How can we fight a war and lower taxes at the same time?

[Ludovic]

*Originally posted by ElJeffe *
**Really? Care to back that up with some evidence? Something that shows that the contribution made to federal revenues in the '98 and '99 fiscal years from Clinton’s tax increases represented a significant fraction of the overall tax revenue? Keep in mind that higher tax rates will always slow down an economy, just as lower tax rates will boost an economy, so that it’s not easy to forecast the “cost” or “savings” of a tax cut or hike.

I would wager that Clinton’s tax hike was responsible for the surplus in the same way that Bush’s tax cut was responsible for the deficit - ie, hardly at all.
Jeff **

so, we will get the largest income tax revenue when we lower the rate to…zero? :rolleyes:

[ElJeffe]

Ludovic:

so, we will get the largest income tax revenue when we lower the rate to…zero?

spits out the words that were forcefully rammed into his mouth

I assume that this was just a willful misinterpretation of what I said, and that your reading comprehension skills aren’t really that bad. To clarify:

Tax cuts - in the short term, at least - have a cost associated with them. However, they also spur the economy, which will increase the income base. The true cost of a tax cut will include the increase in the income base, as well as the loss due to lower rates. Current cost projections do not figure this into account, and any time someone suggests that we do so, they’re accused of using “fuzzy math”.

Tax hikes are the same way, only in reverse. The income base will be decreased, but the fraction of that income base taken in as tax revenue will increase. The net result will (usually) be a short-term increase in revenue, but not as big of an increase as the projections will state. Again, whenever someone suggests we try to use a more accurate model, they get shot down as a conservative shill, and accused of “Enron-style accounting”, or some nonsense.

I’m just DYING to see how someone misinterprets this post…
Jeff

[Age_Quod_Agis]

ElJeffe:
I’m just DYING to see how someone misinterprets this post…

Get well, Jeff!

[ElJeffe]

Hey, light strand… I recommend you read those links of yours, rather than just extracting soundbites. It’s hardly a unanimous consensus that our economy is struggling solely, or even primarily, due to the looming war.

From the NYT article:

But Wall Street strategists and money managers said the move toward military action was not necessarily negative for stocks.

From the Business Times:

A report by private forecaster High Frequency Economics argued that economic risks [of war talk] were muted.

Said its chief economist, Ian Shepherdson: ‘The much-vaunted ‘CNN effect’ - the idea that the nation will grind to a halt as everyone becomes glued to their TVs once the fighting starts - might depress spending temporarily but it should surely not affect the medium-term outlook.’

Even your own quote from Reuters:

Worries about war with Iraq combined with concern over corporate and economic health around the world on Friday to weaken stocks and keep investors hungry for safe haven assets like gold and bonds.

…implies that the corporate and economic problems world wide are at least as responsible for the global stagnation as any talk of war. Basically, my position was entirely founded. I didn’t say that the war was definitively not responsible for the state of the economy, only that I was skeptical that the war was largely responsible.
Jeff

[Ludovic]

yes, it was a willful misinterpretation of what you said. I realize it is impossible to assert that tax rates will always have a positive effect on not only the economy, but also tax revenue. (although, I HAVE seen it asserted :smack:.)

However, let me analyze even this lesser assertion:

Keep in mind that higher tax rates will always slow down an economy, just as lower tax rates will boost an economy.

ALWAYS is a mighty strong word, there. Now, let us make one assumption. We will have a relatively balanced budget. I.e. if we take in less REVENUE (regardless of % rate), we will have to cut spending somehow.

Let’s pretend we are at the hypothetic breakeven point, say, 15% (SWAG) across government bodies of each person’s income. Below that, the marginal increase in the economy will not make up for the loss in revenue (let’s assume). So, if we tax less, at that point we will make less in revenue,

BUT!, you may say. If we tax less we will STILL increase the economy, even if we take in less in revenue!

Not really. Because we are at the revenue breakeven point, the government is forced to spend less. Therefore, beyond this point, at some point critical services will have to be cut.

Cut the police force? Do you think staying indoors afraid to do anything but watch the T.V. is good for the economy? Did you note the effects of a mere 2 WEEK nesting period after Sept.11?

