Revenues, Taxes, and Government Growth

This chart contrasts total federal revenues with the portion that comes from individual income tax receipts. Here we see that the biggest source or rising tax revenues has been income taxes, since they have risen at a much faster rate. One reason for the sluggish growth in total revenues, of course, is the cut in social security withholding rates that has been in place for the past year and is quite likely to be continued. The chart also highlights the fact that since the Bush tax cuts were first instituted in mid-2003, income tax receipts are now substantially higher—36% higher (almost $300 billion on an annual basis)—than they were when tax rates were higher. Once again, we see here concrete evidence that Art Laffer's vision (and his famous curve) was anything but crazy: lower tax rates can promote stronger growth, and thus result in higher tax revenues. If it weren't for the 20080-9 recession, which had everything to do with a collapse of the housing bubble and a 6 million decline in the number of private sector jobs, and almost nothing to do with low tax rates, both the economy and tax revenues would now be considerably higher.

lots of graphs and more analysis

My thoughts: Looking at the chart it should be obvious that the recession lowered tax revenues, not "the Bush tax cut".

Big Government

Elections and the Economy

pdf here

Cartoon: Government

The All But Forgotten Self-Governing Economy

Joel Bowman writes:

The inability of Mr. Bernanke – or anyone else for that matter – to hold back the tide of necessary correction ought to be obvious to all.

The study of economics wasn’t always the bottomless well of embarrassment it has come to be. There was a time when moral philosophers – as those of the trade were once known – spent their days pondering things of actual importance. They listened to the market murmurs of the day, instead of forecasting the unknowable events of tomorrow…they observed rather than tinkered…and asked questions instead of falsifying answers.

How ought members of a society allocate limited supply in an environment of unlimited demand? Is there a fair and equitable way to achieve such a goal? What controls, if any, should be employed to govern the process? Etc., etc., etc…

Although economics is itself an imperfect science, a “soft science,” as some assert, the perfect laws of science nevertheless bind it. Quantitative easing, for instance, is and always will be a bogus theory, a monetary mallet made of liquid, unable to bend anything into shape and forever doomed to flooding the system. Borrowing from one pocket to finance the other is a mug’s game; just as increasing the supply of money in a closed system must necessarily devalue all pre-existing units by a commensurate measure. Put another way, two plus two is never equal to five…never mind what the modern economist has to say on the matter.

Similarly, one can be reasonably certain that there are only two ways in which an economy, and indeed an entire society, is capable of governing itself. The first is by force; the second by means of voluntary cooperation. That both are mutually exclusive should be self-evident. One cannot be partly violated any more than they can be a little bit pregnant. The concept is oxymoronic, as well as ordinarily moronic. The idea is akin to that of a “voluntary tax.” Obviously, no such thing truly exists. It is a donation or it is an act of theft. Plain and simple.

Now wait just a moment, we hear some say. What about the rule of the majority? After all, we can’t very well wait around for everyone to agree on everything all the time. That may be true. But, to paraphrase an old adage, the road to ruin is paved with the whims of political expediency. A system built on a foundation of coercion is sentenced to failure, whether by invasion from without or revolution from within.

For its part, the voting process only serves to muddy the waters. Democracy, as Winston Churchill once observed, is the worst form of government…except for all those others that have previously been tried. Even if 99% of the people vote for some kind of sales tax, for instance, a full and very important 1% are still subject to what essentially becomes legalized theft...

It was perhaps David Hume who expressed it best when, in his monumental First Principles of Government, he wrote, “Nothing appears more surprising to those who consider affairs with a philosophical eye, than the ease with which the many are governed by the few.”

Self government, through individual and collective acts of voluntary cooperation, therefore, seems to be the only philosophically consistent, defensible form of government available to man. The state, with its various forms of coercion, shrouded in the cloak of good intention and peddled by forecast-mongering central bankers, be damned.

read the entire essay

We Can't Afford This Government

First came word that new jobless claims last week jumped above half a million, a number so large that one economist said "it looks like the economy ran into a wall." Second came a Congressional Budget Office estimate that this year's federal deficit will be well above $1.3 trillion for a second straight year and remain above $1 trillion next year as well - causing as much debt in three years as government built up in the previous 219.

