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Did Bush's tax cut hurt or help America?(35 posts)

Did Bush's tax cut hurt or help America?Fred Temarles
Jan 29, 2002 10:01 AM
I say it did way more harm than good. It definately didn't revitalize the economy and now we have a big fat budget deficit thanks in a large part to this tax cut.
Hmmmmr_spin
Jan 29, 2002 10:25 AM
I think you are caught in the classic correlation vs. coincidence problem. You can't just look at the situation today, look at the tax cut and say, this must be the cause. Just because politicians do that all the time, doesn't mean we have to play along.

If you follow the timeline back, you might run into a few key events along the way. For instance, there was the Sep 11 attacks and the economic aftermath. There was also the war in Afghanistan. The collapse of Enron. And a few other significant events.

Maybe the tax cuts did do more harm than good. I don't know. But there is no way you can pin the state of today's economy solely on tax cuts.
not solely...but a big contributor to the problemFred Temarles
Jan 29, 2002 10:50 AM
especially the budget deficit. In my opinion this tax cut was Bush's biggest mistake. Trying to mollify the public with a little tax break while robbing from the budget surplus to do so--pure partisian politics and an overall loss for America.
re: Did Bush's tax cut hurt or help America?TxTarpon
Jan 29, 2002 11:18 AM
How?

My wife and I really needed that $600 when it came in. The "tax cut" was watered down and most of it won't come into being for several years.

Some of the things this tax cut did:
1. Reform the marriage penalty.
2. Create a dual earner deduction for married couples.
3. Doubles the child tax credit to $1,000.

I wish it would have indexed the captial gain tax for inflation. The "death tax" has screwed more family farmers and ranchers than I have fingers to count on.

A flat tax on people or corporations would be better. No loopholes. I heard a guy the other day float the idea of a "head" tax. That is, each person in the US, legal or illegal, pays a certain amount of tax. If you have 3 kids, you pay less than someone with 4 kids.
by the way that $600 wasn't a refundFred Temarles
Jan 29, 2002 11:25 AM
It was just a credit against this years refund if you get one. Most people thought it was just free money. last I heard the "death tax" only applies in estates over a million--doesn't affect most people in other words unless you're already rich...if you have that much coming you should look into a trust or some other device to protect your inheritance. Head tax sounds like a bad idea, but I'd be all for a reasonable flat tax based on income.
by the way that $600 wasn't a refundTxTarpon
Jan 29, 2002 12:56 PM
--It was just a credit against this years refund if you get one.

Hmmm...had not heard that.

--last I heard the "death tax" only applies in estates over a million--doesn't affect most people in other words unless you're already rich...

Wrong. $675,000 in 2001.* Your million dollars does not hit till 2006. At current land prices in Texas between $3,500 to $10,000 an acre, 1000 acres that was purchased by grandad in 1925 for $100 an acre and in inherited by family memebers in 2000, when the land was valued $3,500 an acre would result a nice tax burden the family would have to cough up. That means $3.5 million less $675,000, the difference taxed at marginal rate of roughtly 37%-55%. Oh wait, they are RICH just for holding onto that land in the family for years.

---if you have that much coming you should look into a trust or some other device to protect your inheritance.

Why should they have to? They bought it in 1925 and by golly they are going to will it to their family when they die. If they are not dead yet, why should they give it to a trust? You are right, but I have seen many families scramble to find cash to pay the inheritance tax in order to keep the family farm when grandma and/or grandpa dies.

--Head tax sounds like a bad idea, but I'd be all for a reasonable flat tax based on income.

12% is 12%. It is graduated now, but with deductions.

