OK, I'm all ears.

Discussion in 'Economy' started by Mariner, Nov 9, 2004.

  1. Mariner
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    Mariner Active Member

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    This is my first post on this forum. I'm a certified Cambridge liberal. Among other things, that means I'm empathetic, so I care what you think. I'm wondering if some of you would take the trouble to explain to me how Bush policy works. My understanding so far is that Bush's own 2001, 2002, and 2003 projections for economic and job performance have turned out woefully untrue. As a reasonable summary of my concerns, here's a New York Times piece from a couple of days ago:

    ECONOMIC VIEW

    Taxes and Consequences: The Second Term Begins
    By DANIEL ALTMAN

    Published: November 7, 2004



    RESIDENT BUSH began his first term with projections for $5.6 trillion in budget surpluses. Though he will start his second term facing at least $2.3 trillion in deficits, according to the Congressional Budget Office, his tax-cutting ambitions are even greater. Here are some of the initiatives that he's likely to push, and the unanswered questions that go with them.

    Privatization of Social Security President Bush said he wants to give workers an opportunity to divert part of their payroll taxes to individual investment accounts, in the hope that the financial markets would pay higher returns than the existing Social Security system. That money would otherwise have gone to pay benefits for current retirees, however. How would the administration close the gap? Also, who would choose where workers could put their money? Would they have been able to invest in Enron? What about investing abroad? And finally, what would happen if financial markets crashed? In Chile, whose private pension system has been cited as a model by President Bush, some retirees saw their benefits drop by 7 percent in 2001. Could that happen here?

    Simplification of the income tax It is not completely clear what the president means by this oft-heard campaign promise. Simplification could take several forms, from closing loopholes and streamlining rates (as in the 1986 restructuring), to a complete overhaul resulting in a flat tax. So, which is it?

    Making the 2001, 2002 and 2003 tax cuts permanent The president has repeatedly voiced his determination to achieve this goal, but the medium-term cost could be huge. According to the Congressional Budget Office, making the tax cuts permanent would increase the projected federal debt by a third, or about $2.2 trillion, by 2014. Without any indication that the budget gap will eventually close, interest rates could rise as investors here and abroad become leery. Is this change worth the risk?

    Tax-free saving accounts The Bush administration proposed an enormous expansion of saving accounts similar to Roth IRA's, where after-tax income funneled into a special portfolio would generate tax-free returns. Individuals would be able to salt away up to $15,000 a year, under the initial proposal. Most families, assuming they opened accounts for their children, would be able to shelter their entire portfolios from taxes within several years. Financial assets generated about 12 percent of individuals' taxable income in 2002. Could the government afford to forgo the resulting revenue? If there are projected benefits for the economy, how big are they?

    Abolishing the tax on dividends The White House sought to eliminate this form of "double taxation" in 2003. In the end, Congress cut tax rates on dividends and capital gains, but didn't abolish the taxes. Economists have not seen a marked improvement in household saving as a result of these changes, however, so the argument to go further will not be straightforward. With big deficits already on the way, how would the administration justify revisiting this tax?

    Several of the above, except for the changes to Social Security, are likely to find themselves rolled together in a gargantuan tax overhaul. For a start, a big bill would allow for more horse-trading, which may be needed to secure the 60 senators' votes needed to make permanent changes to the tax code. Such a bill would also make a good capstone for a second-term president who is trying to secure his legacy.

    A major tax restructuring would throw up some more unanswered questions, though. Virtually all of the proposals above would increase inequality in incomes. Greater inequality can harm the economy, as poor but talented people find it difficult to develop their potentials and follow through on their creative ideas. That could shrink the pool of skilled labor available to run the nation's cutting-edge manufacturers and service providers.

    The administration has not showed much eagerness to deal with these issues. "We can't let the perfect be the enemy of the good," said Peter R. Fisher, then the Under Secretary of the Treasury for Domestic Finance, in an interview in January 2003. By trying to rebalance the tax system to reduce inequality, he added, "you kind of invite a level of complexity back at you that you don't necessarily want."

    Perhaps more important, a few of these proposals would tend to shrink the tax base. Should taxes on income from financial assets fall or disappear, the federal government would have to make up the shortfall somewhere. So far, there's little sign in Washington of an inclination to cut spending. In that case, the government would have to borrow much more or raise rates on those Americans who still pay taxes.

    Wall Street rallied on Wednesday as the answer to the big question - who would be president for the next four years - came much more quickly than in 2000. But investors and money managers will train their eyes sharper than ever on Washington, looking for the spiraling deficits that would send interest rates sky-high. The president will have to be that much more mindful of the consequences of his actions.


    Copyright 2004*The New York Times Company
     
  2. Mr. P
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    Mr. P Senior Member

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    Without the article...which seems to me to be left leaning.....what do YOU think?
     
  3. Mariner
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    Mariner Active Member

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    a bit weird, which is why I chose to cut and paste the article rather than writing in my own words. It's sped up again now, so I'll give it a try:

    What do I think? Well, I think I'm happier living in a place like Massachusetts than I would be in, say Alabama. Sure I pay higher taxes here, but in I also have a higher standard of living. My state, unlike almost all the heartland "red" states, contributes more to the federal treasury than it gets back; we're not on the federal dole. In return for my higher state taxes, we provide decent Free Care for uninsured people, high quality public education (which provides skilled labor for businesses), a high level of public services such as police (Boston has a very low murder rate for a city its size), and a balanced state budget. That's a deal I'm willing to make--pay a little more in taxes in order to provide a more equal playing field for people of all backgrounds.

