Wednesday, January 03, 2007

No Uptick in Situational Awareness

I just knew that before long, someone, somewhere would say something inane enough to rouse me from my holiday hibernation. As if on cue, President Sluggo stepped up to the plate with an op-ed published in today's Wall Street Journal that extinguished any lingering hopes for an uptick in situational awareness on the part of Mr. Bush. For those without a WSJ subscription, Economist's View has posted the entire debacle with some sharp, succinct commentary.
In turning to economic policy, Mr. Bush offers this reassuring nod to Adam Smith's dead hand:
The elections have not reversed the laws of economics.
Okay, hold that thought. The most startling assertion in the piece was that the federal government should be able to balance the budget by the end of the next president's first term. It's as though Nixon had announced a secret plan for his successor to end the war in Vietnam, which is in fact what happened. Even with the bar lowered to this unimpressive level, the New York Times reports that Mr. Bush (and his unlucky successor) will have a hard time meeting his objective:
Mr. Bush gave no hint in the article about whether the goal of a balanced budget by 2012 was predicated on continued rapid growth in tax revenues or deep new spending cuts in domestic programs.
But Mr. Bush’s budget plans in the past several years have consistently failed to take into account two major costs in the years ahead: the war in Iraq and the cost of restraining or repealing the Alternative Minimum Tax.
War costs are now more than $100 billion a year, and Mr. Bush is expected to ask Congress for a supplemental spending package of more than $110 billion to finance military operations in Iraq and Afghanistan over the next year.
The alternative minimum tax is a potentially more costly item. The tax, which was created to prevent rich taxpayers from making too much use of elaborate deductions, is rapidly expanding its reach into the middle class because it is not adjusted for inflation.
Fixing the AMT so that it doesn't affect more and more middle-class taxpayers each year is estimated to cost about $100 billion a year. So before we even get started cutting the deficit, we're looking at another $200 billion or so that needs to be covered. Not to worry; our leader plans to tap the power of magical thinking:
It is also a fact that our tax cuts have fueled robust economic growth and record revenues.
Bush isn't quite saying that tax cuts are the cause of the revenue increases; they just fueled them. He thus barely avoids the the canard that tax cuts lead to increased revenues, which as recent history demonstrates, isn't so:
Note the drop in revenues during the first four years of the Bush presidency. But doesn't a cut in income taxes result in increased tax revenue from expanded economic activity? Not quite, according to this study from the Congressional Budget Office:
Under various assumptions, the supply-side economic effects of the tax cut are estimated to offset between 1 percent and 22 percent of that revenue loss over the first five years.
Now George W. Bush may have slept through the Harvard Business School class session on fractions, but what I remember is that 1 - 0.22 = 0.78. In other words, the CBO's best case scenario is that, for every dollar in income tax cuts, the revenue loss would be at least 78 cents. Never mind the basic laws of economics; our president hasn't mastered the basics of arithmetic.
It's the same thinking that allows our president to assert that the way to get out of Iraq is to send more troops. Finally, as to Mr. Bush's obligatory nod to working with Congress, this comment from Economist's View sums up the odds:
It will be difficult to find common ground if policy is based upon what he wants to be true rather than what the evidence actually shows.

8 Comments:

Anonymous fsp said...

I don't know what to say, Tom. Maybe you're rusty. After you're done insulting the President's intelligence, you might want to go back and check your math.

Maybe I'm crazy, but doesn't 1-0.22=0.78?

And, Tom, the CBO? As a real source? Really?

I'll chalk this up to Delaware's best blogger having a bad day.

10:04 PM, January 03, 2007  
Anonymous kavips said...

A picture is worth a thousand words.
(or what I gleaned from the chart)

Bush mentioned "record revenues" yet currently the chart shows that the current level is only at the bottom of the Clinton years. Perhaps he meant the rate or revenue increase, and if you look at the angles, up or down, you see that the current year did show remarkable improvement...........from the basement to the ground floor.....

And Dave@FSP
The rest of us wonder if a CBO, now unmuzzled of its Republican leadership, will continue to be so kind to the current administration, or, with the change in leadership, are we due for a major reassessment . Like it or not, the CBO is the best long range forcaster we have...............

4:41 AM, January 04, 2007  
Anonymous kavips said...

If one assumes that the reduction of government expenditures is the core value of the Republican party, over the last twenty six years it looks like the best Republican was one William Jefferson Clinton, and the second best, was a Ronald Reagan in his second term. Using the same assumption, the worst Republican is one George W. Bush, and the second worst is a Ronald Reagan in his first term.

If one points out that wars are listed as an expenditures, the proper answer should be.........so?

4:55 AM, January 04, 2007  
Blogger TommyWonk said...

I stand corrected; maybe I'm the guy in need of remedial fractions. The point of course is that the number is less than one.

As for the CBO, I've referred to this report six times; you can look it up using the search feature:

http://tommywonk.blogspot.com/search?q=CBO

8:13 AM, January 04, 2007  
Anonymous fsp said...

"I've referred to this report six times"

I know. Someday hpefully I'll cure you of that affliction.

3:40 PM, January 04, 2007  
Blogger TommyWonk said...

Cure me of the habit of referring to credible sources on economic matters? Not likely. But feel free to keep trying.

12:47 PM, January 05, 2007  
Anonymous FSP said...

I must have missed something. I didn't see any credible sources. I did see a reference to a career-bureaucrat-laden, agenda-driven government agency often referred to as "non-partisan," despite reams of evidence to the contrary.

7:42 PM, January 05, 2007  
Blogger TommyWonk said...

Reams of evidence? Lay it on me; I've got 62.43 GB free on my hard drive.

Perhaps we can narrow the field of inquiry: Is the CBO wrong to say that a tax cut of one dollar produces less than one dollar of additional tax revenue?

9:32 PM, January 05, 2007  

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