Have the Bush Tax Cuts Helped Pay for Iraq?

In response to a recent post about John Edwards being unqualified to be President, I made a comment about Bush cutting taxes in a time of war. MByrne, the author of the post, replied that the tax cuts have actually helped pay for the war in Iraq. I don’t agree with his assessment and this post will explain why I think his assertion is false.

The whole idea behind the cuts was that American citizens and corporations would have more “disposable” income and would then reinvest it and spend it to help the economy. As with most things that have come out of this “Republican” era of government, that assertion is an oversimplification of the facts. Americans don’t like taxes so when someone says tax cuts, they salivate like Pavlov’s dog and jump on board. The question remains: have these tax rate cuts helped pay for the war in Iraq? The answer to that is no.

The tax rate cuts have increased tax revenue from about $1.7 trillion in 2003 to an estimated $2.5 trillion in 2007. Those are called receipts. Our debts, or outlays, have also increased since 2003 from about $2.1 trillion to an estimated $2.7 trillion in 2007. Our deficit was $248 billion last year and is projected to be about $244 billion this year. So, we were in the hole by $248 billion last year. There’s also this number called “on-budget,” which as the name suggests, is a number signifying how close we came to the President’s budget numbers. In 2006, we were $434.5 billion over budget. What was main cause of this discrepancy? An ugly little thing called supplemental funding for the war in Iraq. Supplemental funding is basically spending money that was not included in the budget, hence the $434.5 billion in over-budget spending. According to the Congressional Budget Office, Congress has provided over $503 billion in supplemental funding for mandatory diplomatic operations in Iraq, Afghanistan and other regions since 2003. Over 70% of that figure (352.1 billion) has been for Iraq. The current 100 billion supplemental request is being played out politically between the Democratically controlled Congress and the President. Of course, Iraq hasn’t been the only reason for supplemental funding (Katrina recovery, for example); however, it has been the primary reason since 2003.

The tax rate cuts provided more tax revenue for the government, but we still ran high deficits, so they didn’t actually pay for anything. It was funny money. We can argue whether or not it substantially stimulated the economy. It did put a little “money in people’s pockets,” but the federal minimum wage didn’t increase, corporate tax revenues as a share of profits[1] have fallen and the AMT (alternative minimum tax) will affect an estimated 23 million Americans this year (and up to 32 million by 2010). Not to mention increasing oil prices, the significant slowing down in the housing market, as well as median household income falling for the past five years. The DOW Jones and other indices are doing well, but that just means the corporations are making tons of money. 51% of Americans don’t own any stocks at all. Most of the stocks that Americans do own are tied to their retirement plans anyway. So while the economy is doing well for some (some of the few in my opinion), it is not doing so well for most and the cost of the war in Iraq sucks away billions of money (we don’t really have) per month with no tangible results.

Sources: Government Accountability Office, Congressional Budget Office, Tax Policy Center, White House Office of Management and Budget, Federal Reserve Bank of New York.

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[1] Alan J. Auerback, "Why Have Corporate Tax Revenues Declined? Another Look" (January 2, 2007). Berkeley Program in Law & Economics, Working Paper Series. Paper 216.
http://repositories.cdlib.org/blewp/art216

Lag Time and Politics

A lot has happened since I last blogged, most notably, the Democrats took control of both houses of Congress. They have pledged a lot a action in their first 100 hours of legislative time and got things off to a big start by taking the day off for the NCAA National Championship game. Business as usual? I'm not sure, but it doesn't bode well.

I am happy (on the surface) that their has been a changing of the guard in our legislative branch. There are two big problems, however, that I don't think the Democrats will be able to overcome:

1. Democrats lack of audacity (aka "balls). The Democrats suffer from "over think syndrome." They talk and talk, but lack decisiveness in their actions, leading to a fragmentation that kept them out of the majority for the past 12 years. We owe this changing of the guard more to President Bush's failures than the Democrats' successes.

2. Power corrupts. Everytime a minority takes the majority, there are always promises of ethics reforms and shouts that the party taking control will "clean up" Congress. The Republicans set themselves up 12 years ago as the moral authority. They promised to deliver us from the moral scourge that was the Democrat party. 12 years and many Republican scandals later, the Dems are saying the same thing. The problem is not party related. It's money and power related. the lobbies and corporate benefactors court the party in power very heavily. When the money and favors start flowing, it's hard for any politician, regardless of party, to say no. Being the majority party in Congress really means only one thing: it's just a matter of time before the scandals surface.

I hope they prove me wrong, but I really don't think so. The other shoe will drop; it's just a matter of time.

Hugo Chavez, he's "our" idiot!

Hugo Chavez gave a very vitriolic speech today at the U.N., calling President Bush "The Devil," ridiculing him, and making charges of imperialism against our country. Okay, all of that may be true, but Mr. Chavez, he's our idiot to ridicule!

Our President certainly has his issues and I am generally not a supporter of his. However, Chavez is way out of line for his remarks. It seems that hating the United States (and Israel) is pretty popular right now and I will offer a reason why: Is there any other nation out there that could unilaterally invade two countries and topple both of their governments in less than a month each? Or, is there a country out there that could repel an invader (Iraq) out of a country (Kuwait) in, oh, about 96 hours?

Hugo Chavez and the rest of the third world and cowardly industrialized nations (France principally) are envious of our power and wealth. For all of Venezuela's oil, they still have a GDP of 153.7 billion, compared to our GDP of 12.36 trillion. Also, it would probably take us a week or two to destroy their armed forces' capability to wage war. As for France, well, we've bailed them out of two defeats, ie, surrenders (if you count Dien Bien Phu, that's three). They haven't been a world power since Napoleon I, and that gig went up in smoke in 1812.

The United States certainly has its share of problems, no doubt. However, they are OUR problems. Chavez should shut his mouth and be grateful that we even allowed him into our country. As for his statement that the U.N. be moved to Venezuela, I say go ahead. The U.N. would even be less effective than it is now and we could use that prime real estate for some good.