Huckleburry said:
That is what always seems to happen when I post on this subject. Folks either flame me or write me off as cynical. The economy is starting to heat up...that much is true. and tax cuts generally provide a medium term boost.
I am attacking the nuance of the cuts. That these cuts came at too high a price. Also...anyone who believes Bernake is going to stop raising interest rates has their head burried in the sand. With oil futures surpassing the 70 dollar mark, it is inconcievable that the fed will not continue to worry about inflation. We have serious challenges to adress. Challenges that go beyond democrat/republican. I am eager to engage in a discussion concerning the global economy and America's place in it. Anyone who wants to partake is more than welcome to join. But please lets check the partisan bullshit at the door, If I want to hear the partisan line I will check fox news or NYT and get it from the source.
Huck
This is how tax cuts increase the amount of revenue coming into the government. First, it's not a tax cut, it's a tax RATE cut. When the White House announces a $300 billion dollar tax cut, that's just an estimate of the amount. In the past, tax cuts have raised revenue to the government, why? Because first, you don't tax people, you tax economic activity. Economic activity such as investing, earning an income, buying and selling a home and so forth. When the tax rate is lowered, the effect is similar to a sale at K-Mart or Target, people engage in more economic activity.
Part of the reason that the budget deficits went to zero during the Clinton years was because of the Capital Gains Tax. The Stock Market went into overdrive, people bought and sold more stocks, thus paid more in taxes and the government actually saw an increase in revenue.
The economy runs on money, that's obvious. So, to jump start a flagging one, the answer is to pump more money into the economy. The mean savings rate in this country is about 5% (maybe less), so that means that for every dollar earned by Americans, 95 cents goes back into the economy. On the other hand, only 40-60% of the money spent by the government reaches its intended recipients, because of bureaucracy and so on. Therefore, a tax cut rather than government intervention is much better at getting the economy running.
Now, what about those big deficits? Glad you asked. Yes, it seems ironic to me that the same party that brought us Medicare, Social Security, The Great Society, The War on Poverty, The Department of Education, and trillions of dollars in spending on failed social programs is suddenly the party of fiscal restraint. Frankly, I don't believe the Democrats are sincere about trimming government spending. They are just using it as a ploy to get re-elected so that they can start spending again.
The Republicans, too, are a big disappointment. Partly because they seem to lack the will to do what it takes to cut back government spending, party because they've acquired the Democrats' bad habits of winning elections using the taxpayers' money.
There are some things that things that can help reduce the deficit. Actually, a lot of things. One is cut spending. That's simple enough. But to do that will require things like a line item veto and limits on the Congress to spend money. Another is to privatize Social Security as President Bush originally intended. That would have the effect of increasing the savings rate of the American economy and generate wealth.
If Democrats are really serious about reducing the deficit, they can start by rescinding the Medicare Prescription Card Program. The program will be extremely costly, since it merely shifts the burden of costs for prescriptions from the consumer to the taxpayer. We already have too much debt, we can't pay for more, there isn't any money left, it should go. Of course, you'll have a lot of voters who are angry, but it's better than bankrupting the country.
By increasing the amount of its borrowing and spending, the government is effectively chasing investment out of this country. The private sector also needs money and there is a finite amount of it. Increased government borrowing "crowds out" private investment and thus decreases the ability of the economy to produce more wealth. Then people wonder why businesses are going overseas!
