Supply-Side Boom

Discussion in 'Economy' started by Lefty Wilbury, Dec 11, 2005.

  1. Lefty Wilbury
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    Lefty Wilbury Active Member

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    the link in the article explains it best

    http://www.investors.com/editorial/IBDArticles.asp?artsec=20&issue=20051209

    Supply-Side Boom
    Posted 12/9/2005

    Fiscal Policy: A picture is worth a thousand words, and nowhere is that truer than in the debate over supply-side claims that tax cuts lead to higher revenues.

    We were struck by a chart that Treasury Secretary John Snow used last week when he presented the administration's case for making the 2003 tax cuts permanent.
    http://www.investors.com/images/editimg/issues1212.gif

    For Democrats opposed to the cuts, no argument has been more potent than that tax cuts somehow "cost" the government money — and thus make deficits worse. Snow's chart, shown below, puts the lie to that argument.


    In fact, the supply-siders are right: Revenues rise after tax rates are reduced. Federal revenues bottomed at $1.8 trillion just as Bush signed his bill; since then, they've risen 19.4% to $2.15 trillion, an all-time high.

    A big reason is that tax avoidance recedes along with rates. When top personal rates are high, the rich find ways to pay less. That's why our tax code is 55,000 pages thick. When rates are lower and flatter, such behavior disappears.

    This also explains why the richest Americans' share of all income taxes paid has soared to 34.27% from 19.05% in 1980 even though their average income-tax rate has fallen by roughly a third — from 34.47% to 24.31% in 2003.

    More important, however, is the impact tax cuts have on the economy. Since May 2003, when Bush's major plan of tax cuts on both capital and income took effect, the economy has been on a tear. It's virtually impossible to argue the two aren't linked.

    In the nine quarters before the tax cuts, GDP grew at an average rate of 1.1%. In the nine quarters since, it's averaged 4.5% — even in the face of punishingly higher interest rates and oil prices.

    We also hear how all the tax cuts are going to the "rich." Again, not true. A surge in entrepreneurship, jobs, income and wealth has made all of us richer and more secure.

    As Snow noted in his speech Thursday, 57 million Americans now own stocks — or about half of all households. Yet, the median income for shareholders is a very un-Rockefeller-like $65,000.

    Many of those investors are retired, and have seen their incomes go up along with dividends. This year, shareholders will deposit or reinvest $201 billion in payouts — up 36% from 2002, the year dividend tax cuts went into effect.

    Entrepreneurs are doing well, too. Fed data out Friday showed Americans' net worth is now $51 trillion — about 4.6 times real GDP. What's most impressive is that includes $6.6 trillion of equity in "noncorporate" — or small, entrepreneurial — businesses, up 32% since the start of 2003.

    The House passed legislation last week that will trim growth in federal spending by $50 billion but keep most of the 2003 tax cuts intact. The Senate has identified $36 billion in spending cuts but wants to let the tax cuts expire.

    The House version must prevail. The economy is surging, and the budget deficit is now shrinking as a share of GDP. Getting rid of the tax cuts that made all this possible would be the height of folly.
     
  2. Mariner
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    Mariner Active Member

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    shows how rosy the "macro" picture is while ignoring the complete lack of "trickle down." Sure, corporations are doing great, and so are people who own stocks. So why has poverty risen (one in five American children is now living in poverty)? Why are wages for workers stagnant or even declining? What about the severe declines in pensions, medical insurance, and other benefits? (The number of uninsured has grown during the Bush years, and he has no plan to deal with it.) There are 600,000 homeless American school children. These types of concerns seem to go completely under the rah-rah economist's radar.

    This is a great economy if you're a CEO, or a reader of the Wall Street Journal, taking home an average $200,000 per year. It's a lousy economy if you work for Wal-mart. This is where supply-side flunks. The Clinton economy, with moderate taxation and true fiscal restraint, was far better for those at the bottom.

    Mariner.
     
  3. BaronVonBigmeat
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    BaronVonBigmeat Senior Member

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    It might have something to do with inflation.
     
  4. Annie
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    Annie Diamond Member

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    Sorry the link didn't work. What was your point? You forgot to state it.
     
  5. Psychoblues
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    Psychoblues Senior Member

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    I'll give it to you in simple terms. By overfeeding the horses the starving sparrows will survive through the undigested corn in the droppings of the overfed horses. Get it?

    Psychoblues



     
  6. rtwngAvngr
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    rtwngAvngr Guest

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    You mean the american version of poverty? Where people still have cars, color televisions, brand new tennis shoes, cell phones, and state funded healthcare?
     
  7. Toro
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    Toro Diamond Member

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    Link
     
  8. ScreamingEagle
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    ScreamingEagle Gold Member

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    Mr. Page is comparing the receipts of today with the receipts during the bubble years that caused the recession? What does that prove? What is wrong with being "firmly planted on the left side of the Laffer Curve"?
     
  9. Toro
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    Toro Diamond Member

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    Somebody want to post a study confirming that the US economy is on the right side of the Laffer Curve? Considering that the deficit exploded after Reagan cut taxes, it closed after Slick Willie raised taxes, then opened again when Bush cut taxes, I think not. Seems pretty obvious.
     
  10. MtnBiker
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    MtnBiker Senior Member

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    Tax revenues and spending are two seperate functions.

    The Laffer curve only deals with tax collection, not government spending.

    [​IMG]
     

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