Spending Cuts not Tax increases

[Jroc]

Research says....

The Right Way to Balance the Budget


The federal debt is at its highest level since the aftermath of World War II—and it's projected to rise further. Simply stabilizing debt levels would require an immediate and permanent 23% increase in all federal tax revenues or equivalent cuts in government expenditures, according to Congressional Budget Office forecasts. What's clear is that to avoid a crisis, the federal government must undergo a significant retrenchment, or fiscal consolidation. The question is whether to do so by raising taxes or reducing government spending.

The data also clearly indicate that successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases. On average, the typical unsuccessful consolidation consisted of 53% tax increases and 47% spending cuts.

By contrast, the typical successful fiscal consolidation consisted, on average, of 85% spending cuts. While tax increases play little role in successful efforts to balance budgets, there are some cases where governments reduced spending by more than was needed to lower the budget deficit, and then went on to cut taxes. Finland's consolidation in the late 1990s consisted of 108% spending cuts, accompanied by modest tax cuts.

Consistent with other studies, we found that successful consolidations focused on reducing social transfers, which in the American context means entitlements, and also on cuts to the size and pay of the government work force. A 1996 International Monetary Fund study concluded that "fiscal consolidation that concentrates on the expenditure side, and especially on transfers and government wages, is more likely to succeed in reducing the public debt ratio than tax-based consolidation." For example, in the U.K's 1997 consolidation, cuts to transfers made up 32% of expenditure cuts, and cuts to government wages made up 21%.

Likewise, a 1996 research paper by Columbia University economist Roberto Perotti concluded that "the more persistent adjustments are the ones that reduce the deficit mainly by cutting two specific types of outlays: social expenditure and the wage component of government consumption. Adjustments that do not last, by contrast, rely primarily on labor-tax increases and on capital-spending cuts."

The numbers are striking. Our research shows that the typical successful consolidation allocates 38% of the spending cuts to entitlements and 25% to reductions in government salaries. The residual comes from areas such as subsidies, infrastructure and defense.

http://www.aei.org/article/102945

 

[shintao]

So if we just eliminate taxes we can spend more, stores can sell more, plants can make more, and before you know it we will be back on our feet again.

 

[Quantum Windbag]

So if we just eliminate taxes we can spend more, stores can sell more, plants can make more, and before you know it we will be back on our feet again.

Do you even know how to read?

 

[uscitizen]

Or we can pay more for the same stuff we already buy?

It is called the recovery.

 

[shintao]

So if we just eliminate taxes we can spend more, stores can sell more, plants can make more, and before you know it we will be back on our feet again.

Do you even know how to read?

Do you know how to blow? Well blow me!!

 

[Care4all]

well, since the new congress is eliminating tax cuts from paygo, they can cut taxes and still spend like drunken sailors and bankrupt us....

 

[Londoner]

Supply side economics works when you need to unburden the suppliers. This was necessary in the 70s, after 40 years of regulatory overreach. However, we are not suffering today because suppliers are in trouble. In fact, because of all the consolidation, subsidies, bailouts, and tax cuts over the past 30 years, corporations have never been wealthier. The problem is demand. (For this you need a different tool box)

(Silly rabbits. Banks and corporations are sitting on trillions -therefore: tax cuts are not going to cause them to add jobs. They are not going to add jobs until there is sufficient demand. They can't add jobs until the middle class is solvent enough to spend. The middle class will not spend if you impose austerity programs on them in order to give the already-wealthy trillions more)

Demand Demand Demand

Demand is a technical term referring to the purchasing power of the people.

High demand = more spending = more jobs.

Low demand = job loss.

