No. To allow cuts to expire is not the same thing as raising taxes. If it were, then Dubya *would not* have created "temporary tax cuts" in the first place; he would have proposed permanent tax cuts back 2003. If Dubya wanted tax cuts to be permanent, then he would have made them permanent.


No, we don't know this. I don't understand why you insist on promulgating this myth as if were fact. It is not a fact; it is not proven. Moreover, there is no data to support this claim.


I can agree with this.


Care to back this assertion with real data?

Oh yeah? People have been worshiping at the alter of the Laffer Curve for decades, but to the best of my knowledge nobody has even tried to actually prove that tax cuts are revenue neutral or revenue positive. Instead people just repeat it until its accepted as gospel.

Go out and find the proof that lowing taxes creates enough economic growth to make up for lost revenues. Go ahead, find the study that does it. I triple-dog dare you. If you do, I will take a picture of myself in drag, and post it on the site.

One study that proves it, with solid evidence, clearly thought out deductions, and a methodology which has been tested but not completely debunked.

Go ahead. Put your money where your mouth is or stop repeating this tired mantra...

Unsupported nonpartisan hunch:

You know who benefits the least from a repealing of the Bush tax cuts? Retailers.

Did you read the link? Apparently lots of folks from JFK on disagree with you.



Sure

"Obama unveiled much of his economic strategy in Wisconsin this week: He wants to spend $150 billion on a green-energy plan. He wants to establish an infrastructure investment bank to the tune of $60 billion. He wants to expand health insurance by roughly $65 billion. He wants to "reopen" trade deals, which is another way of saying he wants to raise the barriers to free trade. He intends to regulate the profits for drug companies, health insurers, and energy firms. He wants to establish a mortgage-interest tax credit. He wants to double the number of workers receiving the earned-income tax credit (EITC) and triple the EITC benefit for minimum-wage workers.”

The Wall Street Journal's Steve Moore has done the math on Obama's tax plan. He says it will add up to a 39.6 percent personal income tax, a 52.2 percent combined income and payroll tax, a 28 percent capital-gains tax, a 39.6 percent dividends tax, and a 55 percent estate tax.
Not only is Obama the big-spending candidate, he's also the very-high-tax candidate. And what he wants to tax is capital.
Doesn't Obama understand the vital role of capital formation in creating businesses and jobs? Doesn't he understand that without capital, businesses can't expand their operations and hire more workers?

Obama believes he can use government, and not free markets, to drive the economy. But on taxes, trade, and regulation, Obama's program is anti-growth. A President Obama would steer us in the social-market direction of Western Europe, which has produced only stagnant economies down through the years.
Imitate the failures of Germany, Norway, and Sweden? That's no way to run economic policy.

http://www.realclearpolitics.com/articles/...ernment_vi.html

You can keep this crap. He sounds good – until the bill come in.
“

All we have Joe are these “coincidences” that seem to happen after tax cuts – people spend their money and economic activity increases. Hard to “prove” cause and effect – as you know doubt know. Maybe some day Canada will cut taxes and we will have another “coincidence” – naw never happen.

Huh. I guess if we're going to say that lower taxes means more growth, and that the added growth will generate revenue, tax cuts, in a way, do "'help' pay for themselves." That is, the extra revenue from growth does offset, to some degree, the tax revenue lost from the tax break.

Just probably not all the way.

This claim, while theoretically true, has not been proven empirically. After taxes were cut in 2003, the economy did grow in 2004, 2005 and 2006. However, in 2007 and likely 2008, the economy did not grow. Using that data, if tax cuts do cause economic growth, they must also cause economic decline. Clearly, both cannot be true. Since both are not true, the claim of causation must be false.


Yes, I understand the reasoning here. If tax cuts do cause the economy to grow, then it logically follows that some of the loss in revenue may be compensated by subsequent economic growth. Nevertheless, as demonstrated above, the claim "tax cuts cause economic growth" must be false. A faulty premise generates faulty conclusions.

Logophage, I don't understand your position fully. Are you claiming that tax cuts have zero effect on economic growth?

Edit: Thats kind of a ridiculous question, you say as much right here:

This position isolates you somewhat. Even Paul Krugman says the Bush tax had some effect on growth! The question has always been how much.

