Ornery.org
  Front Page   |   About Ornery.org   |   World Watch   |   Guest Essays   |   Contact Us

The Ornery American Forum Post New Topic  Post A Reply
my profile login | register | search | faq | forum home

  next oldest topic   next newest topic
» The Ornery American Forum » General Comments » "Tax Cuts for the Rich" have just ruined our economy... (Page 2)

 - UBBFriend: Email this page to someone!   This topic comprises 2 pages: 1  2   
Author Topic: "Tax Cuts for the Rich" have just ruined our economy...
LetterRip
Member
Member # 310

 - posted      Profile for LetterRip   Email LetterRip   Send New Private Message       Edit/Delete Post   Reply With Quote 
Daruma28,

quote:
You see Ivan, the whole theory is that people respond to incentives. So when you lower taxes, you create more incentives for people to re-invest their money to make more money, rather than stash it in tax shelters.
You see Daruma - 'tax incentives' do not give a linear response basis to investment, incentives to reinvest are only effective if their was not previously adequate incentive to invest. Percentage of net worth invested by the wealthy has shown pretty much zero elasticity to tax rate in the US, because the US tax rate has been throughout its history far below where the risk of decline due to taxation is enough to discourage investment. What does discourage investment is unsound economic foundations, but that only discourages investment to where the economic foundations are poor. It does impact when gains are 'locked in' (ie shortly before an expect long term increase in the capital gain tax).

Moderate net worth individuals primary investment vehicle is via tax risk free (for a substantial portion of the investors lifetime) vehicles such as 401ks and pensions. Short term high income tax rates encourage investment in these vehicles since the investment escapes current taxation. There can be some decreased investment if the tax rate is high since the individual may sacrafice future gains to maintain equivalent life style expenditures to that of the lower tax rate.

Low net worth individuals participate in the stock market almost exclusively through pensions. There self funded investment and the impact of taxation there on is largely non existant.

quote:
Re-investing money to make more of it means investing it into more capital - infrastructure, equipment and labor (jobs).
Yes but the question is where the investment and growth takes place. Capital investmest into foreign countries can decrease the USes competive advantage. So it could be a net harm to the US long term and short term economic and job growth.

quote:
If anything regarding Government fiscal policy has any kind of major factor in ruining this economy in the near future, it would be defecit spending, not Bush's tax cuts.
Deficits occur when outlays are not covered by incoming taxes. Reduction in incoming taxes, such as say, a tax cut, are one of the major causes (but not the only) of the deficit.

quote:
So lets see if we understand you here....the only way the hated rich people ever got rich in the first place, was by sending jobs to China?
I know this comment was addressed to someone else. However since I responded to the rest of your comment... First I don't hate the rich - indeed - I fully expect I shall be 'rich' (high net worth) in the future.

How individuals become high net worth initially varies quite a bit especially for the 'first million'. Of course the most likely way is to have inhereted or been gifted a significant portion of the wealth, and then invested it. Another path is talent, hard work, networking, and luck getting one to where right place/right time (luck) results in a big payoff. Another path is just pure dumb luck. Another path is through assorted means of corruption or of questionable ethics either through ones direct action, or action done directly or even indirectly on ones behalf.

Of course once you get past a certain wealth you invariably become an investor in the stock market which then benefits from all of the above, but with greatly reduced risk and effort required.

Digger,

quote:

However, keep in mind that lowering the tax burden stimulates the economy by doing more than just 'manufacturing' jobs by direct deficit spending. There's a freeing of capital that spurs entrprenureship as well. That effect is much harder to quantify, but it does exist.

From the economic long term health of the US it is highly important as to where that 'freed capital' is invested. Essentially almost anything less than each 'freed' dollar being purely invested in the US will have a negative impact on the long term health of the US relative to it being collected in tax revenue. Further increased capital investment that improves the capabilities of foreign nations that compete in areas where the US has strong capital both human capital and physical capital are extremely detrimental.

