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Tax cuts are free

Tax cuts cost nothing and are free


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How are tax cuts not "free" if you cut spending as well?

Tax cuts are deficit neutral only if they are accompanied with spending cuts; it is the necessary requirement. Tax cuts ≠ spending cuts, therefore to state the two as mutually synonymous is incorrect. As stated previously, in theory, tax cuts could be deficit neutral if, and only if, the reduction in taxation causes economic activity to increase to the extent that would allow tax revenues to be equal to the previous period where taxation was higher. I can formally prove (if you want) why this is next to impossible given the current reality.
 
Some might think that if one mans tax is cut someone else will have to make up the difference, but once the positive affects of a cut begin to slowly take hold in peoples minds the expanding economy makes up the short term loss of revenues.

It's economics 101 and it's also basic human psychology 101. What goes around comes around.

That is incorrect. Your conclusion is based entirely on your assumption.
 
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**** it, ill prove it anyways.

Output= 1000
taxation rate= 20%
Revenue= 200

If the tax rate is decreased by 5% to 15%, all else equal, the total revenue falls to 150. What the "pro-tax cuts are free" people are automatically assuming is that economic activity will instantaneously increase to the point where there will be no deficit. So my question to the "pro-tax cuts are free" people is: In my example, by what percentage would output have to grow in order for revenues to be 200?

Is that remotely realistic?
 
**** it, ill prove it anyways.

Output= 1000
taxation rate= 20%
Revenue= 200

If the tax rate is decreased by 5% to 15%, all else equal, the total revenue falls to 150. What the "pro-tax cuts are free" people are automatically assuming is that economic activity will instantaneously increase to the point where there will be no deficit. So my question to the "pro-tax cuts are free" people is: In my example, by what percentage would output have to grow in order for revenues to be 200?

Is that remotely realistic?

In your example, 33% increase in output would be required, but we're not talking about a change from 20% to 15%. We're talking about a change from 40% to 35%, which would require a 14% increase in output. I don't think it's unreasonable to expect an increase in productivity in that range if we stop taking money from people who earn it and giving it to people who sit on their asses. Do you?
 
In your example, 33% increase in output would be required, but we're not talking about a change from 20% to 15%. We're talking about a change from 40% to 35%, which would require a 14% increase in output. I don't think it's unreasonable to expect an increase in productivity in that range if we stop taking money from people who earn it and giving it to people who sit on their asses. Do you?


If the tax rate was causing a strong decline in economic activity by forcing business to operate in other location yes I would agree. However given that the US has among the lowest tax rates of the OECD countries with only very small countries potentially having lower tax rates, I dont think the US has many companies/ investors tax jurisdiction shopping to set up new business's. Nor is the tax rate in the US much of a disincentive to invest in most cases. Investing with a good potential return is better then getting a 3% return on T bills.

So would a tax cut probably increase economic activity in the US, most likely, but not enough to make up for the lost revenues, and should the government be forced to balance the budget, in the short term the economy would contract not expand
 
In your example, 33% increase in output would be required, but we're not talking about a change from 20% to 15%. We're talking about a change from 40% to 35%, which would require a 14% increase in output. I don't think it's unreasonable to expect an increase in productivity in that range if we stop taking money from people who earn it and giving it to people who sit on their asses. Do you?

You are talking about the top marginal rate, not the effective tax rate. Government typically takes in around 20% of output regardless of this rate.
 
A nice tax analysis.
 
Turtledude has repetitively argued that tax cuts cost nothing, aka they are free.

So do you agree, that tax cuts cost nothing, that they are revenue neutral, that they are free?

The REAL TRUTH:

In essence tax cuts ARE free. If taxes are cut, government revenue is cut. Therefore government has fewer resources to do malicious things to the people, i.e. fewer officers to harass the people and eat out their substance.

Yes, there are a few things government must do and get paid for. But that is a tiny percentage of what government currently does.

Tax cuts are not only free, they pay dividends.
 
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The REAL TRUTH:
In essence tax cuts ARE free. If taxes are cut, government revenue is cut. Therefore government has fewer resources to do malicious things to the people, i.e. fewer officers to harass the people and eat out their substance.
Given that tax cuts are not revenue outlays, they are certainly not spending, and so they do not ever have a cost in that respect.

The only time a tax cut has a cost of any kind is when:

1: It results in less revenue for the government
2: The government makes the choice to spend more revenue that it has

So, it is imposible to argue that a tax cut, by itself, necessarily has a cost.
 
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You are talking about the top marginal rate, not the effective tax rate. Government typically takes in around 20% of output regardless of this rate.

Yeah, I'm talking about the top marginal rate. Since that's the only tax rate being debated in current events at the moment, I assumed that's what we were talking about. My bad...
 
