Today Bush announced that the budget is lower than it has been in 18 out of the past 25 years and that the reason for the lower deficit is because of the tax cuts have increased taxable revenue by more than enough to cover the cost of those tax cuts. Now we can have some real debate about supply side economics, the Laffer curve, and dynamic scoring but it is somewhere between naive and wilful misunderstanding but how can you trumpet this when 6 of those 7 years you couldn’t beat were during the Clinton administration when they raised taxes (the other one was the first year of this administration).
Supply side tax policies have resulted in larger federal deficits in every year in which it was implemented (there are very few economists outside of ultra-conservative think tanks that think that the Laffer curve is more than a pipe dream).
Dynamic scoring is a good concept but the Republican version is either based on marginal theories or wishful thinking (the idea behind dynamic scoring (in very simple terms) is that if you cut the tax rate by 5%, the taxes collected will go down by less than 5% or even go up because of all that extra economic activity that results from leaving money in the system). The Republican’s overestimate the impact that taxes have on behaviour. It turns out that spenders spend regardless of the tax rate and savers save regardless of the tax rate. it turns out that slackers slack no matter how low the tax rate is and that hard workers work hard no matter what the tax rate is. Sure there is some change at the margins but not nearly as much as conservative think tanks (and therefore Republican) put forward in their models.
Supply side economics is not even close to being a widely accepted economic principle (this debate was resolved back in the early 90’s).
And yet this adminsitration continues to hold onto these speculative theories like it was gospel. How the heck do we feel comfortable enough with supply sided economics and the Bush Doctrine to formulate national policy around them but we don’t think there is enough evidence for things like global warming, evolution/the big bang, and universal health care.
The only thing I’ll add, from a non-partisan standpoint, is the result of a humourus conversation I had with a co-worker who was parrotting the “tax cuts mean more revenue!” line without thinking about it.
Him: “It’s a proven FACT that tax cuts ALWAYS improve the economy and let the government collect more in taxes.”
Me: “Really? That always works?”
Him: “Yes (goes into entirely off-his-ass spiel about Reagan and supply-side)”
Me: “So if we reduce taxes to 10%, the government will collect more than at 20%?”
Him: “Yes - about twice as much.”
Me: “So if we reduce it to 0%, how much does the government collect?”
Him: “About twice as much again - it’s roughly linear.”
Me: “Indeed? Explain to me how the government earns revenue off of 0%.”
Him: “Um…OK, well, you’re twisting things around…obviously taxes have to be at some level, maybe 1%.”
The sad thing is, he has a BS-ME and an MBA. :rolleyes:
IANAE but I think the Laffer curve is accurate - I mean, certainly you’d get less revenue at both 0% and 100% tax rates (for different reasons.)
What point we are at is arguable. I’d buy that a top marginal rate of %80 could cause disincentives for the upper-middle class (but not the ultrarich.) But to argue that lowering todays low low income tax rate could stimulate the economy, even to the point of increasing revenue, is absurd and demonstrably false.
However, even more important than the effect of marginal rates IMO is the effects of behaviorial taxation, i.e. loopholes. When you do something just for the tax benefit, you are by definition not acting in an economically optimal manner.
Which means I’m sort of torn in my support for gay marriage. Sure, they should have equal rights but why should I give others special tax breaks that I, as a single person, do not currently enjoy? The government is basically telling me I should go out and get married: to a minimum-wage earner or housewife nonetheless. (And also telling me the woman’s place is in the home by creating a slight marriage penalty for high double-income families.)
I meant to say that Bush claims the budget deficit is lower due to lower taxes.
Well if you cut taxes, presumably people will spend some of that money on ipods and stuff and corporations will spend more money on labor to make the ipods. Those labor dollars will get spent on cars and so on. The problem is that the theoretical economic growth of reducing taxes is much greater than what 60 years of keeping statistics on this sort of thing has indicated. When we dropped the top marginal rate from 90% in the 50’s to 28% in the early 90’s the result was not a shrinking national deficit and hyperactive economic activity. The result was historically high deficits and about the same level of economic activity we always had (if you carve out the oil shock stagflation of the 70’s). The best indicator of how much someone will earna dn pay taxes on next year is not the marginal tax rate, it is their taxable income this year.
