# Thank you SO much for two straight years of tax rebates. **URL:** \ **Category:** The BBQ Pit\ **Created:** [December 5, 2001, 8:50am UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003 "2001-12-05T08:50:49Z")\ **Posts on this page:** 8\ **Page:** 4
**Author:** ![SuaSponte](https://avatars.discourse-cdn.com/v4/letter/s/67e7ee/32.png) [@SuaSponte](https://boards.straightdope.com/u/SuaSponte)\ **Post date:** [December 6, 2001, 3:57pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/61 "2001-12-06T15:57:30Z")
> [@](#): > > \*Originally posted by Jackknifed Juggernaut \* > **crowding out - The claim that an increase in government borrowing or expenditure leads to a reduction in private investment through higher interet rates.** Your analysis is both utterly simplistic and factually inaccurate. 1. Your analysis assumes a constant amount of money available for investment. If the government needs to borrow more money **and if** the amount of money available in the economy remains constant, then tax cuts would indeed “crowd out” private investments. **However,** if taxes are cut, **then there is more money for investment**. QED. _Some_ of the money investors get from a tax cut _may_ be invested in government bonds. But other amounts may go to private investment. For example, I get about fifty bucks a paycheck more due to Bush’s tax cut. I have not used a penny of that fifty bucks to purchase a government bond. Instead, I have increased the amount I invest monthly in my mutual funds. 1. Contrary to your belief, the government does not set interest rates on the money it borrows. The market does, at auction. 2. The US government will always be able to borrow money at lower rates than private entities can, because investing if government bonds is an essentially risk-free investment. The US is not going to default on its loans. 3. But enough theorizing. Let’s look at the real world. The US takes in taxes a considerably smaller percentage of GDP than Japan or Germany. However, the US has a larger GDP, GDP per person, and has a higher long-term GDP growth rate over the past decade than either of these countries. Why aren’t Japan’s and Germany’s GDPs larger or growing faster than the U.S.'s? After all, they keep their tax rates high so as to avoid “crowding out” private investment. Sua ---
**Author:** ![SuaSponte](https://avatars.discourse-cdn.com/v4/letter/s/67e7ee/32.png) [@SuaSponte](https://boards.straightdope.com/u/SuaSponte)\ **Post date:** [December 6, 2001, 4:05pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/62 "2001-12-06T16:05:17Z")
**JJ** - I think your confusion arises because you are conflating “tax cut” and “supply-side tax cut”. Yes, supply-side theory has many flaws and may well be a completely useless theory. I don’t know; I’m not an economist. But, you are incorrect in applying the criticisms of supply-side theory to tax cuts as a whole. Tax cuts as a whole are a good idea or a bad idea based on many factors, like the economic cycle, the financial condition of the government, etc., etc. You simply cannot make a blanket statement that all tax cuts are bad and won’t help the economy. Sua ---
**Author:** ![Jackknifed\_Juggernaut](https://avatars.discourse-cdn.com/v4/letter/j/9de053/32.png) [@Jackknifed\_Juggernaut](https://boards.straightdope.com/u/Jackknifed_Juggernaut)\ **Post date:** [December 6, 2001, 5:25pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/63 "2001-12-06T17:25:16Z")
Sua Sponte- Let’s go back to the $50 that you received from the tax cut. You now agree that the gov’t now has $50 less than it previously had, right? But the gov’t needs the $50 to pay for the things that it buys, doesn’t it? Remember, the gov’t hasn’t cut its own spending at all. So where does the $50 come from? It must be borrowed. If you didn’t lend that $50 back to Uncle Sam, then somebody else did. So maybe you have $50 more to invest. But someone else has $50 less. And the gov’t has to pay interest on that $50. -JJ ---