    In terms of Bush's policies, what I fear most is the widening gap between rich and poor. I know some very wealthy people and I work daily with some very poor people. It bothers me that while the American worker's productivity has increased vastly in the past 30 years, the bulk of that productivity has been pocketed by the CEOs with virtually no change in workers' actual inflation-adjusted salaries in that time. I know enough "trust fund babies" to believe that building a leisure class (via ending the estate tax and reducing taxes on unearned wealth) while leaving minimum-wage workers in a near impossible-to-escape hole (via opposing increasing the minimum wage among other policies) is a bad social idea. I know so many superb people working as hard as they can working 2 jobs each who don't make as much money in a year as some leisure class people make in a week of thumb-twiddling by the pool at the health club--and it really bothers me.

    When it comes to the conservative argument that people should keep what they earn, I can certainly appreciate the feelings behind it. No one wants to feel that Robin Hood stole their money. But I also think that people with money might take a look back in their own family histories. Many will find that some government benefit or program was instrumental to their success, whether it was college on the G.I. bill, a WPA project that saved a grandparent during the Great Depression, a period of unemployment payments that got them through a rough time, or simply the availability of educated workers due to public education. Taking an even longer view, it seems to me that many conservatives forget that without government intervention, the middle class might not exist:

    The first middle class in the country was the farmers and homesteaders. They were given a giant government boost when they signed up for "40 acres and a mule" or bought land at reduced rates. This could be seen as welfare or government-sponsored entrepreneurship, but either way, it worked. The next middle class was created by government tariff policy--by keeping out cheaper imported goods, we created the post-industrial revolution high paying manufacturing jobs which made possible the classic image of a father breadwinner and mother homemaker. But of course everyone had less "stuff" as a result, since stuff cost more. With the end of tariffs and increased globalization, the only remaining bulwark against the rich simply hoarding all the money for themselves was redistributive taxation--higher rates for wealthy people than for poor. Unfortunately, history shows that capitalism, for all its undeniable benefits, simply does not automatically take care of a number of things, e.g. workers' rights, workers' salaries, or the environment.

    I see capitalism as the engine, but believe somone needs to be steering the car, and that "someone" is a benign, secular government that promotes the general public good. I don't mind paying for it (and I'm in a moderately high tax bracket, so I do pay). I prefer that to the Brazil-like rich/poor, gated community, private school divide that we seem to be headed towards.

    Mariner
     
  4. freeandfun1
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    freeandfun1 VIP Member

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    you have a link that shows the statistics to support the following statement:

    Also, do you not think that, since the heartland states contribute to your ability to eat every day that they might need federal monies to support the varacious appetites of the coastlands? I have no idea what the breakdown of that stats are, but you are making a pretty big assumption here.

    Also, how do you address the FACT that every time the Feds cut taxes, revenues to the treasury increase? Could it be because your elite friends start hiding their monies overseas?
     
  5. Mariner
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    Mariner Active Member

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    but I've seen the numbers and they're pretty interesting. Many a state that prides itself on rugged independence is in fact depending on the real producers of wealth in this country--New Jersey, California, and others.

    Cutting taxes raises revenues? If I recall, the 80s boom followed Reagan being forced to raise taxes in 1983 and the 90s boom followed Bush I's breaking his "no new taxes" pledge. The current round of tax cutting has resulted in economic growth way under what the supply-side people predicted. Bush's own rosiest current estimates (which, hypocritically, assume that his own tax cuts will be phased out) show looming deficits. There's study after study showing that tax cuts to poor people do stimulate the economy (because they spend the money) while tax cuts to wealthy people don't. So Bush is proposing a "simplification" of the tax code that will no doubt shift the burden even further on consumption rather than wealth taxation. The current rate on unearned income is around 10%. Isn't that low enough? Whose going to pay down these massive Republican credit card bills?

    When I have a little time this evening I'll go looking for a link for you.

    Mariner.
     
  6. Mariner
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    Mariner Active Member

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  7. freeandfun1
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    freeandfun1 VIP Member

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    thanks, but I believe that the info provided does not go into enough detail. What are the "Red" states doing with the money? Are they supporting FEDERALLY mandated programs? Is the money going into federal programs such as military bases, national parks, support of native Americans, court mandated education for illegal aliens, etc?

    What about highway systems that are used to transport goods between coasts, what about federal money for farmers, etc. to grow food for those of you on the coasts, etc? There are WAY too many variables and the stats are not as clear as you would want us to believe. Also, you DO not at all take into account the fact that even within the Blue states, outside of the cities, most of those states were red. So there really is no clear cut way to analyze this information.
     
  8. no1tovote4
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    no1tovote4 VIP Member

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    My nice red state receives the 7th least amount per dollar put in to the Treasury. I think it kind of blows your theory out of the water. I think most of that money from the Treasury might also be money going to Military Bases, most of which are located in red states.
     
  9. CSM
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    CSM Senior Member

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    Mariner

    Horse puckey.

    According to the Consolidated Federal Funds Report for FY 2003, Mass ranks right around 11th in the nation for receipt of federal funds in just about all categories.

    http://www.census.gov/govs/www/cffr03.html

    If you have statistics showing exactly how much Mass contributes to the redistribution of funds, I would love to see them.
     
  10. CSM
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    CSM Senior Member

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    Here is a more comprehensive breakdown.

    http://harvester.census.gov/cffr/asp/Geography.asp

    By the way, you can look up any state, any federal program, grant etc.

    Mass received well over 50 BILLION dollars in Federal money on one form or another.
     

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