In short, "accounting" has very little to do with budget policy. They don't play at that level. You have to HAVE an accounting, but the "projections" we're talking about are NOT accountant-level numbers. Dude, it is the accountant that makes the actual computations. The accountant is the economic technician that makes executes, monitors, and maintains the intentions of policy. The accountant is basically a blue collar economist, and has a mastery over the real world applications. And it is a central function to statistical analyses to make predictions with the available data.
Even completely random events and variables can be predicted within a field of probability. While we can not predict weather a coin will land heads or tails, we CAN predict the probability of it landing heads or tails, and that is 50/50. We can do the same thing with a die; there is a 1/6th probability that it will land on six. And a 5/6ths probability that it will NOT land on six. If we can do that with something that is completely random, than it is equally possible that we can apply the same concept to unknown variables. Projections are not only possible, but a basic function of accounting.
The only folks who can't seem to make projections, are the boobs on Fox News who fancies themselves to be economic experts. They have tried to make predictions in the past. The economics room is LOADED with them as various supply siders slip in and brag about the wonders of tax cuts. And they have not only been proven wrong, but wrong repeatedly. It even astounds the supply siders at times. But rather than confront their own incompetence, they have spun this yarn about how difficult it is to make predictions. And I have no doubt this very thing is being taught in Yale and Harvard, even as the text books give them the vary tools needed to make just such projections.
And the thing is that the projections of others outside the system have been proven to be right. Lets take the California electric crises for example. The economic experts working for the industry presented as fact the concept that deregulation will encourage competition, and this will improve efficiency, and this will drop prices. And it was submitted to the California State Legislature, to the record, that Carnahan's deregulation scheme would drop the price of electricity so much that it would be "too cheep to meter." But following that testimony came several consumer rights advocates who painted exactly the opposite, arguing that what was going to happen to electric rates, was exactly the same thing that happened to other industries when they deregulated. The prices in those industries rose. When deregulation passed, electric prices shot up from day one, as predicted.
I can give you a "pro-forma" balance sheet on my company for the next five years based on what my accountant fills out. But he does NOTHING until we put in all the important paragraphs at the start "presuming 2% year over year sales growth, 1% net emplyment cost growth per year, 3% decrease in materials cost, 15% in interest expense for long-term debt...etc.etc.etc. HIS numbers are just "fill in the blank" and I can teach any decent mathematical student to so that (and have). The "economist projections" at the beginning are THE WHOLE GAME. Doing it at the federal level is nothing about accounting. CBO projections are ALWAYS based on "x% GDP growth", etc. Change that ONE figure by a percent or two and the accountant is off by tens of billions of dollars. Oh I love it. You tell me that projections can not be made. Then you hit me over the head with three of them.
You statement on tax rates is not nearly as straightforward as you pose it. I think you are tied up in the current political debate over rates. Republicans have raised tax rates and Democrats have lowered it. It's incorrect for the Republicans to claim that one side cuts and the other side raises rates (though they still get play with that one at election time).
"The more prosperous times in our history have all coincide with high levels of taxation. Recessions tend to become more prevalent in periods of low taxation." This is not just a gross over-simplification. It pretty close to "wrong". Obviously prosperous times are associates with high tax RECEIPTS, but not necessarily RATES.. Of course if the economy is booming you take in a chunk of a much bigger pie regardless of the actual rate... and during a recession you're getting less than expected even if you don't change rates. You've got your cause-effect backwards.But Steve Kangas makes exactly this argument.
http://www.huppi.com/kangaroo/L-taxgrowth.htm
Myth: Tax cuts spur economic growth.
Fact: High tax rates are correlated with economic growth.
Summary:
There is no historical evidence that tax cuts spur economic growth. The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent. During this period, the general tax rate climbed as well, but it reached a plateau in 1969, and growth slowed down five years later. Almost all rich nations have higher general taxes than the U.S., and they are growing faster as well. And he has the states to back up his claim.
As for marginal tax rates. You make a gross oversimplification. It is simply not true that "the argument to rise taxes results with a decrease in revenue is a mathematical impossibility, as revenue tied DIRECTLY tied to taxes."