**Author:** ![Tamex](https://avatars.discourse-cdn.com/v4/letter/t/ccd318/32.png) [@Tamex](https://boards.straightdope.com/u/Tamex)\ **Post date:** [December 6, 2001, 5:26pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/64 "2001-12-06T17:26:00Z")
Hey, **chique** , I’ll talk about the OP with you! According to the front page of Wednesday’s Star Tribune (the graphic that accompanies the story from your first link), “the state has $653 million in a rainy-day reserve fund.” So, they _did_ save some of it. They just didn’t save enough. I don’t think that anybody expected the economy to tank as much and as quickly as it apparently did. The dot-com bubble was due to burst, but that’s not all that’s going on here. No one expected, for example, that Northwest Airlines would be forced to shut down for several days because of terrorist attacks and subsequently lay off thousands of workers. What I think is reprehensible is the way that some of these budget cuts are going about. Four day school weeks with no recess? WTF? (I realize that this is just one district punishing its voters for not voting for the referendum, so it’s not directly Jesse’s fault.) Not to mention the complete freeze on state grants–even though many of those grants fund services like homeless shelters and clinics that will be even more needed during an economic downturn. I’m not as concerned about the bus thing, though–heck, a two-mile walk is probably much more effective than many P.E. programs! There better be some damn crossing guards, though. I actually do think that Jesse has been a breath of fresh air in Minnesota government. However, he just has never been a big proponent of spending very much on education–from kindergarten to college. The way I see it, if he’s not willing to put that money towards education, he may as well return it to me. At least it’s not being put towards new stadiums or something dumb like that. The Minnesota [rebate](http://www.taxes.state.mn.us/individ/factshts/strebate/2001/strhome.html) is not like the Bush “rebate”. The 2001 rebate is based upon your 1999 tax return–it’s not an advance. ---
**Author:** ![Tennessee\_Ben](https://avatars.discourse-cdn.com/v4/letter/t/f0a364/32.png) [@Tennessee\_Ben](https://boards.straightdope.com/u/Tennessee_Ben)\ **Post date:** [December 6, 2001, 5:30pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/65 "2001-12-06T17:30:26Z")
> [@](#): > > \*Originally posted by Jackknifed Juggernaut \* > **Um, TenBen, NONE of 3 things that you mentioned happened in the '80s.** Riiiiight. Consumption didn’t increase during the “Me” Decade, and private investment didn’t increase during the decade in which the movie _Wall Street_ was made. Gotcha. I’m through with this quibbling. But I do want to return to the point that got me into this pissing match in the first place. Whatever positive effect tax cuts may have on the economy is gravy. We ought to let people keep their money because its the damn right thing to do. ---
**Author:** ![SuaSponte](https://avatars.discourse-cdn.com/v4/letter/s/67e7ee/32.png) [@SuaSponte](https://boards.straightdope.com/u/SuaSponte)\ **Post date:** [December 6, 2001, 5:52pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/66 "2001-12-06T17:52:03Z")
> [@](#): > > \*Originally posted by Jackknifed Juggernaut \* > \*\*Sua Sponte- > > Let’s go back to the $50 that you received from the tax cut. You now agree that the gov’t now has $50 less than it previously had, right? But the gov’t needs the $50 to pay for the things that it buys, doesn’t it? Remember, the gov’t hasn’t cut its own spending at all. So where does the $50 come from? It must be borrowed. If you didn’t lend that $50 back to Uncle Sam, then somebody else did. So maybe you have $50 more to invest. But someone else has $50 less. And the gov’t has to pay interest on that $50. > > -JJ \*\* Well, actually, no. This year the federal government is in surplus. So this year, the feds did not have to borrow the $50 from somebody else. I got it, and invested it in the private economy. Next year, you may have a point. Further, you are still assuming that the economy is static. It is not. Let us suppose that GDP is growing at 2.5% a year. Let us also suppose that right now, the government’s books are in balance, which is about where we are right now. Finally, let us suppose that the government taxes in 25% of GDP in taxes. Since the government is in balance, it is therefore (ignoring other sources of income for now), spending 25% of GDP on its programs and paying off past debt. Next year, the government takes in 2.5% more in taxes, because the economy has grown the 2.5%. If the government increases its spending 2%, it will be in