Can Tax Cuts Truly Self-Finance in Times of Major National Expenses?

[Townsend]

Lets keep in mind that excessive demand is what leads to an overheated economy...

 

[kyleb]

Bush can't take credit or blame for these events happening. Are you saying Katrina will not add to our national debt? And a deficit that is likely to grow even larger is good for the economy?

Debt clearly can't do any good for our economy in itself, but it is only one of many things that will come from this disaster. I'm pretty sure Smurf was suggesting that the inevitable redistribution of wealth will bolster our economy; and, best I can tell he was pointing out Bush's ineptitude in improving our economy rather than trying to praise it.

True, but all you can effect by giving those people the ability to meet their existing demand is a temporary boost to the economy up to the point of their demand. It isn't a sound strategy for long-term growth. Of course, it's fine for getting out of recessions and all, as Ed points out.

Precisely, and you have to get out of a recession to ever achive long-term growth; a time for every purpose under heaven and all that jive.

 

[Townsend]

Precisely, and you have to get out of a recession to ever achive long-term growth; a time for every purpose under heaven and all that jive.

Our GDP is still increasing while we are in recession...

All a recession means is the we operating inside our PPC...it does not mean that there is no growth or long term growth.

I would invite you to find a point in US history in the last 100 years where we actually had negative growth...

I am not saying that no such point in time exist but I am sure they are very infrequent at best...

 

[kyleb]

I am referring to recession as the GDP declining for two consecutive quarters or more, I'm not familiar with your definition of the term.

 

[Townsend]

I am referring to recession as the GDP declining for two consecutive quarters or more, I'm not familiar with your definition of the term.

Simple...the GDP is NOT declining. A recession does not mean a declining GDP...

http://img292.imageshack.us/img292/8272/gdp5mj.gif

If the img tags work then you will see a graph of the US GDP since 1940.

So let's just say GDP is a function of time...

Find me a place where GDP' < 0

Where is the derivative of GDP with respect to time negative on that graph? There's a couple of spots where it might be but notice that they're is not many if any and they don't last long.

A recession is any where the white line is below the green line and an inflated economy is any where the white line is above the green line.

You could also just think it in terms of the PPC which is the total production capability of a nation. When we are operating on or near our PPC, everyone is happy. When we are below our PPC we're in a recession, which only means there are resources that are not being fully employed for the production of goods and services. When we're above our PPC we have an overheated economy and this lead to recessions...

So in short...just because we are in a recession does NOT imply that our GDP is declining or that we are not experiencing growth.

If you look at the wiki article that discusses recession you will see it reads,

A recession is usually defined in macroeconomics as a fall of a country's real Gross National Product in two or more successive quarters of a year.

That does not mean a decline but that the rate of increase is less than it should be.

*Disclaimer* I could have made some mistakes or forgotten some things so if anyone sees an error just let me know...

 

[Gokul43201]

Townsend, do you know that your graph is not, for instance, plotted using annual numbers ? A two-quarter dip need not show up, if that were the case. Besides, a recession happens when there is a fall in the GNP (not really the GDP), and I'm not sure if this is adjusted against inflation. Also, I'm pretty sure there's been about ten recessions in the last century.

Edit : Upon very basic Googling, I found this - http://www.lexisnexis.com/academic/2upa/Abe/RecessionsDepressionsPanics.asp

The advent of the 20th century did not bring a halt to the nation’s recessions, depressions, and panics. A stock exchange panic in 1907, recessions in 1910 and 1913, and another panic in 1914 preceded World War I and the postwar economic boom. The postwar prosperity ended, however, in the 1929 crash and the Great Depression, which plunged the world into economic chaos for an entire decade until the intervention of World War II. Since the early 1950s there have been no fewer than half a dozen recessions of varying severity.

Source : Recessions, Depressions, and Economic Panics in American History: Collection of Sources

 

[kyleb]

I am sorry Townsend, I am not trying to be dense here I am truly at a loss to understand your postion. What you quoted from Wikipedia clearly states "a fall" which you claim "does not mean a decline"; yet I have always understood the terms to be synonymous.

 

[2CentsWorth]

A big disaster does leave a lot of work to be done and such need is what drives the economy. This is also relevant to what I see as the fault with the trickle-down argument; fortifying the supply side does nothing to create demand. Best I can tell, the theory was labeled "voodoo economics" as it relies on some sort of faith in hocus-pocus to create the demand for all these new business the rich can supposably start with the newfound wealth of their tax breaks.

Katrina will create work, but how much will be financed by private enterprise and how much by government with tax dollars? And how much by government with tax dollars in addition to other recent expenses, such as the highway bill, and in view of so much government spending over all?