* Estate Tax Exemption Amounts:
1998 $ 625,000
1999 $ 650,000
2000 $ 675,000
2001 $ 675,000
2002 $ 700,000
2003 $ 700,000
2004 $ 850,000
2005 $ 950,000
2006 $1,000,000
flat tax?tarwheel
Jan 30, 2002 5:51 AM
The graduated income tax that we have had for years is one of the most progressive taxation ideas ever developed. Face it, you'll always have to pay taxes. What is could be more fair than having the people who can better afford it pay higher taxes? I have no problem with paying more taxes (or a higher rate) than a college student getting by on an assistantship salary, a guy trying to support his family on minimum wage, etc. Tell me, what is the logic in someone, eg. Bill Gates, paying the same level of taxes as someone earning minimum wage? Sorry, this is a bad idea, but one that I hope the Republican Party continues to promote because they will get slaughtered at the polls if they do. Look what happened to Forbes; he couldn't even poll a small percentage of the Republican primary votes with that as his main issue.

Regarding the tax cut, mark my words, after 4 years of Republican control of the Whitehouse and the House (if that continues), the US will face another huge budget deficit. For all the lip Republicans give to fiscal restraint, they love to spend money just as much if not more than the Democrats. The difference is in how they spend it. If Bush has his way, we will spend ourselves into another huge deficit on Star Wars and other ridiculous defense schemes that aren't needed or won't work -- coupled a generous dose of corporate taxcuts and other give-aways for the wealthy.
Oh man, don't get me startedmr_spin
Jan 30, 2002 10:13 AM
I'd vote for a flat tax any day of the week, and twice in Florida. Ha ha.

I have no problem paying taxes because taxes are necessary. But I have always failed to see the logic in the progressive tax structure. Sure, it's easy to look at Bill Gates and say "he can afford it." But you know something, that's not fair. It's not my money. I didn't earn it. I shouldn't be able to take it away because I feel he can afford it.

But Bill Gates is a classic example of misdirection. He's a billionaire--he's not like you and I. Let's talk about real people, who aren't "rich" but have hit the top bracket for whatever reason. Take Silicon Valley, for instance, A lot of people are highly paid here, but the standard of living is also very high. Gas, housing, food. It's all expensive here. To the outside world, we are all rich. To the IRS, we are all rich. I'd certainly be well off anywhere else. But not here.

What about all the two-income families around the country? The ones who work two jobs by necessity. They end up slipping into higher tax brackets, too. They must be "rich" now.

I'm not even going to talk about the grossly unfair and backwards AMT, which sent a lot of people into bankruptcy this year. With AMT you can get effective tax rates of well over 100%. How would you like to pay 100% of your income in taxes? You wouldn't. But people do pay that and more. Makes you wonder why they work at all, doesn't it?

It's easy to take a disconnected view from your armchair and declare that everyone who is "rich" should pay more. Tell me, do you ever expect to make more money? You better watch out, because it is not hard to slip into a higher bracket, especially if AMT is not reformed or eliminated. A couple of years from now, you may not be as excited to pay taxes as you seem to be now.

Progressive income taxes suck.
Mediscare and Anti-Social InsecurityTxTarpon
Jan 30, 2002 11:05 AM
Gates, Lay, retireing congressnmen all get it great. They won't have to rely on SS, and they get great wealth on IPO's, stock options, etc. Here is my question?

Why do I have to pay for THEIR medicare and social security?
BecauseTJeanloz
Jan 30, 2002 11:23 AM
You have to pay for their medicare and social security because those systems are designed as a safety net for everybody. There is an upper cap on what people recieve from social security, and I can bet you that Bill Gates won't be submitting his medical bills to medicare.

But the simple reason is, you have to help pay for theirs because they help pay for yours. Do we figure that if Bill Gates loses his fortune when he's 80 years old, that he should not be afforded the same safety net as the rest of us?
...because...TxTarpon
Jan 30, 2002 1:43 PM
--I can bet you that Bill Gates won't be submitting his medical bills to medicare.

Automatic when he is "at age".

Most persons exceed their medicare/ss contributions in 10 years of collecting. If Gates is 80 and is worth $2 billion, why should my kids pay an 65% tax rate to pay for his medical care? Presently the talk is to have perscriptions to be paid on the old dole too. If that happens I want to issue all those old fat people bicycles so they can exercise and I won't be paying for as many drugs they will need as a result of them not taking care of themselves.
Why should they?TJeanloz
Jan 30, 2002 5:17 PM
Do you expect him to pay for your medicare benefits?

