Fed Govt Reversing Local Spending Cuts: Key to Recovery?

[BakshisMouse]

All of the conservative pundits talk about how lower taxes and less government spending are key to recovery and jobs. However, even as federal, state and local government spending as a whole is falling, and the USA has comparatively low taxes, the unemployment rate is intolerably high.

Every time I turn on the local news, I hear of some county having to cut teacher or emergency personnel jobs because of budget shortfalls.

What if the federal government could use its spending power to reverse these trends? As much as conservative pundits like to point out trillion dollar deficits, the USA has comparatively low external public debt to GDP compared to other countries, and interest rates on treasury notes are abysmally low.

What does the federal government have to lose by helping state and local governments rehire their workforce? Not only could productive work be done, but the salaries that these formerly unemployed people will receive can be used to spend on private goods and services, which would only grow the economy.

 

[Wiseacre]

Do you think state and local gov'ts would hire back the laid off workers, or would they put that money into the pension funds that are drastically underfunded?

What makes you think the USA has comparatively low tax rates? Our corp tax rate is currently the highest in the world.

Your post doesn't specifically say so, but the implication is that we could raise taxes to pay for the increased spending. Why do you assume that raising taxes has no effect on economic growth, especially in times like these? Are you aware that if you allowed the Bush tax cuts to expire on the top 1% as Obama and the Dems want to do, you only get about 70-80 billion a year in more revenue? Actually, I think that estimate is overly optimisitic, but even so, how much good is that amount going to do spread over the 50 states?

What does the Fed Gov't have to lose? Right now, we pay about $250 billion in interest payments alone. I saw one report in CNN Money that estimates that amount will approach $1 trillion in 10 years, if interest rates only go up 1% or so. Eventually they will you know. Are you ready to risk putting that obligation on your kids and grandkids? And that's without your increase in spending, how much more money do you want to add to the debt? How long do you think you can keep spending like that before the shit hits the fan? And what happens then?

 

[BakshisMouse]

Do you think state and local gov'ts would hire back the laid off workers, or would they put that money into the pension funds that are drastically underfunded?

What makes you think the USA has comparatively low tax rates? Our corp tax rate is currently the highest in the world.

Your post doesn't specifically say so, but the implication is that we could raise taxes to pay for the increased spending. Why do you assume that raising taxes has no effect on economic growth, especially in times like these? Are you aware that if you allowed the Bush tax cuts to expire on the top 1% as Obama and the Dems want to do, you only get about 70-80 billion a year in more revenue? Actually, I think that estimate is overly optimisitic, but even so, how much good is that amount going to do spread over the 50 states?

What does the Fed Gov't have to lose? Right now, we pay about $250 billion in interest payments alone. I saw one report in CNN Money that estimates that amount will approach $1 trillion in 10 years, if interest rates only go up 1% or so. Eventually they will you know. Are you ready to risk putting that obligation on your kids and grandkids? And that's without your increase in spending, how much more money do you want to add to the debt? How long do you think you can keep spending like that before the shit hits the fan? And what happens then?

While the nominal rate of corporate tax in the USA is the highest in the world, in terms of share of operating surplus, US corporations pay quite a deal less than other countries.

Six Tests for Corporate Tax Reform — Center on Budget and Policy Priorities

Plus, an increased tax on high incomes would decrease individual savings, which is not a tragedy in times like these, as so few of the wealthy are not willing to spend their money as extravagantly as they used to in any case. You mention that CNN money claims that if the Bush tax cuts expire, revenues will increase only by 70-80 billion $ a year. You do realize that $700 billion over a decade is kind of significant, right? Plus, why simply stop at letting the Bush cuts expire? There have been some research that more revenue could be raised by a top rate exceeding 50%, without significant economic downturn.

You may call that confiscation, but a rate around 50% is competitive compared to many developed countries. In fact, top rates exceeding 50% were the norm for almost 50 year in the USA, up until the Reagan tax cuts.

As I mentioned, many researchers have come the conclusion that such high rates would not hinder economic progress significantly. Plus, it would be a big step to addressing long run budget concerns, and keep interest rates low by lowering deficits.

All of this is hypothetical, of course, because the president would cause the Republican House to go completely ape shit if he proposed this. I don't actually expect such action to be taken.

 

[Wiseacre]

Do you think state and local gov'ts would hire back the laid off workers, or would they put that money into the pension funds that are drastically underfunded?

What makes you think the USA has comparatively low tax rates? Our corp tax rate is currently the highest in the world.

Your post doesn't specifically say so, but the implication is that we could raise taxes to pay for the increased spending. Why do you assume that raising taxes has no effect on economic growth, especially in times like these? Are you aware that if you allowed the Bush tax cuts to expire on the top 1% as Obama and the Dems want to do, you only get about 70-80 billion a year in more revenue? Actually, I think that estimate is overly optimisitic, but even so, how much good is that amount going to do spread over the 50 states?

What does the Fed Gov't have to lose? Right now, we pay about $250 billion in interest payments alone. I saw one report in CNN Money that estimates that amount will approach $1 trillion in 10 years, if interest rates only go up 1% or so. Eventually they will you know. Are you ready to risk putting that obligation on your kids and grandkids? And that's without your increase in spending, how much more money do you want to add to the debt? How long do you think you can keep spending like that before the shit hits the fan? And what happens then?