 

[Skyhunter]

A lot of that is off topic, but what do you make of the fact that the economy was in a tailspin when Clinton left office? The dow peaked on 1/15/00 and didn't break out of its funk until 10/02. The Nasdaq, in particular, fell by half from its 2000 peak by the end of 2000. The GDP started showing the effects in the second half of 2000 (q3 was negative) and had increasingly negative quarters in q1, q2, and q3 of 01. Basically, if the economic cycle were a sine wave, the economy at the time Clinton left office was crossing zero and headed downward at its maximum rate.

My position is, basically, if the pc revolution of the 80s had a bigger impact on the economy than Reagan's policies, then the internet revoution of the 90s had a bigger impact than Clinton's. Certainly the overt indicators (ie, the internet stocks) of the internet revolution were much bigger than those of the pc revolution. Clinton rode one heckuva bubble, and unfortunately for him, he didn't get out of office before it burst. A lot of people will forget that, but economists and historians won't.

Clinton did very little and got lucky (in more ways than one). It just so happens that he was President during a time when leadership wasn't required (the rise of Al Qaeda notwithstanding ), so it worked out well for him. But history will judge him as mediocre, at best.

Yes it did peak 1/15/00, and what happened then?

Oh yea, all the spending to upgrade the automated systems and computerized infrastructure for the Y2K bug was over. It didn't take a genius to figure that out.

Uh, who was it that invested in internet infrastructure?

What did they call it, an "information superhighway".

It is off topic, but it is such a typical conservative argument. Bush is being unfairly blamed for the bad times and Clinton is unfairly given credit for the good times.

Why is it that some coaches can take over any team and win, while others can't seem to win anywhere?

Performance is what counts. If a team keeps losing games, it is time to fire the coach.

 

[kyleb]

Katrina will create work, but how much will be financed by private enterprise and how much by government with tax dollars? And how much by government with tax dollars in addition to other recent expenses, such as the highway bill, and in view of so much government spending over all?

I'm not quite sure I'm following your line of questioning but if you are simply expressing frustration with our bureaucracy; be assured, I share your pain.

 

[loseyourname]

Precisely, and you have to get out of a recession to ever achive long-term growth; a time for every purpose under heaven and all that jive.

I think the gist of Townsend's point is that recession has done nothing in the past to curb long-term growth. My concern with demand-side fortification is that the small gains that might get us out of a recession get everybody thinking that we should continue along that path. Eventually, we end up with a largely demand-driven economy, which is almost impossible to sustain in the long run. Note here that I'm only defending supply-side theories in general, not their application in getting the economy out of a short-term recession. Personally, I don't think either demand-side or supply-side fortification is much good for that purpose. Both create momentary gains that are followed by normalization. Personally, I think that in the long-run, the best way to tax businesses is largely punitively, through large fees for non-compliance with environmental standards and labor laws and such. That way we encourage job creation, investment, and sound, ethical business practices. Of course, one key to having such an idea actually work is to limit government spending so that we don't become dependent upon revenue that may or may not exist at any given time. The first thing I'd cut personally is military expenditure. The biggest reason both Reagan's and Bush's economic policies haven't worked as well as they should in theory is that their tax cuts have been paired with huge military buildups. Supply-side economics can work, but not when you increase spending at the same time.

 

[kyleb]

I think the gist of Townsend's point is that recession has done nothing in the past to curb long-term growth.

I still don't follow that; by defintion it doesn't just curb growth, it is constriction.

My concern with demand-side fortification is that the small gains that might get us out of a recession get everybody thinking that we should continue along that path. Eventually, we end up with a largely demand-driven economy, which is almost impossible to sustain in the long run.

Hence my allusion "to every thing there is a season" philosophy; I'm not suggesting it should be universally applied, but rather used in moderation as a method of adaptive problem solving.

Note here that I'm only defending supply-side theories in general, not their application in getting the economy out of a short-term recession.

Understood, but I'm pretty sure Skyhunter started this thread in regard to the latter.

Personally, I don't think either demand-side or supply-side fortification is much good for that purpose. Both create momentary gains that are followed by normalization.

That it what they are intended to do, but I have yet to see a rational argument to support supply-side's ability promote this in a recession.

Personally, I think that in the long-run, the best way to tax businesses is largely punitively, through large fees for non-compliance with environmental standards and labor laws and such. That way we encourage job creation, investment, and sound, ethical business practices. Of course, one key to having such an idea actually work is to limit government spending so that we don't become dependent upon revenue that may or may not exist at any given time. The first thing I'd cut personally is military expenditure. The biggest reason both Reagan's and Bush's economic policies haven't worked as well as they should in theory is that their tax cuts have been paired with huge military buildups. Supply-side economics can work, but not when you increase spending at the same time.

I think that is a very respectable ideology, though one that would be quite a challenge to get our current bureaucracy to adopt.

 

[loseyourname]

I still don't follow that; by defintion it doesn't just curb growth, it is constriction.

Sure, for half a year. When we talk long-term growth, we're talking decades. Has there ever been a decade in American history where the GDP or GNP actually fell from the first to last year? Heck, what is the longest recession we've even had?

