1. Given the deductibility of state and local taxes, why do sales taxes exist?
2. The surplus from 2001 has disappeared – how much is this due to the Bush tax cuts?
Taxing questions
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Both Mankiw and the author of the post he cietes are being disingenuous or extremely forgetful. It wasn’t just the CBO that was projecting surpluses that run as far as the eye can see. So was the President’s own economic plan (http://www.whitehouse.gov/news/usbudget/blueprint/bud01.html)
produced in 2001, though Carter insists that a big part of the surplus was just a mirage, and Mankiw accepts his figures.
My favorite quotes: “The President’s plan will accelerate this trend to record rates by retiring an historic $2 trillion in debt over the next 10 years. Under the President’s budget, the national debt will be only seven percent of Gross Domestic Product (GDP) in 2011, its lowest share in more than 80 years.” and “Indeed, the President’s Budget pays down the debt so aggressively that it runs into an unusual problem—its annual surpluses begin to outstrip the amount of maturing debt starting in 2007. This means that the United States will be effectively unable to retire any more debt than what is assumed in the Administration’s Budget over the next 10 years—the President achieves “maximum possible debt retirement” in his budget.”
When his tax cuts made the surplus disappear, the administration kept assuming that they (the tax cuts) would soon work their magic. For instance, the 2003 budget shows the surplus coming back in 2005, albeit in a smaller incarnation. (Table 1, http://www.whitehouse.gov/omb/budget/fy2003/pdf/hist.pdf)
Since Mankiw worked for the administration, and the guy he cites still does, it would be surprisingly that they are now claiming nobody believed there was a surplus anyway.
Table 1.2 from 2004 has data through 2001. (http://www.whitehouse.gov/omb/budget/fy2004/pdf/hist.pdf)
Revenues were high enough for an on-budget surplus in 1999 (an infinitesimal surplus, but a surplus none-the-less) and 2000.
Well, Cactus, thanks for answering a question that was not asked and pointing out something that was not the topic of the post. The post referred to “projected budget surplus”.
For another view of the effect of the Tax Cuts see Tax Notes April 17, 2006
Alan Auerbach and others. Out of an $8.3 trillion swing for the 2002-
2011 period 29%, 2.4 trillion, is attributible to tax cuts. The Tax Note piece points out that
these estimates do not include the effect of extending the tax cuts or
reforming the AMT. In any event given the current deficit and the likelyhood
that costs of the war in Iraq will be much above what is currently budgeted,
the tax cuts will eventually have to be paid for and should be thought of
as tax postponments.
Rich Berger,
This is simplistic, but here goes. From OMB table 1.3 (http://www.whitehouse.gov/omb/budget/fy2007/sheets/hist01z3.xls), pulled right now:
In the year 2000, the surplus was 2.4% of GDP, in 2005 the deficit was 2.6% of GDP, for a swing of 5% of GDP.
In that time, revenues went from 20.9% of GDP to 17.5%, a change of 3.4% of GDP.
Outlays went up from 18.4% of GDP to 20.1% of GDP, or a change of 1.7%.
In other words…. was the bulk of the 5% swing due to a 3.4% change in taxes, or a 1.7% change in outlays?
I might add… if you think 2000 was an outlier, try using 2001. The 3.9% switch in the deficit/surplus position from 2001 to 2005 – is that better explained by a 2.3% decrease in taxes or by a 1.6% incrase in spending?
This is fairly simplistic, and it took me longer to write it up than it did to pull the data and do the subtraction.
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