[emphasis added]
I’ve seen this statistic before and I don’t like it. It’s “alternative” for a reason, and in this case, it’s because it’s not widely used, but because I think it’s misleading – much more so than the basic unemployment rate that most people agree upon using.
Involuntary part-timers is almost the same thing as saying disgruntled employees, ‘I’m working, but I don’t like what I’m doing.’ The market just doesn’t have the capacity to employ disgruntled worker/part-timer/temp-er at what they want to do now. You can’t distinguish these people and people like my cousin who want to be professional photographers, but can’t pay his bills in that trade. The more logical measure is the simplest measure, unemployment.
Yea, I can see the effects of different tax rates almost from where I’m standing. I live in Illinois, very-near St Louis. The total taxes in Missouri are lower than in Illinois. There is approximately 3X times the commercial and housing development on the Missouri side compared to the Illinois side (look at a map and see how far the metro area extends east and west of the Mississippi river). The gasoline in Missouri costs usually about a dime less per gallon than in Illinois. The company I work for has grocery stores on both sides of the river–and the average wage on the Missouri side is about a dollar more per hour, for pretty much all the jobs. There is (undeveloped) farmland within easy sight of the Gateway Arch on the Illinois side–pretty much right across the river, and north or south of East St Louis. You have to drive about two hours west of the river to see farmland on the Missouri side.
…A co-worker and I were chatting once about this subject–that of the Missouri side stores paying more and gasoline costing less–and we figured that by moving to a Missouri store and driving the same distance to work, we’d end up about $3500 ahead per year. We figured this back when gasoline was around $2 a gallon, not $3. The job we work only pays around $20K/yr. That’s about a 17% difference; is that significant? Illinois income tax is only half of Missouri’s, but the sales taxes more than make up for it. Illinois also has the distinction of being the only state that taxes merchandise, food, prescription and non-prescription drugs.
This is also much of the reason I am planning on relocating to one of the lowest-tax states. Most businesses that relocate from one US state to another are doing so to escape high state taxes.
~
I don’t think anyone is seriously arguing that tax rates have no effect on economic growth over the entire possible range that they could be varied. Or, in other words, I don’t think anyone here has said the entire Laffer curve concept is utterly ridiculous; rather, the question was in studying its implications.
A better statement of the problem is whether at, say, the current tax rates in the U.S., we would be sacrificing any significant amount of growth if we raised the tax rates (or undid the Bush tax cuts or whatever). Or, is Sweden sacrificing a considerable amount of growth relative to the U.S. because of its higher tax rates or whatever.
A related question would be…and this would involve a value judgement…whether such a sacrifice is worth it. As Paul Krugman has explained, comparing the U.S. and the Swedish GDP makes it look like the “average” American is better off than the average Swede. However, this is only true if you look at averages in terms of the mean. If you look, instead, at the median then the story is very different. And, if you look at the worst off segments of society, the Swedes are clearly more advantaged. So, this gets into the whole issue of whose wealth we are actually trying to maximize. Is it really such an accomplishment that we have managed to push our mean income higher by creating a society with a very skewed wealth distribution so that the mean reflects in large measure the extreme wealth of a small segment of our society?
[Jonathan Chance, thanks for digging up those cites about unemployment.]
Perhaps the problem with Illinois then is that it taxes very regressively whereas Missouri taxes more progressively. In other words, there is more than one way to read the anecdotal evidence that you have given us!
No. If they had a 0% tax rate they wouldn’t continue as before either though. Paying for things publically instead of privately like healthcare, the military, retirement or education doesn’t strike me as having a major impact on the economy. If I make 40k a year in a libertarian country, spend 5k in taxes and spend 10k in education, healthcare and retirement vs making 40k in a socialist country and spending 15k in taxes that cover all these things and spending nothing privately for them I don’t see where the difference comes in, or why one would be pro growth and one anti growth. Teachers and doctors get paid either way.
The Laffer curve is irrelevant here – the Laffer curve deals with government revenue as a function of taxation, not economic growth as a function of taxation.
Economic growth always happens when taxes are lowered - corporations have that much less expense. Of course, government revenue goes to zero, but that’s not the point - economic growth and government revenue don’t go hand in hand.
The problem is that people use them interchangably - that is, people assume that if the economy is growing, then tax revenues are increasing. This only happens when the tax rate is constant.
If our goal is to create jobs and stimulate economic growth, tax cuts will always work. If our goal is to increase tax revenues, we will either need to cut or increase taxes, depending on which side of Laffer’s curve (or a more complex version) we are on.