Edit: Actually, I'm starting to think this disagreement might stem from an ambiguity in the word "curb." A recession can certainly slow down growth for a short period of time, but it cannot stop it.

 

[kyleb]

Again, it can and does stop it, actually constricts it, for as every bit long as it exists; that fact is inherent to the very nature of the term. Recovery overcomes an recession, but until that is over there is no growth.

 

[loseyourname]

Again, it can and does stop it, actually constricts it, for as every bit long as it exists; that fact is inherent to the very nature of the term. Recovery overcomes an recession, but until that is over there is no growth.

Come on Kyle, I know you can see by now that we are saying that a recession does not stop growth for very long. In the extended view of things, the economy is pretty always growing, and has been for over a hundred years. The only extended hiccup was the great depression.

There is no disagreement between us here. I acknowledge that a recession does stop growth for at least two quarters; that is, after all, the definition of the term.

 

[Informal Logic]

It would seem that when the country is in an economic downturn, tax cuts would be helpful for the average person, but it is the wrong time to ask for less contribution from the wealthy (certainly not the top 1%, and maybe even the top 5%) who can weather the bad times without batting an eye. Cuts for business make more sense.

When the country is in recession or depression, but is engage in war efforts or other costly endeavors, tax cuts for too long a period while servicing debt is not a good idea. That Bush wants to make the tax cuts permanent is obviously with personal gain for himself and cronies in mind.

 

[Astronuc]

Republicans Are Deeply Split Over How to Apportion New Tax Cuts

WASHINGTON, Nov. 25 - Republicans of all stripes want to cut taxes, but rarely have they been in so much disarray about whose to cut.

If House Republicans and President Bush have their way, more than half of tax reductions over the next five years will go to the top 1 percent of households, those with average incomes of $1.1 million.

NYTimes - Nov 25.

Well, one could argue that tax cuts like this do make the wealthy - wealthier.

House leaders are pushing a $63-billion tax-cutting package that would extend President Bush's tax cut on stock dividends, protect oil companies from a windfall profits tax and shield people caught using illegal tax shelters.

The Republican-controlled Senate, by contrast, has passed a bill that would cut taxes by $59 billion but ignore Mr. Bush's top priority, and that contains two other provisions that have provoked his wrath. The Senate bill omits an extension of Mr. Bush's tax cuts for stock dividends and capital gains, which are to expire at the end of 2008.

Instead, almost half of the [Senate] bill is devoted to shielding middle-income and upper-income families from the alternative minimum tax.

The Senate bill favors upper-income families, but not nearly as much: only about 12 percent of the benefits would go to the top 1 percent of earners.

. . . With budget deficits likely to widen again next year, even as Congress cuts money for programs like Medicaid and child support, . . .

Well, if we eliminate Medicare and Medicaid, we could slash the deficits and cover those tax cuts for the rich!

"The great middle of America is underrepresented in Congress," said Representative Jim Leach, Republican of Iowa, who is critical of the House tax bill.

What a surprise.

But there is no comfortable way for Republicans to deal with the budget math that confronts them. Permanently extending Mr. Bush's tax cuts would cost about $1.4 trillion over the next 10 years, the Congressional Budget Office says.

Republican leaders already scaled back their ambitions months ago, and are trying to pass only about $70 billion in tax cuts for the next five years.

Simply extending Mr. Bush's tax cut on stock dividends for two years, as the House bill would do, would cost $22 billion. Preventing an automatic expansion next year of the alternative minimum tax, which would mean a surprise tax increase for about 15 million households, would cost about $27 billion.

Not a way to run a country or economy. If Bush was a corporate executive, I imagine shareholders (those left holding the bag) would be a bit irate.

p.s. from Time Magazine, Oct 10, 2005, Numbes, p. 15 -

$236 million - Amount FEMA agreed to pay Carnival Cruise Lines to house Katrina evacuees on three ships. This comes to $2550 per person per week - according to Sen. Barack Obama and Tom Coburn. But, Carnival normally charges $599 per person for a Carribean Cruise from Galveston, TX. And the evacuees didn't eve get to go on a Carribean cruise.

Talk about a rip-off of taxpayers.

 

[Astronuc]

"Voodoo economics" is a term George H.W. Bush used to characterize Ronald Reagan's economic plan (based on David Stockman's 'supply-side economics) while they were both campaigning for the presidency in 1980.

Trickle down theory (http://en.wikipedia.org/wiki/Trickle_down_theory) is the basis of Reaganomics ( http://en.wikipedia.org/wiki/Reaganomics ).

David Stockman, Reagan's Economic Advisor later characterized supply side economics and trickle down economics as rhetoric, i.e. it is a lot of hot air with little substance.

But the policies of tax cuts and using debt to leverage the economy have been embraced by Republican administrations and Congress.

