Thursday, June 16, 2005

Can we put the 'tax cuts casue deficits' debate to rest?

The impact of across the board tax cuts are clear to everyone...well, almost everyone.

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Here is his take on the budget deficit, from,

The outlook for the U.S. budget deficit has brightened considerably, with the deficit for the current fiscal year likely to be substantially lower than what was expected at the start of the year. The improvement is the result of a surge in tax receipts, a development that in many eyes reinforces the notion that tax cuts eventually broaden the tax base, thus boosting tax revenue.

Driving the improvement in the U.S. budget situation is the surge in income tax receipts. In May, individual income tax receipts were $57.61 billion, an 87.8% increase over the same month a year earlier. In the fiscal year to date, individual income tax receipts are up $103 billion, or 20.5% vs. the same period a year ago. Corporate income tax receipts were up 37.1% in May compared to a year earlier, and for the fiscal year, receipts are up $45 billion, or 47.2% compared to a year ago.

A continuation of the recent trend would put the deficit for next year at $250
billion to $275 billion, which would represent a near-halving of the deficit as a percentage of the gross domestic product. Reaching such a target would give a
lift to President Bush, who has pledged to cut the deficit in half by 2009.

The budget news provides new fodder for those who say that tax cuts can
actually lead to higher tax revenue. Such has been the case for 25 years, one
can reasonably argue. Nevertheless, given the large deficits of the past few
years, the debate over the impact of tax cuts on the U.S. budget deficit goes
on. Whatever the case, the data sure give President Bush and Treasury Secretary
Snow reasons to cheer.

Let's remember who said what...

Jeff Jacoby writing in the Boston Globe, March 5, 2001

""Voodoo redux," sniffs Bob Herbert in The New York Times. "There will be pain," intones Terry Moran of ABC mournfully. At, Jessica Reaves finds the Democrats' dire predictions "more realistic than the goofily optimistic tone Bush likes to set." Al Hunt, The Wall Street Journal's house lefty, labels the president's tax pitch "a sham." On CBS, Dan Rather assures viewers that Democrats are backed by "independent economists" in pronouncing the tax cuts
"risky business" - but makes no mention of CBS's own poll showing that a
whopping 67 percent of the public likes Bush's plan."

And a few select quotes from the champions of the working man,

'Many of you are well enough off that ... the tax cuts may have helped you,' Sen. Hillary Clinton said. 'We're saying that for America to get back on track, we're probably going to cut that short and not give it to you. We're going to take things away from you on behalf of the common good.'

In a Jan. 16 speech at the National Press Club in Washington, Sen. Kennedy joined Sen. Clinton in calling for a "postponement" of $350 billion in scheduled tax cuts already approved, arguing of course that the cuts will benefit primarily "the rich," since Democrats define "the rich" as virtually anyone who pays taxes, rather than a net recipient of government handouts.

"The disturbing thing about the Bush forecast is that we are not just looking at the cyclical downturn -- a return to budget deficits because the economy is down," Rep. John Spratt, D-South Carolina, said on "Fox News Sunday."

Democrat Harry Reid of Nevada, said elements like the dividend tax cut largely ignore the poor and middle class. "We should do something to take care of people who work for corporations, not help the corporations necessarily," he told NBC's Meet the Press.

“I’m running for president to roll back George Bush’s tax cuts for the wealthy so that we can invest in education and health care,” proclaims John Kerry in his typical stump speech.

Sen. John Edwards, D-N.C., a 2004 presidential hopeful, said on ABC's This Week that "if this is what (Mr. Bush) thinks is going to help regular people in times of an economic downturn, it just shows how out of touch he is."

Rep. Rob Andrews, a New Jersey Democrat, criticized the president's call to accelerate implementation of the tax cuts passed in 2001 to spur the economy now. "This is trickle-down, the sequel," Andrews said. "It didn't work the first time, and it's not going to work this time."

Former Democrat representative Dick Gephardt, "knee-jerk tax cuts that do nothing but pay off George Bush's wealthy campaign contributors while killing economic growth."


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