Admittedly, this is from a partisan source, but the facts and figures provide some insight into where the tax cut money is being distributed.

http://www.misleader.org/daily_mislead/Rea...df08162004.html



The people of the middle class are experiencing mortgage rate increases when millages are voted in to make up for county and municipal budget shortfalls of vital services such as police, firefighters, EMS, and public education. If the millage proposals fail, cutbacks and layoffs take place.

The Muskegon County library system was on the front page news Sunday because its hours are being cut back. The main library is going from 50 hours a week to 30 hours per week; the branch libraries are going from 30 hours a week to 10.

Communities are stuck between a rock and a hard place. I fail to see how these tax cuts are addressing and improving the economic situation, especially where the lower- to middle class are concerned.

I guess I'll go ahead and give my theory for the lameness of our recovery.

If what I have read is correct, the entire recession/boom cycle is really the adjusting winds of how much people save versus how much businesses invest. A typical cycle should look something like this:

1. Enter Recession.
2. Government increases spending and/or decreases taxes, increasing demand. (In a mixed economy, this is how we fix ourselves. In a free economy, the decrease of income would lead to a decrease in savings, which would mean more money would be put in the economy, increasing demand. Counter- Intuitive, I know).
3. Increased Demand leads to increased investment. In order to meet the demand, business start highering more workers to fill orders. Machines run full time, etc.
4. Citizens income increases with increased investment; they start saving more and more of their pay check. (Marginal propensity to save. For every additional dollar a person makes, more and more of that money will go to savings).
5. Increased savings leads to decreased demand. Less money is being spent and more is being saved.
6. Decreased demand leads to decreased investment. Machines run only part time, businesses start firing workers, etc.
7. Decreased investment leads to decreased income (thus decreased savings). Government steps in (or commence slow, painful self correction)

In a previous post, I said:

What if most of the money went to the top of the food chain? Remember, every additional dollar a person gets, the more they will save. Basically what I'm saying is that all the money that went to the top 5-10% was saved instead of spent. This does not increase demand, which ultimately does not increase investment.

But we're still recovering; despite it seeming like a slow, steady crawl. The government didn't give all the tax money to the elite. Some of that money was spent. That spent money slightly increased demand, which slightly increased investment, which slightly increased income, which slightly increased demand and so on.

My beef with the Bush administration is this. If your going to give tax cuts, give it to people who are going to spend it all. This will create a surge of demand, then a surge of investment, and then a surge of income. We could have bounced back a lot quicker if all that tax money was spent.

Actually, I believe (and I'm not an expert) that the low interest rates are a sign of a recession rather than a prevention of one. It means that there is so much saved capital relative to the demand for it that the Feds have to lower the rates to stimulate investment. Its a sign that way too much money is in the banks and not being freely spent (little demand). Though increased interest rates would choke off investment, in a recession, there would be no reason to have the increased rates in the first place (Because investment relative to demand).

How in the world does giving people more of their own money NOT help them? I can't understand this logic. If you are in the lower or middle class, you pay less taxes this year than you paid last year. Period. What the heck is the problem?

The New York Times, Wash Post, Reuters and even the fair and balanced 'misleader.org' all looked at the data and made exactly the WRONG conclusion.

From actual CBO study-PDF file! - at least look at 'Table 4' on page 13, which shows how the richest Americans will pay slightly more of the taxes, while middle income types will not only have their taxes reduced, but pay less % of taxes as a group.
The 3 tax laws enacted under Bush - 2000, 2001, 2003 - reduce taxes for each quintile (richest 20% down to poorest 20%). Reduce = less taxes.

And, just to review for those that don't know:
- The Bush tax cuts result in the federal tax burden for the middle 20 percent of earners dropping from 16.5 percent to 14.6 percent.
- The Bush tax cuts reduced ALL tax rates for everybody
- Therefore, those that make the most money got the biggest tax cut. 1% of one million is a lot more than 1% of 50,000. What is unfair about this?
- top 50% of wage earners pay 96% of income taxes. say what you will about payroll, etc., but if the bottom HALF of all taxpayers 'only' pay 4% of taxes, that's progressive enough for me.

Using the numbers from the article which shows how "unfair" these cuts were doesn't really say anything. It shows what the cuts were but doesn't say how much those people actually pay in taxes. Answer - less than they did before the cuts. Time to replace this whole mess with a flat tax so everyone understands it.

The fine people of Muskegon county can fund their own library or not, but what does that have to do with federal income tax rates?

edited to add top 1% thingie.

Carlitoswhey, the money has to come from somewhere! A lot of these tax cuts mean that the costs of essential programs no longer funded by the federal government have to be picked up by the very people whom the tax cuts are supposed to be benefitting!

The tax cuts and the economy are interrelated, do you deny this? So if our economy is coming back and is strong and healthy, why is the scenario I related repeating throughout the country where jobs aren't coming back? And the subject of this topic, I believe, is Bush "Tax Cuts" and the Economy.

This administration is spending a hell of a lot of money we don't have and, as a gimme to the voters to encourage a continued Republican administration, Bush touts his wonderful tax cuts. But who is it affecting in the meantime? All of us.

It really isn't a tax cut (as Howard Dean has repeatedly stated) if you end up having to use the money to pay property taxes or otherwise shore-up budgets that are no longer being funded by the federal government. What George Bush said was that we should be the ones deciding what to do with our money, sooooo--do we pay the higher property tax or experience foreclosure. That is some choice.

And why do you suppose that all these news organizations "made exactly the wrong conclusion"? Because they recognize that Bush's tax cuts are an expensive band-aid that doesn't cover the entire wound?

The worst part is that it does nothing to address the deficit or the gargantuan Federal debt. Do you really believe with Dick Cheney that "deficits don't matter"?

At least look at 'Table 2' on page 11, which shows the 'share of individual income tax liabilities' for 5 quintiles from the lowest to the highest.

The highest quintile is the only one of the 5 that has their percentage or share of individual income tax liabilities reduced. The others are increased.

Explain that occurence.

You either picked one year out of 15 or you haven't read closely.

