Centerfield

I'm sorry but I'm going to have to agree with the big guy on this one. This borrowing is excessive, dangerous and cannot be sustained. There is not a country in the world that would be much aggrieved if we lost our economic dominance so we cannot count on leniency or assistance when our ship begins to sink. I would liken this to my real estate agent neighbor who's house has tripled in value and she keeps borrowing against that value so she can drive a Mercedes, add a pool and take wonderfully decadent vacations. Well, when her house devalues and both of her sons need college cash, her Mercedes breaks down and home sales tank, she had better not show up at my door for a cup of sugar because I will be laughing my @ss off! Ahhh, sweet jealously of those who live well, even if well beyong their means. C'mon, we've all felt it.

As for how it might make our beloved Hillary's responses appear if she chooses to contradict her husband. Well, I think as long as her answers are well thought out, she'll be okay. I don't think she would do well to appear as though she were parroting Bill's ideas. I think she'll be seen by the people who like what she has to say as smart while the people who like what her husband has to say will assume that he'll have some influence there.

I agree we shouldn't borrow to fund relief efforts but I'll agree to a tax increase (even one only on the "wealthy") AFTER they cut Ted Stevens 1.2 million dollar bus stop in Anchorage, the $48,250 AirForce and Navy personnel charged the Pentagon as entertainment expenses for gambling, $69,300 for cruises, and $73,950 for exotic dance clubs, federal grants to the Rock and Roll Hall of Fame and Federal grants to "combat teenage goth culture" in Blue Springs, Missouri.

In other words, get rid of the pork FIRST then raise taxes. I have no problem paying taxes if I NEED to..... I certainly have no problem paying taxes for the relief effort in NOLA or for providing better body armor to our guys in Iraq..... but I refuse to contenance tax increases to provide Pentagon desk jockeys with strippers or to bronze Elvis's guitar or to keep some kids in the ShowMe state from the horrible tragedy of wearing too much black.

Yes, there's a burgeoning effort in the blogosphere to cut pork. It should be encouraged.

With regard to the original post, the economics work like this: to the extent that NO was a major pathway for goods (and it was, grain, oil, and the like), the lack of these facilities, even temorarily, will cause those prices to rise in a kind of mini-inflation (filled your tank recently?).

An increase in taxes would reduce the spending power of consumers, causing those price increases above to pinch even more (in real terms).

Not to mention the unemployment and dislocation stresses on the economy.

I'd say (and I think every President after Hoover would agree) - bad idea.

In historic terms, think of it this way - the Depression caused increased demand for government services. Would you raise taxes to pay for all that welfare? Even on the wealthy? I think not, after all, the wealthy are the ones hiring, not the poor. Tax 'em so they hire less?

As I wrote in my blog last Friday, there are two little words that no politician wants to utter and most Americans don't want to hear -- Sacrifice and Taxes. No politician seeking re-election wants to propose or vote for a tax increase but the reality is that the money for rebuilding the gulf region has to come from somewhere.

Someone has to have enough courage to let the American public know that continued borrowing from foreign banks is not just the mortgaging of the American economy but in the longterm will be the selling of the American dream. The budget deficit is a greater threat to our national security than North Korea or Iran.

Actually, the amount of sustainable debt is a function (among other things) of the GDP. I forget where I saw it, but the national debt as a percentage of the GDP is pretty low right now (one of the reasons interest rates are pretty low).

There's a difference between a guy who makes $100 a week and owes $500, and a guy who makes $1 million and week and owes $500(we are the millionare guy).

And I wouldn't worry to much about the foreign banks. They like to rattle their money bags now and then, but countries like Saudi Arabia have their income almost entirely in US Dollars (that's how oil is traded worldwide), so they need stable dollar investments - hence, US T's.

We also have one of the most politically stable economies in the world, and thus present an attractive investment opportunity globally.

Finally, the US Dollar is in demand as a stable currency. If we had no debt, we would be pressed by all those foreign bank bastards to issue notes (and we would do it, too).

Of course, this could all go south, but we'd have to work at it and it would take a long time.

What LR said, except that the debt isn't at any all-time lows as a percent of GDP. It's not at all-time highs, either. But it's pretty much impossible for us to NOT have national debt as long as foreign demand for US investment is higher than US demand for foreign investment. By definition, any excess foreign investment is "debt," and a certain level is a sign of world confidence.

That doesn't mean that there's no such thing as the government borrowing too much (there is) but some level of "borrowing" is built into our economy. The big question is how much of that foreign funds inflow should go to the government. Deficits themselves are not a major reason for worry. Deficits that are consistently larger than economic growth, however, are unsustainable without adverse effects on the economy. But it's not a ticking time bomb, and it's not about to explode.

I totally and completely agree with Cengel about the need to cut the PORK first. Oh man do I ever!

I too could live with a tax hike. I wouldn't like it... but I could live with it. But, it makes no sense to me to seriously consider either raising OR lowering taxes as long as the gravy train remains unmolested. It's insane. Our government spends money with all of the fiscal restraint of a pre-teenager in a candy store.

BTW, Brian... maybe I'm missing the obvious here but how would one go about paying for Katrina with tax cuts?

Our government spends money with all of the fiscal restraint of a pre-teenager in a candy store.

You are greviously insulting pre-teens in candy stores everywhere. ;-)

Let me be the fly in the punchbowl about taxes. Taxes are necessary. We have spent the last 25 years pretending that we can spend without paying taxes and without making any sacrifice. I think Clinton is absolutely right and it's time to stop the obsession with lower taxes. I mean, we're not talking about raising the marginal tax rate to 90%. If you wait for politicians to end porkbarrel before you deal with our fiscal problems, you are going to be waiting until hell freezes over.

I think it's time we started realizing that we need a realistic level of government spending and that a reasonable level of taxing is necessary. We have lots of social problems in this country, in addition to Katrina, that need money. The market can only do so much.

No Kevin, I said "via taxes or cuts" meaing either tax increases or budget cuts. Tully and LR make an important point about deficits, which is that they are not intrinsically bad, only bad when they are unsustainable compared to growth in revenue.

I think it would set a good example for the President to roll back some of his most recent tax breaks for the most wealthy, even if it would be alrgely symbolic. I also think it would be a good and fair thing to make some budget cuts that would represent broad but thin sacrifices for many.

I agree about pork, the question is, what do we do? The botching has been going on for decades if not generations, but all we ever get is a running narrrative of anecdotes about toilet seats and unneeded bridges, and no progress.

I haven't thought deeply about the cons of the following, but it seems to me that it's worthwhile to explore the concept of requiring legislation to be more narrowly tailored so that unrelated items can't be appended as porky quid pro quos in return for the additional votes needed for passage. It seems reasonable to me that all funding for state projects and pet senatorial/congressional projects should come out of a single channel. they should be rated as essential, important, desirable, etc, and funded accordingly. Then, money should be set aside at the beginning of the year for things like hurricanes etc, and any surplus disbursed in the following year for any projects not deemed essential.

The ratings could be done with direct voter input. There'd be a rule than no more than say 10-20 of all projects could be deemed essential. And a max could be put on all projects proposed so that the 10-20% number couldn't be gamed simply by proposing 9 stupid projects in order to get your pet project on the essential list.

The info on debt and GDP is here:

http://www.whitehouse.gov/omb/budget/fy2006/pdf/hist.pdf

on page 122. It shows that the ratio has been in the 50%-70% range for a couple of decades. The lowest it's been since the end of WWII (121%) was under Nixon-Ford-Carter. Anybody remember those days? I do. Persistent recessions, high interest rates, high unemployment, low growth (obviously). But hooeey! were we fiscally prudent!

The idea that our current economy is being sustained because of the Bush administrations tax cuts is mind bogglingly simplistic. First of all there were no tax cuts, the government borrowed a bunch of money and then gave it to tax payers. This is not a cut, it’s a loan.

Second, the amount of borrowing (deficit spending) over the last three years has dwarfed the amount of the so called “tax cut”. If anything has keep the economy rolling it’s the deficit spending. Look I’m not for pork spending, but the idea that people are funding even a fraction of the jobs created in the US with their tax cuts over the amount of jobs created by the deficit spending in ludicrous on its face. Sure the bridge to nowhere is funny but that pork creates more jobs in this country then the “tax cut” ever did or ever could.

The so-called “tax cut” amounted to 30 or 40 billion each year tops, while the deficit spending was closer to half a trillion. God is there any supply-sider on the face of the planet that can friggen add!!!!!! The only thing the “tax cut” did was fund the deficit. The government borrowed money, gave it to taxpayers (calling it a tax cut) and then borrowed it back and then some. On what planet does that make any sense at all!!!!

Allowing the tax loans to expire will not have one bit of an effect on the economy as long as the deficit spending continues roll on.

Also where has this insidious idea that the ratio between GDP and the deficit is relevant to anything? In terms of real dollars the deficit is larger now then it was during WWII. GDP counts a number of intangibles like productivity and host of other things that makes era to era comparisons of the deficit to GDP ratio useless unless all your trying to do is justify a tax policy that has failed over and over to cut the deficit.

The fact is we need to cut spending, but we also need to let the tax loans expire. I’m real sorry to come off as “shrill” but hearing these same old tired economic clichés that have no basis in reality is getting under my skin.

