Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, November 04, 2006

To Spend Is to Tax

John Berry takes on the claim of Republican hacks that George W. Bush has in any meaningful sense "cut taxes":

Bloomberg.com: Opinion: V.V. Chari of the University of Minnesota explained at a conference for journalists on Oct. 17, "The true burden of government is what it spends today and in the future.'' When a politician brags, "I cut your taxes,'' that's not what really matters.... When a government spends money, it commands resources that are no longer available for use by the private sector. If it chooses to borrow the money rather than levying taxes to finance transfer payments and the purchase of goods and services, the government is only postponing the inevitable taxes, Chari said.

``The political system works very hard to obfuscate this issue,'' he said.

A good example of such obfuscation is a White House fact sheet about the fiscal 2006 budget results released on Oct. 11. The fact sheet said the Bush tax cuts ``have helped fuel economic activity that has produced two years of record revenue growth,'' 14.5 percent and 11.8 percent in fiscal 2005 and 2006, respectively. It conveniently overlooks the fact that revenue in 2004 was lower than back in 2001.... One result of spending rising twice as fast as revenue was that the budget swung from surplus to deficit in a big way. The inevitable consequence was a large increase in the sale of Treasury securities to the public.... Over the last five years, debt held by the public rose by more than $1.5 trillion, to $4.84 trillion, a 46 percent increase...

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