Revenue IS tied to taxes in tthe sense that taxes ARE the revenue. In dollars it's a 1:1 thing. But revenue is NOT tied to tax RATES (which is the discussion) nearly as tightly. There's no need to get into wild theory. Just answer a simple question. Would an income tax rate on every dollar (not just a marginal rate) of 99.9% bring in more income to the federal government than a tax rate of 40%? Not a chance. There is ALWAYS a curve for rate vs. income. The question is where that curve is. It's "theory", but it isn't useless because it can't be pinned down. The supply and demand curves are solid theory as well, but you can only know where they intersect today, you can't pin down precisely where each curve sits. You can estimate fairly that a given action will shift one or the other in a given direcion, but not specifically how far OR specifically where the intersection will be in the real world. Picture if you will, a primitive village found in the grass lands some where. Not a desert, minds you, but the wild flora and fauna are sparse enough to force the villagers raise most of their own food. And up on the hill, you would see a temple that looks an afoul lot like a barn. And this is not by accident as this is where the villagers keep scarred animals that the villagers believe have the power to insure bountiful harvests. Every day the villagers make sacrifices of grain and water to these carefully tended animals.
Along comes and outside observer who finds this behavior bemusing. After all, it is painfully obvious that this village did not have a surplus of food. So they would clearly have more to eat, if they fed these sacred animals less. In fact, he notes a negative feedback loop here. If they give too much food to the animals, they might "sacrifice" them selves into an artificial famine, and be driven to give the animals even MORE food.
Under this analogy, our friend's argument that cutting taxes results with more revenue begins to make senses. Here, you are basically feeding the "scarred animal," less, leaving more wealth for consumers and business. If you cut taxes, you will get to keep more of what you earn, and this in turn increases your buying power. This increases demand, and increasing demand dictates more labor, which in tern means more income, in turn meaning more tax revenue.
The problem is that it assumes that the scarred animals in our analogy just sit there and eat. Our outside observer might learn in time that the villagers collect the dung, and mix it with compost to make fertilizer. They then spread these "blessings" back onto their fields. Or they might dry the dung, and compress it into bricks, using it as fuel. Cooking certain vegetables makes it possible form humans to digest the material. Expanding the type of crops they can grow for nourishment. They might also harvest the milk or even slaughter these same animals for meat when they mature. This being the case, the scarred animals are in fact returning back into the villagers food supply. The grain and water that they "sacrifice" to these animals is not wasted.
Supply siders usually assume, indeed, they insist, that government has no role in economics. They argue that "no government program works," and wave off taxes as nothing more than a drain on the economy. That taxes collected fall into a fiscal black hole, never to be seen or heard from again. But they are wrong. Government taxes translate directly into government spending. And just like corporate or personnel spending can improve the economy, so to dose government spending. And not just in terms of government employee compensation or public contracts. Part of the function of government is to facilitate the vary economic system that it participates in. Government sets the standers for weights and measures, without which trade in any form would be impossible. Like wise, the printing of a currency also facilitates trade and economic activity. The courts allow for the arbitration of disputes. Fire departments protect assets by putting out fires in abandoned properties. The roads permit trade to take place. Technical regulations & standards permit technology to exist. There is the raw science that is taking place, from which new innovations bloom, as well as the educational institutions. Just to name a few of the services to which government performs.
But these activities are not cheep. In fact some things like fire protection, law enforcement, and national defense, are down right expensive. These activities have absolutely no return for the out lays. This is where the black hole myth comes from. Government spends billions on defense programs, with zero return to the balance sheet. But this money doesn’t just disappear. It becomes fees for contracts, materials, compensation for soldiers, extra, which all flows back into the economy.
Tax cuts of course force reductions in this spending. Or in the fed's case, rack up a huge national debt with accruing interest, and restrict your spending in that manner. Resulting in a negative impact against the economy. And where the economic boost of a tax cut tends to be short lived, the reductions in services results in a structural change to the economy that will remain year after year after year.
Part of that structural change has to do with the money supply itself. When you cut taxes to the wealthy, it has been shown that they do not spend it, a necessary ingredient to pumping up the economy. Instead, they "invest" these savings in things such as stocks or bonds. But these things are not investments by any stretch of the imagination. They are speculative ventures, and in stead lock up wealth in privet portfolios. This results with something called hoarding, where dollars are taking out of the money supply.
The more hoarding that takes place, the more restricted the money supply in circulation becomes. And as you know, when money supplies tighten.
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