During the postwar years, the liberals created policies to ensure that the middle class received high compensation for their labor. [When the middle class has more money, demand is higher. When demand is higher (when more people are spending), the capitalist has to add more jobs] During the postwar years -- the great era of middle class spending and job growth -- The liberals created a wealth of programs which gave the middle class more economic security, which in turn gave them more money to spend: more demand. As a result, the capitalist was forced to innovate and invest and add jobs to capture all the money sitting in middle class pockets. Trickle up wealth. (Funny how America's greatest economic growth happened during this era of managed capitalism)

Then came the 70's oil shocks. Add the typical overproduction that marks the downside of the business cycle . . .and the globe was thrust into massive recession. Add also the re-industrialization of Germany and Japan, as well as the manufacturing rise of China and India. Add major inflation combined with the flight of jobs overseas ergo stagflation. The great postwar boom ends.

The American consumer entered the 80s with less economic security, and diminished job prospects (as the 3rd world began to make the toasters, cars, and silverware that used to be made in places like Utica, NY and Detroit Michigan). Reagan convinced the nation to lighten the load on business, so they could compete globally and add the needed jobs. It worked for a while, but an interesting transition was taking place. In order for business to add jobs and compete with its global competitors (and increase profit margins to satisfy the growing power of Wall Street), wages/benefits had to be lowered. Therefore, over the course of the next 30 years, America would roll-back the high compensation of the pampered postwar middle class. America's "Leave It To Beaver" suburbs (where everyone was in the middle class) would turn into "Lifestyles of the Rich and Famous" (where you had narrowing wealth accumulation surrounded by exploding poverty and debt).

A structural problem arose. America still had the largest consumption economy on earth, but the consumers who used to drive that consumption no longer had as much money. Where did the money go? Based on the policies of Ronald Reagan, it became over-concentrated in the pockets of corporations and their share holders.

The rich got richer, the middle class consumer fell behind.

So what did we do? How did we make up for the fact that consumers had less to spend? We sent the women into the workforce, and the men began to work more hours. [These were the first coping mechanisms that resulted from the unwinding of the postwar economy -- an economy where economic prosperity was broadly shared] When these things fell short, we turned to credit. Starting with Reagan, for the next 30 years, America would fuel consumption with Master Cards, Visas, bubbles, and fancy mortgages. [We needed to fuel the economy with something, or else risk unending recessions and lifestyle cuts. Credit was an easy out]

Of course there was another choice. We could have told the middle class that their jobs had been shipped overseas and it was time to tighten da' belt. We did the opposite. Indeed, each president promised the American people that they would live better than their parents. We promised our citizens infinite upward prosperity while jobs were hemorrhaging, and China was becoming the center of the manufacturing universe. Instead of making sacrifices and adjusting to the fact that less money was coming in, Washington encouraged its citizenry to go shopping -- and the banks obliged, sending 3 credit card offers a week.

When we ran out of unsecured credit, we fueled the economy with our houses (the last thing we had left).

Now, tragically, . . . our housing wealth is gone. There is nothing left to hawk or steal or turn into a bubble. There is no artificial stimulus left. Rates are at 50 year lows, but that isn't helping. The patient is dead. We have finally bumped into our borrowed-against future. The middle class is too far in debt to borrow another dime, and their job prospects cannot possibly get them out of the hole. Energy prices are rising and thus undercutting whatever was left of middle class demand.

The game is over. When we stopped investing in the middle class -- when we gave them credit instead of solid wages and benefits, we dug the country's grave. Let's face it. Business craved cheap labor and lower taxes so that it could raise profit margins and grease share holders -- the middle class was simply cut out of the loop. Starting with Reagan, their compensation stagnated, and their solvency eroded.

Here is what the Reagan Revolution doesn't understand. If you fail to adequately compensate the middle class for its share of wealth production -- if you concentrate all the money in the hands of the few -- you are going to make it impossible for the middle class to consume and drive the economy. When this happens you might be able to survive on credit for a while, but eventually you are going to learn a very harsh lesson: the middle class is too big to fail. Without their solvency, without their consumption, the economy and the country dies. You will end up in a neoliberal dystopia: concentrated wealth surrounded by exploding poverty.

The game is truly over. America swallowed poison in 1980.

 

[Quantum Windbag]

So if we just eliminate taxes we can spend more, stores can sell more, plants can make more, and before you know it we will be back on our feet again.

