T Nation

Tax Cuts and the New Economy


I've heard a lot of unsubstantiated mud slinging round' here about tax cuts, taxes, services, the economy, etc.

I just finished reading this article, and from my studies of economics in college, I pretty much think it is dead-on.

Give it a gander and let me know "why" you disagree (as all supply-side Republicans around here will) with what the author is saying.


For reference, the whole argument about Presidential economic policies not taking effect for years was started here:


It is a ridiculous argument, sorry.

But I do NOT argue that Clinton was primarily responsible for the great economy of the 90's - he WAS responsible for not fucking it all up though.


Rumbach, I've read both articles. I didn't think too much of the first and as far as the second article, there is absolutely no debate among economists that there is a lag time between the current state of the economy and fiscal policy, so I don't know why you called that part silly. The only debate would be the length of the lag time (which is what I think you were objecting to) and that is beyond the scope of what we're capable of discussing if we want an answer with actual data. Basically you would have to come up with a model for the economy and decide on a coefficient for fiscal policy (raising or lowering taxes) and then test your idea. The number that I've heard generally stated is 8 years, but there are economists, like the ones in the Cato article, that believe it is longer. I'm sure you can also find some that think it is shorter. Economics is a messy "science."

The first article gives the impression that our GDP is independent of the tax rate and then goes on to compare our tax rates with other "modern" economies. This is a bunch of BS because no other country in the world compares with our GDP and one of the main reasons for that is there is an economic incentive for businesses to opperate in this country. A higher tax rate will definitely affect the GDP. Now, your arguement should be, "but Anderson, government spending affects the GDP as well." And you would be correct. In fact, the GDP can be defined as GDP=Consumption + Investment Spending + Government Spending + (Exports - Inports). So what we are debating is what has the larger affect on the economy, my reduction in taxes which increases consumption and investment, or your tax hikes that increase government spending. Again it depends of the coefficients of the model.

Personally, I believe the bottom line rules all. If businesses have more money they will grow, invest, hire more people etc. Take money away from them and the growth rate will reduce.

The issue then becomes a social issue, how much money does the government need? As much as we give it. That's the simple truth, governments spend money, for good and for bad. The good is the roads and schools, the bad is the waste. If government opperated with the efficeincy of the market, tax rates wouldn't be much of a concern.

I had other issues with the article, but it was a ten page article and one, I do not feel qualified to rebuttle every arguement, and two, this post is long enough as is.

I will however leave with a couple of thoughts:

1.) Businesses will eventually leave the state (or country) if it becomes too expensive to opperate. Especially in a global economy, the local factory/business does not have to stay in Alabama (the state the article eluded to raising taxes). At a certain point, that business will close up shop and opperate elsewhere. Especially in a global economy, the physical PPE (property, plant, and equipment) may be fixed in the short term, but over time, it can and will move.

2.) The article makes that taxes are okay because they only affect the wealthy. What the wealthy do and do not do with their money affects everyone. Not only that, but our system is supposed to encourage wealth creation, not penalize it.

3.) The article makes the claim that the Clinton tax raise was touted as a success, flying in the face of economist who think increases in taxes stiffle the economy. I would argue that this is not taking into account the lag period (that does exist) and also, the tech boom of the '90's was an anomily, as Greenspan said fueled by, "irrational exuberism." People were spending and investing like crazy the economy (fueled by the stock market) went up. When it was determined that it was a castle in the air (no foundation or based on anything concrete) the market corrected itself and the economic down turn was the result.

Anyway, that's my take on the two articles.


Bottom line rules indeed.

Since I don`t have any power to change the decisions, only the results count.

Administrations always fascinate me how much they can dig up additional reasons or justifications to pick out of our pockets even more.

Too bad (and a good thing) that the bottom line view does not care about excuses.


Holey crap Batman. The NY Times sure is nosey. If anyone asks I am over 100, am a clergyman who makes over $150,000 a year, and specifically manufacture computers.

Ok, the New York Times is an extremely political rag. Their bias is legendary. I was expecting an article on economics. This is nothing of the sort. It is complete political crap.

Ok, the guy mentions "average" but does not say whether it is mean, median, or mode. He uses an arbitrary term, "very few", which can be widely defined. And the actual reference to 50% or more in taxes often includes other taxes in addition to federal, state, and local. There are sales, real estate, gas, and a multitude of other taxes. You cannot turn around and not be taxed.

