Where is Bush going to get the Money to Fund his new programs

Ah, the joys of Republican math, where it is possible to fund increased government spending on pet projects through tax reform that is “revenue neutral.”

Where is Bush going to get the money to fund his new programs?

Same place his old man found the money to pay off the Savings and Loan disaster.

Us.

That’s the first I’ve heard of that - what’s your source for that?

I been whooshed, ain’t I?

Borrow and spend.

That’s a handy thing to do, apparently. The latest Higher Ed Act will also eliminate the local- and state-tax deduction in the formula used to qualify for Pell Grants. That will make it look like poor families have more $$ available for college, and they will qualify for less aid or won’t qualify at all.

Where else are they planning to apply this change? It could be the key to savings in other means-tested programs. This way the administration won’t have to cut the funding to programs, but by changing people’s eligibility according to a specific rule, they may curtail need for (or growth of) the social programs.

[Believe it.](www.nytimes.com/2004/01/ 14/politics/campaigns/14MARR.html?hp )

Of course, 1.5 billion is a statistical blip, pocket change when you’re running a deficit of 420 billion.

Sorry, I can’t get your link to work. Are there other articles with a breakdown of the distribution of funds here? And does it also work to encourage same-sex marriage? :wink:

Note to Sam – Thank you for addressing my questions. While I understand the logic behind the costs of Social Security privitization, it does mean that we’re increasing our debt burden now by even more (and paying interest on it), which does magnify even further the problems currently facing our currency, and might end up making the interest rates for our T-Bonds even more expensive. It just seems like it can’t help matters at this point, even if Social Security does need to be changed.

I’m also skeptical of the tax changes being revenue neutral, if only because for every deduction/exemption/etc you take out, you get an army of angry lobbyists and their congressmen pets at your door. Moreover, Bush seems to want to have a legacy in all spheres, including social programs, which doesn’t necessarily bode well for spending in those areas.

O.K., thanks for that explanation. Now I have more questions. Isn’t that basically what was called “Reaganomics” in the 80s? I didn’t know people were still kicking that around as a supposedly viable theory. Also, for people born into “old wealth”, don’t investments often comprise their main source of income? So let’s say, as a hypothetical, you have a few hundred million in the bank. If you’re smart, you could live off the income from investing that money, without even touching the principal, right? And that’s what’s called “capital gains”, isn’t it? So wouldn’t extremely wealthy people who are investing what they already have, and using that as their primary source of income, be getting off scot free as far as being taxed?

Now, I understand what you are saying, that theoretically this might stimulate the economy and increase the tax revenue brought in in the future. But when we talk about “revenue neutral”, that’s referring to right now isn’t it? It’s not revenue-neutral with respect to some unspecified time in the future when the tax base supposedly increases, is it? Maybe a hypothetical would help.

Say there are only 2 citizens in the U.S., Mr. Big Bucks, and Joe Schmoe. Big Bucks gets all his income from investments, and Schmoe gets all his income from employment. Let’s also say that Big Bucks paid 5000 dollars in income tax last year, and Schmoe paid 2000 dollars in income tax. Now let’s say, under a tax reform plan, the capital gains tax is eliminated, but the structure remains revenue-neutral. That means they have to take in the same amount of money as before, right? So Big Bucks’ tax bill would go down to zero, while Schmoe’s bill would go up to $7000, at least until the economy grows (and even then it’s assuming that the economy will grow). Is that about the size of it, allowing for the over-simplification of my example? Or is there something I’m missing.

blowero

Well, your simplification misses somethings.

First, capital gains is tax on investment income when sold or traded.

Mr Big Bucks buys 1 million dollars of Big Evil Corp™ at a dollar a share. The price of goes up to 1.50 a share. Mr Big Bucks sells those shares. He now has 1.5 million. The 500,000 he made is the capital gains. Capital gains are taxed when the sale happens. This is different than dividends which is a share of a company’s profits that it pays to investors. Dividends are taxed. I don’t know the rate (and don’t feel like looking it up, sorry)

The arguement against high capital gains taxes is this: If Mr Big Bucks now has 1.5 million in BEC and wants to sell that stock to buy stock in another company, lets call it Small New Company(SNC) the capital gains tax is an instant hit to his investments making Mr Big Bucks less likely to sell BEC and buy SNC. SNC is a small new company, hence the name, and needs investment to grow. Mr Big Bucks wants to buy some SNC. But the capial gains tax is a negative influence on Mr Big Bucks and makes it less likely for him to move his money. Why? Because he loses alot when he sells BNC. So Mr. Big Bucks is more likely to keep BEC than to sell it and SNC doesn’t get the capital it needs to grow. So Mr Big Bucks keeps his money in BEC and keeps the dividends, which are taxed, and his principle(the 1.5 mil) stays in tact and SNC does not get the investment it needs to grow.

