I’ve been thinking about this for a while. I’ve come to the conclusion that the huge tax cut should be repealed. Once again, this represents a reversal of my previous position. What changed my mind? 87 million dollars, with no end in sight. I will not support anything that will put my fellow soldiers into any more danger than is absolutely necessary, and if the Democrats require the repeal of the cuts, that’s something I will support.
But, and here’s the but, I will NOT support what some are suggesting, that the repeal only affects the richest Americans. I’m on record as being a major opponent of the “fair share” school of taxation. So, if there is going to be a tax repeal, I suggest it be an across the board repeal, putting things exactly as they were before the cuts took effect.
It’s a good idea but it probably would hurt the economy more than it would help at this point. Things are still pretty fragile. It seems like a recovery is starting. A repeal would do a lot of damage, maybe more than 87 billion dollars worth.
In hindsight, the best time to have raised taxes dramaticaly would have been 1998. Unfortunately, it’s times like that when you don’t need to.
Now, when you need it, it’s a bad thing to do.
I think it’s an offshoot of Murphy’s law that you don’t need things when you can do them and need them when you can’t.
But it’s probably in the cards a year or two down the road.
Now, I too farvor the tax cut repeal for everyone. The Gov spent the money, now we need to step up to the plate and pay it.
I do how ever think that we should do some tax reform and close loop holes. Hell, I would even support a flat tax with no loop holes. Maybe I am a socialist at heart
I’ve got a radical idea… How about instead of repealing the tax cut and risking a double-dip recession (which may make the deficit worse), you get the money by, A) repealing those big-ass farm subsidies Bush signed onto, B) Cutting the Dept of Education by 40 billion, and C) Capping the growth in domestic spending at 3%, or 1-1.5% under the projected rate of growth. Then just let the economy grow itself out of a deficit.
Why is this never even discussed as an option? Is rampant government spending now taken for granted, and the only way to massage the budget is with taxes?
I agree. The federal budget is about $2Trillion, right? Let’s round up the $87B to $100B to make the math easier. That’s 5%. What business hasn’t ever had to cut spending by 5% in tough times? I’ve done it many times.
Looks like the sum total of intelligence that goes into setting the federal budget is: “Let’s increase it by 5% per year”. I think we can do better than that.
“It’s a good idea but it probably would hurt the economy more than it would help at this point”
Not really. You don’t need to raise taxes in 2004 or 2005. Just repeal the tax-cuts that are going to be phased in aftewards. It’s worthwhile to note that there were widespread predictions of economic doom after the 1993 tax increases but nothing of the sort happened. In fact economic growth picked up and productivity growth in the late 90’s was the fastest in 20 years. The economy isn’t that sensitive to moderate tax increases and if the tax increases go towards reducing long-run deficits they may even help economic growth.
As for reducing the rate of growth of spending I would heartily endorse phasing out all agricultural subsidies. However capping the growth of total spending to 3% is simply not realistic. That barely keeps up with inflation and population growth. A lot of spending is mandatory and with the baby boomers retiring will inevitably increase at a faster rate.
“What business hasn’t ever had to cut spending by 5% in tough times?”
Cutting government spending during recessions doesn’t make any sense because that is precisely when consumers and firms are cutting back on private spending. If you cut government spending as well you will reduce GDP even further.
Of course you can cut try to cut the rate of growth of government spending in the long run but that isn’t what voters really want.
Someone please refresh my memory. Just why did Bush think it was a good idea to cut taxes at the start of a war?
Posted by Sam Stone:
Why exactly do you think the economy would “grow itself out of a deficit” under the circumstances you describe? And why are you targeting the Department of Education?
Gvo’t spending doesn’t count toward GDP. But, let’s accept your suggestion, and go ahead and cut spending in those years after economic upturns. Just cut it sometime!
Here’s the reality of government budgeting: What the voters want is all the services they can get, while paying the least amount of tax they can. Those two goals are fundamentally incompatible.
So what happens? Government cuts taxes AND increases spending, because ‘that’s what the voters want’. Until the debt and deficit are high enough to cause the voters to finally get a clue, then the voters want someone to ‘fix it’.
The point is that raising taxes to fix it just moves the bar further forward. Once taxes are raised and the deficit is brought under control (if it is), pressure on government shifts once again to demands for more services, and the whole ugly cycle starts over again, except this time from a baseline of even bigger government.
Eventually something breaks. The currency melts down, ‘stagflation’ sets in, or the government goes broke like New Zealand did and is forced into addressing the unpleasantness of reality.
