Part 2 – 1990s economy and budget surplus – Revenues

Part 2 provides the most insight into the economic phenomenon of the late 1990s through 2006. The interesting feature of the Clinton economy was the temporary spike in revenues, followed by a dramatic decline and then a recovery. The difference between now and the 1990s economy with the budget surpluses is often cited to be caused by the tax breaks for the rich. This video shows how the budget surpluses and the $5.6 trillion projected surplus was driven by a spike in revenues associated with temporary events. All the data used in the analysis is in the public domain. It is an analysis based on the assumptions contained in the CBO 2001 report projecting the $5.6 trillion budget surplus.

This video continues the discussion of the economy of budget at the late 1990s and this is part two on revenues the questions the answer are what caused the tax revenue spike of the late 1990s and two thousand and what is the effect of the tax revenue spike of 2000 on the budget projection moving to tax revenues you will see the most interesting and fascinating

Part of the clinton economy and that is the fluctuation and increase in tax revenues from 1995 2000 1995 is important because as the year netscape went public and began the dot-com era and you will see how 1995 started the beginning of the revenue spike of the so-called clinton economy here is the 1962 to 2007 tax revenues and gdp trend line and you can see in

1995 the tax revenues started to increase faster than the gdp trend line and that continued till 2000 and then a reverse trend line until 2003 and in starting in 2003 had has essentially grown and with the gdp trend line slightly faster to up to even or slightly above the gd pin trend line in 2007 so how did the rate of increase in tax revenues to the gdp leading

From nineteen ninety five to two thousand occur the cbo included this statement in the 2001 revenue section it said from 1994 to 2000 however the annual growth of tax receipts surpassed that of the economy for reasons unrelated to new tax legislation so tax legislation was not the answer in 2001 to cbo stated under one scenario the economy has simply experienced a

Temporary divergence from stable long-term trends and will shortly return to the trend it followed from about 1973 through 1995 returning to the 1962 to 2007 tax revenues and gdp trend graph you can see this scenario the cbo talked about two thousand one is eventually what happened as revenues departed in starting in nineteen ninety five from the gdp trend line up to

2000 then reversed trend down to 2003 and have essentially returned to the state that was set from 1962 to 1995 where tax revenues essentially tracked with gdp so all this discussion on how the bush tax cuts led to the decline in revenues from 2000 2003 this graph simply does not support that theory because the same tax cuts were in effect from 2003 to 2007 when tax

Revenues have returned to the gdp trend line so essentially what we have is exactly what the cbo anticipated in 2001 that we have returned to the stable long-term trends but that was established from 1973 through 1995 where did the tax revenues come from cbo cite sources two of which are the capital gains taxes and higher earnings from individuals in higher income

Tax brackets let’s take a look at a source of the capital gains tax revenue what we know was a the nasdaq peaked in march of 2000 with a record high level of over 5,000 and high-volume an attempt to evaluate the potential for capital gains tax revenue i prepared this graph with capital gains tax revenues being a function of volume and price increases i multiplied

The two together to come up with what i call the nasdaq factor so this graph plots the nasdaq factor against the nominal gdp trend line and the individual corporate and estate taxes as you can see the nasdaq factor explains part of the deviation of the tax revenue line from the jeep nominal gdp line also of interest the nasdaq factor and the revenue both peaked in

2000 this graph supports the cbo statement that capital gains played a part in the tax revenue increase from 1995 through 2000 and as stated earlier 1995 is the year netscape went public so now let’s look at the income increases amongst the wealthy the cbo said in 2001 in the five point six trillion surplus budget projection said the baseline economic assumptions

Reflect recent favorable developments for the budget including the concentration of income growth amongst people with higher tax rates so from 1995 to 2,000 the fact that the rich were getting richer was a good thing at least as far as the budget was concerned here is a graph of the 1993 to 2005 taxpayer threshold inflation adjusted to two thousand dollars and

You can see in two thousand the top one percent peaked that slightly above $300,000 and there are also increases in the top 5% in top ten percent and under our progressive tax system that resulted in those taxpayers paying more tax dollars in other words more tax dollars were being generated for each dollar increase of gdp so the cbo statement that the budget

Improved because the income concentration occurred amongst the wealthy is confirmed through this graph and the real irony of the whole budget discussion over the last several years is one of the reasons the budget surpluses could not be maintained is because the rich could not maintain their income levels so you can see it from the previous two graphs the peak in

The capital gains possibilities and then the peak in the adjusted gross incomes of the top earners resulted in a spike in tax revenues in the year 2000 and of course the earnings fell off after 2000 and dipped down to 2003 and then have since recovered up to two in 2005 2006 so what affected these spikes and revenue have on the budget projection in 2001 projecting

The five point six trillion budget surplus here’s a graph taken right from the 2001 cbo report that projected the five point six trillion and you can see in the top line up there that has the individual income tax and we know that it spiked peaked in two thousand and you can see on that line in 2000 how that spike line was projected forward from there onto for the

Next ten years this same was for the social security taxes the same with corporate income taxes but the primary spike occurred in individual income taxes and that spike was projected forward for ten years and as you can see in this graph that individual earnings declined from 2000 down to 2003 so even if the clinton administration individual tax rates would have

Been maintained there would have been less tax revenues generated unless of course you’re ready to take on the argument that a cut in income tax rates leads to a decline in earnings among other things the next video is going to focus on this sentence in the 2001 cbo report at the end of the clinton administration the cbo said the following the primary negative risk

Is that the current slowdown might turn into a recession and they went on to say although forecasters widely anticipated that economic activity would slow the deceleration has been surprisingly rapids so we’re going to focus on what these sentences mean to anybody who read this report

Transcribed from video
Part 2 – 1990s economy and budget surplus – Revenues By reportcard2000