Here's a study that compares tax levels to both government revenue and to economic growth. This was done a few decades ago, so it lacks the partisan angle that a current analysis would give.

http://www.ncpa.org/studies/s159/s159.html



For reference, the current tax level is 26.8% of GDP when you include federal, state and local taxes. This obviously does not maximize revenue, it is closer to maximizing growth.

Of course there are dozens of factors that go into whether or not the economy will go up or down. Taxes are simply one input and the one that the government has direct control over. Consumer confidence, accounting scandals, predatory lending and other factors which are impossible to isolate are not under the direct control of the government.

In this thread there have been two claims regarding tax cuts.

1. Tax cuts cause economic growth.
2. Tax cuts generate revenue through economic growth in excess of revenue lost through tax cuts.

The burden of proof for (1) is much lower than the burden of proof for (2).

In reference to (2), I think this is clearly false and have proven it with my causation syllogism. I don't want to go over it again.

In reference to (1), I understand the Laffer curve and find the theory behind it appealing. Nevertheless, I haven't seen any empirical study that definitively proves this effect by isolating against all other variables. The theory re-stated: people get more money in their pocket to spend by having less of it taxed AND money spent encourages economic growth. However, this theory ignores other effects. For example,

A. Money taxed is also spent. It is spent by the government. If money spent does encourage economic growth, then we should also see economic growth due to government expenditures.

B. Money spent may not encourage economic growth. Things like inflation mean money doesn't go as far to procure goods and services OR spending could simply be inefficient.

C. Just because you get taxed less doesn't mean you're going to spend more. People may be saving or more likely paying off debt. Paying off debt doesn't have a very strong effect on economic growth. In fact, it can mean the opposite as many lenders cite their outstanding loans as a measure of their revenue potential.

Finally, in this thread people have used economic growth trends post-2003 tax cuts as evidence for both claim (1) and claim (2). My earlier post was trying to show how that argument fails for both claims. I am not saying that claim (1) is false but rather that that particular argument in favor of claim (1) is false. Sorry if that wasn't clear.

Hopefully I can respond in more detail later.

For right now:

Ted speaks the truth. A popular study from one of my favorite economists on the blogosphere, Mankiw:



Dynamic Scoring: A Back-of-the-Envelope Guide
Two things about the quality of this study. Mankiw is no extremist, and this peer-reviewed paper was published by the highly respected NBER.

To your points about tax cuts: A)Tax cuts will have a broader impact on the economy than government spending, though government spending is direct spending and will have a positive effect on GDP.
C) Savings doesn't mean money gets whipped into the negative vortex of non-GDP; savings equals investment.
I doubt inflation was large enough to eradicate anyones tax benefit, though it probably effected it to some degree.

Thank you for the link. I'll read that in more detail as I have time. The last paragraph in the abstract caught my eye though:
The model they employ may be powerful and useful but it has not been proven. Sorry to be such a stickler on this. And again, I'm not arguing that economic growth cannot occur; I am saying that this hasn't been proven.


I agree that tax cuts will have a broader impact across the economic spectrum, but this doesn't mean the net economic impact between consumer and government spending will be different. Breadth-based and depth-based spending can have an equivalent impact.


This is true. Savings does equal investment though not all investment grows the US economy; some could be foreign. I was trying to emphasize debt reversal though. Paying off debt doesn't grow the economy (at least not how it's currently calculated).


You're probably right about inflation. Nevertheless, there are a number of other factors that could mitigate the growth effect due to spending including inflation, inefficiencies in the market, inefficiencies in the purchase choices made by consumers, purchasing foreign goods, and so on.

Inflation is a hurdle for any stimulus plan. As a specific criticism of tax cuts, its a weak argument.

Tax cuts that target consumer spending are fairly simplistic and generally aren't plagued by the market inefficiencies of investing.

I have a hard time envisioning a scenario where a consumer willingly makes an inefficient purchase. Technically, any transaction where both parties end up happier is a bridge towards efficiency. E.G: I have $100, and a producer has a fur coat. I'm happier with the coat than the $100, and he's happier with the $100 than the coat. It doesn't matter that coat has no productive value, everyone is better off.