surplus. It could give a tax rebate of .5% of GDP without increasing its debts, and therefore not “crowding out” private investment. OK, you say, but next year, due to the recession, GDP is **not** going to go up 2.5%. It is more likely that GDP will go up 1%. If government spending goes up 2%, we will be in deficit, and said deficit will be made worse by the .5% of GDP tax cut. True enough. But, if the year after that, GDP goes up 3%, and government spending increases at the same 2%, the deficit will be reduced, and the government may be back in surplus (can’t do the math in my head). Some of that surplus will pay off part of the debt incurred in the prior year, some will go to increased spending, and some may go to tax cuts. And the cycle will go on, in surplus or in deficit depending on the economic cycle. Sua ---
**Author:** ![Vic\_Ferrari](https://avatars.discourse-cdn.com/v4/letter/v/dbc845/32.png) [@Vic\_Ferrari](https://boards.straightdope.com/u/Vic_Ferrari)\ **Post date:** [December 6, 2001, 8:55pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/67 "2001-12-06T20:55:03Z")
> [@](#): > > \*Originally posted by Jackknifed Juggernaut \* > \*\*Um, for those of you who have never picked up an Economics book (Friedo and Taste), let me help you: > > TAX CUTS SLOW DOWN THE ECONOMY! > > They always have and always will. > > \*\* Since **JJ** seems to be begging us for an appeal to authority, here goes. I’ve selected three economics texts and we’ll see what they say (all typos are mine of course). **Economics** - Paul A. Samuelson, Institute Professor, Massachusetts Institute of Technology > [@](#): > > Each dollar of tax reduction leads, through an upward and leftward shift in the CC, to an increase in people’s disposable income by a dollar and to almost a dollar increase in initial consumption spending. Hence, dollars of tax reduction are almost as powerful a weapon against mass unemployment as are increases in dollars of government expenditure. Because tax potency is slightly less than expenditure potency, such a program may involve a larger budget deficit than an expenditure program would; but it also means that there is expansion of the private rather than government sector of the economic system. Both the United States and Japan used this tax-cut mechanism in the min-sixties to increase their employment and income levels, a remarkable example of modern fiscal policy at work. **Macroeconomics** - Robert J. Gordon, Professor of Economics, Northwestern University > [@](#): > > Thus the government can cut the tax rate when it wants to stimulate the economy (as occurred in 1975), and it can raise the tax rate when it wants to restrain the economy (as occurred in 1968). **Macro-economics** - Rudiger Dornbusch and Stanely Fischer, Department of Economics, Massachusetts Institute of Technology > [@](#): > > [Discussion of how monetary policy can stimulate the economy] Fiscal policy, by contrast, operates in a manner that depends on precisely what good the government buys or what taxes and transfers it changes. Here we might be talking of government purchases of goods and services such as road paving, a reduction in the corporate profits tax, or a reduction in sales tax or Social Security contributions. Each policy affects the level of aggregate demand and will cause an expansion in output, except the type of output and the beneficiaries of the fiscal measures differ. So, I have now picked up three economics textbooks and they all say that **JJ** is flat wrong. I have to ask the obvious question: **JJ** , have _you_ ever picked up an economics textbook? Can you provide the name of a textbook that says tax cuts “slow down the economy” and that “they always have and always will?” ---
**Author:** ![mrblue92](https://avatars.discourse-cdn.com/v4/letter/m/5daacb/32.png) [@mrblue92](https://boards.straightdope.com/u/mrblue92)\ **Post date:** [December 6, 2001, 9:56pm UTC](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003/68 "2001-12-06T21:56:27Z")
…so parents, talk to your children about the dangers of gross generalization. Or someone else **will**. _This public service announcement has been paid with the blood, sweat, and tears of Dopers, International._ [Previous page](https://boards.straightdope.com/t/thank-you-so-much-for-two-straight-years-of-tax-rebates/97003.md?page=3)