I'd be all for exempting people from the system, but it would be wholly unfair to make people pay for the system for others and not be allowed to use it themselves. Even Mr. Gates has to pay unemployment insurance for himself, in the case that he loses his job. And therefore, I think he's entitled to collect should he lose his job. It would be completely unfair to have people pay for systems that they can't use.
Why should they?TxTarpon
Jan 31, 2002 10:45 AM
---Do you expect him to pay for your medicare benefits?

Nope, by the time I hit 68 he will be dead and medicare will be broke.

---I'd be all for exempting people from the system, but it would be wholly unfair to make people pay for the system for others and not be allowed to use it themselves.

Sounds great, except if they EXCEED what they put into it, usually in 10 years, current contributors must float them.

----Even Mr. Gates has to pay unemployment insurance for himself, in the case that he loses his job.

Must be different in that state. In Texas the employer pays the unemployment insurance.

---It would be completely unfair to have people pay for systems that they can't use.

Like social security and mediare for resident aliens? How about paying school taxes when they don't have kids in school?
Why should they?TJeanloz
Jan 31, 2002 11:18 AM
Almost everybody will draw more from the social security system than what they put in- it's the nature of an inflationary economy.

As for Mr. Gates unemployment, I would consider him effectively self-employed. So his employer is paying his contribution- and he is his own employer.

The correlary to what you're proposing is to say that Mr. Gates should also not be allowed to drive on the roads, because he could pay to build his own; he should not benefit from national defense, because he can afford his own protection; he should not enjoy any benefit that the government provides all of its citizens because he can afford to pay for his own. It doesn't make any sense.
PonziTxTarpon
Jan 31, 2002 1:10 PM
---Almost everybody will draw more from the social security system than what they put in- it's the nature of an inflationary economy.

Or a Ponzi Scheme.

---As for Mr. Gates unemployment, I would consider him effectively self-employed. So his employer is paying his contribution- and he is his own employer.

In spirit that is true.

---The correlary to what you're proposing is to say that Mr. Gates should also not be allowed to drive on the roads, because he could pay to build his own; he should not benefit from national defense, because he can afford his own protection; he should not enjoy any benefit that the government provides all of its citizens because he can afford to pay for his own. It doesn't make any sense.

You are off subject. Roads and such have complicated funding. Medicare and SS are both without dedicated funding. They come out of the general fund. Both are Ponzi Schemes, which are illegal in the non-govt world, which rely on current investors (payers) to pay the benefits of the older enrollees. Just wait 20 years when those of us who are still working will be shelling out 80% tax rates to pay for freebies.
That's entirely true...TJeanloz
Jan 31, 2002 2:13 PM
Social Security is a giant pyramid scheme which would work, except for the facts of the population shifting. If the population could endlessly grow, it would be fine. But the population can't endlessly grow, so we have a problem. I blame the Democrats- which isn't really fair- but I'll do it anyways.

The real holdup in fixing the system is that the beneficiaries of the system (old people) are remarkably better at voting than the people who pay for the system. I think, in the long run, in addition to a COLA adjustment, there should be an annual age adjustment. The real problem is that retirement is lasting, on average, too long. When the system was designed, people retired at 55 and died at 65- now they're holding out 'til 90. If we moved up the age of benefit (and, in effect, lengthened the working ages) things could be rebalanced. But people in this country seem to think it's their right to stop working and start fishing at age 62.
and...TxTarpon
Feb 1, 2002 7:00 AM
---Social Security is a giant pyramid scheme which would work, except for the facts of the population shifting.

Did you know that is was once in it's own fund separate from the general fund? LBJ had to pay for Vietnam and took SS out of the "lock box".

---The real holdup in fixing the system is that the beneficiaries of the system (old people) are remarkably better at voting than the people who pay for the system.

This is so true. Just think how expensive it will get when they get their free drugs? What I loved seeing was the "60 Mintues" episode where old people were riding busses into Canada to buy cheaper perscrip drugs. This one woman, about 250lbs and 5'4" complained that her hip arthritis drug was too expensive in the US, but cheaper in Canada. Hel-lo? Maybe if she needed something less than hippo strengthe she could afford it? We can pay for that, but not new bike lanes. Where is the common sense there?

