The Supercommittee, if rumor, speculation and common sense can be credited, now will shirk its role as political suicide bomber. The Supercommittee was created in a fit of ambiguous revulsion against the truly gargantuan, obnoxious, deficit. It got off on a macho, but false, premise: that the path out was by mutual pain: raising taxes and cutting entitlements.
Wrong premise. There is a way to balance the budget. Figure out how to get the economy growing at 4% (or even 5%) instead of its current stupefied 2% range? Extra growth compounds fast. Accepting stagnation — economic growth that barely keeps up with population growth — means that nobody prospers except at the expense of others. No wonder most Americans consider the country off track. Americans are committed to prosperity.
As economist Ike Brannon (and as has been here previously cited): “The primacy of economic growth in generating tax revenue cannot be overstated: the fastest post-war increases in tax revenue growth occurred in 1997-2000 and 2004-2007, when revenues went up by nearly 50% in each instance. Tax rates did not go up at all during that time — the rapid increase in revenue occurred because we were in a sustained period of strong economic growth.”
Two weeks ago, a snit broke out between economists Paul Krugman and Greg Mankiw. Krugman started things off with a graph on his blog showing that federal revenue growth was low during the Reagan years of the 1980s. For some reason the graph began in 1979. Mankiw responded on his own site asking why Krugman started his sequence three years before Reagan’s first full budget came in. Krugman retorted by playing to type – his interlocutor was “pretending to be stupid.”
Revenues, revenues, revenues – that’s what the Reagan Revolution was all about, right? Surely the point behind the epic tax cut of 1981 was for Washington to rake in the dollars.
Actually, that’s not why we’re correct to be nostalgic for the Reagan years. And figuring out why can shine a path ahead for us today.
It’s always been a strange contention that the success or failure of Reaganomics – of supply-side economics – hinged on the federal receipts record of the 1980s. As if there had been any problem in that regard prior to Reagan. In the five years before Reagan’s first full budget of fiscal 1982, federal receipts fairly exploded.
From 1976 to 1981, the federal tax take went up steadily from 17.1% to 19.6% of GDP – an outsized rate of growth of 3% per year that had it lasted, would have had the government sucking in a quarter of the nation’s output by the end of Reagan’s term. Why on earth would Reagan have campaigned for a tax cut that would be a magic formula for increasing revenue? Such a formula was already firmly in place in the form of a brutally progressive, unindexed tax code in the context of double-digit inflation.
Reagan wanted to cut taxes, of course, and if receipts were to grow, they were to do so in an absolute sense, rather than as a percentage of GDP. It was an article of faith of supply-side economics that revenue growth can be nice, but it must not exceed GDP growth – especially good GDP growth. Indeed, federal receipts were to decline as a percentage of GDP.
26th District loss shows GOP is favoring spending cuts over growth
The Democratic victory in upstate New York on Tuesday seemed to be about the unpopularity of the Republican Medicare plan. Democrat Kathy Hochul beat Republican Jane Corwin 47 percent to 43 percent to win the open seat in New York’s 26th Congressional District, a shocking turn of events in a district that long had been a Republican beachhead in a blue state. The special election focused the last few weeks on the GOP's proposal to turn Medicare into a voucher program.
Washington's elites are quietly preparing a post-election fiscal compromise that will fund much of President Barack Obama's domestic spending agenda with huge tax increases. They aim to create a value-added tax and will argue that there is no alternative even though doing so will leave the United States resembling the stagnant, bureaucratic nations of Western Europe.
We Tea Party Patriots are furious over the federal government’s profligate spending, and rightly so.
From the creation of the United States in 1789 to over a century later in 1900, the federal government spent $15 billion. That’s $15 billion cumulative—not annually. In 2011 it is spending $10 billion per day! That means the federal government now spends in days what it more than century to spend. This gives a sense of how gargantuan the federal government has grown and the orgiastic quality of its spending.