What about all the other taxes other than corporate taxes? What about payroll taxes or privately paid taxes like property taxes, gas taxes or sales taxes? How do those affect companies?
This ain’t so clear. I believe that we have had the most job-anemic recovery ever despite spending ourselves into oblivion with tax cuts. Even with the somewhat better job growth numbers this year, I still don’t know if we are to the point where there have actually been more jobs created than we could have gotten by simply taking the money that we spent on tax cuts and hiring people onto the government payroll. (Not that I am saying that is what we should have done…but if we are going to advertise tax cuts to the wealthy as promoting job growth, then we ought to at least get as many jobs as we would have gotten that way.)
This just isn’t true. The Hoover administration believed this in 1929 and wasted three years waiting for the Great Depression to heal itself. FDR got elected and started giving people government jobs and relief programs. The economy recovered once people had a little money in their pockets and some confidence they weren’t going to starve to death on the streets.
Or consider in the 1950’s when the government collected tax money and spent it building the interstate highway system. Did that help economic growth? Would there have been as much growth if the highway system hadn’t been built?
Suppose a corporation gets a tax cut and decides to spend its money on a million dollar bonus for the CEO. Or maybe they use it to relocate the company to Malaysia. Can you explain how this makes the economy grow?
The bottom line is the economy grows when money is spent wisely. Anyone who thinks the government always spends money wisely is wrong. And anyone who thinks private individuals or businesses always spend money wisely is equally wrong.
The government is usually more efficient at contributing to GDP. When you give someone a 1 tax break, they don't necessarily spend the whole dollar - they might spent .80. They may not spend it where you want it, they could take that dollar and vacation in Mexico, or purchase imported goods. The strange things about tax breaks for the wealthy is that they are not good at spending it in a way that really adds to GDP - they have enough “stuff” and often save it.
Give the government $1 and they’ll make sure it gets spent (and quite possibly more than the $1) - and they can control where it goes if they desire. Although its isn’t guarenteed, usually the U.S. government make sure what it buys comes from U.S. companies involves U.S. labor.
As Little Nemo said, they don’t always spend wisely…but there are several advantages to having the money spent by the government over individuals from a growth of GDP perspective.
Hogwash. Tax cuts can stimulate an economy, but only for the very near-term. But the sacrifice is that long-term growth is negatively affected. Ceteris parabis, tax cuts crowd out investment and growth by forcing interest rates higher. By the cutting taxes, the government has to finance itself with new debt and thus has to compete with businesses and individuals for capital. Businesses now invest less in new projects, fewer jobs are created, fewer overall revenues.
It’s funny how the conservatives latch on to these ideas that have no basis in fact. Similar to “intelligent” design, Supply-side AKA trickle-down economics was always fiction.
More importantly, read through the whole thing. If it’s any good, it will note that no one is really sure, because whether or not tax cuts and hikes and so forth are “worth it” depends a lot on your assumptions about how economies work, and these assumptions are still a matter of very heated debate.
Not so. One of the reasons the Laffer Curve isn’t taken very seriously by economists is that they DID try to draw it out both with real data points and models, and got what most assumed would be the result: there is no gentle curve, but rather a grotesquely complicated tangle of different paths and all sorts of special conditions that jerk the curve all over the place, back over itself if you plot various economic conditions, and so forth.
There is no agreement on this, either. A more generally accepted statement would be that increasing government borrowing today to avoid taxing means that the government will have to tax more sometime in the future.
Missed this before. Yes, I did intend my answer to be somewhat humorous. But the point I was making is that the original post was confusing efficiency with intelligence. The government does spend money efficiently - it just keeps zipping around. But it’s more difficult to claim it’s spending it intelligently. On the gripping hand, we shouldn’t blindly assume private individuals or businesses are spending their moeny intelligently either - there’s strong evidence to the contrary.
Consider public education. Does anyone think having a generally literate and educated population doesn’t help the economy grow? But educating children is a long term investment that requires a couple of decades to produce results. No business is going to invest in that kind of program, especially when there’s no guarantee they’ll reap the benefits. So when the government collects taxes to pay for public education it’s causing economic growth that wouldn’t have occurred without those taxes.
I disagree. If you look at the distribution of jobs, you’ll see that there have been significant increases in jobs just about everywhere except for manifacturing. And ever since NAFTA, American manifacturing has been going down the tubes (we just didn’t notice it while things were going well).
IANAEconomist, but I fail to see how having a 0% tax rate wouldn’t bring about maximum productivity.
Because if a company gets a lower tax and still runs off, they were going to do it anyway.