Cut (the by now bare-bones) health inspectors? Do you think workers staying home from work with salmonella has a POSITIVE effect on the economy?

Cut road construction? poorer roads will certainly cause people to make decisions based on travel conditions rather than pumping the economy.

And these are examples where its fairly obvious the private sector cannot do as well as the public. Let us not bring in the postal service, nat’l parks, the military, schooling, etc., all of which have a debatable although IMO positive effect on our economy from our gov’t spending on them.

So, in short, I agree that, above a certain point, lowering tax rates will increase the economy, after another certain point, lowering tax rates will debilitate the economy. If you agree, we are only debating numbers.

[Ludovic]

oops, should read, “agree that , above a certain point, lowering tax rates will increase the economy, while after another certain point”

[Age_Quod_Agis]

*Ludovic:*So, in short, I agree that, above a certain point, lowering tax rates will increase the economy, after another certain point, lowering tax rates will debilitate the economy.

I think you folks are talking about the Laffer Curve.

[Ludovic]

Age, I was talking about that as a canard: i didnt know it had a name, since its obviously a mathematical function of some sorts.

But I say at some point to the left of the curve, the actual economy , regardless of revenues, will decrease due to lack of essential gov’t functions.

[Inoshiro]

*Originally posted by Ludovic *
**Age, I was talking about that as a canard: i didnt know it had a name, since its obviously a mathematical function of some sorts.

But I say at some point to the left of the curve, the actual economy , regardless of revenues, will decrease due to lack of essential gov’t functions. **

I had this idea kicking around in my head and didn’t realize it had a name either. I have to say the basic conservative argument you hear on talk radio doesn’t take this sort of thing into account. For instance, you will hear that hear Reagan lowered taxes and boosted revenues. All that means is that his economy was probably on the right side of the Laffer curve.

I basically feel that the success of the “mixed economies” of western nations is due to a kind of symbiosis between public and private sector. As an example, govt. builds a road. Federal Express drives its trucks over that road to deliver packages. There is a kind of mutual benefit here. Each sector, ideally, does the things it excels at. FedX generates revenues which are taxed. These monies build more roads, etc…

Now, what was the original question. Oh, can you go to war and lower taxes? Depends on where you are on the Laffer curve doesn’t it. I suspect we are about on the crest of it. Any movement either way will reduce revenue and boost defecits. Just a hunch though.

[light_strand]

Nice try Jeff, but I very carefully read my sources. How about putting the sound bite you pulled from the NYT article quote you pulled in context:
You pulled:

But Wall Street strategists and money managers said the move toward military action was not necessarily negative for stocks.

In context:

But Wall Street strategists and money managers said the move toward military action was not necessarily negative for stocks. If war is coming, Wall Street would prefer that it come sooner instead of later, they said.

“The feeling is that you’re getting close to removing the uncertainty of an Iraq invasion, an Iraq attack,” said Chuck Lewis, the research director for Belfinance Securities in New York. “People are getting a little more positive, after listening to the president last night, that we are going to go to war.”

NEATO! See how that actually affirms my point?

Your second quote pulled from the Business news you added the “[of war talk]” to the quote despite the fact that wasn’t “of war talk” at all to which they were referring but the consequences of war itself. Once again, your quote in context:
You pulled:

A report by private forecaster High Frequency Economics argued that economic risks [of war talk] were muted.

Said its chief economist, Ian Shepherdson: ‘The much-vaunted ‘CNN effect’ - the idea that the nation will grind to a halt as everyone becomes glued to their TVs once the fighting starts - might depress spending temporarily but it should surely not affect the medium-term outlook.’

The quote in context:

‘Conflict in Iraq and other geopolitical risks appear to be the last major obstacles to the restoration of solid US economic growth,’ he said in a report.

Nevertheless, safe passage beyond Iraq could unleash a rebound in private confidence.

A report by private forecaster High Frequency Economics argued that economic risks were muted.