Now, Joe Schmoe, who was on the short list to be hired by SNC, is no longer iup for the job because SNC doesn’t have enough money to hire new people.

Note, the capital gains tax doesn’t work aginst just rich people. It is levied against anyone who makes a capital gain.

That’s the thory as I understand it. Somewhat simplified of coarse.

Personaly I am for lower capital gains taxes. In fact I am for less taxes in general. And I am not rich. It would be nice if the government would lower the debt and all goevenment spending. But it ain’t gonna happen anytime soon.

Slee

Oh, and a note about old wealth. IIRC something like 90% of milionaires are new. They earned the money, they didn’t inherit it. Or at least all of it. Check out http://moneycentral.msn.com/content/SavingandDebt/P80541.asp for more information

NetBrian said:

I’m now a bit out of my depth when it comes to the intricacies of deficit financing of Social Security vs borrowing by other means, and the impact that will have on the financial markets. I don’t know to what degree the financial markets have already discounted the huge unfunded liability of the SS system. For all I know, that’s already factored into bond prices, and legitimate attempts to fix the system may actually cause the markets to respond favorably even if short-term debt goes up. But I really don’t know.

Tax simplification is one of those places where good intentions go to die. In broad strokes, everyone agrees with it. It’s stupid to have thousands of pages of special exemptions, loopholes, and shelters that force companies to hire armies of accountants to wade through.

In reality, every one of those exemptions and loopholes has a constituency. Going to eliminate the hybrid car tax credit? Fuel credits for farmers in some areas? Tax incentives for conservation? Every one of those exemptions was put on the books by someone who lobbied hard for them and was possibly elected with a promise to put them in place. You want to see infighting? Wait until the White House budget boys put on their green eyeshades and start red pencilling some of those line items. Republicans and Democrats will all be up in arms. And there are just as many, if not more, special tax breaks aimed at the ‘red states’, so Bush will be fighting his own constituency.

But who knows? The guy has shown an amazing ability to get things done. Maybe he’ll be the guy to break the log jam. But I’m not betting on it.

As for the capital gains tax - I’m not sure it needs to be eliminated. What needs to happen, though is for the capital gains rate to match the tax rates of other forms of investment. That way, the tax system isn’t distorting the market. Money should be free to flow where it does the most good, without having to consider tax implications of the choices. That’s the road to efficiency.

Per the OP:

Republicans Finding Ways To Account For Overhaul

Great, so not only is George W. Bush the “CEO President,” we’re now going to get accountants from Enron? :rolleyes:

Another supremely helpful post from rjung. Do we have to look forward to four years of every thread on public policy being filled with message after message of gratuitous Bush bashing?

How about Canada bashing? When are you folks going to step forward and shoulder more of the military burden?

The comparison is certainly uncomfortable for you, Sam, but that hardly makes it gratuitous. Your heros in the GOP are indeed looking for ways to make money appear from thin air, just as Enron did. Those of us south of the 49th are going to have to pay for it somehow eventually, too. Perhaps you might put yourself in our position sometime to see how it feels.

Been there, done that. It wasn’t long ago that Canada’s debt/GDP ratio was much higher than the U.S.'s. And by the way, I’m a deficit hawk and think that the big deficits are a major Bush failing.

Carnac: I’m with you. I lobby our government all the time to increase defense spending, as does a majority of Canadians. They just aren’t listening.

rjung’s comment was specifically in reply to Squink’s link (wink), which said that the new way they were going to deal with the debt was to move some of the losses off the books*.

It was perfectly compared to Enron.

How does buying stock of SNC allow the company to grow? Unless you are buying the stock from the company, I don’t understand how the company is making any money on the sale of their stock.

Companies make money by selling more of their products and services. Am I missing something about stocks and trading once past the IPO?

Yes, but if the capital gains tax were eliminated, wouldn’t wealthy people simply chose investments with relatively low dividend payments in favor of more trading, since selling investments would result in untaxed profit?

I understand the theory, but is there any empirical evidence that “trickle down” theory is valid?

Yes, we know that. However, poor people don’t possess the capital to make investments, so they consequently aren’t going to have a lot of capital gains. So it disproportionately affects the poor and middle classes.

Lower taxes would be great, but I’d like to see the poor and middle class get the lion’s share of the tax relief (or at least an equal amount), not the extremely wealthy.

I don’t see that statistic in the article. Can you quote exactly where it says that? Besides, that’s a survey of what millionaires said. I would expect that most people, when asked, would downplay the fact that they had anything “handed to them”, and would tend to try to portray themselves as self-made. Also, even if they didn’t get all their money from inheritance (I doubt anyone gets all his money from inheritence anyway), doesn’t mean there’s no “old wealth” in the family. I don’t think you can really say, “Mr. X got some of his money from inheritance, and some on his own, therefore he’s entirely a “new” millionaire.”