Can Income Tax Rate Hikes Close the Deficit? (interesting article)

[apeiron]

That first link was not a valid source. If i had seen it when it was first posted, it would have been deleted. For that matter, a number of links in this thread are not valid sources, I have not spent enough time in here.

Try these instead then.

http://www.uvm.edu/giee/?Page=genuine/index.html
http://www.edmonton.ca/business/documents/Edmonton_GPI_Final_2008_Report.pdf

But why a source cited by two Nobellists doesn't pass muster with PF sure beats me.

 

[Evo]

Try these instead then.

http://www.uvm.edu/giee/?Page=genuine/index.html
http://www.edmonton.ca/business/documents/Edmonton_GPI_Final_2008_Report.pdf

But why a source cited by two Nobellists doesn't pass muster with PF sure beats me.

The thread is about closing the deficit. I don't see where discussion of environmental "green" economics is on topic.

The matter remains controversial and is a main issue between advocates of green economics and neo-classical economics. Neoclassical economists understand the limitations of GDP for measuring human wellbeing but nevertheless regard GDP as an important, though imperfect measure of economic output and would be wary of too close an identification of GDP growth with aggregate human welfare. However GDP tends to be reported as synonymous with economic progress by journalists and politicians and the GPI seeks to correct this shorthand by providing a more encompassing measure.

Some economists, notably Herman Daly, John B. Cobb[1] and Philip Lawn[2] have asserted that a country's growth, increased goods production, and expanding services have both "costs" and "benefits"--not just the "benefits" that contribute to GDP. They assert that, in some situations, expanded production facilities damage the health, culture, and welfare of people. Growth that was in excess of sustainable norms (e.g. of ecological yield) had to be considered to be uneconomic. According to the "threshold hypothesis", developed by Manfred Max-Neef, the notion that when macroeconomic systems expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs. (Max-Neef 1995.)

According to Lawn's model, the "costs" of economic activity include the following potential harmful effects:[3]

Cost of resource depletion
Cost of crime
Cost of ozone depletion
Cost of family breakdown
Cost of air, water, and noise pollution
Loss of farmland
Loss of wetlands

This is not to start a discussion of the environment, but to clarify what your post was about.

http://en.wikipedia.org/wiki/Genuine_progress_indicator

Let's get back to the topic "Can Income Tax Rate Hikes Close the Deficit?"

 

[brainstorm]

Second is the implicit assumption that government spending is equivalent to private sector spending. But the reality is that government employees are paid more for less production than their civilian counterparts and government projects are typically more wasteful than private ones (because they aren't required to profit). Most people know these things, but many ignore them.

I think this issue of efficiency vs. waste in expenditures is so important and receives far too little attention. Doing more with less is absolutely the best road to improving the economy in a qualitative way, where it counts, instead of in empty quantitative terms (i.e. GDP increase).

The problem is that spending-behavior responds to quantitative increases in GDP, revenues, and incomes. This would not be a problem if the money that was flowing in a shrinking economy was flowing to everyone in relatively equally reduced amounts. However, when GDP decreases, everyone works that much harder to shift the cuts away from themselves. The result is that certain sectors and individuals end up with almost no income while others actually profit from deflation.

So the only real purpose of inflating GDP through fiscal stimulus spending is to ensure enough money flowing so that people who need money for basic survival can get it in one way or another. The problem is that once you stimulate spending to the levels needed to ensure such access to income for the poorest people, you have destroyed any impetus to reform other economic activities to higher levels of efficiency and less waste. In other words, with plenty of revenues coming in most businesses just go on doing business as usual, wasting whatever they can in an effort to maximize revenues - i.e. the standard model of business.

So the real question would be how to allow fiscal conservatism to discipline everyone's budgets to the extent that everyone is stimulated to work and consume more efficiently WITHOUT squeezing certain people or businesses so hard that they completely fail. Whoever solves this conundrum should win a nobel prize or something because it is pathetic to see the endless cycle perpetuate where fiscal conservation is followed by liberal rescue of the victims by increasing spending again, which reduces all the reform pressure of the fiscal conservation. Economically vulnerability and victimization needs to be averted without exempting anyone from the call to reform. This would improve the economy tremendously, imo.

