In last night’s debate Mr. Gore said:
I would like someone to explain this point of view, as I don’t get it. How is a tax cut “spending”?
It isn’t, it is simply political rhetoric, and a stellar example of how Gore views your money as rightfully belonging to the government.
As long as we’re on this point- in the interview with Joe Lieberman after the Presidential debate, Lieberman called Bush’s tax cut plan “an obvious example of wasteful spending”.
Can one not extrapolate this point of view to the idea that leaving money in the hands of people rather than the government is “wasteful spending”?
This is simply an explanation as to when and why one might argue about a tax cut as being equivalant to spending.
Its not that hard to imagine. Lets assume you begin with committing 100% of all revenue to paying for a debt, using current recipts. From that you subtract any money you use to pay for current expenses (various governmental programs, defense, etc.) If you write a long term budget like that, if you decide to lower revenue–subtract from current recepts, you can conceive that in the same way as spending money for a program.
Okay (I think–your explanation is garbbled), but you are still assuming that the money people earn is rightfully the government’s.
Also, you are falling into the same trap that both candidates have fallen into. You have assumed that the budget surpluses are going to be there to “spend”, when it is just as likely they wont be there. Check out the budget projections from the CBO, both candidates are working off of the Optimistic forcast and ignore the pessimistic forecast.
Because I make a bad explination for something does not mean I endorse it. I can just see how Gore would have it viewed in this manner. And how Bush would want you to dee it as simply money the government will burn. (exaggeration alert).
Generally, I’d just wish that before they play gimmie some goodies (free drugs or tax cuts), they go ahead and finish paying off the debt, while times are still good.
What people need to understand is that politicians define “spending” a lot differently than normal people do.
Sterling was on the right track. A normal person defines spending as money going out, and income as money coming in. To a politician, spending can occur both going in and coming out, so that money that came in previously but isn’t coming in anymore due to some conscious decision of the goverment, such as by reducing the tax rate or opening a loophole, is considered as having been spent.
That is fine, they can define a car as an automobile for all I care, but the fact remains that they view our money as essentially theirs and they are just letting us keep part of it.
Offering a tax cut certainly is spending. If our federal surplus is not available before the time when taxes are assessed and paid, the government must borrow against the projected surplus. Remember Ronald Reagan? Any time the government disburses money that it has collected it is spending. I do not understand the confusion.
Of course. I am no economic whiz and it seems rather obvious to me.
There are beneficial social externalities that result from government spending, namely deficit reduction, maintenance of infrastructure, and aid to the poor. These benefits may seem a lot less useful to some than a fistful of dollars. However, modest aid to the poor (especially in the form of the earned income tax credit) is in fact cheaper than building more prisons. A stable working population can compete more effectively on the job market. A more qualified labor pool results in more competitive for existing jobs, hence wages remain under control.
Reduction in the federal deficit improves the USA’s credit rating, resulting in increased investment power overseas.
So look at it this way. Which do you find more beneficial? Allowing the government to spend a little bit more of “your” money to improve social externalities, or getting $1k back in April, having to pay your employees considerably more, having to install an expensive alarm system in your home to combat rising crime, and dealing with the inconvenience of the construction of a federal prison in your neighborhood?
Next time you think that the government is taking away “your” money, take a good look at a dollar bill. Who printed it? Who guarantees its value? Who built the road on which you drove to get to work?
Don’t get me wrong. No one likes paying taxes, and certainly not me. I make a lousy, lousy living in perhaps the most expensive city in the United States. I would love some cash back in April. But I just cannot justify additional government spending in areas that I deem less productive or useful in the long run.
MR
Well this is partially true. Paying down the national debt and deficit reduction I am not sure where the externality is? Similarly the argument of their being an externality associated with the poor is not obvious to me. These are things that we might like to do, but I don’t see how one person’s level of income is going to affect either my welfare or various production processes.
What? I don’t know where you live, but debtors prison hasn’t been around for sometime.
First what is a stable working population? I have never heard of this term before.
I don’t see how this follows. Competition is more a function of the number of participants in the market. Also, if you equate education with skill (i.e. the ability to do a job) the more educated the labor force the more skilled, i.e. more productive and in a competitive market labor this would result in higher pay, unless I am mistaken.