2001 - 2004 - all quintiles 'total effective federal tax rates' decrease
2004 - 2010 - all quintiles 'total effective federal tax rates' increase

The 2003-2004 total total total effective rates are lower than the prior and subsequent years (19ish vs. 21ish), the result of stimulating the economy via tax cuts. And the economy responded, we have growth, the hope is that the growth continues and we slightly raise our tax obligation over out years to reduce defacits. I get it - not sure that I believe it - but I get it.

Again, if this were a flat tax or sales tax it would sure be a lot more difficult to demagogue and we wouldn't need to look at pdf files. But in any case, if the tax cuts didn't stimulate the economy, what did?

Paladin Elspeth, I know that the money has to come from somewhere, but completely disagree your take on the news organizations - separate thread I know If the (liberal Democrat) Reuters guy has a choice - write a headline that says "tax cuts are helping the rich, Bush knew, Haliburton, John Edwards has nice teeth" or "tax cuts help everybody, burden of rich actually increases slightly under Bush plan" I know which one is making the cut. And if you read the tables, you can make either case.

As for Howard Dean's point - I agree that less federal funding means more local funding. Honestly, I think that this is a good thing. I would love to see local services paid for by local taxes and service fees. This is the single best way to get effective local government - make it accountable for local services. Don't let your local politicians get away with blaming this stuff on lack of federal funding, hold them accountable for delivering you the services that you need. And if they don't do it - vote them out. How the heck is George Bush best placed to fund and manage run your local school or library district?

And lastly, I know it's a talking point, but when we cut taxes, the federal tax collections increase. So, it's not going to put less money in the gov't coffers, it's going to put more. The only reason that the take was down the past few years was Sept. 11 and the market hiccup. 2004-2010, tax collections will be up.

What you're missing is that in 2004 onward, tax cuts put in place back in '01 and '02 expire. Unless Bush gets his way and makes them permanent. That's why the CBO says that the effective tax rates will go up. It's not because the economy is going to somehow grow people's way into paying higher effective taxes (they would just move groups, but still be paying the effective tax rate in that group, which is currently lower than before). At this point, they will revert back to what they were in '99 over the next 6 years unless fiscal sanity occurs in Washington.

And you keep talking about reduced taxes as being somehow "good" when overall tax bite for most individuals is higher -- because of higher local taxes -- and the government is running a deficit that translates into $2000 for every man, woman, child in the country. $2000 per person! That's insane to be lauding tax cuts that have the effect of running up debt. It's also downright dangerous for the country.

PE,

A dose of reality: The Bush administration has not cut funding to local governments. In fact, discretionary non-defense spending has increased by over 25% (in real dollars, over 35% in absolute dollars) since Bush took office. That's the exact opposite of what you are implying (that Bush somehow is cutting domestic spending). I could agree with you if the Feds cut back on their dispersals to state and local governments, but the fact is that they are not. Under Bush, Federal Spending Increases at Fastest Rate in 30 Years

Spending growth upsets conservatives


Bush has both decreased the tax rate and increased the spending.

Now, what effect does the tax cut have? More money in people's pockets, not less. It is emotionally powerful to show that those who pay the most benefit the most, but that does not, in and of itself, prove unfairness.

Of course those at the bottom of the income scale (who pay little or no tax or indeed, get tax credits for taxes that they do not pay) see little benefit. How many times must it be said that those who do not pay taxes will not benefit from a tax cut?

As for local issues, it is the economy that deprives local communities from tax revenue. Until the economy is back to full speed (which it is getting close to doing now), tax revenues will be down. Since most local communities have balanced budget constraints, they MUST increase taxes in a down cycle (which is the opposite of what is economically sound to helping the economy rebound).

What local communities should do during down turns is cut non-essential services. It may sound harsh to have to lose your Fourth of July fireworks or afterschool basketweaving classes, but in tough times, cuts are necessary. Anyone who expects the amount of services from government to forever increase and then complains that the tax rates are too high is being unrealistic, especially when a mandated balanced budget is in place.

The federal government has a slight advantage in that there is no need to operate on a balanced budget, meaning that it can increase spending to get the economy moving. As long as interest rates and inflation stays under control, increased deficit spending is the way to go. This spending should be in the form of emergency grants and dispersals, instead of programs. The problem is that people constantly expect at least the level of spending on their favorite government program as they received last year. In this mindset, spending never decreased (since you have deficit spending in hard times and in good times you have an abundance of tax revenue). We need to break this cycle.

This is true, to an extent. Deficit spending can and does have strong short term advantages, but it cannot be counted on as a long-term solution to government operational expenditures. The numbers I've seen thrown about from both democracts and republicans forecase a deficit for at least the next five to six years; a period of expected growth! Now, you'd be hardpressed to find an economist anywhere, of any political stripe, who would advocate increased deficit spending during a period of economic growth because it cripples the ability to borrow during periods of economic recession: the more outstanding debt and the larger the deficit the worse the bond rating (which effects the ability to borrow cheaply), and the greater degree of revenues which are tied up in financing said debt.

America is the only industrialized nation on the planet that is planning on long-term increases to it's debt and deficit.

So what does this have to do with tax-cuts. If it could be demonstrated that reducing tax cuts provides a direct stimulus to the economy, you would have a decent counter-argument to the one above. It does not alter the fact that the level of deficit spending that the United States government is engaging in is patently unwise; but it would certainly brighten the prospects for the future.... there is only one problem: there is no proof that tax cuts cause growth. None. Taxpayers organizations and financially-conservative politicians love to say it, and most bankers don't do anything to dismiss the idea, but there is no proof. The economy is effected by numerous vectors, both internal and external. Considering that direct taxation comprises a relatively small portion of GDP movement and that changes on existing tax-rates are usually small (out of the whole) and graduated, it is not surprising that the impact is somewhat muted.

Now, that is not to say that there is no effect whatsoever. I have no doubt that lowering taxes can have a positive influence on an economy that's growing; but there is nothing to demonstrate that it has the sort of effect that is otherwise suggested.

Did America come out of a recession during the 80's? The standard response to the "it makes little difference" argument is that Reaganomics. This argument ignores the massive military expenditure which (unlike for the Soviets) created a massive manufacturing sector expansion. It also ignores the the fact that FDI (Foreign Direct Investment) increased dramatically in the 80's, while at the same time efficiency gains in the manufacturing sector allowed production to increase. The fact is that these sorts of events have a much greater impact than the federal tax rates.