 

[OmCheeto]

Let's get back to the topic "Can Income Tax Rate Hikes Close the Deficit?"

The answer is yes.
Would it be wise to do that at the moment? No.

As was pointed out in https://www.physicsforums.com/showthread.php?t=321825&page=16", the answer should have been yes over the last 40 years.

http://www.cbo.gov/ftpdocs/110xx/doc11014/MainText_HseVersion.28.1.3.png

All we had to do was to pay an additional 2.7% in taxes and there would be no deficit.

 

[CAC1001]

When you say an additional 2.7%, you mean society overall though right? I am guessing a simple 2.7% increase in tax rates won't close the deficit.

 

[OmCheeto]

When you say an additional 2.7%, you mean society overall though right? I am guessing a simple 2.7% increase in tax rates won't close the deficit.

Not now. It took 40 years at an average 2.7% deficit to create the $13 trillion debt we are currently looking at.

A more logical solution would be to get the economy back on it's feet and then start reducing the deficit over the next 40 years.

It took Clinton 8 years to reduce the deficit spending to zero. These things have to be done slowly, predictably, and transparently. Otherwise, no one knows what to do, and the economy will suffer.

Debt added each year as a percent of GDP

And people always whine about http://www.bls.gov/data/inflation_calculator.htm", but it can also be our friend. If it tracks for the next 40 years as it did for the last 40, even if we only balance the budget, the debt will be reduced to only $2.3 trillion.

The only problem is, we keep voting for people who say they are going to cut taxes, which in essence, cuts our own throats.

 

[mheslep]

It took [STRIKE]Clinton 8 years[/STRIKE] to reduce the deficit spending to zero.

Newt Gingrich 6 years (strike out mine)

 

[mheslep]

A $1.35 trillion tax cut over ten years?

Seems like almost a joke in hindsight, given we'll have increased the http://en.wikipedia.org/wiki/United_States_public_debt" ¹ by nearly $10 trillion in those ten years.

I think you mean debt, not deficit, and if you are talking about 2000-2008 no the increase was more like $1.8 trillion (constant 2009 dollars).

 

[OmCheeto]

[STRIKE]Newt Gingrich[/STRIKE] 6 years (strike out mine)

Bill Clinton. (I see your strike out, and call)
The pubs only controlled congress for the last 6 years.

Orange(congress) and green(president) low are Democrat, high is Republican.




ps. Thank you CRGreathouse for making me get that graph ready.

 

[CAC1001]

I'd say the Republicans mostly kept Clinton in line with his spending. Remember he tried universal healthcare before the Republicans gained control of Congress. Clinton then pivoted. If Clinton had had a Democrat Congress throughout his entire presidency, things might have been different.

 

[OmCheeto]

I think you mean debt, not deficit, and if you are talking about 2000-2008 no the increase was more like $1.8 trillion (constant 2009 dollars).

I stand corrected. That should have read debt.

 

[mheslep]

Bill Clinton. (I see your strike out, and call)
The pubs only controlled congress for the last 6 years.

Yes 6, as I said, which was enough.

 

[mheslep]

Let's get back to the topic "Can Income Tax Rate Hikes Close the Deficit?"

The answer is yes. [...]

Then you think increasing tax rates by 2.4X (240%), immediately, is possible?
Again, from the OP's source:
http://www.ourfiscalfuture.org/can-income-tax-rate-hikes-close-the-deficit/

According to the Tax Foundation’s Microsimulation Model, to erase the 2010 deficit, Congress would have to multiply each tax rate by 2.4. So the 10-percent rate would be 24 percent; the 15-percent rate would be 36 percent, etc., on up to the top rate, currently 35 percent which would have to be 85 percent. These rates are simply untenable.