---I think, in the long run, in addition to a COLA adjustment, there should be an annual age adjustment.

It is adjusting, but vvvvveeeerrrrryyyy sssslllloooowwwwlllyyy. 65 won't be SS/medicare age soon, it will be 67. The big thing about retirement is that most companies are sacking people in their late 50's for early retirement. Some of them retire then and just hold on till SS/medicare kicks in. You pose a great point with the age and length of pay problems. Perhaps we should encourage them to smoke and drink more in the "golden years"?
The "lock box"TJeanloz
Feb 1, 2002 9:59 AM
It's probably better that SS isn't in its own seperate fund. If it was, SS would run out of money in short order, as it stands, with SS coming out of the General Fund, the government will have to run out of money for SS to run out.

Lock box or no, the system will not work with a steady or declining population base, or even with a modestly growing base. The other solution? More kids. Our parent should have cranked out 4 or 5 kids instead of 2 or 3- that would solve the SS issues, but present some of its own.
The answer is...TxTarpon
Feb 1, 2002 1:33 PM
---The other solution? More kids.

The answer is MORE SEX?
Not only is that true, but funny.
:)

Have a great weekend!
don't forgetDog
Feb 1, 2002 2:18 PM
Don't forget Gates is probably paying several $billion in taxes every year. Why gripe about a few medical bills. He's carrying several thousand people, and will for a long time -- all while the government that takes his money is trying to shut him down at the same time.
Your ignoring decades of economic researchMcAndrus
Jan 30, 2002 12:03 PM
The question is how does a tax rate effect economic activity not whether someone is rich or someone else is poor?

For instance, something like 75 percent of the incomes taxes are paid by something like 25 percent of the taxpayers in the US. In other words, the rich are subsidizing the poor and the middle class.

If the rich are paying a much larger proportion of the taxes and I want the situation to continue, then I want them paying more taxes, not less.

How can I get them to pay more? Raise the rates?

Sorry, all the economic research since World War II says lower the rates. After every serious cut in tax rates since WWII the tax receipts have gone up, up, up: sometimes dramatically. The Kennedy and Reagan cuts absolutely rocketed the income tax collections.

The concept here is called the marginal tax rate, or how much tax will you pay on your next dollar of income.

My human nature says I want to earn more money: sometimes because I'm greedy and sometimes because I want to provide a better living for my family. If I am close to the level of a change in tax rates what will happen if I make more money?

Specifically, if I pay 15% now and the next dollar I earn will get taxes at 25% will I go out and earn that dollar? Maybe, maybe not. But I can predict that I will try to shelter that dollar or hide it from the government so that they don't take it from me in taxes.

It's interesting how after centuries of watching humans perform in economies so many people still don't understand human economic nature. I will either hide that next dollar from the government to avoid the taxes or I will not earn the dollar and go on vacation instead.

The good and bad points of deficits are another question. Maybe another long discussion? Because deficits and tax policy are not the same thing. Deficits and economic prosperity are not directly related. But many people wiser than I have discussed this in scholarly settings so I won't get on my soapbox just yet.
If only...mr_spin
Jan 30, 2002 12:51 PM
One of the big problems with marginal tax rates is that it is almost impossible to predict what bracket you are in with enough time to do anything about it. The super rich know, and the poor know, but if middle class Joe gets a Christmas bonus that puts him over the max, he's basically screwed. He has a week to shelter it, which likely means give it away to charity. Give it away to charity or give it to the IRS? Nice bonus.

Bring AMT into the equation and it is all a crap shoot, because AMT doesn't consider most deductions, including state taxes you paid. Double taxation is supposed to be illegal, but there you go. Best if we all lived in states that don't have state tax. Let see, should I move to Texas or Nevada? New Hampshire or Alaska?

