19 September 2006

Voo-Doo Economics or the Robin Hood Model?

Ecomics is not an exact science. Economists are social scientists that make inferences on economic behavior of markets based on models.

Supply side economics, that is to say stimulating the Economy by increasing production and thereby the amount of the discretionary income of consumers, by lowering taxes, for example, has been a hotly debated theory since Ronald Reagan ran for the presidency in 1980. At that time, one of his opponents , George H. Bush called Reagan's economics theory "Voo-Doo Economics". Reagan was also ridiculed by Democrats and the media for saying that ultimately the average consumer would benefit by lowering the upper tax rates because of "trickle down" effect.

Democrats who are proponents of progressive taxes, that is to say a tax structure where those at higher incomes are taxed at progressively higher rates as their incomes increase, call any tax cuts that are equally distributed to all tax payers a tax cut to the rich because since the rich pay more taxes, they get a larger tax cut. Gusano likes to call Bush's tax cuts the "No Millionaire Left Behind" tax plan.

The point of the long, boring Macro-Moneterist, insomnia curing soliloquy above is to say that given the current economy, supply side ecomics and stimulating the economy through tax cuts is a model that works and ,in fact it works so well, that by cutting taxes the government can increase its revenues.

Below is the proof. So next time you hear that they should increase the tax rates for the rich to raise revenues a la Robin Hood, You tell them Zorro says that the Kensyan model doesn't work.

Federal Deficit Running 14% Lower Than Last Year, Treasury

Wednesday, September 13,

WASHINGTON : The federal budget deficit, helped by a surge in government revenue, is running 14.1 percent below the pace of last year, the government reported Wednesday.

The Treasury Department said that with just one month to go in the budget year, the deficit totals $304.3 billion, down from $354.1 billion during the same period a year ago.

The Congressional Budget Office is forecasting that the deficit for the entire year will be $260 billion, which would mean that September will see a sizable surplus.

The administration is somewhat less optimistic, forecasting a deficit of $295.8 billion for the current budget year, which ends Sept. 30.

However, both the CBO and the administration are expecting an improvement from last year's deficit of $319 billion, the third highest amount of red ink in history. The record deficit in dollar terms was $413 billion set in 2004.

Even with the improvement, Democrats point to CBO forecasts that the deficit over the next decade will total $1.76 trillion as evidence that President Bush's emphasis on tax cuts has put the country on an unsustainable fiscal path.

The administration counters that Bush's first term tax cuts helped to lift the country out of the 2001 recession and provided support for a strong economic rebound that has resulted in the gusher of revenues this year.

For August, the deficit jumped to $64.6 billion, up from $51.3 billion in August 2005. The federal government has run a deficit in August every year since 1954.

Through the first 11 months of the current budget year, revenues have totaled a record $2.12 trillion, up 11.5 percent from the same period a year ago.

Government spending is also at record levels so far this budget year, totaling $2.43 trillion, an increase of 7.6 percent from the same period a year ago.

The faster growth in revenues than in spending has meant that the 11-month deficit of $304.3 billion is 14.1 percent below the red ink run up during the same period a year ago.

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