U.S. Budget and Economy

The seemingly close correlation between the total effective tax rate and total revenues (mentioned in my prior post ) leads to another surprising fact. Suppose that the correlation can be represented by the following formula: effective_rate = k * (taxes_paid / GDP), where k is a constant Putting in the CBO's definition of effective rate, this becomes (taxes_paid / household_income ) = k * (taxes_paid / GDP) which becomes (household_income / GDP) = (1/k), where (1/k) is a constant Hence, it would appear that household income as a percentage of GDP has remained relatively constant since 1980. This is verified by the following graph: The actual numbers and sources are at http://www.econdataus.com/inctax04.html . As can be seen, personal income as a percent of GDP has been relatively stable since 1950 (especially since 1980). If you lower the rates on one part of that income, it would seem that you would have to raise rates on another part of the income or change the amount of pers...

On May 20th, the Wall Street Journal ran an editorial titled "You Can't Soak the Rich" . The article recalls that Kurt Hauser, a San Francisco investment economist, had stated on "this page" in 1993 that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." As evidence of this, a chart is included which shows federal tax revenue and the top marginal rate from 1950 to 2007. Based on the this chart, the article goes on to state: The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP. In fact, this editorial is very reminiscent of one than ran less than a month ago titled "Obama's Tax Evasion" . Both supported the proposition that tax cuts can increase revenue and both included a chart showing the relationship between two variables....

Early into his 2008 State of the Union , President Bush said the following: To build a prosperous future, we must trust people with their own money and empower them to grow our economy. As we meet tonight, our economy is undergoing a period of uncertainty. America has added jobs for a record 52 straight months, but jobs are now growing at a slower pace. On February 1st, the Bureau of Labor Statistics released new jobs figures for January, showing a loss of 17,000 jobs. This ended the streak but Bush continued to mention the record of 52 consecutive months, often crediting it to his tax cuts. For example, on February 8th, Bush said the following during remarks to the Conservative Political Action Conference : Despite these dire predictions, the tax cuts we passed contributed to a record 52 months of job creation. (Applause.) They helped produce strong economic growth -- and the increased revenues from that growth have put us on track to a balance our budget by 2012. (Applause.) Here i...

In my prior post , I referenced a chart in an April 18th Wall Street Journal editorial titled "Obama's Tax Evasion" . The same basic chart shows up again in a May 6th video clip from CNBC . The chart first appears about 4:45 into the clip and reappears at about 6:09, near the end of the interview. At that point, the host Trish Regan is speaking with John Irons from the Economic Policy Institute. Following is an excerpt of the conversation: Trish: John, there we go with that capital gains history graphic that I was telling you about, very interesting stuff here because it's showing you, the more you tax, the less you take in. John: Well again, the problem with that is that it's cherry-picking the timing on this. When you look over longer-run periods of time, if you do lower the capital gains tax rate, you will see lower revenue over the long run. Trish: Yes, that said, it did go all the way back to 1962 so it was, you know, it did have some history in it. The c...