And so you end up in another argument where someone draws a Laffer Curve on a napkin and we all try to predict the optimal tax rate.
Excuse me ...bianchi boy
Jan 30, 2002 9:12 PM
I guess we all just imagined the multi-billion deficit rung up during the Reagan years. That was a direct result of the tax cuts, coupled with too much spending by Republican as well as Democratic Congressmen. And it looks like Bush and the Republicans are just getting started on another one...
Henry Kaufman and Crowding Out (long and didactic)McAndrus
Feb 1, 2002 7:58 AM
Deficits are an issue but they are not *the* issue when speaking of government spending. In fact, government accounting is so different from business accounting that when speaking of government accounting, the term deficit doesn't have real meaning.

The most important effect government spending has on the economy as a whole is called the Crowding Out effect.

Let me present some very widely head views of human economic activity. (Most of the economics and finance our system uses today was developed around the time of World War II.)

Imagine the potential size of the American economy is a pie. (I don't know what it is right now, and it's measured as Gross Domestic Product.) This pie can only be so big at any moment in time and it is the sum of the economic efforts of you, me, and everyone we know. It is, in fact, the wealth we create by making goods and services, and by buying and selling every day.

Private businesses are more efficient and effective at producing economic growth (more wealth) than the government: any government. Anyone who doubts this should stop reading now and start another thread on the role of government in an economy. I think most people accept it as an axiom.

Every dollar of an economy the government spends is a dollar that is not creating as much wealth as it could create when spent by private industry. The less efficient motor is taking more resources than the more efficient motor.

The larger the percentage of total spending that the government takes, the slower the rest of the economy grows. In effect, the government "Crowds Out" private industry by taking away the money businesses need to grow.

So, deficits count but more as accounting exercises than as real economic issues. What matters most is how much of the economy is under the direct control of the government, which is the least efficient user of the money it controls.

This is why the most important issue is what percentage of GDP is in government spending. Is it 5%, 10%, 20%?

It has been hovering over 20 percent since the early 1980s (see chart at bottom). It declined through the Reagan era and increased during Bush I and early Clinton.

During WWII the government was consuming something like 46 percent of the economy. Before the Great Society ramp up in the 60s, the government consumed something like 17 percent or less of the GDP.

Remember, every dollar the government takes is a dollar a private business or person cannot save or invest. It doesn't matter if the government takes it through taxes or by borrowing.

During the 1979-81 recession the most famous Wall Street guru was a guy named Henry Kaufman. He was also known as Doctor Doom because he of his endless dark predictions of economic collapse because of government spending.

In August of 1981, Henry Kaufman had an epiphany. He was crunching his numbers and discovered that the economy was in worse shape than he previously thought.

He then announced that the Crowding Out effect would be insignificant because business borrowing was lower than projected. This lowered interest rates in the futures markets and as interest rates came down, the stock market took off like a rocket and the 79-81 recession was over.

Soon after the first tax cuts of the Reagan era started to kick in. What was merely an accounting rally now became a true economic rally as you and I started keeping more of our income to spend. Tax receipts started to grow dramatically as, even with lower rates, you and I earned more money to be taxed.

Did deficits rise at the same time? Yes. Why didn't this stop the recovery? If you listened to the gloomiest economists the deficits would kill the American goose and its golden eggs.

Their problem was they were wrong on the most important point, deficits matter but total government spending as a percentage of Gross Domestic Product matters much, much more. The government's percent of GDP started shrinking as the 80s progressed and didn't pick up again until the Bush I recession in 89.

If you think I'm alone in this opinion, let me quote that renowned supply-side economist, Richard Gephardt (D-Missouri).

"The purpose of tax cuts is not just to have a tax cut for a particular time, it is to get the economy to grow. If you can get the economy to grow, you will start having more money coming into the government, and it's a synergistic, positive process that moves both the budget forward and the economy forward."

This is one of the few times that Mr. Gephardt and I agree, but I digress.

Why does even Dick Gephardt agree that tax cuts work? Because it takes money from the less efficient motor and gives it to the more efficient motor (you and me). The more efficient motor will use it to generate more economic wealth.

What I've just presented is standard, text book economics. It is more commonly labeled supply-side economics and the sarcastic among us call it trickle-down economics.

