Tax revenues over time... the real story

I'm second to none in my support for the Bush tax cuts, both on principle (it's our money, not the government's) and on pragmatic grounds (lower tax rates after 2001 helped the economy bounce back after 9/11). But my highest priority is always to get the numbers right, to look at the right statistics, to consider all the angles.

Powerline is one of my favorite blogs, and they are usually right on target. Most of their recent post, Eeyore Covers the Budget is right on. The New York Times is always pessimistic about the economy during Republican administrations and optimistic during Democratic ones, and their story on the budget tomorrow is no different, despite the unusually (for the Times) upbeat headline. But Powerline, relying on a budget presentation by Treasury Secretary John Snow, gets one key point wrong.

The Times reports: "Democrats and many independent budget analysts note that overall revenues have barely climbed back to the levels reached in 2000," which John Hinderaker says is "ridiculous". Hinderaker relies on a chart presented by Secretary Snow showing that tax revenues are up by some $130 billion. This is one of those talking past each other things which really annoys me in political analysis. Both the Times report and Secretary Snow are correct, though I think the Times report (and it pains me to say this) is the more accurate way to look at the numbers. Here's what's going on:

The pink numbers are Secretary Snow's, the dark blue, the Times'. Secretary Snow used current dollars, not adjusted for inflation. The Times adjusted for inflation, showing constant FY2000 dollar values.

Comparing revenues and expenditures over several years makes no sense in current, unadjusted dollars, as inflation alone would make it look like revenues had increased even if the buying power of those revenues stayed exactly the same. I think the adjusted numbers still look plenty good and amply illustrate that the real cause of the budget deficit is skyrocketing spending, not the Bush tax cuts.

Raw data on the budget is available at the Office of Management and Budget. The figures in the chart above are taken from the historical tables for the FY 2007 executive budget [massive pdf warning].