Saturday, January 06, 2007

Greenspan to the rescue....

Of all the outrageous statements emanating from the White House, Bush's claim that economic growth and growing tax revenue is a direct result of his tax cuts is one of the most misleading.

What is invariably left out of the equation when this issue is addressed is the intervention of the FED, led by Alan Greenspan, who cut Fed funds time and time again until the system was flush with liquidity.

Amazingly, this little fact of life is rarely brought up by the opposition when Republicans make the outrageous claim that their tax cuts were THE major factor in promoting economic growth.

Yes, tax cuts did promote growth but... growth was in the national DEBT!

From an editorial published in the Wash Post titled "Mr. Bush is Oblivious to the Consequences of his Tax Cuts:"

PRESIDENT BUSH wrote in a Wall Street Journal op-ed Wednesday that "it is also a fact that our tax cuts have fueled robust economic growth and record revenues." The claim about fueling record revenue is flat wrong, and it is shocking that the president should persist in making such errors. After all, tax cuts are the central plank of his domestic policy. How can he fail to understand the basic facts about them?

This is not just our opinion. Harvard's N. Gregory Mankiw, an economic conservative who served as chairman of Mr. Bush's Council of Economic Advisers, has tested the hypothesis on which Mr. Bush's claim is based: He looked at the extent to which tax cuts stimulate extra growth and the extent to which that growth generates extra tax revenue that offsets the initial loss of revenue from the tax cut. Mr. Mankiw's conclusion: Even over the long term, once you've allowed all of the extra growth to feed through into extra revenue, cuts in capital taxes juice the economy enough to recoup half of the lost revenue, and cuts in income taxes deliver a boost that recoups 17 percent of the lost revenue. So a $100 billion cut in taxes on capital widens the budget deficit by $50 billion, and a $100 billion cut in income taxes widens the budget deficit by $83 billion.

It doesn't take a brain surgeon to realize that as the national debt grows the cost of servicing it grows exponentially. Were it not for foreign nationals, such as the Chinese and Saudis who, so far, have been willing to buy our bonds, interest rates in the U.S. would be much higher.

The question then becomes: How long will we rely on the good will of foreigners to do so? And, assuming the dollar continues tanking, how long will they be willing to continue subsidizing our economy?

Hopefully, now that Democrats are in charge of Congress, Americans will be told the truth before it is too late.

If there is one thing we should have learned during the past six years is that members of the Bush administration specialize in deception, both in the foreign or domestic arenas.


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