The assumption that 'freed capital' investment is an unbridled good is a common falsehood.

Also the capital investment during an economic downturn is more likely to result in foreign investment, and especially in those areas where US citizens are a premium capital asset.

LetterRip

[ December 01, 2005, 07:59 PM: Message edited by: LetterRip ]

Posts: 8287 | Registered: Jan 2001  |  IP: Logged | Report this post to a Moderator
Daruma28
Member
Member # 1388

 - posted      Profile for Daruma28   Email Daruma28   Send New Private Message       Edit/Delete Post   Reply With Quote 
Good points LR...but you are disregarding the historically proven increase in tax revenues following a tax cut. It happened after JFK, Reagan and Bush all cut taxes....

Let's clear up a couple misconceptions on tax cuts

quote:
At first glance, it seems logical to assume that if you raise tax rates, you'll increase revenues. And that if you cut tax rates, revenues will fall. But history clearly shows those assumptions are faulty. And if you put politics aside to look at the numbers, you can see that tax cuts actually increased revenues throughout the 20th century.

John F. Kennedy proposed major tax cuts in 1963, and in February 1964, after his assassination, the top tax rate was cut to 70 percent from 91 percent. Tax revenues nearly doubled in the next four years. After Ronald Reagan cut taxes in the mid-1980s (and those tax cuts were phased in over a period of years), revenues grew to $1.2 trillion from $900 billion.

In fact, Kennedy recognized the phenomenon that the government can get more revenues by cutting taxes in this famous statement: "An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget, just as it will never produce enough jobs or enough profits. ... In short, it is a paradoxical truth that tax rates are too high today, and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the tax rates now."

If tax cuts have worked to increase revenues, why, then, has our country run such huge deficits? The answer lies on the spending side. There has never in the last 50 years been a year of lower federal tax revenues than the previous year. And there has never been a year of lower spending. The gap grows when spending outpaces revenues. That's a fact understood by every family facing a budget.

Another misperception is that tax cuts benefit the rich. Since the "rich" pay more in taxes, they do receive more benefits from a tax cut. But that's not to say the rich don't pay their fair share -- and an even greater share when rates drop. After the Kennedy tax cuts, the proportion of taxes collected from those in the top brackets surged. The same results came from the Reagan tax cuts. In 1981, the top 10 percent of taxpayers paid 48 percent of the taxes collected. But after the Reagan tax cuts were fully phased in, the same top 10 percent of taxpayers paid a 57 percent share of taxes collected.

The reasons are logical. In the top brackets, people have a choice of working more or working less. If every extra dollar they earn is taxed at a high rate, they simply decide it's not worth it to work the extra hours -- or make the extra investments to expand their businesses.

The United States is the best place on earth to live (pardon the chauvinism), so very few people leave to avoid taxes. But when rates get too high, people do resort to other measures, things like tax shelters and an underground cash economy, all of which distort the efficiency of our economic system. It's far better to have a reasonable and lower tax rate, which history has shown will bring in greater tax revenues.


Posts: 7543 | Registered: Nov 2003  |  IP: Logged | Report this post to a Moderator
Digger
Member
Member # 2341

 - posted      Profile for Digger   Email Digger   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
From the economic long term health of the US it is highly important as to where that 'freed capital' is invested. Essentially almost anything less than each 'freed' dollar being purely invested in the US will have a negative impact on the long term health of the US relative to it being collected in tax revenue. Further increased capital investment that improves the capabilities of foreign nations that compete in areas where the US has strong capital both human capital and physical capital are extremely detrimental.
Our sainted Smith tells us that trying to control where capital goes leads to less overall 'good' than not. I'll stay with his assertions for now.

We're pretty far off into the weeds anyway. We could go on about foreign investment in the US, monetary supply, and a host of other variables as well - which is why I made the joke earlier about 2 economists having 7 opinions. But in broad terms, we're not far from each other in outlook. I think I'm probably more optimistic about the current state of affairs than you are and that probably explains our differences in opinion on the details.

