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With all due respect, will tax cuts really stimulate the..(65 posts)

With all due respect, will tax cuts really stimulate the..eyebob
Jan 30, 2003 7:38 AM
economy? Is the economic theory really as simple as what those in favor of tax cuts propose? Isn't there anything more that I can trust than that? Is there any evidence? I mean if it's a theory, then we should be able to hold up evidence that supports it, right? Perhaps, in being deluged by the rhetoric from the politicos, I've missed the evidence-based test that shows that what Bush wants really works.

Thoughts?

BT

Bonus points for the first to use the term "tautology" correctly.
I doubt itColnagoFE
Jan 30, 2003 7:59 AM
Didn't work for Reagan...don't see why it's work for Bush either. But elections are coming up so he's gotta act like he's doing something.
It's all perceptionPaulCL
Jan 30, 2003 8:12 AM
Personally, I don't think the Pres or Congress can do much to affect the economy on a short term. Tax cuts, tax increases, one time credits, etc....are long term proposals.

Only the Fed has the ability to affect the economy on a short term. It is said that a Fed rate cut/increase takes 9-12 months to affect the economy - that's short term.

Our economy is a behemoth. Trying to move it quickly can't be done. It's like a 135lb weakling trying to move the entire Tampa Bay Bucs defensive line. It just ain't gonna be moved. Economies move in cycles. We came off a long cycle that was artificially extended due to the dot.com boom. And then of course, Kaboom due to the dotcom bust and 9/11. The economy will...and I think...has...made its' turn upward. The Presidents' moves, right or wrong, agree or disagree, are just window dressing.

...but hell...I pay taxes. I pay taxes on my dividends. I'd love not to pay them.
If the economy moves in cycles then what the helleyebob
Jan 30, 2003 9:16 AM
are we paying all the economists to do for us. No doubt that the economy will cycle, but is it really running itself? Many people that I talk to feel the way that you do. It's interesting, but I have to believe that either everything we do affects the economy, or nothing we do does. Too black and white for you? Not me.

I also love the fact that the non-paritsan CBO comes out the day after his speech and tells of doom and gloom. So much for the tide he expected to ride. Tells me a lot about the way that the CBO's head, Barry Anderson, must feel about Bush.

BT
Expert consensus seems to be a loud "NO!"Silverback
Jan 30, 2003 8:06 AM
Doesn't seem to me the cuts he's suggesting will help soon enough to do any good--even if trickle-down works, which it didn't for Reagan, it takes too long to trickle down. But I'm not going to like anything Bush does anyway, so my opinion isn't worth much.
What concerns me, though, is that you can hardly find an economist outside the administration who thinks he's on the right track. Almost everyone who looks at it objectively and runs the numbers seems to agree it's another GOP gift to the wealthy.
Something to considermoneyman
Jan 30, 2003 8:52 AM
During the Carter presidency, for our purposes 1/1/1977 through 1/1/1981, the Willshire 5000, an index of practically all publicy traded stocks in the US, grew annually at a rate of 9.95%. That's not bad, historically speaking. The problem was that the Consumer Price index over the same period grew annually by 10.43%. That resulted in a real loss of .48% annually over those 4 years.

During the Reagan presidency, assumed to be 1/1/1981 through 1/1/1989, the Willshire 5000 grew annaully at a rate of 10.19%. CPI grew by 4.22%, meaning a real return of 5.97%. It gets even more interesting if you take out the frst year of each presidency, as it can be argued that the economic results were actually the result of the prior administration's policies.

Clearly, the Reagan tax cuts stimulated the economy in both the short and long term. To argue otherwise is simply practicing revisionist history.

$$
something else?DougSloan
Jan 30, 2003 8:55 AM
I'd like to see a comparison of median income to CPI; might be more relevant for most people than stocks.

Doug
ludicrousmohair_chair
Jan 30, 2003 9:18 AM
Revisionist history? You can't be serious. You might as well tie the death of Disco during that period to whatever increase you found in the economy.

Could it be that something other than tax cuts came into play? Didn't cocaine usage skyrocket in the early 1980s? All that spending had to have an effect.

I haven't heard something so myopic in a long, long time. That is funny!
Umm..... No.moneyman
Jan 30, 2003 9:52 AM
Broad changes in fiscal and monetary policy, i.e., reduction in tax rates and tightening of the money supply, resulted in growth of the economy and reduction in inflation. Using unrelated social phenomena to divert attention from verifiable data is the mark of ignorance.

Thanks for playing. Try again soon.

$$
yeah rightmohair_chair
Jan 30, 2003 10:27 AM
Funny how you now claim "broad changes in fiscal and monetary policy" and you added "tightening of the money supply" whereas you originally stated only tax cuts were responsible. It's even funnier now because you don't even believe your own ludicrous statement.
And your point is...moneyman
Jan 30, 2003 10:38 AM
What? You claim that my interpretation of the data presented is flawed, yet offer no alternative of your own. I would be interested to what you attribute the growth of the economy during the Reagan administration. To just say "No it didn't" doesn't carry much credibility.