If the answer to this vicious cycle were to raise taxes, France should have a great economy. Pre-Thatcher Britain should have been a shining beacon of enlightened economic progress instead of a basket case of high taxes, recession, debt, and economic stagnation.
Just WHY is it so unreasonable to hold government growth to slightly less than the rate of growth of GDP? Why not have a law that says that if the government’s budget isn’t balanced, domestic spending must be held to 1% under the rate of growth, until the deficit is gone?
“Gvo’t spending doesn’t count toward GDP.”
Of course it does. Check any basic economics textbook.
GDP= consumption+investment+government purchases+net exports
“and go ahead and cut spending in those years after economic upturns”
Like I said voters by and large don’t seem to want this. And even the Bush administration implicitly admits this by expanding benefits. What it needs to do is to is to be honest and admit that the current levels of taxation are too low for current levels of government expenditure. There is no economic reason why taxes can’t be a little bit higher. As I mentiolned the economy did fine with the higher levels of taxation during most of the Clinton years.
“If the answer to this vicious cycle were to raise taxes, France should have a great economy.”
Why talk about France?This is pretty much what happened in the 90’s in the US. Massive deficits, tax increases, lower deficits, lower long-term interest rates, higher growth. Quite the opposite of a vicous circle.
“Just WHY is it so unreasonable to hold government growth to slightly less than the rate of growth of GDP?”
As I explained this is probably not possible given the current level of mandatory benefits and future increases in retirement rates. You would have to cut benefit levels which voters don’t want. Why not do what worked in the 90’s and raise taxes to erase deficits. At the least you can reverse taxes to the levels that existed under Clinton.
When Bush first proposed his tax cuts it was in the context of massive surplus projections. (thought most sensible analysts did point out that they were overly optimistic even at the time). These projections turned out to be phooey for a variety of reasons. If the basic rationale of a tax cut is dependent on surpluses and those surpluses turns out to be illusory it makes sense to reverse the tax cuts.
Yeah, I realized that was wrong as soon as I wrote posted it. What I actually meant was that gov’t spending, as a part of GDP, is just a shell game. It’s money that essentially gets subtracted from the production side, then ends up as gov’t spending.
I’ve long wondered the same thing. But most politicians don’t want to tie their own hands. It’s unfortunate that the founders didn’t put something like that in the constution. Maybe the 28th amendment…?
Taxation is a complex issue. But here are ides that I would like to introduce into this conversation:
In the long run unpredictability in income taxation and or rules increase the risk to decision makers. In economic terms risk = cost. I think that one of the greats things that the federal reserve has given this county has been reliance by decision makers on what the inflation rate will be. My support for this has been the longest term of economic expansion in American history up to the last three or four years.
Deficit spending in essence consumes the resource of capital investment. In other words we are consuming and or increasing the cost of money to invest in the creation or improvement of infrastructure. In the long term this will affect the ability of our economy to produce good and services in a competitive manner.
Both of there issues are long term in nature and therefore mostly outside the consideration of the average voter or our political system. IMO
No, don’t repeal the tax cut. It’s time to quit enabling the runaway spending in Washington. Force them to cut spending. There is $200 billion in corporate welfare and $20 billion of pork. There is $50 billion in education spending, more than half of which never reaches actual schools. There are Medicare and Social Security benefits for the wealthy. Sure, they paid in, but they would get a lot more money back from lower taxes than from SS or Medicare.
As long as we keep enabling them, they will spend our money out of control.
That’s the ideal, adaher. Too bad it never works. They set the spending limits, they control the cash flow, and hell, if we try to force them to control spending, well then, they just change the rules so they can spend more.
The chances of the gov’t cutting spending significantly is about the same that they would repeal the tax cut completely instead of just on the “wealthy”. So one might say of your proposal: “that’s the ideal but it never works that way”. Sorry.
“The chances of the gov’t cutting spending significantly is about the same that they would repeal the tax cut completely instead of just on the “wealthy”.”
I disagree. Most of the serious Democratic candidates , (Dean and Gephardt being the exceptions), are talking about a partial repeal of the tax cuts ; ie. mainly for the wealthy. IIRC the 1993 tax increases were primarily on the wealthy as well. OTOH no one including the Republicans are seriously talking about cutting government spending.
Also I think it’s important to note that tax cuts during times of budget deficits aren’t really tax cuts; you are merely shifting the taxes to a future point to service and repay the debt. And such tax cuts probably reduce long-run growth by crowding out private sector investment.
