Taxes, Spending, the Fiscal Cliff, and Austerity

[oldfart]

You're bashing Harvard economists? HAHVAHD? What's the world coming to.

I've read, attended seminars with, and worked with a number of Harvard economists. Many of them are very good and some of them are pretty bad. Harvard has some quirks that encourage that result in all fields. They tend to pad the faculty by hiring big names after they have done their best work. And they are notorious for high graduation rates regardless of achievement. Harvard is great if you need a sheepskin effect, and you can get a world class graduate education there, but they are "too good" to be held to standards that we might apply to Princeton, Chicago, Michigan, or Wisconsin.

What about Estonia and the other Baltic States? Did they not severely cut spending instead of significantly raising taxes? Worked out well for them, Estonia is the only EU nation that is in surplus according to this:

If the best austerians can come up with is Estonia, it reveals just how bad the argument is.
Estonia is not doing so well, and their "success" is mostly hype and wishful thinking. But if you want to debate Estonia, make your case.

A lot of the EU countries that are in dire economic straights [straits] didn't really cut spending, they raised taxes instead. And their economies suffered. Spending cuts are no picnic either, those Baltic countries went through a lot of pain for a few years.

Where's the evidence for this assertion?

I'm not saying you gotta go big all at once and balance the budget; I'd be good with a gradual reduction to the point where spending increases do not exceed GDP growth. And I'd be good with higher taxes if and when the economic experiences sustained growth and UE drops because we're creating a lot more jobs rather than because 350,000 people left the workforce.

I think you just contradicted yourself. If the crucial point is that the only way to go is severe spending austerity, and that the failure of austerity to work is because there were tax increases and not enough drastic spending cuts, why would you embrace gradualism?

On a personal note, I think that the timing of tax increases is problematic. Generally it's not a good idea to increase taxes in a depressed economy. On the other side, if it's not done now, political considerations make it impossible to do so later. Reality can impinge on economic theory.

But I also think we and those European countries have to restructure their social contract; deals and promises were made that cannot be kept. And nobody is willing to do that, so the can gets kicked and the problems get bigger and worser. And the really bad part is, future generations will have to deal with the consequences of our prolificacy.

First, the "social contract" is quite different in Europe and the United States. So are the causes of the economic distrubances. Europe's problem is primarily one of trade balances created by the Euro experiment. Changing the "social contract" there is a policy of "internal devaluaton" which has turned out to be largely ineffective and profoundly destabilizing. If you want to debate Europe, the starting point is trade imbalances and capital flows, not national budgets.

In the United States, the problem has been a lack of financial regulation and a financial sector on steroids and out of control. The underlying debt problem is the result of an ideology which insists on tax cuts instead of reducing the debt or paying for things. The "starve the beast" theory is great except for the fact that the "beast" is the American people. I note in passing that having trashed America these "patriots" now are fomenting a succession movement.

So let's have at it. Just don't pretend that A & A is well regarded in the econmics literature.

 

[Trajan]

Clinton was the first and the Congressional leaders of that era were not boomers. My point is the problem in not Obama specifically but then generation as a whole that has never learned to set aside their ideological extreme positions for the good of the country as a whole.

exactly- if I recall Clinton and the rep. congresses got things done, they fought, they cajoled, they compromised, of course it may not have seemed that way then, but they managed things pretty well.

I don't disagree but this debate mirrors what is occurring on capital hill. No one here as argued that entitlement reform doesn't have to be part of the solution and that spending especially in Medicare and Medicaid has to be reduced.

-fine, I await the Presidents proposal for/on such- medicare, ss, medicaid.

- why did he ask for a free hand on raising the debt. ceiling?

- he has also made noise as to raising the UE extensions again, so, what we are going to pay folks 5 years of UE benefits/ is that really what it was designed for? No, it wasn't. Its called Mission creep.

- we are now spending 1 TRILLION dollars on "poverty' prgms.....how long can that last?

Just like in Congress the sole impediment to us reaching agreement on a meaningful deficit reduction approach is your unwillingness to move on increasing the top income tax rate and worse the rate on capital gains.

Just like on the Hill Republican insistence on maintaining these historically low tax rates in the face of crushing deficits is the main problem. This is a center- far right debate not a center - left debate like Fox News likes to paint it.

back to square 1....increasing the rates is fools gold, and I have explained why in this thread and in other threads here.

$ 83 Bn dollars will run us for a week and a half, its a smokescreen. tax reform is the key and getting a handle on the biggest drivers of debt now and future debt.