And I never said that "only" tax cuts were responsible. You added that for me. It was kind of you to do that, but it was neither what I wrote nor implied.

Your turn. I am looking forward to your data-filled response.

$$
Expert consensus seems to be a loud "NO!"BikeViking
Jan 30, 2003 9:11 AM
I would hardly qualify anyone (wealthy included) getting to keep their money as a "gift"
Because it's THEIR money!OldEdScott
Jan 30, 2003 9:25 AM
Wait a minute, I don't want to start this up again ...
Because it's THEIR money!BikeViking
Jan 30, 2003 1:03 PM
I know this argument gets old, but it just chaps my a$$ when the Dems trot out the old class warfare "money for the rich". The poor don't pay taxes or hardly any at all, yet we need to give more of the tax breaks to them? It makes no sense. If the "poor" receive more money from the government (via refund/EITC or whatever) than they paid in taxes, the extra money was taken from someone else's pocket.

Can't remember if our non-taxpaying brethren got the $300/$600 checks that went out in '01

Does anyone remember?
I remember & no they didn't.OldEdScott
Jan 31, 2003 6:12 AM
who knows?DougSloan
Jan 30, 2003 8:06 AM
There are so many things that affect the economy, it's hard to tell. It hasn't happened enough to accumulate reliable data. I think the one thing that stimulates the economy more than anything else is confidence. Anything that makes people want to invest, build, borrow, spend, etc., stimulates the economy (that's sort of a tautology, right?).

The economy boomed late 90's because people had confidence that tech would take over the world and their $10 Cicso stock would go to $100 in a year. While that was largely false confidence (if you didn't sell high), and we are feeling the result now, it did stimulate the economy for a while.

All I can say is that we elected Bush on a tax cut platform, so why not let him try? If he blows it, then elect a Democrat and try something else. That's about all we can do.

Doug
You are on the right track53T
Jan 30, 2003 8:22 AM
There is more to your Cisco analogy than you realize. Our behemouth economy made a major left hand turn in 2001. Nobody thought it could change that fast. A closer look shows that the arrest of tech spending, particularly telcom, was due not to a change in consumer spending (that's still high even today) but a change in investor behavior. This is why the administration favors cap gains cuts over income cuts. Capital gains cuts have some hope of changing investor behavior, and that is where our most recent downturn came from.

The administration would be better off if they had someone who could explain this relativly simple circumstance.
53T, tell me more.eyebob
Jan 30, 2003 9:38 AM
Assuming that we do need to change the investor's behavior, what other tax reductions would help to stimulate the economy beside the cut in the capital gains tax?

BT
A little more.53T
Jan 30, 2003 11:37 AM
Good question, a bigger question would be what other measures (tax cut or otherwise) would reverse the investment communities recent aversion to telcom, tech and stocks in general? It is clear that the flight from equity securities is what directly caused the loss of orders, revenue and jobs in the fastest growing part of our economy, telcom.

First, lets be clear who these people are, they're not you and me. Pension fund mangers are the closest thing to a mortal human that can have influence on big money, and those guys like to think of themselves as rich even if they work for a living. They can be inflenced by marginal changes in the the risk/benifit equation. Less tax on investment growth means more growth. The underlying security has the same risk, so teh balance changes and money TENDS to flow into stocks. How much is impossible to predict.

The majority of he money comes from the upper class, we don't know these people. No, upper class does not mean income over $100,000. Anybody with "income" is working class. I'm talking about people who own islands. We never see them because they live on those islands. A lot of them are based in the middle east and the UK. Many of them have country-money, they own entire countries like the sultan of Brunei, the Crown Prince of Saudi Arabia, Queen Elizabeh (don't believe the press reports of her impending bankrupcy). One thing that would help convince them to get back into stocks, is an increase in stability worldwide. Resolving the Iraq situation is critical, but so is the Israli conflict, Iran and to a lesser extent N. Korea. The real clincher is of course higher returns and/or less risk. Capital gains reductions help to increase the return on capital employed. Other US government actions could boost the likelyhood of investment, such as putting nore money in their hands so they have more to invest. Corporate income tax reductions might accomplish this, although those rates are historically very low and still dropping worldwide.

A reversal of tarriff reductions mighgt be useful in stimulating investment in US firms, and boosting US employment and salary figures. This has lots of other baggage associated with it, since the other nations would post retaliatory tarrifs, limiting markets. Of course the US domestic market is pretty big without the rest of the world. Just a thought.

Basically there is not a lot the US government can do, except resolve international conflicts and cut cap gains taxes. Both are priorities of the administration.
Is it a stretch to think that by resolving world-wideeyebob
Jan 30, 2003 12:30 PM
conflicts (thereby making things less risky economiclly) would be akin to cutting a cap gains tax? I understand that they are not the same things (obviously)but say the world is a happy safe little place, would that have more of an effect? If so, sure does make the case for why we (the U.S.) would want to keep our hands in everyone's business to make sure that we would keep it all stable, huh? And if that's true, then what gives with Bush's (pre 9/11) leanings towards isolationism? Sounds counter-intuitive from a policy standpoint.

