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Willisms

« Social Security Reform Thursday: Week Thirty-Nine -- Broken Benefit Calculation Formula. | WILLisms.com | Quotational Therapy: Part 55 -- Elie Wiesel, On Indifference To Evil. »

Trivia Tidbit Of The Day: Part 205 -- Laffer Curve.

Laffer's Laughing Somewhere, Because He's Right Again-

If you are a frequent reader of conservative publications, blogs, and such, this tidbit probably isn't for you. It's not that you won't appreciate it, it's just that this phenomenon is not at all surprising or shocking.

For most people, though, it may come as a shock that even after all of Bush's "tax cuts for the rich," revenues coming into Uncle Sam's house are WAY THE HECK UP:

federalreceipts.gif

The revenue strength has produced an interesting, little-reported fact:

The deficit is now down to 2.57 percent of GDP — a clearly manageable level and far lower than other war-time budget situations.

Do you remember all of the budget hand-wringing during last’s year’s election? “Exploding deficits as far as the eye can see,” the “Rosy scenario,” the alleged suppression of the fiscal impact of the Medicare drug benefit, and the “exploding” cost of the Iraq war, which we were reminded again and again had “not yet been factored into the budget.”

This, of course, is good and bad all at once. But mostly good, obviously. It proves that the booming economy isn't all in our heads. It shows that business activity is thriving. It shows that more people have jobs-- and higher paying ones.

But it also might play into that terrible ratcheting up effect that happens in government. It makes bigger government-- the leviathan-- somehow "okay."

And when revenues decline again one day (and they will decline), it makes the pain of deficits even worse than they would have been.

Again, it's likely that you, the WILLisms.com reader, already knew all of this, or at least had a vague idea about it, but it's time we reach a national consensus on the benefits of tax relief (a national acknowledgment of the booming economy itself would also be nice).

Indeed, if and when we reform our tax code, we should not pretend that changes would have a neutral effect on the economy. We should also avoid "revenue neutral" silliness, which really just means cutting here and raising there. So often media folks and politicians fall into the trap of saying things like, "we will lose x amount of revenue with these tax cuts."

Well, maybe. For a year or two.

But after the tax relief produces growth in the economy, the revenues will pour in at an even greater rate. Over a several year period, tax cuts almost always produce greater revenues than would have been collected with no cuts.

It's not brain surgery or anything, but it is counter-intuitive for many. That's why we have to continue to get this news out there.


-------------------------------------

Previous Trivia Tidbit: Split Ticket Voting.

Posted by Will Franklin · 3 November 2005 02:48 PM

Comments

Thanks to the tax cuts and the pro-growth attitude, my situation has greatly improved. I am able to buy and sell when the price is right, not when the tax codes dictate. Accelerate the pace of the business cycle and generate more tax revenue in the present and not have it deferred to the future to take advantage of the tax laws.

Posted by: Poole at November 6, 2005 09:27 AM