Early on, Hurricane Charley was a Category 2 storm headed directly for Tampa Bay. Then it wasn’t.
It suddenly gathered strength and became a Category 4 storm with sustained winds of 145 miles per hour. And it wasn’t headed for Tampa Bay. Charley had veered off and headed for Sanibel Island, Punta Gorda, inland to Orlando and across Florida to the Atlantic Ocean.
No matter how much data is involved, meteorology is an observational science. Unlike experimental sciences such as physics, chemistry and biology, weather forecasting has no real laboratory.
Economists are scientists, too, and doomed to be members of the same club. Although there have been some massive and ultimately cruel economic experiments inflicted on people – Lenin’s socialism and Mao Zedong’s Great Leap Forward come to mind – economists are for the most part limited to observing, understanding and interpreting stuff that occurs, just like weather forecasters.
But while the two observational sciences have a lot in common, there is one big difference. Meteorologists, at least, can agree on what happened. A hurricane is a hurricane. In economics, by contrast, there are more arguments over what happened than about any other subject.
If meteorologists were like economists, after Charley hit Florida they would have argued over whether the damage was caused by a hurricane, a meteorite, or a runaway herd of Roosevelt elk.
There was a perfect example of a “what happened” argument when the Congressional Budget Office released its report on federal taxes. The title of the report is “Effective Federal Tax Rates Under Current Law, 2001 to 2014.” But based on what was reported and said about it, they might just as well have titled it “See, I told You So.”
Many commentators found no reason to actually read the report, since it didn’t matter what it contained. Its issuance alone offered the occasion to lecture us on what pundits and politicians already knew about the evils, or benefits, of the Bush administration’s tax cuts.
The budget office report was an excellent piece of analytical work, but it was not really the ideal vehicle for deriving either praise or criticism for Bush’s tax cuts. To start with, the methodology used to define income and taxes is appropriate for economic analysis but not simple, and the resulting report was clearly not what many commentators thought it was.
For example, in this report income includes all kinds of things that don’t show up on anyone’s 1040 tax return, such as employers’ payments to Social Security, Medicare, federal unemployment taxes, health insurance benefits, food stamps and school lunches. The tax burden includes not only the income taxes we are familiar with but such things as excise taxes, payroll taxes and corporate income taxes.
Taken together, it is an economic view of the household sector as the ultimate earner and taxpayer, as well as provider and recipient of transfer payments, in the U.S. economy. It is not a summary of everybody’s tax return, which is how the report can show, for example, that people with the lowest incomes – the bottom fifth – actually had negative income tax rates.
What we can see from the budget report is that the tax changes have reduced federal taxes for everyone. Through 2003, the last year for actual, as opposed to forecast, incomes, the relative shares of the federal tax burden were not substantially changed. But where’s the sound byte in that?
If we are to believe the commentators, the reduced taxes either helped us and the economy or simply further enriched the wealthy. It would be a lot better if we believed our own eyes. The report is excellent, it’s on the Web, and you can read it for free. It wouldn’t hurt.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101,” which appears monthly in The Snohomish County Business Journal.
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