Monday, August 02, 2010

Too little taxes or too much spending?

David Stockman, a Republican and director of the Office of Management and Budget under President Ronald Reagan, authored an opinion column in today's New York Times which purports to illustrate how various policies supported by the GOP have served to bring about economic ruin. While Stockman makes a few legitimate points, the piece is also heavily laden with nonsense and outright deception, starting with his blame for the current fiscal mess on tax cuts rather than runaway spending:
This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.
Here's a chart which shows federal revenue and spending over the last 45 years:


As can be seen, the federal government does not suffer from a revenue problem, which has climbed steadily upwards, but a spending problem which shot up dramatically (increasing by roughly 400% while US population rose by 36% over the same time period). The case for insufficient taxation is so weak that Stockman has to rely on some deceptive data cherry picking to prove his point:
By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s.
Oh please. The decline of tax revenue to 15 percent of GDP had nothing to do with tax cuts and everything to do with the recession as this data from the Tax Policy Center shows:

Fiscal Year Tax Revenue as a Percentage of GDP
1995 18.4
1996 18.8
1997 19.2
1998 19.9
1999 19.8
2000 20.6
2001 19.5
2002 17.6
2003 16.2
2004 16.1
2005 17.3
2006 18.2
2007 18.5
2008 17.5
2009 14.8

Clearly demonstrated is that tax revenue is far more dependent on the broader fortunes of the economy than changes to tax rates. The 15% figure is a complete aberration which only reflects the depths of the 2008 recession. I have to believe that Stockman was well aware of all this, and the fact that he resorts to such a sleight of hand doesn't speak well to confidence in his own argument.

Update: More criticisms of Stockman here.

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