So suggest otherwise is to say that the wind is what influences the tides; ignoring the moon at large.

Have Bush’s “tax cuts” helped or hurt the economy?

10 Nobel economists endorse Kerry


That sounds like a pretty serious endorsement to me, who are we to argue with 10 Nobel prize winners?

Have Bush’s “tax cuts” helped or hurt the economy?

Yes of course the tax cuts have helped the economy. If there were no cuts...the economy would probably be in even worse shape. UJ said that there is no proof that tax cuts cause growth. I am inclined to disagree.

If you look at our capitalist system which is fueled by supply and demand, the most important part is profit motive. People are in business and are working because they want to make money... as much money as possible. People complain that the company big-wigs make too much money when compared to their regular workers (i believe the top 2% in this country pay 56-57% of the taxes...not sure). Well of course they make a lot of money. Thats why they are in business. People who have a more socialist viepoint of the economy hold this idealistic belief that people are ulitmately altruistic. But this is not true because for the most part, people are egoistic or even hedonistic. Its human nature. If people saw no profit in their companies...they would not be in business.

Furthermore, as already stated in the thread...the reason that the rich got the biggest tax break is because they are the ones paying the taxes. In essence...people are saying that the government should be giving money to the lower classes (who dont pay taxes). Tax cuts work because when people are taxed...they dont spend as much. They dont have the money to spend. But tax cuts allow people to consume goods and invest. And since all that money is invested and corporate taxes are cut...the companies have increased revenue and resources which will be spent on what?....more jobs! They can afford to pay for more help and boost productivity. And then guess what...MORE PEOPLE PAY TAXES. So in actuality...tax cuts increase the amount of money taken in by taxes because more people have jobs.

Raising taxes is definately not a good thing because what it does is take money away from people and then they are reluctant to spend the money they are left with. It doesnt stimulate the economy because all the money that is brought in is spent right away. Even if people were taxed at 150%...it would not help.

This is why socialism and communism dont work. China...for example...is communist in name only. If you look at the mechanics of their system...they have many capitalist functions. They were purely communist for like 5 years. But after 1952 (i believe) and when they allowed private industry...China has become more and more capitalistic. And it makes sense why.

Imagine a restaurant in communist China. A person takes out his family for dinner. They have to wait 2 hours to get seated and order a meal. Why? Because the waiters dont care. They get payed either way...whether business is good or bad. So finally they order their meal...but it takes another long period of time, because why should the chef care?...he gets paid just the same. Why should the workers wash dishes or do anything that would require extra effort if their is no profit (tips) in the extra work? But now there is another restaurant...this one privately owned. Know how long people have to wait to get a table their? 2 hours...because the line is around the corner. People want to eat off clean dishes, they want hospitable waiters, and they want good service.

There will always be rich and their will always be poor. The only nation that maybe has a true communist state is probably Cuba. But the Soviet Union and China are both nations who had a few wealthy, individuals hold the power while the others were oppressed. Socialism is an idea that says "what is good for you, isnt good for me." Anyone read Animal Farm? Good book if you havent read...you should check it out.

Probably, but the way they were aimed made them very inefficient at creating economic growth. Targeting the the highest tax bracket with the biggest tax cut is inefficient at boosting demand. For every additional dollar a person gets, more and more of that dollar goes to savings. Thats the trend of marginal propensity to save. Because demand does not increase by much, most businesses wont invest. I'll get into that concept below.

Now thats a familiar talking point.

Lets take Ted, a fictional character I've created to explain why giving tax cuts to companies and entreupeuners during a recession won't encourage them to invest.

Ted owns a hotdog store. During the 90's, his demand was ten hot dogs a day. That means that, everyday, he would sell ten hot dogs (its most profitable for Ted to sell 10 a day). He hired the amount of people and machines that produced ten hot dogs a day.

Unfortunately for Ted, a recession hits. The GDP (Though I've heard other interesting definitions of what the GDP is, I refer to it as "total demand") falls, and Ted can only sell five hotdogs a day (its most profitable for Ted to sell five a day). What does Ted do? He fires the uneccesary employees, and stops running his uneccesary machines. He is now only producing 5 hotdogs in order to meet his 5 hotdog a day demand.

Uncle Sam comes along, and he has two choices. First, he tries to give Ted a huge tax cut. But is Ted going to buy more machines, or hire more people with his new tax cut? No. Because the market of hot dogs remains at five dogs a day. The extra money it costs to hire the new employee and buy the new machine in order to get to six hotdogs a day is not a great investment, because then he'll have to drive down the price of hotdogs in order to sell the sixth one. Teds cut did not increase the number of hotdogs his customers wanted.

Why invest in something that your forced to sell at cheap prices? If your having trouble selling the hot dogs you have now, you probably won't increase your supply of hot dogs.

Now, Uncle Sam tries to boost demand by giving the tax cut to Teds customers. All of the sudden, Ted has record sales in hot dogs because his customers had the extra money to pay for them (Hot dogs are elastic like that). He then goes to the bank and invests in his business to meet the growing demand.

Bush gave the tax cut to Ted.

I'll make this very simple. Find me a study that proves inconclusively that tax cuts create economic growth. Surely if it is as simple a relationship as you suggest leder then hundreds of studies on the subject must have been done, and finding a single one should be a fait accompli.

Now, I'm not suggesting that tax cuts never benefit the economy, or that they are necessarily harmful. But you're talking about an economy with marginal job growth and expanding trade, GDP, and budget deficits; and economic growth that barely meets (or in the case of the last fiscal quarter is below) inflation.

You can draw all the simplistic analogies you want. Personally I DESPISE when people use simple analogies to describe complicated systems. That makes about as much sense as a surgeon learning his craft by studying a highschool biology text book.

Ted is a small business owner, whose business income is essentially the same as his personal income. Bush gave the tax cut to Ted AND his customers. And it wasn't a "huge" tax cut for the hot dog guy, by any stretch. Everyone that pays income tax got an income tax cut. Everyone. Those that pay less in taxes got a smaller cut, but still enough to buy a few hot dogs.