BT
More money in the economy is always a benefitAlpedhuez55
Jan 30, 2003 8:34 AM
I think Tax Cuts are good. The effect is not always immediate though. It can take a couple of years for it to really shoe it's effect. I also would like to see them take government spending down a bit though first. I think they will do this in the next year.

THe economy took a few hits with the tech sector, with scandals like Enron & Worldcom and again with 9/11. Most of what cutting the interest rates is doing is getting people to refinance. People are afraid to put money into the market. Hopefully that will change.

Many of the companies that survived the Tech sector crash are stable and are starting to head back up. The days of easy venture capital for internet startups is over. I think the markets for the most part are at a fair fair value now and will rise again with time, just not as fast sas they did in the 80's & 90s.

I am with Doug. Give it a try. Rasing taxes is certainly not going to help jumpstart the economy. Things like tax cuts, may help the economy going.

Mike Y.
no waymohair_chair
Jan 30, 2003 8:31 AM
That's a seriously flawed dream. In a bad economy, when you give people money it is more likely they will either save it or use it to pay off debt, neither of which will stimulate the economy. (Note: I say "give" for the sake of simplicity, I know it's their money to begin with). It's the nature of disposable income. Income is only disposable when you don't necessarily need it. In a bad economy, people feel they need it, so they won't spend it.

Plus, unless we are talking numbers in the thousands of dollars, a few hundred dollars per person isn't going to have much effect.

Let's get serious here. If the government really wants to stimulate the economy with tax cuts, the cuts will have to take the form of gift certificates (cards) to Macy's. If the government requires people to spend it, the economy will receive a huge boost. Of course, the economy isn't a closed system and this won't be an unplanned event, so Macy's will probably raise prices and end sales, etc., to maximize their gain. That offsets the "boost."

The only time the government has ever truly stimulated the economy is during wartime, and that was with pure spending, baby, not tax cuts. All of the public works projects during the New Deal also had a real effect, as did the military and infrastructure spending of the 1950s. But old style Democratic spend, spend, spend policies will never fly with the current administration. They'd rather dig up old Reagan-era voodoo economics.

In a lot of ways, I'm all for tax cuts, because I've paid far more than my fair share of taxes in the last few years. I want the bogus AMT taxes I paid back. So if the government is giving it, I'm taking it. I'll pay down my mortgage. I'll stimulate my own personal economy.
I don't know...Wayne
Jan 30, 2003 8:41 AM
but for several years I've considered myself economically conservative/socially liberal. Economics was the one area I usually agreed with Republicans on, and now they're projecting a major deficit. WTF?

I don't no shi* about economics, but I understand that if you spend more than you take in, you're not doing a very good job of managing your money.

BTW, I think the Republican's biggest problem is they won't cut defense spending (which if you ever look at those grafts is by far the largest area the govt. spends money on). They try to nickle and dime spending cuts usually on social programs, without tackling one of the few areas where a big change can be made.
Will any gov't action stimulate the economy?Matno
Jan 30, 2003 8:59 AM
At least a tax cut reduces the amount of gov't intervention. Any time economic "experts" try to stimulate the economy artificially, the long-term results are bad. You're right about most economic theory being poor science. The concept of a free market (as little gov't control as possible) actually does work very well, but nobody will vote for politicians who "do nothing." It's a depressing paradox.
These particular tax cutsOldEdScott
Jan 30, 2003 9:15 AM
probably won't. If 'stimulating the economy' is the goal, they're misdirected.

I'm willing to concede the possibility that tax cuts can stimulate the economy AND (this is counterintuitive, but I think demonstrable) increase government revenues.

If the situation's right and the tax cuts are right and inventories are down, and manufacturers are at a point in the cycle where they're primed to crank up the assembly lines again, given potential consumers with a pent-up desire to buy -- sure, putting money in those consumers' pockets will start the good times rolling.

But hell -- consumer spending isn't the problem right now. And these tax cuts (except for a few sops to Cerberus) aren't targeted at consumers.

That's not really the problem issue here, though. The issue is spending. Government spending has already grown dramatically under Bush, and he's set to spend billions more -- on the war, AIDS, prescription drugs, all the stuff in his speech the other night. Deficits are going to go sky high, even IF the tax cuts stimulate the economy and hence government revenues. And ultimately, my position (and the Clinton Democrat position) is that deficits long-term depress the economy.

At the very least, billions and billions will be going into debt service rather than productive use.
Questions.Jon Billheimer
Jan 30, 2003 9:33 AM
With respect to the former observation about real stock market growth during the Reagan administration, the lower CPI figures would suggest to me some success by the Federal Reserve in reducing the rate of inflation. I don't think this would have much to do with trickle down economics. I'm not an economist, so correct me if I'm wrong.

