If tax-cut strategies don't work, why are they so popular abroad?

Stinger · Nov 12, 2007

PeteEU said:
LOL a right winger using percentage of GDP when it suits him haha.. okay lets go right wing... but the deficit in dollars is HUGE!..

Do you understand the difference between someone who makes $20,000 a year taking on a $5,000 debt and someone making $100,000 a year taking on a $5,000 debt?

not to mention public debt.

Another topic.

Tell me from the UK what happened when Ireland cut it's corporate tax rate? What happened to economic activity and what were the results as far as tax revenues?

donsutherland1 · Nov 12, 2007

Stinger,

Several quick points:

1) The issue concerns sustained budget deficits.
2) The FY 2007 deficit of $163 billion understates the actual figure. The costs of the military operations in Afghanistan and Iraq are being treated as emergency supplemental spending. Such spending is off budget. Yet, the funds are being borrowed.
3) By the 2nd quarter of 2007, gross public debt amounted to $8,867.7 billion. That was the equivalent of 64.4% of GDP.
4) Out of the $4,152.6 billion held by private investors, $2,220.0 billion (53.5%) was held by foreigners.
5) In the 2003-present timeframe, foreigners provided funds for 88.7% of the new debt acquired by private investors.

With the value of the U.S. dollar falling, that makes it less worthwhile for foreigners to purchase and hold U.S. debt. At some point, foreigners will expect higher returns to compensate them for the losses inflicted by a weakening dollar. That development would raise borrowing costs for the United States.

So long as the U.S. maintains a substantial trade imbalance, the possibility of pressure on the dollar will remain. Moreover, given that approximately 30% of the U.S. trade deficit is accounted for by oil imports, there are some questions as to how far the U.S. trade imbalance can unwind.

Finally, with the Baby Boom generation beginning to retire, investors may well begin to incorporate structural challenges associated with funding Social Security and Medicare into their expectations. If so, one could see upward pressure on long-term interest rates down the road. If, at some point, the dollar continues to fall and the structural funding challenges are not addressed to the satisfaction of the financial markets, the rise in long-term interest rates could become non-linear as has occurred in some past financial crises in Latin America and Asia. Aside from raising borrowing costs, such increases in interest rates could tend to choke off some economic growth. That, in turn, could make it even more difficult to generate sufficient tax revenue to meet the growing fiscal burden.

All said, the adverse economic consequences associated with chronic fiscal deficits cited in mainstream economic thought may well be delayed, but not denied. At some point, if the U.S. dollar begins to lose its status as the world's preferred reserve currency and/or expectations of returns on U.S. assets/risk perceptions on account of long-term U.S. fiscal challenges worsen, the U.S. likely will not prove immune to past economic experience as it relates to persistent deficits.

Iriemon · Nov 12, 2007

Kandahar said:
No, but one should EXPECT revenue to increase over the course of 8 years, given NO CHANGE AT ALL to the tax code. Because the economy tends to grow over time, not shrink.

The point is that a 14% increase over the course of eight years is very small. Much smaller than we should normally expect with average economic growth rates.

The growth in real revenues lagged behind the growth of real GDP during Reagan's term.

These are CBO total revenue figures adjusted to 2000 dollars using the BEA.gov inflation deflator it uses for GDP figures.

Year - Revenues 2000$
1980 956.8
1981 1013.7
1982 984.9
1983 921.1
1984 985.1
1985 1053.0
1986 1079.6
1987 1167.3
1988 1201.3

You can see revenues fell sharply after the 1981 tax cuts took effect. They rose in the latter part of Reagan's administation -- but Reagan signed a number of significant tax increases to address the huge deficits his budgets had created.

Even so, overall, the real increase in revenues did not keep up with the real increase in GDP:

Year - Revenues 2000$
1980 956.8
1988 1201.3
Increase: 25.5%

Year - GDP 2000$
1980 5,161.7
1988 6,742.7
Increase: 30.6%

Compare that to what happened to revenues after the Democrats increased taxes to address the $340 billion deficit Clinton inhereted from the Reagan/Bush Administration.

Year - Revenues 2000$
1992 1263.3
2000 2025.2
Increase 60.3%

Year - GDP 2000$
1992 7,336.6
2000 9,817.0
Increase: 33.8%

And since:

Year - Revenues 2000$
2000 2025.2
2006 2,064.6
Increase: 1.9%

Year - GDP 2000$
2000 9,817.0
2006 11,319.4
Increase: 15.3%

Seems pretty clear to me that the we are not at or close to revenue maximization given this data.

Stinger · Nov 12, 2007

donsutherland1 said:
Several quick points:

Several quick answers

1) The issue concerns sustained budget deficits.