Original source for the above:
http://www.taxfoundation.org/publications/show/25415.html

Table 1
Federal Individual Income Tax Rates for Joint Tax Returns
Current Law Versus Rates Necessary to Erase Deficit 2010

Joint tax bracket      Current rate     Rate needed
0 to $16,750                10%         27.2%
$16,751 to $68,000          15%         40.8%
$68,001 to $137,300         25%         68.0%
$137,301 to $209,200        28%         76.2%
$209,201 to $373,600        33%         89.8%
$373,601 and over           35%         95.2%

 

[Gokul43201]

Newt Gingrich 6 years (strike out mine)

Clinton was cutting deficits under a Dem Congress for the first 2 years at similar rates to what was being cut under the Gingrich Congress. Moreover, Gingrich left Congress in 1998, and Clinton continued to cut deficits after that, with a more or less evenly split Congress. The common denominator during the entire period of deficit cutting was Clinton (your line ran a little high, so I lowered it a bit). And to cap it off, both Bush Sr and Bush Jr were raising deficits under their terms, with virtually the same Congress that Clinton inherited/handed over at the beginning/end of his tenure.

http://www.usgovernmentspending.com...it As Percent Of GDP&state=US&color=c&local=s

http://en.wikipedia.org/wiki/107th_United_States_Congress

http://en.wikipedia.org/wiki/103rd_United_States_Congress

 

[brainstorm]

Clinton was cutting deficits under a Dem Congress for the first 2 years at similar rates to what was being cut under the Gingrich Congress. Moreover, Gingrich left Congress in 1998, and Clinton continued to cut deficits after that, with a more or less evenly split Congress. The common denominator during the entire period of deficit cutting was Clinton (your line ran a little high, so I lowered it a bit). And to cap it off, both Bush Sr and Bush Jr were raising deficits under their terms, with virtually the same Congress that Clinton inherited/handed over at the beginning/end of his tenure.

My impression was that the Clinton administration may have reduced deficits but that involved taxing an economy that was running hot due to stimulus and dot-com bubble explansion. I once read that Clinton's view was that a rising tide raises all boats, but by now we're aware that the dot com bubble burst and the real-estate bubble that ensued and burst as an aftershock were not positive. Currently, we are dealing with endless stimulus to keep an insatiable consumer culture on life support. This seems to all be the result of an approach to economics that GDP should be driven by consumption and that as long as consumption grows, GDP will continue to grow and that such growth can only be good.

Isn't it obvious that oil conflicts, spills, and most social problems are the result of this hyperactive consumption culture? What is needed is not just to close the budget on the big balance sheet but to close the deficit between what people consume in their everyday lives and what the economy can sustain without suffering more problems than the complexity is worth.

 

[Gokul43201]

My impression was that the Clinton administration may have reduced deficits but that involved taxing an economy that was running hot due to stimulus and dot-com bubble explansion.

I have no comment on this at the moment. My response was not about the method of deficit cutting, but only limited to pointing out that it is unfair to say that deficit cuts during the Clinton period were the work of Gingrich, when Clinton cut deficits both before and after Gingrich was in charge of Congress.

 

[brainstorm]

I have no comment on this at the moment. My response was not about the method of deficit cutting, but only limited to pointing out that it is unfair to say that deficit cuts during the Clinton period were the work of Gingrich, when Clinton cut deficits both before and after Gingrich was in charge of Congress.

I don't see the point of crediting one politician or another, except political party ego-boosting. The important issue, imo, is understanding the relationship between government spending, economic growth, and debt. People have the mentality that it is good to spend a bunch of money, heat up the economy, and then pay off the debt as a result - but I think this ignores the bigger picture of what is getting produced with and for the money. In other words, what kind of economy is resulting from stimulus and growth? Sure, you can stimulate cash flows by giving people a bunch of money and getting them to spend it all on hula hoops and pet rocks (dumb examples, I know). But the result is an economy that runs on frivolous sales.

The dot com economy exploited the dream of digital culture to stimulate investment in lots of intellectual property resulting in many people making it big and re-investing their winnings in real estate, causing the real estate market to bubble. At a practical level, these kids of get-rich-quick economies cause people to completely lose track of what is really produced by an economy, i.e. food, shelter, and basic consumption. Instead of being satisfied with filling their needs, people become insatiable consumers of culture and lifestyle to the point that they demand as much money as possible to reach unreachable ideals.