 

[Sactowndog]

You're bashing Harvard economists? HAHVAHD? What's the world coming to.

I've read, attended seminars with, and worked with a number of Harvard economist. Many of them are very goodand some of them are pretty bad. Harvard hs some quirks that encourage that result in all fields. They tend to pad the faculty by hiring big names after they have done their best work. And they are notorious for high graduation rates regardless of achievement. Harvard is great if you need a sheepskin effect, and you can get a world class graduate education there, but they are "too good" to be held to standards that we ight apply to Princeton, Chicago, Michigan, or Wisconsin.

What about Estonia and the other Baltic States? Did they not severely cut spending instead of significantly raising taxes? Worked out well for them, Estonia is the only EU nation that is in surplus according to this:

A lot of the EU countries that are in dire economic straights didn't really cut spending, they raised taxes instead. And their economies suffered. Spending cuts are no picnic either, those Baltic countries went through a lot of pain for a few years. I'm not saying you gotta go big all at once and balance the budget; I'd be good with a gradual reduction to the point where spending increases do not exceed GDP growth. And I'd be good with higher taxes if and when the economic experiences sustained growth and UE drops because we're creating a lot more jobs rather than because 350,000 people left the workforce.

But I also think we and those European countries have to restructure their social contract; deals and promises were made that cannot be kept. And nobody is willing to do that, so the can gets kicked and the problems get bigger and worser. And the really bad part is, future generations will have to deal with the consequences of our prolificacy.

Oldfart you appear to be an economist. Please explain to me why no one hasn't adjusted the Economic models to account for the massive growth in global stock exchanges and the significant shift in portfolio theory.

In 1980, when Capital gains rates were cut the Harvard endowment fund was 100% invested in US stocks and bonds. Today that same fund has about 30% of it portfolio invested in US Stocks and Bonds. So any reduction in capital gains will have much less local impact on jobs.

In addition the company I work for used the strategy of buying companies and off-shoring the employees to increase the cash flow. A lower capital gains rate only lowers the hurdle rate on deals like these.

In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs.

 

[Sactowndog]

exactly- if I recall Clinton and the rep. congresses got things done, they fought, they cajoled, they compromised, of course it may not have seemed that way then, but they managed things pretty well.

-fine, I await the Presidents proposal for/on such- medicare, ss, medicaid.

- why did he ask for a free hand on raising the debt. ceiling?

- he has also made noise as to raising the UE extensions again, so, what we are going to pay folks 5 years of UE benefits/ is that really what it was designed for? No, it wasn't. Its called Mission creep.

- we are now spending 1 TRILLION dollars on "poverty' prgms.....how long can that last?

Just like in Congress the sole impediment to us reaching agreement on a meaningful deficit reduction approach is your unwillingness to move on increasing the top income tax rate and worse the rate on capital gains.

Just like on the Hill Republican insistence on maintaining these historically low tax rates in the face of crushing deficits is the main problem. This is a center- far right debate not a center - left debate like Fox News likes to paint it.

back to square 1....increasing the rates is fools gold, and I have explained why in this thread and in other threads here.

$ 83 Bn dollars will run us for a week and a half, its a smokescreen. tax reform is the key and getting a handle on the biggest drivers of debt now and future debt.

No increasing the rates is important to show that everyone is pitching in and as th carrot for the democrats to agree to significant entitlement reform. And I have yet to hear you say you would support these increases if you can get significant entitlement reform.

 

[Trajan]

-fine, I await the Presidents proposal for/on such- medicare, ss, medicaid.

- why did he ask for a free hand on raising the debt. ceiling?

- he has also made noise as to raising the UE extensions again, so, what we are going to pay folks 5 years of UE benefits/ is that really what it was designed for? No, it wasn't. Its called Mission creep.

- we are now spending 1 TRILLION dollars on "poverty' prgms.....how long can that last?




back to square 1....increasing the rates is fools gold, and I have explained why in this thread and in other threads here.

$ 83 Bn dollars will run us for a week and a half, its a smokescreen. tax reform is the key and getting a handle on the biggest drivers of debt now and future debt.

No increasing the rates is important to show that everyone is pitching in and as th carrot for the democrats to agree to significant entitlement reform. And I have yet to hear you say you would support these increases if you can get significant entitlement reform.

No increasing the rates is important to show that everyone is pitching in and as th carrot for the democrats to agree to significant entitlement reform.

Ah, I see, its a matter of 'fairness' despite the fact that the rates will yield approx. 83Bn dollars (in year one and almost certainly go down there after) means little, until the gop agrees to tax people because it presents the appearance of 'pitching in', the dems will not compromise?

