T Nation

Liberalism & the Economy

[quote]100meters wrote:
Taxes don’t slow economic growth, that’s conventional wisdom , not factual information. It took about 10 tax raises to get the “clinton” boom with the first tax raise in 1982 after the 1981 tax cut. And liberals have a much better economy record than conservatives, its not even close in any category, except perhaps inflation, and thats if you start in 1982(cato trickery). As for universal healthcare, its just a matter of time.[/quote]

Please step away from the airplane glue.

I am as for tax cuts as the next guy, but FAIR taxes don’t necessarily slow economic growth.

Don’t forget tax money is not flushed down the toilet. Is is spent on purchasing goods and services from private companies, and it provides LOTS of jobs.

Isn’t the US government the biggest employer in the country?

Of course a value added tax can be totally unfair. People will slow down buying the product with a value addded tax.

Targeted tax cuts do stimulate sales. This has been proven again and again.

[quote]Zap Branigan wrote:
I am as for tax cuts as the next guy, but FAIR taxes don’t necessarily slow economic growth…[/quote]

What exactly IS a fair tax, in your estimation?

Big part of the problem.

[quote]
Targeted tax cuts do stimulate sales. This has been proven again and again.[/quote]

Tax cuts in general do, targeted or not.

[quote]100meters wrote:
Taxes don’t slow economic growth, that’s conventional wisdom , not factual information.[/quote]

Worst. Quote. Ever.

[quote]deanec wrote:
Zap Branigan wrote:
I am as for tax cuts as the next guy, but FAIR taxes don’t necessarily slow economic growth…

What exactly IS a fair tax, in your estimation?

A modified flat tax for income. No sales or value added tax. Something where people like John Kerry pay at a rate equal to or more than mine, not less.

Isn’t the US government the biggest employer in the country?

Big part of the problem.

I don’t think so. Our society is so efficient and productive at so many things I think without a big government workforce there would be a lot of people in bread lines. I don’t know if there is enough room in private industry for everyone.

Targeted tax cuts do stimulate sales. This has been proven again and again.

Tax cuts in general do, targeted or not.

True, but I believe in tax cuts targeted to help industries that keep jobs in this country to maximize benefit.

Taxes will always tend to rise, so we should always push for tax cuts and sometimes we will get them.

[/quote]

A flat tax is a reasonable solution in my estimation. The “progressive” tax rate is an an unfortunate experiment in social engineering. For those of us in the middle class who aspire to earn more and keep more to spend how WE want to, the current system is very difficult to deal with. You work hard to reach another bracket, and you are penalized for it. Most people who have more did not steal it, they earned it, and have a responsibility to take care of it. I don’t see how that makes them selfish, just smart. As a personal example, we gave roughly 18% net income to charity last year, and I would do more if I could. I believe that most people, even us heartless conservatives, are generous when we can be.

We need to realize there is no such thing as “government money”. It is our money. You are not getting a “refund”, you are reclaiming an overpayment of taxes, or in the case of those in the lower income brackets, you are getting your neighbors money through the E.I.C. My suggestion would be to do away with withholding from all paychecks, and have each wage earner file quarterly returns. Talk about an eye opener! The current system allows incremental increases to be virtually overlooked.

The current tax code is bloated, inefficient, and impossible to enforce. It really annoys me to see the wealthy fat cats on the hill, some who have never held a private sector job in their lives (ie. Teddy Kennedy, although there are those on the other side of the aisle that qualify), who inherited everything that they own, and never had to meet a payroll, pontificate about “corporate welfare” and “tax breaks for the rich”. Sheesh Teddy, if all the millionares in Congress would give 20% a year of their income, rather than sucking it out of the middle class, they could probably fund every bloated government program you could dream up! But instead, we will sock it to the risk takers, those who get up off their butt and put ideas into action, and subsequently succeed, usually while creating jobs and spawning many other successful people in their wake.