Yes I know and my points concerned them. We have had sustained deficits for quite a long time and interest rates have gone up and interest rates have gone down. Back in the 70's and 80's it was a widely held belief that deficits had a major effect on interest rates, that has been found to not be the case, monetary policy and economic activity affect interest rates.

2) The FY 2007 deficit of $163 billion understates the actual figure.

ALL government figures are under/over/sideways/upsidedown stated. But we can use the same figures for historical purposes and comparisons. The fact is our deficits continue to fall WITH the lower tax rates as revenues continue to increase and we are talking revenues in this thread.

3) By the 2nd quarter of 2007, gross public debt amounted to $8,867.7 billion. That was the equivalent of 64.4% of GDP.

OK

4) Out of the $4,152.6 billion held by private investors, $2,220.0 billion (53.5%) was held by foreigners.

OK

5) In the 2003-present timeframe, foreigners provided funds for 88.7% of the new debt acquired by private investors.

OK

And that has what to do with our increasing tax revenues at lower tax rates?

With the value of the U.S. dollar falling, that makes it less worthwhile for foreigners to purchase and hold U.S. debt.

OK, then why are they still purchasing or treasury bonds? And of course it makes our products more attractive to them and the balance of trade shifts.

So what does that have to do with our rising tax revenues, I guess you could make the case the lower dollar is driving an expansion of manufacturing here, it is certainly booming in my neck of the woods.

At some point, foreigners will expect higher returns to compensate them for the losses inflicted by a weakening dollar.

Or as our need to finance debt diminishes they well go elsewhere.

That development would raise borrowing costs for the United States.

When has it in the past?

Finally, with the Baby Boom generation beginning to retire, investors may well begin to incorporate structural challenges associated with funding Social Security and Medicare into their expectations.

Another matter altogether and but again more economic activity increases the tax base meaning more people paying into the system.................but any discussion of SS and Medicare have to incorporate discussion of reforming the whole system which is another thread altogether.

So you can talk in theory all you want, we have the data for the last 40 years that show interest rates going up when deficits were falling and interest rates going down when deficits were increasing. YES certain policy decisions or lack of them could in the future change that, but that is another discussion. As of now we see rising revenues at lower tax rates...............that is the issue.

Iriemon · Nov 12, 2007

Stinger said:
And a shining example of the dishonesty of the leftest side of the debate. Republicans and conservatives believe that with lower rates we won't have to put our bills on the nation's credit card because with the economic activity and growth that results we have higher revenues.

Whether they actually believe it or not is debatable, but it is certainly true that is what they say:

3/27/01: "We can proceed with tax relief without fear of budget deficits, even if the economy softens." – President Bush
http://www.americanprogress.org/issues/2004/01/b22339.html

We can meet our priorities, and we can fund them. And we can also pay down debt. I know a lot of folks around America are worried about national debt, as am I. We pay down $2 trillion of debt over the next 10 years. That's all the debt that's available to be retired without having to pay a premium for prepaying debt. That's a lot of debt retirement. It will be the biggest repayment of debt in the history of the world. And so we pay down debt. Mar 9 2001
President Bush Discusses the Budget in Sioux Falls, South Dakota

"Future generations shouldn't be forced to pay back money that we have borrowed. We pay back money that we have borrowed. We owe this kind of responsibility to our children and grandchildren" President Bush 3/3/01
www.senate.gov/~budget/democratic/charts/2003/debtpacket040803.pdf

We can cut taxes without deficits even if the economy slows. We will pay down the debt by $2 trillion. We owe this kind of responsibility to our children and grandchildren.

What a sad ****ing joke.

The government has put $3.3 trillion more on the governments credit card than it had 6 years ago, adding $1/2 trillion more each year.

But as you can see from Stinger's post, the pass the buck crowd is at it again for '08.

Iriemon · Nov 12, 2007

Kandahar said:
I meant higher revenues relative to what you would normally expect. For example, if we could expect tax revenues to increase 3% per year over the course of a decade, given no change at all to the tax code, you can't seriously argue that a tax cut "raised revenue" if it increases by 1% per year over the next decade.

The number you're thinking of is probably the tax revenue unadjusted for inflation.

Historical Federal Receipt and Outlay Summary

Adjusted for inflation, revenues in 1981 were $1,077.4. In 1988, they were $1,235.6, which means that revenue increased only 14% during this time.

Compare this to an 8-year time period in which there were tax INCREASES. Adjusted for inflation, tax revenue increased 53% from 1993-2000. It increased 20% from 1989-1996.

If you wanted to compare an 8 year period, I think you'd have to use the figure for year end FY1980, not 1981, thru year end 1988.

They use a different price deflator than the BEA uses for GDP.