There are two other major policy pieces in this puzzle: the role of monetary policy (Alan Greenspan) and the role of tax policy (higher, lower, unchanged?). But I've gone on long enough for this time.
Crowding out and GTJeanloz
Feb 1, 2002 8:18 AM
While I agree in almost every bit of the previous post, there are some minor points, that I think were left out for simplicity's sake. The crowding out model assumes that extra government spending is deficit spending (which is probably the case), and that deficit needs to be financed by borrowing money (via issuing bonds), issuing more bonds will raise interest rates- and it is the rise in interest rates that 'crowds out' consumer spending. We don't buy that new house if mortgage rates are 15%; we wait for them to be 7%.

The real bastard to the crowding out model though, is that the higher interest rates will encourage foreign investment (because rates in the US will be higher than rates in their home country), more foreign investment means a stronger dollar, which in turn means we will import more and export less- further retarding our GDP growth.

The trouble is that a lot of people present a lot of macroeconomic models as fact, when they are actually, just models. We don't really know if crowding out happens- empirical evidence isn't great. Nor do we know if the classical, neo-classical, supply side, or keynesian models really work. Each model has its adherents and its detractors (maybe nobody believes the classical model anymore), but each adherent tends to present his model as fact- when they really aren't sure.
You're right .... to a pointMcAndrus
Feb 1, 2002 4:33 PM
There are different theories of economics? Yes, that's true. I guess if there weren't then half the economics professors would be unemployed.

Arguing economics, though, is not like arguing religion where "I believe" holds more weight for some people than "I can prove."

Economics is an art based on a science, and the science is mathematics. In particular it is primarily statistical mathematics.

Indeed, I'd wager that if we are arguing the origin and purpose of black holes then we would find several astrophysicists arguing over which model is correct. And astrophysics is a science based on a science, physics.

I guess my point is that economics is like science. It is not yet as precise as science but it gets more precise all the time. As more and more empirical data is drawn into the models generated by economists of different schools their theories can be, and are, tested.

For instance, you'll find very few pure Keynesians around any more and you'll find very few pure monetarists either. Why? Somebody in 1980 took the data and ran it against Keynes theories from the 1930s and said, "woops, we missed something." By the same token, somebody in 1990 took some data and ran it against the monetarists model and said, "sorry buddy, you can't explain what I see."

I tried to make the point but I made not have made it strongly enough that the three pillars of a nation's economic activity are it's government spending as a percentage of GDP, it structure of taxation, and its monetary policies. My prior post only really discussed the first of these.

TJ, you have no idea how much I respect your opinion. When I see you write about the business operations of a bicycle shop you are dead-on right. You have an excellent understanding of economics but I don't know if that's from education or experience.

I guess what I'm really trying to do with posts like this is similar to what you do when you speak about things like bike shop operations. You're trying to instill a little realism into discussions that can easily go overboard.

An example? One of the posters said something like, "Bush's tax cuts caused the recession." Oh, really? The recession that started in the last year of Clinton with tax cuts that are just now coming into effect?

You get my point? People make accusations that aren't based on anything even close to a fact, much less a theory of economics that has been in the public domain for decades. Their perspective is "Bush is Republican and therefore evil," or "Clinton is a Democrat and therefore evil."

In fact weeks ago someone posted a note about being "ripped off" by a bike shop and you proceeded to calmly correct him by presenting him with some simple facts about the bike business.

So, before I descend into a realm I call violent agreement, let me close this by saying you're right. What I stated is based mostly on supply-side economics and there are competing models out there.

Oh, and by the way, supply-side economics is really a melding of two other theories, classical and Keynesian. Keynesianism as designed by Keynes was near to brilliant. Keynesianism as executed by politicans since Roosevelt has been something less than brilliant.
I agree with everything you said,TJeanloz
Feb 2, 2002 8:11 AM
I totally agree with you- the real problem I see in the media's perception of economics is that the media states as fact things that economists believe to be true, but aren't willing to be absolutely sure about.

We are getting better at it, but the problem with macro theory is that it is such a young science, and the data takes so long to collect. Reasonably, we can only postulate about what's going on, and every (well, most) economist out there will tell you that none of our models are right. They're getting closer with every new bit of data, but to pretend that we truely (and correctly) understand macro economics is a little misleading.