Oh here is the explanation. Boy you sure are assuming a lot of stuff here. Interesting that you see a negative correlation with crime government spending. I wonder if such a correlation actually exists. I doubt it, as much of the expenditure on things like law enforcement is primarily at the state, county and city levels. Also, there are drawbacks to taxation such as deadweight loss. These result in inefficiencies in markets. Also, don’t forget that taxes do tend to have a negative impact on work effort. Also, you have not addressed the issue of whether the (marginal) benefits that we get from these social externalities is equal to the (marginal) cost of taxation and government.
Does this mean they are entitled to come and take? The money you get paid for working is the benefit of your labor. Your assumptions leads to the rather unpleasant conclusion that government in having a right to “my” money also has a right to my labor…i.e. we are slaves to the government (oh that sound you just heard…that was Abraham Lincoln rolling over in his grave). Oh and stop with this “your” money as you make sound like somebody is giving it to me out of the kindness of their hearts and it was not earned.
A tax cut is not government spending. It is a reduction in government revenue, and to a politician it means less money for him to spend. If we were just talking about such things as national defense, law enforcement, education, roads, air traffic control, and other things that did provided value it wouldn’t be a big deal. However, when you have welfare programs like Social Security and Medicare you get serious problems. You don’t think it is just a coincidence that Medicare expenditures are going up at the same time that the cost of medical services is do you. You don’t think their might…just might…be a connection.
Wait just one minute Kesagiri (and most of the rest of you who have posted to this thread):
If the government says you have to pay x rate on y income, but then turns around and says that you can reduce the income, and therefore reduce the rate at which you are taxed, by:
a) buying a house & taking a mortgage interest & real estate deduction, or
b) contributing to the max to your 401k,
or by means of any one of a thousand other ways built into our tax code, what that means is that the money you’re not paying is being paid by someone else. It’s called a tax expenditure because you’re getting to keep more money than would otherwise be the case, while someone else has to pay more to make up for it.
Those kinds of deductions is what they were debating at the debate.
IMHO, we should do what we did in '86: reduce or eliminate as many deductions as possible while simultaneously lowering rates to make the reform revenue-neutral. AFTER that, we can talk in a truly rational way about how much we want to tax ourselves. It should simply be the case that, barring truly extenuating circumstances, if you make y income, you pay at x rate on the full amount. Simple, fair, and very inexpensive to administer, as opposed to our current crazy-quilt of laws.
Only if you assume revenue neutrality.
As for calling this an expenditure on the part of the government, that is rhetorical slight of hand IMO. It is my money and saying that the government is letting keep it is the wrong attitude IMO.
Now you just wait a minute. Did you just fall of the turnip truck? You really think that tax policy is usually decided like this? You really think those two yahoos were telling the truth?
They were either
A. Not telling the entire truth
B. Outright lying.
Look at Social Security. Any fix that either Bush, Gore or the Social Security Trustees are talking about is a flat out lie. The estimated 2.2% increase in the payroll tax is based on over optimisitc numbers regarding increases in longevity (perhaps these number are actually pessimistic), the number of new workers that will be entering the work force, etc.
Check out Laurence Kotlikoff’s research on this here.
Here is a nice tidbit of information neither candidate is going to tell you.
In fact, they are going to tell you this story:
By the year 2010 there will be a 6.8 trillion dollar in surpluses that they are going to use to save Social Security, Medicare and pay down the debt.
What they aren’t telling you is that this is the optimistic forecast from the CBO. The baseline forecast is for 3.2 trillion in surpluses, and the pessimistic forecast is for total of -1.06 trillion dollars.
So what happens if we only get the baseline or the pessimistic forecasts? What happens to payroll taxes then, what about income taxes then? What?
Please don’t tell me these guys are lying, because they are. No big surprise really. What I do find mildly surprising is that nobody seems to even care at all.
Here is the way I look at it. Tell me what you think:
Basically, both parties have to appeal to as many people as possibe. White, black, men, women, etc… Well, in making everyone happy, each party has to ‘promise’ all kinds of services (programs) with, and this is the kicker, lower taxes! The govt. is the largest it has ever been and will probably get much larger in the coming years. It is inevitable.
Unfortunately, with the amount of progams the govt. offers, lowering taxes will only lead to a deficit. But if that is what everybody really wants, this is the solution (and most people don’t want to hear this, but): Reduce the amount of programs offered.
Comments?