Iriemon · Nov 12, 2007

Stinger said:
What you see when you look at the revenue growth is that we had a recession in 1991 and began to climb out of that in 1992 and were in full blown recovery the year Clinton took office 1993, he passed a huge tax increase and revenue growth dropped from his inherited $90 billion a year to $68 and $75 the next two years (adjusted for inflation). The economy was starting to get over it and the Republicans got tax cuts and welfare reformed passed over his objections and revenue growth took off. Then in 2000, the year before Bush was sworn in the economy pushed by the Dot.com bubble burst turned negative and even had revenue loss. That's what Bush came in on and correctly got tax cuts passed to stem the economice down turn, THEN 9/11 hit and we went to war and OF COURSE revenues took another huge hit. But fortunately Bush had gotten his tax cut put in place and the next year that revenue loss slowed and turned around the following year and it has been going through the roof since.

And we may have a slight slow down next year, it's about time in the cycle so the LAST thing we should be doing is increasing taxes.

KStinger's contention that revenues fell after the Dems raised taxes in '93 (in the face of record deficits inhereted from the Rebulican administration) is just a flat out lie and he knows it.

The economy under Clinton was growing just fine even before the very minor tax cut passed in '97 (Clinton vetoed Republican attempts for the huge tax cuts they wanted, and thereby kept us from going back into deficits). The '97 tax cut took effect in '98.

Year - increase in real GDP

1993 2.7%
1994 4.0%
1995 2.5%
1996 3.7%
1997 4.5%
1998 4.2%
1999 4.4%
2000 3.7%

Kandahar did a nice job pointing out the flaws in Stinger's blather. I'll note that the 2001 "recession" was hardly that. It was a slowdown. Real GDP grew by .7% and actual GDP grew by 3.2%, so you cannot blame the falling (actual) revenues on a negative GDP, because there was no negative GDP.

Interesting to note that the much more sever '82 and '90 recessions did not produce this same magnitude of revenue drop.

What we can deduce is that that major dip in revenues in 2001-03, which by 2006 we are just recovering from, is largely the result of the Bush tax cuts. The effect has been to move the revenue curve over to the right several years -- meaning that revenues now are several years behind were they would have been with out that big tax cut dip.

Iriemon · Nov 12, 2007

Stinger said:
Yep they hit the roof and are going through and the rate of increase has been particularly strong. You still have to keep ignoring what we went through during that six year period that they were on the decrease when it began NOT increasing, and then we took the hit from 9/11, the tax cuts were perfectly time, not by purpose by they couldn't have been done at a better time, and we have recovered nicely and beyond all predictions. Look at the rates of increase for Clinton during his recovery period and his tax increases and the rates of increase once the recession bottomed out and recovery began. Had Clinton not increased taxes the recovery during the beginning of his administration would have even been stronger with higher revenues coming in.

Here we see another example of Stinger's partisan deceptions. Since 2001, GDP growth has been subpar, revenues have not even kept up with that, and are barely ahead of inflation, as show in this earlier post:

http://www.debatepolitics.com/681898-post53.html

Interesting that Stinger compares the Clinton Administration recovery, supposedly for the proposition that tax increases hurt the economy. In fact, the economy recovered better under Clinton with the tax increase than it did under Bush after his deficit creating tax cuts:

year - % chng real GDP - year - % chng real GDP

1991 -0.2% 2001 0.8%
1992 3.3% 2002 1.6%
1993 2.7% 2003 2.5%
1994 4.0% 2004 3.6%
1995 2.5% 2005 3.1%
1996 3.7% 2006 2.9%

This compares the growth in the years after the 91 recession that according to Stinger, Clinton's tax increase messed up, and after the '01 "recession", which according to Stinger, is when Bush's tax cuts created strong growth.

The total real GDP growth in the 5 years after '91 totals 16.2%; the total GDP growth in the 5 years after thye '01 "recession" totals 13.7%.

And so far, 2007 is shaping up to be a worse year than 1997.

Actually there is no good reason to ever raise taxes just to raise them thinking it will result in balance budgets and surpluses especially from the current rates.

'Course not to Stinger the pass the buck Republicans. Just keep charging it and screw the next generation.

Iriemon · Nov 12, 2007

Stinger said:
No my numbers are spot on.

1991 -26.8
1992 0.1
1993 40.5 coming out of the recession started before Clinton and his policies
1994 90.8 continued recovery and Clinton's polices start going into effect
1995 68.4 recovery slowing as tax increase start to effect growth
1996 75.5 recovery still sluggish under the tax burden
1997 103.3 economy growing recovery over but revenues lower than expected had they kept the increase of 1994 they would have been well above this and tax cuts start to get implimented
1998 131.9 tax cuts going into effect
1999 81.8 slight slowdown in economy after growth period tax cuts going fully into effect
2000 150.6 WITH the tax cuts but towards end of year recession and dot com bust
2001 - 79 Bush enters office under negative growth.
2002 -168 one month before start of fiscal year on top of 2001 negative growth 9/11 hits. Bush gets tax cuts implimented
2003 -112 tax cuts help stem effects of recession and effects of 9/11
2004 41.8 recovery begins tax cuts still in effect as economy begins to grow again
2005 180.9 WITH the tax cuts in place
2006 148.9 WITH the tax cuts in place, two years in a row matching or exceed the previous best month
2007 160 again WITH the tax cuts [/quote]

Aside from all the blather there, what I see is revenues growing strongly every year Clinton was president, and falling dramatically when Bush slashed taxes.

