Is this yet another indicator that the tax cuts were not responsible for the growing economy?

Question

http://news.yahoo.com/s/ap/20070313/ap_on_bi_st_ma_re/wall_street;_ylt=Ahpoe3gC15tH_Ydpdfe__wADW7oF

Some have argued that the declining deficit (but still a deficit) indicates that supply side economics works. However, in order for this argument to be true, the growth in the economy must come primarily from tax cuts.

However, this article helps make it increasingly clear that it was the Federal Reserve cutting the prime rate to 1% and thereby fueling a housing boom that was the prime motivator for the economy.

After all, the tax cuts are still in effect (and even getting larger) - so if they were the biggest factor, a housing slowdown should have negligable effect, right?

In other words, supply-side economics is either wrong, or at least we are well below the ideal tax rate suggested by the Laffer curve (so further tax-cuts will simply decrease revenue).

http://en.wikipedia.org/wiki/Laffer_curve

Excuse me, I meant the Federal Funds Rate -- the one controlled by the Federal Reserve Board.

http://www.moneycafe.com/library/fedfunds.htm

Answer 1

If you look at historical trends, every president whether they raised or lowered taxes enjoyed a similar increase in tax revenues. The economy rises, becuase that is what it does. We've seen a growing economy since after WW2, with only short periods of recession. Bush taking credit for a 60 year trend is like him taking credit for a mission accomplished in Iraq.

Answer 2

I think both of them had an impact. I also think the tax rates now are too high. Just because the Laffer curve has a peak does not necessarily imply that we should tax at that rate. As a small government libertarian-leaning person, I am in favor of just about any tax cut we can pass so that the government can have less of the taxpayers' money to waste on unconstitutional items.

Answer 3

Maybe you would prefer giving your whole check over to the government. Me? I prefer keeping every penny I can and have a reduction in spending on the government side (including all those wonderful social programs). If you reduced government, you would probably see an increase in the economy. Therefore tax cuts would help the economy. People just need to take a moment and think that whole process out.

Answer 4

Since the top marginal tax rates are changed the most the behavior of very high income groups should show the greatest response to tax changes over time.The historical data on reported income, indicates that tax cuts increase income share for the top 0.1% of the income distribution (income >1 million). It is not clear whether it is because they hide income when rates are high, or because they are more productive, and do more rent seeking when rates are low. The increasing share of the tax burden of the very rich is a reflection of the their increased income share. See graphs at http://visualizingeconomics.com/

Answer 5

Wow. I would love to see this blooming economy. I guess you do not have a house for sale or made a cheap loan on one. You are not working for minimum wage, or maybe not watching the market go down and the raise in the price of gold, which is becoming the only place to invest at present.

Answer 6

Just one part that i would like to address, the housing boom was great for the middle class, and allowed them to buy bigger houses.. Now 25% of our pop. is employed in some way by the housing market, not to mention what this did to the lower class not being able to afford housing,,,,
when this bubble pops,, layoffs occur, unemployment will skyrocket.... and these 30 year mortgages will be foreclosed on,,, everyone will be trying to sell off their property to avoid losing their primary home,,,, pop goes the weasel....
and all this is left for the democrats to clean up.....

watch the foreclosure rates....... this is the first sign of decline,,,,

Answer 7

the Fed RAISED the prime rate, not cut..okay? now, go back to school and find another way to say that Bush didn't have anything to do with the booming economy. BTW, the Prime rate is 8.25%, not 1%

Answer 8

Look here dumb ***, the market goes up and down all the time, that's nothing new. Why the hell are you against tax cuts? Do you believe that the government doesn't have enough of your money? I'm sick of you communist bastards trying to tax everyone through the roof.

Answer 9

the war has also spent several hundred billion... that mostly went back into our own economy through no-bid contracts with American companies...

the economy is not quite as simple as Republicans like to think it is...

Answer 10

How do you explain that tax revenue is at an all time high then?