David Stockman - http://en.wikipedia.org/wiki/David_Stockman

In 1981, he proposed classifying ketchup as a vegetable as part of Reagan's budget cuts for federally financed school lunch programs (it would make it cheaper to satisfy the requirements on vegetable content of lunches). The suggestion was widely ridiculed and the proposal was killed. He was committed to reducing government spending, but left after disagreement with Reagan's policies. In 1986, he wrote a book criticizing the Reagan administration called The Triumph of Politics. He is best known for having referred to supply-side economics as a "trojan horse" used to cut taxes on the wealthy. Stockman also admitted to purposefully running up the budget deficit and using it as an excuse to cut spending on domestic programs.

He was managing director of Salomon Brothers and eventually became senior managing director of a New York-based investment bank, the Blackstone Group, in the 1990s. He left Blackstone in 1998 to start his own industrial focused private equity firm, appropriately named Heartland Industrial Partners. The firm was charged with putting $1.3 billion of capital to work by investing in traditional American manufacturing companies. Stockman went on to become the CEO of one of the firm's portfolio companies, Collins and Aikman Corp., a Detroit-based manufacturer of automotive interiors and components. He was ousted from that role days before a Chapter 11 filing on May 17, 2005.

Oooops!

 

[edward]

The Errorists

Errorists, The term should go down in history as the name for an administration that has done nothing right for this country.

I remember reading that the tax cuts of the Reagan era were the source of funds that enabled many companies to move their production facilities to Mexico.

We will have to hope that the Chinese have deep enough pockets to pay for the war in Iraq. But then someday, someway we must pay them back.
And I don't think tax cuts for the wealthy, with many of them stashing their money off shore, will be the answer.

The budget reconciliation bills that Congress is slated to consider this fall will not help. Taken together, the two bills will increase deficits by more than $35 billion over five years. Under these bills, $35 billion in cuts in programs such as Medicaid and food stamps will be used not to reduce the deficit, but to offset a portion of the $70 billion that the reconciliation tax-cut bill will cost.

http://www.cbpp.org/9-19-05tax.htm

Chopping away at social programs is an erroneous attemt to disguise political arrogance.

 

[edward]

A little more on topic:
http://www.cbpp.org/3-3-03tax.htm

The President’s own Council of Economic Advisers does not believe the tax cuts will come close to paying for themselves. For a tax cut to pay for itself, the revenue generated by the added economic growth that the tax cut generates must equal or exceed the revenue losses the tax cut otherwise causes. In other words, the added revenue generated by stronger economic growth must equal at least 100 percent of the revenue loss that will otherwise occur. According to Business Week, Glenn Hubbard stated while chairman of the CEA (a post he held until the end of February) that as much as 40 percent of the cost of the Administration’s “growth” proposal would be offset by higher economic growth.”[7] If Hubbard is right, up to two-fifths of the revenue loss would be offset, but the other three-fifths of the cost would remain. The result thus would be substantial increases in deficits. Moreover, the Economic Report of the President, which the Council of Economic Advisers issued in February 2003, explicitly acknowledges that tax cuts are unlikely to pay for themselves.[8]

Yet another indication that the Administration does not really believe that the tax cuts will pay for themselves is found in the revenue projections in the President’s budget. The budget projects that under the President’s policies, total federal revenues will grow at a slower annual rate between 2001 and 2008 than in any comparable period over the last five decades. OMB also projects that federal income tax revenues will grow at only one-sixteenth the annual rate they grew between 1990 and 2001.

 

[gravenewworld]

here are a few consequences supply siders never seem to tell you about:

-supply siders are usually too optimistic. No one actually knows exactly how to expand aggregate supply outwards to expand gdp and lower prices. It is easy to design tax incentives that make saving more attrative financially, people may or may not take these incentives. In fact most statistical evidence suggests that we shouldn't expect a whole lot from tax incentives for saving. Economist Charles Schultze even said "There is nothing wrong with supply-side economics that division by 10 couldn't cure."

-Supply siders ignore effects of tax cuts on demand. If you cut personal taxes individuals may possibly work more, but they will most likely spend more.

- Investment incentives are the best type of supply side tax cuts. The benefits of investment however don't work overnight. Supply side tax cuts have a primary effect on short run aggregate demand. Any effects on aggregate supply come later.

- One of the biggest problems is that supply side policies increase income inequality. The gap between the rich and poor increases.

-Obviously tax revenues decrease. Supply side tax cuts are bound to increase the budget deficit. Reagan's supply side policies left a budget deficit that took 15 years to overcome.

 

[Skyhunter]

Reagan's supply side policies left a budget deficit that took 15 years to overcome.

Did I miss something?

Like a decade?

Clinton reversed the deficit rather quickly, although we had only begun paying off the debt. Now we are back to supply side economics, and growing deficits and debt.

