Tax hikes: An "Inconvenient Truth"

Some conservatives tend to have a one track mind when it comes to taxes--cutting them is good; raising them is bad. According to the model these type of conservatives have, tax hikes damage the economy—that was the refrain of conservatives, including the Heritage mob, back in 1993, when Clinton's administration enacted them. As was said then:

[I cleaned up the text from the original archive site jumble, for readability] “CONCLUSION Raising tax rates on income is the most economically damaging element of the Clinton plan. There is little reason to expect that the higher rates would generate much, if any, additional revenue. By contrast, there is every reason to believe that higher rates on income would fuel new government spending, increase the budget deficit, depress savings and in vestment, destroy jobs, boost tax shelters, punish families, and hinder America’s international. competitiveness. Notwithstanding these serious drawbacks to enacting higher tax rates on income, the Clinton Administration seems determined to push forward, apparently believing that lower- and middle-income taxpayers will acquiesce to tax increases on their own in comes if they think that wealthier taxpayers are being punished even more. This calculation may work politically, but it will mean only harm to the American economy ”

The issue can be framed as some conservatives do—tax cuts good—lower taxes, and they produce more revenue. But it can also be framed as the corollary—a test of whether tax hikes hurt an economy. And, in that case, the Clinton experience is an “inconvenient truth” so to speak. Clinton's economic record is far better than Bush's. Some conservatives argue that Clinton's tax hikes happened when the economy was going great guns, and acted to slow down what would otherwise have been a spectacular recovery. That may be so, but such a recovery is not without its possible dangers.

In any case, it shouldn’t make any difference when Clinton’s tax cuts came in—after all, according to this "tax rise bad" theoretical framework, these tax hikes should have WRECKED THE ECONOMY. They didn’t. Conservatives might want to think about how that result fits within their framework.

Where would we like to compare the Bush and Clinton administration performances? If not at the bottom of the troughs, then when? If the bottom of the trough for Clinton was 1991-I and for Bush, it was 2001-IV, and you don’t like the bottom of the trough, where? Why not two years out for both? So that would be 1993-I and 2003-IV. Go out four years. That would be 1996-I and 2006-IV. Why four years? Because the Clinton administration enacted tax cuts on capital gains that Heritage, for example, has argued increased growth and gave us more boom times, then would have been had in their absence. Now, in real terms, we get:
Stat Clinton Bush
GDP +8.5% +9.9%
Receipts +17.5% +22.3%
Outlays +3.3% +11%

http://www.gpoaccess.gov/usbudget/fy11/pdf/hist.pdf
http://forecastchart.com/chart-gdp-inflation.html
By all means use other sources if you prefer to check my results.

So, it looks like in this comparison, the extra GDP growth helped explain the growth in receipts. Though it also was helped by a large differential in spending as well. With two large tax cuts as well, it is clear that Bush was using a Keynesian strategy in this period of time.

When you look at the six years from trough to 1996-I and 2006-IV, the picture looks like this:
Stat Clinton Bush
GDP +11.6% +14.3%
Receipts +20.5% +0.6%
Outlays +4.1% +25.6%

So, again, Bush’s Keynesian approach is pretty obvious.

You don’t want to look at the first four years, because, there were already two years of growth before the tax hikes. I wondered about this, so I went back to compare the first two years. A comparison of those first two years looks like this:
Stat Clinton Bush
GDP +4.6% +3.9%
Receipts +2.6% -0.2%
Outlays -3.9% +8.0%

What is interesting is that the Heritage Foundation felt that the impact of the 2001 tax cuts would be felt almost immediately (as they also said with the Ryan Plan), with higher tax revenues (starting in 2003) and lower national debt. 9-11, two wars, and Medicare Part D created the need for expenditures, so that helps explain part of why debt rose, instead of fell (increased expenditures). But, even with additional tax cuts, tax receipts fell in both 2003 and 2004, when compared with 2000 & 2001 peaks. The bottom of the trough for the recession was 2001-IV. Surely, with all this tax cutting, we should be seeing much higher tax revenues by 2003, or 2004 at the latest? 2005?

