I hope the title of this post is an exaggeration, but it’s certainly a logical conclusion based on what is written in the Congressional Budget Office’s updated Economic and Budget Outlook. The Capitol Hill bureaucracy basically has a deficit-über-alles view of fiscal policy. CBO’s long-run perspective, as shown by this excerpt, is that deficits reduce output by “crowding out” private capital and that anything that results in lower deficits (or larger surpluses) will improve economic performance – even if this means big increases in tax rates.
CBO has also examined an alternative fiscal scenario reflecting several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period. That alternative scenario embodies small differences in outlays relative to those projected under current law but significant differences in revenues: Under that scenario, most of the cuts in individual income taxes enacted in 2001 and 2003 and now scheduled to expire at the end of this year (except the lower rates applying to high-income taxpayers) are extended through 2020; relief from the AMT, which expired after 2009, continues through 2020; and the 2009 estate tax rates and exemption amounts (adjusted for inflation) apply through 2020. …Under those alternative assumptions, real GDP would be…lower in subsequent years than under CBO’s baseline forecast. …Under that alternative fiscal scenario, real GDP would fall below the level in CBO’s baseline projections later in the coming decade because the larger budget deficits would reduce or “crowd out” investment in productive capital and result in a smaller capital stock.
There’s nothing necessarily wrong with CBO’s concern about deficits, but looking at fiscal policy through that prism is akin to deciding who wins a baseball game by looking at what happened during the 6th inning. Yes, government borrowing drains capital from the productive sector of the economy. And nations such as Greece are painful examples of what happens when governments go too far down this path. But taxes also undermine economic performance by reducing incentives to work, save, and invest. And nations such as France are gloomy reminders of what happens when punitive tax rates discourage productive behavior.
What’s missing for CBO’s analysis is any recognition or understanding that the real problem is excessive government spending. Regardless of whether spending is financed by borrowing or taxes, resources are being diverted from the private sector to government. In other words, government spending is the disease and deficits are basically a symptom of that underlying problem. Indeed, it’s worth noting that there’s not much evidence that deficits cause economic damage but plenty of evidence that bloated public sectors stunt growth. This video is a good antidote to CBO’s myopic focus on budget deficits.
[…] you don’t want to spend a few minutes with the video, this short column tells you why fixating solely on deficits leads to absurd results. And this column is a must-read […]
[…] may seem obvious, especially for people familiar with the academic research on this topic, but CBO used to have some very silly views on tax […]
[…] may seem obvious, especially for people familiar with the academic research on this topic, but CBO used to have some very silly views on tax […]
[…] notion that budget deficits were the main determinant of economic performance. The bureaucracy even produced reports that implied you could maximize growth with 100 percent tax […]
[…] instance, the Congressional Budget Office at one point embraced this approach – even though it led to absurd implications such as growth being maximized with tax rates of 100 […]
[…] instance, the Congressional Budget Office at one point embraced this approach – even though it led to absurd implications such as growth being maximized with tax rates of 100 […]
[…] instance, the Congressional Budget Office at one point embraced this approach – even though it led to absurd implications such as growth being maximized with tax rates of 100 […]
[…] instance, the Congressional Budget Office at one point embraced this approach – even though it led to absurd implications such as growth being maximized with tax rates of 100 […]
[…] instance, the Congressional Budget Office at one point embraced this approach – even though it led to absurd implications such as growth being maximized with tax rates of 100 […]
[…] 2. In my discussion of deficits and debt, I criticize the Congressional Budget Office for assuming that government fiscal balance is the key determinant of economic growth. And since CBO assumes you maximize growth by somehow having large surpluses, the bureaucrats actually argue that higher taxes are good for growth and their analysis implies that the growth-maximizing tax rate is 100 percent. […]
[…] 2. In my discussion of deficits and debt, I criticize the Congressional Budget Office for assuming that government fiscal balance is the key determinant of economic growth. And since CBO assumes you maximize growth by somehow having large surpluses, the bureaucrats actually argue that higher taxes are good for growth and their analysis implies that the growth-maximizing tax rate is 100 percent. […]