 

[Jonny_trigonometry]

With the $100 billion a year for the Iraq/Afhgan wars, and now $60 billion for Katrina, we are going further and further into debt as a nation.
I hear the argument all the time in support of Reagans 'voodoo economics', which this administration has embraced, that cutting taxes increases revenues.
I read a few articles a few weeks ago saying that federal revenues are up this year and the presidents projections of halving the deficit in 5 years is on course. This is an obfuscation of the facts.
Here is an in depth analysis of the tax revenue picture.
http://www.cbpp.org/7-12-05bud.htm

it's possible that cutting taxes lowers unemployment, and boosts the economy, but any gains in jobs doesn't end up in more taxes paid to the gov. Especially when most of the money in the tax cuts is relieved from more wealthy people and companies. Just 10% of the population in the US owns 85% of things ownable in the US. Cutting their taxes by 1% lowers the revenue the government receives in taxes by as much as decreasing the taxes of the middle and lower classes combined by about 10%. The new tax reforms have lowered the tax percentage that rich people and companies pay by more than 5%, while the middle and lower classes haven't really been affected that much. Tax brackets have changed so that the those who make about 20 grand a year haven't got a break at all while those who get about 60 grand a year have got a reduction of about 3% and those who got about 140 grand a year got a reduction of about 5%. I don't see how giving the richer people the most percent decrease gives money back to the government. The argument is that the rich know how to spend their money wisely, and will end up investing correctly, and provide more jobs to people, thus raising employment, and hence making more income tax payments to the gov. But I would argue that it takes a wiser person to survive on 20 grand a year than on over 140 grand a year. Besides, there is no account for the people who are really rich, the ones who own 85% of things ownable in the us, they have seen reductions above 5% when they take advantage of the tax breaks through their companies, and other breaks through other means that they have which lesser income groups don't have. There is no tax bracket for those who make between 600,000 to 2 million a year, or 2 mil to 10 mil, or 10 to 100 mil a year, but I say they should pay higher than 35%, they should pay at least 40% percent, maybe 50% for the highest. http://www.moneychimp.com/features/tax_brackets.htm

I wouldn't worry about the deficit though, it's just an excuse that the politicians have in their pocket to use when they want to raise taxes. Besides, it can't be paid off anyway because of the current money system, where a dollar costs more than a dollar to issue, so we'll always be in debt as long as the Fed charges interest on the issuance of currency.

I Want The Earth Plus 5%
The truth about money, credit and inflation
http://www.gold-eagle.com/editorials_99/hannigan092099.html

 

[Zlex]

It is off topic, but it is such a typical conservative argument. Bush is being unfairly blamed for the bad times and Clinton is unfairly given credit for the good times.
Why is it that some coaches can take over any team and win, while others can't seem to win anywhere?
Performance is what counts. If a team keeps losing games, it is time to fire the coach.

I think all arguments about 'the' economy are typically stupid.

1] At any given instant in time, there is not 'a' economy, in the same sense that there is not 'a' weather.

2] Over four decades, there is not 'a' economy, in the same sense that there is not 'a' climate.

The fact that it's hard to wrap your hands around that concept is no excuse to throw your hands up and refer to all of them as an 'it,' just to totally fabricate a basis for all of these economic arguments.

There is no action that the gov't can take, including tax cuts, tax increases, or taxes staying the same that will have 'an' effect on 'the' economy; there will instead be many effects on many economies, many of them measurable and many of them not. What we all do when we deem to talk about 'the' economy is oversimplify a complex system with simple aggregate numbers in an attempt to make the intractable tractable. Then, we sully forth with endless post hoc ergo propter hoc arguments about pulling this lever on this side of the elephant and seeing this twitch on the other side--immediately---6 weeks later---6 months later---6 years later----take your pick, whatever fits your politics. Might as well stand at the edge of the ocean and throw in sacrificed virgins, then wait for the perfect wave. No, not that one. No, not that one. There... there it is. See, it worked?

But, we can pretend we're all doing otherwise, for 'the' purpose of supporting 'the' voodoo dance at 'the' base of 'the' volcano.

Given the economies of the 1960s, vs the economies of the 1980s or today's economies, when we pull tax lever "A", no matter in which direction we believe the impact to be, how long should we expect to have to wait to see 'the impact of the change, and how, pray tell, while waiting, do we hold all other things constant so that we are sure we are seeing 'the' impact of 'the' input to 'the' economy?


Immediately? six months? six years? Does anyone, anywhere, have the slightest clue?


Not apparent.

