Actually, the refinancing ads I hear these days are addressed to those who got ARMs and interest only loans, and who are about to get badly reamed when they get off the introductory rate. Anyone with any sense, who had the money, refinanced with a fixed rate mortgage when the rates were low, and have no interest in refinancing now. Those who bought more house than they could afford, and haven’t gotten raises to keep up, are going to be in trouble.
Yes, it is important to remember that when we have a deficit, the increase in growth must be greater than the interest rate on the debt. Since Bush cut taxes on some of the gains people would get from an improved economy, that makes the situation even worse. Yeah, the deficit is declining (especially when compared to their unrealistically high projections) but it is far from zero.
In addition, the comparison is not between a tax cut and no tax cut. It is between a tax cut for the rich and a tax cut for the middle class which would really improve the economy. Bushies always want to ignore that option, but that is what should have been done. When the cuts were made, remember, we had excess capacity, so a tax cut that increased investment was useless.
There was a recession, then, remember. With the Clinton/Congress tax increase, revenues went up much faster than spending, so that’s a recent counterexample.
But even if you are right, isn’t it absurd for Republicans to advocate tax cuts to be covered by spending cuts that they know damn well will never happen? These people are living in a fantasy world just as big as that of pure Communists. Of course they may be realistic, and they want to destroy the government to keep it from wasting money on people with less than they have. The lucky duckies who are starving and thus don’t have to pay taxes.
I disagree. I’ve been hearing this same old song and dance from the left for four years now. With the exception of the deficit (and to some extent because of it), the economy of the U.S. is in pretty good shape right now. I see nothing on the horizon that would cause a recession or worse to crash down upon our heads-except for a potential Democratic administration that would raise taxes that is. I think the reason that I’ve been hearing the doom and gloom is simple: when your party is out of power, you have to convince the public that what the other guys are doing isn’t working (even when it is) so that they will throw the other bums out and throw your bums in; thus the spin. Any fool that looks around can see that things are in pretty good shape right now, and so the endless wailing and gnashing of teeth from the left* in an attempt to convince people that things are terrible.
*There is nothing about this behavior that is unique to the left, BTW, the right does the same thing when they are out of power. It’s just that right now the Dems are the party on the outside. When that changes, the whole thing will flip flop. Look at how relentlessly the Republicans hounded Clinton over ticky tack stuff in the 90s. shrug Politics as usual.
Got a point, there. When things are in such a universal throb of peachy-dandiness, The Leader’s every endeavor a triumph and our country beloved of the nations… We got to make stuff up, make the Bushiviks look bad.
Post hoc ergo propter hoc. The ecomon is doing well, but we don’t know that is because of the tax cuts.
I think economists are fairly comfortable with saying that 90% tax rates re too high. When we cut them over the years down to 30 - 35%, that obviously would be good for the economy. But when you fiddle around at the margins, like what happened under Clinton and Bush, it’s anyone’s guess whether that will be good or bad for the economy, as it’s effect will be swamped by other factors. Perhaps you can look specifically at the cut in dividend tax rates and see how that has affected sales of stocks, etc. and draw some conclusions there. But income tax rates-- I don’t see how you can measure the effect of such small changes that were made.
We should keep all this political posturing in perspective, though. When was the last time a president admitted that his economic policies were bad for the economy or didn’t claim that they were good for said economy?
1788?
Oh. Kinduva Jonathan Swifty, so to speak?
I gave the matter more thought after logging off yesterday, and this occurs to me: any tax cut that results in deficit spending adds nothing to the total economy. For every dollar the government puts into the economy through a tax cut, the government must take a dollar out of the economy to pay its bills (since the durned suppliers and employees refuse to accept IOUs as payment). Net effect: zilch. Now there is probably a bit of float between the time the tax is not withheld from someone’s paycheck and the time of the next T-bill auction, but otherwise it has to be a wash.
Am I full of gas, or is this concept just too simple for economists to figure out?
It’s not that simple. A tax cut paid for by deficit spending is stimulative, at least until you have to pay back the money you borrowed. Whether it is a net gain or benefit to the economy really depends on what the money is used for. If it’s used to grow the productive capacity of the country, it may be a good thing in the long run. If it’s used to consume more stuff, it may not be.
As an analogy, think about the effect of borrowing money yourself. In the short term, it raises your standard of living. It allows you to do things you otherwise couldn’t. But eventually, the money has to be paid back, with interest. The day you make the last payment, are you better off for having borrowed the money, or worse off? Well, if you borrowed the money to start a business or to go to college, or to pay for a capital improvement or an appreciating asset, you may be better off. If you borrowed the money and blew it gambling or taking exotic vacations or buying a plasma TV, you’re probably worse off.
