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» The Ornery American Forum » General Comments » 645 Economists Endorse Romney Economic Plan (Page 7)

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Author Topic: 645 Economists Endorse Romney Economic Plan
Pyrtolin
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On a similar note, you have to account for the effects of the SnL crisis in the 80s and the effects that bubble popping had on overall debt levels in the wake of the cuts Reagan made. The only difference between then and now is that we opened the gates between investment and commercial banking in the meantime, giving the bubble much, much more room to inflate.
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Pyrtolin
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quote:

If tax rates rise significantly and the debt accumulation rate is relatively constant and then if tax rates fall significantly

If, but they didn't increase significantly. And then when they did drop more significantly in the early 2000s, the rate of debt increase jumped up significantly.
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JWatts
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quote:
Originally posted by KidTokyo:
quote:
If tax rates rise significantly and the debt accumulation rate is relatively constant and then if tax rates fall significantly and the debt accumulation rate is still relatively constant, then the logical conclusion is there is no correlation.
But that's not what happened.

That's precisely what happened. Let's look at the steady slope period from 1987 to 2001, I'll use the numbers from Here.

Here's the graph you referenced: Graph The numbers appear to be close to the graph as pictured.

Between 1988 to 2000 Household debt goes from 0.78 to 0.92. That's an average increase of 1.2% per year. The period is pretty steady with slow growth over the 12 years.

What were the effective tax rates for the highest 1% over that period. Link

Here are both compared together:
Year Debt Taxes
1988 0.78 29.7 (Low Reagan tax rate)
1989 0.79 28.9
1990 0.80 28.8
1991 0.81 29.9
1992 0.80 30.6
1993 0.81 34.5 (Large jump in tax rate)
1994 0.84 35.8
1995 0.83 36.1
1996 0.85 36.0
1997 0.85 34.9
1998 0.86 33.4
1999 0.89 33.5
2000 0.92 33.0

If tax rates fall significantly and the debt accumulation rate is relatively constant and then if tax rates rise significantly and the debt accumulation rate is still relatively constant, then the logical conclusion is there is no correlation.

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KidTokyo
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You got me there, JW. There certainly is no correlation when you cut out the sections were it obviously correlates! [LOL]

I note you have also forgotten your own requirement that there be a significant lag time.

In fact, this was the very point I addressed some time ago -- the rate of increase leveled off for a while taxes went up. (Btw, look back at your original tax chart. Even when it was down for the top 1% in the late 80s, early 90s, it was up for the top 5% and 10%).

So, to be clear you have pointed out a period of relative stability in tax rates coinciding with a period of relative stability in debt, and clipped out the spike at the end where the tax decrease takes effect, as well as the other spike at the beginning. If you think this is a process which reverses at the same rate and in the same way it goes forwards, you really don't understand the economic mechanisms at play.

[ September 27, 2012, 07:28 PM: Message edited by: KidTokyo ]

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KidTokyo
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Just in case you're still not getting it -- my "theory" does not require that debt goes down when rates go up. It takes more than higher taxes to undo that damage.

[ September 27, 2012, 08:00 PM: Message edited by: KidTokyo ]

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yossarian22c
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The other significant factor over this time span is how quickly income has grown for the top 1% while mostly stagnating or declining for the bottom 80%. The shifts in income distribution are in a positive feedback loop with the lowered top tax rate, particularly the low rate on capital gains.

Year | Gini | Tax Rate (1%) | Debt/Income Ratio
1980 | 0.403 | 34.6 | 0.64
1990 | 0.428 | 28.8 | 0.8
2000 | 0.462 | 33.0 | 0.92
2005 | 0.469 | 31.6 | 1.23

So you can see the Gini (income inequality) tracks pretty closely with D/I ratio. Which is really the argument Pyrtolin and Kid are making. As more money gets concentrated at the top, the average family has to take on more and more debt to keep the economy growing. The top effective tax rates are one way to prevent as much stagnation of currency at the top but do not reverse the effects of having huge wealth disparities.

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Pyrtolin
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quote:
As more money gets concentrated at the top, the average family has to take on more and more debt to keep the economy growing.
Not only do they need to take on more, but the top needs them to take on more, because for the tops savings to produce a return, someone needs to take out debt to feed those returns.

One person's financial savings is someone else's debt. For the top to save their ever-growing excess, they have to push up credit limits and lower lending standards to create more and more debtors to absorb their need for savings.

You can mitigate that by having the federal government issue enough bonds to absorb the demand for savings, but if you're cutting the public deficit (the rate at which such bonds are issued) or absorbing bonds using QE measures, then those avenues dry up as well, leaving the private sector to have to absorb the brunt of the borrowing.

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AI Wessex
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It's not like all the economists in the world have signed up for Romney's undeveloped plan. The Economist finds that professionals as a whole tend to swing the other way:
quote:
BARACK OBAMA and Mitt Romney have spent many months and hundreds of millions of dollars trying to convince the public that electing the other man would lead to economic catastrophe. They have fought to a draw: voters today are almost evenly split over which man would do a better job on the economy.

But whom would the experts pick? To find out, The Economist polled hundreds of professional academic and business economists. Our main finding should hearten Mr Obama. By a large margin they rate his overall economic plan more highly than Mr Romney’s, credit him with a better grasp of economics, and think him more likely to appoint a good economic team (see chart). They do not hold the perpetually disappointing recovery against him; half of respondents graded his record as good or very good, compared with just 5% who said that about George Bush in our poll four years ago. “It all depends on the counterfactual,” said Justin Wolfers, an economist at the University of Pennsylvania’s Wharton School, referring to how bad things might have been without the president’s emergency measures.

But Mr Romney can take heart from a deeper dive into the numbers. The Economist polled two groups: research associates of the National Bureau of Economic Research, the country’s leading organisation of academic economists; and the outlook panel of the National Association for Business Economics. The academics gave Mr Obama much higher marks than Mr Romney, which may in part reflect partisan preference: fully 45% of them identified themselves as Democrats, and just 7% as Republicans.

By contrast, the forecasters, a much less partisan crowd, consistently assigned Mr Romney higher scores. Democrats and Republicans were equally represented in this group, at 22% each. Roughly half of both groups were either independent or declined to state an affiliation. Among these independents, and these are probably the most compelling numbers, Mr Obama’s platform still got a higher grade than Mr Romney’s, but by a much smaller margin than in the group as a whole. The independents, by a slim margin, thought Mr Obama would name a better economic team, but also believed that Mr Romney has the better grasp of economics.


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