Third came the announcement by Americans for Tax Reform (ATR) that yesterday was the 2010 "Cost of Government Day," which is "the day on which the average American has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government at the federal, state and local levels." Just two years ago, Cost of Government Day fell an astonishing 34 days earlier. This year, the average American worked 231 days just to support government, which consumes 63.41 percent of national income.

If anything, ATR underestimates the problem. Of those 231 days, 74 are taken up by regulatory costs. But that includes only the direct costs of new equipment and labor time required by government red tape. "Not counted are ... hidden costs" (such as discouraging new business investment), according to ATR, that "may be as large as the direct compliance costs of regulation. Economists at Washington University in St. Louis, leaders in the study of regulation, estimated these costs to be over $1.5 trillion per year in 2009."

Taxpayers foot the bill for an increasing number of government workers at outrageously growing wages. ATR reports that federal employment has increased by 230,000, or nearly 5 percent, in just the past year. USA Today reported Aug. 10 that federal pay and benefits per employee now average more than twice that of private workers: $123,049 compared to $61,051. Federal salaries outpaced inflation in the past decade by 33 percent.

Such government extravagance is unsustainable, and all this doesn't even take into account the $115.8 trillion of unfunded liabilities in Social Security and Medicare, as calculated by Michael D. Tanner of the Cato Institute.

The United States is headed toward financial collapse unless these trends are reversed. The radical change needed is not a government takeover, but a significant downsizing of government's intrusion into our economy and daily lives.

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A War Between Free Enterprise and Big Government.

click here for the 51 minute interview



The Battle then outlines three big facts:

First, there is a fundamental disagreement about America’s future between a socialist, redistributionist minority (the 30% coalition) and a massive free enterprise, work ethic, opportunity oriented majority (the 70% majority). For years I have spoken and written that “we are the majority”. It is a concept I learned from Ronald Reagan in the 1970s. Now Brooks provides the ammunition to factually explain why the 70% should govern America as a reflection of our legitimate majority status.

Second, there is an elite system of power which enables the 30% coalition to dominate the 70% majority. There are the seeds of an extraordinary history book buried in a few paragraphs of The Battle. How did the coalition of word users come to so thoroughly dominate the coalition of workers and doers? How did the elites on academic campuses come to define legitimacy for the news media, the Hollywood system, the Courts, and the bureaucracy? Brooks makes clear that the dominance of the hard left in these worlds is a fact. He sets the stage for someone (maybe another AEI scholar) to develop the historic explanation of how this usurpation of the people by the elite came to be.

Third, this is a conflict over values in which those who represent redistributionist, left wing materialism have stolen the language of morality while those who favor freedom, individual opportunity, the right to pursue happiness and personal liberty have been maneuvered into a series of banal and ultimately unattractive positions in the public debate. Brooks’ outline of a morally dominant culture of freedom shaming the materialistic, statist, coercive culture of redistribution is as important for our generation as Hayek’s The Road to Serfdom was for the Reagan-Thatcher generation.

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Dangerous Alliance: Big Business and Big Government

It is the Spending, Stupid

This week, federal red ink topped $1 trillion. And there's still three months to go before the government's accounting year finishes. To put that in some perspective, the entire federal budget didn't reach $1 trillion until 1987...

The simple fact is that deficits are out of control right now because spending is out of control. That's the pretty obvious lesson drawn from looking at the past 60 years of federal budget data.

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Red Tape

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Cartoon: Big Government

Government Bubble

Peter Schiff writes:

Now that the real estate bubble has burst, the Fed is inflating the biggest bubble of them all – a bubble in government. While the earlier booms at least provided the illusion of prosperity and some fun while they lasted, the government bubble will cripple the economy and deliver widespread misery to the vast majority of Americans...

Our economy is being transformed from a mostly capitalistic one to a mostly socialistic one. More decisions are being made by politicians and lawyers in Washington and fewer by entrepreneurs. The motivation behind this shift is the mistaken belief that the financial crisis of 2008 was caused by too much capitalism and a lack of proper government oversight. This conclusion is self-serving for those in power, and couldn't be more economically misguided. Through corruption or just plain ignorance, Congress and this Administration have embraced an ideology that has failed every time it has been tried...