Your example forgets that Ted has scaled back his operation, but he still has a mortgage and 2 kids to feed. If he has 3% more of his gross earnings, even on a reduced 5 hot dog a day plan, he can better meet his daily needs. And maybe stimulate demand for kids' clothing, etc.



As far as simplistic arguments for a tax cut, let's admit that equally tedious is the knee-jerk opposition to ANY tax cut. What oracle have we all consulted that told us that taxes were exactly, perfectly at the correct level in January of 2001, therefore any cuts are evil. (And, yes, I'd say the same to knee-jerk opposition to any tax raises, but I tend to favor lower taxes and more radical options like the fair tax or a sales tax...)

I see growth after a tax cut and don't question it, nor do I ask for a study to prove a causal relationship. I merely choose to vote against the guy that tells me he plans to raise taxes "on the rich" and increase gov't spending on health care or whatever. Because, whatever your concerns on tax cuts' effect on the economy, government programs have growth rates that far outstrip GDP growth (as Amlord pointed out, discretionary spending up 25% under Bush). Therefore, for every program initiated, "the rich" will have to either earn more (and high tax rates will discourage this) or be redifined to include lower income earners.

Did you read my post, or just confuse it with someone else's? I have made no knee-jerk reactions to any tax cuts. In fact, I support them, when governments are running a surplus and social spending is at satisfactory levels; and I've voted for governments that have run on tax-cut programs. So you can cram the generalizations. I don't fit into the "liberal" box that you've placed me in.



If you don't question it, you cannot understand it. That kind of undercuts your credibility when you participate in this debate.



I'm not sure what relevance this has to the debate. In fact, I can find nothing substantive in your post beyond "I believe they helped and I don't need anything to prove it."

Fair enough, Carlitos.

And I merely choose to vote against the guys that tell me they plan to cut taxes, and then increase government spending on healthcare or whatever, and just borrow what they need to pay for it.



Whatever happened to "conservatives" that thought deficit spending was bad? Who thought we should pay for tax cuts by an equal cut in programs, or an increase in "user fees", instead of just adding to those discretionary programs, and then plunking down the old national credit card?



Again, fair enough. But I've yet to see anyone tell me what percentage of taxes is "too high". After all, in the 50's and early 60's the marginal tax rate was 90%, I didn't see people and corporations not working. Nobody stopped at a particular dollar amount because they didn't want to hit that tax bracket.

In the early 80's when the rate was 70%, millions of people still wanted to work hard enough to "get rich". Again, nobody just gave up at a particular point to avoid the higher taxes.

So, what's the difference between then and now? Everyone wants a bigger part of the American dream. You are really going to tell me that somebody's going to quit trying to make money at a 39% bracket as opposed to a 36% bracket? Nonsense.

I'm assuming that you mean conclusively.

mid-year 2003 tax cut (JGTRRA) and its effects


Here is a table that summarizes the mid-year impact of JGTRRA - Jan-June #'s, vs. July-Dec. #'s. GDP, investment, jobs are all up post tax-cut. I don't have time to do a regression analysis of each external factor, but I do know that the USA growth was ahead of the world recovery, suggesting that our growth drove rather than followed some global economic recovery.

A more long-term view is voiced in The Laffer Curve, which has some common-sense gems as these:

Laffer addressed the net effects of the more notable tax cuts in US history.

I won't post the table, but basically, real GDP growth is up, unemployment is cut in half, real revenue growth recovers, and huge progress in ownership of washing machines, radios, etc., arguably due to increased disposable income.


Note that Kennedy argues above that lowering taxes even in time of defacit can be a good thing to spur economic growth. This would be useful to point out to those suggesting that the USA is running 'record defacits' this year when in reality our defacit is lower as % of GDP than were the defacits in the 80's. http://www.whitehouse.gov/omb/budget/fy200...ts/hist01z2.xls



I think I'll stick with my John Kennedy quote on the defacit problem. As for 'marginal job growth' I can only point to the touted Bush statistics regarding job growth over the past year, and suggest better management of immigration, which would admittedly drive up labor costs but would lower unemployment in the mid-term. As for inflation, the economy has grown at 4.8% for the past year, and the inflation rate hasn't gone much above 2% in any month in 2004, and the last September number I was was 2.99%.


The reason that my assertion about 'government programs' is relevant is that this is the reason per se for the proposed tax increases. We supposedly need to repeal 'tax cuts for the rich' so that we can spend an estimated $1 Trillion plus on new programs like health care, etc. Kerry recently proposed a Department of Wellness that would stress preventive health. A fine idea, but one that would grow in expenditure at a rate greater than growth of GDP. My concern is that this new department would cost more and increase spending.

No Oracle required, lets start with some common sense Carlito. The purpose of a tax cut, if you exclude political reasons, is to stimulate the economy. The economy in 2001 clearly could have benefited from some government stimulation. This happens by giving people more money which they in turn spend and put back into the economy causing growth.

Now in order to pull that off you have to give the less fortunate members of society the majority of the tax cut, because any money they get back they'll likely put directly back into the economy through purchases, paying bills, paying debt, adding debt, etc. As you move towards the upper spectrum of income, people are more inclined to save that money or invest it, which doesn't do very much for the economy. As BecomingHuman said in his post this is called the Marginal Propensity to Save, and it is a fairly standard economics 101 concept. Of course Bush probably missed that since he scored a C- in both of his Freshman Economics classes at Yale

So, when you take a look at how the tax cuts were divided up, it is pretty clear that they were given for political reasons, because there is little economic benefit to giving more money back to the uber rich. The performance of the economy over the past 3 years has proved that.

Furthermore, if you take into account the fact that the Bush administration drastically increased spending due to the war on terror the tax cuts become not only unproductive but irresponsible. Discussing deficit spending is probably an entirely separate topic.

Most of the complaints about Bushes tax policy have stemmed from the fact that lower and middle class taxes were not cut enough. As you remember, I said "Probably" when Lederuvdapac stated "If there were no cuts...the economy would probably be in even worse shape." Some of those tax cuts boosted demand. They were just very ineffective because they were poorly aimed. Government spending probably increased GDP (total demand) more than anything.