As an aside, I recall Mr. Greenspan's testimony before a Sentate panel a couple of years ago, when a Senator said something along the lines of "When I learned economics at Yale in the 1950's, we learned that the idea you just presented is not correct." To which Mr. Greenspan replied: "When I TAUGHT economics at Harvard in the 1970's, we had more data, and the later data showed this theory to be correct." It is, in my mind, one of the most fascinating sciences- because it is in its infancy, and changing so much every decade.
it slowed my cadence down a little...Tig
Jan 29, 2002 12:34 PM
But I made up for it with increased power. Um, sorry, I was drifting towards cycling there for a bit!

If you are referring to the $600, I have yet to hear if affected the economy or not. I'd guess it helped spur some Christmas buying. I know it helped us a little. I personally think is was a PR ploy more than anything else.

After 9/11, I had a feeling that it was a mistake for Bush to do it and almost expected him to ask for it back! (jokingly, of course)
it helpedMJ
Jan 30, 2002 3:18 AM
if you're in the top percentile of earners - everybody else is still getting screwed (after all the rich need the most help)
Probably not yet...TJeanloz
Jan 30, 2002 7:53 AM
Reasonably, we can't expect that the tax cut could have had an effect on the economy yet. Taxes are paid anually, and we haven't had to pay the taxes that were cut yet (due to withholding etc, this isn't 100% true). But if you look at what has been holding the economy up, it has been consumer spending. Consumer spending has actually increased over the last year (I think the number is something like 2.4%- but I'd have to double check), and we have to presume that some of that money would have gone into taxes otherwise.

But what really makes economists chafe, is the fear of a deficit and love of a surplus. We should be pissed off if the government runs a surplus in a recession. If they do, that means that they are using fiscal policy to effectively rein in the economy- exactly the opposite of what should happen. Over the course of an economic cycle, the government should run a deficit in a recession and a surplus in a boom. And what has the government done? We had a surplus in the boom, and for some reason are terrified of having a deficit in a recession.

People like to think about deficits and surpluses in terms of how they run their households. So, assume the goal is a steady, constant household standard of living. There are going to be some years when your boss gives you a big bonus during booms- a surplus that you're probably not going to spend all of. And there will be some years when you're out of a job- but just because your income is 0 doesn't mean you should stop spending money, just to keep the budget balanced. You might as well borrow against future surpluses- exactly what the government NEEDS to do in recessions.

A balanced budget is not a magical thing- there's nothing special about the number 0. The budget should fluctuate. That is healthy economics. People will point to the 1980s- and that was different, because the government was foolishly running large deficits in an economic boom. It was an interesting test of the Laffer curve, but a test that failed in the end.

It's far too early to decide whether or not Mr. Bush's tax cut has helped or hurt the economy. But I will point out that the top tax rate was 93% of income in the 1950s, and has been steadily cut since then (big breaks for the rich). The end result after every tax cut to the rich has been an increase in the percentage of the budget paid by the richest 1%. In other words, by reducing their tax burden, they are encouraged to earn more, and both the government and the individual get more money as a result
It has barely startedMcAndrus
Jan 30, 2002 11:50 AM
A $600 check last year, a slight reduction in rates this year and greater reductions that don't fully kick in for ten years.

How can anyone say it has succeeded or failed? It hasn't even really begun.
the $600 was NOT A REFUND!Del O Groman
Jan 30, 2002 2:23 PM
It was merely a credit against this year's tax bill. Most people don't get that.
How is that not a refund?TJeanloz
Jan 30, 2002 5:19 PM
It seems to me that a cash advance on your next year's refund is, in fact, a refund. It's cash that the government gave you, that your not going to have to give back, so, I'm saying refund...
Most idjuts just thought it was free money thoughZig
Jan 31, 2002 11:20 AM
What if you don't get a refund? Then you got a bigger tax bill it seems.
it didn't hurt my economy nmDog
Feb 1, 2002 2:11 PM