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Lebezniatnikov
Stupidity Annoys Me
Registered: Feb 2004
Location: DC
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| quote: | Originally posted by Shakka
Well certainly not all, but there is an argument to be made for giving that 70% of the economy a little more high-multiplier fuel to help stimulate demand. There is an argument to reduce burdens on the small businesses that create jobs so that they might hire more. |
The problem is that this argument has never translated well into policy outcomes. Bush's tax cuts in 2002 barely budged output numbers - in fact, it resulted in a much larger loss in income than any boost in GDP:
| quote: | "The new CBO data show that changes in law enacted since January 2001 increased the deficit by $539 billion in 2005. In the absence of such legislation, the nation would have a surplus this year. Tax cuts account for almost half — 48 percent — of this $539 billion in increased costs." How about the Committee for a Responsible Federal Budget? Their budget calculator shows that the tax cuts will cost $3.28 trillion between 2011 and 2018. How about George W. Bush's CEA chair, Greg Mankiw, who used the term "charlatans and cranks" for people who believed that "broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue." He continued: "I did not find such a claim credible, based on the available evidence. I never have, and I still don't."
There is some stimulative affect from tax cuts. They increase economic activity somewhat, and that means there's somewhat more taxable revenue for the government to pick up. But not much. Not nearly enough to cancel out the cost of a tax cut. It's important to remember that the Laffer Curve is actually a curve. You can no more drop taxes to 1 percent and make up the difference in revenue than you could increases taxes to 100 percent and sustain enough economic activity to fund the government. You'll recall that the last time we saw budget surpluses was under Clinton -- and higher taxes.
Further, if tax cuts don't need to be paid for because they generate so much taxable economic activity that they pay for themselves, then neither do unemployment checks. After all, the two work very similarly: A tax cut puts more money in your pocket. Unemployment insurance puts more money in an unemployed person's pocket. The difference is that the unemployed person is likelier to spend that money, which will generate more taxable economic activity than if that money is saved. That's why Mark Zandi, an adviser to John McCain's presidential campaign, estimated (pdf) that a dollar spent extending the Bush tax cuts would generate .32 cents of taxable economic activity, while a dollar spent on unemployment benefits would generate $1.61 of taxable economic activity.
In other words, using the theory under which tax cuts pay for themselves, unemployment benefits are a lot likelier to pay for themselves. But John Cornyn, another member of the GOP's Senate leadership, hasn't run the numbers. "I think the urgency of deficit-neutral extension of unemployment insurance has increased because of the size of the deficit and the size of the debt," he said. It's enough to make you very, very sad. |
Sources:
http://voices.washingtonpost.com/ez...e_whatsoev.html
http://www.cbpp.org/cms/?fa=view&id=966
http://crfb.org/stabilizethedebt/
http://gregmankiw.blogspot.com/2010...ack-on-gop.html
http://www.economy.com/mark-zandi/d...ance-041410.pdf
| quote: | | The problem is the other half of America just assumes it's a gift to rich people and therefore bad. It is certainly no more fiscally irresponsible than spending a few trillion dollars of money that doesn't exist. The only entity that is making any hires is Uncle Sam and that's a potentially vicious cycle. |
Why reduce revenue by $1 for a 32 cent increase in production? It's horrible policy, and really does represent a handout to the rich!
| quote: | | Well, they are. Money and wealth are not created by the government. When a person gets to keep less of his/her own hard-earned money, it is an increase in their tax burden. I don't care where it comes from. You'd think we're all so blessed that our government lets us keep any of our own money at all! Jesus. |
I'm not sure what the second part of your paragraph is driving at - nobody has advocated 100% taxation. The Laffer curve suggests that financial solvency doesn't exist at either extreme, which is why liberals have advocated for responsible tax policy - the sunset of the Bush tax cuts is included in that. A 39% top marginal rate is not out of control - in fact, it could be very healthy fiscally.
But if you truly believe that wealth in the hands of individuals can create higher returns than government, why not advocate for greater unemployment benefits? Even Zandi (see article above) points out that the returns on that investment are four times what decreasing taxes on the wealthy would be. Seems like a sound conservative position to me.
| quote: | | So how about some actual policies that CUT spending? You can't balance a budget by massively increasing spending while you have a soft economy and high unemployment. It's a witches brew for higher deficits. |
Well, for starters, cap and trade. Energy reform could stimulate the economy immensely and encourage innovation in the private sector. By some estimates there is nearly 2 trillion to be made in clean energy development over the next ten years, if only Congress grows a pair.
Medicare reform, troop reduction in Iraq and Afghanistan, and progressively reducing Social Security benefits while protecting low earners would also be a great place to start. I'm not against looking at tort reform either. There are a lot of ways to cut the budget that both sides should be able to get together on.
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 Jul-22-2010 18:03 
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Shakka
Supreme tranceaddict
Registered: Feb 2003
Location:
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| quote: | Originally posted by Lebezniatnikov
Why reduce revenue by $1 for a 32 cent increase in production? It's horrible policy, and really does represent a handout to the rich! |
Handout? I don't view someone keeping the fruits of their labor as a handout. I view taking more of it from them as government sanctioned extortion.
You do realize that there have been diminishing returns on every dollar of debt issued since the 1970s, right? There are even some who argue the multiplier has turned negative at this point --i.e. we are in the liquidity trap.
| quote: |
In the beginning, each dollar of debt brought about a corresponding dollar of increase in GDP. But that early money was invested in houses and in the means of production, which helped grow the economy. As time went on, and especially after the '80s, more and more of the debt was used for consumption (of which much has come to be from foreign sources) and not for the increase of productive capacity. Toward the end, it took $3 of debt to create a $1 rise in GDP in the US. And now, each $1 rise in debt is government debt, which some research (not neo-Keynesian Paul Krugman's!) says has a slightly negative multiplier - it actually hurts GDP.
And it is not just the US. Take a look at the chart of G-7 debt (courtesy of GMO, more about which later). That is one ugly and unsustainable chart. In 1950 the G7 countries were recovering from very large war-time debts. Now we don't have that excuse. Nor do we have the option of doing what they did. They cut military spending, inflated a little in nominal terms, and grew their way out of the problem. |
http://www.frontlinethoughts.com/ar...sp?id=mwo071710
| quote: | | I'm not sure what the second part of your paragraph is driving at - nobody has advocated 100% taxation. The Laffer curve suggests that financial solvency doesn't exist at either extreme, which is why liberals have advocated for responsible tax policy - the sunset of the Bush tax cuts is included in that. A 39% top marginal rate is not out of control - in fact, it could be very healthy fiscally. |
What a subjective bunch of nonsense.
| quote: | | But if you truly believe that wealth in the hands of individuals can create higher returns than government, why not advocate for greater unemployment benefits? Even Zandi (see article above) points out that the returns on that investment are four times what decreasing taxes on the wealthy would be. Seems like a sound conservative position to me. |
Well I'm sure even you would agree that 99 weeks of unemployment insurance is already more than enough, and is a disincentive to find gainful employment.
| quote: | | Well, for starters, cap and trade. Energy reform could stimulate the economy immensely and encourage innovation in the private sector. By some estimates there is nearly 2 trillion to be made in clean energy development over the next ten years, if only Congress grows a pair. |
Cap and tax is not going to happen whether I think it is right or wrong. There will not be a powerful enough majority in either house to make meaningful progress on it by the time any proposal makes it to the floor. It's hardly worth debating at this point.
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Jul-22-2010 20:21 
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