These are little snippets at something thats true overall. Certainly, people can pay off debt with their tax savings, but its unlikely that all of the tax cut will go towards paying off debt. Alot of it will ultimately be used to buy stuff, which means that, holding everything else constant (government spending), a tax cut will provide more growth than no tax cut.

I think your other two arguments are off mark except this one. If government spending increases growth, and tax cuts increase growth, will reducing government spending to increase tax cuts result in less, more or no growth?

From a theoretical perspective, theres little reason to assign much difference between government and consumer spending. GDP does not care whether Tim buys a pizza or Uncle Sam does, so much as it gets bought it contributes towards GDP and is a factor in growth.

But from a practical perspective, there are several reasons why government spending is not the way to go. First, as I mentioned before, tax cuts have a broader impact on the economy as a whole. Government cannot spend money at all stores everywhere, but consumers might be able to. In the long run, this won't make much of a difference because there should be a chain effect where people pass money for products amongst themselves until all money and products find the right places. In the short run, however, more people will feel relief from a tax cut than government spending.

The second reason is that government spending is not always efficient (thats an understatement!). I chuckled a bit when I read your comment "inefficiencies in the purchase choices of consumers." Consumer spending looks like a utopia of efficiency compared to government spending.

Part of the reason is actually pretty practical: its a hard job to tax people and then guess at a transaction that makes people collectively better off than the tax dollars they spent. To take the fur coat example: if a politician was authorized to tax $100 from the people and spend it on a coat, people might end up wanting different coats. Its hard to choose the best coat given the diversity of opinions.

The other part is that government officials often use tax money to satisfy their own desires. In fact, I will argue that government is more likely to make inefficient transactions than private citizens because elected officials do not personally bear the costs of the transaction . If a normal person were given a tax rebate for $100, and they saw a coat that to them was only worth $50, they would, efficiently, choose not to buy the coat. On the other hand, if a government official saw the $100, and it was only worth $50 to him, and he was allowed to spend $100 of tax payers money on the coat, he would end up making the purchase because the coat effectively costs him nothing. This example is a little unfair, because, realistically, government officials don't have authority to spend money willy nilly on personal items like I described. But the lines of public and private expenditures often get blurred, and I have great confidence that everyone on AD can extrapolate my example towards cronyism, bridges to nowhere or other pointless government projects. The overarching idea is that an elected official might make spend $100 of taxpayer money for $50 of personal benefit.

Whether inefficient government spending is due to practical difficulties or corruption, a tax cut which cut these inefficient programs, and then generated efficient consumer spending, would help the economy overall in the long run. Money given back to the people is better spent than building national parks or pointlessly invading countries. I can think of a couple things I would like to cut .

As a practical matter, the government, when employing Keynesian economics, generally funds tax cuts through borrowing anyway while they ramp up government spending. Those cuts don't suffer the conflicting nature of reducing government spending.

There is rarely such strict empirical proof available for all social studies, and particularly ones with such a broad claim.
The study I linked used real US data from a reliable economist at a reliable source: it demonstrated that tax cuts are partially self-financing.

This is the first time I've gone up against a "non-position" ("I'm not arguing that economic growth cannot occur; I am saying that this hasn't been proven"), and I feel you have a right to an explanation of the logic I'm employing, and a source of reasonable data. However, I've bent over backwards, particularly with this last post, to provide both. I don't feel I have to jump through a specific hoop in order to be confident that tax cuts increase growth.

After all, as the study I linked says:

Even Paul Krugman agrees the last round of cuts were at least a little stimulative. To be blunt, Ted and I are in good company.

Why is it a weak argument? Just because it's a hurdle for any stimulus plan doesn't mean it's invalid (or weak); in fact, it means it's a hurdle. Let's also not ignore the often unstated companion to tax cuts which is increased borrowing. Government borrows money to account for the loss in revenue. This debt has almost always been reflected in increased inflation.