As if that should be a surprise.

donsutherland1 · Nov 12, 2007

Stinger said:
And that has what to do with our increasing tax revenues at lower tax rates?

If the federal government had maintained fiscal discipline and its spending were growing at a rate below tax revenue growth, then the issue would not arise. Unfortunately, fiscal discipline has been lacking. Since 2000, gross federal debt has increased by $3.2 trillion. That's a 57% increase from the figure at the end of 2000. Interest is accrued on that additional debt. At the same time, even the share of the gross public debt held by other agencies of the federal government--primarily Social Security's "investment" in federal obligations--would eventually need to be converted into cash for purposes of making Social Security payments. Therefore, when it comes to assessing fiscal implications, the "gross public debt" figure is more meaningful than the lower figure of "debt held by the public" that excludes the amount of debt held by the government.

OK, then why are they still purchasing or treasury bonds?

The U.S. is still perceived to be a relatively safe harbor for investment. However, should the dollar continue to decline, investor perceptions could well change. Already, concern about the dollar's slide is building in the international currency. For example, Bloomberg.com reported of South Korea:

Policy makers told parliament in October that they will probably lose more than $1 billion for a third year because dollars purchased to stop the won's advance earn less interest than the bonds sold to control money supply.

"Central banks are trying noninterest rate methods to stabilize growth and capital flows," said Bank of Tokyo- Mitsubishi's Fullem. "It's something extraordinary. They haven't used these venues for a long time. It's sort of the last resort the central banks would like to tap."

One cannot automatically assume that investors will always take measures that slice into their returns. At some point, they would shift their portfolio and, if the dollar were continuing to decline, such a move could accelerate its decline.

...but any discussion of SS and Medicare have to incorporate discussion of reforming the whole system which is another thread altogether.

While discussion of how to reform SS and Medicare merit their own thread, the point that the long-term fiscal burden associated with the present SS and Medicare programs is highly relevant to analyzing overall fiscal policy and various policy options. One needs to consider whether policy changes today will mitigate or exacerbate the long-term fiscal burden that lies ahead. After all, such considerations will eventually figure in how the financial markets perceive the risk of U.S. treasuries and the rates of return creditors will expect.

Iriemon · Nov 12, 2007

Kandahar said:
It's quite nice that you can create such a simplistic analysis of a complex economy, so that each data point says whatever you want it to say. Someone could just as easily do the same thing to make exactly the opposite argument.

What's funny is Stinger's running commentary specifically assigning cause and effect for each year; but if you look at long term trends between tax policy and GDP, he says that is unfairly determining cause and effect!

Iriemon · Nov 12, 2007

Originally Posted by PeteEU
Now Stinger and co state that revenue is up since the tax cuts, and yes they are, but why are they up?

Stinger said:
Economic growth. More people working, more people paying taxes, increased productivity.

The real reason they are up is because of inflation and corporate profits. SS tax revenues are up. Corporate profits are way up.

Meanwhile, income tax revenue has hardly changed since 2000.

Year - SS tax - Inc. tax - Corp. tax

2000 --- 652.9 1004.5 207.3
2006 --- 837.8 1043.9 353.9

Increase 184.9 39.4 146.6

The increase in revenues is almost all from SS taxes and corporate taxes, which were not cut.

The income tax revenues -- which were slashed, hardly changed over 6 years, and are well behind inflation much less GDP.

PeteEU · Nov 12, 2007

Stinger said:
Do you understand the difference between someone who makes $20,000 a year taking on a $5,000 debt and someone making $100,000 a year taking on a $5,000 debt?

Yes I do, but do you and your right wing brothers? Its rare that I see you and the right use % comparisons, as they usualy dont favor your point of view!

Another topic.

LOL, hardly.

Tell me from the UK what happened when Ireland cut it's corporate tax rate? What happened to economic activity and what were the results as far as tax revenues?

Gezz you and your Irish fetish. Seriously you again forget 3rd party influences. What about Irish wages, were they higher or lower than the UKs? What about land grants and other incentives? What about the massive amounts of EU financial grants and other aids that poured into Ireland since they join the EU (and still does)? Do you think that those and others had bigger influence to where a corporatation places a factory than some tax rate thats minimally different from country to country? And no I aint saying that it has no influence, incase you think that, I am saying it is not they main influence or even remotely a key influence for most coporations.

