YETMO

When in Doubt, Cut Taxes (Week of May 8 – 12, 2006)

While various issues swirled around the Capitol, lawmakers passed tax cut extensions much to the pleasure of the White House.

While immigration, General Hayden’s CIA nomination, new developments about NSA’s domestic activities, and bureaucratic posturing between the Department of Defense and the Director of National Intelligence continued to simmer, Congress reverted to the tried and true politics of the pocketbook.

I may be in the minority these days. I actually like not having to pay as much tax as I did a week, month, or year ago. What’s not to like? What doesn’t go to Uncle Sam stays with the Apelquist clan to be spent on wondrous items such as food, clothing, and – don’t forget this – gasoline!

An article yesterday (5/12/06) in The Washington Post (“Senate Passes $70 Billion in Tax Cuts,” by Jonathan Weisman) reported that federal tax receipts this year (not specified as fiscal or calendar year) through April are over 11% greater than the same period last year. Wow! That’s playing fiscal catch-up big time. Of course, how long that can be sustained, how anomalous that revenue stream may be, etc., was not addressed, but clearly that is an important factor.

Later, the article cited that, as a percentage of Gross Domestic Product (GDP) the proportion of federal revenue receipts v. spending have flip-flopped in the past few years.

In 2000, federal receipts (revenue) were 20.9% of GDP whereas spending was 18.4. However, this year receipts have dipped to 17.7% while spending soared to 20.3. [Again, years were not designated as fiscal or calendar.] To what extent the war in Iraq, Hurricane Katrina relief, or seemingly runaway spending contributed individually or collectively was not differentiated. In any case, the point was made.

Normally, I would not use tenths of a percent. I’m a rounding sort of guy, especially as my belly tries to survive its 6th decade attached to my ever-expanding body. However, when dealing with trillions – of anything – 1/10 of one percent equals a billion. Thus, if I were to round, as is my wont, year 2000’s spending rate to 18% (from 18.4), I would be taking four billion dollars off the table.

To illustrate how large a billion is, if you start counting, one by one, one number per second, it would require, of course, one billion seconds – or over 34 years! -- to reach your goal. That’s more than a lifetime to count to four billion. Besides, even if you tried this mental tabulation, you’d probably lose count after a decade or two and have to start over.

That’s enough math. The point is that anything done in this country at a national level involves huge numbers, huge proportions, and huge impacts. For further illustration of this phenomenon, please read my 1995 article entitled “Burgeoning Budgets Dallying in Debt.”

Do you remember the 10-year $2 trillion surplus President George W. Bush addressed at the beginning of this decade, which served as the rationale for tax cuts? Where’s the surplus? Did spending squander it? Was it Iraq, Katrina, profligate lawmakers, or erratic economic development?

Whatever caused this massive national economic and fiscal sea change over the last 5 years, it can be reversed. Whether that will happen through more disciplined spending, increased taxes, or kismet, I don’t know. That’s for economists to discern, that is, if you can trust them. They seem to have as many different opinions on issues as do lawyers. And we know how many lawyers sit in Congress.

Where’s John Kenneth Galbraith when we need him? Taking a deserved eternal rest. I’m sure he’s observed many of these cycles come and go.