Whether it is in education, housing, health care, automobiles, insurance, or banking, greater government involvement in the economy means higher prices, lower productivity, more bailouts, bigger deficits, increased taxes, diminished industrial capacity, fewer private sector jobs, less freedom, and a falling standard of living.

In the end, when runaway inflation and skyrocketing interest rates burst the government bubble, there will be no more bubbles to replace it – just one hell of a hangover.

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2001 Federal Subsidy Programs and Counting

Most people are aware that federal spending is soaring, but the federal government is also increasing the scope of its activities, intervening in many areas that used to be left to state governments, businesses, charities, and individuals...

As the federal octopus extends its tentacles ever further, state governments are becoming no more than regional subdivisions of the national government, businesses and nonprofit groups are becoming tools of the state, and individualism is giving way to a more European desire for cradle-to-grave dependency.

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Economic Role of Government

Government’s role in an economy has never been properly explained. We will have a go at it ourselves. In a word, government betrays the future.

Government is a profoundly reactionary institution. It always favors its current clients – the present generation of taxpayers – over its clients of the future (who don’t pay taxes and don’t lobby). It provides protection against foreign invaders and domestic troublemakers. It also attempts to give its clients protection against the future.

Taxpayers want government to protect their existing assets…their businesses…their claims…their jobs…their franchises against all threats. In the modern world, most of those threats come in the form of economic and technological change. That’s why taxpayers demand subsidies and bailouts. It’s also why they like regulation. Anything that will keep change from diminishing what they’ve got.

A properly-functioning economy, as Schumpeter described it, is a process of incremental growth and also of creative destruction…in which old industries, old technologies and old institutions are blown up by change. This is what people pay their taxes to avoid. The present generation wants the government to “do something” to protect them from this process. It’s why they are perfectly happy to see the government take over the whole economy, if necessary, in order to prevent capitalism from happening.

read the essay

Government Employment

The era of big government has returned with a vengeance, in the form of the largest federal work force in modern history.

The Obama administration says the government will grow to 2.15 million employees this year, topping 2 million for the first time since President Clinton declared that "the era of big government is over" and joined forces with a Republican-led Congress in the 1990s to pare back the federal work force...

Including both the civilian and defense sectors, the federal government will employ 2.15 million people in 2010 and 2.11 million in 2011, excluding Postal Service workers.

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Is Limited Government an Oxymoron?

Big Government, Big Recession

So it seems that we aren't going to have a second Great Depression after all," wrote New York Times columnist Paul Krugman last week. "What saved us? The answer, basically, is Big Government … [W]e appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why."

This is certainly a novel theory of the business cycle. To be taken seriously, however, any such explanation of recessions and recoveries must be tested against the facts. It is not enough to assert the U.S. economy would have experienced a "second Great Depression" were it not for the Obama stimulus plan...

CNNMoney recently calculated that the stimulus plan has spent just $120 billion — less than 1% of GDP — mostly on temporary tax cuts ($53 billion) and additional Medicaid, food stamps and unemployment benefits...

President Obama clearly believes Big Government is the antidote to this and perhaps all recessions. At his first news conference in February, the president said, "The federal government is the only entity left with the resources to jolt our economy back to life." Yet that raises a key question: If the U.S. economy could not recover without a big "jolt" of deficit spending, then how did the economy recover from recessions in the distant past, when the federal government was very small?...

Ms. Romer also noted that "recessions have not become noticeably shorter" in the era of Big Government. In fact, she found the average length of recessions from 1887 to 1929 was 10.3 months. If the current recession ended in August, then the average postwar recession lasted one month longer — 11.3 months. The longest recession from 1887 to 1929 lasted 16 months. But there have been three recessions since 1973 that lasted at least that long...

The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers...

In short, bigger government appears to produce only bigger and longer recessions.

read the entire essay

Cartoon: Government and Public Goods

Cartoon: Big Government and Future Taxpayers

Cartoon: Government Spending