Said its chief economist, Ian Shepherdson: ‘The much-vaunted ‘CNN effect’ - the idea that the nation will grind to a halt as everyone becomes glued to their TVs once the fighting starts - might depress spending temporarily but it should surely not affect the medium-term outlook.’

I stand by my Reuters quote as stating that the uncertainty is bad for the economy, thus investors are seeking safer investments such as gold and bonds.

ElJeffe I didn’t say that the war was definitively not responsible for the state of the economy, only that I was skeptical that the war was largely responsible.

Except that’s not what you said.

ElJeffe I’m also skeptical about claims that our economy is struggling because war is coming. Our economy is struggling because the stock market just ate itself, and everyone is still a bit jumpy. But we are growing, and the economy will continue to recover on its own, with or without the help of the government (more likely without).

I have no idea why you are resistant to the concept that uncertainty is bad for the economy, but it is.

Not that you give two hoots about me, but you’re quickly losing any credibility you had.

[Harborwolf]

Okay, speaking as someone who is poor, I pay taxes. I feel every little bit of the taxes that I pay. My earned income credit (which believe me, I earn) is a nifty little bonus once a year on my tax return. That’s it. I really fucking resent this implication that my poor ass does not pay taxes.

As for this tax cut, I don’t want it. Not that I’ll see a whole lot anyways, but the government can have it. I’d rather see my money spent on programs to create jobs (that are non-military) than see it handed back to me in a pathetic effort to get my vote.

And to stay on topic, there really is no way to improve the economy and fight a war. The president is a dumb chimp.

[Harborwolf]

I’d like to apologise for my previous post. Didn’t get my nap today so the idiotic spin made me cranky.

I pretty much agree with those who have said that our budget is so big that it won’t make much of a difference anyway. Though the fact that the government is talking about budget cuts (anyone know which?) to fund war and tax cuts is of concern. Then there is the fact that nearly daily I hear the phrase “Stocks were down as concern over the upcoming war increased.”

Ah well. I think our economy is going to speed up in its little spiral down the crapper

[John_Mace]

Wolf:

Can you elaborate on how you earned your earned incomce [tax] credit?

[pantom]

There’s a bombshell hidden in the OP, but you’d never know it from the usual Dem/Rep rich/poor debate stuff going on here.
The bombshell is: no, we can’t. Afford it, that is. Concluding that it doesn’t matter because most people in the U.S. don’t care one way or the other about the deficit and for the most part would rather see their taxes lowered is not really an answer.
To state my agenda up front: I’m a liberal Democrat and a gold bug. Most gold bugs are libertarian right wing types, but that’s OK 'cause Libertarian himself once diagnosed my condition as left libertarianism. And besides, my Moon is in Gemini. So there.
Now, as of this moment, the true budget deficit, with all off balance sheet items included is $420,772,553,397.10. That’s the year over year change in the debt from the end of the fiscal year 2001 to the end of the fiscal year 2002, from the government itself: The Debt to the Penny
Next up is the current account deficit. This ran to 393.4 billion in 2001. The figures for 2002 aren’t in yet, but the latest four quarters show a cumulative deficit of 462.2 billion dollars. Figures from the government once again (this one’s good for lots of other figures at a glance too): The Economy at a Glance from the BEA
According to preliminary estimates, the GDP for 2002 was 10.4 trillion. That would put both the current account and budget deficits at around 4% of GDP.
Re the current account deficit: the financing for this can be broken down into Foreign Direct Investment (FDI), which boils down to foreigners either building new factories and warehouses and the like or actually buying companies, like Daimler’s purchase of Chrysler, or the purchase of securities like stocks and bonds. FDI is preferable for those who like to argue that the current account deficit doesn’t matter much, because such investment brings with it no obligation to pay the money back, and it actually benefits us in the long run since the plant and equipment is built here and operates here.
But recently, as the current account deficit has been ballooning, FDI has been shrinking: it peaked in 2000 at 300.9 billion, shrank in 2001 to 124.4 billion, and for the first three quarters of this year has amounted to all of 21.9 billion. Even worse, the figure for the second quarter was actually negative. I shit you not: International Financial Transactions. See the top download, conveniently available in either HTML or XLS formats.
What does that mean? That the current account deficit has to be financed by purchases of securities for the most part. That’s the kind of hot money that can leave as fast as it arrived.
The bottom line implication of all of the above can be summed up in this single graph: The U.S. Dollar Index. That declining line is the dollar. If FDI doesn’t increase and foreigners decide to start selling those securities bigtime, that graph is going to look a lot worse.
So what does this mean as far as the war and the cutting of taxes is concerned? The war will be expensive and should be paid for out of current earnings. What Bush is proposing is to add to both of the above deficits by running an expensive war by piling up debt. We are already in a very shaky financial position. What he is proposing to do and will in fact do, because the Constitution’s check against absolute Presidential power in the making of war, the right of Congress to actually declare war, has been eviscerated, will make the above much worse.