 

[Skyhunter]

I think all arguments about 'the' economy are typically stupid.
1] At any given instant in time, there is not 'a' economy, in the same sense that there is not 'a' weather.
2] Over four decades, there is not 'a' economy, in the same sense that there is not 'a' climate.
The fact that it's hard to wrap your hands around that concept is no excuse to throw your hands up and refer to all of them as an 'it,' just to totally fabricate a basis for all of these economic arguments.
There is no action that the gov't can take, including tax cuts, tax increases, or taxes staying the same that will have 'an' effect on 'the' economy; there will instead be many effects on many economies, many of them measurable and many of them not. What we all do when we deem to talk about 'the' economy is oversimplify a complex system with simple aggregate numbers in an attempt to make the intractable tractable. Then, we sully forth with endless post hoc ergo propter hoc arguments about pulling this lever on this side of the elephant and seeing this twitch on the other side--immediately---6 weeks later---6 months later---6 years later----take your pick, whatever fits your politics. Might as well stand at the edge of the ocean and throw in sacrificed virgins, then wait for the perfect wave. No, not that one. No, not that one. There... there it is. See, it worked?
But, we can pretend we're all doing otherwise, for 'the' purpose of supporting 'the' voodoo dance at 'the' base of 'the' volcano.
Given the economies of the 1960s, vs the economies of the 1980s or today's economies, when we pull tax lever "A", no matter in which direction we believe the impact to be, how long should we expect to have to wait to see 'the impact of the change, and how, pray tell, while waiting, do we hold all other things constant so that we are sure we are seeing 'the' impact of 'the' input to 'the' economy?
Immediately? six months? six years? Does anyone, anywhere, have the slightest clue?
Not apparent.

Sounds like an argument for Intelligent Design.

 

[Zlex]

Sounds like an argument for Intelligent Design.

Heh; How so?

 

[McGyver]

Certain Tax Cuts Will Spur Small Business Growth

Perhaps the best example I have studied and personally experienced with "tax cuts" is their unique ability to spur creation and growth of small business. There are many categories of tax cuts: corporate tax rates, industry credits, small business sub-chapter s-corporation taxes, death and estate taxes, and personal income taxes, etc. But I believe small business tax considerations deserve recognition.

About two years ago the Bush Administration gave out a one-time personal tax rebate designed to stimulate consumer spending, but I'm not sure that it actually provided a net gain. Various groups no doubt authored papers on this rebate, with their own political slant.

But "small business" is where Amercia invests in itself today, and holds the greatest promise for growth and tax revenue. When you're small, each $1 in tax savings proportionately plays a larger role in your ability to grow, spend, hire others, and be self-sustaining. Small business, as a rule, tends to reinvest a greater percentage of net earnings back in the business. So, as a small business grows and hires others - new tax revenues come via personal income taxes from newer and higher wages. These wages then drive consumer spending and the broader economy.

The other perhaps equally, if not larger determinent of small business growth, is CONFIDENCE in the overall economy AND your specific industry. Local, state, and federal regulatory policies also greatly help or hinder a small company's future outlook. Sadly, in recent years, much of the corporate tax breaks, industry credits, and loosening of regulatory policies have disproportionately favored big business. And big business, as we have seen so much in recent years, doesn't grow and hire people locally - they expand overseas. So, many of the long-standing tax-growth benefit formulas are not applicable in the same way today.

I believe there needs to be much more national discussion on how tax breaks can better serve small businesses that expand within the U.S., as these are our future businesses and industries. I am unsure of the precise formula and benefits that might be provided through death tax relief for families of small businesses - but I believe there should be a death tax distinction for families of U.S. small businesses vs. families who created their wealth via other means.

Stephen Dolle
Dolle Communications
www.diaceph.com

 

[Skyhunter]

Heh; How so?

It is the same rationale that the ID advocates use. IE life is so complex that it cannot be understood except by the existence of an omnipotent being.

To suggest that taxes do not effect the economy, or that it is impossible to predict or measure the results is a lot like saying that since there are holes in the theory of evolution it is proof of an intelligent creator.

I will grant you that economics is terribly complex and so many factors and variables are involved that it is difficult to assess the impact of various policies. However, for purposes of a political discussion, if the economic conditions are favorable when certain policies and personnel are in charge, and unfavorable with another, then I would suggest there is a general pattern that favors the more successful policy/theory/personnel.

Individual statistics can be interpreted many different ways using many different criteria. but the bottom line is the bottom line. Give credit where credit is due, Clinton had an economic philosophy that worked, on the whole much better than the Reagan/Bush trickle down theory.

 

[ron damon]

I think all arguments about 'the' economy are typically stupid.
1] At any given instant in time, there is not 'a' economy, in the same sense that there is not 'a' weather.
2] Over four decades, there is not 'a' economy, in the same sense that there is not 'a' climate.
The fact that it's hard to wrap your hands around that concept is no excuse to throw your hands up and refer to all of them as an 'it,' just to totally fabricate a basis for all of these economic arguments.
There is no action that the gov't can take, including tax cuts, tax increases, or taxes staying the same that will have 'an' effect on 'the' economy; there will instead be many effects on many economies, many of them measurable and many of them not. What we all do when we deem to talk about 'the' economy is oversimplify a complex system with simple aggregate numbers in an attempt to make the intractable tractable. Then, we sully forth with endless post hoc ergo propter hoc arguments about pulling this lever on this side of the elephant and seeing this twitch on the other side--immediately---6 weeks later---6 months later---6 years later----take your pick, whatever fits your politics. Might as well stand at the edge of the ocean and throw in sacrificed virgins, then wait for the perfect wave. No, not that one. No, not that one. There... there it is. See, it worked?
But, we can pretend we're all doing otherwise, for 'the' purpose of supporting 'the' voodoo dance at 'the' base of 'the' volcano.
Given the economies of the 1960s, vs the economies of the 1980s or today's economies, when we pull tax lever "A", no matter in which direction we believe the impact to be, how long should we expect to have to wait to see 'the impact of the change, and how, pray tell, while waiting, do we hold all other things constant so that we are sure we are seeing 'the' impact of 'the' input to 'the' economy?
Immediately? six months? six years? Does anyone, anywhere, have the slightest clue?
Not apparent.