As far as government as an employer; Any business that operated in such an inefficient, wasteful manner would be out of business very quickly. It is the rate at which state and federal government is growing that is requiring more and more “revenue” in the first place.

DC

[quote]BostonBarrister wrote:
Taxes definitely slow economic growth.

If something costs more to produce or buy, people will produce or buy less of it, ceteris paribus. Taxes simply add to the cost side of the equation.

Just because other factors can be stronger doesn’t mean there’s not a negative effect.

Obviously, some taxes are worse than others, and it’s the change to marginal cost that creates the most powerful effect, but it’s still true. About the only thing that taxing can’t slow down is death (though I imagine that at some level it would cut down on reports of death…).[/quote]

Taxes do not slow economic growth, this is a blanket statement that is blatantly untrue. There are many historical scenarios showing tax cuts slow growth, tax increases slowing growth, taxes increasing growth, tax cuts creating growth, etc. Again 10 tax raises under reagan(8),bush(1), and clinton(1) did not slow growth in the 90’s. Remember the 90’s? Rainjack is still living the lie of Reagan’s huge “tax cuts”. It’s ok rainjack, reagan and republicans raise taxes too.

[quote]
BostonBarrister wrote:
Taxes definitely slow economic growth.

If something costs more to produce or buy, people will produce or buy less of it, ceteris paribus. Taxes simply add to the cost side of the equation.

Just because other factors can be stronger doesn’t mean there’s not a negative effect.

Obviously, some taxes are worse than others, and it’s the change to marginal cost that creates the most powerful effect, but it’s still true. About the only thing that taxing can’t slow down is death (though I imagine that at some level it would cut down on reports of death…).

100meters wrote:

Taxes do not slow economic growth, this is a blanket statement that is blatantly untrue. There are many historical scenarios showing tax cuts slow growth, tax increases slowing growth, taxes increasing growth, tax cuts creating growth, etc. Again 10 tax raises under reagan(8),bush(1), and clinton(1) did not slow growth in the 90’s. Remember the 90’s? Rainjack is still living the lie of Reagan’s huge “tax cuts”. It’s ok rainjack, reagan and republicans raise taxes too.[/quote]

Yes, they do. And your entire post is beside the point. As I said above, just because other factors can also effect the economy and overpower the dampening effect of tax increases does not mean there is not a dampening effect from tax increases. That’s like saying adding water wouldn’t cause the level of the tub to rise because when you measured the tub after someone had pulled the plug on the drain the water went down.

This is all aside from the fact that it generally takes years for the effects of macroeconomic policies like tax cuts or increases to take effect in terms of being felt in the overall level of economic growth. You can question it all you like, but most presidents don’t feel the effect of the policies they take in their first terms until midway thorugh their second (should they be lucky enough to get that far…). Actions in concert with the Fed, such as the Reagan/Volcker recession to kill the stagflation, go faster, though even that was actually started by Volcker before Reagan was there.

http://images.t-nation.com/forum_images/./1/.1113009361721.050323_pub_spending_growth_per_head.gif

For those interested, here’s some info on taxes and their effect on growth, in a global sense.
http://news.ft.com/cms/s/adf0e9dc-9b06-11d9-90f9-00000e2511c8.html
you have to be a subscriber to FT, but I’ll post text here:

The question [is whether high shares] of public spending in GDP prove economically harmful. Some think that no economy can tolerate taxes higher than those elsewhere if it is to sustain “competitiveness”. Others talk as if public spending disappears into a black hole from which nothing of value emerges. Is there anything in these crude arguments? Not much, is the answer. Citizens of the rich countries deserve a more subtle debate.

Start then with overall economic performance, particularly the growth in output per hour and GDP per head. The charts [see at the top of the post and below] show both between 1995 and 2004 against the share of general government spending in GDP in 2004. The share of government spending in GDP varies by a ratio of almost two to one, from Sweden on 58 per cent to Ireland on 34 per cent. There is a group of relatively low spenders: the English-speaking countries (except the UK), Switzerland, Japan and Spain. There is a group of extremely high spenders: Sweden, Denmark and France.

