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Originally posted by Shakka So it's not about equality of opportunity, it's about equality of outcome, eh Socialist?

It would really be interesting to hear what tax bracket you "lie" in.

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Originally posted by Dave Piazza I invited people to show me how Bush's economic policy was better than Kerry's and the Bush supporters ran away becuase they couldnt debate with me on economics.

Firstly, I'm not a Bush supporter. Secondly, I'm debating the general principle of tax cuts and who gets them, not Bush's specific policy. Thirdly, I didn't run away, I just didn't notice your post.

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Originally posted by Dave Piazza 1/2 correct. The fed also controls the money supply. Interest rates can be effected much more by changes in the money supply induced by the fed. Remeber that the fed controls the bond market, in turn the money supply.

Yes, it's quite obvious that the Fed controls the interest rate through its management of the money supply. However, that doesn't eliminate the role of the government in influencing the economy through fiscal policy (since we're being condescending, that means taxes and government spending). Now, logically, if the US is in a recession, the Fed isn't going to raise interest rates. Therefore, the Fed is irrelevant in the context of this discussion.

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A tax cut to a millinare CEO isnt going to find its way back into productive investement. It only makes the rich richer and the poor poorer.

I find it quite amazing that an Econ major would say that. A given amount of money likely has the highest probability of finding its way into a productive investment if it is in the hands of "a millionaire CEO." As I said before, those with higher incomes tend to have a higher marginal propensity to save, thus increasing the supply of loanable funds and lowering interest rates.

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A strategic tax cut should have be adopted. Strategy is a word Mr.Bush is unfamilar with as we are well aware. I beleive a tax cut to encourage use of hybrid cars would be smart. I beleive tax cuts to encourage the use of energy efficent products would be smart.

This is your solution to economic stagnation?

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I beleive a tax cut aimed at low -income to middle -class americans would be very smart.

So the issue boils down to this:
A) give money to people who will consume more and save less, or
B) give money to people who will consume less and save more.

Option A - Consumption increases, but faced with uncertainty in the economy, businesses will likely be reluctant to drastically increase production and investment. Prices will rise as a result of the increased demand without increased supply, and real wages will fall.

Option B - Investment increases, along with production and employment, even if it results temporarily in rising inventories. Increased employment and labour demand will raise incomes, and thus, increase consumption.

The magnitude of the effects of each policy on the economy is arguable, although it seems more likely that the effects of Option B will more profound and long-lasting.

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It will only invest in capital when it can gain a rate of return from that capital investement.

True, but he required return on capital decreases when the interest rate decreases.

Last edited by .montecarlo. on Nov-04-2004 at 07:51

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Originally posted by .montecarlo. B) give money to people who will consume less and save more. Option B - Investment increases, along with production and employment, even if it results in temporarily rising inventories. Increased employment and labour demand will raise incomes, and thus, increase consumption.

False.

Obviously you are not well versed in economics.

It has been proven by all economists that the propensity to consume decreases with wealth. Thus, more money in the hands of the affluent does not lead to greater consumption.


So if you were an economist and you wanted to improve the American economy you would cut taxes for people who have a higher propensity to consume, i.e. low-income and middle -class.



Bush's tax policy is disportionaly balanced to the wealthy. However, the small amounts given to the middle-class have worked and have improved the economy.


I suggest a redistribution of the tax-cut towards middle class and low income individuals.

My suggestion:

Over $750,000 tax rate of 50%

$300,000- $750,000 tax rate of 40%

100,000-300,000 tax rate of 25%

50,000 -100,000 tax rate of 15%

0- 50,000 no tax


Dividends no tax

Capital Gains taxed at 15%



I would also give all first year college graduates (regardless of tax bracket) pay no pay-roll taxes in their first year of employment.


BTW increased inventories slow job growth NOT increase job growth.


Go pick up your accounting 101 text book and re-read chapter 2.




Consumption breeds investement. Not the opposite. Look at your economics tect book again.

When I speak of investment I speak of capital investment. Companies can not or will not invest in capital if their is no demand for their good or services. For example, Mcdonalds isnt going to build a new resturaunt now that its CEO has some extra $$$ from a tax cut. It will only invest in capital when it can gain a rate of return from that capital investement. Thus cosumption is the key to provide that rate of return. This is very simple.


Higher money supply lowers interests rates but creates higher inflation. There is no link between money supply and output. This was proven by economist Milton Freidman.

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Last edited by Dave Piazza on Nov-04-2004 at 08:14

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Originally posted by .montecarlo. This is your solution to economic stagnation?

Lower Interest Rates ( Area Controlled by the Fed)

Effective Fiscal Policy ( Spend $$$ on Transportaion, Infrastructure, and Education NOT $100 Billion on the Military)

Effective Tax Policy ( As suggested above )

___________________
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Originally posted by Dave Piazza It has been proven by all economists that the propensity to consume decreases with wealth.

Yes, higher income means lower propensity to consume. Now I'll explain this again and I'll use a simple example. Say you give a $1,000,000 tax cut and most of it goes to wealthy people. As mentioned above, they will save most of this money. What happens when they save their money? Do they put it under their mattresses? Does it disappear? No, they want to invest it in stocks, bonds etc. That means that the supply of loanable funds increases and interest rates go down. Now, Big Hotels Inc., a corporation totally unrelated to anyone who received a tax-cut, is considering building a new hotel that will provide them a return of 5%. Let’s assume that initially, the appropriate market interest rate was 6%, and that it has now decreased to 4%. It has become profitable for them to issue bonds and build their hotel. People will be employed in construction, and staffing the hotel once it is completed. Is that part clear? Because you don't seem to get that part.

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Thus, more money in the hands of the affluent does not lead to greater consumption.

Can you understand a process that has more than one step? There are many ways to increase consumption and to improve the economy, that don't involve directly stimulating consumption.

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So if you were an economist and you wanted to improve the American economy you would cut taxes for people who have a higher propensity to consume, i.e. low-income and middle -class.

Well, that is one way. However, investment is the most responsive of the elements of GDP and therefore stimulating it would likely have the greatest results. Consumption is only one element of GDP, and is not necessarily the immediate goal of every economic policy.

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I suggest a redistribution of the tax-cut towards middle class and low income individuals. My suggestion: Over $750,000 tax rate of 50% $300,000- $750,000 tax rate of 40% 100,000-300,000 tax rate of 25% 50,000 -100,000 tax rate of 15% 0- 50,000 no tax Dividends no tax Capital Gains taxed at 15%

That’s nice. I suggest a low, flat-tax, and to let people run their own lives, manage their own finances. But that's just me. Your judgment seems to be clouded by an income-redistribution agenda. Just because certain people are in the most need of money doesn’t mean they should get it, nor does it mean they will be the most productive with it.

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BTW increased inventories slow job growth NOT increase job growth.

Increasing inventories are an indicator of slow job growth to come. However, temporarily increasing inventories while business is waiting for consumption to pick up (as long as there is a reason to expect it to pick up) is insignificant.

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For example, Mcdonalds isnt going to build a new resturaunt now that its CEO has some extra $$$ from a tax cut.

You just don't understand... refer back to the first part of this post.

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There is no link between money supply and output. This was proven by economist Milton Freidman.

Money is neutral in the long-run. In the short-run, however, it can affect output.