interesting take on the tax breaks

[rtwngAvngr]

Originally posted by Reilly
No, you are right. That is one distinction, although I would phrase it differently. Nonetheless, the aim of both at fiscal stimulus is the same.

However, you are not considering a couple of points.
(1) Lower taxes on the wealthy are not as effective in a time of recession as they are in a time of boom.

Yeah. nothing's as effective during a recession, because of the the recession. Doy.

In a period of recession, where demand is low (because more people are concerned about their jobs and finances), production is rarely ramped up to 100%. Therefore, tax breaks to the wealthy are less likely to lead to direct business investment (creating more jobs, new plants, etc.) This is because there is not the demand for more production. Therefore, wealthy individuals are less likely to contribute a high percentage of each dollar received toward job creating investments. However, a tax break on middle and lower income individuals results in higher percentage of each dollar saved towards consumption, because these people have less ability to save (they have to meet current financial demands - i.e., buying a new washing machine, car, spending a little more on a vacation, etc.) Therefore, by providing tax breaks to these individuals, demand is increased overall, and investors will have more incentive to increase production to meet the new demand (which in turn creates more jobs).

This whole chain while nice and logical, is not quite right. Maxxed out production is not the only thing that triggers new investment. Enough said. The rest of the chain is unsound after this faulty assertion/assumption.

(2) Gov't spending, by pumping more money to these same lower income individuals (even if through unemployment insurance) helps raise demand for goods as well, once again providing the proper incentive for private investment in plants and the like. Also, some of this money will likely be put towards education (i.e, college tuition), which does contribute to higher efficiency.
To one extent you are right. Well placed tax cuts, at the right time, can help spur innovation, which may lead to a more efficient workforce. However, investments in roads, bridges, education, scientific grants, etc. can also increase our overall level of efficiency.
The main concern with tax cuts, even if well placed (and the Bush tax cuts are not well placed), is that, combined with high spending, you just get large goverment deficits, which, besides have to be paid back with interest, cause government borrowing which crowds out private borrowing and investment. I agree that gov't spending is too high, but in light of this, tax cuts at the same time is dangerous.

Worry wart. Pshaw! There's nothing dangerous here. You're just mad that right wing policies work.

Yes. People having money to spend stimulates the economy, but just giving people money does nothing to develop they're work skills or cohesion and functional integration with the rest of the economy; they're effectively wards of the government plantation. So while handouts may stimulate the economy, it ruins character, and again, innovation, but this time at the individual level.

Tax cuts are the way to go at all levels, for everyone, and I mean tax cuts, not income redistribution and "tax return checks" for people who don't pay taxes.

 

[Reilly]

Actually, government spending (and certain types of tax cuts) are effective at stimulating the economy in a recession. It is called Keynesian economics, and is accepted by nearly every economist alive today.

On your second point, your miss the point about "maxxed out production." This doesn't incentivise at all. Demand over production is what incentivises. That is what triggers additional investment. If your factory can produce 100 cars per day, but demand is only for 50 cars, there is no incentive to build another factory. It is only when demand for cars exceeds 100 per day that the incentive kicks in. (That is an overly simple example, but it is only used to make a point). As for the rest of reason 1 being unsound, because you didn't tell me why it was unsound, I can't respond.

Finally, direct handouts to people should only be used for short periods in order to stimulate demand. After the economy is up and running, such government spending should be used only for equity concerns. However, as I have pointed out before, there are many types of government spending that are not just "giving people money," including money for roads and bridges, scientific grants, money for higher education (scholarships & grants), etc. These are not just paying people to sit around, but are instead way to improve the efficiency of the nation by educating, improving infrastructure, and prompting sceintific innovation.

Tax cuts are fine if done properly, but it is bad government to for the government to spend by borrowing. Both the policies of Bush and Reagan "work," because they continue[d] to spend prolifically, while also giving money back in tax reductions. Anytime you flood the economy with money like this, demand will rise. However, eventually, you have to deal with paying back the debt and the possibility of freezing out private borrowing and investment, which can, if continued, require dramatic tax raises and government thriftiness in the future (and I am talking Medicare and Social Security reductions here). That is part of the reason why George Bush Sr. had to raise taxes in the early 90's. He sure didn't want to, but Reagan left us in debt such that it was necessary.

By the way, poorer Americans still pay taxes in the form of sales and FICA taxes.

 

[rtwngAvngr]

Originally posted by Reilly
Actually, government spending (and certain types of tax cuts) are effective at stimulating the economy in a recession. It is called Keynesian economics, and is accepted by nearly every economist alive today.

On your second point, your miss the point about "maxxed out production." This doesn't incentivise at all. Demand over production is what incentivises. That is what triggers additional investment. If your factory can produce 100 cars per day, but demand is only for 50 cars, there is no incentive to build another factory. It is only when demand for cars exceeds 100 per day that the incentive kicks in. (That is an overly simple example, but it is only used to make a point). As for the rest of reason 1 being unsound, because you didn't tell me why it was unsound, I can't respond.

Finally, direct handouts to people should only be used for short periods in order to stimulate demand. After the economy is up and running, such government spending should be used only for equity concerns. However, as I have pointed out before, there are many types of government spending that are not just "giving people money," including money for roads and bridges, scientific grants, money for higher education (scholarships & grants), etc. These are not just paying people to sit around, but are instead way to improve the efficiency of the nation by educating, improving infrastructure, and prompting sceintific innovation.

Tax cuts are fine if done properly, but it is bad government to for the government to spend by borrowing. Both the policies of Bush and Reagan "work," because they continue[d] to spend prolifically, while also giving money back in tax reductions. Anytime you flood the economy with money like this, demand will rise. However, eventually, you have to deal with paying back the debt and the possibility of freezing out private borrowing and investment, which can, if continued, require dramatic tax raises and government thriftiness in the future (and I am talking Medicare and Social Security reductions here). That is part of the reason why George Bush Sr. had to raise taxes in the early 90's. He sure didn't want to, but Reagan left us in debt such that it was necessary.

By the way, poorer Americans still pay taxes in the form of sales and FICA taxes.

OK. not maxxed out production, the implied increased demand of maxed out production. sorry you little nitpicker. Such a big difference. It's still not accurate; maxed out production is not the only catalyst for new investment. Entrepeneurs look for new products, new niches, new products, new services, new "value add opportunities". They don't just say, "hmm no extra demand to meet? no need to reinvest anything. "

Tax cuts grow the economy, a growing economy produces more total revenue in taxation. We will grow out of deficits. That it. That's the paradigm.

Handouts are bad.

Reduce cost of startup for small, new businesses, reduce regulations, reduce all forms of taxes. Cap nuisance lawsuits. Protect property rights. Power to the individual. Screw socialism.

 

[OCA]

It cannot be argued intellectually and factually that tax cuts whether they are 1 dollar or 1,000,000 are not beneficial to an economy. If you don't believe me go to my truth about Reaganomics thread in the political races forum. That says it all, nothing can be said to refute it.

 

[MtnBiker]

Originally posted by OCA
If you don't believe me go to my truth about Reaganomics thread in the political races forum. That says it all, nothing can be said to refute it.

That's a good one.