Posts: 1317 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
Ivan
Member
Member # 1467

 - posted      Profile for Ivan   Email Ivan   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
After Ronald Reagan cut taxes in the mid-1980s (and those tax cuts were phased in over a period of years), revenues grew to $1.2 trillion from $900 billion.
Well this is just tripe.

First off, revenues (of course) fell after the tax cuts were implimented, and they later increased when they raised taxes in response to huge budget deficits. If this source would like to be more explicit about which years he's getting this data, perhaps we could have a real conversation.

As for the Kennedy tax cut, I don't think you'll find anyone arguing for a top rate of 91%. That said, cutting the rate when it's that high is a lot different from cutting the top rate when it's, say, 50%. The whole "supply-side cuts lead to higher tax revenue" theory is based off of the notion that there is an optimal, revenue-maximizing level of output. Which is reasonable. The problem is, no one knows where it is. Moreover, it likely changes from year to year as individual preferences change over time. So when Reagan tried to go back to the same well, he fell in and the country nearly drowned. It wasn't until the size of the cuts was significantly reduced a few years into his presidency that revenues returned to a reasonable level and the economy started to pick up.

[ December 02, 2005, 09:11 AM: Message edited by: Ivan ]

Posts: 1710 | Registered: Jan 2004  |  IP: Logged | Report this post to a Moderator
Daruma28
Member
Member # 1388

 - posted      Profile for Daruma28   Email Daruma28   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
It wasn't until the size of the cuts was significantly reduced a few years into his presidency that revenues returned to a reasonable level and the economy started to pick up.
How Keynesian.

This entire supposition is completely flawed, as your premise from that statement on the economy's health is based on how much revenue the Government raises via taxation. Though defecit spending by the government and the revenues raised certainly have long term implications, reduced tax revenues certainly does not equate to poor economy.

Our current economic boom is proof enough of that.

The country nearly drowned from Reagan's tax cuts?
LMAO...the country nearly drowned when the Jimmy Carter administration inspired the general malaise, presided over record inflations and told us all to turn down the thermostats and don sweaters.

Posts: 7543 | Registered: Nov 2003  |  IP: Logged | Report this post to a Moderator
LetterRip
Member
Member # 310

 - posted      Profile for LetterRip   Email LetterRip   Send New Private Message       Edit/Delete Post   Reply With Quote 
Digger,

quote:
Our sainted Smith tells us that trying to control where capital goes leads to less overall 'good' than not. I'll stay with his assertions for now.
His assertion isn't about the best interest of a nation (even though it is titled 'wealth of nations'), but 'society'. Also Smith sort of cops out on some stuff (ie he mentions in passing what the fairest method of taxation would be, but immediately abandons the idea ). Since we are talking the best interests of the nation, Smiths analysis would not really be applicable (even assuming his analysis were generally correct).

It is also never a good idea to accept someone elses analysis uncritically.

A lot of economic claims on being best rely on questionably defining a meaning of best that is not relevant to the target audience that is claimed to be addressed.

LetterRip.

[ December 02, 2005, 05:27 PM: Message edited by: LetterRip ]

Posts: 8287 | Registered: Jan 2001  |  IP: Logged | Report this post to a Moderator
KidA
unregistered


 - posted            Edit/Delete Post   Reply With Quote 
This is just off the top of my head - but isn't it the case that Kennedy's tax "cuts" actually coincided with a drastic reduction in loopholes and deductions than existed under the 91% rate? This might explain a lot of the higher revenue.
IP: Logged | Report this post to a Moderator
Digger
Member
Member # 2341

 - posted      Profile for Digger   Email Digger   Send New Private Message       Edit/Delete Post   Reply With Quote 
"His assertion isn't about the best interest of a nation..."

And neither is mine...

"It is also never a good idea to accept someone elses analysis uncritically."