Yes, I have a hard time envisioning this scenario as well. I was simply citing the fact that inefficiencies are a consideration and have not as far as I can tell been considered. But, even in your example, a consumer can make inefficient choices even if both parties end up happier. Consider the following:

A consumer may wish to buy a fur coat and has dozens of choices from which to choose. There is a well-known effect that the consumer simply doesn't research all those choices due to lack of time, lack of knowledge of those choices or lack of desire. Regardless of the reasons, a consumer may purchase the coat for $100 when it could have been purchased for $80. This is also an inefficiency.

Still, focusing on inefficiencies in the consumer's choices is a small but not insignificant factor. What is a far greater factor is foreign purchases. This, I would like to see addressed in your argument.



Debt will need to paid off at some point unless you're advocating bankruptcy as a means of growing the economy. You cannot simply wave your magic "debt is insignificant" wand to discard this argument. Our current economic crisis is due to debt.


Yes, it is likely that government spending is more inefficient than consumer spending. Didn't you just get done arguing that inefficiency is not a very significant factor? I agree with this, BTW. You seem to be arguing that the effect of government spending on economic growth is significantly smaller than the effect of consumer spending (given the same dollar amounts). This is an unproven claim (though I might agree the effect is insignificantly smaller).


I'm not asking for strict empirical proof. I asking for proof where the preponderance of the evidence suggests your claim. The study you cited (which I'm still digesting) makes inroads here but the claim still is far from confirmed.


I can't say this for sure until I understand how their model works. I will say I'm skeptical that it deals with a debt financed market since a lot of this market was off the books. Will the study be amended given all the new data we have about failing financial institutions? Will we see this study incorporate data of a post-tax cut, recessionary economy that we're in now? I doubt it. So, how good can this model be?


Yes, I appreciate the fact that you have cited a model which tries to demonstrate that tax cuts grow the economy. I am playing the skeptic here. I understand the theory of tax cuts due to the Laffer curve but the jury is still out. I'd like to see how this model accounts for our current economic woes and the debt financed economy it took to get us here.

As I mentioned, as a specific criticism of tax cuts, its a weak argument because presumably any plan is hurt by excessive inflation.

In any case, its unlikely anyones tax savings got wiped out by inflation.

Hmm, that depends on exactly what you mean by inefficient. I will save the more technical argument, because those are no fun.

I'm taking my definition of efficiency straight from the concept of Pareto efficiency. If it is better to buy the coat at $100 than not, its optimal to buy the coat. While there may indeed be more optimal moves out there, its still a better position relative to the starting point. If a tax cut funded the purchase, there is still a gain to the economy, just less than what their otherwise might have been.

Unless a consumer spends $2 for $1, your argument doesn't work. Growth is growth, whether it is maximized or not. If tax cuts generate a positive sum of $20 from one transaction, but $40 from a better transaction, then we are merely quibbling about how much growth tax cuts cause, not whether they cause growth.

In the context I gave above, I think its both small and insignificant.

I never said debt was insignificant, your putting words in my mouth. With the debt we're issuing, our government cannot become bankrupt.

Our current economic crisis is most certainly not due to government debt. Debt is bad depending on the circumstances.

Consumer inefficiency is more unlikely because people weigh and experience the costs and benefits of purchases. The government, on the other hand, is unsure about the exact benefits of public policy, and officials do not themselves experience the costs (I have a long explanation of both of these in my previous post, for those just tuning in).

I've also been told the jury is out on evolution, a technically unproven 'theory' where certain inroads have been made, but which is still not "confirmed." (I believe in evolution and global warming, just fyi).

The data has been weighed, and economists generally accept these principles. Its time to embrace the consensus.

Edit: Clarity

BH, while I agree with the rest of your post entirely - I have to question that last sentence. US GDP 2007 = $13.9 T, US debt = $12.3 T. Government budget $3.1 T (2008 est). Seems to me that if the debtors come calling we can't pay. Maybe I'm missing something?

Logo, you believe in the laffer curve because you know that it makes sense. The peak point is the question mark. If it's over 39.6%, then ditching the 2003/2001 tax cuts would likely (taxes by themselves do not an economy make) increase revenues. I do have theory that increasing taxes a marginal amount actually helps the economy short term as people just work harder at first to maintain their standard of living. Long term of course it is demotivating. You also know that tax cuts grow the economy. I never saw your response to the Ireland example, but it is a fairly compelling case for low taxes.