In case Cube Jockey didn't already explain this, I'll take a stab. I think the main point your missing is that those that paid the least in taxes, and got the lowest tax cut, were the most likely to spend their tax rebate. A greater rebate for them, the people who would have spent it, and less of a rebate for the wealthier, those that are more likely to save it, would have increased demand more.

If we're focusing on demand, then the lower and middle income brackets are your best bets for tax cuts.

As a percentage basis, I would agree with you. Lower income groups are more likely to spend a greater percentage of their tax cut on goods and services in the short term.

However, since the motivation for the tax cuts is to stimulate the economy, you need to think about the absolute amount of money put into the economy. The top 20% of earners earn as much as the next 80%. So, even if that top 20% saved half of the tax cut (not likely, more likely would go into invesments, but hey), they are still 'stimulating' the economy to the tune of a much bigger number than the lower income groups.

More concisely - Note that this is only federal income tax, as that's the only cut on the table... Numbers are from this site, and for simplification I have rounded a bit to make numbers friendlier.

2 examples:

1) second quintile of earners, average income pre-tax is $25K per year
- currently paying 1.5% in federal income tax
- Therefore, if you cut their taxes in HALF you release [$25K X 1.5% X 1/2] = $187 into the economy.

2) top 5% of earners, averaging around $250K pre-tax per year
- currently paying 21% (avg. effective rate) in federal income tax
- If you cut their taxes by only ONE TENTH you release [$250K X 21% X 1/10] = $5,250 into the economy. Even if these cheap schmo's save 1/2 of the money, they still 'stimulate the economy' 14 times as much as a cut to the lower groups. More succinctly, even if they put 1/2 of the tax cut under their mattresses, you would have to find 14 times as many $25k folks as there are $250k folks. And, fortunately that's not the case. Middle income groups are averaging double this amount, including labor, capital and transfer income.

And remember, I only cut the "rich" people's taxes by 1/10, while I cut the "average" people by 1/2. You can't squeeze blood from a turnip.

If you want to stimulate the economy with tax cuts, you have to cut taxes of people that actually pay substantial taxes. In a system as income-progressive as ours, it's the only way to generate a meaningful stimulus.

Again...how do you expect the government to give tax cuts to people who do not pay taxes. You want the government to just hand people money. It doesnt work that way. Furthermore...how are the poor more likely to spend money and the rich more likely to save? I just dont understand the mentality. In order to spend money...you have to have money. If people do not have money...they cant spend it. Even if it were true that the poor or more likely to spend the money...the rich will spend in greater amounts...because they have more money!

The rich investing their money does do a lot for the economy. It helps the stock market and gives increased revenue to the companies. And as i said before, the companies now have the resources to pay for more help and create new jobs. Now that people have jobs...they can pay taxes and bring in even more cash.



Ya see here is the thing. The government is not giving any person any money. They are returning some of the money that was sent to them. If you do not send the government any money...how do you expect them to give any back? If the tax refund for every American was a certain percentage of the taxes sent, lets for arguments sake say 10%,...10% of whatever the richer people send will be a lot larger than 10% of what the poorer people send. Unless of course you are suggeesting very high taxes on the rich and redistribution of wealth... a socialist ideal.



I agree, 9/11, homeland security, and the two wars drastically effected the US's economy. But raising taxes is not the answer because while it may be a nice short term bounce...it is not put into perspective for the long term.

Are you kidding? Everyone except a small portion at the bottom of the scale pays taxes leder. Just because you don't mail additional money to the IRS in April doesn't mean you aren't paying taxes, you have still had money withdrawn from your paycheck for a whole year. Unless you are working in some kind of illegal or sahdy enterprise, your employer witholds taxes from your check.


It isn't a "mentality", it is a basic economic concept called the Marginal Propensity to Save. Your tone here suggests that someone just made this up, but this concept has been taught in basic economics classes for decades, it is widely accepted. Unless you intend to refute the theories of Keynes and stun the world of economists I'm not sure where you are going with this.


I am thinking about the amount of money put into the economy. If we were to assume that the marginal propensity to save was exactly the same for all income levels then ten lower class people getting back $1000 in taxes would be exactly the same as a rich person getting back $10000. There is no difference in the amount of money added to the economy, because the amount is the same it is just spread over a greater percentage of the population.

Now what is important is the distribution of those tax cuts because of the marginal propensity to save. If someone making half a million a year gets back $10,000 from the government in taxes it isn't going to mean much to them. It will go straight into a bank or some kind of investment. That has very little effect on the economy. If a person making $30,000 a year gets $1000 back from the government that money is going to be spent on goods and services. By purchasing more goods and services the economy is directly effected in a positive manner.

CJ, I don't normally say this, but please take another look at my post. I did the math for you. I also addressed the marginal propensity to save issue in my example, by assuming that those making $250K would save a full 1/2 of the cuts.

You give the $30,000 guy a $1000 cut, and he's down to paying almost no federal income tax at all, since he only pays an effective rate of something like 3% or 5% in federal income tax, or $1500 per year. We do this for poor people, but you are suggesting that we do it for the middle class as well? If you are talking about revising the total tax burden, including payroll, etc., I am with you, but Bush is the only one proposing that we look at how we treat Soc. Security in the future.

You know what i mean. I didnt mean that the poor pay no taxes at all. What i am saying is that when compared to their richer counterparts, the poor pay virtually no taxes. As i stated before, about 2% of the population pay like 56-57% of the taxes. When people claim that Bush is favoring the rich with his tax cuts...it makes no sense. Of course the rich would get back the most money, because they make the most money and send the most money to the government. The government cant return money to people that they didnt send.




How can one assume a person's tone in an online forum? amusing. Furthermore, Keynes economic ideas are just one theory that economists hold...it is hardly "widely accepted" since it contradicts "supply-side economics" and the system of Reaganomics used by Reagan.

Well, we've made some progress. We're off that silly supply side argument and onto the best way of stimulating demand.

I think what your trying to say, and what your examples are geared towards, is that even if the richest citizen save more of their tax cut than spend it, they have such a huge quantity of money that their spending will come out on top even if their spend/save ratio is 1/9.

This is actually ironic, because its really me who wants to talk about the absolute amount of money in a tax rebates in this particular discussion.

