Liberal Logic

As I've recently been reminded, lefties blame George W. Bush for the recession we're in.  Of course they have to blame somebody, and they're certainly not going to blame themselves.  That much goes without saying.  But the rationale according to Cynthia Tucker of the Atlanta Journal-Constitution, it's the Bush tax cuts. They're to blame.

The argument over raising taxes for the rich has taken on a strange — indeed, surreal — tone, with many Republicans rejecting basic arithmetic. In the unreality-based universe in which they live, cutting taxes doesn’t increase the deficit.

Her presumption here is that tax cuts would increase the deficit by reducing revenues.  The problem with that theory becomes evident when tax revenues increase.  But couldn't you just claim that revenues would have been that much higher if Bush hadn't cut taxes the way he did?.  Maybe, except that economists have decided that there is such a thing as "elasticity of taxable income" especially in the upper income ranges. 

Empirical evidence suggests that, at least for hours worked, the aggregate (compensated) labor supply elasticity is quite small. However, increasing leisure is by no means the only possible margin of response to higher marginal tax rates. When personal tax rates on ordinary income rise, evasion may increase, businesses may shift to corporate form, there may be a rise in the consumption of deductible activities such as charitable giving, and individuals may rearrange their portfolios and compensation packages to receive more income as tax-preferred capital gains. These responses to higher taxes, and all others, will show up in declines in taxable income, and there is a growing body of evidence, that, at least for high-income individuals, the elasticity of taxable income to the marginal tax rate is substantial.  (emphasis added)

Suppose we look to the IRS historical tables for individual income taxes and the revenue that was generated by individual income taxes over the Bush administration years, 2001 to 2008.  In 2001, the first full year of the Bush administration, revenues from individual income taxes were nearly $888 billion.  By 2008 revenues grew to nearly $1.026 trillion.  But there were downturns hidden between those years. 

	2001	2003	2007	2008
Total # of returns	130,255,237	130,423,626	142,978,806	142,350,256
Total AGI (X1000)	6,170,603,942	6,207,108,793	8,687,718,769	8,213,442,867
Total Income Tax (X1000)	887,973,968	748,017,488	1,115,601,803	1,025,509,017

You may recall that in the immediate wake of 9/11 our economy was in a tailspin.  Income tax revenues hit a low point in 2003, the year in which the second phase of the Bush tax cuts took effect.  Between 2003 and 2007 individual income tax revenues grew from $748 billion to $1.116 trillion – 49.14% which is an annualized rate of over 12%. 

It is interesting to note that over that same period, 2003 to 2007, the number of income tax returns filed grew by about 12.6 million, which is a total growth of 9.63%, annualized to 2.41%.  How do you get 50% more revenue out of 10% more returns?  The rich get richer and pay more taxes. 

But another thing happens.  The investments they make from what progressives would consider their ill gotten gains – money not taxed away – put more people to work, and those folks pay more taxes, too.

If you're a liberal pundit like Fareed Zakaria, and you opposed the Bush tax cuts, you can ignore all that.  In fact, if you're a liberal pundit it's OK to just make stuff up.

The simple facts are these: All of the Bush tax cuts were unaffordable. They were an irresponsible act of hubris enacted during an economic boom. Conservatives thought they would force us to shrink the government. But with Republicans controlling the White House and both houses of Congress, did reduced taxes cause reduced spending? No. They led to ever-increasing borrowing and a ballooning deficit.

We have one of the smallest governments among all the world's rich countries. Yet we refuse to pay for it. (Yes, health-care spending is the big exception and, yes, we will have to get those costs under control.) I understand the fear that this is not a good time to raise taxes. But the impact of marginal shifts in tax rates on growth is pretty unclear.

First, the Bush tax cuts were enacted during a recession that began as the Clinton administration wound down.  The recession of 2001 was then exacerbated by the the attacks of 9/11 which put a huge hit on the economy. This was not a time of economic boom.

Second, the deficit was on the decline in the final years of the Bush administration.  The real ballooning didn't really hit until Obama was in charge.  Bush very graciously stepped aside in the final months of his administration so that the incoming Obama administration could tackle the financial crisis in its own way.  Obama tackled the crisis by tripling the deficit in his first year of office and running an even bigger one in the next.

Finally, I can understand how the Mr. Zakaria can be confused about the effect that changes in marginal tax rates can have on revenues.  It's counter intuitive.  Except that you can look it up.  It is then that the liberals have to find all manner of other explanations for why that happened the way it did, or how much higher revenues could'a would'a been. 

Or they just ignore it.  Tax cuts mean less revenue.  End of discussion.  There is a certain beauty in such simplicity.  It brings to mind a quote from Ambrose Bierce in The Devil's Dictionary.

LOGIC, n. The art of thinking and reasoning in strict accordance with
the limitations and incapacities of the human misunderstanding. The
basic of logic is the syllogism, consisting of a major and a minor
premise and a conclusion -- thus:

Major Premise: Sixty men can do a piece of work sixty times as
quickly as one man.

Minor Premise: One man can dig a posthole in sixty seconds;
therefore --

Conclusion: Sixty men can dig a posthole in one second.

This may be called the syllogism arithmetical, in which, by combining logic and mathematics, we obtain a double certainty and are twice blessed.

Progressives ponder the mysteries of the economy.  Why is there no recovery?  They have their sixty men, very nearly.  Right there in the Senate.  But they can't seem to dig their way out of this posthole they've ridden the economy into, and it's only a couple of months until the election.  It's got to be W's fault, giving away all that tax money. It's got to be.

Comments

[jorod]

The liberals also expect the consumer to spend more and grow the economy while the government takes more out out of the consumers wallet. Nutty.

[jorod]

PS They also don't realize that investment is also a form of spending. Ergo, their belief that taxing the rich won't harm anything.