Also--again I'm not sure here--I don't think the numbers show any increase in consumer savings or debt-reduction lately. From what I've read the savings rate in the U.S. currently is zero. Banks and governments generally appear to me to continually encourage spending, even if it means going deeper into debt, in order to artificially stimulate the economy.
These particular tax cutsAlpedhuez55
Jan 30, 2003 9:59 AM
I dont think we are in for a long term deficit. I think we could have handled the drop in the tech sector but the accounting Scandals and 9/11 all hurt consumer confidence too much and people are reluctant to put money back in the stock markets. Ultimately when investments are higher, there are more jobs. THat is why I feel the Dividend tax elimination is not bad idea. It will increase the amount of money going back into the stock market which will eventually lead to more jobs.

The problem with goverments and spending is they are always too optimistic. They will predict 6% to 10% growth in revenues when 2% to 4% is more reasonable. When the tech markets sored in the 90's tax revenues were higher than anticipated so we ran a surplus. THe economy runs in up and down cycles. The last three years has been a down cycle but some signs are showing it heading back up but some of the signals are mixed, partially due to the chance of war. I think that situation will resolve itself shortly though whether through diplomatic or military acton, and the situation will improve.

Mike Y.
My Democrats have floated a really rotten ideaOldEdScott
Jan 30, 2003 10:11 AM
A holiday from the payment of payroll taxes -- Social Security and Medicare taxes.

I understand the motive: This is a tax that every worker forks over, even the lowliest paid, and it's inescapable. (It's almost like the flat tax of some folks' dreams). A holiday from paying them would give relief to the working poor and be an immediate jolt of money into the hands of people who would actually rush out and spend it in stores. I normally would approve heartily.

But given the shaky future of Social Security, I just had to say: Huh?

It's not just Republicans who have nutty tax-cut ideas.
ss taxDougSloan
Jan 30, 2003 10:15 AM
If you want to increase revenues, do away with the SS tax cap; it's around $90k now (first $90k is taxed, nothing over that), isn't it? Would not affect non-salary income.

Doug
You're rightmoneyman
Jan 30, 2003 10:23 AM
About the expected growth versus actual growth. California, the beneficiary of much of the tech boom, committed to programs that could only be paid for by continued unrealistic growth. The result is a deficit of $34 billion. Pension plans of both public and private entities were in the same boat, having benefitted from the growth of the equity markets in the late 90's. They overstimated rates of return and ability to pay out benefits. The results are the need to add huge amounts of money to private pensions, increase employer and employee contributions, and for public funds to offer pension obligation bonds, which are obscure but nonetheless troubling.

I believe that one of the least talked about, but most troubling items our economy is facing is the growing unfunded liabilities in the private sector pension funds. The money to shore them up has to come from somewhere, and earnings will likely take a big hit. Its not pretty.

$$
CaliforniaDougSloan
Jan 30, 2003 10:28 AM
One thing California did was to give big raises to state employees (my wife being one), then, whoops, not enough money to keep paying them. And, you can't go backwards with employees' salaries. Looks like we'll have to fire some people and cut programs now.

While CA has a $34 billion deficit (said to be exaggerated by Davis), someone pointed out that if CA returned to the 1999 budget, we'd have surplus again.

What they should do is prohibit anyone from publicizing a "surplus," or worse yet, a "projected surplus." Any such thing burns a hole in politicians' pockets faster than you can say "pork barrel".

Doug
Go to a bankmoneyman
Jan 30, 2003 10:41 AM
And tell them what your salary is this year and that you project it to grow by 50% a year for the next ten years and see if they will loan money to you based on that information. If they do, I would probably not want to bank there.

You're right, Doug.

$$
Lessons from the sixties...Jon Billheimer
Jan 30, 2003 1:47 PM
Mike,

You may recall that the net effect of "spending" our way to prosperity via the Vietnam war was to create the hyperinflation of the '70s. Elliot Janeway, a liberal economist, was one of the few to point this out ahead of time. The upcoming American military adventurism in the "war on terror" could recreate that scenario. However, that might give some relief to the current administration, some of who's advisors are currently worried about the real possibility of a deflationary scenario, e.g. compare current Fed Res. interest rates to Japan's!
Lessons from the sixties...Alpedhuez55
Jan 30, 2003 5:01 PM
Who implied anything about spending into prosperity via the war? I mentioned uncertainty of the situation causing some uncertainty in the stock market, like any international event would. Though if you feel that way, I may suggest you invest in Defense Contractors and hope for the elimination of the Dividend Tax.
BTW, did we ever have an actual surplus?DougSloan
Jan 30, 2003 10:17 AM
Did we actually have a budget surplus, or was it only projected? I can't recall.