Unless there is a budget surplus there can never be a true tax cut, to do that we would have to a) eliminate close to 800 billion in expenditures, b) raise 800 billion in revenues (in economic growth or direct taxes), or c) do a little of both.

LR, this sure is worth pointing out. But speaking only for myself, my concern about the sustainability of deficit spending relates directly to the well known expected increase in gov't obligations due to coming SS gap between collections and outlays, and the problem of alarming medicare cost growth.

Do you think it's reasonable to expect that we can cover those costs by borrowing? I don't, so I think we should begin tightening the purse strings now.

And what do you say to to the argument that increased government borrowing makes it harder for capital to be freed for private investment?

The idea that our current economy is being sustained because of the Bush administrations tax cuts is mind bogglingly simplistic. First of all there were no tax cuts, the government borrowed a bunch of money and then gave it to tax payers. This is not a cut, it’s a loan.

If you were honest, you'd admit that it's BOTH. How hard would that be? If a tax rate change is made that results in a taxpayer paying fewer taxes, that's demonstrably a tax cut. The matter of where the money came from is not relevant to the nature of the change.

Also where has this insidious idea that the ratio between GDP and the deficit is relevant to anything? In terms of real dollars the deficit is larger now then it was during WWII. GDP counts a number of intangibles like productivity and host of other things that makes era to era comparisons of the deficit to GDP ratio useless unless all your trying to do is justify a tax policy that has failed over and over to cut the deficit.

I'm pretty sure it's related to that other insidious idea, the one that says that you should be concerned about your debt only if your income and its expected growth is insufficient. Real dollars? What does this matter? I'm not even sure I can follow you. Of course the deficit will be greater in real dollars than in 1945, 60 years of inflation tends to do that.

GDP is a questionable proxy for various reasons, but it's not an unreasonable measure. I am no econmist, so I am open to correction on whether the following is a good idea:

Why not compare total national debt (not the annual deficit, but the total amount of outstanding obligations) to the current years total amount of collected government revenue, excluding SS dollars. Then we'd be comparing all that we owe to the rate at which we are collecting money to pay for what we're spending money on...if the amount of money that we are collecting is growing at a sufficient rate, then additional deficit spending is not that big a deal. But if with each successive year the government spends a greater percent more money than it collects in revenue to pay for the spending, then there's a spiraling problem.

Rick,

Using that kind of logic we might as well be paying people to masturbate since that also "creates jobs" and it's just as usefull as most of the pork projects out there and less environmentaly damaging.

Money that is being put to junk like that is money that could be put towards things that people really need (like rebuilding hospitals after a hurricane has destroyed them).

Furthermore, your just plain wrong. If people have more disposable income they don't keep it locked away in thier penny jars forever.... they put it to USE. Heck, even if they only put it in a savings account.... what do you think the banks DO with the money they get from people investing thier savings? Do you have a Mortgage? Where'd you get it from?

The only difference between the Government collecting excess tax money for deficit spending and consumers paying out less taxes in the first place is WHO gets to decide how that money has spent. Governments beauracrats have PROVEN time and again that they are lousy judges of determining what makes a positive difference in peoples lives and lousy judges of how to spend money effectively. Individuals are much better judges of knowing how to spend thier own money to improve thier lives then any distant government beuarocrat could ever be.

The only thing you are doing by funneling excess tax money through the government rather then keeping it in peoples pockets is increasing the opportunities for graft, corruption and kick-backs for the government officials in charge of determing how those funds are spent....and decreasing how effectively that money will be used to improve peoples lives.

Well, (and I am not trying to defend government spending or deficit spending) nations don't act like households. Tax cuts have usually raised tax revenue for governments (JFK was the first president to recognize this, I believe). That is generally due to increased investment, saving and spending on the part of the consumer. Those activities, in turn, generate more taxable income for businesses and consumers, which leads to more spending, etc. etc.

Sometimes the effect gets lost in overall government policies. Reagan instituted a major tax overhaul that drastically cut tax rates. The deficit skyrocketed and Reagan's opponents said, "See? It's voodoo economics." But Reagan, at the same time, drastically increased defense spending in order to bankrupt the USSR during the arms race (which worked, by the way)

Now I'm not here to argue that those policies were or weren't worth it, just to say that one cannot be confused with the other.

Bush dropped tax rates, too (yeah, the rich got richer, but he took millions of middle-class folks off the tax rolls, too - with the result that the rich now pay a greater proportion of the national expenses than they did under Clinton). Then came the war which costs, what? $200 billion a year? Well, take $200 billion out of the annual deficit, and it looks like we doing OK relative to the golden age of Clinton.

It will cost another $200 billion or so to rebuild the Gulf Coast, which just boosts the deficit at least that much (because you just know that there will be waste and pork in the rebuilding).

We can afford to borrow at least that much, which was really my original point. This does not represent a spiralling down of the economy, or even an unfair burdening of our children.

That's because the debt will never be paid off. Sure, it'll go up in some years and down in others, but it will never be paid off. Our children will pass the buck to their children on into the very end of humanity (to paraphrase Keynes). No one, not us, not the Japanese, not the Saudis, or even the Syrians, want that debt paid off.

GDP is the proxy for the national wealth and income, and that seems reasonable to me.

Yes, I would prefer that the government cut the pork, simply because the government is an inefficient consumer. They jerk markets around and make them inefficient.

It is true that the wealthy can "afford" higher taxes, and the super-wealthy like Bill Gates seem to prefer them, but it doesn't change the fundamental economics - higher taxes depress economic activity. Pure and simple.

Relevant budget data in both dollar and %GDP terms can be found here and here going back to 1962 and projected out to 2015.

Have fun with it. As you can see, the amount of the federal budget that goes to discretionary spending is steadily shrinking as %GDP while overall federal spending as %GDP stays fairly constant. But discretionary spending is the only area really open to spending cuts--unless we actually reform entitlement programs.

"Real dollars"--how many Dell PC's could you buy with those in 1946? Heh. There's a good reason that GDP share is used as a proxy, and that infaltion-adjusted $'s are used as yardsticks.

"Using that kind of logic we might as well be paying people to masturbate..."

Well, I've been considering a career change. Seriously, there is a point to be made here. Paying people to do useless things amounts to a redistribution of wealth that results in little growth. In the converse, thinking of tobacco companies, our economy would be better off if we paid the people who now produce cigarettes to do nothing because smoking is not only non-productive, it's destructive. Anyway, I look at spending as an investment. You can stuff the money into your matress (or build a bridge no one needs) or you can invest in a business that creates value. I can either take sticks and turn them into spears, or I can break the sticks so they become useless. Which of two actions requiring roughy the same expenditure grows my primitive economy more?

The only difference between the Government collecting excess tax money for deficit spending and consumers paying out less taxes in the first place is WHO gets to decide how that money has spent.

No, there is also a difference in WHO ultimately gets the money. Some of that excess may go to graft etc, but some of it also goes to government programs, and many of these have demonstrable constituencies. Taking money from one person's pocket and placing it in another is in fact an allowable function of a democracy, and again, one which has a demonstrable constituency.

I'm all for "cutting fat" and for "letting people make their own decisions with their money." But such talk often seems to gloss over substantive discussions about the relative merits of various government functions. Everyone is agianst waste and gov't fat in the abstract, and the most zealous rally round anecdotes about such waste. But that's shooting fish in a barrel, and it doesn't make one a marksman.

Rick, on re-reading I saw that you re-emphasizied one of your ideas that confused me. I REALLY would like you to explain the theory and definition of "tax cut" under which a tax cut is NOT a tax cut if there is a deficit. This makes ZERO sense to me. You can argue that it's not a smart or reasonable or fiscally moral thing to do if you want, but if your taxes get cut and you pay fewqer taxes, that's definitely a tax cut.

If you were honest, you'd admit that it's BOTH. How hard would that be?

If I say any data that suggested it was both I would admit it, but the “tax cut” wasn’t a cut, it was simply more deficit spending. Again the tax cut funded the deficit because the reduction in revenue simply caused the government to borrow that much more money. Unless you have some data to show that the 34 billion or so in “tax cuts” had a greater economic impact or job creating impact then the half a trillion dollars in deficit spending then I would say even a cursory analysis of the impact of the “tax cuts” are totally dwarfed by the impact of the half a trillion dollars.

Also you seem to be confusing “real” dollars with nominal dollars, real dollars include the effects of inflation.

The only ratio that is relevant is the ratio of spending to the tax base, the tax base in this case is defined as the sum off all things taxed by the federal government (or fees collected). If we decided only to tax say the first $100 of every one with a job, the GDP could quadruple and it would not have any effect on revenue.

Using that kind of logic we might as well be paying people to masturbate since that also "creates jobs" and it's just as usefull as most of the pork projects out there and less environmentaly damaging.

But that is pretty much what the so called “tax cut” did. The government simply borrowed some more money (or printed it) and cut a check to tax payers based on their income tax returns. I understand what you are saying, that the allocation of resources may have been more “efficient” if taxpayers were making individual economic decisions (but then again maybe not), but for the purposes of analysis, cutting someone a check because they masturbate has the exact same impact, the masturbator will take that money and spend it, perhaps even start a business (world of auto-eroticism?) thus expanding the economy. It’s not the bridge that creates jobs (although it does during the lifetime of the project), it the wages earned by the bridge builders that are spent on consumer items, the local diner, the tattoo parlor or whatever.

