true, the economic growth began before the budget deficit supposedly started shrinking. Bubba's tax hikes never balanced the federal budget, anyway. Even in the late 1990s, the "surplus" was a lie: the Social Security surplus is always used to mask the true deficit. Oh, and the increase in economic growth produced higher tax revenues, but for the reasons stated above and NOT tax increases. The higher tax revenues included...Social Security payroll taxes! So what really happened with the "incredible shrinking deficit" wasn't because of tax hikes or sudden spending restraints, but because of increased tax revenues from increased prosperity.
The CBO data (http://www.cbo.gov/budget/data/historical.shtml) proves it. Year-on-year growth in federal spending was 2.2%, 3.4% and 5.8% in 1991, 1992 and 1993. Bubba gets elected, and suddenly spending grows (again year-on-year) at 9% in 1994, 7.4% in 1995, 7.5% in 1996, 8.7% in 1997, 9% in 1999, and TEN POINT EIGHT PERCENT in 2000.
A lot of conservatives claim that the "gridlock" of Clinton and the GOP Congress helped check federal spending, but the numbers just don't show that. It was the *budget* that went down, but federal spending went up astronomically.
Another thing the budget numbers show is that the initial 1993 tax hike admittedly *did* increase federal revenues...for just a couple of years. There was 3.7% year-on-year growth in 1994 and 1995 federal tax revenues. But once people started noticing the taxes hitting them, federal tax revenues started increasing at a slower pace: only 2.9% and 2.6% growth in 1996 and 1997. In other words, people didn't want to produce as much. But then in 1998, back to 3.2% growth -- now was it really a coincidence it happened just as cap gains taxes were cut?
Posted by: Perry Eidelbus at August 15, 2008 1:03 PMOh, actually I'll have to correct some of those budget numbers later on. I was a bit rushed in making the spreadsheet.
Posted by: Perry Eidelbus at August 15, 2008 1:49 PM | What do you think? [2]