Doug
Relatively small ones forOldEdScott
Jan 30, 2003 10:22 AM
a year or two; the big bucks were 'projected.'
Tax cuts make the economy grow more evenly and more efficientlyjs5280
Jan 30, 2003 10:25 AM
For example, if every tax paying US citizen gets to keep their $100 instead of sending it off to the government. I'm going to guessimate that there about 100 million tax payers, so $10 billion dollars. Those 100 million are going to buy everything from Sarah Kozer bondage movies to a new Giro Eclipse helmet. However if the government spends $10 billion dollars, most of that will go to a particular industry that may trickle down eventually. Hmmmm, I wonder why industries spend so much money on lobbying?

On efficiency. . .It cost the government to collect, process, and redistribute that $100 dollars so immediately that $100 is worth less. Let's say hypothetically the government can do this as well as a average private charity in applying funds, so about 20% overhead. I think that's being extremely generous, I'd be surprised if government agencies operate much higher than 50%. Wish someone would do a study on this. So, $80 is left. So now the government is pumping approximately $8 billion into one particular area/industry. There's no cost for an individual to keep their $100 and spend it. Thus more money is pumped into the economy. Granted this is WAY over-simplified, Alan Greenspan I'm not, but I think the concept is sound. Challenges? I'd like to hear them.

Will a tax cut stimulate the economy? Of course, I think any expenditure would stimulate the economy, even government spending, although to a lesser degree than private spending for the reasons above. Will we notice the difference? Probably not because the meager tax cuts offered are swamped by the new spending proposals. For example, this $100 is wiped out by just the proposed $10 billion increase in spending for anti-AIDS programs in Africa. Let alone all the other money the government will spend fighting a war (bet that's going to be a wee bit expensive), increasing existing programs another 4%, ad infinitum.

We marvel at rich, old Uncle Sam; his wonderful ideas to rid the world of poverty, disease, and evil with seemingly un-ending generosity and kind-heartedness. Only to receive our yearly credit card statement and learn that the entire time, he had charged it to us.
YESKeeponTrekkin
Jan 30, 2003 10:53 AM
but so will many of the Democratic proposals like tax refunds.

There are 2 basic theories at work:

1) lower the cost of capital so businesses will put new, less expensive, capital to work, making more goods and services at lower costs. This provides more jobs which, in turn, stimulates demand for more goods and services.

2) give consumers more money so they will spend it, increasing demand for goods and services, leading businesses to invest in new capacity to meet the increased demand, etc.

They are both "circles" and the difference between them is largely where the cycle starts.

Moneyman is right; stimulation does work. Doug's right too, tangible empirical evidence is hard to come by, particularly as to which approach is better, consumer led (Democrat) or business led (Republican). Probably a combination would be best. Trouble is 'though, the issue is too emotionally charged for politicians to agree and too esoteric for them to understand. To make matters worse, most economists have political agendas so you can't trust them either!
What I'd REALLY like to seemoneyman
Jan 30, 2003 10:55 AM
is the elimination of the payroll tax. Not taxes entirely, but the way they are collected. Most people have taxes withheld from their paycheck before they ever get their hands on it. Not because they want to, but because you have no choice. (Voluntary tax system?) Instead, let's give everyone 100% of their pay and make them responsible to write a check to the government for their share of the cost of living here. Say you get $1,000 deposited to your checking account on the first of the month. You are to write a check for each of the following: Federal taxes, $200 (20%); State taxes, $80 (8%); FICA/Medicare - your share $78 (7.8%)

Total - $358. That's real money that comes out of your checking account. I would bet dollars to doughnuts that their would be a revolution after the first round of this taking place.

$$
You're right,eyebob
Jan 30, 2003 11:09 AM
but right after the revolt is quelled, then, no wait a minute, it wouldn't be quelled because there were no police because they walked off the job when they were told that their pay was being cut because we all finally realized how much it cost to live safely.......

BT

All kidding aside, I think that it would certainly wake everyone up to the idea of the real cost of government, which if nothing else, would at least raise the debate.
You're right,Alpedhuez55
Jan 30, 2003 11:33 AM
Well, most people think the Government is being generous when they get their tax refund check when in reality, they are really holding your money without interest.

If people paid more attention to how much they paid in taxes, like having to write a check to the government a check each month or quarter, they would maybe start calling for reform. That is why self employed people complain about taxes more than wage earners. People often ignore the gross on their paycheck and only notice the net.

You are right on, it would raise the level of debate on taxes but I doubt it would ever happen since too many people would write bad checks.

Mike Y.

Eyebob, I am agreeing with you on something here. I hope Rush Limbaugh doesn't find out ;) At least we will have decent riding weather in New England this weekend!!!
Yestao
Jan 30, 2003 12:40 PM
Economic theory does prove that tax cuts stimulate the economy; there is also ample empirical evidence to support this. Is any of it simple to understand (and accept), especially if you haven't taken macro and micro economic theory and econometrics? Probably not.

