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Sunday, August 21, 2005

Max Speaks, CCM Listens

This post by Max Sawicky is so important to understand that we here at CCM reproduce it in toto:

First sentence in their editorial on August 17, 2005:

"In case there was any remaining doubt in the Berkeley faculty lounge, the Congressional Budget Office has now confirmed that federal revenues will rise this year by more than $262 billion -- the largest single-year increase in tax revenues in American history."

Wow! Such a milestone! But inquiring minds want to know, how many times in the past might such a wondrous event have occurred?

If you start with 1901, with apologies to Millard Fillmore and other ancients, it turns out the answer is 19 times. 19 times, the increase in revenues was "the largest single-year increase in tax revenues in American history."

What were some of these wonder years? If we skip past WWII, the first big year was 1969. The next was FY1977, for which we should credit President Gerald R. Ford. Jimmy Carter struck in 1979, and again in 1981. Next is Ronald Reagan in 1987, Clinton in 1994, 1997, 1998, and 2000. (Note: 1994 followed tax increases, 98 and 00 followed tax cuts.) Not until FY2005 does G. Bush break out of the pack.

The previous 'record' in FY2000 was $197 billion. Alas, the WSJ does not tell you that although this year's increase tops that by $65 billion (262-197), most of that is due to the shift forward in revenue resulting from temporary depreciation relief for business firms in 2002 and 2003. The way it works is simply the Gov lets a business deduct more this year for capital expenses, and less of those same expenses in later years. Even if your revenues and other costs are exactly the same, the effect is to increase your tax liability and the Gov's revenue year-over-year at a more rapid rate. The present value of revenue in this case would decline, since it's always better to pay a dollar of taxes later than sooner.


Anonymous semper fubar said...

Just another reason for me not to question the decision to cancel my online subscription to WSJ a couple years ago. Funny thing -- the customer service person asked me why I was cancelling, and then without waiting for my answer, she said "Is it because of the editorial page?" I guess she reads it too.

8/22/2005 12:14 PM  

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