How To Kill An Economic Recovery

[howardroark]

Who would anyone invest in a country where the ruling party and the chief executive make no serious plans to cut spending or balance the budget while constantly harping for higher taxes?

[howardroark]

To those who might say: but if we had higher tax rates in the '50s, then why not now?!? 



The above graph shows one thing: that despite varying tax rates, the revenue collected as a percent of GDP never exceeded 20%. That indicates that those high rates were so riddled with loopholes that they were completely irrelevant as revenue generators. If anyone were actually to raise taxes so significantly, why would anyone invest just to have most of their hard earned money confiscated by the government?

[howardroark]

Why do we have a "jobless recovery?" Could it have to do with Obamacare causing the price of health insurance to skyrocket while creating a new $2000 per worker tax imposed on employers who don't offer health insurance? Who will hire in an environment where they can't afford to pay for their workers' health insurance but won't be able to afford the new $2000 per employee tax?

[howardroark]

Here is an econometric study conducted by two Harvard economists proving that tax cuts are a superior method for stimulating the economy compared to spending increases AND that spending cuts are better than tax hikes for balancing the budget.

Abstract:

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

http://www.nber.org/papers/w15438

[Straw Man]

Here is an econometric study conducted by two Harvard economists proving that tax cuts are a superior method for stimulating the economy compared to spending increases AND that spending cuts are better than tax hikes for balancing the budget.

Abstract:

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

http://www.nber.org/papers/w15438

As you said and I certainly agree - tax increases alone will never solve the deficit and I don't think anyone has suggested it would

how about  combination of tax increases and spending cuts

did they look at that specific scenario (I have no time now to read it which is why I'm asking you since I assume you have read it)

[howardroark]

As you said and I certainly agree - tax increases alone will never solve the deficit and I don't think anyone has suggested it would

Many leftists seem to agree with this point of view. But now the question is: why haven't Obama and the Democrats taken action on spending cuts that they could agree with the Republicans on? Why hasn't Obama offered up a budget which returns the federal government to fiscal responsibility via a combination of tax hikes and spending cuts? Or why hasn't he offered up a bill which at least takes care of the spending cuts now, since that is something (supposedly) which both the Democrats and the Republicans can agree on?

The fact of the matter is that Obama and the Democrats are bought-and-sold by special interests living off of government largesse. They can't offer up any spending cuts, because anything they cut would anger a portion of their base. And worst of all, one of the strongest special interests controlling the Democratic Party is the AARP and other lobbies totally against meaningful reforms to the largest budget-busting programs: Medicare and Social Security.

And while it is true that MOST Republicans would oppose any cuts to military spending, there is now a significant libertarian contingent of the GOP (e.g. Senators Mike Lee & Rand Paul and Congressmen Ron Paul & Justin Amash) which would go along with a bill which cuts spending across the board. If Obama introduced a bill which would cut spending across the board in a sensible manner, then he'd certainly get it passed in the Senate and would have a good shot in the House too. Better yet (for Obama), it would show that he is capable of leading and crossing party lines in order to get work done - something he needs now that he is running against Romney, who was able to balance the budget with an 85% Democrat legislature.

how about  combination of tax increases and spending cuts

Taxes already steadily increase. Inflation not only causes bracket creep, but it also erodes the real value of various tax deductions and tax credits.

The American people are already overtaxed on all levels of government:


While Americans suffer from government overtaxation, federal spending has grown much faster than median income:

did they look at that specific scenario (I have no time now to read it which is why I'm asking you since I assume you have read it)

Yeah, the study shows that the more heavily a "fiscal adjustment" leaned on spending cuts, the more successful it was in balancing the budget and the less likely it was to lead the country into recession.

[Straw Man]

Many leftists seem to agree with this point of view. But now the question is: why haven't Obama and the Democrats taken action on spending cuts that they could agree with the Republicans on? Why hasn't Obama offered up a budget which returns the federal government to fiscal responsibility via a combination of tax hikes and spending cuts? Or why hasn't he offered up a bill which at least takes care of the spending cuts now, since that is something (supposedly) which both the Democrats and the Republicans can agree on?

The fact of the matter is that Obama and the Democrats are bought-and-sold by special interests living off of government largesse. They can't offer up any spending cuts, because anything they cut would anger a portion of their base. And worst of all, one of the strongest special interests controlling the Democratic Party is the AARP and other lobbies totally against meaningful reforms to the largest budget-busting programs: Medicare and Social Security.