Do you even know how to read?

Do you know how to blow? Well blow me!!

I have a new avatar for you.

 

[Jroc]

Supply side economics works when you need to unburden the suppliers. This was necessary in the 70s, after 40 years of regulatory overreach. However, we are not suffering today because suppliers are in trouble. In fact, because of all the consolidation, subsidies, bailouts, and tax cuts over the past 30 years, corporations have never been wealthier. The problem is demand. (For this you need a different tool box)

(Silly rabbits. Banks and corporations are sitting on trillions -therefore: tax cuts are not going to cause them to add jobs. They are not going to add jobs until there is sufficient demand. They can't add jobs until the middle class is solvent enough to spend. The middle class will not spend if you impose austerity programs on them in order to give the already-wealthy trillions more)

.

What a load of socialist crap...Weres the link? If Corporations are so healthy why all the bankruptcies? Humm...It seems to me GM was the worlds largest corp. not too long ago look at them now. I don't Have time to take this apart and answer it properly right now I'll hit you back later.

 

[Oddball]

well, since the new congress is eliminating tax cuts from paygo, they can cut taxes and still spend like drunken sailors and bankrupt us....

Oh, and what happened to Jim Bunning when he applied paygo rule to extensions of unemployment handouts?

Paygo was a window dressing scam from the beginning and you know it.

 

[CountofTuscany]

Until we start cutting we will never get out from under. Taxes continually increase to meet the ever rising government waste spending.

 

[WillowTree]

How much is our "foreign aid" bill every year? Cut that. How much do we spend funding the Un? Cut that?

 

[WillowTree]

Cut Federal employees by 20%. Cut their benefits too, to what the private sector makes.

 

[CountofTuscany]

How much is our "foreign aid" bill every year? Cut that. How much do we spend funding the Un? Cut that?

America first. Seems we have forgotten all about America in the process.

 

[rightwinger]

Trickle down will fix everything

 

[CountofTuscany]

Trickle down will fix everything

Obamanomics sure seems to be working.

 

[VaYank5150]

Trickle down will fix everything

Obamanomics sure seems to be working.

Yes, because Reaganomics was such a windfall for the US, right?

 

[rightwinger]

Trickle down will fix everything

Obamanomics sure seems to be working.

Cutting taxes without and equivalent cut in spending is fiscal insanity

 

[CountofTuscany]

Trickle down will fix everything

Obamanomics sure seems to be working.

Cutting taxes without and equivalent cut in spending is fiscal insanity

So Obama campaigns on how evil the Bush taxbreaks are, and then he extends them. did he cut spending? Nope. Why? Because he is insane!

 

[Wry Catcher]

Supply side economics works when you need to unburden the suppliers. This was necessary in the 70s, after 40 years of regulatory overreach. However, we are not suffering today because suppliers are in trouble. In fact, because of all the consolidation, subsidies, bailouts, and tax cuts over the past 30 years, corporations have never been wealthier. The problem is demand. (For this you need a different tool box)

(Silly rabbits. Banks and corporations are sitting on trillions -therefore: tax cuts are not going to cause them to add jobs. They are not going to add jobs until there is sufficient demand. They can't add jobs until the middle class is solvent enough to spend. The middle class will not spend if you impose austerity programs on them in order to give the already-wealthy trillions more)

Demand Demand Demand

Demand is a technical term referring to the purchasing power of the people.

High demand = more spending = more jobs.

Low demand = job loss.

During the postwar years, the liberals created policies to ensure that the middle class received high compensation for their labor. [When the middle class has more money, demand is higher. When demand is higher (when more people are spending), the capitalist has to add more jobs] During the postwar years -- the great era of middle class spending and job growth -- The liberals created a wealth of programs which gave the middle class more economic security, which in turn gave them more money to spend: more demand. As a result, the capitalist was forced to innovate and invest and add jobs to capture all the money sitting in middle class pockets. Trickle up wealth. (Funny how America's greatest economic growth happened during this era of managed capitalism)

Then came the 70's oil shocks. Add the typical overproduction that marks the downside of the business cycle . . .and the globe was thrust into massive recession. Add also the re-industrialization of Germany and Japan, as well as the manufacturing rise of China and India. Add major inflation combined with the flight of jobs overseas ergo stagflation. The great postwar boom ends.

