Sunday, July 17, 2005

Tax Cuts Work

You wouldn't really know it from conventional wisdom, but the economy is doing really well:
NEW YORK (AP) -- Companies are more productive and more people have jobs. Corporate earnings growth is strong. And while oil prices remain near historic highs, the economy is showing great resilience. Even inflation is a non-issue.
But the news reports look for a hint of bad news wherever they can find it, as positive reporting just sticks in their craw too much. This article continues, for example:
But don't expect a huge surge in stocks.
As if they know where stocks are headed.

Factually, the S&P500 is actually near a 4-year high, but the mood doesn't seem to reflect this.

Not to mention that corporate earnings have been at all-time highs for the past 5 quarters, handily exceeding the level of earnings even at the peak of the dot-com boom. Nobody's really remarking on that, however.

How did we get here?

Bush's tax cuts work.

Look at the "deficit", that at election time was being reported as spiralling out of control; Michael Barone writes:
So the deficit—the federal budget deficit—is declining sharply, more sharply than just about anyone in mainstream media anticipated. According to figures from the Office of Management and Budget, the deficit is projected to decline from $412 billion in 2004 to $333 billion in 2005, a 19 percent decline. OMB further projects, obviously with less certitude, that it will decline to $162 billion in 2008.

If so, that will mean that George W. Bush will have more than kept his promise to cut the deficit in half in his second term. Back in February, OMB projected a 2005 deficit of $427 billion.

"The change from February's projection," writes Jonathan Weisman in the July 14 Washington Post, "is dramatic."
And that's WITH the tax cuts, and WITH the HUGE expenditures for the GWOT! Barone explains:
Why has the deficit declined so rapidly this year? The simple answer is that outlays seem to be increasing by about 7 percent but receipts seem to be increasing by about 15 percent. The Bush tax cuts, like the Reagan and Kennedy tax cuts, seem to be resulting in much more buoyant increases in receipts than the Clinton tax increases did: Just look at the numbers.
And for those who still refuse to see media bias,
The Media Research Center has issued a study showing how the mainstream press treated good economic news in the Clinton years and in the Bush years.

Unsurprisingly, there was a big difference. Good economic news in the Clinton years was presented as good economic news. Good economic news in the Bush years was presented with caveats and warnings that it might not be so good. And this even though many of the basic numbers—GDP percentage increase, unemployment percentages—were almost identical in the two presidents' re-election years of 1996 and 2004.
Here's a little anecdote that's been going aroun the net explaining our tax system. I have it on good authority that the numbers involved are actually essentially correct, and the facts are surprising:
Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

* The first four men (the poorest) would pay nothing.
* The fifth would pay $1.
* The sixth would pay $3.
* The seventh $7.
* The eighth $12.
* The ninth $18.
* The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes. So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

* The fifth man, like the first four, now paid nothing (100% savings).
* The sixth now paid $2 instead of $3 (33% savings).
* The seventh now paid $5 instead of $7 (28% savings).
* The eighth now paid $9 instead of $12 (25% savings).
* The ninth now paid $14 instead of $18 (22% savings).
* The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money among all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most [apparent] benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore...
It should be noted that the ones who eat "for free" are actually getting paid welfare.

The ingrates should just be happy they aren't being paid in company scrip!


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