Yeah, I'm talking about the top marginal rate. Since that's the only tax rate being debated in current events at the moment, I assumed that's what we were talking about. My bad...

Does 14% real output growth seem realistic following a 5% decrease in the top marginal rate? Can you point to any time in history when we had greater than 14% real output growth?
 
Turtledude has repetitively argued that tax cuts cost nothing, aka they are free.

Turtledude doesn't know what he's talking about.

Lowering a tax rate or otherwise changing policy to generate less revenue means taking a loss. Unless you offset the loss with a major policy change on the spending end.

It's a akin to a business not billing for services.

There is no longer a surplus (thanks W.) and extending the tax cuts will result in lost revenue. How do they purpose to pay the $678 billion?

This is not a semantics issue, this is fact.

So do you agree, that tax cuts cost nothing, that they are revenue neutral, that they are free?

Exactamundo!

People who listen to right wing radio think this because they lack the education to know any better.
 
Does 14% real output growth seem realistic following a 5% decrease in the top marginal rate? Can you point to any time in history when we had greater than 14% real output growth?

Now you're going to make me go and do research. I hate doing research...
 
Turtledude doesn't know what he's talking about.

Lowering a tax rate or otherwise changing policy to generate less revenue means taking a loss. Unless you offset the loss with a major policy change on the spending end.

It's a akin to a business not billing for services.

There is no longer a surplus (thanks W.) and extending the tax cuts will result in lost revenue. How do they purpose to pay the $678 billion?

This is not a semantics issue, this is fact.



Exactamundo!

People who listen to right wing radio think this because they lack the education to know any better.

1) saying those who listen to right wing radio can be lumped into one group proves real ignorance

2) I find it funny that those who don't manage to make it to the top tax brackets constantly claim that they know more about taxation than those who have

3) again, you confuse one side of the ledger with the other.
 
thought i would bump this:


When we last took up the topic of taxes, we wondered if U.S. President John F. Kennedy's claim that lower tax rates would lead to higher federal tax revenues was true. In our back of the envelope analysis, we compared the tax revenue generating performance of the steeply progressive tax rates of 1954 (with top rates and income brackets similar to those during President Kennedy's tenure) to the much flatter progressive tax rates of 2006, and found evidence that yes, lower tax rates have led to higher collections from personal income taxes over time.

But these are snapshots in time that suggest that lower tax rates lead to higher personal income tax collections. We wondered what we would find if we connected the dots for the entire post-World War 2 era.

So that's what we did. The chart below shows the percentage share of U.S. GDP represented by personal income taxes collected by the U.S. government from 1946 through 2006: ...

Federal-Personal-Income-Tax-Collections.JPG


Analyzing the data presented on this chart, we make the following observations:

1. The average percentage of GDP represented by U.S. federal personal income tax revenues from 1946 through 2006 is 8.0%. The percentage share of personal income tax revenues with respect to GDP is normally distributed, with a standard deviation of 0.8%. This defines the typical range for the personal income tax share of GDP of 7.2% to 8.8%.

2. Recessions (shown by the vertical red bands) often coincide with decreased revenue for the federal government from personal income taxes. This is exactly what we should expect to see, as the total level of income earned falls with employment levels during recessions.

3. There are unique circumstances that coincide with percentage shares greater than 8.8%:

* In 1968, the Democratic U.S. Congress and President Lyndon Johnson passed a 10% income surtax that took effect in mid-year. Coupled with a spike in inflation, for which personal income taxes were not adjusted to compensate, this tax hike led to outsize income tax collections in that year.

* The sustained high inflation of 1978 (7.62%), 1979 (11.22%), 1980 (13.58%) and 1981 (10.35%) led to higher tax collections through bracket creep, as income tax brackets in the U.S. were not adjusted for inflation until 1985 as part of President Ronald Reagan's first term Economic Recovery Tax Act.

* Beginning in April 1997, the Dot Com Stock Market Bubble created an excessive number of new millionaires as investors swarmed to participate in Internet and "tech" company initial public offerings or private capital ventures, which in turn, inflated personal income tax collections. Unfortunately, like the vaporware produced by many of the companies that sprang up to exploit the investor buying frenzy, the illusion of prosperity could not be sustained and tax collections crashed with the incomes of the Internet titans in the bursting of the bubble, leading to the recession that followed.

4. Unique circumstances also apply to the one period in which the percentage share of personal income taxes dipped below the lower level of 7.2%.

* The recession of 1948 is generally considered to be an "inventory recession." Here, inventories soared as consumers had initially satisfied their pent-up demand for consumer products following the end of World War 2, as companies of the era lacked sufficient feedback to be able to better meter their production levels. The rate of unemployment doubled from 1948's level to 7.9% in October 1949, which in turn, sharply decreased personal income tax collections.