Can we all just agree that the US economy would benefit from keeping the tax cuts and balancing the budget?

I agree with that completely. I remember that a group of “new Republicans” did that in the Clinton last term. Then Bush and 9/11 blew it all to hell. As we can see Bill favored tax cuts as well.

“Mr. Clinton, in announcing the proposal, said that it included "really strong and significant steps" to maintain a strong economy while improving Americans' lives.
The budget would provide for $350 billion in tax cuts, mainly for lower- and middle-income Americans over the next 10 years, but also $100 billion in additional taxes, through a cigarette tax increase and a tightening of corporate tax laws.
It would eliminate the publicly held federal debt by 2013, and bolster the Medicare and Medicaid programs.”
http://www.iht.com/articles/2000/02/08/budget.2.t.php


But with Dems in control and their total rejection of a moritorium on earmarks it will never happen. If Obama is elected we will see spending that will make even Bush look like a cheap scate.

First, you know nothing can ever be *proven* in macro-economics, there's too many variables. You can present theory, methodology, and supporting data, which has been done here. A good synopsis is also available Here. You will note, as with all things macro-economic, that there are a variety of factors listed which will impact the effect of tax cuts in any given situation. IThe article cites several instances in U.S. history where tax cuts did indeed raise tax revenues. I would point out that the converse, that tax cuts do NOT raise economic activity enough has also not been proven. I could insert this counter argument into your statement above, and it would still apply (and neither one of us really wants to be shown in drag in public, do we?). So, what we're left with is 'it depends'. So, the question is not whether or not tax cuts always raise revenue (or never raise revenue)...the question is whether or not they did in current circumstances, and what the effect is likely to be in current circumstances if they are removed.

I would have to agree with this statement, and it is really the basis for this thread. I am glad someone decided to address the thread questions.

More to the point, though, it has been argued that the tax cuts were designed to benefit the rich, but not the working middle class or the poor. I would find it interesting to find out if that is actually true. In my opening post, I pointed out that the poor and middle class would be facing a bigger income tax increases than the rich if the Bush income tax cuts were repealed or allowed to expire. I understand that capital gains taxes typically affect more affluent people than not, but I don't know many middle class taxpayers that don't have some sort of retirement investment tool. I think even the capital gains tax cuts benefit the middle class, but maybe not to the extent of the rich. One group that it does affect is the senior citizens. This group of people are living off of their retirement income, and are withdrawing money from different vehicles such as IRAs, CDs, 401(k)s. Aren't they paying capital gains taxes? Now we want to push that back up and give them less money? For those that are in the lowest tax brackets, as they pull money out of their investments, after 2010, their tax rate will go from 5%-10%. I am not a mathematician, but that is double! I admit that I am not a CPA or work for the IRS, so if I am misunderstanding how this works, I am willing to admit that, but from what I have read, investing in the market (most retirement plans to) for long term, the gains are called capital gains, and those tax rates increasing can kick our senior citizens right in the teeth. I can't say that repealing these tax cuts are going to benefit this market one bit. Also keep in mind that the senior citizen demographic is the fastest growing demographic in the United States.

JLMA, its not possible because the government can simply create the money it needs to pay off its debts. There would be horrible things to fear if our government was caught in that position, but bankruptcy isn't one of them.

I agree that in the long run, the government needs to balance its budget.

OK, I see what you're saying. The government won't go bankrupt, they'll just wipe out everyone's savings by making the dollar worthless.

Think of it this way. If you buy a hous on credit does it not typically cost more than a years pay?

So - US GDP 2007 = $13.9 T, US debt = $12.3 T is not really very bad. Increasing it indefinitely is bad imo.

You are probably not old enough too remember the last time a republican balanced the
budget, and you will not live long enough too see the next time.
But what the hell, let our kids take care of the debt.


http://www.ctj.org/pdf/gwbdata.pdf

Year 2010 tax cuts

…………..…. Average tax cut…..Tax cuts as % of income .. Shares of the total tax cuts
Middle 20%………..–754 ……………….–1.7% ………………..…….8.7%
Top 1%………....–91,896 ……………….–5.7% ……………………53.0%

So President war-criminal steals all of the social security trust fund to give the idle
rich a tax cut almost twice as much {53%} as what they pay {27.6%}.
But red state republicans don’t care because they worship their corporate masters.