Again I understand that it might be marginally more efficient to use that money to build something more useful, like upgrading the nation’s electrical grid or to give it to consumers directly, but the difference in efficiency is marginal at best, at worse it’s

but I’m not the one calling the shots.

If people have more disposable income they don't keep it locked away in thier penny jars forever.... they put it to USE.

Agreed and the people who are employed by government spending put it to use as well, they also pay taxes on it returning some of it back to the government. I really don’t disagree with you on that score, but the idea that we can keep running up deficits forever. is complete non-sense. But I never said government was more efficient, I was merely pointing out that the so called tax cuts really were nothing of the sort, the tax cuts were simply more deficit spending, you could have just cut everyone a check and called it whatever you wanted and it would have had the same impact.

My larger point is that cutting spending alone will not solve the problem, if you think it will then show me what you would cut to carve out 3 to 400 billion dollars from the federal budget without plunging the country into recession or starting a revolt that will put give every demagogue politician in the US into office to continue the plunder.

The point is that until we understand that there was no tax cut, we can’t even start to have a serious conversation about how to fix it. We need to have everything on the table, limiting our options out of nothing more then economic ideology is not going to get anything solved.

BK

“I REALLY would like you to explain the theory and definition of "tax cut" under which a tax cut is NOT a tax cut if there is a deficit.”

In classic supply-side theory what you do is slash government spending and return the surplus to taxpayers. That money is then used to move the economy (of course what this doesn’t take into consideration is that fact that cutting government spending it tantamount to firing government workers so the resultant economy needs to absorb those workers which most supply side models seem to ignore, but that get pretty technical).

What has been happening is that tax rates have been cut, but the spending has gone up. Put it another way, the government borrows money and then distributes it in some ratio to the amount of taxes you paid. If the tax money is truly “our money” then so is the debt. The taxpayers are the ones who have to pay off that debt, how you can call something a cut, that has to be paid back or do you treat your car loan is a “cut” of some sort.

When you cut taxes and then deficit spend to cover the revenue shortfall it’s a loan. We could have just as well just cut a $300 dollar check to all taxpayers for fun and had the same effect (oops, we did). Basically what we have done is taking out a home equity loan on the full faith and credit of the federal government.

For every dollar the feds paid out in the form of a tax cut, ten were borrowed, and who is responsible for that liability, the US taxpayers. Basically all we have done is rearranged the chairs on the Titanic.

There's really only two solutions to this problem, both of which have been mentioned. When it comes to cutting spending, as someone has already mentioned, discretionary spending as a percentage has declined, so that leaves mandatory spending. We all saw the successful reform of the Social Security System, didn't we? Basically, as has already been mentioned, there's a constitutency for each of these programs, and unless someone can fully explain the benefits of reform (not eliminating) without the other side declaring the apocolypse then we'll get somewhere.

The other option--raising taxes--scares the s**t out of me. It's always my income segment that gets nailed with increases. By some politicians standards, we are considered "rich," but by normal living standards, we are anything but. In the end, the upper middle class always gets nailed. I'm sure it's just a matter of time before it happens again.

Rick,

I think you make some valid points. The one point I take issue with is your characterization of the marginal difference in economic benefit between useful and useless projects. I do understand that the money spent flows back into the economy regardless of what it is spent on. The real question is, how does the work done change the dynamics of the economy? Sure the builders of any bridge will spend their money in myriad ways, whether the bridge goes somewhere or not. But how many jobs has the Brooklyn Bridge created since its completion? Is there even a way to guess? How about the Panama Canal? I can't even imagine. How can you say the benefits between worthwhile and worthless government (or otherwise) expenditures are marginal? Maybe you're right and I just don't get it, but I think you need to explain it further.

LR: ...higher taxes depress economic activity. Pure and simple.

How then do you explain this?

Finland pulls in (as a % of GDP) nearly twice as much in taxes as we do. Yet they are ranked as a more competitive econcomy. Sweden pulls in exactly twice as much in taxes as we do and yet they are ranked 3rd most competitive economy, right after our's. On the other end of the spectrum, Mexico pulls in less tax monies by the same measurement than we do and yet their economy isn't a fraction as competitive as our's is.

Clearly there is much more to the equation than tax rates.

"My larger point is that cutting spending alone will not solve the problem, if you think it will then show me what you would cut to carve out 3 to 400 billion dollars from the federal budget without plunging the country into recession or starting a revolt that will put give every demagogue politician in the US into office to continue the plunder."

Rick,

No problem, I don't have to do that because the Congressional Budget Office has already done it for me -
http://www.heritage.org/Research/Budget/wm839-list.cfm

Now it is true that in technical terms $100 paid through government programs goes back into the general economy just like $100 that is spent by private consumers. The difference that you are failing to understand is what that $100 actualy represents. A $100 bill is nothing itself but an ugly piece of green paper with bad art on it.... it doesn't have any inhereint value. What it represents is POTENTIAL VALUE. That Value is ALL about efficient use of resources.

Take a $100 bill and put it toward building a bridge to nowhere. What value have you created? Yes you've created a living for the contractor who builds the bridge.... but what has all thier time and effort been used to produce? You might as well have been paying them to masturbate.
However, take that same $100 and use it to strenghten a Levee in the Missisipi Delta (public government function) or build a home for some-one to live in (private sector function) and not only are you providing a wage for a contracter BUT you are ALSO creating something of real value for others..... you are actualy INCREASING the amount of wealth in the economy.

The government has a PROOVEN track record of being horribly, horribly, horribly inefficient in how it uses resources when compared to the private sector.

Regardless, you say that there are alot of things that we need the Government to devote resources for. I agree with you. You're solution seems to want to take more money out of the control of the private sector (i.e. your and my pocket) and put it in control of the Government.

I want the Government to take all of the resources it is WASTING right now (effectively paying people to masturbate) and to put it towards those things that are actualy needed.... like repairing the damage in the Gulf. THEN and ONLY THEN if that does not prove sufficient can we start talking about taking more private sector money and putting it under the control of the government.

"Taking money from one person's pocket and placing it in another is in fact an allowable function of a democracy, and again, one which has a demonstrable constituency."

Bk,

actualy no it's not.... and I would argue fairly convincingly that the 5th Ammendment to the Constitution and the arguements supporting it.... even in the Kelo case say just that.
" nor shall private property be taken for public use, without just compensation." . Even under the Kelo ruling the Court stated that Private Property may not be taken from A for the sole purpose of being given to B. In case you missed it, what is money but "private property"?

Now care to show me somewhere, anywhere in the Constitution that states that the Federal Government may take money (private property, wealth, whatever you want to call it) from 1 private citizen for the sole purposes of redistributing it to another private citizen?

Now such a practice may have a "demonstrable constituency" but so do armed robbery, genocide and lynchings.... that doesn't make them either legal or supportable.

Kevin - yes, sorry, I should have said that within a given economy, higher taxes depress economic activity. Pure and simple.

In the example you give, it's useful to drill down a bit to see what structural differences exist. For instance, Norway is the third largest exporter of oil, after Russia and Saudi Arabia. The essential element of that economy is the exploitation and exportation of its natural resources. Substantially different from the US which produces goods and services.

It's interesting to note, too, that Norway is hedging its bets by making substantial foreign investments, i.e., they are exporting their dollars, too. Want to bet where those dollars end up?

Pertinent data on most major countries is available here:

http://www.nationmaster.com/graph-T/eco_gdp_cap

How then do you explain this?

Norway and Finand are ethnically homogenous nations with massive public sectors and centrally controlled welfare economies. If you look at the determinants of the "Global Competitiveness Index" you'll find that they base their rankings on three sub-indexes, and do NOT relate those factors back to real-world economic performance. One of those factors? "The quality of public institutions." IOW, the larger the public sector, the higher the ranking.

It's a neat study, but it doesn't really measure competitiveness as a function of economic policies or national finance (or even actually measure competitiveness at all) and it's stacked heavily in favor of Euro-socialist economies by the way the indexes are constructed.

The taxation %age numbers are non-contextual, and thus not terribly meaningful. EX: Mexico has low official tax rates, but until the last decade had enormous inflation rates. Monetary inflation of that scale is due to only one thing--the government spending money it doesn't have, and not in small bits but in huge whopping chunks relative to GDP. Back-door taxation. Mexico is finally working its way out from under the massive peso devaluations of the mid-90's and has achieved sustainable real GDP growth rates of around 5%/yr.

Norway is a bastion of "welfare capitalism." The massive oil reserves make it the third-largest exporter of oil in the world, and fund much of the public sector. State-owned companies control the oil fields entirely. Still, GDP growth in Norway has been flat for several years, with almost all "growth" due to increases in crude oil prices.

So let's look at the effect of those Reagan tax cuts. They took effect in 1983, and dropped tax revenues as a %GDP from 19.2 to 17.4 in that first year. However, in constant-dollar terms this was only a drop of 2.6% in overall federal revenue, and the constant-dollar revenues increased every single year afterwards. Overall the eight-year revenue track record for the Reagan budget years was an INCREASE in federal revenues of 67% in constant-dollar terms, even as the %GDP revenue increase was only 2%. Impressive GDP growth, that.