Let me give you an example. IBM was to place a factory in Europe in the 1980s, they had 3 or 4 sites in different countries they could use. In the end it was between Denmark and Ireland. Now Denmark had many good things talking for it, among them a highly educated work force, as low a corporate tax, but in the end Ireland won, because the EU would fund part of the factory, the land was basicly free, and the wages was considerably lower than Denmarks, and the level of education was only a bit lower.

History.

Ah ha, so history.

Actually up now but even if stagnant more people working more people paying taxes.

Yes its barely up, while being totaly stagnant and even decreasing for years under Bush. And more people working means more people paying taxes, yes that is true, but also so simplistic an argument that its laugable. Are your numbers for tax income only from individuals, corporations or in total? What is the percentage contribution to said income from the various wage classes? There are so many unanswered questions with your numbers, that I have not been able to find by looking at your links.

I've been begging for employees and so has everyone else around here.

Well pay higher wages then, its a free market, maybe you can attarct some workers. It also depends on the industry you are in. For example, the skill of making straw roofs in Europe has a high demand for workers, but thats because no one is taught in the art and very few want to work with this. But does that mean that we have no unemployement?

Oh spare me. We are talking the economy and taxes.

Are you denying that a war has no impact on the economy or taxes? What planet are you from? If you take several hundred thousand people off the payroll and send them to war, then they will be replaced by people looking for jobs, and wupti, the unemployement falls.

Your desperation to find excuses so you can bad mouth Bush and tax cuts is blaring.

Ahh avoidance, classic right wing tactic. How about answering the question? Why is it you go simplistic when the numbers favor your point of view on the face of it? Even here not all the numbers dont favor you and you tend to "forget" those.. funny no?

Iriemon · Nov 12, 2007

Stinger said:
The deficits as a percentage of the total economy are miniscule right now, the lowest percentage of GDP in about 30 years.

It's amazing that someone can write so many outright falsehoods in just one thread. On other subjects it's more difficult to disprove flat out dishonesty. But in economics, there are numbers that prove the lies.

These figures are from the CBO and Dept of Treasury:

Year - On Budget Deficit - GDP - Deficit:GDP %

1999 1.9 9,268.4 +0.02%
2000 86.6 9,817.0 +0.88%
2001 -33.3 10,128.0 -0.33%
2002 -317.5 10,469.6 -3.03%
2003 -536.1 10,960.8 -4.89%
2004 -567.4 11,685.9 -4.86%
2005 -493.6 12,433.9 -3.97%
2006 -434.0 13,194.7 -3.29%

Stinger's claim that the deficits as a percent of GDP "are the lowest in 30 years" is an outrageous lie, even for him. They are higher than they were in 2002, and far higher than they were during Clinton's term, when the ratio was positive, not negative.

Sheesh the whoppers grow by the post.

Maybe by "lowest" Stinger meant "most negative". : )

Iriemon · Nov 12, 2007

Stinger said:
Do you understand the difference between someone who makes $20,000 a year taking on a $5,000 debt and someone making $100,000 a year taking on a $5,000 debt?

Do you understand the difference when revenues are 2 trillion and the GDP is 9 trillion and when revenues are 2 trillion and GDP is 13 trillion?

Iriemon · Nov 12, 2007

donsutherland1 said:
Stinger,

Several quick points:

1) The issue concerns sustained budget deficits.
2) The FY 2007 deficit of $163 billion understates the actual figure. The costs of the military operations in Afghanistan and Iraq are being treated as emergency supplemental spending. Such spending is off budget. Yet, the funds are being borrowed.
3) By the 2nd quarter of 2007, gross public debt amounted to $8,867.7 billion. That was the equivalent of 64.4% of GDP.
4) Out of the $4,152.6 billion held by private investors, $2,220.0 billion (53.5%) was held by foreigners.
5) In the 2003-present timeframe, foreigners provided funds for 88.7% of the new debt acquired by private investors.

With the value of the U.S. dollar falling, that makes it less worthwhile for foreigners to purchase and hold U.S. debt. At some point, foreigners will expect higher returns to compensate them for the losses inflicted by a weakening dollar. That development would raise borrowing costs for the United States.

So long as the U.S. maintains a substantial trade imbalance, the possibility of pressure on the dollar will remain. Moreover, given that approximately 30% of the U.S. trade deficit is accounted for by oil imports, there are some questions as to how far the U.S. trade imbalance can unwind.

Finally, with the Baby Boom generation beginning to retire, investors may well begin to incorporate structural challenges associated with funding Social Security and Medicare into their expectations. If so, one could see upward pressure on long-term interest rates down the road. If, at some point, the dollar continues to fall and the structural funding challenges are not addressed to the satisfaction of the financial markets, the rise in long-term interest rates could become non-linear as has occurred in some past financial crises in Latin America and Asia. Aside from raising borrowing costs, such increases in interest rates could tend to choke off some economic growth. That, in turn, could make it even more difficult to generate sufficient tax revenue to meet the growing fiscal burden.