[Harborwolf]

asked by John Mace

Can you elaborate on how you earned your earned incomce [tax] credit?

Well, I’m not sure if this works, but I’d have to go with working for 3.50 and hour plus tips for about 5 hours a day, 3 days a week to put food on my table for myself, girlfriend and daughter and then going out to try to find additional/other work and having no luck because the local economy is in the toilet and noone is hiring.

To put it another way, I’m earning my credit by trying very desperately to get away from it. Good enough, or do I need something else?

[John_Mace]

Wolf:

Thanks for the response. I hope this isn’t too personal, but I’m a bit surprised if, on 3.50/hr for 15 hrs/wk that you’d have to pay income taxes. Maybe I misread your post when you said you paid taxes. Perhaps you meant other taxes (sales, FICA). I was a bit confused about paying taxes, and at the same time getting an earned income tax credit. Anyway, I’m not trying to pick you apart personally, it’s just that you offered yourself up as an example to refute the “poor don’t pay taxes” arguement.

[pohjonen]

*Originally posted by kniz *

The problem is Hazel the poor do not pay any income taxes. Many of them get earned income credits which means they get money for not earning enough to pay taxes. Some people want to increase this amount, but in no way can you reduce the income taxes of the poor.

Everyone says this. However, if one consults the tax tables, these facts emerge: A family of four with an income of $30,000 who files a standard short form will owe $1,000 in income taxes. How about a single person with an income of $10,000? Surely you’d think that this paltry income would incur no income taxes, but you would be wrong. Even this sub-minimum wage earner would still owe a little over $200. To say that the “poor” do not pay income taxes is WRONG. Check the tax tables yourselves.

[pohjonen]

*Originally posted by pohjonen *
**Everyone says this. However, if one consults the tax tables, these facts emerge: A family of four with an income of $30,000 who files a standard short form will owe $1,000 in income taxes. How about a single person with an income of $10,000? Surely you’d think that this paltry income would incur no income taxes, but you would be wrong. Even this sub-minimum wage earner would still owe a little over $200. To say that the “poor” do not pay income taxes is WRONG. Check the tax tables yourselves. **

I need to correct myself. The earned income credit would offset some of these tax debts, but not eliminate them.

[Harborwolf]

Mace:

My apologies. I became a bit irritated at the notion that the poor do not pay taxes. I felt that the dopers making the statement did not have a proper understanding of what they spoke.

This year I had a seasonal job which boosted my income into the taxable range for the year. As for my current job, I believe I am paying taxes on the income. I had to fill the w-4 forms. As I have not had this low of an income in quite some time, I am honestly not sure if I pay taxes on this income or not.

Again, I apologise. I shall try not to be so easily riled in the future.

[John_Mace]

Wolf:

No apology necessary. I think you clarified the situation. Our tax structure is so complicated, though, that making a statement like “the poor do not pay taxes” is really meaningless. Everyone who works pays FICA and for many people that is THE largest tax issue. Funny how we treat that so completely different from income tax. I think it is a good example of a typical gov’t program that starts out fairly small (no one will even notice, right?) then grows over time, essentially with a life of it’s own, but is so ingraned in the system that it’s virtually impossible to change.

If only taxes were simple and direct it would make the debate a lot easier. Unfortunately there are too many special interest groups with a vested interst in keeping them arcane.