Smart Bombs: Budgets need static cling

Politicians in love with supply-side economics and budgeting often discount the findings of the Congressional Budget Office, because its “static” analyses fail to capture the “dynamic” effects of tax cuts.

Jobs will be created. People will work more. The tax base will broaden. The gross domestic product will grow. All of these activities, they say, will work to offset the fact that government will take in less revenue for a while.

So what would a dynamic model of tax cuts look like? Well, the conservative Heritage Foundation applied one to the 2001 tax cuts, and came to this conclusion:

This dynamic analysis shows that President Bush’s tax plan will boost economic activity, create over 1.6 million new jobs, and strengthen the incomes of taxpayers. The plan would reduce excess tax revenue and effectively pay off the publicly held federal debt by FY (fiscal year) 2010. Real economic growth, which recently has slowed dramatically, would rise an average of $147 billion per year from FY 2002 to FY 2011.

Gosh, who could be against that? It didn’t even call for spending cuts. Still, Congress back then paid more attention to the CBO projection suggesting deficits would likely return if the tax cuts were indefinite, so it affixed a 10-year expiration date, which Congress has temporarily extended.

In 2007, before the economy collapsed, the buzzkill crew at CBO reviewed the tax cuts of 2001 and 2003 and concluded:

CBO’s latest analysis of how tax cuts affect economic behavior adds to the growing literature showing that tax cuts can have a modest positive impact on economic performance if they are paid for. But, it also adds to the growing literature showing that even under the best of circumstances, the additional revenue generated by economic activity stimulated by tax cuts offsets only a small percentage of the revenue loss that the tax cuts cause.  If tax cuts are deficit financed, the net long-term economic effect could actually be negative, and the revenue losses could be larger, rather than smaller, than the static revenue estimates indicate.

Which assessment do you think reflects reality?

Round and round we go. Frustrated with the budget dance in Washington, D.C.? Find it hard to follow along? It’s actually quite simple once you’ve mastered the Budget Two Step. It works like this:

Call: “Cut spending to lower the deficit.”

Response: “That will kill the economy and jobs.”

Call: “Raise taxes to lower the deficit.”

Response: “That will kill the economy and jobs.”

Call: “More spending to stimulate the economy.”

Response: “That will increase the deficit.”

Call: “Keep the tax cuts to stimulate the economy.”

Response: “That will increase the deficit.”

So what’s the right answer? Depends on which problem you’re trying to solve.

No way around it. As you negotiate the myriad construction zones this summer, try to keep things in perspective. We want the roads improved. This is the only time of year to do that.

Still not mollified? Then consider Carmageddon.

That’s what Californians are calling this weekend’s closure of one of the busiest freeways in Los Angeles for bridge repairs. Each day about a half-million cars traverse the 10-mile section of Interstate 405 that won’t be available. Those motorists need to find another way.

Traffic is expected to be so awful that emergency centers have been opened. LA’s mayor offers this comforting prediction: “It will be an absolute nightmare.”

It’s so bad that Jet Blue is offering $4 flights from Burbank to Long Beach, a 40-mile jaunt. Not sure if there’s beverage service.

So, remember, while we’re near nature, near cones, it could be worse.

Why so blue? Just-fired Spokane police detective Jeff Harvey made $97,800 last year (along with the kind of benefits that private sector workers can only dream of) and wasn’t happy, according to the termination letter that listed episodes of wrongdoing and general workplace bitterness.

Typical workers in Spokane County make about $42,000 a year and their pay and benefits are in decline. So at least they can say they’ve earned their enmity.