So, the carrot isn't effective tax policy to collect more revenue, but, what will be almost a useless exercise in axe grinding.

I have to say I find that ridiculous.



you are representing a false premise, in any case- I do NOT sppt. rate hikes, I support tax reform, with or without entitlement reform, one has little do with another.

 

[PaulS1950]

Some of you are so busy blaming that you can't see the real problem.
It has nothing to do with either party it has everything to do with both parties.
The federal government is giving money away and spending money they don't have!

If you had a debt that was 8 times your annual income and you paid only the interest on that loan would you continue spending more than you bring home?

 

[oldfart]

Oldfart you appear to be an economist. Please explain to me why no one hasn't adjusted the Economic models to account for the massive growth in global stock exchanges and the significant shift in portfolio theory.

I think the double negative did not serve you well. Stock exchanges are 99+% secondary markets, so most macro models only incorporate them through wealth effects in the consumption function. There's a lot of papers on rational market theory and asymmetrical market informaton, but I haven't seen much lately on portfolio theory per se. But then I don't spend much tie keeping up on finance.
QUOTE=Sactowndog;6463564] In 1980, when Capital gains rates were cut the Harvard endowment fund was 100% invested in US stocks and bonds. Today that same fund has about 30% of it portfolio invested in US Stocks and Bonds. So any reduction in capital gains will have much less local impact on jobs.

In addition the company I work for used the strategy of buying companies and off-shoring the employees to increase the cash flow. A lower capital gains rate only lowers the hurdle rate on deals like these.

In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs.[/QUOTE]
You raise some interesting issues. My first thought would be that with corporations keeping trillions of ordinary earning offshore in tax havens and pushing the "territorial" tax system, capital gains rates would not be a big issue to them.

 

[Sactowndog]

Oldfart you appear to be an economist. Please explain to me why no one hasn't adjusted the Economic models to account for the massive growth in global stock exchanges and the significant shift in portfolio theory.

I think the double negative did not serve you well. Stock exchanges are 99+% secondary markets, so most macro models only incorporate them through wealth effects in the consumption function. There's a lot of papers on rational market theory and asymmetrical market informaton, but I haven't seen much lately on portfolio theory per se. But then I don't spend much tie keeping up on finance.
QUOTE=Sactowndog;6463564] In 1980, when Capital gains rates were cut the Harvard endowment fund was 100% invested in US stocks and bonds. Today that same fund has about 30% of it portfolio invested in US Stocks and Bonds. So any reduction in capital gains will have much less local impact on jobs.

In addition the company I work for used the strategy of buying companies and off-shoring the employees to increase the cash flow. A lower capital gains rate only lowers the hurdle rate on deals like these.

In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs.

You raise some interesting issues. My first thought would be that with corporations keeping trillions of ordinary earning offshore in tax havens and pushing the "territorial" tax system, capital gains rates would not be a big issue to them.[/QUOTE]

Sorry I am in bed sick typing this on my phone so Grammer checks are difficult. From 1980 to 2005, 58 countries created stock exchanges and portfolio theory has changed radically so that investors invest globally versus locally. These changes should have a dramatic impact on how effectively capital gains tax cuts spur economic growth. I have half debated quiting my job and getting a doctoral degree to study this change.

In terms of businesses the lower hurdle rate arises in terms of the seller not the buyer. Most sellers have an after tax number in their head they want to receive for their business. With a lower capital gains tax rate the sellers can reach that number more easily making them more likely to sell and the employees more likely to be off-shored.

 

[Wiseacre]

" In terms of businesses the lower hurdle rate arises in terms of the seller not the buyer. Most sellers have an after tax number in their head they want to receive for their business. With a lower capital gains tax rate the sellers can reach that number more easily making them more likely to sell and the employees more likely to be off-shored. "


This makes no sense, if the taxes are low enough for the seller to make the desired after tax profit, why would the buyer move the company offshore? All other things being equal, the buyer isn't going to incur the considerable moving expenses without a damn good reason.

 

[Wiseacre]

" In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs. "


I highly doubt that; I think that true academic research would show the exact opposite. Because a lower CG rate incentivizes capital investment and enriches not only the rich but also encourages the less rich to put more money to work. AND it also encourages offshore money and investments to come here instead of somewhere else.

 

[The Rabbi]

" In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs. "


I highly doubt that; I think that true academic research would show the exact opposite. Because a lower CG rate incentivizes capital investment and enriches not only the rich but also encourages the less rich to put more money to work. AND it also encourages offshore money and investments to come here instead of somewhere else.