Sure, if you cut someone who pays $325 dollars a month in taxes in half, and spends all of it, compared to someone who pays 325 million dollars a month to the government by a tenth and spends a tenth of it, the wealthier citizen increases demand by more. But no matter what you say, more of the 32.5 million would be spent by the poorer person if it was given to him instead of the rich person.

So, simply question, which increases demand more? 32.5 million to a poor person, or 32.5 million to a rich person. Or, in reference to your example, which increases demand more, $5,250k to poor people, or $5,250 to rich people?

If George Bush wants to give 100 billion dollars back to consumers in order to increase demand, spreading the 100 billion amongst the poorer citizens will have a greater affect than doing so amongst the richer citizens. If you give them $100 billion dollars, it will always increase demand more than the same amount of money is given to richer folks.

If you systematically went, from the poorest person to the richest person, and relieved them of all their tax burdens with as much as you could with 100 billion dollars, it would have a greater impact on demand than our current "fair" tax break. You might never reach the richest citizens, but that 100 billion would go a lot further, in terms of demand.

BH, my guess is that L is saying is that while the marginal propensity to consume decreases with higher earnings, the money is not shoved into a mattress, it is invested, either in corporate / government debt (bonds) or corporate shares (stock).

Not a bad theory, if you believe that such investment truly increases national productivity. However, the problem, which is not often seen by modern economists, is that much of those reduced tax cuts merely inflates the value of already inflated stocks, and does not really improve wages or productivity.

I believe that any tax reduction will tend to add to the price of the stock market, real estate, and other 'investments'. Increased stock market prices hardly ever result in increased wages, except for those at the very top. If the tax cuts were given at the bottom of the income tax scale, the stock market would go up, but not due to speculative competition for stocks driving up the price, but because the companies in the stock market are doing more real business. My guess is that the stock market would not go up as much due to 'tax cuts for the poor & middle class' as it would go up due to 'tax cuts for the rich', however, the added value would be real, and not subject to some future correction when the rich move their money to another faddish investment.

Nonsense. Tax cuts occurred and GDP went up, but that doesn't mean that that's an exclusive relationship? For example, those same tax cuts are still in place, but GDP is sinking. Is that an exclusive relationship as well?

In a word: no.

How's this for a more reasonable relationship. Tax cuts caused massive government borrowing -- since Republicans no longer seem to know how to balance a checkbook -- to the tune of nearly $500 billion per year. GDP growth at the time was running about 5% of $10 trillion... or $500 billion. That seems like a more likely relationship than just pointing your finger at tax cuts and claiming they're wonderful for the economy.

If the tax cuts hadn't happened and the government had borrowed $500 billion anyway and pumped it into the economy to buy more roads and bombs, do you think GDP would have grown by the $500 billion?

The tax cut helped create the massive deficit, which helped drive up GDP for the short-term. But all that government borrowing is keeping companies from borrowing that money and will short-circuit any medium- or long-term growth.

I never quoted "L," I was referring to carlitoswhey's argument.

But, I might as well play the aggressive type for once.

This is amusing. Most moderate economists are keynesian or variations of keyenisian.

Liberal economists really shouldn't exist. I can't imagine a liberal economist coming up with theory of why the minimum wage actually increases employment. Most of the things I would imagine being on their platform, such as welfare and the minimum wage, probably wouldn't sit well with most economist.

Most conservative economist are not supply siders! They are actually believers in laissez-faire economics and that market forces should determine things like wages and rents. They also believe that tax cuts should be accompanied by spending cuts. I would say that they don't want the government to borrow money to give tax cuts, they just want the government to vanish in regards to its economic controls.

Supply-side economics is prompted by, mainly, conservative think tanks and journalists. It has been heavily criticized because a contributor of its creation wasn't really an economist at all, though I forget his name. When George Bush Sr called supply side economics "voodoo economics," he had the full support of the economic community.

Lets get a clear definition of what supply side economics means, though there are a lot of them floating around. It literally means that an increase in supply will also increase demand, so focus on supply goods. Entrepreneurs and executives invest their tax savings in labor and capital equipment, hence the "supply."

Buying stock shares has little to do with it unless the company itself is selling the stock. Otherwise, buying stock is a lot like trading baseball cards: whomever originally bought the stock pays the company, but thenceforth whomever buys that card buys it from the owner. The company isn't involved. Besides, a company would only sell off portions of stock if they were going to buy something with the money they made. This is unlikely because of the low demand that characterizes a recession. It's virtually the same as trying to give Ted a tax cut (page five, post two). Same problem with corporate bonds.

Second, obviously, if the tax cut is borrowed back from the government it would have little economic impact. If people are going to loan their tax cuts, through bonds, back to the government, why give them a tax cut at all? It would be better if the government just spent that money instead of giving it to the richest citizens only to borrow it back through a bond and then spend it.

I am saying that most of the tax cut was saved instead of spent. This is evidenced by our very low interest rates. There so low because so much money is being saved relative to the amount thats being invested. Its not because investment is down, its because savings is way up.

Most of the $300 tax giveaway was mostly used to pay down existing debt. Most of the tax cut at the high end was saved. It was those in-between who did a little more spending than they would have otherwise. Those at the low-end later went out and ran up more debt in order to fund their living habits.

As for low interest rates, thank the Federal Reserve's low overnight rate for that. They've held it artificially low now for nearly 2 years in order to generate economic activity. Companies couldn't reasonably raise capital in the stock market over the past few years, but they could borrow if the rates were good. And the rates have been exceptional. In fact, about 2% points too low, compared to inflation, which the Fed rate is supposed to track.

And the prime beneficiaries of those low rates? Home buyers, who were able to purchase a home, driving demand for new homes, lumber, Home Depot supplies, etc. That's been the driving force for economic activity over the past couple of years. It's also been rapidly driving up real estate prices in many urban areas, but that's another topic.

The problem, though, with holding the Fed rates this low for so long is that when the business cycle turns back down -- and it's already going in that direction -- the Fed no longer has as much leverage for boosting economic activity by lowering those rates, since they can't fall a whole lot lower than they are now.

Thank you for agreeing with my point. Except for the 'nonsense' bit. I was asked to show a study that tax cuts stimulated the economy, and I did. And you agree, at least in the short term. Good.