What, then, do the charts show about the link between government spending and economic performance? There is none, is the answer.

Ireland’s performance generates a small, but statistically insignificant, slope downwards to the right. But Ireland is an exceptional case. What is striking is the slow growth of GDP per head in low-spending Japan and Switzerland and the high growth in high-spending Finland and Sweden. The relatively poor performance of the US may surprise some readers. But remember that US GDP grows faster than those of European countries because its population of working age increased by 1.2 per cent a year, against 0.4 per cent in the European Union between 1994 and 2004.

I would not wish to push such crude data too far. Measurement of GDP and so of productivity is increasingly hard to do as output becomes less material. It is particularly hard to measure the output of government services. Yet one overriding point does emerge: the mere fact of a rising ratio of public spending in GDP does not spell doom for the UK (or any other) economy. This is consistent, surprisingly enough, with an analysis from impeccably conservative US sources: the Heritage Foundation and The Wall Street Journal. In the 2005 Index of Economic Freedom, which measures, however roughly, the underpinnings of market economies, Luxembourg (ranked 3rd) and Denmark (8th) are above the US (10th), as is the UK (7th). Sweden (14th), Finland (15th), the Netherlands (17th), Germany (18th) and Austria (19th) all fall in the global top 20.

What then of the idea that higher spending (and so taxes) must also spell a lack of global competitiveness? The short answer is that it is nonsense, for reasons elaborated in my book, Why Globalization Works (Yale University Press, 2004). The burden of higher taxation will be shifted on to owners of relatively immobile factors of production. Moreover, no link exists between the size of government spending and a lack of something one could reasonably define as “international competitiveness”.

What does indeed matter is the efficiency with which money is both raised and spent. But tax levels are only one of many determinants of economic performance. Far more important are: the quality of institutions, particularly of public administration and the judiciary; the security of property; the probity and public spiritedness of politicians; the soundness of money; the quality of education, health and infrastructure; and the extent of arbitrary regulation of economic activities. Monomania is usually a mistake. An exclusive focus on the tax burden is an example.

What we must abandon is a debate that takes the form of “public sector bad, private sector good”, or the other way round. It is particularly stupid when, as in the UK, the decision has already been made to pay for evidently high social priorities through the state. Health and education do not suddenly become far less important than holidays in Ibiza merely because they are financed through taxation.

In making the decision on what to put into the public sector and how much to spend on it, we have to place substantial weight on underlying social and political values. But we must also ask, first, what we must do through the government (defence and law and order, for example); second, what we want,for reasons of social solidarity, to do through government (provision of basic incomes for all, of universal education and of basic health services, for instance); third, whether we wish to pay for services through general taxation or user fees; fourth, what is the least costly way of raising revenue; and, finally, whether we want services to be paid for and provided by government or merely paid for by government and provided by competitive private suppliers.

These are the right questions. Labour’s higher spending will not destroy the British economy, just as Finland’s high spending has not destroyed Finland. What matters here, as elsewhere, is not what you do but the way that you do it."

In our own country we have enough empirical evidence to show that tax cuts and increases have caused the economy to both grow and slow down. This may not be “common sense” but it is still empirically true. This is not an argument for or against higher taxes.

And for Rainjack, here’s a treasury dept. report on taxes (are they liberal)
http://www.treas.gov/offices/tax-policy/library/ota81.pdf
documenting your hero’s (Ronald Reagan) massive tax cut, and the following tax increases. Are they sniffing glue, or have you been wrong? It’s ok Reagan was wrong too, and you can see he tried to fix his 81 fiasco. Included above(hopefully) is a graphic adapted from the treasury dept. report.

http://images.t-nation.com/forum_images/./1/.1113009554289.050323_pub_spending_growth_output_per_ho.gif

other graphic from above FT article.

http://images.t-nation.com/forum_images/./1/.1113009608509.Blog_Tax_Bills.gif

treasury dept graphic for above

[quote]BostonBarrister wrote:

Yes, they do. And your entire post is beside the point. As I said above, just because other factors can also effect the economy and overpower the dampening effect of tax increases does not mean there is not a dampening effect from tax increases. That’s like saying adding water wouldn’t cause the level of the tub to rise because when you measured the tub after someone had pulled the plug on the drain the water went down.