This is where I think the left goes wrong by insisting that tax cuts be applied solely to the middle and lower classes. They argue that this will have a greater stimulative effect, and in some cases may even be right. But stimulating consumer spending strikes me as a pretty sucky way to stimulate the economy, because once the money is gone the stimulus goes away and now you’ve just got a lot of debt to pay down. But if you stimulate investment through things like eliminating capital gains taxes, you are encouraging investment and productive activity, which, once the money is gone, leaves your country with more productive assets and more wealth generating capability.
The best of all worlds, IMO, would be to cut taxes and pay for it by cutting the size of government. But that will never happen, because while Republicans and Democrats may disagree on whether there should be tax cuts or tax increases, the one thing you can count on them to both support is an expansion in the size of government.
I don’t think you’re seeing what I’m seeing, *Sam. For every billion the government puts into the economy, a billion is removed from the economy when the government borrows to make up for the reduction in its income. Net result - zero. (Except for the small float that I mentioned.)
Let’s see if this works: I tell my boss he can start keeping twenty percent of my paycheck (if you must know the exact amount, that’s $7.42) each week. I then borrow $7.42 from my boss each week. Under this new arrangement, does my boss have more money, less money, or the same amount of money?
Interestingly, this illustration leads me to another observation: mebbe the best way for the government to stimulate the economy is to pay down its debt; just as my boss will not have any more real money in his paws until I start paying him back (or stop borrowing).
Your last graf is on the mark.
Now maybe in your household you can spend more than you make ad infinitum, but for the rest of us this is a problem that will come home to roost sooner rather than later.
No the money gets invested, usually in government obligations.
It is pretty well settled economic theory that wealthier people tend to save a larger percentage of their wealth than others. So if you give wealthy people more money, it gets saved. If you give it to the poor and middle class (and to be fair, this presidency has given more money to the extremely poor), they will tend to spend it.
Spending is a different issue that taxation. This government has reduced taxes and it hasn’t starved the beast, the beast just bought on credit.
This is a fact? Dude, its barely a theory. I might give it some credence if our top marginal tax rates were above 50% (and Reagan probably did a good thing when he lowered top margial tax rates to 50%, but there was no need to lower rates to 28%. In the last 25 years (when top marginal tax rates never exceeded 50%), tax receipts increase more with higher taxes than with lower taxes and the growth of the economy doesn’t seem to be adversely affected by higher taxes or noticably stimulated by lower taxes.
Can you provide any proof of the fact that lower taxes=more government revenue?
You are basically turning savings by the rich into consumption by the government.
The problem is that even without the tax cuts, we would be in deficit spending territory. Deficit spending to finance tax cuts is just silly.
A big problem is that the actual means the government uses to float the deficit is the issuance of treasury bills. And the majority of treasury bills are sold overseas.
Scenario 1: The government decides to spend three billion dollars researching the mating habits of the armadillo. They collect ten dollars in taxes from every person in the country. Then they pay a construction firm in some well-connected Congressional district a billion dollars to build a research center. Then they spend a billion dollars buying lab equipment from WalMart. Then they spend a billion dollars hiring some smart people. Then they realize there’s no money left in the budget to buy a pair of armadillos and the whole project gets cancelled. Most of us got screwed out of ten bucks. The ones who didn’t get screwed were the construction company, WalMart, the smart people, and presumedly the armadillos.
Scenario 2: The government decides to spend three billion dollars researching the mating habits of the armadillo. But this time they don’t reaise taxes to pay for it right away. They just sell of enough T-bills to make three billion dollars. They pay the construction firm, WalMart, and the smart people. The armadillos again go unloved. And then the bills come due; the government now needs to pay off those t-bills at a cost of five billion dollars. So instead of being hit up for ten dollars apiece, we’ve all got to kick in seventeen to pay off the interest. And three billion of that five billion dollars gets mailed to the Sultan of Brunei.
Scenario 3: The government decides that rather than burden us with a seventeen dollar tax, it’ll just roll over the debt. They sell $5,000,000,000 worth of T-bills to pay of the old ones. Then those bills mature and it’s going to cost $9,000,000,000 to pay them off. We all now have to pay thirty dollars (and twenty of that goes to the Sultan). Or maybe we can just sell another $9,000,000,000 worth of T-bills…
The budget deficit isn’t just an abstract number. It represents how much American capital we are shipping overseas every year and how much more we’re going to have to ship next year.