All said, the adverse economic consequences associated with chronic fiscal deficits cited in mainstream economic thought may well be delayed, but not denied. At some point, if the U.S. dollar begins to lose its status as the world's preferred reserve currency and/or expectations of returns on U.S. assets/risk perceptions on account of long-term U.S. fiscal challenges worsen, the U.S. likely will not prove immune to past economic experience as it relates to persistent deficits.

Well said Don. Those who are (and have been) arguing for the short term individual benefit of tax cuts (if you are wealthy enough to benefit from it) at the cost of long term government debt have done a tremendous disservice to our nation and our future.

Already the interest expense on the debt is over $400 billion. A year. That is the growing cost to our government and nation of the irresponsible cut-n-borrow policies of the last three Republican adminstrations. And as we can see from both Stinger's posts and the Republican candidates positions, the continued path if another Republican president is elected.

Iriemon · Nov 12, 2007

Stinger said:
ALL government figures are under/over/sideways/upsidedown stated. But we can use the same figures for historical purposes and comparisons. The fact is our deficits continue to fall WITH the lower tax rates as revenues continue to increase and we are talking revenues in this thread.

Only a truly partisan Republican could ever claim that the deficts have fallen.

Year - "Total" defecit (includes SS taxes)

2000 +236 billion
2006 -247 billion

And as Don noted, tese figures do not include the cost of the wars.

Stinger · Nov 12, 2007

donsutherland1 said:
If the federal government had maintained fiscal discipline and its spending were growing at a rate below tax revenue growth, then the issue would not arise.

OK that is what we are doing now, and if we continue to do so we can conceivably further lower tax rates in the future. But so far I don't seen any moves to cut spending by any of the Dems in congress, they are fighting for higher spending, nor from any of the Dem candidates. What I do see are policies that will slow the growth of the economy and slow the rate of growth of revenues, just as Clinton did with his massive tax increase.

Unfortunately, fiscal discipline has been lacking.

An entirely different subject.

However, should the dollar continue to decline.......

Again you can speculate all you want, the fact is the tax cuts HAVE increased revenues, you are trying to counter that with spending arguments which run up the deficit, arguments which have not borne out in the past. Again, during the 80's when deficits were rising what happened to interst rates? When the deficits were falling during 90's what happened to interest rates? And when they were rising in the early 00's what happened.

It was a widely held religion that the deficits drove interest rates, it has simply not held up in reality.

While discussion of how to reform SS and Medicare merit their own thread, the point that the long-term fiscal burden associated with the present SS and Medicare programs is highly relevant to analyzing overall fiscal policy and various policy options.

And a growing economy with growing revenues is the better plan.

One needs to consider whether policy changes today will mitigate or exacerbate the long-term fiscal burden that lies ahead.

The ones I know of do exactly that, and lowering tax rates so as to increase the growth of the economy is what alot of the ones advocate and appear to be supported by history.

Iriemon · Nov 12, 2007

Stinger said:
OK that is what we are doing now, and if we continue to do so we can conceivably further lower tax rates in the future. But so far I don't seen any moves to cut spending by any of the Dems in congress, they are fighting for higher spending, nor from any of the Dem candidates. What I do see are policies that will slow the growth of the economy and slow the rate of growth of revenues, just as Clinton did with his massive tax increase.

He means slow the economy like it did after the Clinton tax increase, where the recovery was much stronger than it has been after the Bush tax cuts?

Again you can speculate all you want, the fact is the tax cuts HAVE increased revenues, you are trying to counter that with spending arguments which run up the deficit, arguments which have not borne out in the past. Again, during the 80's when deficits were rising what happened to interst rates? When the deficits were falling during 90's what happened to interest rates? And when they were rising in the early 00's what happened.

It was a widely held religion that the deficits drove interest rates, it has simply not held up in reality.

That's like arguing that Medicaid HAS made the economy grow because, gosh, the numbers are bigger than they were.

And a growing economy with growing revenues is the better plan.

Except when the revenues are growing much slower than the economy, as has been the case for the last 6 years, and the Govt is borrowing $1/2 trillion a year.

The ones I know of do exactly that, and lowering tax rates so as to increase the growth of the economy is what alot of the ones advocate and appear to be supported by history.

This could only be true if "history" = Stinger's demonstrated falsehoods.

donsutherland1 · Nov 12, 2007

Stinger said:
OK that is what we are doing now, and if we continue to do so we can conceivably further lower tax rates in the future. But so far I don't seen any moves to cut spending by any of the Dems in congress, they are fighting for higher spending, nor from any of the Dem candidates. What I do see are policies that will slow the growth of the economy and slow the rate of growth of revenues, just as Clinton did with his massive tax increase.