[…] 2. In my discussion of deficits and debt, I criticize the Congressional Budget Office for assuming that government fiscal balance is the key determinant of economic growth. And since CBO assumes you maximize growth by somehow having large surpluses, the bureaucrats actually argue that higher taxes are good for growth and their analysis implies that the growth-maximizing tax rate is 100 percent. […]
[…] 2. In my discussion of deficits and debt, I criticize the Congressional Budget Office for assuming that government fiscal balance is the key determinant of economic growth. And since CBO assumes you maximize growth by somehow having large surpluses, the bureaucrats actually argue that higher taxes are good for growth and their analysis implies that the growth-maximizing tax rate is 100 percent. […]
[…] this common-sense observation. For instance, the bureaucrats at the Congressional Budget Office basically argued back in 2010 that a 100 percent tax rate was the way to maximize […]
[…] tax rate is 44 percent rather than 100 percent (as the Congressional Budget Office implies). And I suppose I also should be happy that “progressive tax capacity” doesn’t […]
[…] Budget Office Says We Can Maximize Long-Run Economic Output with 100 Percent Tax Rates.” — Daniel Mitchell, finding in the cbo’s 2011 Economic and Budget an assertion that any increase in taxes — no […]
[…] folks on the left also have supported higher taxes on the theory that the economy’s performance is boosted when deficits are […]
[…] all, if deficits really drive the economy, that implies we could maximize growth with 100 percent tax rates (or, if the Joint Committee on Taxation has learned from its mistakes, by setting tax rates at the […]
[…] here’s the giant problem. The CBO would say – and has said – the same thing about budget plans with giant tax […]
[…] all, if deficits really drove the economy, that would imply we could maximize growth with 100 percent tax rates (or, if JCT has learned from its mistakes, by setting tax rates at the revenue-maximizing […]
[…] here’s the giant problem. The CBO would say – and has said – the same thing about budget plans with giant tax […]
[…] that interest rates are the significant determinant of economic growth – which is the same thinking displayed in the left-wing debt video I shared […]
[…] rates, not the other way around. Suffice to say that the video is based on the same thinking that led the Congressional Budget Office to imply that you maximize growth by putting tax rates at 100 […]
[…] rates, not the other way around. Suffice to say that the video is based on the same thinking that led the Congressional Budget Office to imply that you maximize growth by putting tax rates at 100 […]
[…] next step is to find the secret equation that CBO uses when it publishes nonsensical analysis implying that growth is maximized when tax rates are 100 […]
[…] next step is to find the secret equation that CBO uses when it publishes nonsensical analysis implying that growth is maximized when tax rates are 100 […]
[…] that’s just the tip of the iceberg. CBO also produces “analysis” which implies that you maximize growth with 100 percent tax rates. And the bureaucrats at CBO also are reflexive advocates of Keynesian economics, which is why they […]
[…] just the tip of the iceberg. CBO also produces “analysis” which implies that you maximize growth with 100 percent tax rates. And the bureaucrats at CBO also are reflexive advocates of Keynesian economics, which is why they […]
[…] P.S. Just in case you think I was being unfair in my description of the Congressional Budget Office, keep in mind that these are the bureaucrats who advise Congress that economic performance increases when taxes go up. […]
[…] I’ve bashed the biased and inaccurate work of the Congressional Budget Office, I found this cartoon very […]
[…] 2. In my discussion of deficits and debt, I criticize the Congressional Budget Office for assuming that government fiscal balance is the key determinant of economic growth. And since CBO assumes you maximize growth by somehow having large surpluses, the bureaucrats actually argue that higher taxes are good for growth and their analysis implies that the growth-maximizing tax rate is 100 percent. […]
[…] 2. In my discussion of deficits and debt, I criticize the Congressional Budget Office for assuming that government fiscal balance is the key determinant of economic growth. And since CBO assumes you maximize growth by somehow having large surpluses, the bureaucrats actually argue that higher taxes are good for growth and their analysis implies that the growth-maximizing tax rate is 100 percent. […]
[…] not even close to being the worst thing produced by CBO. The bureaucrats on several occasions have asserted that higher taxes are good for growth, even to the point of implying that the growth-maximizing tax rate is 100 percent! And CBO is […]
[…] data on tax revenue comes from the left-leaning Congressional Budget Office (yes, the same folks who seem to think you maximize growth with 100 percent tax rates), many folks on the left simply refuse to believe the numbers. In their minds, it is a religious […]