So, what we have, when we compare the two early parts of the recoveries, is the curious result that tax cuts were not immediately effective in getting the kinds of results that the Heritage Foundation (and some conservative commentators) said that we could expect to find. I grant that real GDP growth was better for most of the range in the Bush recovery than it was in the Clinton recovery, for the period I have surveyed. But then again, the Clinton recovery went on longer. One reason why it did, is that tax hikes put a lid on economic growth, slowing the economy down, ensuring that there was not a repeat of one of the earlier causes of recessions, namely: when accelerating inflation results in the Fed raising interest rates, slicing private investment and consumption, killing economic growth. As for the 1997 tax cuts—it can be argued that these helped fuel the technological speculative bubble that helps explain the eventual burst and recession in 2001.

Some conservatives are going to have to come up with a better model of how an economy works, or just acknowledge that in this regard at least, their beliefs are more articles of faith, then evidence based arguments.

Free Speech Isn't Always Free

I am engaged in a conversation concerning the issue of free speech, based on the recent events in Afghanistan in which a mob killed 20 or more UN workers. The basis for the riot was a Qu'ran burning orchestrated by Terry Jones in Florida, that was condemned by President Karzai of Afghanistan, and then whipped up by some mullahs who helped direct their ire at a symbol of western influence. A long convoluted chain of events to be sure.

The issue is what role is there for free speech. Can it be constrained? Plenty of commentators I converse with argue, that though reprehensible, this is free speech, and the onus is on those in other countries like Afghanistan to just "suck it and deal with it." After all, people poke fun at religions in this country all the time, and we don't riot. That is true, we don't usually riot over things like that.

So, does that absolve Mr. Jones?

I don't think so. The intuition I have is based on a simple question. Do you believe that there are limits to the practice of free speech? Many of the commentators I speak with are coy on this topic. If the answer is "No" then it makes perfect sense to argue that the responsibility for the dealing with the fallout of free speech should fall on those who hear it. They are responsible for how they deal with provocative nature of what they hear, not the person who utters it. If they go bananas, it is on them, not the originator of the speech. Many will go further and call this unfettered use of speech a universal human right, applicable to all.

However, if you believe that there are limits to free speech because you believe that speech can provoke reasonable people beyond their limits to act in ways that are hurtful and destructive to themselves, others, or society in general, then this is a murkier picture. Our country enshrined the concept of the freedom of speech in the Constitution. The Founding Fathers meant this to apply universally, though more narrowly focused than what many think today. "The Free Speech Clause of the Constitution was drafted to protect such political dissenters from a similar fate (i.e., punishments that included whipping, branding, fines, imprisonment, banishment, and death) in the newly founded United States." In this regard, subsequent SCOTUS also allowed that there could be exceptions to its use. "The Constitution is not a suicide pact" said Justice Goldberg. One way to apply this idea is to say that there are limits in what one can say. SCOTUS has delineated a pretty clear set of guidelines, that may have evolved, but the underlying basis for which has not changed: that there are limits to the exercise of free speech, and those limits revolve around what a "reasonable" person might expect to happen as a consequence of the exercise of that speech. Thus, SCOTUS carves out exceptions to free speech. "[T]he U.S. Supreme Court has afforded dissident political speech unparalleled constitutional protection. However, all speech is not equal under the First Amendment. The high court has identified five areas of expression that the government may legitimately restrict under certain circumstances. These areas are speech that incites illegal activity and subversive speech, fighting words, obscenity and pornography, commercial speech, and symbolic expression."

If one can be punished for one’s speech, it isn’t free. One is paying a cost to exercise it. One may alternatively believe that speech is free if no one can stop me from doing it, if I choose to do it, no matter what. I pay the price later. In this case, calling Stalin an A---hole in Red Square in 1937 is an exercise in free speech. Except that you permanently disappear. That doesn't sit well with me as an intuition for supporting the notion of "free speech." I think that speech in that setting is not free.

To the point. Commentators, both liberal and conservative have defended this incident as a sanctioned expression of free speech in this instance. I think they are wrong, if not legally, then definitely morally.