Putting aside my view that there was a breakdown in fiscal discipline in recent years, here's what former House Majority Leader Dick Armey wrote following the 2006 election in which the Democrats regained majorities in both Houses of Congress:

All enterprises have a life-cycle. The Republican takeover in 1994 was the culmination of years of agitation by a relatively small group of political entrepreneurs in the House. Before we could beat the Democrats and their "culture of corruption," we had to beat the old bulls of our own party. They too were driven by a parochial vision, and had grown complacent with the crumbs offered them by the majority. It is often said that Newt Gingrich and I "nationalized" the election in 1994, but what the Contract with America really did was establish a national (as opposed to a parochial) vision for the Republican Party. When we took control, that positive Reagan vision of limited government and individual responsibility provided a great deal of discipline and allowed us to govern accordingly. Our primary question in those early years was: How do we reform government and return money and power back to the American people?

Eventually, the policy innovators and the "Spirit of '94" were largely replaced by political bureaucrats driven by a narrow vision. Their question became: How do we hold onto political power? The aberrant behavior and scandals that ended up defining the Republican majority in 2006 were a direct consequence of this shift in choice criteria from policy to political power.

Nowhere was this turn more evident than in the complete collapse of fiscal discipline in the budgeting process. For most Republican candidates, fiscal responsibility is our political bread and butter. No matter how voters view other, more divisive issues from abortion to stem-cell research, Republicans have traditionally enjoyed a clear advantage with a majority of Americans on basic pocketbook issues. "We will spend your money carefully and we will keep your taxes low." That was our commitment. This year, no incumbent Republican (even those who fought for restraint) could credibly make that claim. The national vision -- less government and lower taxes -- was replaced with what Jack Abramoff infamously called his "favor factory." One Republican leader actually defended a questionable appropriation of taxpayer dollars, saying it was a reasonable price to pay for holding a Republican seat. What was most remarkable was not even the admission itself, but that it was acknowledged so openly. Wasn't that the attitude we were fighting against in 1994?

Source: Dick Armey, "End of the Revolution," The Wall Street Journal, November 9, 2006.

In the wake of this loss of fiscal discipline, it will take Republicans time to restore credibility with respect to fiscal policy. Simply promising a return to fiscal responsibility probably will not be enough in the short-term. Voters may well look for tangible demonstrations whereby actions back words.

Iriemon · Nov 12, 2007

donsutherland1 said:
Putting aside my view that there was a breakdown in fiscal discipline in recent years, here's what former House Majority Leader Dick Armey wrote following the 2006 election in which the Democrats regained majorities in both Houses of Congress:

All enterprises have a life-cycle. The Republican takeover in 1994 was the culmination of years of agitation by a relatively small group of political entrepreneurs in the House. Before we could beat the Democrats and their "culture of corruption," we had to beat the old bulls of our own party. They too were driven by a parochial vision, and had grown complacent with the crumbs offered them by the majority. It is often said that Newt Gingrich and I "nationalized" the election in 1994, but what the Contract with America really did was establish a national (as opposed to a parochial) vision for the Republican Party. When we took control, that positive Reagan vision of limited government and individual responsibility provided a great deal of discipline and allowed us to govern accordingly. Our primary question in those early years was: How do we reform government and return money and power back to the American people?

Eventually, the policy innovators and the "Spirit of '94" were largely replaced by political bureaucrats driven by a narrow vision. Their question became: How do we hold onto political power? The aberrant behavior and scandals that ended up defining the Republican majority in 2006 were a direct consequence of this shift in choice criteria from policy to political power.

Nowhere was this turn more evident than in the complete collapse of fiscal discipline in the budgeting process. For most Republican candidates, fiscal responsibility is our political bread and butter. No matter how voters view other, more divisive issues from abortion to stem-cell research, Republicans have traditionally enjoyed a clear advantage with a majority of Americans on basic pocketbook issues. "We will spend your money carefully and we will keep your taxes low." That was our commitment. This year, no incumbent Republican (even those who fought for restraint) could credibly make that claim. The national vision -- less government and lower taxes -- was replaced with what Jack Abramoff infamously called his "favor factory." One Republican leader actually defended a questionable appropriation of taxpayer dollars, saying it was a reasonable price to pay for holding a Republican seat. What was most remarkable was not even the admission itself, but that it was acknowledged so openly. Wasn't that the attitude we were fighting against in 1994?

Source: Dick Armey, "End of the Revolution," The Wall Street Journal, November 9, 2006.

In the wake of this loss of fiscal discipline, it will take Republicans time to restore credibility with respect to fiscal policy. Simply promising a return to fiscal responsibility probably will not be enough in the short-term. Voters may well look for tangible demonstrations whereby actions back words.