[…] I think the short-run Keynesianism is not CBO’s biggest mistake. In the long-run, CBO wants us to believe that higher tax burdens translate into more growth. Check out this passage, which expresses CBO’s view the economy will be weaker 10 years from […]
[…] I think the short-run Keynesianism is not CBO’s biggest mistake. In the long-run, CBO wants us to believe that higher tax burdens translate into more growth. Check out this passage, which expresses CBO’s view the economy will be weaker 10 years from now […]
[…] I think the short-run Keynesianism is not CBO’s biggest mistake. In the long-run, CBO wants us to believe that higher tax burdens translate into more growth. Check out this passage, which expresses CBO’s view the economy will be weaker 10 years from […]
[…] I’ve bashed the biased and inaccurate work of the Congressional Budget Office, I found this cartoon very […]
[…] P.S. I’ve been reminded that Merkel and Sarkozy are not alone in their crazy theory that higher taxes are good for growth. The geniuses at the Congressional Budget Office have written that higher taxes are good for long-run growth, even to the point of implying that 100 percent tax rates would maximize economic performance. […]
[…] P.S. I’ve been reminded that Merkel and Sarkozy are not alone in their crazy theory that higher taxes are good for growth. The geniuses at the Congressional Budget Office have written that higher taxes are good for long-run growth, even to the point of implying that 100 percent tax rates would maximize economic performance. […]
[…] stimulates the economy in the short run but they also rely on a model which seemingly predicts 100 percent tax rates maximize growth in the long […]
[…] I’ve criticized the Congressional Budget Office for generating biased and inaccurate numbers. These are the clowns, after all, who say deficit spending stimulates the economy in the short run but they also rely on a model which seemingly predicts 100 percent tax rates maximize growth in the long run. […]
[…] I’ve bashed the biased and inaccurate work of the Congressional Budget Office, I found this cartoon very […]
[…] Many of you will remember that the CBO cooked the books last year to help ram through Obamacare. Under Elmendorf’s watch, CBO also was a relentless advocate and defender Obama’s failed stimulus. And CBO under Elmendorf published reports saying higher taxes would improve economic performance. […]
[…] Many of you will remember that the CBO cooked the books last year to help ram through Obamacare. Under Elmendorf’s watch, CBO also was a relentless advocate and defender Obama’s failed stimulus. And CBO under Elmendorf published reports saying higher taxes would improve economic performance. […]
[…] proposal will create between 2.5 million-7.0 million jobs. But since these are the geniuses who recently argued that higher tax rates boost growth and also claimed that Obama’s faux stimulus created jobs, those numbers have very little […]
[…] proposal will create between 2.5 million-7.0 million jobs. But since these are the geniuses who recently argued that higher tax rates boost growth and also claimed that Obama’s faux stimulus created jobs, those numbers have very little […]
[…] I’ve already written about the terrible work of the Congressional Budget Office. The CBO did an awful job on the stimulus, for instance, repeatedly asserting that diverting money from the private sector to government somehow would create jobs. CBO also was a disaster on Obamacare, claiming that a giant new entitlement program would reduce budget deficits. And the legislative bureaucracy even has argued that higher tax rates boost growth. […]
[…] I’ve already written about the terrible work of the Congressional Budget Office. The CBO did an awful job on the stimulus, for instance, repeatedly asserting that diverting money from the private sector to government somehow would create jobs. CBO also was a disaster on Obamacare, claiming that a giant new entitlement program would reduce budget deficits. And the legislative bureaucracy even has argued that higher tax rates boost growth. […]
[…] November 9, 2010 by Dan Mitchell I’ve already written about the terrible work of the Congressional Budget Office. The CBO did an awful job on the stimulus, for instance, repeatedly asserting that diverting money from the private sector to government somehow would create jobs. CBO also was a disaster on Obamacare, claiming that a giant new entitlement program would reduce budget deficits. And the legislative bureaucracy even has argued that higher tax rates boost growth. […]
[…] November 9, 2010 by Dan Mitchell I’ve already written about the terrible work of the Congressional Budget Office. The CBO did an awful job on the stimulus, for instance, repeatedly asserting that diverting money from the private sector to government somehow would create jobs. CBO also was a disaster on Obamacare, claiming that a giant new entitlement program would reduce budget deficits. And the legislative bureaucracy even has argued that higher tax rates boost growth. […]
[…] of twisted economic analysis, CBO actually relies on a model which, for all intents and purposes, predicts that economic performance is maximized with 100 percent tax rates. The Joint Committee on Taxation, meanwhile, is infamous for its assumption that taxes have no […]