Hoo boy. If that's what you think I'm doing, I have somehow radically miscommunicated. Thanks for the chuckle, though.

Posts: 1317 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
Everard
unregistered


 - posted            Edit/Delete Post   Reply With Quote 
I'm not really sure how many times I have to go through the mathematics of what happened to revenues after reagan's tax cuts, before people stop using his tax cuts as an example of how supply side economics are correct.
IP: Logged | Report this post to a Moderator
Daruma28
Member
Member # 1388

 - posted      Profile for Daruma28   Email Daruma28   Send New Private Message       Edit/Delete Post   Reply With Quote 
Let's see...Everard's and other self described Socialist/Liberal redistribution advocates that hated Reagan spinning numbers every which way they can to downplay Reaganomics as some kind of disaster...or comprehensive analysis by groups like the CATO Institute...

Supply Tax Cuts and the Truth About the Reagan Economic Record

quote:
There is some disagreement about what date should be used to measure the economic starting point of the Reagan era. A common ploy of Reagan's critics is to measure the economy's performance from 1979 to 1989 and falsely describe the record over this period as "the Reagan years." For example, in 1991 the Democrats on the Joint Economic Committee of Congress released a report entitled "Falling Behind: The Growing Income Gap in America," which purportedly proves that the victims of Reaganomics were the least affluent Americans. The report concluded that "families in the lowest forty percent of the income distribution actually had lower real incomes on average in 1989 than they did in 1979." Upon closer inspection, however, what the income data really show is that when Jimmy Carter's economic policies were in effect, family incomes plummeted by 9 percent, but that after Reagan's economic policies took effect (1982-89), family incomes rose by 11 percent. In the Joint Economic Committee report, Reaganomics is blamed for the poor performance of the economy under Carter. Ronald Reagan had many seemingly magical qualities, but his policies were never able to influence the economic direction of the nation at least two years before they took effect. Some of Reagan's supporters, on the other hand, define the Reagan years as only the seven years of economic expansion, 1983-89, while conveniently omitting the recession years of 1981 and 1982. [6]

There are two defensible methods of measuring the performance of the economy on Reagan's watch. One method is to examine the economic record from the month Reagan formally took office, January 1981, through the month he left the White House, January 1989.

An alternative approach is to allow a one-year lag for the policy changes to be enacted and take effect on the economy. Reagan's tax cuts were not even passed by Congress until midsummer of 1981 and did not begin to take effect until October 1, 1981. His first budget proposal was for fiscal year 1982. Hence, if we define the beginning of the Reagan years as the first full year when the policies were in effect, the eight years in which Reagan's policies were in effect were 1982-89. This latter approach seems to provide a more accurate gauge of the economy's reaction to the change in policies Reagan enacted in 1981, and for this reason we adopt this as the standard for analysis in this study--that is, we measure the economic effects of Reagan policies beginning with January 1982 and using 1981 as the base year of comparison.

No offense Ev, but I think I know which one I give a little more weight to.

As the CATO Institute easily points out, the Reagan critics will use selective numbers that don't really apply to Reagan's policies to downplay their effectiveness....kinda like how George Bush is to blame for 9/11 after less than a year as President, when it was really the Clinton administration's neglect during the entire 90's that set the conditions.

Posts: 7543 | Registered: Nov 2003  |  IP: Logged | Report this post to a Moderator
Everard
unregistered


 - posted            Edit/Delete Post   Reply With Quote 
Daruma, did you read my post? Its evident to me that you didn't. If you want to claim that reagan critics are fudging the numbers, perhaps it would be best to address the numbers that reagan critics are criticizing. In this case, I am criticizing the notion that reagan's tax cuts increased federal revenue.

However, if you want me to address family income, I'll be glad to tackle CATO and expose their own faulty numbers.

But, first, I suggest that you acknowledge that you're implying I made a point that i didn't.