B.
pantom said:
Wait a minute, but taxes are an expenditure to me, and revenue to the govt. It doesn’t matter if I pay more taxes, less taxes, or if somebody else pays what I don’t. Taxes are still revenue to the govt, not expeditures.
This is high school accounting, folks. If the politicians want to make it into something else for political reasons, so be it. But it’s intellectually dishonest.
I’m gonna have to personalize this, because otherwise you guys just aren’t going to get my point.
Here goes:
I and my family make a fairly substantial sum of money. We take full advantage of the tax code, of course, because if we didn’t, well, I wouldn’t be able to afford the computer I’m writing this on. The full list, to the best of my recollection, of all the deductions and adjustments (there is a difference) we take, are as follows:
1 - Mortgage interest
2 - Real estate taxes
3 - 401k
4 - Deduction for state taxes
5 - Adjustment for self-employment tax (if you pay your own Social Security taxes, you get to take the part that would have been contributed by your employer as an adjustment to your gross income).
6 - Health care spending account
7 - Dependent care spending account
8 - Adjustment for contribution to employer health plan.
9 - Adjustment for contribution to employer dental plan.
And then the usual: $2800 off per dependent from your income.
Someone who rents doesn’t get #1 and #2. Someone with no children doesn’t get #7. If you work for someone else, you don’t get #5. If you work for yourself, you don’t get #8 or #9.
The renter is paying for my decision to buy a house. The person with no children is paying for my decision to have children. The self-employed person pays for my decision to work for a large corporation, while I get to pay for the self-employed person’s decision to work for herself. (my wife. Maybe we’ll have a pillow fight over it.)
Head spinning yet?
Get the point yet? There’s no need for all this complication. Every time some politician decides that this constituency over here needs a tax credit, that constituency over there needs to pay for it. It is very properly called a tax expenditure, because that is exactly what it is.
And that, as I said before, is what they were debating at the debate. Believe me, neither of them had any plans to simplify the tax code.
Thanks for the links, kesagiri. However, Social Security wasn’t what we were debating, I don’t think.
Both candidates begin from the same place, the optimistic projections of the CBO. (side note: before we start immediately calling them liars and self-serving fools for choosing teh optimistic projection, it might be worthwhile to check how many times in the last 5 years that tax revenue has exeeded projections.)
From the CBO numbers, they determine that before they enact any policy changes the government will have aprox. $25 trillion to work with. From this number they “spend” certain amounts in their plans for national defense, education, environmental protection, transportation, etc. One of the things they use some money for is to “fund” tax cuts or tax credits.
I understand why some people react angrily to the term, but it is consistent with the process of appropriation. It also reflects the reality that if neither candidate effects any change to the status quo that is how much revenue (assuming projections are met) the federal government will have.
If I walk into work tomorrow and tell my boss to cut my pay by $100 then I have effectively “spent” $100 out of my current salary.
pantom,
You really think it only costs $2,800 a year to have a kid?
The problem with the type of thinking you are demonstrating is that it leads to the view that your money is not yours, but that all of it is the governments and therefore you should be grateful that they are letting you keep some of it. The problem with this view is that if that income for most people is from labor, thus if they have a right to your money they also have a right to your labor. You are essentially the slave to the government.
Thinks of it this way. Suppose you want to retire early, but the government says, “No get back to work we want the rest of our money in taxes.” That is essentially the type of view you are advocating.
As for your arguments about subsidies, hey I am all for simplifying the tax code, I just don’t have any illusions that it is going to happen. That was the point of my links on Social Security. Politicians don’t try to make good policy they make convienent policy, and if the two happen to coincide great, but usually that is a rare event.
Wrong.
When you spend money you usually get goods and/or services. By having a pay cut you have just moved your budget constraint inwards and actaully have access to less goods and services.
Q.E.D.
This very much has th flavor of: a word can only be used in the sense that I want it to. Are you arguing that the usage is semantically undefendable? Words change in usage or add connotation/denotation all the time. That is a property of a living language. The OP asked “how is a tax cut ‘spending’?” The answer is: it is a common usage in political parlance when discussing projected budgetary figures.
Does the usage hint of Orwellian newspeak? Of course. That hardly makes it unique in the political dialogue of this country. Does it portend some sinister sentiment among the government that your money is really theirs? Well, until taxes are entirely abolished some percentage of your income will always be “theirs”. The alternatives, at present, are to become a criminal or leave the country.