It is historically the case that lowering hte CG rate produces more income to the govt, not less. Even Obama understands this.

 

[Foxfyre]

" In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs. "


I highly doubt that; I think that true academic research would show the exact opposite. Because a lower CG rate incentivizes capital investment and enriches not only the rich but also encourages the less rich to put more money to work. AND it also encourages offshore money and investments to come here instead of somewhere else.

It isn't even a matter of doubt. A lower CG makes investing a more attractive risk and the resulting increased economic activity has a positive ripple effect through the whole.

 

[Arthur]

Take the middle class and lower class tax hikes off the table and let the rich pay taxes at Clinton era rates.

Reduce expenditures starting with military waste, and proceeding to waste in all departments.

 

[The Rabbi]

Take the middle class and lower class tax hikes off the table and let the rich pay taxes at Clinton era rates.

Reduce expenditures starting with military waste, and proceeding to waste in all departments.

Why should high income earners be punished? You realize that will not bring in more money, right? It will result in reduced economic activity as high income earners figure out ways to shelter their income rather than pay tax on it.
Given whole departments in the gov't are basically waste, which ones would you like to see cut?

 

[The Rabbi]

Are you rich?

Quit deflecting and answer the question.

 

[Arthur]

I'll answer the questions I choose to answer.

"Senate Republicans would probably agree to higher tax rates on the wealthiest Americans if it meant getting a chance to overhaul costly government entitlement programs like Medicare and Social Security, a GOP senator predicted Sunday.

The comments by Bob Corker of Tennessee - a fiscal conservative who has been gaining stature in the Senate as a pragmatic deal broker - puts new pressure on House Speaker John Boehner and other Republican leaders to rethink their long-held assertion that even the very rich shouldn't see their rates go up next year. GOP leaders have argued that the revenue gained by hiking the top two tax rates would be trivial to the deficit, and that any tax hike hurts job creation."

Obama's plan would raise $1.6 trillion in revenue over 10 years, partly by letting decade-old tax cuts on the country's highest earners expire at the end of the year. He would continue those Bush-era tax cuts for everyone except individuals earning more than $200,000 and couples making above $250,000. The highest rates on top-paid Americans would rise from 33 percent and 35 percent to 36 percent and 39.6 percent.


Senator: GOP could accept tax hikes on very rich | National & World News | Seattle News, Weather, Sports, Breaking News | KOMO News

 

[Arthur]

In his "Wastebook 2012" report, Sen. Tom Coburn of Oklahoma pointed to 100 items including tax breaks to highly profitable sports leagues like the NFL, NASA funding to develop meals for a Mars mission that may not take place for decades and thousands of dollars for scientists to build a "robosquirrel" to see if rattlesnakes would try to eat it.

Coburn, a longtime crusader against waste, said better prioritizing and oversight could have saved taxpayers $18.9 billion on the programs included in the report, which was based largely on existing government studies, inspector generals' findings and media reports.

Coburn put much of the blame for the wasteful spending on Congress, which he described as deeply ineffectual and disliked by the America people.
Report on government waste cites 'robosquirrels,' tax breaks for NFL - CNN.com

Cutting out the robosquirrel is an example.

 

[Arthur]

Check this out:
2012 Pig Book Summary

 

[Arthur]

In his latest report on government waste, “Safety at Any Price,” Sen. Tom Coburn, R-Okla., argued that Homeland Security funds allocated after 9/11 to shore up the U.S. anti-terrorism defense are being misused. He pointed to a five-day counter-terrorism summit that included a “zombie apocalypse” demonstration.

The sleepy town of Keene, N.H., for example, obtained a military grade BearCat armored vehicle early this year with DHS grant funds, citing the need to secure its annual pumpkin festival. Price tag: $285,933. The town has had only two murders in the past 15 years.
New Report: Zombies Partly to Blame for Government Waste - ABC News

We need to eliminate waste. Period. We must reduce funding and raise revenue.

 

[Wiseacre]

Plain and simple, our govt is wasting a lot of our money, and a lot of it is being lost to fraud. I don't want to give the bastards one fucking dime more than they're getting now until they do a better job spending what they get now in effective and efficient programs. AND I demand better legislation that makes it harder to cheat and swindle us and easier to prosecute those who do that.

Neither party can deny culpability for the fiscal mess we've got now, finger pointing and demagoguery solves nothing. Both sides are constantly maneuvering for political power rather than sewrving the best interests of the rest of us. Damned if I know why we let them get away with it.