This page was last updated on September 8, 2010.
Cutting taxes to fix the deficit is bogus; William A. Alexander; Beaver County Times; September 8, 2010.
Mr. Alexander has written at least 30 letters (See the archives for more examples.) since December 2004, and all but three (one fawning over Rep. Jason Altmire [D-PA], one critical of local funding for JROTC, and another upset about the Air Force awarding a contract to Airbus instead of Boeing) bashed Republicans for something. Another letter was entitled “Blame Republicans for today’s messes.” Despite this record, Mr. Alexander is a Democrat/leftist who wants us to believe he’s really a disenchanted Republican. In “Can’t wait for Hart to lose,” Mr. Alexander told us he was a “registered Republican.”
Below is a detailed critique of the subject letter.
“The GOP claims the deficit problem solution is to cut taxes - cutting taxes on the wealthy, corporate taxes, small business taxes, inheritance taxes, capital gains taxes, etc.”
[RWC] Much of this letter is a regurgitation of “Blame Republicans for today’s messes” and other letters. In the “something to note” category, this is the second letter in a row from Mr. Alexander with “bogus” in the title. It’s interesting because in neither letter did Mr. Alexander use the word “bogus” and the Times usually provides the title, not the author.
Predictably, Mr. Alexander forgot to mention the GOP also claims spending is the problem. If he acknowledged this, however, it would ruin Mr. Alexander’s narrative.
“It’s been the same old GOP one-note song over and over since Ronald Reagan. Reagan cut taxes, the deficit grew too large and Reagan raised taxes.”
[RWC] Mr. Reagan did not cut taxes. Mr. Reagan and Congress (Democrats controlled the House.) cut tax RATES. That’s a huge difference lefties like Mr. Alexander like to ignore. By Mr. Reagan’s last budget (FY 1989), tax revenue had increased from $599.3 billion in FY 1981 to $991.2 billion. That’s a tax increase of $391.9 billion, or 65.4%. The problem was spending increased $465.6 billion, or 68.6%.
Mr. Alexander is referring specifically to TEFRA, not the overall effect of the Reagan-era tax bills. President Reagan agreed to TEFRA on the promise Congress would eventually approve $3 in spending cuts for every $1 of tax increase. The overall effect of the Reagan-era tax bills was a net decrease in taxes relative to GDP.
“George H.W. Bush ran on ‘no new taxes,’ the deficit got out of hand and Bush raised taxes.”
[RWC] The tax rate increases were borne by alcohol and tobacco consumers as well as “the rich.” Tax rate increases on “the rich” included a 10% surcharge on the top income tax bracket and a 10% luxury tax on private airplanes, pleasure boats, cars, furs, and jewelry whose price exceeded given levels.
The tax on pleasure boats costing more than $100,000 nearly killed the U.S. pleasure boat industry. Customers either delayed their purchase or to made their purchase overseas. Translation: American workers in the pleasure boat industry lost their jobs. The luxury tax on pleasure boats was repealed in 1993 after it was shown to produce no significant revenue while it killed jobs in the pleasure boat industry. Regarding the tax on luxury cars, the Taxpayer Relief Act of 1997 enacted a gradual repeal of one percent per year until it disappeared in 2005.
Mr. Alexander failed to note deficits increased even after the tax rate increases. From the last FY (1989) of the Reagan administration to the last FY (1993) of the Bush #1 administration, spending increased $265.7 billion, or 23.2%. Again, spending was the problem, not tax revenue.
“Bill Clinton came in with huge deficits he inherited from Reagan and Bush.”
[RWC] This hurts Mr. Alexander’s narrative so he failed to note the budget deficits ran all the way back to 1961, except for 1969, and there had been only eight non-deficit years since World War II.
“Clinton raised taxes and made other moves to help the economy. The economy flourished. He left with balanced budgets and a half trillion-dollar budget surplus with projected surpluses for as far as economists could see.”