[ December 03, 2005, 03:19 PM: Message edited by: Everard ]

IP: Logged | Report this post to a Moderator
LetterRip
Member
Member # 310

 - posted      Profile for LetterRip   Email LetterRip   Send New Private Message       Edit/Delete Post   Reply With Quote 
Digger,

quote:
Our sainted Smith tells us that trying to control where capital goes leads to less overall 'good' than not. I'll stay with his assertions for now.
quote:
His assertion isn't about the best interest of a nation (even though it is titled 'wealth of nations'), but 'society'.
quote:
And neither is mine...
Since this discussion is about the best interest of the nation - it seems kind of odd that you'd put forth a claim that is irrelevant to the disscussion, so I assumed you meant it to be relevant.

quote:
We could go on about foreign investment in the US, monetary supply, and a host of other variables as well - which is why I made the joke earlier about 2 economists having 7 opinions.
Economists (and especially economic policy institutes) are particularly bad about ignoring variables that are relevant to the analysis and making assumptions and simplifications that are in line with the conclusion they want to reach. Just because there can and frequently are a multitude of opinions on any economic issue doesn't mean that all opinions and analysis is equally worthy.

Daruma28,

CATO institute is pretty much purely goal oriented in their economic 'analysis' and seem more than willing to make completely unwarranted and highly questionable assumptions

For instance read this paper by CATO on energy efficiency standards,

http://www.cato.org/pubs/pas/pa504.pdf

The read this critique

http://www.aceee.org/buildings/policy_legis/stnds_info/cato.pdf

Since CATO can reasonably assume that the majority of their target readership has zero capability for critically examining their writing, and further that their target readership will make no effort to seek out crtical analysis of their work, they generally feel free to publish such utterly absurd analysis as above.

Incidentally one huge hole in the CATO analysis on 'reagonomics' is that it ignores the underlying growth rate

http://www.cbpp.org/TXCT85.HTM

I think that just as Clinton the growth had almost nothing to do with the President, and everything to do with the business cycle.

Same with President Bush, both the decline and the recovery are not 'his fault' although I think he has had an overall negative impact (ie the growth in the national debt will have significant long term negative impact).

Also see this article for another perspective

http://www.dollarsandsense.org/archives/2004/0704miller.html

LetterRip

[ December 03, 2005, 04:21 PM: Message edited by: LetterRip ]

Posts: 8287 | Registered: Jan 2001  |  IP: Logged | Report this post to a Moderator
The Drake
Member
Member # 2128

 - posted      Profile for The Drake   Email The Drake   Send New Private Message       Edit/Delete Post   Reply With Quote 
I think that it is very hard to isolate any of this from the numbers, so can't common sense tell us what happens when tax cuts are given to the people? They really only have two options on what to do with the money.

They can invest it, or they can spend it, or they can reduce debt. Investment creates jobs, and spending creates jobs from the other end. Debt reduction frees up cash to be loaned out as capital - funding new development. Is there something I'm missing?

Posts: 7707 | Registered: Oct 2004  |  IP: Logged | Report this post to a Moderator
Everard
unregistered


 - posted            Edit/Delete Post   Reply With Quote 
Drake-
No, you aren't missing anything, as far as your analysis goes. And there is no question that reagans tax cuts were good for the investing classes. The question has always been whether they were good for middle-income folks and down. Job creation, by its lonesome, does not mean that people at the bottom are earning more money. But tax cuts do usually mean they are getting fewer services. And increased deficits mean everyone has to pay, later on.

[ December 03, 2005, 04:50 PM: Message edited by: Everard ]

IP: Logged | Report this post to a Moderator
Digger
Member
Member # 2341

 - posted      Profile for Digger   Email Digger   Send New Private Message       Edit/Delete Post   Reply With Quote 
LR,

Ok, since you obviously want a confrontation, despite my best attempts to avoid one, let's back up:

"The assumption that 'freed capital' investment is an unbridled good is a common falsehood."