In short, every nation is different, so simplistic surface comparisons with other nations aren't a very good way to measure the applied efficacy of internal fiscal policies.

Yeah. What Tully said. That's what I meant.

Just a thought about the Reagan tax revenue figure...
how much of it was business cycle and I wonder how much of it was the fact that some of the massive deficit spending was coming back in tax revenue?

I certainly have no problem paying taxes for the relief effort in NOLA or for providing better body armor to our guys in Iraq..... but I refuse to contenance tax increases to provide Pentagon desk jockeys with strippers or to bronze Elvis's guitar or to keep some kids in the ShowMe state from the horrible tragedy of wearing too much black.

LOL! Good one, Cengal.

how much of it was business cycle and I wonder how much of it was the fact that some of the massive deficit spending was coming back in tax revenue?

Intelligent question(s). But circular ones--how much of the business cycle sustainability was due to the tax cuts? I can't think of any good way to accurately measure deficit spending "tax recycling." At least no practical ones for someone just sitting at home with a computer.

But just on the surface, a GDP increase of 67% resulting from a debt increase of 7% of GDP is obviously a winner.

If they're still looking for stuff to cut, they could start with this.

Ooops! Poor choice of words. No offense, Mr. Bobbit.

You all need to remember a few things about the Reagan tax loan. First of all it wasn't that dramatic when compared to two things, the deficit spending, and the fact that oil prices collapsed into a free fall form $80 (real dollars not nominal) to about $18, which alone could explain the increase in economic activity. Also the payroll tax doubled under Reagan and on the social front women started to enter the workforce in earnest by the end of the 70’s so by the mid 80’s the transformation from majority single income families to dual income families was complete. And again we have a situation where the tax cut simply funded the deficit and was, again a tax loan, not a true cut.

Also this ratio of tax revenues to GDP is completely meaningless because the tax base changes causing an apples to oranges comparison.

Cengel,

The link you posted is a good start, most of it is politically untenable, but even if you were to get all of those cuts enacted you still have a looooooooong way to go to reduce the debt even 50%.

The difference that you are failing to understand is what that $100 actualy represents. A $100 bill is nothing itself but an ugly piece of green paper with bad art on it.... it doesn't have any inhereint value. What it represents is POTENTIAL VALUE. That Value is ALL about efficient use of resources.

I’m not failing to understand this point, what I am arguing is that the difference between efficient uses and less efficient uses are marginal at best in the short term. They can be much different in the long term but not always because many uses of capital go for failed enterprises (Most business ventures fail and end up producing the exact same benefit as giving money to people for giggles).

Again, it’s easy to cut spending on my computer spreadsheet, not so easy when you understand that dollars cut from government is someone’s job. Those worker will have to be absorbed into the economy so drastic cutting can actually do a lot of economic harm in the short term.

Tully,

But just on the surface, a GDP increase of 67% resulting from a debt increase of 7% of GDP is obviously a winner.

But again that debt increase of 7% would need to be accompanied by the doubling of payroll taxes, the collapse of the oil market, and all the other things I mentioned to be replicated. Great trick if you can pull it off.

Again guys we are talking about cutting close to a half a trillion dollars in deficit by a federal government historically has been horrible at keep spending at the rate of inflation.

One last thing, what Clinton was talking about is simply not making the current tax laws, that are about to expire, permanent. Why not let them expire, see what happens and then reevaluate. After all if you all are so sure that the economy will tank if that happens then you will be vindicated and there will be a lot of political capital to cut them again.On the other hand if you not so sure...

Also notice what happened to payroll tax revenues which were not cut, while income tax revenue when down initially after the tax loan, and creep back up slowly, the regressive payroll tax increased revenues each year, this alone should at least cast doubt on the notion that the tax loan increases revenue to federal treasury.

And that, my friends, is authentic economic gibberish....

Rick, you're all over the map, and without a compass at that. Go to the budget figures and coherently demonstrate what you're talking about. Our current "tax loan" scheme that you deride so much (the carrying of national debt instead of taxing it out of existence) has been ongoing since 1791. Armageddon has yet to arrive.

Reducing the overall constant-dollar debt is not the point. Reducing deficit spending to where it increases the debt at a rate slower than GDP growth is the point. Do that and the debt as %GDP automatically shrinks. (And yes, %GDP is the appropriate comparitive measure for public debt and government spending, for both internal and external analytical purposes.)

With tax rates held steady, you do that by keeping government spending increases lower than GDP growth. With changes in tax rates, either up or down, you have profound secondary effects on GDP growth. Those exact effects will be situation-specific, and are not easily quantifiable for forecasting. But it's entirely unambiguous that if you cut effective tax rates, it stimulates GDP growth, and if you raise them, it retards GDP growth.

In any case, the question is do we pay for Katrina relief from spending cuts, more borrowing, higher taxes, or some combination?

I'm personally in favor of starting off the bidding by chopping the six thousand oinkity-oink earmarks out of the $286 Billion transportation bill. Surely our drunken sailors on The Hill can give up a six-pack each for the cause.

Rick,

It also "politically untenable" to get people to agree to fork over more money out of thier own pockets when it's blatantly obvious that you are wasting a HUGE amount of the money they ALREADY give you on things that provide absolutely no benefit to anyone except the individuals getting paid to create them.

Get it through your skull IT'S NEVER GOING TO HAPPEN. I am not alone in this. My attitude on this is a VERY MAINSTREAM one.

In order to get reasonable people to agree to fork over more of thier $ in taxes you have to show 3 things:

1) You are making efficient use of the money ALREADY entrusted to you and are spending it on things that are both neccesary and provide a real benefit to the public as a whole.

2) That there is a genuine NEED for the extra money you want them to fork over. That doing so will provide something which is truely NECCESARY for the country.

3) That you can be entrusted to use the additional money provided wisely and efficiently.

The governments FAILS MISERABLY on #1 and everyone knows it. Hasn't made a particularly convincing case for #2 yet.... and NO ONE outside of government itself (and a good portion of those inside it) has any faith whatsoever in #3.

That's the bottom line.

actualy no it's not.... and I would argue fairly convincingly that the 5th Ammendment to the Constitution and the arguements supporting it.... even in the Kelo case say just that.
" nor shall private property be taken for public use, without just compensation." . Even under the Kelo ruling the Court stated that Private Property may not be taken from A for the sole purpose of being given to B. In case you missed it, what is money but "private property"?

Now care to show me somewhere, anywhere in the Constitution that states that the Federal Government may take money (private property, wealth, whatever you want to call it) from 1 private citizen for the sole purposes of redistributing it to another private citizen?

Cengel, please be clear. Are you arguing that welfare, for example, is unconstitutional because it takes money, which is private property? I know that people don't like to face the fact that government takes some people's money and gives it to others, either directly (welfare) or indirectly (say, pork). But the gov't does this all the time, and no serious legal or political challenges to doing this exist. That's just the way it is. The only battle is over the nature and appropriate extent of doing this, not over whether it can be done.

The notion that the portion of the constitution you cite pertains to tax dollars is ludicrous. Please acknowledge this, so that I can think you not to be a barking moonbat.

actualy no it's not.... and I would argue fairly convincingly that the 5th Ammendment to the Constitution and the arguements supporting it.... even in the Kelo case say just that.
" nor shall private property be taken for public use, without just compensation." . Even under the Kelo ruling the Court stated that Private Property may not be taken from A for the sole purpose of being given to B. In case you missed it, what is money but "private property"?

Now care to show me somewhere, anywhere in the Constitution that states that the Federal Government may take money (private property, wealth, whatever you want to call it) from 1 private citizen for the sole purposes of redistributing it to another private citizen?

Cengel, please be clear. Are you arguing that welfare, for example, is unconstitutional because it takes money, which is private property? I know that people don't like to face the fact that government takes some people's money and gives it to others, either directly (welfare) or indirectly (say, pork). But the gov't does this all the time, and no serious legal or political challenges to doing this exist. That's just the way it is. The only battle is over the nature and appropriate extent of doing this, not over whether it can be done.

The notion that the portion of the constitution you cite pertains to tax dollars is ludicrous. Please acknowledge this, so that I can think you not to be a barking moonbat.

Rick, I think you're fighting far too hard to uphold your point in such a way as to OBCURE insight instead of HIGHLIGHT it.
If a tax rate or levy is reduced, that's a tax cut. Pure and simple. That's the way everyone understands it, and trying to re-cast things in a way that is counter to common and legitimate understanding does no one any favors.

I AGREE with you that the ultimate utility of a tax cut is extremely questionable when it is financed via borrowing, if the borrowing represents an escalation beyond expected growth in the means to pay off such debt. Call such practice a bad idea and you'll get lots of people to agree with you. But when you say that a tax cut is not a tax cut, all you get is baffled irritated looks. I see no reason to conflate the idea "tax cut" with the concepts of a reasonably balanced budget and sound fiscal practices. Why not let tax cut mean only a reduction in a rate or levy, that and no more?

Again, do you want to communicate clearly, or do you want people to have to slow down and clarify things every time you confuse someone with a peculiar, uncommon, confusing way of expressing your insight. Your argument on the utility of cutting taxes when they are financed via borrowing is worth examination. Why not pose such arguments in that way, instead of insisting that something which demonstrably IS a tax cut really is not? I find this insistence irritating, and I bet others do too. It's not clever, and it doesn't do you credit.