And while it is true that MOST Republicans would oppose any cuts to military spending, there is now a significant libertarian contingent of the GOP (e.g. Senators Mike Lee & Rand Paul and Congressmen Ron Paul & Justin Amash) which would go along with a bill which cuts spending across the board. If Obama introduced a bill which would cut spending across the board in a sensible manner, then he'd certainly get it passed in the Senate and would have a good shot in the House too. Better yet (for Obama), it would show that he is capable of leading and crossing party lines in order to get work done - something he needs now that he is running against Romney, who was able to balance the budget with an 85% Democrat legislature.

Taxes already steadily increase. Inflation not only causes bracket creep, but it also erodes the real value of various tax deductions and tax credits.

The American people are already overtaxed on all levels of government:


While Americans suffer from government overtaxation, federal spending has grown much faster than median income:


Yeah, the study shows that the more heavily a "fiscal adjustment" leaned on spending cuts, the more successful it was in balancing the budget and the less likely it was to lead the country into recession.

ok - just tried go read the actual study but I can't without paying for it

I assume you've paid for it and read it so can you post a copy here

[howardroark]

ok - just tried go read the actual study but I can't without paying for it

I assume you've paid for it and read it so can you post a copy here

Without violating any copyright laws... 

http://online.wsj.com/article/SB10001424052748704271804575405311447498820.html

My colleague Silvia Ardagna and I recently co-authored a paper examining this pattern, as have many studies over the past 20 years. Our paper looks at the 107 large fiscal adjustments—defined as a cyclically adjusted deficit reduction of at least 1.5% in one year—that took place in 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007.

According to our model, a country experienced an expansionary fiscal adjustment when its rate of GDP growth in the year of the adjustment and the next year was in the top 25% of the OECD. A recessionary period, then, was when a country's growth rate was in the bottom 75% of the OECD.

Our results were striking: Over nearly 40 years, expansionary adjustments were based mostly  on spending cuts, while recessionary adjustments were based mostly on tax increases. And these results would have been even stronger had our definition of an expansionary period been more lenient (extending, for example, to the top 50% of the OECD). In addition, adjustments based on spending cuts were accompanied by longer-lasting reductions in ratios of debt to GDP.

In the same paper we also examined years of large fiscal expansions, defined as increases in the cyclically adjusted deficit by at least 1.5% of GDP. Over 91 such cases, we found that tax cuts were much more expansionary than spending increases.

How can spending cuts be expansionary? First, they signal that tax increases will not occur in the future, or that if they do they will be smaller. A credible plan to reduce government outlays significantly changes expectations of future tax liabilities. This, in turn, shifts people's behavior. Consumers and especially investors are more willing to spend if they expect that spending and taxes will remain limited over a sustained period of time.

On the other hand, fiscal adjustments based on tax increases reduce consumers' disposable income and reduce incentives for productivity.

American firms today are profitable and have large unspent resources. But their uncertainty over regulation and taxes discourages them from risk-taking, investment and consumption. In Europe, governments would strengthen the banking sector if they cut spending and reduced their default risk. This, in turn, would ease the flow of credit into the private sector.

[Straw Man]

So nothing that specifically applies to our current situation that compares ~3% marginal tax increases (i.e. expiration of the the Bush tax cuts combined with a relevent decrease in spending?

If congress doeasnt come to an agreement soon that is exactly what we will get
It was put in place the last time the Repubs decided to play chicken with the debt ceiling and I think it will be a good thing

[Soul Crusher]

 

[howardroark]

So nothing that specifically applies to our current situation that compares ~3% marginal tax increases (i.e. expiration of the the Bush tax cuts combined with a relevent decrease in spending?

Wrong, the study directly applies to our current situation since it shows that:
1. Tax cuts are more stimulatory than spending increases for economic growth
- and -
2. Spending cuts are better than tax hikes for deficit reduction and are less likely to cause a recession.

If congress doeasnt come to an agreement soon that is exactly what we will get
It was put in place the last time the Repubs decided to play chicken with the debt ceiling and I think it will be a good thing

Except that the spending cuts in that deal are practically speaking nonexistent: they don't actually cut spending, but decrease the rate of growth. That combined with the tax hikes is a recipe for disaster.

