An article titled "Laffering all the Way to the Bank" appeared in the National Review Online on April 30, 2004. It can be found online at http://www.nationalreview.com/nrof_buzzcharts/buzzcharts200404300829.asp. It contains a chart showing that federal tax receipts increased from $825 billion in the first half of fiscal year 2003 to $850 billion in the first half of fiscal year 2004. Following are the final two paragraphs of the article:
President Bush’s most recent tax cut proves that tax rates were, in fact, too high. This is demonstrated through the simple fact that the first half of fiscal year 2004 is showing higher tax revenues than the same period for fiscal year 2003. Between October 2003 and March 2004 (the first half of FY 2004), tax receipts were at more than $850 billion, which is $25.3 billion higher than receipts for the year-ago period.
This means that federal tax receipts went up rather than down after the Bush tax cuts of 2003. America has just passed the midpoint of fiscal 2003 and so far the data seems to be confirming the supply-side model. The Bush boom is big enough that it has already affected the budget.
Yet again, it amazes me that that the National Review would publish an article that that is so seriously flawed. First of all, the chart's scale is mislabeled. Since the title is "Federal Receipts in Billions of Dollars", the scale should go from 800 to 860, not 800,000 to 860,000. Secondly, the chart is misleading. A person's first impression would be that federal receipts doubled. In fact, they went up by about 3 percent. However, those are relatively minor issues. The major ones take a minimal amount of fact-checking to uncover. Following are the federal receipts for the first half of fiscal years 2001 through 2004 according to the Monthly Treasury Statement for March 2002, 2003, and 2004:
FEDERAL RECEIPTS (billions of dollars)
1st Half 1st Half 1st Half 1st Half
Budget Receipts FY 2001 FY 2002 FY 2003 FY 2004
------------------------------------------------ ------- ------- ------- -------
Individual income taxes......................... 438.726 399.204 372.076 367.694
Corporation income taxes........................ 79.963 78.334 44.566 67.320
Social insurance and retirement receipts:
Employment and general retirement (off-budget) 243.284 246.372 252.815 256.814
Employment and general retirement (on-budget) 76.056 76.238 75.327 75.574
Unemployment insurance........................ 8.152 7.619 8.056 9.484
Other retirement.............................. 2.426 2.281 2.303 2.272
Excise taxes.................................... 32.575 30.569 31.361 32.549
Estate and gift taxes........................... 13.360 12.931 11.058 11.568
Customs duties.................................. 9.822 8.919 9.631 10.013
Miscellaneous receipts.......................... 17.397 16.475 17.875 17.077
------------------------------------------------ ------- ------- ------- -------
Total Receipts.................................. 921.760 878.943 825.067 850.364
Source: Monthly Treasury Statement, Table 3,
March 2002, online at http://www.fms.treas.gov/mts/mts0302.pdf
March 2003, online at http://www.fms.treas.gov/mts/mts0303.pdf
March 2004, online at http://www.fms.treas.gov/mts/mts0304.pdf
The total receipts for 2003 and 2004 exactly match those given by the author, including the $25.3 billion difference. However, the above table also shows that receipts from individual income taxes went DOWN $4.4 billion from 2003 to 2004. In fact, receipts from individual income taxes have been dropping since 2001. In any case, Bush cut individual income taxes in 2003 and individual income tax revenues went down, not up as predicted by supply-siders.
Where did the $25.3 billion increase in total revenues come from? The table shows that it was chiefly due to a $22.8 billion increase in corporate income tax revenues. One might possibly argue that this increase was somehow due to the Bush tax cut. In fact, the table shows that the first half of 2003 was an unusually bad period for corporate tax revenues. Even after the $22.8 billion increase in those revenues in 2004, they were still below the same periods for 2001 and 2002. Hence, the relatively small 3 percent increase in total revenues from 2003 to 2004 was chiefly due to a recovery from an unusually bad period for corporate income tax revenues.
If informed of this mistake, will the author change his conclusion to "so far the data seems to contradict the supply-side model" and perhaps change the name of the article to "Laffering all the Way to the Bankruptcy"? Will the National Review run a correction? I may send them an email and see. My bet, of course, is that there will be no response and they will simply continue on as before, searching for data to back up their foregone conclusions.