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Stimulie, II

Here is federal tax revenue collected from the income tax on individuals from 2000-2006, reported by the CBO (Tab #3), measured in billions of dollars:

2000    1,004.5
2001    994.3
2002    858.3
2003    793.7
2004    809.0
2005    927.2
2006    1,043.9

Bottom line: revenue in 2006 was still below 2000 in real terms. I’m not sure when the Bush tax cuts first started. The first cuts were passed in 2001 but there was a rebate akin to what’s being discussed now–a lump sum retroactive cut, if I remember correctly. Not sure when that happened and when it affected the revenue numbers. But even between 2001 and 2006, real revenue is down.

Here are the numbers for all sources of federal revenue, same CBO report, again, billions of dollars:

2000 2,025.5
2001 1,991.4
2002 1,853.4
2003 1,782.5
2004 1,880.3
2005 2,153.9
2006 2,407.3

That’s about a 19% increase from 2000-2006. The GDP price deflator increased about 16% over that time period. So total revenue was roughly flat with a smaller percentage coming from the individual income tax.

I post these numbers in response to a friend (who will be spared identification here) who said the key to keeping the economy on track is to keep the Bush tax cuts in place. He gave two reasons—the tax cuts spurred economic activity that increased tax revenue. And the tax cuts put more money in our hands and less in the government’s hands. And because we spend money more wisely than the government, this is a good thing.

But the revenue effect was negative. As to who was spending the money, read on.

There were some good things about the Bush tax cuts—particularly the (temporary) elimination of the estate tax which I view as immoral and possibly discouraging of productivity and creativity. The threat of even higher deficits that they may have created may have kept government spending from being even higher.

But the across-the-board reduction in marginal rates was an illusion. It wasn’t really a reduction in taxes. It lowered revenue at the same time that spending was going through the roof. Here are federal outlays in nominal terms, measured in billions, from the same CBO report:

2000 1,789.2
2001 1,863.2
2002 2,011.2
2003 2,160.1
2004 2,293.0
2005 2,472.2
2006 2,655.4

That’s a 48.4% increase. between 2000 and 2006.  Again, the GDP price deflator rose about 16% during that time. That’s a massive increase in real government spending during a time when tax revenues were essentially flat. To be fair to Bush, you can’t blame him for the spending level in 2001. But between 2001 and 2006, it’s still a real increase of over 30%. Bush didn’t veto a single bill until July of 2006 and that was a stem cell research bill.

So what kind of a tax cut did Bush provide? George Bush (along with Congress) has raised our taxes. Government has gotten bigger. Here is the ratio of federal outlays relative to GDP, the federal government’s share of the pie:

1988 21.2
1989 21.2
1990 21.8
1991 22.3
1992 22.1
1993 21.4
1994 21.0
1995 20.7
1996 20.3
1997 19.6
1998 19.2
1999 18.6
2000 18.4
2001 18.5
2002 19.4
2003 20.0
2004 19.9
2005 20.2
2006 20.3

Government’s share of the pie has grown dramatically under Bush II. You can argue it was worthwhile. You can argue that he had no choice. (I think you’d be wrong on both counts, but never mind.) But you can’t argue that Bush has cut our taxes. Our taxes are higher and they’ve been shifted into the future via debt.

Notice also that government’s share fell during the Clinton years. Yes, I know that’s partly because of the Republican Congress. Partly. But it reinforces my view that partisanship is overrated.

George Bush likes to say that he gave us back "our" money because we could spend it more wisely. While I agree with the premise, it was an illusion. There weren’t any tax cuts in 2001, 2002 and 2003 that supposedly stimulated the economy or that let us spend the money more wisely than the government. The government spent more of our money, not less.