Pet Peeve

[rowyn]

Reporting on the US federal gov't's deficit always talks about the raw numbers: ($1.35 trillion!) Sometimes it mentions percentage of GDP (9.2%!)

It hardly ever talks about government income.

I get the feeling that government income generally goes up and down in a way that has very little to do with raising or lowering taxes, and a great deal to do with whether or not the economy is booming. But I don't really know, because 'how much money does the government receive?' isn't a question reporters are interested in answering. v.v Maybe I'll dig through the CBO's website and see if they can tell me.

Comments

[level-head.livejournal.com]

The other common confusion is the difference between the "deficit" or "surplus" (how close the government is to break-even in a given year) versus "debt" (what all those deficits and interests have accumulated to).

The expression "reducing the deficit" simply means "spending more than we have, but not by as much as we once thought we might." It's a pretty silly gage of success.

It is disappointing to me that no one in recent decades has seriously proposed to pay off the debt. Even the "surplus" of 2000 was largely an artifact of revenue increasing faster than spending bills could be put in place -- that spending continued to increase in 2000 and 2001 though the revenue was by then dropping fast.

Traditionally in the US for the past several decades, reducing the tax rate has increased the total tax revenue. Kennedy, Reagan and Clinton each did this. And increasing the tax rate has acted to depress revenue and to extend recessions. The recession that started mid-2000 ended quickly with the tax cuts -- though the timing of recession starts and stops is surprisingly political.

The Muslim economist Khaldun worked out ways of figuring out the most advantageous tax rates using this concept about 600 years ago.

The biggest complaint about this tax rate/tax revenue balance, now called the "Laffer curve," is that it doesn't address spending at all. That's true enough; you can outspend any supply of revenue if you are as diligent about it as the US government is.

Note that whether the economy is rising or falling, the CBO is required to project things forward as if they will remain the same, or more specifically not taking any sort of tax policy into effect. This produces some odd (and wildly misleading) results.

===|==============/ Level Head

[xthread.livejournal.com]

The recession that started mid-2000 ended quickly with the tax cuts

I think your thesis underestimates the impact of dramatically lowering the federal interest rate in early 2001.

[level-head.livejournal.com]

That certainly had an effect -- and perhaps the magnitude can be judged by the tremendous boom that we're in now as a result of lowering it even further.

In all seriousness, it was one of many factors, but it has not proven to be the way out of recessions. It certainly can contribute, though.

In retrospect, it's strange to remember what business and real estate was like during the Carter years when the rate was several times the current values. For some purposes, the change in rate -- and the rate of that change -- can be as effective as the absolute value.

Reading the news after each drop or rise shows how fired up people get over such changes. And that can have, and does have, a real economic effect.

===|==============/ Level Head

[rowyn]

I can't help feeling that the main thing the rate drop did, both in 2000 and 2007-8, was prop up the housing market. Which can't really be propped up *enough* any more. :/