This is all aside from the fact that it generally takes years for the effects of macroeconomic policies like tax cuts or increases to take effect in terms of being felt in the overall level of economic growth. You can question it all you like, but most presidents don’t feel the effect of the policies they take in their first terms until midway thorugh their second (should they be lucky enough to get that far…). Actions in concert with the Fed, such as the Reagan/Volcker recession to kill the stagflation, go faster, though even that was actually started by Volcker before Reagan was there.[/quote]

If you were right there would be widespread evidence of this, there is no evidence that tax rates effect economic prosperity, none! On average the highest taxed countries are the most affluent and in this country in the past 50 years the strongest growth productivity occurred when top tax rates were highest. Thankfully you understand the economic policies of president have a delay, making my point from above 10 tax increases from reagan, bush sr., and clinton led to a huge boom in clinton’s second half.

I’m not saying that tax increases directly cause growth, but that predicting growth from tax policies is as reliable as picking a card.

That’s all well and good there 100M, but did you even read the abstract, or just hunt for words in the OTA paper that supported your own position?

This is the disclaimer at the very beginning of the paper. Nothing even approaches using the word ‘fact’. Do you see ‘fact’ anywhere in the above quote? I don’t either.

The graph you use to poke your ‘holes’ are ESTIMATES. Did you see that in the legend? I did. It might give one pause before swallowing the drivel you are trying to pass as the aforementioned non-existenet ‘fact’ basis.

Nice try. But even the DOT uses these working papers for discussion only- and is, as the clarification states, the opinion of he author. Hardly facts.

Were you to admit that you are voicing your opinion, this debate would actually have some merit. As it stands, however, you are more than convinced ala Al Shades, that you are correct, and the rest of us are mindless shills. Youare entitled to your opinion, but please don’t mistake that for fact.

I hate it when someone has a political axe to grind and they start an economic smoke and mirrors debate.

Look, it’s a simple fact that tax cuts stimulate supply by improving worker incentives and expand demand by raising disposable income. If you follow the European unemployment rate, particularly in France, you’ll see it increases in lockstep with their tax rates; clearly this is a drag on growth. This is reality and no amount of left wing political ideology will change that.

On the flip side, increased government spending also expands demand and will also raise output and no amount of right wing political ideology will change that.

So the question becomes, which one is better for the economy, increased disposable income and supply incentives, or using government spending to raise output? Or asked differently what causes the least amount of harm, less government spending or fewer taxes?

Well the answer isn’t clear, as at different times there might be different solutions that work better. However, what the answer isn’t is a generalization smoke and mirrors routine saying tax cuts/raises don’t matter or that they don’t effect the economic growth. That’s just garbage.

If John Kennedy were on this board, he’d be the first to tell you that he cut taxes in 1961 to stimulate the economy (see how easy it is to use politics to grind an axe?).

The fact is other variables at different times may have had a stronger influence on the economy than taxes, but that doesn’t mean that the tax rate isn’t effecting growth (either positively or negatively).

I don’t have the desire, nor the ability to look up reems of mind-numbing position papers. All I have to go on is my own observances.

You can take it or leave, but wrt the current tax cut - I know that I’ve seen a big increase in business spending. The lion’s share of the spending is coming from the backbone of theis nations economy - small businesses, and most of these businesses are sole proprietors.

The Bush Cuts allowed for $100,000 in Sec.179 expensing - up from 24,000 under Clinton. The Sec 168 depreciation allows for up to 60% first year depreciation for qualified new assets.