Cengel, I'd say that under normal circumstances you criteria are a pretty reasonable representation of the mainstream view.

But my intuition tells me that if a serious enough unanticapated crisis were to occur, politicans could get away with financing our response by raising taxes. Not as an ongoing practice to meet whatever needs might be iimagined by any politician, but as an an immediate response to an exceptional circumstance. Katrina might not be that circumstance, but I think a serious enough one (not that Katrina is NOT serious) could get people to set aside their focus on the criteria you cite. For example, suppose terrorists nuked a city killing hundered of thousands, or a state got invaded, or a world war broke out.

BK,

1) You failed to address my challenge and show me anywhere within the Constitution or any Supreme Court Ruling that supports the proposition which you have ventured. Namely that The appropriation of private property from one individual for the sole purpose of redistributing it to another individual is allowable under our system. Your wishing, or believing it to be so does not make it so.

2) Implying that some-ones views may make them " a barking moonbat" is a nice rhetorical trick of trying to avoid presenting any factual refutation of thier arguement.

For Example: Please tell me you don't believe Man evolved from Apes so I don't have to mistake you for a barking moonbat. See how nicely that works?

However, people here.... and you yourself on most occasions.... are far too sophisticated to fall for such sophistry.

If you have a factual refutation which supports your position please present it.

3) If you bother to check, and I'm sure the legal scholars here will correct me if I'm wrong, SCOTUS has consistantly held that the taking of private property from one individual citizen for the sole purpose of redistributing it to another IS UNCONSTITUTIONAL.

Taking property from one individual to give to another can be a side effect of an action the government takes but it CAN NOT BE IT'S PURPOSE.

Welfare has nothing to do with more equitable distribution of wealth (at least from a legal standpoint) it is a function of Public Order and maintaining a healthy, functioning society.... just like the Police or Fire Departments or Public Education. The purpose of welfare programs is to provide individuals with some minimal means which they can obtain the basic neccesities to survive. It's not about income redistribution at all.... even though that may be the effect of how such a safety net is supported.

This is not just symantecs, but rather goes to the heart of what is being discussed here. If a program fills a real public need then it is supportable under our system... even if it's EFFECT is to redistribute wealth from one individual to another. However a program who's sole purpose is to redistribute wealth from one individual to another is not.... it is, in fact, Unconstitutional.

4) The Constitution says "private property". It makes no distinction as to the type of private property. Real Estate is "private property", so is your car, your toothbrush, wedding ring, gold bullion you have in a safe.... and yes even that ugly green paper your employer gives you in return for your labor.

I'd like to read a bit more commentary on Rick's point about deficit spending fueling the economy moreso than tax cuts. That one's got me thinking. To be honest, I would like to see a cage match between Rick and Tully on that point, but I wouldn't mind hearing from others.

Taking property from one individual to give to another can be a side effect of an action the government takes but it CAN NOT BE IT'S PURPOSE.
Yeah, I think that's real hair-splitting, and to no good purpose, and not a hair I even momentarily considered worth splitting when I made my original statement. I'd call welfare and food stamps and even tax credits given to people who didn't pay income taxes in the first place to be direct income redistribution. And entirely allowable direct purposes of collecting taxes. Legal, unchallenged, and nowhere proscribed against in the constitution.

The Constitution says "private property". It makes no distinction as to the type of private property. Real Estate is "private property", so is your car, your toothbrush, wedding ring, gold bullion you have in a safe.... and yes even that ugly green paper your employer gives you in return for your labor.

I didn't mean to imply that you could not make the argument. Go ahead and make it. My point is there is currently no evidence that it has any legal traction whatsoever, or that it relates to what was meant by the people who wrote it. What would really be the point of you driving such a foolish truck through an expansive definition of private property, when you'd then be forced (by me) to acknowledge that I could drive every bit as large a truck through a similarly foolish and expansive interpretation of "without just compensation." If you can argue that eminent domain applies to all things which could be construed to be property, then i could argue that just compensation could mean things like the value of living in a just civil society. Buit then we'd both just be trying to win an argument, which I'm not interested in.

My point was, and is, that the government does such things all the friggin time, which you tacitly acknowledge before going to the trouble of splitting hairs over whether or not it's legal as a direct goal as opposed to a side affect.

I'm going to demur on your challenge as to whether the constitution authorizes this. The government engages in the sorts of practices I've described, and there seems to be no current legal constitution challenge to this, nor to my knowledge has theree been at any recent time in my life. I'm open to correction on that. Your entire case (countering what I believe to be an uncontroversial acknowedgement of things as they are) rests on an expansive definition of one phrase in a way that I've yet to see any court shown to agree with. So I don't think you're very authoritatively ahead of me, frankly.

If you could, please state for the record whether or not you believe programs such as welfare, food stamps, and income tax credits to those who have not paid any income taxes are in fact unconstitutional practices, and if you'd indulge me, also give me your best estimate as to these:

1. the percent of Americans that agrees with you
2. the liklihood that congress or the courts is going to come over to your way of thinking within the current century

I have heard many say that the income tax itself is unconstitutional and that congress has no innumerated power under which to have enacted it. But, then again, that doesn't seem to have stopped them, and the vast majority of people continue to pay it to some degree or another.

Cengel, i now realize i skimmed your post and missed some of what you said. Iif this is easier to follow, here's what i first said:

Taking money from one person's pocket and placing it in another is in fact an allowable function of a democracy, and again, one which has a demonstrable constituency.

If I were to amend this to the following, what is your remaining objection?

Taking money from one person's pocket and placing it in another is in fact an allowable function of a democracy as long as the government has any sort of plausible policy rationale whatsoever, and again, one which has a demonstrable constituency.

Notice that you've admitted this: If a program fills a real public need then it is supportable. This is the exception that one drives trucks through with ease. It seems that "income redistribution' is some sort of hot button of yours that I have inadvertently pushed. I don't distinguish between the hows and whys, the government takes taxes from some and than money ends up pretty directly in others pockets. Happens all the time. I'm awful confused about your objections given that I also said this RIGHT AFTER the statement that set you off:

I'm all for "cutting fat" and for "letting people make their own decisions with their money." But such talk often seems to gloss over substantive discussions about the relative merits of various government functions.

My whole point is that all the devil is really in the details of the relative merits of various government functions, as opposed to being in easy criticisms about waste. This point about the devil in the details of the particulars seems to me like it dovetails nicely with your contention that "If a program fills a real public need then it is supportable.

That's the whole ball of wax, what is a "genuine public need," right?

If you buy into the "income tax is unconstitutional" argument, be sure to get your assets to a safe haven before letting the IRS know, and pay your lawyer in advance. The tax courts think it's constitutional, and the USSC agrees.

All spending fuels the economy to one degree or another. The public/private point is valid, though. The private sector tends to spend more efficiently than the government in terms of economic stimulus, for the simple reason that the private sector is held to more immediate account for errors and stupidity, and is more likely to analyze that spending decision for maximum utility because they lack the power to tax or print more money. Given a choice between the feds spending a buck and the citizenry spending a buck, the citizenry is more likely to spend it in ways that promote long-term GDP growth.

There is also the fact that while the feds spending a buck still contributes to the economy, it does so through additional layers of bureaucracy, and each of those layers has its "drag coefficient."

Good luck quantifying the difference.

I certainly don't "buy into" the unconstitional-income-tax argument. I pay it, and don't cheat (much).

Anyway, the tax-cuts-versus-deficit-spending question in my mind was not one of which is better for the economy so much as one of which of those is at work now. I agree that private enterprise is better at spending money than government. But when there is massive government spending going on at the same time as some tax cutting, allowing some greater degree of private spending, what do you attribute any economic boost to and in what proportion?

I like the drag coefficient thing. I had already considered monetary friction as an efficiency reducer in the pump that circulates money throughout the economy. We might be able to work entropy and enthalpy into economic theory if it hasn't already been done.

"Taking money from one person's pocket and placing it in another is in fact an allowable function of a democracy as long as the government has any sort of plausible policy rationale whatsoever, and again, one which has a demonstrable constituency."

BK,
That's kind of like saying that "persons, houses, papers, and effects" can be searched and seized as long as government has any sort of plausible policy rationale whatsoever to defend it.

It is pretty clearly a violation of the principles of upon which the 4th Ammendment was founded....just as the concocting of rationales to excuse the taking of private property from one individual for the enrichment of another (i.e. income redistribution) is a clear violation of the 5th.

It can't just frabricate rationales as justification..... the rationales have to be genuine. If our Constistion is to have any meaning whatsover then the government must act in good faith to abide by it....not construct technicalities which allow it to be circumvented.

If our government is not to become some unholy mockery of the principles under which it was formed then it is not acceptable for it to make a facade of comforming to the letter of the Bill of Rights while abrogating it in spirit. So no, I will not support that doing so is an allowable function of our system.

There are lots of things which are allowable functions of our government which can legitimately have wealth redistribution as a side effect... but not a goal.

The Levying of Taxes is a legitmate and Constitutionaly supported function of our government.

The use of government funds to preserve Public Order and Enhance the General Welfare is a legitmate and Constitutionaly supported function of our government.