Fiscal conservatism is unpleasant when it works to cause people to reduce their consumption and live more modestly, but the effect is priceless in that people end up appreciating what they have a lot more instead of insatiably desiring more more more. Bush 1&2 might have spent lots of money on the military, but military life disciplines people and causes them to appreciate what they have a lot more than the might if they had not had to spend time in the desert and contemplate losing loved ones, their lives, etc.

I don't advocate the torture of military life and war at all, mind you. I would much prefer if people would get disciplined another way. Plus, it is hardly nice that soldiers returning from war are alienated by people because they have learned a level of discipline that others find discomforting or even threatening. Yet, people don't seem to realize that the cause of war in the first place was a culture of economic excess reaching its limits. Obviously the causes of terrorism and aggressive nationalism can be debated, but it seems fairly obvious to me that it wouldn't have been the "world trade center" that was attacked if there hadn't been enormous fears of globalization and "US imperialism" that were nothing more than a reaction to excessive global economic prosperity.

It's not so important to blame some people over others for all these interconnected policital-economic events; but I think it would help to realize that the economic excess in consumption that has become commonplace in western culture is far from innocent. There's just so many individuals who want to ignore their role in that culture because they just see themselves as living the same as anyone else. Yet it is this culture of everyday excess that the global poor see and resent as they know that they will never be included in that excess. This is what creates the feeding grounds for recruiting terrorists, and in the west itself it breeds the culture of discontent that lead to civil strife and general malcontent despite the unprecedented levels of consumption and prosperity.

 

[OmCheeto]

Then you think increasing tax rates by 2.4X (240%), immediately, is possible?

Mathematically, yes.

Again, from the OP's source:
http://www.ourfiscalfuture.org/can-income-tax-rate-hikes-close-the-deficit/


Original source for the above:
http://www.taxfoundation.org/publications/show/25415.html

Table 1
Federal Individual Income Tax Rates for Joint Tax Returns
Current Law Versus Rates Necessary to Erase Deficit 2010

Joint tax bracket      Current rate     Rate needed
0 to $16,750                10%         27.2%
$16,751 to $68,000          15%         40.8%
$68,001 to $137,300         25%         68.0%
$137,301 to $209,200        28%         76.2%
$209,201 to $373,600        33%         89.8%
$373,601 and over           35%         95.2%

Thank you. We are in agreement. The numbers work out. Though you quoted "untenable", and I said "unwise".

To me, it's the same thing.

 

[mheslep]

Clinton was cutting deficits under a Dem Congress for the first 2 years at similar rates to what was being cut under the Gingrich Congress. Moreover, Gingrich left Congress in 1998, and Clinton continued to cut deficits after that, with a more or less evenly split Congress. The common denominator during the entire period of deficit cutting was Clinton (your line ran a little high, so I lowered it a bit). And to cap it off, both Bush Sr and Bush Jr were raising deficits under their terms,

First a bit more detail:

1. Gingrich left Jan 1999.
2. The budget in place for the fiscal year under which a given President concurrently enters office in January is created as law by the preceding President and the preceding Congress. So the 1993 US budget was Bush Sr's, which cut the '92 budget deficit by $53B (2005 $)[1]. Likewise, both the FY 2000 and 2001 budgets were Clinton's. The dot com crash was well underway by 2000, on Clinton's watch, and as the revenues collapsed the surplus was cut in half in 2000-01 and was gone in 2001 mostly before Bush W pushed a fiscal button [2].
3. The Republicans held control of the House from '94 through the remainder of Clinton's term. While minority parties in Congress can stop some actions or slow them down, they can originate almost nothing, certainly not big spending programs. So especially with regard to budgets, I contend there's no such thing as a 'more or less evenly split' Congress, as the majority party no matter how slim calls the shots, and spending originates in the House.

[1] http://www.usgovernmentspending.com...e=US Federal Deficit&state=US&color=c&local=s

[2] http://www.usgovernmentspending.com...e=US Federal Deficit&state=US&color=c&local=s

with virtually the same Congress that Clinton inherited/handed over at the beginning/end of his tenure.