Put simply, tax cuts stimulate the economy in several areas to fulfill the promise of growth, investment, consumption, savings, job creation, and skills training. Econometric models will differ on the amount of expected stimulus depending on the level of supply-side assumptions and micro level effects. But all show growth, as does every longitudinal regression analysis of a significant tax cut that I've seen. I haven't heard one economist debate this concerning Bush's propasal, some will argue over who receives what percentage, but not on the overall effect.

But what is debatable, and much harder to prove, at least empirically, is whether tax cuts increase government revenues. This isn't your question but it's been mentioned as well. The theory in the early 90's said yes, though lately several studies say probably not. Econ journals really do make great night reading, if you're interested in a quick state change to slumber that is.
some of what you say makes sense, but if "tax cutseyebob
Jan 30, 2003 1:01 PM
stimulate the economy" (which you seem to think that there is rock solid evidence to support) why is it then "harder to prove....whether tax cuts increase government revenues." If we create more jobs, boost manufacturing, etc, would the govt. coffers necessarily have to fill up?

BT
easytao
Jan 30, 2003 2:59 PM
All forms of the stimulus aren't taxed. Areas that foster growth like savings, investment, and expansion aren't taxed at all initially; in fact they may garner tax savings. Yes, the resulting jobs and increased spending are taxed, but the real question is, does this growth offset the lower percentage of taxes collected? I don't think it matters, because the Keynesian philosophy during a recession is for the government to lower taxes to stimulate the economy, if government revenues are otherwise lowered so be it, once the economy is rolling again the deficit can be recovered. The alternative is to prolong the recession and hardship.

Lowering taxes during economic expansion or to curb inflation is a whole other issue, and then the government revenue issue must be understood more fully for these policies to gain widespread economic acceptance. But like I said, show me an economist from MIT, Harvard, or the London school of Economics who doesn't support tax cuts during a recession. And these guys are liberal as a group.
Why not make tax cuts from the bottom, instead of the top?Spunout
Jan 31, 2003 5:08 AM
Unfortunately, the poor don't pay millions for lobbyists. The rich (oil clad Texans?) do. It is all so senseless.
The poor don't income pay taxes!!!!Alpedhuez55
Jan 31, 2003 6:38 AM
The poor do not pay much if any taxes. About a third of the people who file tax returns do not pay any income taxes at all or receives a from the government. If you do a 2% across the board tax rate cut it is only logical that someone making $400,000 will save more than someone making $40,000.

WHat I think they should do is set the tax exemption to the poverty level. Say nobody payes taxes on say the first $20,000 and adjust that anually based on inflation. You can also increase the dependant deuctions as well. So I do agree with you that the bottom level could receive a greater cut. THis would help the working middle class.

Rather than trying to get the government to redistibute wealth, you should try improve your own condition and move to a higher tax bracket. THe rich pay a very high portion of the tax. Almost 30 percent of all tax revenues are paid by only 1 percent of the population in the top income brackets, the top 5 percent pay 50 percent. I think the top 5% have a much bigger case for an unfair tax system than the bottom 35% do. If you want a bigger tax break, you should try to make more money.

Mike Y.
"Why do they riot?" "They have no bread." "Well, then letOldEdScott
Jan 31, 2003 6:51 AM
them eat cake!"

Your last sentence cracks me up!

By the way, everyone who gets a paycheck in America, no matter how meagre, has the payroll tax deducted (Social Security/Medicare). What is it, around 8 percent, right off the top, no deductions, no credits, no refunds. Pretty brutal on the working poor. I just mention it because the old mantra 'the poor pay no taxes' isn't quite true.
Then make Social Security/Medicare optionalAlpedhuez55
Jan 31, 2003 7:43 AM
If you feel that way about Social Security then maybe you should call for it to be optional. If they want to put that 8% aside to pay for their retirement and health care, let them. But you would not be able to draw on SS or Medicare if they reach 65. I think it is more of a forced savings account than a tax. If they want to collect on it But income taxes usually are used to make up for it's short falls.

The debate is on Income taxes Ed. Sorry I did nbot put "Income" in front of every mention of the word tax, but I figured people knew what I was talking about. Try not to distort the issues on the post by changing the subject. Sure they probably pay sales, gas, booze, tobacco, gun, excise and other taxes as well. But they do not pay Income Tax.

Mike Y.
I strive mightily not to distort, andOldEdScott
Jan 31, 2003 8:20 AM
in fact almost zapped off a quick clarification when after the fact I noted you did indeed have 'income' in your subject line (although it was garbled: 'The poor don't income pay taxes.')

I really wasn't trying to change the subject. The fact remains -- and I still think it's a worthy clarification -- that the tax man deducts a rock-solid 8 percent or thereabouts of every paycheck issued to every working-poor person in this country. The working poor are hugely impacted by this, and income tax cuts don't help them a bit.
I strive mightily not to distort, andAlpedhuez55
Jan 31, 2003 9:50 AM
You said "The working poor are hugely impacted by this, and income tax cuts don't help them a bit."