That's a very broad assertion, with no suppoting evidence offered, and I let it slide in the interest of civility and the fact that economics, as a field, has so little hard fact to it that virtually no assertion can be 'proven' with an adequate degree of certainly to sway opinion. Again I reference the large number of opinions held by economists the world over.

Your assertion that capital invested in foreign markets results in less 'good' than capital invested domestically certainly has merit from a theoretical standpoint, but the amounts involved are fairly trivial (hundreds of billions of FDI flow compared with a GDP of roughly 10 Trillion). So, for every dollar of freed capital within the US, maybe a few pennies go offshore on a net basis. That's why I can make a general comment about the nature of freed capital without having to delineate between it being used in the US or elsewhere. It's still relevant to the discussion becuase the 'good' derived from that capital does primarily stay here, without having to enforce any kind of control over the use of the capital.

Finally, capital put to use within the US by the collection of additional tax revenue and the subsequent spending of that capital by the government is also less efficient than free market capital because of the centralized nature of government spending - the central point of my Smith quote. I reject the idea that the government (or any central planning authority) can use capital to perform an equal or greater amount of 'good' as the free market can. Yes, I am relying on Smith, as well as my own experience in looking at the empirical evidence for that, but to assume that I come to that conclusion uncritically is itself a leap of faith.

I am not an advocate of pure capitalism, however. There is a role for taxation and spending of capital by the government in the best interests of the nation beyond just the core uses like defense. But, when looking at deviations from the status quo, I will assert that free market capital is superior to centrally planned capital and will generally support policies that lead to the former over the latter.

All that said, the irony is that I was already predisposed to agree that in our current economic environment, we are more likely than not to be in a position where increasing revenues via additional taxation are the preferred method of closing the deficit gap, as opposed to reductions in expenditures (although, some of both is probably the better answer). In short, I was agreeing with you and other fiscal liberals. Why we're arguing about the trivial details surrounding this core point continues to baffle me.

Posts: 1317 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
LetterRip
Member
Member # 310

 - posted      Profile for LetterRip   Email LetterRip   Send New Private Message       Edit/Delete Post   Reply With Quote 
The Drake,

quote:

They can invest it, or they can spend it, or they can reduce debt. Investment creates jobs, and spending creates jobs from the other end. Debt reduction frees up cash to be loaned out as capital - funding new development. Is there something I'm missing?

Investment creates jobs - where? Well, it depends on who/what it is invested in. Spending creates jobs - but again where - well depends on where the labor, materials etc. came from. Loans can be loaned out as capital - to who - well it depends on who the money is loaned to. Also the money that goes to the government does the same things but has a much higher certainty of being directed into the US economy.

The key difference is in what goods ultimately get invested in and who the producer of the goods that are invested in. Also there is a presumption that the goods invested in by private investors should be more efficient (but the most efficient investment could be purchasing foreign markets). Of course there is also the possibility of the governments investment in goods could return greater long term efficiency (ie reduced costs of transport for insfrastructure, increased labor quality) or could result in reduced short/long term efficiecy (increased beuaracracy or purchasing goods from innefficient producers).

Also the most efficient return on capital is often achieved not by the 'best' product, but through things like marketing, destruction of competition, or currying favor with purchasing agents (via corruption or flaterry, etc.)

LetterRip

[ December 03, 2005, 05:18 PM: Message edited by: LetterRip ]

Posts: 8287 | Registered: Jan 2001  |  IP: Logged | Report this post to a Moderator
  This topic comprises 2 pages: 1  2   

Quick Reply
Message:

HTML is not enabled.
UBB Code™ is enabled.
UBB Code™ Images not permitted.
Instant Graemlins
   


Post New Topic  Post A Reply Close Topic   Feature Topic   Move Topic   Delete Topic next oldest topic   next newest topic
 - Printer-friendly view of this topic
Hop To:


Contact Us | Ornery.org Front Page

Powered by Infopop Corporation
UBB.classic™ 6.7.1