There is some truth to this, but IMO there is also a large dose of revisionist history.

The truth is, while the Republicans gave lip service to "smaller government", in fact the major spending cuts that would be necessary to achieve it were never a major part of the Republican platform. This is true both of the budgets that the Republicans were pushing in the 90s and in the 00s after they got power.

Instead, they sold their tax cuts with "voodoo economics" to a gullible and willing pass the buck generation that was lapped up the promises that the Republicans could magically cut taxes without causing deficits. Bush promised his tax cuts would not cause deficits and that he'd pay down the debt by $2 trillion.

Now, years later, when for the second time we've seen that voodoo economics does not deliver the magic that was promised, and for the second time the tax cuts have resulted in trillions more debt, now after the fact we hear guys like Armey crying about how the Republicans lost their soul by not cutting spending. (Though die-hard partisans like Stinger are still pushing the voodoo economics.)

That was never part of the program. The Republicans never would have gotten elected had they run on a platform of cutting hundreds of billions in spending. So instead they went with voodoo economics, and as it was in the 80s, it was a failure.

The failure was not in Republicans not living by their policies. The failure was in Republican policies in themselves.

donsutherland1 · Nov 12, 2007

Iriemon,

The point I wanted to illustrate to Stinger is that even key Republican leaders have conceded a breakdown in fiscal discipline. I believe the argument that fiscal discipline has been maintained in recent years simply is not viable. Greenspan, Rubin, Armey, et al., all have criticized the collapse in budgetary discipline.

ALiberalModerate · Nov 12, 2007

The supply siders act as though there is some kind of mysticism to the economy. Its as though through some unseen, unknown force, of which causation cannot be demonstrated, tax cuts always result in revenue increases.

The truth is actually pretty simple. For a tax cut to result in higher revenues than what would have otherwise existed, the tax cut must result in greater GDP growth than what would have otherwise existed.

That is all there is to it. So, to say that the Bush tax cuts magically resulted in more revenue than what would have otherwise existed, you must demonstrate that GDP is proportionately higher than it would have been. Kind of hard to do being that GDP growth was greater in the 90s prior to the tax cuts.

So, obviously any revenue growth must be attributed to another factor. In this case, its growth in Payroll Tax revenue, growth in Corporate Income Tax revenue, and growth in AMT revenue as the Bush tax cuts were specifically written to increase the number of taxpayers that were caught under AMT. In fact, some 20 times the number of taxpayers fall under AMT now that did in 2000.

Iriemon · Nov 12, 2007

donsutherland1 said:
Iriemon,

The point I wanted to illustrate to Stinger is that even key Republican leaders have conceded a breakdown in fiscal discipline. I believe the argument that fiscal discipline has been maintained in recent years simply is not viable. Greenspan, Rubin, Armey, et al., all have criticized the collapse in budgetary discipline.

The complete lack of fiscal discipline is obvious to anyone who has ever read one of these threads on the deficits or who has even a modicum of knowledge about US goverment budgets.

But you'll never convince folks like Stinger of the fact. His seen the facts and figures numerous times over the past couple years. Yet next month he'll be writing a new post about how the Republicans balanced the budget and Bush saved the economy and Clinton was responsible for the debt. He's just a shrill.

Iriemon · Nov 12, 2007

SouthernDemocrat said:
The supply siders act as though there is some kind of mysticism to the economy. Its as though through some unseen, unknown force, of which causation cannot be demonstrated, tax cuts always result in revenue increases.

The truth is actually pretty simple. For a tax cut to result in higher revenues than what would have otherwise existed, the tax cut must result in greater GDP growth than what would have otherwise existed.

That is all there is to it. So, to say that the Bush tax cuts magically resulted in more revenue than what would have otherwise existed, you must demonstrate that GDP is proportionately higher than it would have been. Kind of hard to do being that GDP growth was greater in the 90s prior to the tax cuts.

That is really not all there is to it. The tax cuts must not only result in greater economic growth than would have existed; but the economic growth must be marginally greater than the revenues lost by the cut in tax rates.

For example, if the tax rate were cut to 1%; and then the economy grows 1% faster than it would have, revenues will still fall dramatically, despite the greater economic growth.

So, obviously any revenue growth must be attributed to another factor. In this case, its growth in Payroll Tax revenue, growth in Corporate Income Tax revenue, and growth in AMT revenue as the Bush tax cuts were specifically written to increase the number of taxpayers that were caught under AMT. In fact, some 20 times the number of taxpayers fall under AMT now that did in 2000.

This is true, and in fact virtually all the growth in revenues has come from the SS taxes and the corporate taxes -- taxes that were not cut.

If tax-cut strategies don't work, why are they so popular abroad?

Pragmatist