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Tuesday, October 16, 2007

Who’s Laffering now?

Paul Krugman on the Laffer curve:

Who’s Laffering now?, by Paul Krugman: The Bushies have used rising tax receipts since 2004 as supposed proof that tax cuts pay for themselves — carefully ignoring the fact that revenues plunged in the early years of the administration, and that the subsequent rapid growth basically just gets us back to the previous trend. Also, they’ve pretended not to notice that mainly the revenue comes from an incredible surge in corporate profits, the byproduct of an economy in which economic growth leaves most workers behind.

But anyway, the revenue surge is over.

The chart currently shown at the top of the CBO home page tells most of the story. (Sorry, getting graphics up on this blog is a real pain — no time right now.) A read of the report shows that the revenue slowdown is continuing: September 2007 revenues were only 2 percent higher than September 2006 revenues.

Bye-bye Bush revenue boom.

Here's the graph:

Cboforkrug

Estimated Year-to-Year Growth Rates (Percent)

Here's an update:

Failing to Pass the Laffer Test, by Paul Krugman: OK, a follow up on my previous tax revenue post. The revenue boom of the last few years, which mainly depended on booming corporate profits, is over. Here’s a chart from the Congressional Budget Office [see above]:

And a further slowdown is visible within the fiscal 2007 data: revenue in September was up only 2 percent from the previous year. To put this in perspective, here’s revenue as a percent of GDP since Clinton took office:

Krugtax

So everything you’ve heard about how revenues have boomed since the Bush tax cuts is wrong. What really happened was that revenue plunged, as a percent of GDP, in the early Bush years, then staged a partial, but only partial, recovery. And that recovery seems to have run its course.

Yet on the basis of this experience, both Bush and his would-be Republican successors are proclaiming that tax cuts actually increase revenue.

    Posted by on Tuesday, October 16, 2007 at 01:08 PM in Budget Deficit, Economics, Taxes | Permalink  TrackBack (1)  Comments (23)

          

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