* This surplus of inventory came at a time when many large companies completed their full transition from wartime employment levels to "peacetime" levels, which aggravated the employment situation.

5. Years in which tax rate cuts took effect (1964, 1970, 1971, 1982, 1987, 1988, 1991 and 2003) all saw government collections of personal income taxes dip initially, then begin to rise afterward, with the total of personal income tax collections always falling in the range between 7.2% and 8.8% of GDP.

This last phenomenon suggests that the distribution of taxable income shifts in accordance with changes in the tax rate structure of the income tax code to maintain a stable equilibrium with respect to overall GDP, albeit with a small lagging effect. This level of equilibrium is given by a level of personal income tax collections representing 8.0% of GDP, plus or minus 0.8%, which holds in the absence of unique economic and fiscal policy factors.

Basically, this means that as tax rates change, people shift their level of economic production to account for the change in the tax rate structure, and do so in a way that maintains this overall level of equilibrium.

In the case of a steeply progressive tax rate structure, people act to reduce their economic output (and income) or channel it in ways so as to avoid the increased level of taxation through personal income taxes. In the case of a flatter tax rate structure, people act to increase their economic output and income, dispense with tax avoidance strategies, and personal income tax collections rise in the years following when the tax rate reduction is first implemented to levels consistent with the natural level of equilibrium.

Where the economy is concerned, higher, more progressive tax rates would result in both lower levels of GDP and personal income tax collections, while lower, flatter tax rates would result in higher levels of GDP and personal income tax collections...


We confirm that beginning in 1964, with the first of a series of income tax rate reductions, personal income tax collections have risen at a much faster pace than they did under the highly progressive income tax rate structure that existed from 1946 through 1963, even after adjusting for inflation.

We'll revisit this latter chart in the future, but for now, we'll observe that regardless of what it might hope to achieve from changing the schedule of tax rates, the government isn't going to get much more than 8.0% +/- 0.8% of the pie called GDP for the effort. The real question is whether it will be 7.2%-8.8% of a growing pie that incents people to be more productive or 7.2%-8.8% of a stagnant or shrinking pie that incents people to become really good at dodging personal income taxes, or just taking it easier.
 
However, a tax cut would indeed mean that the Government has less money to spend/redistribute. Let us think hypothetically for a moment. Let's assume that a tax cut will equate to the government not being able to fund a particular project - repaving a highway for instance. The monetary COST in this scenario could be that the private paving contractors would lose the contract. It could equate to less money in the pocket of the company owners or a temporary layoff for the workers. WHile this obviously does not equate to a monetary loss for you or I, SOMEONE will "pay" the cost. Another way of looking at it could be that local drivers would not receive the potential benefits of a newly paved highway - one pothole and a blow-out could equal a monetary cost for that particular driver. My point was, simply, EVERY economic decsion produces tradeoffs to some extent and often, neither you nor I can fully understand the extent to which these decisions will COST someone else.
Less money spent by the govt is a good thing, and should be expanded.
 
Turtledude has repetitively argued that tax cuts cost nothing, aka they are free.

So do you agree, that tax cuts cost nothing, that they are revenue neutral, that they are free?

You asked two different questions here. There is a difference between costing nothing and being revenue neutral. Tax cuts are not an expense because the government doesn't pay us the portion of income that we get to keep. Tax hikes are an expense to the economy which can result in lost revenues since tax revenues can be measured as a percentage of private income. So actually, someone could say tax cuts may directly reduce revenue, but tax hikes are an actual cost since they reduce GDP growth and potential tax revenues.

But yes, Turtledude is correct. Cuts in revenues are not the same as costs. And reducing prices to attract more business is certainly a viable method of increasing revenues.
 
Less money spent by the govt is a good thing, and should be expanded.
True..The Alaskan "Bridge to Nowhere" would not have been built....supposedly..And that incredibly stupidly conceived wall between our nation and Mexico......lol
This "reasoning" is scary.
 
The REAL TRUTH:

In essence tax cuts ARE free. If taxes are cut, government revenue is cut. Therefore government has fewer resources to do malicious things to the people, i.e. fewer officers to harass the people and eat out their substance.

Yes, there are a few things government must do and get paid for. But that is a tiny percentage of what government currently does.

Tax cuts are not only free, they pay dividends.
Malicious?
So who does things "perfectly" ??
And private enterprise is not malicious at times...
The argument is immature and silly...
"The Real Truth".
Hokum!
 
Malicious?
So who does things "perfectly" ??
And private enterprise is not malicious at times...
The argument is immature and silly...
"The Real Truth".
Hokum!

whining about private enterprise appears to be an immature and silly argument from where I stand. we have a much easier chance of avoiding a malicious corporation and a malicious federal government. And I can choose which corporations I do business with
 
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