I must be reading something different there from what you intend, because the 1994 Republican takeover of the House well deserves the label revolution, as the Democrats held the House continuously for many decades prior. The Jim Wright-Tom Foley US House Clinton inherited, with the same committee chairmen in place for decades, was radically different from the one under which Clinton left office.

That said, I don't credit the all the yearly deficit results to any single politician, as if this was akin to yearly rainfall statistics. Instead I credit several significant events along the way as dominating the results of the entire period, and those events do mostly deserve credit to one side or the other:

1. The 'defense dividend' as it was called. The fall of the Berlin wall and subsequent collapse of the former USSR allowed the US defense budget to fall. Bush Sr started cutting and Clinton and Congress continued through '96. Perhaps Clinton deserves some credit for actually following through on the cuts, since there always seems to be plenty of congressmen and senators who want new military spending for contractors and bases in their district. [3]
2. Tax increases leading to more tax revenues, credit to Clinton. Works if the additional taxes don't slow down the economy as they are predicted to do, which luckily didn't happen because of the ...
3. Dot Com boom and consequent growth in tax revenue. No credit to Clinton, or even to Al Gore ;-)
4. Welfare reform. Welfare entitlements were periodically exploding prior to reform. Clinton veto'd the effort a couple of times, but eventually did sign it. Almost all credit to Gingrich and Congress for this one, as it was one of the planks of the http://en.wikipedia.org/wiki/Contract_with_America" that brought them to office in 94-95, and such a bill would have never emerged from the earlier D. congresses.
5. General holding the line on non-defense spending by the post '94 Congress. Gingrich's Congress refused for a time to increase the debt limit, eventually forcing a shutdown of the government for a couple of days in attempts to obtain Presidential approval of additional non-defense spending cuts. Eventually non-defense spending went up as Clinton won politically, but Gingrich and company clearly opposed spending increases, Clinton favored them.
6. Dot Com crash, and consequent collapse of revenues starting in 2000 and continuing to 2003.

[3] http://www.usgovernmentspending.com...tack=1&size=m&title=&state=US&color=c&local=s

 

[Gokul43201]

(numbering to match your first set of numbered points)

1. So Clinton remained for a couple of years after Gingrich left.

2. So, the 1994 and 1995 budget cuts under Clinton with a Dem Congress ought to be owned (at least in some significant part) by Clinton and/or the Dem Congress. And while the surplus may have been gone by 2001, before Bush pushed any fiscal buttons, the deficit continued to rise for at least the next 2 fiscal years, after several buttons were pushed, and with the still Republican Congress helping to push them.

3. The "more or less evenly split" Congress observation was not meant to obscure the fact (I believe it's a fact - haven't checked too closely) that Republicans controlled Congress during the last 2 years (albeit, not under Newt's leadership). It does not take away from the other fact that Clinton's deficit cutting began under a Dem Congress.

Additional note: Yes, I think you may have read something different from what I intended. The 1994 republican storm came 2 yrs after Clinton took office. The composition of Congress changed little between 1991 -1992 (under Sr) and 1992-1993 (under Clinton).

Extra additional note: The dot com boom (to my knowledge) started at least a year or two after the Republicans took over Congress, not during those first 2 years when Clinton had a Dem Congress.

Possibly final note: If point number 1 in your second set of arguments can be read as anything close to replacing "not Clinton, but Gingrich" (being responsible for deficit cutting), with "largely due to Gingrich while he was leading Congress, but Clinton was doing alright (even if out of sheer dumb luck) with a Dem Congress too" then I have no further arguments to make (which is a good thing, as I do not anticipate finding much time to make them). If nothing close to that is intended, I may still not be able to pursue this any further.

 

[mheslep]

Debt commissioner and former Clinton administration chief of staff Erskine Bowles to OP: NO

Speaking to the National Governors Association, Bowles also said "we can't tax our way out" of the debt problem.[...]

http://content.usatoday.com/communi...ublicans-face-big-after-election-issue-debt/1

 

[NeoDevin]

I'm on PF mobile, and want to subscribe to this thread. There isn't a subscribe button on PF mobile, hence, this post

 

[mheslep]

2. So, the 1994 and 1995 budget cuts under Clinton with a Dem Congress ought to be owned (at least in some significant part) by Clinton and/or the Dem Congress.