Even the distribution of public funds to provide for basic neccesities (such as in Welfare) in SUPPORT of the Public Order and General Welfare can be construed as a legitmate and Constitutionaly supported function .

However the seizure of property (whether land, goods or money) from one private individual for the sole purposes of redistributing to another private individual (i.e. wealth redistribution) is not. It is a blatantly obvious violation of the Property Rights that our Constitution and it's Bill of Rights was enacted to protect.

.............

"My point is there is currently no evidence that it has any legal traction whatsoever"

You would be incorrect in such an assertion. In fact the IRS itself recognizes that money is a form of private property, including money taken in taxes..... and there are Court cases to support it.
(http://www.irs.gov/businesses/small/article/0,,id=106507,00.html)

What it maintains is that the Constitution does not conflict with itself. Therefore the power levy taxes enumerated elsewhere within the constitution cannot be held to violate the provisions of the due process clause of the 5th Ammendment. Furthermore it contends that the administrative procedures for collecting taxes are not a violation of the due process clause SPEFIICLY BECAUSE there are post collection remedies (i.e you can sue for a refund) which constitute due process.

Perhaps we could avoid the whole ugly question if we had more politicians offering to give up their pork for Katrina relief. But you're more likely to see flying pork than trimmed pork.

Cengel, you're making FAR, FAR, FAR too big a deal over what I originally said. I NEVER said anything about redistributing income simply for the sake of doing so, YOU did. And you were the one who brought up property, not me.

My point is that the government redistributes income from one pocket to another all the time, and does so legally in the eyes of the court. This is what I'm talking about when I say there's no legal traction for your view; the courts let the government collect taxes, and lets them redirect that money to other Americans, in a wide variety of ways. Some of these redistributions are indirect, and some of them are fairly direct. Near as I can tell, you've acknowledged both the truth of this, and the legitimacy of this as far as taxes, welfare, etc goes.

So what's left to argue over? Only your mistaken contention that I have claimed that the government can redistribute income simply for the sake of doing so, without rationale. My point was only ever that the government redistributes income all the time, and the courts have continually acknowledged the government's wide latitude to do so. I'm baffled that you have repeatedly acknowledged that this happens all the time, but yet you still have some sort of problem with what _I_ have said.

However the seizure of property (whether land, goods or money) from one private individual for the sole purposes of redistributing to another private individual (i.e. wealth redistribution) is not. It is a blatantly obvious violation of the Property Rights that our Constitution and it's Bill of Rights was enacted to protect.

I never said this was legal and allowed. Go back and re-read every one of my posts and show me where I did. At some point you made a jump and attributed thid view to me.

It is pretty clearly a violation of the principles of upon which the 4th Ammendment was founded....just as the concocting of rationales to excuse the taking of private property from one individual for the enrichment of another (i.e. income redistribution) is a clear violation of the 5th.

It can't just fabricate rationales as justification..... the rationales have to be genuine. If our Constitution is to have any meaning whatsover then the government must act in good faith to abide by it....not construct technicalities which allow it to be circumvented.

Well in theory the rationales have to be "genuine." But the question is, genuine in whose eyes? Given the wide latitude congress gets in passing spending bills and legislation creating social programs, that's a naive idealistic viewpoint. For the most part, the only rational measure of "genuineness" is the willingness of majorities in both houses of congress to enact a bill declaring that it can be done, and the willingness of the President to then sign it. You might not like it, you may think it's wrong, but that's how it is. I'm just describing the way things are in a way that troubles you.

Is it or is it NOT you contention that a spending bill creating a program giving our tax dollars to some other Americans a practice that you think stands any reasonable chance of being successfully challeneged and struck down via the portion of the constitution you've been going on and on about?

Because I don't think it is. My point? There's ALWAYS a plausible rationale. That's HOW the government redistributes income, by collecting taxes and enacting legslation to give it back out. There's no NEED for the government to knock down your door, take $100 from your wallet and then give it to your neighbor. People would complain about THAT, and Congress couldn't be bothered doing it that way. It's far easier and more efficient to just tell people they have to send Uncle Sam the money in the mail;, and only come after them if they don't get around to it. OR to take the money from them before it even reaches their pocket. You're worrying about a boogeyman that need never come, and acknowledging that practices with the exact same result (you have $100 fewer) are legitimate!

"Well in theory the rationales have to be "genuine." But the question is, genuine in whose eyes?"

Genuine in the eyes of the Court if there is a suit brought. But prehaps more importantly genuine in the eyes of the voters who put these monkeys in office.

You don't think the fact that the GOP controls both Houses of Congress and the Presidency has anything to do with a backlash among middle-class voters AGAINST politicians taking thier tax money and redistributing it to others in the form of social entitlement programs?

Well,

Well,

I don't know if I want to be in a cage with Tully but...

The reason I harp on the "tax loan" chant is because we all need to understand that 1) yes tax money is "our" money. But it is also true that 2) the "debt" is out liability. Yu can't claim it's "our money" unless you take responsibility fro the debt, it's that simpl, you can't have one without the other.

Another point.

"Reducing deficit spending to where it increases the debt at a rate slower than GDP growth is the point. Do that and the debt as %GDP automatically shrinks."

No not at all unless the tax base tracks to GDP (we don’t tax productivity nor do we tax off shored employees that contribute to domestic GDP numbers). Productivity increases are one of the bigger sources of GDP growth and that does nothing to increase deficit reducing revenues to the federal government Also trade imbalances can reduce the the revenue to GDP ratio as well as off shoring (remember every job off shored reduces tax revenues).

I realize that I’m “all over the map” but it’s a pretty complex issue and when people say things like increasing taxes always do X you are reducing these complex economic concepts into cartoonishly simple slogans that don’t mean squat.

“But it's entirely unambiguous that if you cut effective tax rates, it stimulates GDP growth, and if you raise them, it retards GDP growth.”

It is also entirely unambiguous that when you go into a crash program of deficit spending it stimulates GDP growth.

There is a number of historical examples that contradict your statement above. The Reagan and Bush Tax increases come to mind as well as the Clinton tax increases, all of them happened and the economy still expanded. Also you do remember that Clinton cut the capitol gains rates in ‘98 and two years later we had a mild recession. No, I don’t accept your statement as necessarily true. The size of GDP is irrelevant if you are not taxing something to produce deficit reducing revenue to the federal government (or not taxing it enough, the Laffer Curve has a lower end as well where ever lower tax rates start to dimish the returns to the government).

Bottom line is when you deficit spend and redistribute the money, it’s deficit spending, pure and simple, if it makes you sleep better at night to distribute the borrowed money in the form of a rebate and call it a tax cut, be my guest, it don’t make it so.

Tully, the burden you have it to explain to me how 60 billion in “tax cuts” has more influence on our economy then 300 to 400 billion in deficit spending particularly when you consider that the federal government borrowed back every last dime of the “tax cut” to fund the deficit (hint: the tax cut was part of the deficit spending).

I don’t know how much more plan or simple I can make it and if you cannot grasp or understand that what is fueling our current “growth” is pure Keynesian deficit spending then the term “economic gibberish” is simply a euphemism for things you don’t understand (or don't care to admit).

...but that dosen't mean I don't love you :)

Rick, now I'm even more confused. You apparently prefer to call a tax cut a "tax loan"' when it financed via deficit spending. In this case, it's because you want to highlight the fact that the tax cut was paid for via borrowing.

But then you turn around and want to fight Tully by making a distinction between the merits of a tax cut versus deficit spending. You're acknowledging that both deficit spending _and_ tax cuts can stimulate growth, which is presumedly desirable. So then can you explain to me why financing a tax cut via borrowing and running a deficit isn't therefore DOUBLY good? In this way, you get both a tax cut _and_ deficit spending.

Cengel:

Genuine in the eyes of the Court if there is a suit brought. But prehaps more importantly genuine in the eyes of the voters who put these monkeys in office.

You have already acknowledged the legal and relatively unchallenged acceptability of taxing, paying for welfare, and most other instances where congress has enjoyed wide latitude to re-distribute income. So can you explain to me what particular instances of congressional exercise you expect to be successfully challenged? It seems to me that congress has more than ample existing and legally confirmed power to re-distribute income, and zero need to find new ways to do so, since the current ways have been more than sufficient to suit their purposes. Can you explain to me exactly what sort of new exercise of congressional power you expect to occur that can be successfully challenged under eminent domain? I just don't see it. You're describing a very general, vague, theoretical exercise of a constitutional challenge, but what exactly is a particular instance which you feel this could be applied to?

I'd settle for one example at this point! ...Of anything that might be reasonably envisioned to occur, or has occurred, which did not involve real estate. Which is of course the commonly accepted area in which eminent domain is thought to apply.

bk,

I originally had the same thought about Rick's discussion of deficit spending and tax cuts (loans). I think the problem is that spending, public or private, deficit or not, will provide economic stimulus to some degree or another, but that deficit spending MAY come at a future cost (i.e. bite you in the ass). Perhaps it's clearer to say that excessive (however that characterization can be true - I'm no economist) deficit spending WILL bite you in the ass.

BK,

Look guys it's simple, borrowing money and distributing to people is the very definition of deficit spending. There was no tax cut, income taxes were simply used to distribute the borrowed money.