In my opinion, the Republican House should have refused to raise the debt ceiling, thereby forcing a balanced budget IMMEDIATELY. Sure, Obama and the Senate Democrats could then have allowed the Bush tax cuts expire, but so what? Then they'd get the blame for raising taxes while the Republicans would get kudos for cutting government down to size and balancing the budget. Furthermore, drastically cutting spending and balancing the budget would have been VERY stimulatory as it would stop budget deficits from crowding out private investment AND it would encourage people to invest in America since it would show that further tax increases (beyond Clinton levels) are unlikely to happen.

[Straw Man]

Wrong, the study directly applies to our current situation since it shows that:
1. Tax cuts are more stimulatory than spending increases for economic growth
- and -
2. Spending cuts are better than tax hikes for deficit reduction and are less likely to cause a recession.

Except that the spending cuts in that deal are practically speaking nonexistent: they don't actually cut spending, but decrease the rate of growth. That combined with the tax hikes is a recipe for disaster.

In my opinion, the Republican House should have refused to raise the debt ceiling, thereby forcing a balanced budget IMMEDIATELY. Sure, Obama and the Senate Democrats could then have allowed the Bush tax cuts expire, but so what? Then they'd get the blame for raising taxes while the Republicans would get kudos for cutting government down to size and balancing the budget. Furthermore, drastically cutting spending and balancing the budget would have been VERY stimulatory as it would stop budget deficits from crowding out private investment AND it would encourage people to invest in America since it would show that further tax increases (beyond Clinton levels) are unlikely to happen.

Ill read your link later today but I've seen the exact opposite conclusion regarding the stimulatory effects of tax cuts vs spending increases

The spending cuts in the debt ceiling agreement are large enough to have the Repubs worried (aren't they supposed to be in favor of spending cuts) and I predict that after Obama wins in November they will quietly compromise on the Bush tax cuts in order to prevent a cut in spending

Though I wish they would not and let both the tax cuts expire and spending decreases go into effect

[Soul Crusher]

Ill read your link later today but I've seen the exact opposite conclusion regarding the stimulatory effects of tax cuts vs spending increases

The spending cuts in the debt ceiling agreement are large enough to have the Repubs worried (aren't they supposed to be in favor of spending cuts) and I predict that after Obama wins in November they will quietly compromise on the Bush tax cuts in order to prevent a cut in spending

Though I wish they would not and let both the tax cuts expire and spending decreases go into effect

LOL.   We have spent 6 trillion in deficit spending in the last 3 1/2 years alone and what do we have to show for it?   N O T H I N G   

[howardroark]

The per capita tax burden has increased over the years, largely due to inflation causing bracket creep and eroding the real value of deductions and credits:


Meanwhile, government spending has exploded:


Doesn't this prove that the problem is not insufficient tax revenue but too much government spending?

[tu_holmes]

As you said and I certainly agree - tax increases alone will never solve the deficit and I don't think anyone has suggested it would

how about  combination of tax increases and spending cuts

did they look at that specific scenario (I have no time now to read it which is why I'm asking you since I assume you have read it)

I read once... Not too long ago, that if you increase tax revenue 3% but reduce spending 25%, that the budget will balance itself out within 15 years.

All things remaining equal.

I think most people would agree that is an ideal scenario.

[Straw Man]

I read once... Not too long ago, that if you increase tax revenue 3% but reduce spending 25%, that the budget will balance itself out within 15 years.

All things remaining equal.

I think most people would agree that is an ideal scenario.

You'd think most would but it seems Repubs equate moving tax rates back to the level they were under Clinton is somehow a slippery slope to communism and this is in spite of the fact that our defence spending has doubled ( I think) since that time

[howardroark]

You'd think most would but it seems Repubs equate moving tax rates back to the level they were under Clinton is somehow a slippery slope to communism and this is in spite of the fact that our defence spending has doubled ( I think) since that time

A straw man created by Straw Man. You watch a little too much MSNBC. Opposition to raising taxes has nothing to do with communism and everything to do with the following:
1. Tax revenues have grown in real terms thanks to economic growth.
2. The tax burden on the Average Joe has increased due to inflation pushing individuals into higher tax brackets.
3. The tax burden has increased due to inflation reducing the real value of tax deductions and tax credits.
4. Higher taxes have a dismal record of reducing deficits, as they are usually used to fund more spending.
5. Economically speaking, tax hikes are more damaging than spending increases (as I demonstrated in this thread).
6. Government spending has increased at record paces over the past few decades, thereby causing the budget deficits.