I can see how you would make this argument. It is similar to amf's argument about government spending to stimulate the economy (not saying that you're advocating gov't spending, don't get me wrong!) Obviously, if the gov't just spent $500 Billion, that would stimulate the economy, 'cause the government sure isn't going to put it under a mattress.

So, if we want to "give back" 100 billion dollars we could spread it an infinite number of ways. We could take income tax receipts from the rich and give them to the poor. It's an option. Poor folks would probably like it. Say that there are 25 million households making $20K or less, we give them each $4,000. Nice. A big screen TV in every living room (if you vote for me)!

3 problems -
1 - You will never be able to explain "Marginal Propsensity to Save" to the people. Ever. And politicians will never be able to explain it, other than in some Robin Hood example. We have a Republican House and Senate, and (selected / elected / whatever) a Republican president. Could one concur that is the United States populace do not advocate such a severe re-distribution of wealth by the US government? That is to say, a system whereby only the top 50% of earners pay tax, and the bottom 50% get a refund? How about no one under $75K pays income tax? Is that more 'fair', since they are more likely to spend it? There would be a middle-class tax revolt (finally).

2 - The government already gives more than $100 Billion in "transfer income" to each of the lower 3 quintiles of income earners, via various government programs. (Meaning the bottom 20% get $100 Billion, the next 20% get $100 Billion, etc.) So, we should double this, and make it cash? Why not just eliminate food stamps and welfare and be honest - take from the rich and give to the poor. See #1.

3 - You are basing your theory on earners. Retired people that have massive savings may only 'earn' $25K a year, but be quite comfortable. Will they have a 'propensity to spend' the additional $4K? Do they 'need' the $4K? Are we trying too hard to be social engineers here, inviting unintended consequences?

Updated to add - currently 44% of americans pay no federal income tax.

Carlitos -

Thanks for the link. I read throught the whole thing and found some interesting information. Some of it appears to be more than a little misleading, however.

Take your own quote from above, for example. 44% of Americans pay no Federal income tax. That's true, as far as it goes, but what you forgot to mention was the context they put this in:

So, basically, what they are saying is that all of the kids under age 16 in this country are not paying Federal income taxes. Neither are any "stay at home moms", or people too disabled to work at all, and are completely dependent upon someone else. Well, surprise, surprise! People who aren't making any income aren't required to pay income taxes! Who'd a thunk it!

If I recall correctly, the "tax rebate" checks we got in 2001 and 2002, were sent out to people who actually filed tax returns the prior year, so these kids, and moms and disabled folks wouldn't have received a rebate check to begin with.

The other major thing that jumped out at me was that one in five tax returns with no tax liability reported business income, and that the refunds were due either for business or farm losses, or overpayments of the Alternative Minimum Tax from the prior year.

Also, I'm kind of confused as to what they mean exactly by "tax liablility". For instance, this quote:

Now, these people may not be required to file a return, but they certainly had income taxes withheld from their paycheck, IRA disbursement, etc. They may also be entitled to a refund all of the taxes withheld, I don't know. But, if they fail to file a return, they have indeed paid into the tax system, haven't they?

Thanks for not taking the "nonsense" part out of context.

As for the "tax cuts stimulated the economy", I'd still say: no, they didn't: a record $500 billion in government borrowing and spending stimulated the economy. The tax cut did little. Your heritage.org links showed no causal link between tax cuts and economic stimulation. They claim that "A happened, then B happened", so they must be related... except that they fail to address exactly HOW that relationship is made with any kind of data.

I don't see the links in the chain between "tax cut" and "economic boon". I do however see a record deficit of money being borrowed (much from outside our country) and spent within our economy. The increase in GDP and the amount borrowed being nearly equal seems too coincidental to ignore.

It is not misleading. The author is making a case that too many people are out of the tax system. I don't disagree. Even those in the system have money withheld and think that they are getting a 'refund' from the gov't, when in reality their pay was confiscated at some rate, expensed to taxes at another rate, and then they pay / get the difference.


Now I think you are being a bit misleading. Bush said he would cut taxes. He cut taxes. Unemployed students and housewives don't pay income tax, so they didn't get a tax cut. If he pays income tax, their father / husband got a tax cut. Simply put, taxpayers got a tax cut.

You do not recall correctly. Taxpayers got a rebate for the first 1/2 of 2003, when the tax cuts were made effective retroactively in mid-year. For the second half of 2003, the cuts were seen in reduced withholding for most people.


No. You get a job, you fill out a W-2. If you make $5 per hour, the gov't withholds FICA and stuff, but not federal income tax. I could be wrong here, as it's been a while for me. Since the marginal rate on income from zero to $8000 is ZERO, you don't owe any tax. If you paid some, fill out a return and you get it back. If not, that's fine too. You are confusing 'not required' with 'may not' - if you paid some taxes and want them back, all you have to do is file a 1040 EZ - you can do it over the phone or on the internet, takes all of about 10 minutes.

It is not misleading. The author is making a case that too many people are out of the tax system. I don't disagree. Even those in the system have money withheld and think that they are getting a 'refund' from the gov't, when in reality their pay was confiscated at some rate, expensed to taxes at another rate, and then they pay / get the difference.


Now I think you are being a bit misleading. Bush said he would cut taxes. He cut taxes. Unemployed students and housewives don't pay income tax, so they didn't get a tax cut. If he pays income tax, their father / husband got a tax cut. Simply put, taxpayers got a tax cut.

You do not recall correctly. Taxpayers got a rebate for the first 1/2 of 2003, when the tax cuts were made effective retroactively in mid-year. For the second half of 2003, the cuts were seen in reduced withholding for most people.


No. You get a job, you fill out a W-2. If you make $5 per hour, the gov't withholds FICA and stuff, but not federal income tax. I could be wrong here, as it's been a while for me. Since the marginal rate on income from zero to $8000 is ZERO, you don't owe any tax. If you paid some, fill out a return and you get it back. If not, that's fine too. You are confusing 'not required' with 'may not' - if you paid some taxes and want them back, all you have to do is file a 1040 EZ - you can do it over the phone or on the internet, takes all of about 10 minutes.


