Greetings, loyal minions. Your Maximum Leader would suggest to his manure spattered friend that he stick to slopping pigs and shearing sheep and give the innacurate ecoomic analysis a rest. In his most recent post the Smallholder would like you to accept that if federal tax reciepts in 2004 were less than federal tax reciepts in 2000 then this once and for all proves we are on the left side of the Laffer Curve.

If only it could be explained so easily. You see, the Smallholder is happy to regale you (dear minion) with complex analysis and detailed lists of causes for all sorts of happenings in the world. But when it comes to economics, he is happy to put tax figures in a vaccum and declare in a Will Rodgers-esque way that he is a simple man and even he can see that things don’t add up. Your Maximum Leader will nod in acknowledgement of our squishy-prosperous farmer’s rhetorical flourish. But let us recap a few items for you all.

First off, the article quoted previously by both the Smallholder and your Maximum Leader (alas not active on the WaPo’s website but excerpted heavily here) clearly states that the projected deficit is going to be lower this year because tax reciepts are increasing. So, this means that this year (2005) the federal government will collect more money in taxes than it did in 2004. What does this show?

It shows that the amount of taxable economic activity increased from 2003-2004 (since taxes are paid in the year after income is earned). That taxable activity grew in that period is an indication that the economy grew. And economic growth is why the hapless Smallholder’s presentation of two numbers doesn’t hold up to examination.

Your Maximum Leader would be happy to conceed the point about tax reciepts in 2000 vs 2004 if the Smallholder would like to assert that the economy grew in the period from 1999 to 2003. Your Maximum Leader doesn’t think he would like to (or can) do that. The economic downturn which began in 2000 caused the economy to shrink. A shrinking economy would result in less tax receipts as taxable economic activity is diminished. The shrinking economy was the impetus behind the Bush Tax cuts. The thought (ie: supply side theory) being that tax cuts would stimulate the economy and cause growth. Growth would then reverse the downward slid of the economy and produce a recovery. The recovery could in turn be measured by more taxable economic activity, and increasing tax revenue.

So where does that leave us?

Your Maximum Leader will submit to you a fine spreadsheet showing federal receipts and outlays from 1940 to the present. You can review it and see the effects of tax cuts and consequent economic growth by reading the center columns showing receipts and outlays in constant (2000) dollars. John Kennedy’s tax cuts in 1961 were followed by increased federal reciepts. And the economy was not experiencing a downturn at the time of his tax cut. The Reagan tax cuts of 1982 halted the recession that began in the late 70s and reached it nadir in 1983. George Bush (Elder’s) tax increase in 1989 caused the blip that can be seen between 1990-1991. And your Maximum Leader will argue that the George Bush (Younger) tax cuts in 2001 are leading to the increases we see this year and projected for future years.

So dear minions, do not let the Smallholder’s presentation to two figures with an “aw-shucks-hayseed” grin fool you. There is more to this issue than he would like you to believe.

Carry on.