That’s quite an incentive for a small businessman to go out and buy, while at the same time, saving atleast 22.65% on every dollar invested in his business.

Since 9/12/01, I have personally seen more new purchases than ever.

Please tell me how that is bad for the economy, or how the economy would have been advanced had there not been this tax break(which would be a relative tax increase).

And I live in the middle of po-dunk nowhere. My clients can’t be unique to the rest of the nation.

[quote]Anderson wrote:
I hate it when someone has a political axe to grind and they start an economic smoke and mirrors debate.

Look, it’s a simple fact that tax cuts stimulate supply by improving worker incentives and expand demand by raising disposable income. If you follow the European unemployment rate, particularly in France, you’ll see it increases in lockstep with their tax rates; clearly this is a drag on growth. This is reality and no amount of left wing political ideology will change that.

On the flip side, increased government spending also expands demand and will also raise output and no amount of right wing political ideology will change that.

So the question becomes, which one is better for the economy, increased disposable income and supply incentives, or using government spending to raise output? Or asked differently what causes the least amount of harm, less government spending or fewer taxes?

Well the answer isn’t clear, as at different times there might be different solutions that work better. However, what the answer isn’t is a generalization smoke and mirrors routine saying tax cuts/raises don’t matter or that they don’t effect the economic growth. That’s just garbage.

If John Kennedy were on this board, he’d be the first to tell you that he cut taxes in 1961 to stimulate the economy (see how easy it is to use politics to grind an axe?).

The fact is other variables at different times may have had a stronger influence on the economy than taxes, but that doesn’t mean that the tax rate isn’t effecting growth (either positively or negatively).
[/quote]

It gets even more complicated when you alsoconsider monetary policy. Both have different recognition, implementation, and policy lags. Basically monetary policy can be changed quickly but takes months to have an effect, and fiscal policy takes months to be implemented, but can have an immediate effect…at just about this time the economy is beginning to right itself.

[quote]rainjack wrote:
I don’t have the desire, nor the ability to look up reems of mind-numbing position papers. All I have to go on is my own observances.

You can take it or leave, but wrt the current tax cut - I know that I’ve seen a big increase in business spending. The lion’s share of the spending is coming from the backbone of theis nations economy - small businesses, and most of these businesses are sole proprietors.

The Bush Cuts allowed for $100,000 in Sec.179 expensing - up from 24,000 under Clinton. The Sec 168 depreciation allows for up to 60% first year depreciation for qualified new assets.

That’s quite an incentive for a small businessman to go out and buy, while at the same time, saving atleast 22.65% on every dollar invested in his business.

Since 9/12/01, I have personally seen more new purchases than ever.

Please tell me how that is bad for the economy, or how the economy would have been advanced had there not been this tax break(which would be a relative tax increase).

And I live in the middle of po-dunk nowhere. My clients can’t be unique to the rest of the nation.[/quote]

If you say people in po-dunk are spending the tax cut, that’s great…but I would rather rely on more tangible (to me) indicators of the economy. There are so many other factors involved besides Bush’s tax cut. When a democrat is elected in 2008 and we get back to the good ole economic times of the Clinton Era, we will have Bush’s economic policy to thank. History sure does repeat itself, as will the conservative rhetoric, “Clinton (44) should thank Bush (43) (and Reagan) for handing him/her a great economy”
(Please, detect the insane amount of sarcasm in my post)

I don’t know what is more indicative of the economy being improved through tax cuts than investment in business. They are circulating money that would not have been circulated. Circulation of money IS the economy - The exghnage of money for goods and services.

Folks can sit and wait until they get first hand benefit of the improved economy, or they can look at what busineeses are doing.

I know that business is a bad word to the wacked-out left. So is trickle down, supply side, and Reaganomics. But it works. Kerry wanted to go even further than Bush did and slash the corp tax rates.

It was a bad idea, but evidence that even Kerry understands that tax cuts help the economy.