That is why I said the tax exemption should be bumped up to the poverty level in my original post. Establish a real povery level and have everyone start paying income taxes there. That is also why the working poor should try to better their condition so the tax cuts do benefit them.

Sorry for the error in word order on the subject line, but I think you got the point since you changed the subject. Social Security should be looked at as a manditory savings and not an income tax. You are getting specific benefits (Healthcare & Social Security) back in return for their contributions. I have no problem with that percentage coming out of the first dollar of wages.

Mike Y.
The working poor should and frequently do try toOldEdScott
Jan 31, 2003 10:06 AM
better their condition; I doubt they lay awake at night thinking, "Gee, if I could just make more money, the Bush tax cuts would benefit ME!" They have other more compelling reasons.

A 24-year-old single working mother of two making $18,000 a year doesn't make the distinction or care that the $1400 coming out of her paycheck every year is 'forced savings' rather than taxes, with a payoff 40 years down the road. To her, it's 'What they take out of my check,' and it's 700 gallons of milk for her kids.

My entire point -- and if it changes the subject, so be it, I'll start a new thread -- is that conservatives consistently say "The poor pay no income tax" as if that justifies leaving them out of tax debate, while ignoring the fact that they do, if they work, pay 8 percent of their wages in payroll taxes, a terifically regressive tax if there ever was one.
The working poor should and frequently do try toAlpedhuez55
Jan 31, 2003 10:52 AM
Well, a 24 year old single mother with that $18.000 income should be eligible for public assistance such as food stamps and possibly housing assistance. That would more than make up for the contribution to Social Security. SHe should also look for ways to increase her income such as finding a better job.

If she wants to collect on Social Security, she should pay into it. If you feel differently, it making it voluntary is an option. But she would not have that safety net afforded by Social Security and Medicare in later years.

I guess I do not look it as a tax but as a savings. You look at this as a tax. So we will not agree on this.

Mike Y.
I knew I liked you for some reason ;-)js5280
Jan 31, 2003 9:52 AM
Actually, I enjoy all your posts Mike. You seem like a very level headed, likeable, guy. Sorry if I was a little too abrasive above.

I totally agree with Social Security. Make it optional. Make people invest all 8% or tax it 100% for SS. The SS ROI is peanuts compare to even a conservative financial investment. Trouble is that it's politicans favorite slush fund until the pyrimid gets inverted.

I like Tocqueville's observations. I couldn't make it through Democracy in America though, tough read. I haven't had good politcal discussions like this since college. I liked political philosophy in particular. These past few days remind me a little of that. I went to CU-Boulder in large part because it was so liberal and I came from a very conservative background. It really helped reshape my opinions, now I think both liberals and conservatives are full of $hit ;-) Nah, I think the both have it part way right but just don't get that using political force, even with good intentions, is not congruent with a free society and I think it actually creates many of the problems we face now. One more Liber-topian quote to throw out; If more government is the answer, it must be a stupid question. :-)
I knew I liked you for some reason ;-)Alpedhuez55
Jan 31, 2003 10:24 AM
I had to make it though the whole deTocqueville book. 100 pages a night too. It was interesting to get an outsiders views on a fledgling democracy.

I come from a Liberal Family and went to a conservative school, Thomas More College of Liberal Arts. I remember when my parents came to visit me on Parent's Weekend the President of the college said to them "It is nice to know there are a few good Republican families in Massachusetts". And my mother responded "Where Democrats, we don't know where he gets that."

I lean conservative on most issues but not all. I think our tax system bites and is long overdue for reform. It should be a simpler lest costly process. I doubt we will see a complete overhaul in our lifetime though.

Mike Y.
Its not a tax - Its insurancemoneyman
Jan 31, 2003 1:32 PM
Really. FICA stands for "Federal Insurance Contributions Act". From the site ssa.gov - The payroll taxes collected for Social Security are of course taxes, but they can also be described as contributions to the social insurance system that is Social Security. Hence the name "Federal Insurance Contributions Act." I like the term "contributions" also. It is a lot friendlier than "taxes".

Social security (FICA and Medicare) costs 15.65% of pay. Half is paid by the employee, half by the employer. A good argument can be made that the employer doesn't really "pay" his share of SS contributions, but rather just passes them through after reducing your salary. In other words, if it weren't for SS taxes, your pay would increase by your 7.825% and the employer's 7.825%. It's hard on everyone, especially when one considers the atrocious condition in which the system finds itself. It is probably the best example of wealth redistribution we have in the US, as the money that comes from my paycheck goes directly to some retiree in Scottsdale. There is NO social security trust fund, and the whole scheme is pay-as-you-go. If, at its origination, it had been set up like a defined benefit pension plan and held to actuarial standards, I don't think anyone would be screaming about it now. As it is, I will probably collect it (I am 45), but my teenage daughters will not. It needs reform, drastic and immediate.