With regards to political speech there is extraordinarily wide latitude, in this country. Even so, freedom of speech is circumscribed, in this country. Bottom line--freedom of speech is not universally applied. Consider another country, Afghanistan that has no cultural heritage of freedom of speech in this context. It is a culture in which the religious and the political are inextricably intertwined. It is a country, where blasphemy is not just a religious issue (outside the purview of the State, but also a legal and social issue: "Blasphemy laws in both Pakistan and Afghanistan carry a maximum sentence of death..." There is no doubt that these violate the norms of what we consider freedom of expression. I wouldn't want to live there, thank you very much. However, they are the law of the land, and norms by which people in these countries live their lives. Thus, when Mr. Jones burns his Qu'ran, subjecting it to fire (God's chosen instrument of destruction), it is unsurprising, that when this information is publicly broadcast by Karzai (no friend of the US), that things might get a little "hot."

If this was all there was, then Mr. Jones' symbolic act would be of less interest to me, because what Afghans do in their country in reaction to what a pastor does here has little or no impact on us or me. However, that is not the case. We have been at war in Afghanistan for close on ten years. We have over 100,000 troops in Afghanistan at the moment. There are western NGO's, UN, and other relief agencies active in Afghanistan. We are in their country.

Commentators feel that it is reasonable to expect that these people our troops live amongst, ought to realize that our view of free speech is sacrosanct. On what basis this should be so, is not at all clear to me, and no one seems in a hurry to explain this, given the historical conditioning of Afghanistan. Why should these people be more like us, in this regard? Even if we can accept that they would be better off with this right, they certainly do not have it now. The basic argument in support of Mr. Jones' right to do as he did is that the locals ought to control themselves--after all "reasonable people do not act like this," presupposes social, cultural, and historical conditions that do not currently exist in Afghanistan.

Though one liberal commentator expresses his discomfort with generals and politicians asking Mr. Jones from refraining from his actions, I do not. The last thing our troops need is for us to give more ammunition to those who oppose us to fight harder or recruit more easily, or for the populace to distrust us more, as agents of disrespect for their religion, which is woven into their lives in a manner which is completely alien to many of us here in the West. I would have more sympathy for those who support Mr. Jones if they would also acknowledge that his action has caused harm to our forces in Afghanistan, and made our mission harder. An interesting thought experiment in this regard is to consider what people would have said and felt, had Mr. Jones' action been linked to the death of 20 US personnel? It is unlikely to happen, I grant, because our troops are well defended. That is why, I suspect, 20 UN workers got the brunt, instead. The people who support Mr. Jones' exercise of his First Amendment Rights are our troops and other NGOs in Afghanistan. They shouldn't have been asked to do that. For doing this, Mr. Jones bears some of the moral responsibility, at the very least.

Egypt--One Take on Future History (Or, why a Freedom or two in the Bush is worth at least as much as a liberty in the Hand)

I am not a fan of the last President. But I think some credit may be due. One thing the man wanted was to spread democracy (and freedom) in the Middle East. I would prefer liberty, but freedom is a start that might lead to liberty. For those who want to understand what I am saying, feel free to look here for the distinction between "liberty" and "freedom."

I will go and check some links later, but the bottom line is this: Can we claim that after all this treasure and casualties, that what has been happening across the Middle East over the last six months or so is a coincidence? Yes, a correlation does not a causality make. However, those in the Middle East, watching what has been happening in Iraq and Afghanistan, cannot help but draw the following insight: Though messy and not very efficient, the stumble towards democracy in Iraq is a sign of a different paradigm in operation, that people in the Middle East, can at least compare with what they currently have in political terms. The US got rid of Saddam Hussein. What is in its place is arguably better. In saying this, I do not want to minimize the role of higher food prices and internal issues particular to each state in the current flux of Middle East politics. But, this also does not mean that our presence in the region is perceived as entirely negative, nor that it has had nothing but negative effects. No matter how inept we have been, I think that the way we have been trying to act shows that there are very real differences in comparison with other "imperializers," in substance and style. And this "semi-positive" (or perhaps ambiguous?) take on the US and its mission in the Middle East has had one positive outcome. It has helped fuel calls and actions for getting rid of oppressive regimes.

President Bush will be reminded more kindly by history than many liberals suspect, I believe. Now, if Saudi Arabia goes kabluey, then it might be a different story...