Also he mentions what people in other countries pay compared to America, then fails to mention their economies. Too often people leave out little tidbits of information, like mentioning another country that has a higher minimum wage, and fails to mention that this country had double digit unemployment at the time.

Check out this quote: "The average corporate tax rate across 30 OECD countries has fallen from 37.6 percent in 1996 to 31.4 percent by 2002. The combined U.S. Federal and state rate is 40 percent." - http://www.cato.org/fiscal/2002/factsfigs.html

Back to the article he is quick to point out that just because the economy improved under Regan's tax cut's, that this does not mean that this is the only thing that affected the economy. This is true, but then mentions Clinton raising taxes and stating that the economy improved, and forgot to mention the economy has a stagnated recovery, and then boomed after the Republican controlled congress dropped the capitol gains taxes.

At least he did mention, "Let's be clear: very few economists think that Clinton's policies were primarily responsible for that miracle." But his bias is still showing in his statement, "As the economic success of the United States under Bill Clinton became impossible to deny?" He makes it obvious that he thinks that an economic expansion under Regan was a fluke, while Clinton caused the expansion during his presidency.

Also he likes to mention how one side used "advertising" to change the term estate tax to death tax, but then he does the exact same thing calling a tax cut a "cost" which is a twist of meaning.

He is also skilled at twisting statistics to support his statements. Mentioning how tax cuts are estimated to help the rich more, yet forgetting to mention what percent of all taxes are paid by this same percent. He is "lying with statistics" by using total amounts instead of percent of income. For example if Bob makes $10 grand while Steve makes $100 grand and each gets a 1% tax cut, the exact same amount, then with the same tax cut Steve received over 90% of the tax cut. (Again using his words, as if not taking as much from a person means they are receiving.)

I love his statement, "One technique involves exploiting the public's lack of statistical sophistication." And the complete article is doing the exact same thing. Also his statement, "But this calculation carefully leaves out the 50 million taxpayers who received no tax cut at all. And even among those who did get a tax cut, most got a lot less than $1,000, a number inflated by the very big tax cuts received by a few wealthy people." forgets to mention that many don't receive $1,000 in tax cuts because they don't even pay $1,000 in taxes. If a person only pays $500 in taxes how can he get a $1,000 tax cut? That wouldn't be a tax cut, but welfare. Also 4.6% of households making under $10,000 paid taxes. In the $10,000 - $20,000 group it jumped to a whopping 29.7%. (These are 2001 number.) in the $20 - $30 grand group it moved up to 54%. In all 35.6% of all households do not pay taxes. (It is 1/10 of one percent for people making over $200,000, and 1/5 of one percent for people making $100,000 - $200,000.) Also just over 50.5 million households pay no federal tax in America.

Unfortunately listening to economists is like listening to nutritionists warning of the dangers of excessive protein consumption, and the benefits of soy. Economists will take every side, and mention the improving, declining, stagnant, expanding economy. When you take this group and filter their information through politics you end up with completely blind theories.

There were some intelligent responses to this article. (I read them after I wrote the above.)

After doing some searching I found out I didn't have to join NY Times, though I am sure I might check out other articles there. If anyone does not want to join and still read the article, go here: http://www.pkarchive.org/economy/TaxCutCon.html


Find me an economist who can accurately forcast, on a reliable basis, and then Ill listen to him. Fuck, even Warren Buffet cant (or has ever met) somebody who could forcast a small thing as the stock market. Imagine the economy, specially global.

In finance, we have a running gag that economists, to make their predictions, get all around a table, take a couple of beers, and shoot their predictions. They sure get paid very well with so little accountability.

Economics are cool for one thing, specially: explaining why people do what they do. Heck, you could almost sum it up by one clever phrase I read from one of them: People respond to incentives. (Reminds me of the social sciences unifying logic: Whatever human population study you do, the conclusion always is the same -- some do, some don`t).

Not that, widescale, economics explains anything reliably. I would refer to Lobbying101, Corruption202 and UndisclosedDeals303 for more reliable predictions.


Very very good replies, this is an actual discussion rather than a "democrats suck tha ballz" or "republicans are ghey"

Anyhow, I will respond in a detailed fashion on Monday.

I agree the article is biased, published in a liberal newspaper. I just happen to be a liberal though. The same can be said of conservative economic articles written in the Hill or the Wall Street Journal.

Anyhow, thanks for the thoughtful responses, will address them in a day or two.