If US government borrowed 30 billion dollars and distributed it to people based on, I don’t know, how many letters they have in their last name; that would be deficit spending, if they distributed it to corporations based on their level of campaign contributions, that’s deficit spending. If you lower marginal taxes rates and borrow money to cover the spending it’s still deficit spending.

All of this talk of a tax cut is, more or less, trying to cover the fact that the government is cutting what amounts to, as far as the larger economy is concerned, welfare checks to tax payers. But the bigger point is that these so called tax cuts give people the impression they are getting money back from the government, they are not, they are simply trading a few dollars now for an expanded debt liability later.

Supply Side economics dictates that you have to slash spending and then return the resulting surpluses to tax payers, that * is * a tax cut, because there is no resultant debt liability. Tax cuts can only stimulate growth if the government doesn’t have to go back and borrow the money back to cover the spending (with intrest). Otherwise it’s pure Keynesian economics (this is what Nixon meant when he said we’re all Keynesians now).

We didn’t “do both”, we only did one, we borrowed money and spent it, the fact that one of the channels for the distribution of those borrowed funds was based on income tax is wholly and completely irrelevant, other then to make people feel better about getting what amounts to a welfare check.

As for my “fight” with Tully, he is right in the sense that if people have more money to spend GDP grows. That is axiomatic, but when the government lowers marginal rates they collect less taxes, which happened after Bush’s so called tax cuts. revenues have declined each year from 2001 (They rebounded a bit in 2004 but revenues are still about $117 billion lower now then in 2001 in adjusted $) yet real (inflation adjusted) GDP went up 5% during the same time.

I am not trying to obscure anything; I think that calling deficit spending a tax cut is obscuring the issue, as trying to explain this simple concept has proven. Again if calling what the government did a “tax cut” makes you all sleep easier at night fine, I have no quarrel with that. But let’s just be very clear that what happened was a distribution of borrowed funds, not a “tax cut”.

Excessive and sustained deficit spending will bite you in the ass. Yep, you betcha. No ambiguity at all. Specifically, sustained deficit spending that constantly and consistently increases publicly-held national debt at a rate in excess of real GDP growth is bad. Period. It results in real growth of national debt in relation to GDP. Having more debt may be managable, it may result in increases in your asset base that justify the expenditure, but it's still more debt. If your debt grows faster than your asset base and income (in %age terms) it's not a good thing. It's a bad thing.

Just like a person with a certain amount of assets and income should be careful about the productive use of debt, so should nations. The bigger your mortgage payments, the less your discretionary income. But wise use of debt can allow you to build up your assets, to productively invest at a positive return. Has your house grown in value at a rate faster than the interest rate on your mortgage? GOOD! Have your adjustable-rate mortgage payments gone up faster than your income? BAD! Doh! Not rocket science.

The key question for what Rick is talking about is whether tax cuts in a time of deficits will hurt the economy less than the (theoretically) slightly lower deficits of no tax cuts. The answer is situation-specific and it's a far tougher question, because there is no simple (or even simplistic) straight line relation to point at, because it involves many many many different factors, and because it requires a heckuva lot of assumptions and skull sweat to even test. Essentially it depends on whether those tax cuts pay for themselves in increased future revenues and/or asset value growth when considered on a time-amortized financing basis. If they don't, it's stupid. If they do, it's smart. If they break even, it's nuetral and strictly political.

The tax cuts WILL produce an economic return. Unambiguous. That return WILL be greater than if the government had spent the money. Also unambiguous. When running budget surpluses with no debt it's an absolute no-brainer. Cut taxes. When running budget surpluses with some outstanding debt it's a bit more complicated, but the answer is still probably to cut taxes, if not as far. But we're not running surpluses, so those aren't the only relevant questions.

Will it be a return that meets or exceeds the amortized cost of the capital? IOW, will it meet the gold standard of applied cost/benefit time-value analysis? I dunno. Neither do you. Would the government have increased spending farther and faster if not for the immediately reduced income due to the tax cuts? I dunno. Neither do you. That's why the discussion rapidly becomes pointless. Everyone wants lower deficits, but you end up arguing either for higher taxes or lower spending, and nobody really wants either. And no one can point to any good quantitative way to answer the cost/benefit question.

I used to teach this stuff (monetary and macro economics) as a grad instructor. The incredible number of B-school students who managed to become juniors and seniors without being able to grasp basic math and probability, or the difference between political argument and established real-world cause & effect, was one of the major reasons I went another direction.

To clarify a bit farther--Rick's making a categorical/definitional argument. He is essentially right in that when running deficits, all other things being equal and unchanged, the immediate revenue "gap" of tax cuts is filled by offsetting borrowing. I'm saying that's a misleading argument, because it conflates some very different causes & effects, and ignores others. IOW, things are not and do not remain equal and unchanged, either in relation to gov't finance or external events. I am NOT saying that the tax cuts will (or won't) produce a positive return equal to or in excess of the "financing cost" of that offsetting borrowing. I dunno. Neither does he. Anyone who says they do know is a liar or crazy or an unsung genius with superhuman powers.

But neither do I know that Congress would not have spent MORE if they were getting that immediate revenue. Or if we hadn't had external "system shocks" such as 9/11 and the wars. Etc. I do know that if that money were to be borrowed and spent anyway, that we will achieve a much more positive economic result from it being spent by the private sector than by the public sector.

But comparing $ tax revenues at the height of the dot.com bubble with current revenues or 2001 revenues is not really a valid comparison for testing either. Revenues dropped well BEFORE the tax cuts were passed into law or became effective. The bubble burst, the market tanked, revenues dropped, all while the same rates were in effect. We were into a recession before Clinton left office. And yes, that affects GDP and tax revenues, but doesn't seem to dent the spending propensities of Congress. In constant-dollar terms, federal spending does not shrink. Ever. Regardless of revenues. If you can't or won't control the spending growth....

Tully,
If, as an example, you add 1 trillion to the debt over plus you've had to spend 200 billion in additional debt service payments over the same period, and your revenue increases a half billion then I don't think this is much of a winner. especially since there is continuing servicing of the existing debt as well as the new debt for the past 27 years.
If I'm not mistaken the Reagan numbers are that tax rcpts increased from 300 billion to 450 billion by 1989. I don't think this kept up with the deficit spending.

Finally, where does this 67% number come from???
I'm looking at the Dept of Commerce site and the Reagan GDP in fiscal 82 was 5189.3 Billion and in 89 was 6981.4 Billion

typo up there should read "1 trillion to the debt over 8 years"

To clarify a bit farther--Rick's making a categorical/definitional argument. He is essentially right in that when running deficits, all other things being equal and unchanged, the immediate revenue "gap" of tax cuts is filled by offsetting borrowing. I'm saying that's a misleading argument, because it conflates some very different causes & effects, and ignores others.

The problem Tully is you can say the exact same thing about “tax cuts”, you claim that cutting taxes will always produce expansion in the economy and this is an unambiguous fact. I’m saying that not only is this demonstrably false in many cases, but in those time when it does prove to be false, it is false for the very same reasons you cite above, because it conflates some very different causes & effects, and ignores others (by the way that some fairly impressive economic gibberish yourself [grin]).

Also it seems to me to be much more of a demonstrable fact that deficit spending produces economic gain in the short term and that is why it is essential that we do not confuse the notion of a “tax cut” with the FACT that what is really going on is deficit spending. Becasue if we do then we start making policy decision based on bad analysis.

We were into a recession before Clinton left office.

Yep only a year and a half after he cut the capital gains tax in half. Impressive. You also seem to be ignoring that fact that even if you start from the year we got those tax rebate checks (2001?) revenues have not even keep pace with the growth in GDP which is your bedrock claim. Tax revenue have not tracked to GDP growth (forget about spending).

And you have, as of yet refused to address my point about how it is that $30 billion (per year)or so in "tax cuts" has more influence over the economy then a half a trillion dollars in deficit spending. You don’t have to delve into “drag coefficients” here because even if the effect on the economy of the "tax cut" money was some absurdly high % of return, that number is still dwarfed by the deficit spending tsunami.

The problem is that the size of the “tax cut” is so small in comparison to the attendant spending (not to mention that the tax cut money then is immediately borrowed back to fund the deficit spending) that giving the “tax cuts" CREDIT for anything positive or negative in the economy is questionable at best and foolish at worse. It’s like two people bailing out a large boat, one has a small pale (tax cuts) the other has a power pump (deficit spending), and you’re trying to make the claim that the tax cuts saved the boat from sinking.

The key question for what Rick is talking about is whether tax cuts in a time of deficits will hurt the economy less than the (theoretically) slightly lower deficits of no tax cuts.

Not really, what I am saying is that when you reduce marginal rates during a time of deficit spending, the “tax cuts” themselves become part of that deficit spending, which is the only thing about this discussion that is unambiguous.

Look I'm simply trying to cut though this notion that if the "tax cuts" are allowed to expire, then the economy will tank (wich is exactly what they said about Bush I's increase and Clintons increase). Well you what, that could happen, but it won't be becasue of the tax increase, the numbers are too small relitive to everything else to really have much of aneffect, I'm simply getting tired of the "free lunch" economics that people seem to hold as axiomatic or "unambigious".