Well again I give credit for some share of the 90's federal revenue increases to Clinton/Dem Congress stemming from income tax increases which they pushed hard for in the form of the http://en.wikipedia.org/wiki/Omnibus_Budget_Reconciliation_Act_of_1993" . I give them no credit for budget cuts because there were none per my observation, aside from the continued military cuts stemming from the USSR collapse - peace dividend continuing from Bush I. I'll go a step further and give Clinton credit for continuing the military cuts, as some Republicans might well have found a silly rationalization to reverse them despite the fall of the USSR had they been in power. I argue that Clinton and Congress in 92-93 increased the other-than-military spending across the board, taking place in 93-94.

And while the surplus may have been gone by 2001, before Bush pushed any fiscal buttons, the deficit continued to rise for at least the next 2 fiscal years, after several buttons were pushed, and with the still Republican Congress helping to push them.

Completely agree the 2000+ Congress and Bush spent too much money. I object, however, to the frequent assertion by Democratic politicians, especially Speaker Pelosi and Leader Reid, that the Clinton http://books.google.com/books?id=rT...=reid surplus far as the eye can see&f=false" which is at least wrong, and in Reid's case in particular I expect it is also a lie.

Extra additional note: The dot com boom (to my knowledge) started at least a year or two after the Republicans took over Congress, not during those first 2 years when Clinton had a Dem Congress.

Debatable, the dot com revenue started coming in before the 94-95 Congress: e.g., http://en.wikipedia.org/wiki/AOL#Growth" was created and rolling with Steve Case in 1989, Yahoo in 94.

 

[Office_Shredder]

Debatable, the dot com revenue started coming in before the 94-95 Congress: e.g., http://en.wikipedia.org/wiki/AOL#Growth" was created and rolling with Steve Case in 1989, Yahoo in 94.

There is a difference between revenue and boom. The boom was the inflated stock prices and massive quantities of money thrown around that generally fueled the economy in the 90's.

http://www.edinformatics.com/investor_education/nasdaq_composite.htm"

The NASDAQ Composite is tech heavy and generally used to track how the technology sector is doing. As you can see while there is some significant growth in the early 90's, it's not until about 1995 that the bubble really started to grow and be significant

 

[mheslep]

There is a difference between revenue and boom. The boom was the inflated stock prices and massive quantities of money thrown around that generally fueled the economy in the 90's.

http://www.edinformatics.com/investor_education/nasdaq_composite.htm"

For purposes of this discussion I'm only interested in what revenues flowed to the federal government in the 90s, and why. Capital gains revenue from the market speculation was no doubt part of the story, but the increased employment and salaries (personal income taxes) and business profits (business taxes) must still be responsible for most of the tax revenue increases associated with the dot com era.

 

[Office_Shredder]

For purposes of this discussion I'm only interested in what revenues flowed to the federal government in the 90s, and why. Capital gains revenue from the market speculation was no doubt part of the story, but the increased employment and salaries (personal income taxes) and business profits (business taxes) must still be responsible for most of the tax revenue increases associated with the dot com era.

Obviously these companies need to have money to employ people. Seeing how the vast majority of them made a conscious decision to have no revenue stream for the purposes of becoming a monopoly, all that money's coming through capital raising.

The growth in the NASDAQ went hand in hand with the growth of dot-com businesses

 

[mheslep]

Obviously these companies need to have money to employ people. Seeing how the vast majority of them made a conscious decision to have no revenue stream for the purposes of becoming a monopoly, all that money's coming through capital raising.

I don't follow the relevance, nonetheless I think that is only half right. Some of the front end businesses, those actually running dot.com's fit that description, but not the back end telecom companies like Cisco, 3Com, and Corning who made a killing actually shipping gear/cable and realizing the physical internet we now know. Edit: More importantly, they and those like them paid taxes on those earnings and hired more people who paid taxes on their salaries.