Ah, taxes…

One of the reasons modern economists use Game Theory to predict the response to changes in tax laws – besides Micro and Macro-economy – is simply because the effects of such changes are as much psychological as they are economical.

The introduction or an increase in the same exact tax of the exact same nature can have completely different – even opposite – results, depending, for example, on the country, the state of the Economy, and even the politicians in power.

This is pretty common sense: I don’t think anybody will argue that a 5% income tax increase under a Bush government in the US would have a completely different public response than the exact same 5% income tax increase in, say, The Netherlands.

On the other hand, it is also because of psychological effects that Sales Taxes – and, of course, VAT – are such a bad idea (and removing them in Europe can be the ticket to a reversal in the economic implosion there); and also, fundamentally, because of psychological effects that tax brackets for income are such a GOOD idea.

The possible factor of dismay that one has when a raise in gross salary creates a much smaller increase in net salary due to a “jump” to the next tax bracket can be easily circumvented by smart placement of the brackets (or, better yet, a continuously variable exponential tax rate), and, at least according to most economists, it is dramatically outweighed by the economical benefits of normalizing income across the population.

The biggest problem in terms of taxes that has affected most of the Western countries (including the US) is actually another one: tax evasion. Rich people have a huge incentive to evade taxes. The thing is that the experience of some countries that played with a flat tax rate (like Portugal) proved that decreasing the tax rate of the richest doesn’t at all decrease the number of people that evade taxes, but, on the other hand, has such a dramatic impact on consumer confidence that it can effectively bankrupt a Government. It did have that effect in Portugal, and the right-wing government that had the flat tax rate ?idea? was severely punished – with a dramatic shift to the left in the following elections, who now promises to fix the tax system back into the brackets like in the good ol’ days.

Research (and simple observation!) shows that it’s the poor and the middle-class that drive consumption; rich people tend to live much below their means (not consuming nearly as much as they can afford – that’s why they become rich in the first place), and most of them will try to evade taxes even if they’re taxed @ 1%.

Yes, this might seem counter-intuitive to some, but rich people are the worst threat against a Capitalist economy! Don?t believe me? Give me a whiteboard and I can prove it with basic math.

Better yet, I can put it another way that is easier to grasp: a Capitalist society is better off with the largest middle-class possible… That?s pretty intuitive, I believe – after all, the times where the US’ economy grew the most where the same times when it had the largest middle-class in the World.

[quote]rainjack wrote:
I know that business is a bad word to the wacked-out left. So is trickle down, supply side, and Reaganomics. But it works. Kerry wanted to go even further than Bush did and give slashing the corp tax rate.

It was a bad idea, but evidence that even Kerry understands that tax cuts help the economy.[/quote]

Actually, a very good case can be made for ZERO corporate tax, provided that:

  • The highest personal income tax bracket is 60-70% and positioned to make up for the lost money from zero corporate tax

AND

  • Non-essential benefits (i.e., everything beyond health and disability insurance) are taxed as if they were income – for example, company car, limo service, private jet use, plane tickets that are not economy class, etc.

The idea is that shifting tax burden from the company to the employees, but taxing the heck out of the insane bonuses and benefits CEOs receive, gives the company some extra cash and a good incentive to re-invest profits – or pay dividends (which are taxed, of course!).

Essentially, to make a long story short, I believe abolishing all kinds of taxes except personal income tax, then and extending and calibrating it to make up for the lost revenue (including doing everything possible to prevent tax evasion) and normalize it with brackets that try to build up the largest middle-class possible is the best to drive growth in a Capitalist economy.

If you’re wondering “where would the carrot (aka “The American Dream”) be?”, it has been observed that the even if a gross income increase of $1,000 yields solely a net income increase of $500, people will still strive for it, and actually spend it – especially if it comes with a promotion (in our society, “status” is as – or even more – important as net income).

In a nutshell: you don’t need to put a MB SL65 within the reach of everyone – an SLK55 and the title of “Manager” is usually enough to get them going.