Yet what's the leftist solution? MORE TAXES, not less spending.

The Republicans are taking the sensible approach here.

[Straw Man]

A straw man created by Straw Man. You watch a little too much MSNBC. Opposition to raising taxes has nothing to do with communism and everything to do with the following:
1. Tax revenues have grown in real terms thanks to economic growth.
2. The tax burden on the Average Joe has increased due to inflation pushing individuals into higher tax brackets.
3. The tax burden has increased due to inflation reducing the real value of tax deductions and tax credits.
4. Higher taxes have a dismal record of reducing deficits, as they are usually used to fund more spending.
5. Economically speaking, tax hikes are more damaging than spending increases (as I demonstrated in this thread).
6. Government spending has increased at record paces over the past few decades, thereby causing the budget deficits.

Yet what's the leftist solution? MORE TAXES, not less spending.
The Republicans are taking the sensible approach here.

how many times in this thread alone have I said that I would prefer a slight marginal increase in taxes for everyone combined with spending cuts

btw - please learn what a  Straw Man argument is.   Repubs use it often enough that you should have plenty of examples

[howardroark]

Empirically speaking, which approach works better: more government, more spending, more taxation, and more regulation OR less government, less spending, less taxation, less regulation, and more property rights?

[howardroark]

how many times in this thread alone have I said that I would prefer a slight marginal increase in taxes for everyone combined with spending cuts

And how many times do I have to demonstrate that that is a less optimal approach than cutting spending and leaving taxes alone or perhaps even cutting them? How many times do I have to demonstrate that there are automatic tax increases built into the tax code via inflation and economic growth? How many times do I have to demonstrate that Obama and the Democrats have repeatedly failed to present ANY plan returning us to fiscal responsibility while the Republicans HAVE proposed a budget which at least eventually returns us to a balanced budget?

btw - please learn what a  Straw Man argument is.   Repubs use it often enough that you should have plenty of examples

Example of a straw man argument: claiming that Republicans oppose tax hikes because it is a backdoor to communism. Hmmm, who said that recently? That's right, YOU did:

You'd think most would but it seems Repubs equate moving tax rates back to the level they were under Clinton is somehow a slippery slope to communism

[tu_holmes]

And how many times do I have to demonstrate that that is a less optimal approach than cutting spending and leaving taxes alone or perhaps even cutting them? How many times do I have to demonstrate that there are automatic tax increases built into the tax code via inflation and economic growth? How many times do I have to demonstrate that Obama and the Democrats have repeatedly failed to present ANY plan returning us to fiscal responsibility while the Republicans HAVE proposed a budget which at least eventually returns us to a balanced budget?

Example of a straw man argument: claiming that Republicans oppose tax hikes because it is a backdoor to communism. Hmmm, who said that recently? That's right, YOU did:

But the facts state that 3% increase and a 25% cut would be most ideal.

[Soul Crusher]

But the facts state that 3% increase and a 25% cut would be most ideal.

The reason people object to that is because the spending never ever gets cut.   

[howardroark]

But the facts state that 3% increase and a 25% cut would be most ideal.

What "facts?"

The facts state that:
1. Tax cuts are more stimulatory than spending increases, and
2. Spending cuts are superior to tax hikes at deficit reduction while also having a stronger positive impact on the economy.

[tu_holmes]

The reason people object to that is because the spending never ever gets cut.   

That may be true... but I'm not talking about reality... The reality is that taxes don't go up because people don't want them and spending never gets cut anyway.

So the reality is a disaster, but if people wanted to get SERIOUS about fixing our budget,  this is what they would do.

[howardroark]

That may be true... but I'm not talking about reality... The reality is that taxes don't go up because people don't want them and spending never gets cut anyway.

So the reality is a disaster, but if people wanted to get SERIOUS about fixing our budget,  this is what they would do.

The reality is that taxes HAVE gone up, and despite that the deficits have increased:


Three factors which increase tax revenues:
1. Economic growth, which causes the real value of tax revenues to rise.
2. Inflation pushing individuals into higher tax brackets despite no real gains in income.
3. Inflation eroding the real value of tax credits and tax deductions.