Bloomberg Borrows Krugman's Favorite (Irrelevant) Ratio
I could maintain quite an active blog even if I just stuck to chronicling the liberal bias and shoddy economic analysis (the later being an outgrowth of the former, in my view) offered to the financial services community by Bloomberg, the leader in financial information services. This is post number 4 or 5 in just the last few weeks.
Today, the mission from Al Hunt & Co. is to convince us that the deficit is the result of George Bush's tax cuts. This is a recurring theme in the MSM, yet the timing is especially critical as a major issue for the upcoming congressional session is the extension of the 2003 tax cuts on dividends and capital gains. So it is high season for this particular liberal drumbeat. To wit, Bloomberg's not-quite famous "Chart of the Day" feature claims that "Tax Cuts Are Fueling US Budget Deficit." Of course the analysis underpinning this proposition comes from...drumroll...the leftist Center on Budget and Policy Priorities. But as any honest critique should do, let's actually look at the analysis. The CBPP analysis rests on the ratio of government revenue (tax receipts) to GDP. The ratio "plunged" from 21% in 2000 to 16.3% in 2003. Notice anything? Yes, 2004 and 2005 are missing. Must be that data on one of the critical variables, like GDP, is not available for those years (it takes the gov't some time to compile numbers, 'ya know). Wait, my assistant is signaling to me...oh, it appears the GDP numbers for 2004 and 2005 are available and it appears that GDP grew roughly 4.2% and 3.5% respectively. A bit of an ommission, wouldn't you say? It also dawns on me, wasn't 2003 the year that the bulk of the tax cuts were passed? Why yes, in May of that year to be exact. You don't have to be a genius to figure out that maybe the tax cuts, which were passed in May of 2003, ought to be assessed based on more than their first seven months in effect, when there are 31 perfectly good months worth of data to look at. No, you don't have to be a genius, you have to be a liberal economist at a left wing think tank.
Beyond this exercise in cherry picking, is the complete irrelevance of the ratio to the conclusion that tax cuts are the cause. The ratio doesn't tell you what is happening to either of the individual components and it certainly doesn't tell you why. Also, it also is completely blind to whether the federal budget is in surplus or in deficit. Making the link between rev:GDP to deficits is erroneous to the point of dishonesty.
Finally, there is the lack of context. 2000 was a year that the government was flooded with tax receipts as dot com bazillionaires cashed in stock and generated huge capital gains before the bubble burst (guys like Gary Winnick, Bernie Ebbers, the Enron guys and a few honest guys too). This bubble-induced revenue was a freak, which goosed the ratio. Of course it all came crashing down and revenue from capital gains taxes were not to be seen again for many years. Until 2004 to be exact, when revenues started to rebound based on an economic and stock market rally. 2005 has seen the largest amount of tax receipts flow into the federal coffers since...since ever. Hmmm, lower tax rates but higher tax revenues??? They gotta have a name for that.
The whole thing is just appallingly Krugmanesque. Don Luskin has more.
Today, the mission from Al Hunt & Co. is to convince us that the deficit is the result of George Bush's tax cuts. This is a recurring theme in the MSM, yet the timing is especially critical as a major issue for the upcoming congressional session is the extension of the 2003 tax cuts on dividends and capital gains. So it is high season for this particular liberal drumbeat. To wit, Bloomberg's not-quite famous "Chart of the Day" feature claims that "Tax Cuts Are Fueling US Budget Deficit." Of course the analysis underpinning this proposition comes from...drumroll...the leftist Center on Budget and Policy Priorities. But as any honest critique should do, let's actually look at the analysis. The CBPP analysis rests on the ratio of government revenue (tax receipts) to GDP. The ratio "plunged" from 21% in 2000 to 16.3% in 2003. Notice anything? Yes, 2004 and 2005 are missing. Must be that data on one of the critical variables, like GDP, is not available for those years (it takes the gov't some time to compile numbers, 'ya know). Wait, my assistant is signaling to me...oh, it appears the GDP numbers for 2004 and 2005 are available and it appears that GDP grew roughly 4.2% and 3.5% respectively. A bit of an ommission, wouldn't you say? It also dawns on me, wasn't 2003 the year that the bulk of the tax cuts were passed? Why yes, in May of that year to be exact. You don't have to be a genius to figure out that maybe the tax cuts, which were passed in May of 2003, ought to be assessed based on more than their first seven months in effect, when there are 31 perfectly good months worth of data to look at. No, you don't have to be a genius, you have to be a liberal economist at a left wing think tank.
Beyond this exercise in cherry picking, is the complete irrelevance of the ratio to the conclusion that tax cuts are the cause. The ratio doesn't tell you what is happening to either of the individual components and it certainly doesn't tell you why. Also, it also is completely blind to whether the federal budget is in surplus or in deficit. Making the link between rev:GDP to deficits is erroneous to the point of dishonesty.
Finally, there is the lack of context. 2000 was a year that the government was flooded with tax receipts as dot com bazillionaires cashed in stock and generated huge capital gains before the bubble burst (guys like Gary Winnick, Bernie Ebbers, the Enron guys and a few honest guys too). This bubble-induced revenue was a freak, which goosed the ratio. Of course it all came crashing down and revenue from capital gains taxes were not to be seen again for many years. Until 2004 to be exact, when revenues started to rebound based on an economic and stock market rally. 2005 has seen the largest amount of tax receipts flow into the federal coffers since...since ever. Hmmm, lower tax rates but higher tax revenues??? They gotta have a name for that.
The whole thing is just appallingly Krugmanesque. Don Luskin has more.
posted by Donny Baseball at 3:32 PM
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