--------- Bluecoller -- the grumpy old kraut---

You are new here, so I will give you a pass in my book on the obvious detail that you didn't read the linked citation, and that you cited an obviously biased source.

I will make it easier for you to find the linked source I am referring to here. You will notice that:

The math is really quite simple when comparing the tax rates of 2000 (pre-tax cut days) and 2010 (or before if the cuts are to be repealed). A couple making $200,300 increases by 8%, a couple making $65,100 would have their income taxes increased by 13%. Sounds pretty obvious to me that the tax increase is on the middle class, not the wealthy. Comparing actual dollars is vastly different than comparing percentage of income. Obviously someone making $200,300 and taxed at 28% is going to be paying more in taxes than someone that would be at the same tax rate making $100,000. The volume of dollars isn't the point, it is the percent, especially in today's economy.

Citizens for tax justice.
http://www.ctj.org/pdf/gwbdata.pdf

Congressional Budget Office.
http://www.cbo.gov/ftpdocs/88xx/doc8885/Appendix_wtoc.pdf




CTJ is a biased source, but that does not mean they lie. Bob McIntyre testifies before
congress at least once a year and has exposed a few of President war-criminals misleading
assertions. President war-criminal lies. Bob McIntyre does not lie.

Bob McIntyre has the same software in his computer as the CBO and IRS.
All data is at his fingertips and unlike you, he understands taxes.
Nobody pays 28 or 35 percent on all of their income. They pay 28 or 35
percent on a part of their income.
If you compute your taxes on the taxable part of your income and divide
that amount by your total income, you get your Effective Income Tax Rate.
[The percent of your total income you pay in taxes. ]




($41,646 married filing jointly) with two or more qualifying children;
41,646 Nontaxable Income + 16,000 Taxable Income = 57,646 Total Income.

[2000] --16,000 Taxable Income x 15% = 2,400

[2000] –2,400 / 57,646 = 4.2% Effective Income Tax Rate.

[2008] --16,000 Taxable Income x 10% = 1,600 – 800

[2008] –1,600 / 57,646 = 2.8% Effective Income Tax Rate.

An $800 decrease in taxes 2000 till 2008 = a 1.4% Increase in income.
800 / 57,646 = 1.4%
A 5% reduction in the marginal tax rate resulted in a 1.4% in the Effective Tax Rate.

Note, CTJ and CBO define total income slightly differently. CTJ use’s the census bureau’s
definition of income. CBO makes some changes, for instances they count the employers
share of social security as employee income. Thereby raising wages by about 7%.

CTJ shows that tax cuts as % of income is less than 2% for all groups other
than the top 1% and more than 4% for the top 1%.

CBO has the Effective Tax Rate for the median fifth of taxpayers declining from 5%
in 2000 to 3% in 2005, an increase in income of 2%.
For the top 1% the Effective Tax Rate dropped from 24.2% in 2000 to 19.4% in 2005.
An increase of almost 5% in income. If the lying republicans had any study that showed
differently they would produce it.

All staticall evidence supports the FACT that the top 1% get at least twice an increase
in income as any other group. That’s the facts. --Period.

Tax cuts that cause deficits is freeloading, period.



--------- Bluecoller -- the grumpy old kraut---

Two points to make. First, provide to all of us in class today how this is really a republican vs. democrat issue. ("If the lying republicans had any study...") You do nothing but muddle the debate with statements like these, but you are new here, so I will entertain you.

Secondly, you are arguing tax laws. One fashionable tactic to use when the facts don't support your argument. The facts are that the tax rates after the Bush Tax Cuts benefited the middle class more than the wealthy. If you don't like the deductions and ability of the rich to avoid taxes with loopholes, debate that topic. Simply using those points to imply that the Bush Tax Cuts only benefited the rich is a fallacy. These are two separate topics that you are trying to make into one. For some reason, it seems you and others continue to make the same arguments that don't apply to the debate. Talking heads anyone?