Thursday, May 11, 2006

How can a tax cut both help and hurt the treasury?

Who gains from tax-cut bill |

I think the answer has to do with whether you're a conservative or something else.

Yesterday, both Rush Limbaugh and Sean Hannity (I was driving around a lot) were running on about all the good news being drowned out by the bad news. An internet search for the good news returned precious few articles, but I was able to find this one from the Christian Science Monitor. The article left me confused because in the beginning it credits President Bush's tax cuts with cutting the deficit an additional $38 billion but later on says something will have to make-up for the tax cuts. How can something that brings money into the treasury be a bad thing?

For those of you who don't recognize good news (and still have your Kerry/Edwards or Mondale/Ferraro bumper stickers) this is what it looks like:

The Tax Foundation, a nonpartisan research group in Washington, believes the current economic recovery coincides with the tax cuts that went into effect in 2003. Since then, some 5.3 million jobs have been created, the unemployment rate has fallen from 6.3 percent to 4.7 percent, household net worth is up $13 trillion, and the budget deficit has dropped $38 billion.

"The economy has definitely recovered starting with the tax cuts enacted in May of 2003," says Bill Ahern, a Tax Foundation spokesman. "That included income-tax cuts as well as dividend and capital gains cuts, and it's impossible to untangle the effects of those different tax cuts."

Meanwhile, even with $3/gallon gas consumer confidence is up, inflation is low, and the stock market is reaching record highs, which is good for pensions, IRAs and 401Ks, and other college savings and retirement plans. How does an average student like Bush do it?

Remember all the flack he got about not creating jobs? I doubt he's feeling the glow of vindication with his approval ratings in the low 30s.

It must be voodoo economics.

If you're a conservative this next part of the article smells like sour grapes from all those people who don't understand taxes much less how tax cuts are a good thing. Clinton/Core supporters (either Bill or Hillary will do -- save your lawn signs) will read this next part as bad news:
But even among economists, the subject of the economic impact of tax cuts is controversial. Democrats argue that after every recession, there is some kind of snapback - and this one was aided by the Federal Reserve reducing interest rates all the way down to 1 percent.

Max Sawicky of the liberal Economic Policy Institute (EPI) argues the economic recovery "is one of the weakest." After the tax increases of the 1990s, he says, the economy performed better. "The latest tax cuts will have no impact on the economy in 2007," he maintains.

Some people just can't stand good news. So instead of finding real bad news they make up bad news for the future. "Oh sure. Things are great now, but it won't last," detractors say. Remember when democrats said the tax cuts would have a short-lived affect on the economy back in 2002? Remember how the $600 rebate Bush returned to families was only supposed to be a blip in a single quarter but with the help of other tax cuts is still pushing our economy forward?

Some people will never understand 15% of $1000 is better than 50% of $100. Let's leave the tough math problems for the adults.


  1. Interesting, since the Tax Foundation seems to have nothing nice to say about taxes at all, and the news always gets worse.

    "As Figure 1 illustrates, the number of tax returns with zero or negative tax liability has risen steadily over the past decade. However, it accelerated sharply between 2000 and 2004 due to the effects of tax changes during President Bush's first term of office.

    These findings raise serious questions about the future of the U.S. income tax system, and the possibility of base-broadening tax reform when the majority of the federal tax burden is borne by a shrinking pool of taxpayers. As Congress considers tax reform proposals during the coming year, this is an issue lawmakers should begin to debate."


    and according to the Treasury Department the public debt has increased over a trillion dollars since 2003.

  2. "According to the Treasury Department the public debt has increased over a trillion dollars since 2003."

    That's worth looking into. How can the deficit be reduced by $38 billion and debt gone up $1 trillion over the same period?

    "..the number of tax returns with zero or negative tax liability has risen steadily over the past decade. However, it accelerated sharply between 2000 and 2004 due to the effects of tax changes.."

    So more people are paying less. Are those on the top or bottom of the income scale? It's unclear from the report.

  3. The answer is, the US Treasury is seeing more tax receipts since the tax cuts starting in 2003 than ever before in its history, even adjusted for inflation. Google search for the words "us treasury revenue increase graph" will find you multiple references. The one I like that shows inflation-adjusted dollars is at

    The treasury website is also correct that the national debt is larger than ever before. This, more so even than illegal immigrants, upsets fiscal conservatives most about the current crop of republican representatives, house, senate, and presidential. The Iraq war has a lot to do with that, so does every other spending bill President Bush refuses to veto.

    Thank you for making that point.