So you don't believe in macroeconomics? Some in the Austrian school (to which I am sympathetic) maintain that economics should be restricted to microeconomics, meaning that while you can study the behavior of individuals, no causation laws can be scientifically established in the economy as an aggregate.

I believe that such an approach can be profitable when used to tackle many important problems such as trade and regulation, but as the monetarist program implemented by the Volcker Fed to fight inflation showed by producing spectacular results in line with theory, there are a few basic laws in macroeconomics that can be regarded as being reasonably well tested and established.

In regards with the Reagan years, and even though we can't determine the exact mechanism through which they operated, nor measure their individual contributions, it is very clear that the monetary, fiscal, and most importantly (in my humble opinion) institutional reforms carried out in the early eighties during the Reagan administration (and to some degree, the Carter administration) laid the foundation for the most spectacular growth seen since the days of total war.

And to make the argument wider, the other industrialized nations that did not produce such a "conservative revolution" are to this paying an extremely steep price in the form of sclerotic economies incapable of generating growth, investment, or employment. It is not a coincidence that the UK and the US (and to some extent, Canada) are the only G7 countries with healthy economies.

 

[edward]

Perhaps the best example I have studied and personally experienced with "tax cuts" is their unique ability to spur creation and growth of small business. There are many categories of tax cuts: corporate tax rates, industry credits, small business sub-chapter s-corporation taxes, death and estate taxes, and personal income taxes, etc. But I believe small business tax considerations deserve recognition.
About two years ago the Bush Administration gave out a one-time personal tax rebate designed to stimulate consumer spending, but I'm not sure that it actually provided a net gain. Various groups no doubt authored papers on this rebate, with their own political slant.
But "small business" is where Amercia invests in itself today, and holds the greatest promise for growth and tax revenue. When you're small, each $1 in tax savings proportionately plays a larger role in your ability to grow, spend, hire others, and be self-sustaining. Small business, as a rule, tends to reinvest a greater percentage of net earnings back in the business. So, as a small business grows and hires others - new tax revenues come via personal income taxes from newer and higher wages. These wages then drive consumer spending and the broader economy.

I agree 100%. Small businesses contribute to the country and even to local communities in numerous ways. I don't agree with the tax breaks that have been given to large companies that outsource production.

 

[Zlex]

It is the same rationale that the ID advocates use. IE life is so complex that it cannot be understood except by the existence of an omnipotent being.
To suggest that taxes do not effect the economy, or that it is impossible to predict or measure the results is a lot like saying that since there are holes in the theory of evolution it is proof of an intelligent creator.
I will grant you that economics is terribly complex and so many factors and variables are involved that it is difficult to assess the impact of various policies. However, for purposes of a political discussion, if the economic conditions are favorable when certain policies and personnel are in charge, and unfavorable with another, then I would suggest there is a general pattern that favors the more successful policy/theory/personnel.
Individual statistics can be interpreted many different ways using many different criteria. but the bottom line is the bottom line. Give credit where credit is due, Clinton had an economic philosophy that worked, on the whole much better than the Reagan/Bush trickle down theory.

There is no doubt that the modelers are simple, and there is no doubt that the models are simpler. I'm just not convinced that the reality is simpler.

Let's objectively look at one such model; the LTCM fiasco. What did these Nobel Prize winners do with all those even 'mildly' complicated terms in their simple model, the ones for which they had no possible way of modeling, or obtaining calibration data for, or even, measuring?

They simply threw them out of the model.

The result? A model that said, essentially, "The weather in San Diego is going to be sunny and warm tomorrow."

Hey, how can you knock that? Right up until the wheels fell off, and there was a cold, nasty day in San Diego.

Well, the model didn't reflect the conditions that led to that, that's all.

Oh.

A jet engine hardly has any moving parts at all, though the ones that do move a hellin. So, I guess designing jet engines is a trivial thing, and yet the models are complex, and nobody is throwing out significant terms, or else nobody is flying.

And yet, when it comes to modeling 'the' economy, the voodoo witch doctor/pygmies have no compunction at all showing up with their mind numbingly simplified models and their acres of ignored terms and hand wavingly claiming that 'the' economy is a trivial thing to model, to calibrate, and to confirm.