The growth in the NASDAQ went hand in hand with the growth of dot-com businesses

Lets look again that NASDAQ graph from the 90s. No real business activity or government revenue tracked that market spike percentage point for percentage point (except perhaps capital gains as I say), which could only be driven that fast by speculation. Main street businesses have an inertia and can't expand that fast, though they can cease output quickly.

 

[brainstorm]

Main street businesses have an inertia and can't expand that fast, though they can cease output quickly.

Ever heard of "hyper-inflation?" I believe it occurred in main-street businesses in the 1930s and I even read about an earlier example of the tulip-bulb market vastly expanding and collapsing upon news of excessive supply. Neither of those occurred through stock-exchanges, as far as I can tell.

 

[mheslep]

Ever heard of "hyper-inflation?" I believe it occurred in main-street businesses in the 1930s and I even read about an earlier example of the tulip-bulb market vastly expanding and collapsing upon news of excessive supply. Neither of those occurred through stock-exchanges, as far as I can tell.

<shrug>. Inflation <> business output. Second example is market speculation again, stock exchange or not.

We're drifting off topic here, which is how and at what rate does the government accrue revenue via taxes during a period of business expansion, specifically in the Clinton era.

I can't pull up a plot of revenue directly, but federal spending and the deficit are available:

Spending:

Deficit:

Grabbing the end data points (all 2005 dollars):
Deficit: $+0.3T '93, $-0.14T '01 (surplus)
Spending: $ 1.8T '93, $2.05T '01
gives us
Revenue: $1.5T '93, $2.19T '01

So federal revenues increased by $690B over the eight year period (46%), with $250B going to increases in spending, (http://www.usgovernmentspending.com...ack=1&size=m&title=&state=US&color=c&local=s") with the balance going to deficit correction. From the graphs we see that the revenue increase was relatively gradual and started even before the 1994 tax increases.

 

[brainstorm]

I realize you're not discussing this issue at the qualitative level, but I think it is relevant. The reason is that you are assuming that taxation and redistribution doesn't affect the value of currency in the bizarre ways that I believe it does.

Just consider the simple example of substituting record-distribution with music-file downloads via internet. Such an innovation increases record-company profits provided sales remain the same and costs decrease. The profit increase stimulates stock-purchases, which drives up the value of portfolios and may result in capital gains from sold stock.

If this money is spent instead of saved or otherwise frozen, it generates more sales, profits, increased-speculation, and so forth. This would be the case whether it was spent voluntarily or by government mandate/redistribution. The bizarre thing about redistribution is that it results in a sense among the recipients that their standard of living can increase due to them having more money - but the products they want to consume more of have their own supply-demand structures that respond to increasing demand with higher prices.

So increasing government spending during economic boom ends up transferring inflationary pressure to basic commodities, which translates into relative deflation of everything else relative to basic commodities. So, while tax revenue is increasing, the value of the currency is decreasing causing no net shift or possibly net loss of the inflation-adjusted value of tax-revenues.

I think this is actually occurring presently in the persistence of real-estate taxes based on assessment unadjusted for deflation. These and other taxes are based on fixed public expenditures in the form of union-protected pay and raise rates, etc. So, by maintaining wage rates of government employees and other budget items, the tax-redistribution is actually promoting re-inflation of deflated real-estate prices and other commodities. Some would argue that this is exactly the point of fiscal stimulus but it seems contrary to the ultimate purpose of government which should be to increase values and purchasing power, not decrease them.

 

[mheslep]

I realize you're not discussing this issue at the qualitative level, but I think it is relevant. The reason is that you are assuming that taxation and redistribution doesn't affect the value of currency in the bizarre ways that I believe it does. [...]

As it happens there's a fairly absolute rule on inflation that leads me to disagree across the board on all those fiscal examples:

http://en.wikipedia.org/wiki/Monetarism"

Inflation is always and everywhere a monetary phenomenon

I.e. inflation is about excess money supply, end of story.

 

[bleedblue1234]

"If this money is spent instead of saved or otherwise frozen..."