I posted examples of the Coolidge-Harding, Kennedy, and Bush II tax cuts happening, directly followed by economic improvement across the board. I ask that those opposed provide evidence that there is NO causal relationship. If it's government spending that does it, you show me more than one period of high gov't spending, where the economy grew. Maybe add up change in gov't spending and change in GDP over the years, see if it relates?

I don't know, Amf. I'm betting you can attribute those low interest rates to the huge amounts of capital people have saved with their tax cut.

Interest rates

If the supply of funds is gargantuan compared to demand for it, interest rates will decline. I don't think we've seen such a lack of investment to warrant such low interests from the Feds. A big part of it is the huge amount of capital that is still sitting on the shelves.

Thats not my problem! And has little to do with the validity of a properly placed tax rebate.

I wouldn't go that far. What I'm saying is, if you want to give 10 billion dollars of tax rebates, work your way from the bottom to the top. With that rebate, just take away all the taxes from the bottom percentage that people are paying and it would stimulate demand more than giving that same amount from the top to the bottom.

I always thought that most retired people lived off SS checks and their personal savings rather than income. Those few that do make an income are probably in the minority more than representatives of their tax bracket anyway.

I disagree. One reason the economy has been so slow to rebound has been precisely because companies were scared to invest. They weren't basing this on interest rates--they were basing it on business factors. So, interest rates had to be lowered a LOT to encourage businesses to take the plunge.

FWIW--despite all the attention paid to Greenspan and the Fed, they don't really 'determine' what rate to charge. If you look at the Fed rate vs. the spot market rate, the Fed is a trailing indicator--ie, it adjusts to demand, not visa versa.



I disagree here also. What do you think upper income people do with this extra money they receive? Hide it under a mattress? Even if they don't spend it, they will invest it...somewhere. This investment, even if its just putting the money into a bank, will have a positive effect on the economy through higher stock prices (making business investment possible), or additional money available to loan (driving consumer demand and business investment). Remember that given cash balance requirements, institutions can loan out much, much more money for each additional dollar they get. Given this multiplication factor, macroeconomics usually favors this type of governmental incentive as providing the most economic benefit. Therefore, I think what Bush did (an across the board tax cut) actually was a compromise--its being touted as a tax cut for the rich is therefore doubly misleading.

You're confusing general interest rates with the Federal Reserve overnight funds rate. The Fed cares about making sure that inflation isn't high and recession doesn't happen. It does this by making money available more or less easily. If they keep the rate artificially low, then they're trying to force additional money supply into the system to create growth/inflation; if they raise those rates -- as they did in 2000 -- then they're trying to slow growth/deflate the economy.

Banks use the overnight rates as a kind of slush fund so that they can make loans at a higher cost than loans that they'd make using cash from deposits or investors. If you deposit money in a bank account, what are you getting... 1% interest or less per year if that? The Fed rate is higher than that, so banks can use it to make loans -- or cover their reserves if they put too much in loans out there in the market -- but that is a larger cost against their bottom line.

General interest rates tend to track the Fed rates, but there's also some market speculation on the Fed direction and that also drives those rates up/down.

And stats showed when most folks got that $300 rebate, they ended up paying off debt instead of spending it on goods/services. As for the general tax cuts, based on current personal savings and debt rates, little of it was saved on the low end of the economic spectrum where people live paycheck to paycheck and savings is for the "rich" folks.

Exactly! Retired people that have scrimped and saved and have $200K in the bank, a house that's already paid off, could be 'earning' 7% interest on their IRA balance and other funds. This is 'income' of $14K per year. They may only siphon a little off the principal each year, living mainly off the interest plus Social Security.

In the world of the sound bite, these retired people are 'our senior citizens, struggling to get by on poverty wages' because all the tax laws focus on earnings. The reality is that the aged tend to be worth more than the young, because they've had time to save. Which is why they wouldn't be any more likely to spend their tax cut than some rich guy.

I have to weigh in on the side of making any tax reductions start at the low end...if it's a $300B tax break, cut it out of the first, or first & second tax brackets. Either way (cutting from the top or cutting from the bottom) $300B more is now in the hands of the American taxpayers. However, if you cut it out of the bottom tax bracket, you benefit everyone who paid taxes, rather than a subset of taxpayers.

I don't think that even in the best case, taxes from either end necessarily benefit the economy more than taxes cut from the other end. However, I will hazard a guess that folks at the lower end of the tax scale are a lot less speculative than the folks at the upper end. Speculation drives the boom and bust cycle.

I don't think that exempting everyone who makes less than $75,000 from taxes would cause a middle class revolt, assuming that someone who made $75,001 only paid $.15 or $.20 cents.

I think it's important to recognize that more money is raised from payroll tax than income tax, and that everyone who receives a paycheck loses 15.3% of their potential payroll to such tax, unless they make more than $87,500?, in which case the rate of payroll tax decreases making it a truly regressive tax. It's also important to recognize that every purchase you make has some element of taxation in it from the retailer, wholesaler, shipper, manufacturer, etc. This number is also in the 15%-20% range.

This is not true. Yes, it is regressive, and yes, it's a hidden tax in that the employer pays 1/2. But as far as the employee portion, the gov't collects more from income tax vs. FICA.

A great many lower income americans pay more in payroll tax than they do in income tax, but this is due to our flawed Social Security system, not some scheme to regressively tax the poor. It's because they pay negative or very low income tax rates.

If you add the (employee portion) payroll tax and federal income tax together, the effective rate for a family of four for given income levels is:
1/2 median income = 7.5%
median income = 14%
double median income = 20%

tables

I'm a little bit late on this response.
Firstly:

Depends. I guess I can't see everyone in the lower tax bracket as either careless enough to rack up a debt, or responsible enough to pay it off with a tax rebate. I would be most interested to see the actual stats.

Furthermore, if paying off there debt allowed them to borrow even more money than they otherwise could have, it helps demand by virtually the same amount of money in a different way. Being able to use a credit card, when one couldn't have without the rebate, is still aiding demand.

Lastly, the fact they have to go into debt to sate their spending habits proves my point on marginal utility anyway. Give these people some money, and they will most definitely spend it. They'd certainly more likely to spend it if their total spending habits are outside a budget.