Reducing corporate taxes won’t turn people into saints, nor will it turn people into sinners. It just means that corporations can do more of what they would do anyway with less. I find it hard to believe that a company that would take a surprise $1 million surplus and send it all to the CEO would not be doing that anyway. Sure, it’s unhelpful to the economy, but companies that do that are unhelpful to the economy anyway, so you’re not altering behavior.
I don’t see how this is a counterargument to what I presented. From what I understand, whenever economic growth happens, interest rates are forced higher - that is, rising interest rates are a necessary evil of economic growth, whether it happens through tax cuts, scientific breakthroughs, or changes in foreign markets.
True, but that’s tangential to my point. In a scenario where the tax rate is 0%, businesses grow like crazy. The government is totally screwed, but that’s not antithetical to my point. I’m not saying that 0% taxes is a good solution, I’m saying that, if your only concern is economic growth, then eliminating taxes altogether is a solution.
It’s funny how I respond to the OP with a reasonably factual post, you post a strawman, appeal to your own authority, and then assume that I am a conservative.
You may know more than I do; as a matter of fact, maybe you’re completely right and I’m completely wrong (on the economics parts, at least). But if you’re going to be right, you should at least use facts, not political biases, to make your point.
(For your information, I’m a registered Democrat and I oppose the Bush tax cuts.)
Well, for one thing with a 0% tax rate, the government can’t pay for anything. So resources we currently take for granted that really contribute to our productivity (like education, property rights, national security) become things we need to worry about on an individual level. Property rights is huge, without a government in place to secure and protect property rights, no one wants to put up capital. No capital, no productivity growth. No taxes, no government (unless you have another way for the government to make money, but all ways the government makes money have economic impact).
This is due to market expectations of inflation. A sizzling economy is vulnerable to inflation, thus the Fed must sometimes raise short-term rates to protect against it, and markets price this into long-term rates. Of course, the Fed is currently raising rates, but long term rates aren’t rising much, which means that the yield curve is flattening. This generally means that the markets don’t believe that much real economic growth will occur.
This is kind of like saying that the government can simply start spending more to stimulate the economy (keeping tax rates constant). Think about it, tax rates going to zero while government spending stays constant has the same effect.
You said:
and
followed, later, by:
I disagree that your post was reasonably factual.
I admit that I thought you were a supply-sider based on your previous comments. But my last line was honestly not directed at you, although it certainly appears that way. I’m sorry. I’m not an expert on logical fallcies, but I don’t think that I set up a strawman, as I responded to actual statements that you made. And the appeal to my own authority was due to laziness on my part since I wanted to show how I know that market return expectations have fallen across the board. This is fairly common knowledge. Just look at the stock markets or the yield curve for proof. But no excuses and my apologies, regardless.
This is interesting. If you think that tax cuts always create jobs and stimulate growth, what is your opposition to them?
And if the government had collected that million and used it to build a highway, you’d have produced jobs and a new road, both of which would have made the American economy grow. Which proves your claim that taxes can never cause economic growth is wrong.
I am not conceding that lower taxes = better economic picture, no. I am conceding that taxes have some kind of effect on the economy but I am not sure what kind of effect they have and how big it is.
Things like corporate welfare or individual welfare that help individuals and companies avoid much worse fates probalby have a good impact economically. Other things we’d just end up paying for privately anyway (social security, medicine, education) so I don’t think taxes have a negative or positive effect there. Some things are totally necessary to run a country (military, judicial system, paying off the national debt) so it doesn’t matter what the economic effect of them is.
Last time I checked the vast majority of tax money (federal, state & local) went to about 6 things
Education - $850 billion
Healthcare - $800 billion
social security - $500 billion
Military - $400 billion
interest on the debt - $300 billion
judicial system - $200 billion.
So if we had as low a tax rate as possible we’d just pay for social security, education & healthcare privately if we didn’t pay publicly so I see no benefit or drawback with either system off the bat. The military, debt payments & judicial system are necessary anyway.
As far as corporate taxes having a negative impact on corporations growing and building I think that argument is too simplistic. If the US had nationalized healthcare corporations would save billions because they wouldn’t be picking up the tab for healthcare anymore. Many americans get healthcare through work at an average cost of about $10,000 per employee per year for an employee with a family. In a nationalized system that would only cost about $500/year. Also education is very important to the workforce and corporations would most likely be responsible for paying for educaiton if it weren’t payed with through taxes.
So in a libertarian world corporations would have a lower tax rate, but they’d foot the bill for their employees education and healthcare which would probably come to $15,000-20,000 a year. So again, the simple argument that taxes = bad isn’t something I see any evidence for.
I see no evidence that taxes are either good or bad for the economy. The issue seems to be too complex and I don’t see hard evidence.