And the poor do pay taxes. Lots of them, like sales, gas, tobacco, alcohol, property, etc. Just not as much federal income tax.

$$
poor taxes: don't forget lottery tickets nmDougSloan
Jan 31, 2003 1:58 PM
Actually, income groups are taxed about the sametorquer
Jan 31, 2003 8:19 AM
You won't like the source, but this was the first site my Google search came up with:

http://www.disgustedliberal.com/archives/000032.html

Payroll taxes (Social Security) are regressive, and effectively offset any surviving progressivity in income tax rates.
Hell, that's what I meant to say but didn't. Thank you. nmOldEdScott
Jan 31, 2003 8:27 AM
but the place that 8% has on disposable income...Spunout
Jan 31, 2003 8:41 AM
Consider a 2% tax cut:

The poor (or those at the bottom enjoying the tax cut) can now afford better food, education, and healthcare. Money in the pocket.

At the top, 2% is the difference between spending a golf vacation in Palm Springs or Hawaii.

What do you think is more valuable for your society?
Not sure of your pointOldEdScott
Jan 31, 2003 9:04 AM
But if what you're saying is, tax cuts for the poor will result in a greater good than tax cuts for the rich, I agree.

The point is, if the working poor pay no or few income taxes, the only likely place to help them enjoy the fuits of tax-cut fever would be with the payroll tax.

Maybe Social Security taxes could be mildly progressive. 6 percent at the lowest income levels, 8.25 percent at the highest, just to name figures arbitrarily. Never happen though.
Typical Liberal AssumptionAlpedhuez55
Jan 31, 2003 10:03 AM
You are assuming how they are going to spend it. You are making the classic class warfare agument. And a weak one at that.

Maybe that 2% cut will go to their child's education, investing more in their company so they can expand, a donation to charity, save to their retirement, buy an ugly Hum-V or a Ukranian Mail order Bride if that is what they want to do. It is their money and they can spend it anyway they want.

And that money whether going into purchases or towards investments and savings, is going to boost the economy. Which is why tax cuts are good!!!

Mike Y.
AssumptionsOldEdScott
Jan 31, 2003 11:54 AM
Both sides have typical assumptions. The general conservative assumption is, tax cuts for the rich will lead to investments in the economy that will create jobs etc etc. I guess that's as fair as thinking a working-poor single mom will spend any few extra dollars she gets on her kids.

Of course, the single mom may piss her money away on lottery tickets, and the rich folks may stash theirs in offshore accounts or spend it on foreign travel, enriching countries other than this one. We all have assumptions. Not sure that constitutes class warfare.
trying to put haves against have-nots is class warfareAlpedhuez55
Jan 31, 2003 12:50 PM
THe single mother should ge able to piss away her money tax break on Twinkies & Lottery tickets because it is her money. Making a silly argument that assumes someone is going to spend the money on a golf trip, which our friend from the north did, is class warfare. He specifically tried to deamonize the rich.

That is why Tom Dashelle did not get anywhere last year when held up the lexus muffler a poor or middle class person would get in a tax break against the Lexus for a rich person. It is time to move one to something with substance. Most of America sees through this argument already has moved on.

It is also funny how people using that argument never mention how much in taxes the person would have to pay in taxes before we would save enough for that Lexus. Lest say his his $300,000 paid in income taxes was reduced by 10%. He would have enough to buy that $30,000 Lexus, not including sales and excise taxes depending on his state. So that person would have paid $270,000 at least in federal income taxes. Sure the numbers might be a little more or less because the first portion would have been taxed at a lower rate than the top, but you get my point.

Bottom line is less money in Goverment's hands and more in tax payers hands is good for the economy, no matter who spends it. Redistributing wealth from the rich to the poor only works in Robin Hood Movies. Except for the Kevin Costner version, that one sucked and did not work in any way shape of form ;-)
Class warfare is over: The rich won, the poor lost.Dale Brigham
Jan 31, 2003 1:54 PM
If I were able to plant my size 9 Tony Lamas on the backside of every upper-class (or upper-class wannabe) dweeb who bleats "Class Warfare!" whenever anything even remotely resembling an equitable and just tax system is discussed, I'd need to buy a new pair of boots every Saturday afternoon, and the sniveling twerps would be filling up proctologists' waiting rooms.

Say, that would stimulate the economy! Who wants to bend over, and take it like a man?

Dale
doesn't make sense -- why do some pay any taxes?DougSloan
Jan 31, 2003 2:09 PM
As of 1999 (shown in 2000 Census), median family income in the US was about $41,000. http://www.census.gov/prod/2000pubs/p60-209.pdf

So, half of all the families in the country make under $41k. Doesn't it follow that half of all eligible voters would be in this range, too? I don't understand why those voters don't vote in people who would flat out do away with their taxes. They have the votes. In the final analysis, votes determine who governs us. While some can talk about money in campaigns, etc., the money alone cannot directly do anything, except when used to influence voters. I would think a campaign on a platform of no, that is NO, taxes for those under median family income would win hands down. If not, I wonder why. Any ideas?

Doug