While the nominal rate of corporate tax in the USA is the highest in the world, in terms of share of operating surplus, US corporations pay quite a deal less than other countries.

Six Tests for Corporate Tax Reform — Center on Budget and Policy Priorities

Plus, an increased tax on high incomes would decrease individual savings, which is not a tragedy in times like these, as so few of the wealthy are not willing to spend their money as extravagantly as they used to in any case. You mention that CNN money claims that if the Bush tax cuts expire, revenues will increase only by 70-80 billion $ a year. You do realize that $700 billion over a decade is kind of significant, right? Plus, why simply stop at letting the Bush cuts expire? There have been some research that more revenue could be raised by a top rate exceeding 50%, without significant economic downturn.


You've got to be kidding me. I highly doubt there are many unbiased studies that show raising taxes on anybody even the rich guys at a time when the economy is so close to a recession is without significance. There are many that show the opposite though.


You may call that confiscation, but a rate around 50% is competitive compared to many developed countries. In fact, top rates exceeding 50% were the norm for almost 50 year in the USA, up until the Reagan tax cuts.


That was then, this is now. One reason why most of those developed who do have and have had higher tax rates than ours are also the ones who are in deep trouble fiscally. The ones who aren't are mostly the ones who already cut taxes and reduced spending.


As I mentioned, many researchers have come the conclusion that such high rates would not hinder economic progress significantly. Plus, it would be a big step to addressing long run budget concerns, and keep interest rates low by lowering deficits.


If you want me to believe the Dems wouldn't increase spending if they got more revenue rather than reducing the debt/deficits, you've got a big job ahead of you. Show me a democrat who is advocating less spending please.


All of this is hypothetical, of course, because the president would cause the Republican House to go completely ape shit if he proposed this. I don't actually expect such action to be taken.

Wonder why Obama and the Dems didn't raise the rates when they had full control of Congress back in 2009. You're right though, the GOP House will NEVER agree to a tax hike, of that magnitude. Nor would the repubs in the Senate. And for good reason, it would be economic suicide IMHO. Could you supply a link to a study that shows that kind of a tax hike would be inconsequential?

 

[CrusaderFrank]

All of the conservative pundits talk about how lower taxes and less government spending are key to recovery and jobs. However, even as federal, state and local government spending as a whole is falling, and the USA has comparatively low taxes, the unemployment rate is intolerably high.

Every time I turn on the local news, I hear of some county having to cut teacher or emergency personnel jobs because of budget shortfalls.

What if the federal government could use its spending power to reverse these trends? As much as conservative pundits like to point out trillion dollar deficits, the USA has comparatively low external public debt to GDP compared to other countries, and interest rates on treasury notes are abysmally low.

What does the federal government have to lose by helping state and local governments rehire their workforce? Not only could productive work be done, but the salaries that these formerly unemployed people will receive can be used to spend on private goods and services, which would only grow the economy.

And that's how to turn the USA into Greece ASAP

 

[BakshisMouse]

Wonder why Obama and the Dems didn't raise the rates when they had full control of Congress back in 2009. You're right though, the GOP House will NEVER agree to a tax hike, of that magnitude. Nor would the repubs in the Senate. And for good reason, it would be economic suicide IMHO. Could you supply a link to a study that shows that kind of a tax hike would be inconsequential?

First of all, I disapprove of your writing your response in the quote box, but that is a minor quibble.

Second, the study I am talking about is this:

"The Case for a Progressive Tax: From Basic Research to Policy Recommendations"
http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.4.165

Peter Diamond (Massachusetts Institute of Technology) (Winner, Nobel Memorial Prize in Economic Sciences)
Emmanuel Saez (University of California, Berkeley)

I have not read the whole paper, but I have read summaries of it. I think that your view of "an unbiased study" is "a study that confirms my worldview", so I guess this won't mean anything to you.

I actually do not care if there are any Democrats talking about reducing spending. I'd much rather be back in the 1985-2007 era economy when unemplyment above 8% was inconceivable and there were deficits galore.

 

[BakshisMouse]

That was then, this is now. One reason why most of those developed who do have and have had higher tax rates than ours are also the ones who are in deep trouble fiscally. The ones who aren't are mostly the ones who already cut taxes and reduced spending.

About that:

(Top Personal Tax Rate) [Corporate Tax Rate]

Germany: (45%) [29.8]
Norway: (47.8%) [28%]
Sweden: (57%) [26.3]
Australia: (45%) [30%]

The 10-year bond yield for all of these countries is below 3%. They all have debt-to-GDP levels below 50%, except Germany, which has a rate above 80%. They all have unemployment rates below 8%. And there sure as hell wasn't a collapse in Swedish government spending in response to crisis.

 

[Moonglow]

the repubs in my area are too busy raising taxes to rehire anyone.

 

[BakshisMouse]

the repubs in my area are too busy raising taxes to rehire anyone.

I wonder what their respose to federal aid would be.

 

[BakshisMouse]

And about those 10-year bond yields:

Japan Government Debt To GDP

Japan Government Bond 10Y

Explore these charts. Even as Japan's Public debt to GDP rate has steadily increased from 99% in 1997 to over 200% today, Japanese 10-year bond yields have never broken 3% in that time. Plus, Japan has a long term deflation outlook. What makes us any different from them?