Not even Laffer thought that was the case. The laffer curve looks kinda like a bell curve with revenue collected along the vertical axis and the tax rate running along the horizontal axis. At 0% and 100% tax rates, the revenue collected is at 0 (this I think we can all agree with). Everyone pretty mucha grees that something like this is OK, the problem everyone has with Laffer is that he thought that we were on the right side of the curve (the downhill side where income collected would increase as the tax rate was reduced).
That settles it! As soon as my campaign against Cognitive Dissonance is successful, I will throw the full weight of my support on a program for more Marxist MBA’s!
The problem with these cuts have been is that the people who would have spent the money on iPods didn’t get much, and the people who did get the cuts could buy all the iPods they wanted before them. Almost all of the increased productivity we’ve been seeing has gone into increased profits, not to the people working harder. That’s why the average American hasn’t noticed this great economy.
Anyhoo, back to the main point – the relevant figure here isn’t the size of the deficit, but the total revenue coming in to the government. If a change in tax policy increases government revenue by $X and politicians respond by increasing their spending by $2X or $3X, the resulting increase in the deficit does not refute the soundness of the policy.
Exactly. A healthy economy must be built on a broad base. It doesn’t matter how many millions the handful of people at the top have; they’re only going to want to buy one or two iPods apiece. If you want to sell a million iPods you need a million people in the middle class with a little extra money in their pocket.
This applies all across the economy - one million consumers will buy more than one millionaire consumer.
Bush taking credit for reducing the deficit is rather like a child coloring all over a clean wall, then scubbing off half of it and then bragging about how he cleaned the wall. He inherited a government in surplus.
The notion that cutting taxes for the wealthy spurs spending is false. Take A-Rod and his $25,000,000 salary. If you cut the marginal rate from 35% to 30%, he saves $1,250,000 in taxes. You think he’s going to spend that much more? No, it just makes him richer. If you target the tax breaks to people that live paycheck to paycheck, it does spur spending. But if you’re putting money away, all it does is let you put more away.
The Laffer curve is hogwash. Governments aren’t in the business of maximizing their revenue, they are in the business of providing services. So provide the services, tax to pay for them, and if it doesn’t happen to be at the rate which in theory maximizes revenue, so what?
No. One of the most important things in America right now economically is to pay down the debt. If we can’t pay down the debt, at least don’t reduce taxes to the point where we actually lose more money! With hundreds of billions of dollars in debt every year, no one would be stupid enough to do that, would they?
Why am I not surprised that the only intelligent comment in the thread has been utterly ignored by those of the liberal persuasion who think that the one, best function of government it to extort money from all of us in the name of some imagined “greater good”? The FACT of the matter is that lower taxes = more government revenue (baring ridiculous arguments like “Oh yea? Well, what if we put the tax rate at 0%, huh?”). This stimulates the economy. If you don’t believe me, take a basic fucking economics course.
The PROBLEM is that this administration, and every other administration, spends money like a drunken sailor with a hard on in a whorehouse. You wanna solve the deficit problem? It’s very easy. CUT SPENDING. Jesus fucks a cow people, it’s just that simple. The answer is not higher taxes, it’s less government. Unfortunately, the administration we have isn’t even in the same ballpark with conservative economic spending, and the one that wants to take over thinks that the solution is to tax more and spend more. I mean, this is just basic common fucking sense, does nobody else see it? pulls out hair
No Dave, the fundamental truth should be “income = spending”. And there’s two ways to achieve that - raise income to the level of spending or lower spending to the level of income. I agree that the latter plan is the better one. But all the Grover Norquists in this country who act like taxes are an abomination are responsible for our current economic mess - they’re the ones saying we should keep lowering taxes while ignoring government spending. Lowering income without having the necessary discipline to also lower spending is living a lie.