I stopped reading here...

I mean this stuff was figured out a while ago people, just read this book (one of many): https://www.amazon.com/dp/0517548232/?tag=pfamazon01-20

 

[brainstorm]

I.e. inflation is about excess money supply, end of story.

How do you define "excess" money supply except in terms of how it is used?

I stopped reading here...

I mean this stuff was figured out a while ago people, just read this book (one of many): https://www.amazon.com/dp/0517548232/?tag=pfamazon01-20

Please do me the courtesy of saying what you consider wrong with what I said instead of just referring me to a book. Imagine I went on your wild-goose chase only to discover you misinterpreted what I said. You're assumptiveness could cost me unnecessary time and energy because you didn't bother to state your reasons.

 

[mheslep]

How do you define "excess" money supply except in terms of how it is used?

Use of the http://en.wikipedia.org/wiki/Taylor_rule" , or something like it, seems to be best practice, though it has people scratching heads when it calls for zero or negative interest rates, as it does now.

 

[brainstorm]

Use of the http://en.wikipedia.org/wiki/Taylor_rule" , or something like it, seems to be best practice, though it has people scratching heads when it calls for zero or negative interest rates, as it does now.

I don't know if it makes sense to decrease interest rates during deflation, especially if deflation is the result of technological advances or other productivity advances that led to greater abundance, which caused the deflation. After all, there is more to buy with the existing money supply, which effectively already translates into increased money supply in deflated currency, which makes sense in terms of the real growth that caused the abundance-driven deflation to start with, no?

I think the bizarre thing about the current state of fiscal economy is "deflation denial," by which I mean that profit-maximization has motivated the supply-side to pretend like deflation is non-existent, hoping to actually grow by just maintaining previous price levels as much as possible. I'm tempted to call this stagflation, but I think that refers to something else. This is just inflation disguised as constant pricing due to it taking place in a context of real deflation.

Eventually, either productivity decreases will allow to abundance to decrease to fit with persisting price levels OR prices will decrease allowing more purchases with the current money supply, which would be a logical match for productivity increases (primarily in real-estate development and technologically enhanced products and processes). Presumably, without energy-conservation and efficiency-innovation projects succeeding, relative oil-scarcity will increase and that will cause inflation in all products whose fuel-costs are a larger proportion of the retail price.

Put simply, I think fuel-costs in supply-chain logistics are the biggest bottleneck for achieving uniform deflation. Every form of productivity is increasing, mainly due to technological advances. Only the complexity of supply-chains and divisions of labor create energy-inefficiencies which drive oil-scarcity and therefore fuel-prices up. This, in turn, neutralizes the gains in technological efficiency that could otherwise result in the expansion of markets and sales through lower prices.

Also, fuel-costs as a proportion of prices are not just amplified by logistics inefficiencies. Salary-levels are also driven by cost-of-living estimates, which factor in large amounts of fuel-usage and fuel-intensive consumption of products and services. Of course, try convincing people to reduce their salaries by driving less and giving up consumption and see how they respond - especially when they're represented by collective-bargaining agents.

So, where real-estate depreciation and digital media and IT can sufficiently innovate production and consumption practices, deflation should continue whereas more fuel-cost dependent commodities should continue to inflate, except to the extent they are saved by IT innovations and real-estate depreciation (as component costs).

In reality what is needed is major cultural and lifestyle transformations, which would allow more people to consume more real-estate and IT products and services while simultaneously reducing the demand for fuel-consumption. In other words, if conservation succeeds by culture transforming, inflation will be kept in check by a decrease in per-capita demand for fuel-intensive goods. If not, depreciation in real-estate and more efficient products and services will end up as nothing more than increased disposable income to further drive up inflation as oil-scarcity in pushed further by ever-increasing demand for fuel and fuel-intensive products.

Ultimately, I don't know if this will be a problem because price-increases force more conservation of spending, which should check inflation.

The question is why the government is running a deficit in the first place considering that the only reason economic problems are resulting from the deflation is that supply-pricing and demand-side behavior are not adjusting to new paradigms.