Rick, you're determined to ignore my key point, which has little to do with economics and much to do with communication. By denying that any decrease in a tax rate is a tax cut, and insisting that some tax cuts are not really tax cuts, you're trying to embed a complex argument into the meaning of a two word phrase. A tax cut means that your tax went down. That's all it means. Your attempts to deny the simple straightforward reality of this very much IS an attempt to obscure. You have made some legitimate points that deficit spending can be troublesome (which BTW, Tully, I, and most others acknowledge), but I don't think you are forwarding any legitimate purpose by trying to subvert the meaning in common parlance of "tax cut," which is a term understood by all to mean only that a tax has been decreased. It's a neutral description of a mathematical tweak, and it just doesn't embody any value judgement about whether this tweak is a good thing or a bad thing in the larger equation of economic good. You're trying to alter the meaning of it because YOU have freighted it with the following special meaning: tax cut-a decrease in a tax, which is always good." (BTW, I find the same problem with the term "entitlement" which always gets interpreted by liberals to be freighted with "which are always bad." Not what it means. I never use that term to be pejorative. I only use it because its a succinct description of a class of government programs, namely those which tend to cost a lot of money due to the fact that one qualifies for them, for the most part, simply by virtue of being an American. I am untroubled by the idea that we, as tax-paying Americans, can expect to be entitled to certain things in return for paying taxes. The question is, what things?)

As faras the economics goes, almost everything Tully has said makes sense to me, and over time I've become pretty well assured that Tully doesn't have that much of an ideological axe to grind. He's stubbornly data-driven, which means he usually deserves the benefit of the doubt, You on the other hand? Every successive piece you write convinces me that you don't know the subject anywhere near as well as Tully. And each new entry also convinces me that you are determined not to alter your hardened views, that instead you'll dismiss or explain away anything you find inconvenient.

I'm in the minority of Americans that is very concerned that in the coming decades our government will have trouble meeting its obligations. Especially because some of that money will be owed to me, and I expect to get it. But I also acknowledge that deficit spending isn't intrinsically bad. As Tully says, its badness is related to whether or not debt grows faster than wealth or not. This seems to me to be a crucial starting point, and one from which you have repeatedly ignored starting.

I didn't care much for Bush's latest round of tax cuts either. But it troubled me far far less than the unwillingness of those aligned with the democrats to acknowledge that the social security trust fund is not real money, only IOUs. Social security is going to represent a serious and growing funding problem. It deserves to be reformed now, and I care far less about the exact nature of the reform than I do about coming up with a rebalanced plan where we have the revenue needed to fund whatever form of promise we see fit to keep making.

The problem Tully is you can say the exact same thing about “tax cuts”, you claim that cutting taxes will always produce expansion in the economy and this is an unambiguous fact.

Yeah, Rick, let's see whether Tully meant exactly that, or whether he was instead talking about a preponderance of data suggesting which changes tend to have which effects. If one wishes fervently to ignore what a preponderance of evuidence suggests, one looks for, finds, highlights, and clings to the exceptions.

I'm thankful for Rick's comments, because they have resulted in my increased understanding of the economics behind taxation and deficits. Tully's comments (if he were here with me, I would hug him) would never have been made were it not for Rick. And I'm not saying Rick is just the gadfly provoking Tully in all of this. I learned some things from him, too. The real point is that this kind of exchange is why come to this site almost every day. It's friggin' byooteeful. Tonight I'll go home, have a couple beers, tell my wife about this stuff and she'll look at me and say, "When are you going to put the ceiling fan in?" That's livin', boys.

Rick,

I understand what you are trying to say. If the government decreases the amount of revenue it intakes by allowing me to keep more of my own money (i.e. a "tax cut").... but does so by increasing it's liability this increases my share of the public debt... and thus constitutes a loan (borrowing against future repayment) rather then anything else..... hence a "tax loan".

This is a neat rhetorical trick on your part.... I suppose that this would be an attempt of some of that "framing" that the Left is so hot about these days. However, there is one bring problem, your arguement entirely ignores the concept of ownership and the distinction between private and public property.

If I'm holding a shiny new quarter in my hand, it is my property I own it, I have direct control over what can be done with it (which is pretty much the definition of "property"). Now when the government takes that quarter in taxes, it is no longer "mine"... it is now the governments property and I have very little control over what can be done with it.

Likwise, if I take out a loan to finance some work on my house, that debt is "mine". I control whether I will take it out or not, I control how much I will take out, I control the rates I will agree to pay on it and (finances allowing) I control when and how it will be repayed (within the bounds agreed upon with my creditor). However, if the government takes out a loan (i.e. deficit spending)... that liability is not, as you would contend, mine... it is the governments.... because once again, I have very little control over what the government does with that debt.

Your neat trick is, in the first place, to try to attribute MY PROPERTY (i.e. the funds that the government would tax) as somehow really belonging to the government....and the GOVERNMENTS DEBT as somehow really belonging to me. Nice try but no sale...... as I've told superiors on many occasions I don't accept any ownership of or any liability for anything outside of my direct control.

Finally, remember that the shiny quarter really has no intrinsic value to me... it's what I can do with that quarter that has value.... when that quarter is my hands I can actualy do something with it that positively effects the quality of my life..... if that quarter is in the governments hand instead then I can't do anything with it.... and what some government beauracrat chooses to do with that quarter has a FAR, FAR better chance of doing nothing to effect the quality of my life or even DETRACT from the quality of my life then it does to improve it..... and they've proven that on many an occasion.

what I am saying is that when you reduce marginal rates during a time of deficit spending, the “tax cuts” themselves become part of that deficit spending, which is the only thing about this discussion that is unambiguous.

Finally! A clear statement of the claim. The problem being that the effect claimed is NOT an unambiguous effect, because changes in revenues and changes in spending are not the same thing. They have differing effects. They're on different sides of the balance sheet. They DO affect each other, but they're NOT functional equivalents. IOW, you're aggregating entirely different series of effects into a simplistic unitary claim of linear cause/effect, and it isn't either unitary or linear past a single moment in time, just as the hole left in a pond by dropping a pebble does not stay fixed, but collapses into complex and cross-reacting ripples. And in this case, you're dropping two pebbles simultaneously.

I actually agree with the basic premise--in the immediate short term, if you are running a deficit and impose an "instant" tax cut without changing your spending, then you must borrow more to maintain spending levels. Duh. Unambiguous. But that's just the very immediate and very short term effect. After that instant, the effects begin to diverge and cross-react. And then you must take into account ALL of the ongoing secondary and tertiary and quaternary and etc. effects of increased private revenue on the economy, and of reduced government revenue on the spending decisions of the spenders (Congress), and so on. The overall effects rapidly become ambiguous and situation-specific. (Good luck with that. The Unified Field Theory of Economic Behavior remains an unachievable Holy Grail. Humans aren't linear. They're organic. You hit the "map is not the territory" problem very quickly.)

After that instant, the effects run in different directions. Because changes in revenues and changes in spending are not the same thing. They have differing effects. And that's the flaw in your initial statement. People are not robots. Let me keep more of my own money, and odds are good I will invest it and use it more productively than the government would have, thereby eventually producing more in tax revenues. Take some money away from the government, and they have to figure out how to adjust to that lower revenue, whether it is from boosting their efficiency, paring back expenditures, or borrowing more. Past that immediate and extremely short-term government revenue effect, results are no longer unambiguous. They're behavioral and organic and very difficult to quantitatively predict.

You're looking for simplicity. Sorry, got none. Nothing is quite as complex as an entire economy composed of hundreds of millions of people (billions, actually, as our economy is a subset of the world economy). As Dr. Frankenstein proclaimed, "It's alive! ALIVE!!!" You're looking for simple long-term linear effects in an organic system. You only get linear effects on an extremely short-term basis. Past the immediate effect the results are expansive and systemic and non-linear.

The tax cuts did not materialize out of thin air in an instant. Everyone knew they were coming, and their behavior was thus affected before the cuts actually took place. Individuals knew they would have lower taxes, and altered their behavior. Congress knew they would have lower revenues as a percentage of GDP, and altered their behavior. Before the tax cuts even took affect the results were non-linear.

I'm not making any political argument here. I'm stating the facts of the monetary and behavioral economics involved. I'll skip deconstructing and refuting your misstatements of what I said earlier, save to note the profound difference between "will unambiguously produce an economic return" and "will unambiguously produce expansion of the entire economy." Brian nailed that one already.

I'm simply trying to cut though this notion that if the "tax cuts" are allowed to expire, then the economy will tank (which is exactly what they said about Bush I's increase and Clintons increase).

Hyperbole? Yep, from both sides, and in bucketloads. That's political rhetoric, not real economics. I'd put it differently. If tax rates are lower, economic performance will be greater than otherwise. If tax rates are higher, economic performance will be lesser than otherwise. That doesn't mean it will "tank" if you raise taxes (though it would be more likely than if you hadn't raised them) or that it would explode into massive growth if you cut them (though it would be more likely than if you hadn't lowered them). It refers to departures from the mythical steady-state baseline, the implicit ceteris paribus assumption central to all economic theory. Past that it's political rhetoric, not real economics.

Geez, Tully, you really did teach economics! I would only add to what you said above this:

Just as people adjust their behavior in anticipation of a tax cut, so do they in anticipation of a tax increase. And let there be no mistake, an elimination of a tax cut is, in fact and behavior, a tax increase.

where does this 67% number come from???