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Trivia Tidbit Of The Day: Part 404 -- Growing Entitlement Program Costs Make Elections Matter Less.

Mandatory Spending Versus Discretionary Spending-

The latest CBO Annual Budget Outlook is out (.pdf). You may have noticed that the Capital Gains tax relief (15% reduction) passed in 2003 has produced an explosion of Capital Gains tax collections. The American Shareholders Association notes that initial projections, which predicted that the tax cut would "cost" the government $5.4 billion in revenue from 2003 to 2006, were ridiculously wrong:

...the initial CBO forecast (January 2004) forecasted capital gains revenue to be $42 billion in 2003, $46 billion in 2004, $52 billion in 2005, and $57 billion in 2006.

Well in what could now be considered the worst forecast in modern times we find out today capital gains tax collections were actually $51 billion in 2003, $72 billion in 2004, $97 billion in 2005, and $110 billion in 2006. For 2005 and 2006 collections nearly doubled the initial forecast.

Translation = total capital gains tax collections over this period were 68 percent higher than forecasted. But even more important, a loss of $5.4 billion is actually a gain of $133 billion. That is a swing of $138 billion in in just short years since the January 2004 forecast. Oops.

Tax cuts don't "cost" the government anything. Tax cuts, because they empower individual economic freedom, necessarily spur economic growth. A larger economy means more tax revenue.

So, the CBO report is interesting, in that it further vindicates the President's tax cuts.

However, there is another interesting bit lost in the shuffle somewhat, gleaned from the report (.pdf):

The CBO clearly isn't great at projections. But mandatory spending already owns discretionary spending, and, unfortunately, there's no reason not to believe the future predictions.

What does this mean for our Republic?

It means that elections matter less as we go forward, because so much confiscation/redistribution is already on auto-pilot, regardless of what our Representatives and Senators and Presidents do.

It also means that elections matter more than ever, because if we fail to elect a reform-friendly government in the near future, our fiscal house is in serious trouble.

Top 5 reasons to reform/modernize our entitlements:

1. Because the programs could and should work better for individual Americans.
2. Because it is fundamentally undemocratic to lock future generations into paying for things designed decades-- or centuries-- earlier.
3. Because freeing our economy from the shackles of terminally-growing entitlement programs means greater global competitiveness.
4. Because failing to reform and modernize our mandatory spending programs means inevitable tax hikes, which would lead to lower standards of living over time. It is morally repugnant to bequeath less-than-optimal standards of living to future generations.
5. Because reform is relatively cheap today, whereas reform in the future will become increasingly painful.

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Posted by Will Franklin · 24 January 2007 11:44 PM

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