Thursday, February 09, 2006

The WSJ Sends in the Clowns

Via TaxProf, there is an excerpt from those paragons of intellectual honesty at the WSJ editorial page. It seems that the WSJ editorial board (behind a paywall) has taken umbrage at a parliamentary maneuver being used by Senator Max Baucus in an attempt to block a two-year extension of the tax cut for the very rich--the reduction in marginal rates on dividends and capital gains. In making its argument, the editorial throws out the following baloney:

[T]hose lower rates [on dividends and capital gains] have more or less paid for themselves thanks to a rising stock market and stock turnover. The latest Congressional Budget Office report says that the revenues from capital gains and dividends are up by more than 30% over the past 30 months.

Last week, I had attacked an extended version of this claim that had previously appeared on the WSJ editorial page (Lies, Damned Lies, and Statistics (WSJ Edition)). Today, although directed to the essentially the same bull baloney purveyed by President Bush, Brendan Nyhan does a far better job at exposing the creaky underpinnings of this claim.

The posting, The Bush tax and budget clown show, quotes at length from a report by the Center on Budget and Policy Priorities:
[R]evenues declined in nominal terms for three straight years in 2001, 2002, and 2003 (the first time this happened in the U.S. since the 1920s) and in 2004 reached their lowest level as a share of the Gross Domestic Product since 1959, CBO found itself consistently overestimating revenues. This may have led CBO to be especially cautious in raising its projections as revenues began to rebound somewhat in 2005 (especially since, as a share of GDP, actual revenues in 2005 are still well below the average of 18.3 percent of GDP for the last 30 years). It would not be surprising, therefore, if at least some of CBO's increase in projected revenues since last August were the result of a natural tendency to become somewhat less cautious after another year of revenue growth.
(I have included some material from the original CBPP report that Nyhan had edited out.)

As Nyhan states: "Bush's [and the WSJ's] claim is equivalent to saying a car that slowed from 55 to 25 and then sped back up to 35 is going faster than when it started." He delivers the coup de grĂ¢ce with this quote from the 2003 Economic Report of the President:
Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity.
Just two things I don't understand: Don't these knaves know their own prior statements can be discovered and used to discredit their baloney de jour? And why do fools keep buying into this nonsense?

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