Friday, December 23, 2011

Can you spot the economic fallacy?

I watched some Fox Bidness Channel blabbering yesterday a.m.  The host had two guests: a gent named David Callahan from the Demos think tank, and economist/actor Ben Stein from the world of reality. 

They were discussing the Bush era tax cuts.  Stein noted that during the four years after the tax cuts were implemented, tax revenue increased and that we had record-breaking amounts of tax money rolling into the Treasury.  (Thomas Sowell has also noted that the percentile who received the tax break then paid more $$ in taxes afterwards, and also paid a higher percentage of the total taxes.  If people don't have to give the government as much money, people can then invest their money in things that aren't stupid or harmful and that eventually creates benefits for everyone.  The government eventually gets more money.)

Callahan disagreed.  He stated that there was a four-year period in the Clinton era where taxes were a higher percentage of GDP than ever before, and that tax revenue was near 20% of GDP during that era. 

Let's assume that Stein and Callahan are both correct.  More dollars, adjusted for inflation, came in after the Bush tax cuts.  But a higher percentage of taxes to GDP came in during the Clinton era.   

Who has a legit point, Stein or Callahan? 


Nick Rowe said...
This comment has been removed by the author.
CenTexTim said...

In Callahan's world, we could hold taxes steady, or even decrease them, as long as we decreased GDP by a greater proportion. That way the ratio of taxes to GDP would increase, and unicorns would fly over the rainbow.

What a maroon...

The Whited Sepulchre said...

Yep !!
"Maximizing tax revenue is not the objective of government. Our government's job is to provide minimally sufficient public goods and services, ameliorate some externalities and incomplete markets, and provide some regulation when there is asymetric information. They should only be taxing enough to pay for that."