The truth is, state of the art economists can't get together and explain or agree upon what just happened, much less, what is going to happen, and why.

Take weather modeling. It makes detailed predictions, and those predictions are 'simple' variables that can be forecast, and after the event, recorded as actual observations, in space and time, at some ridiculously crude resolution. So, people can--and do--go back after the fact, and compare their models with actual outcome, and they can roll these models/observations forward in time over years and years and years, and still, state of the art is maybe a week or two for the models.

As well, their observations are a lot more sparse then their model data, which can pretty much be continuous. However, their observational data is finite, both in space and time, even with imperfect satellite data which, after all, does not measure surface temperature but rather scene radiance, from which surface temperature can only be inferred via correlation, a model of the atmosphere, and assumptions about the distributions of unmeasured aerosols in the atmosphere, like gunk from Mt St Helens or Pinatubo. As well, atmospheric models can fall back on simulations and controlled experiments of smaller models.

And yet, with all of that...they are still light years ahead of poor economists, who actually never get complete simultaneous snapshot observations, but only well after the fact anecdotal and incomplete measurements of aggregate things which occurred and were measured over time, and all of which was the crass financial rafterglow le3ft over by those emotional molecules that mere geophysicists do not have to contend with.

Given a stimulus, what is the response, how long does the response take, and what is its magnitude and sign? Haven't a clue, can't agree, can't prove a thing, might as well be sputtering away with a 5 hp Evinrude in a hurricane.

I would have to defer to Dr. Laura D'Andrea Tyson on the efficacy of the 1993 tax increase. Seems to me likely that she was a lot closer to the action. November, 1997, UCal/Berkeley. She spelled it out quite clearly for a roomfull of incredulous Berkeloids. I ordered the tape from C-Span. It's a sad image, I agree, but on cold, hoary Winter nights I sit up with a little snifter of fine Yukon Jack, put on my slippers and robe, throw another log on the fire, and play that tape to hear her say those three words to explain the Miracle Clinton Economy;

"Nothing we did."

But, your post hoc ergo propter hoc argument is quite compelling, apparently. Just not with her, and thus, not with me, either. You see, she actually ran the numbers. Turns out, we know how many folks actually earn more than $250K/yr, and we know how much additional income over $250K/yr they make, and we can multiply that by an extra 3.9% and come up with a piddling little number in a sea of of several trillion dollars. That, and there is no model to explain why taking marginal money out of the broad private economies and addiing additional marginal money to be handed out to a select few at the Cronyfest on the Potomac instead would cause the private economies to flourish.

Plus, I think she long ago figured out that the economies are not single variable systems.

 

[Skyhunter]

I would have to defer to Dr. Laura D'Andrea Tyson on the efficacy of the 1993 tax increase. Seems to me likely that she was a lot closer to the action. November, 1997, UCal/Berkeley. She spelled it out quite clearly for a roomfull of incredulous Berkeloids. I ordered the tape from C-Span. It's a sad image, I agree, but on cold, hoary Winter nights I sit up with a little snifter of fine Yukon Jack, put on my slippers and robe, throw another log on the fire, and play that tape to hear her say those three words to explain the Miracle Clinton Economy;

There is such a thing as "fine Yukon Jack?"

 

[Zlex]

There is such a thing as "fine Yukon Jack?"

Black Sheep of Canadian Whiskey, born of cold, hoary nights, when men struggled to keep their fires lit and their cabins warm.

100 proof.

I'm not ashamed to admit all of that is from memory.

A little sweet, which explains why adding Rose's sweetened Lime juice to it to make a 'Snake Bite' is so popular with true Yukon Jack afficionados.

Kind of like a cheap assed Southern Comfort, if that is not redundant. SOme say it has a little orangy tang to it.

Others just swig it down and get f*d up.

 

[Skyhunter]

Plus, I think she long ago figured out that the economies are not single variable systems.

True. I never said they were. I asked if tax cuts pay for themselves. Specifically did Bush's tax cuts pay for themselves. If revenues do not increase, they don't. If revenues increase they do.

All your analogies are meaningless to me. Just like all the climate models and their explanations mean little to me. The ice is melting, so I conclude the planet is warming up.

Clinton said he would get rid of the deficit and he did. Call it luck or whatever. As far as I am concerned he did what he promised to do.

 

[Skyhunter]

Black Sheep of Canadian Whiskey, born of cold, hoary nights, when men struggled to keep their fires lit and their cabins warm.
100 proof.
I'm not ashamed to admit all of that is from memory.
A little sweet, which explains why adding Rose's sweetened Lime juice to it to make a 'Snake Bite' is so popular with true Yukon Jack afficionados.
Kind of like a cheap assed Southern Comfort, if that is not redundant. SOme say it has a little orangy tang to it.
Others just swig it down and get f*d up.

Alcohol is poisonous to me so I only drink in extreme moderation. I usually prefer a single malt, just a small shot that I can wet my tongue and breath in the vapors.