[RWC] The economic expansion began in March/April 1991, about 20 months before Mr. Clinton took office. The economy continued to grow in spite of the tax increase, not because of it. Mr. Alexander failed to note the first balanced budget didn’t happen until FY 1998, after the minor 1997 tax cuts pushed by Republicans in Congress.
To get the Clinton/Republican Congress “a half trillion-dollar budget surplus” it appears Mr. Alexander added the four years of surpluses ($559 billion). Federal debt was $5.8 trillion at the end of Mr. Clinton’s last budget.
As for “projected surpluses for as far as economists could see,” 10-year projections are idealized fabrications. In the words of The New York Times, “such long-range projections are subject to change with ups and downs in the economy and are not a tool of great precision.” I’ll go out on a limb and guess the projections didn’t account for the recession that started toward the end of the Clinton administration, 9/11 and its aftereffects, the insecurity caused by the uncovering of accounting scandals that flourished during the Clinton administration, and the Afghanistan and Iraq wars. As I’ve written before, surpluses and recessions are not on speaking terms.
“Fed chairman Alan Greenspan worried that the government would not be able to spend the money fast enough. Can you believe that one! [sic]”
[RWC] No, I can’t. Testifying before the Senate Budget Committee on January 25, 2001, Mr. Greenspan said, “With today’s euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.”
“George W. Bush cut taxes, mainly for the top 2-3 percent of Americans and blew the surplus he inherited.”
[RWC] We get the tired old “tax cut for the rich” BS. Quoting the Tax Foundation, “Despite the charges of critics that the tax [rate] cuts enacted in 2001, 2003 and 2004 favored the ‘rich,’ these cuts actually reduced the tax burden of low- and middle-income taxpayers and shifted the tax burden onto wealthier taxpayers.” The TF further stated, “7.8 million low and middle-income families had their entire income tax liabilities erased by the cuts.” As you will read below, the rate cuts ultimately resulted in record tax revenue, not a cut.
“The deficit exploded, but he just let it ride and kept borrowing money from China.”
[RWC] The budget surplus had already declined in Bill Clinton’s last budget (FY 2001). The primary reasons for the deficits early in the Bush administration were the recession that started toward the end of the Clinton administration, 9/11 and its aftereffects, and the insecurity caused by the uncovering of accounting scandals that flourished during the Clinton administration. Ultimately, though we eventually had record tax revenue (the tax rate cuts) and “discretionary” spending increased at a slower rate than during the Clinton administration, we got to a point where even record tax revenue couldn’t keep pace with total spending. Before the current recession began to kick in, tax revenue peaked at $2.6 trillion in 2007, an increase of $577 billion (29%) since 2001. Once again, tax revenue wasn’t the problem, spending was.
“There is no historical proof that cutting taxes solves deficit problems.”
[RWC] No kidding, Sherlock. There is, however, plenty of proof cutting tax RATES increases tax revenue because reduced rates result in greater economic output subject to taxation. For example, 50% of an 8” pie is only 32% of a 10” pie.
For at least the last 50 years the problem has been spending. In 2000 the tax burden reached its peak of 33% of income and was 31% as recently as 2007. Because the economy is down, the tax burden as of April 9, 2010, was 27%. That sounds like more than enough to me.
“Reducing spending, growing the economy or raising taxes will cut the deficit.”
[RWC] As for Mr. Alexander’s mention of “reducing spending,” take that with a grain of salt. A quick search of Mr. Alexander’s previous letters found no calls for spending cuts of any kind. Mr. Alexander’s focus has been to call for higher taxes, though I suspect not on him.
Mr. Alexander writes of “growing the economy” and “raising taxes.” Taxes are overhead, and the more you tax an economic activity, the less of it you get (along with the associated jobs). We saw that with the 1990 luxury taxes mentioned above. Lefties seem to recognize this result since it’s always used to support taxes on “undesirable” activities, like consumption of tobacco and gasoline. Why, then, do they want us to believe raising tax rates won’t hurt the economy?
© 2004-2010 Robert W. Cox, all rights reserved.