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Tuesday, March 21, 2006

Bad Math

The NY Times has an interesting piece in "Deficit Demagogues", which rightfully beats up on Bill Frist and George Allen for presiding over more spending in the 2007 budget, after complaining of the deficit at the leadership conference a week earlier.

They make the statement that 62% of the deficit is due to tax cuts, but looking at real IRS numbers, I'm wondering who made that WAG (it's not a "SWAG" because there is nothing scientific about it). My guess is they used the tired old static numbers game to decide what revenue would have been.

When you do static numbers budgeting, or reverse budgeting in this case, you make the (always) faulty assumption that everything would stay the same if you make a change, or in this case, didn't make one.

It's a very easy, and overly simplistic way to try and make a point. In the Times case, though they don't say how they arrived at the 62% figure. I'll assume they took total income, and applied the pre-2002 tax numbers to it. That type of math assumes that the economy sees no advantage of tax cuts, which ignores history.

It assumes that every job created since the tax cuts would have happened anyway, and so would every bit of investment. That alone should be enough to make you discount their numbers, since some of the money that was used for both wouldn't have been in the private sector.

To their credit, the Times calls for Congress to reinstate the budget rules of the late 90's, that required any tax cut or entitlement increase to be paid for. The only problem with that is entitlements are growing so fast, that we won't be able to pay for them pretty soon, even if the new Medicare drug program was tossed out.

While those rules would help slow the deficit bleeding, until we come up with true "entitlement" reform, we'll never get out of deficit budgeting.

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6Comments:

Blogger Steven Tucker said...

The way to kill a deficit is to cut taxes and cut entitlements. Anything else will create failure. Unless you want to raise taxes and keep the entitlements we already have. But that will crush the economy anyway. So who cares if the government has a balanced budget while the people are hungry?

6:58 AM  
Blogger rev. billy bob gisher ©2005 said...

we eat, bleep, and breathe keynesian theory eh? wonder if he ever saw the lack of ifinity in the supply side.

8:57 AM  
Blogger LargeBill said...

Steve hit the nail on the head.

Budget problem is solved in one easy step. Have the federal government get out of the crap they have no Constitutional business being in. Problem is politicians realized a long time ago that they could bribe people for their votes with other peoples money.

9:29 AM  
Blogger Steven Tucker said...

I hate our government and I really don't like our politicians; HOWEVER, our government is a reflection of "We The People". :( We need a real cultural-political revolution in this country.

11:22 AM  
Blogger James B. said...

Pretending this type of precision in macroeconomics is pretty silly. In the late 90's they had wildly speculative surpluses predicted based largely on capital gains resulting from the dot com bubble. Trying to extrapolate future tax revenues from that is dubious at best. That is is like saying that if they Mariners win the first three games of the season, you can predict that they will go 162-0 and win the world series.

11:51 AM  
Blogger Crazy Politico said...

Steven, I agree that entitlements have to be cut. I think taxes could stay where they are for a while and not bother anything horribly.

Bill, you are right, we need to get out of the extra bull crap we spend dollars on.

James, they still use the wild speculation. If you look at OMB and CBO numbers you'll see they are always different. Each uses a different set of "indicators" to figure out what their numbers mean.

7:54 PM  

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