The American consumer entered the 80s with less economic security, and diminished job prospects (as the 3rd world began to make the toasters, cars, and silverware that used to be made in places like Utica, NY and Detroit Michigan). Reagan convinced the nation to lighten the load on business, so they could compete globally and add the needed jobs. It worked for a while, but an interesting transition was taking place. In order for business to add jobs and compete with its global competitors (and increase profit margins to satisfy the growing power of Wall Street), wages/benefits had to be lowered. Therefore, over the course of the next 30 years, America would roll-back the high compensation of the pampered postwar middle class. America's "Leave It To Beaver" suburbs (where everyone was in the middle class) would turn into "Lifestyles of the Rich and Famous" (where you had narrowing wealth accumulation surrounded by exploding poverty and debt).

A structural problem arose. America still had the largest consumption economy on earth, but the consumers who used to drive that consumption no longer had as much money. Where did the money go? Based on the policies of Ronald Reagan, it became over-concentrated in the pockets of corporations and their share holders.

The rich got richer, the middle class consumer fell behind.

So what did we do? How did we make up for the fact that consumers had less to spend? We sent the women into the workforce, and the men began to work more hours. [These were the first coping mechanisms that resulted from the unwinding of the postwar economy -- an economy where economic prosperity was broadly shared] When these things fell short, we turned to credit. Starting with Reagan, for the next 30 years, America would fuel consumption with Master Cards, Visas, bubbles, and fancy mortgages. [We needed to fuel the economy with something, or else risk unending recessions and lifestyle cuts. Credit was an easy out]

Of course there was another choice. We could have told the middle class that their jobs had been shipped overseas and it was time to tighten da' belt. We did the opposite. Indeed, each president promised the American people that they would live better than their parents. We promised our citizens infinite upward prosperity while jobs were hemorrhaging, and China was becoming the center of the manufacturing universe. Instead of making sacrifices and adjusting to the fact that less money was coming in, Washington encouraged its citizenry to go shopping -- and the banks obliged, sending 3 credit card offers a week.

When we ran out of unsecured credit, we fueled the economy with our houses (the last thing we had left).

Now, tragically, . . . our housing wealth is gone. There is nothing left to hawk or steal or turn into a bubble. There is no artificial stimulus left. Rates are at 50 year lows, but that isn't helping. The patient is dead. We have finally bumped into our borrowed-against future. The middle class is too far in debt to borrow another dime, and their job prospects cannot possibly get them out of the hole. Energy prices are rising and thus undercutting whatever was left of middle class demand.

The game is over. When we stopped investing in the middle class -- when we gave them credit instead of solid wages and benefits, we dug the country's grave. Let's face it. Business craved cheap labor and lower taxes so that it could raise profit margins and grease share holders -- the middle class was simply cut out of the loop. Starting with Reagan, their compensation stagnated, and their solvency eroded.

Here is what the Reagan Revolution doesn't understand. If you fail to adequately compensate the middle class for its share of wealth production -- if you concentrate all the money in the hands of the few -- you are going to make it impossible for the middle class to consume and drive the economy. When this happens you might be able to survive on credit for a while, but eventually you are going to learn a very harsh lesson: the middle class is too big to fail. Without their solvency, without their consumption, the economy and the country dies. You will end up in a neoliberal dystopia: concentrated wealth surrounded by exploding poverty.

The game is truly over. America swallowed poison in 1980.

Very well stated. Too bad the willfully ignorant RW echo chamber won't read the post above. It is spot on accurate; the 'study' presented in the OP by the American Enterprise Institute for Public Policy is nothing more than an opinon piece in support of conservative business interests; interests who are only interested in their own profit and not the American people.