The Mondale Strategy

[5stringJeff]

Those crazy Dems! Don't they remember 1984?

Dean (D-VT) Wants To Raise Taxes. “We must repeal the entire package of cuts – both those signed today and those passed in 2001.” (Thomas Beaumont, “Dean Touts Wiping Out Tax Cuts,” Des Moines Register, 5/31/03)

Gephardt (D-MO) Wants To Raise Taxes. “The short answer is that we pass a law requiring every employer to provide access to quality coverage, with employer tax credits covering most of the cost. We pay for it by repealing the Bush tax cuts. It’s why legislation repealing the Bush tax cuts and using the money to pay for universal access to health care will be the first bill I send to Congress as President of the United States.” (Rep. Gephardt, Remarks At 1199 SEIU, NYC, 4/23/03)

Kerry (D-MA) Wants To Raise Taxes. “We have to either roll back or prevent the top end of Bush tax cuts from taking place ... I’m prepared to go at it and say we’re going to take it away.” (“Kerry: ‘Worst Jobs Record’ Since Hoover,” The Washington Post, 7/11/03)

Edwards (D-NC) Wants To Raise Taxes. “I will ask Congress to cancel the 2001 and 2003 income, dividend, and estate tax breaks for the wealthiest Americans in the upper two brackets.” (Sen. John Edwards, Remarks At Georgetown University, Washington, D.C., 6/17/03)

Clark (D-AR) Wants To Raise Taxes. “I will reduce the tax cuts Mr. Bush gave the richest households - those making more than $200,000 a year …” (Gen. Wesley Clark, Remarks At East River Park, New York City, 9/24/03)

Lieberman (D-CT) Wants To Raise Taxes. ‘“We need to take some of those tax cuts to people with incomes over $250,000 a year away. They don’t need it,’ Lieberman said.” (Julie Bisbee, “Lieberman Criticizes Bush, Calls For Middle-Class Tax Relief,” The Associated Press, 10/14/03)

I'd be willing to bet that Sharpton, Moseley-Braun, and Kucinich are also tax-and-spend Democrats as well.

 

[MtnBiker]

Will the nominee(who ever it is) be saying the same thing next year?

 

[Aquarian]

Actually, those statements sound more like an 'un-reduction' in taxes than a raise in taxes... And for my part I'm still not sure the mondale strategy was wrong fiscally even tho it was obviously wrong politically. America as a whole, like many american households in general, has a harder time tightening the belt and doing what's necessary than our forebears (mostly, individuals do vary of course). So many of us were or are caught up in the have it now trap of credit card debt that it will take years to dig out of, maybe never if we don't learn to 'just do it'. Same with the federal deficit, overall it's probably fiscally irresponsible to have it too large. As for tax and spend democrats, how would you compare that to our current tax less spend more republican dominated gov't? I've another comment about the spending of bleeding heart liberals but I think that belongs on another thread...

 

[5stringJeff]

First, please explain the practical difference between a raise in taxes and an "un-reduction" in taxes. Hint: there is none.

Second, raising taxes is shown to reduce tax receipts in the long run (i.e. 2-5 years). Conversely, lowering income tax rates is shown to increase tax receipts.

Third, I have a problem with tax-and-spend Republicans, just like I have a problem with tax-and-spend Democrats. However, we are in the middle of a war. I, personally, would like to see a freeze on spending, adjusted for inflation, except for additional expenses due to the GWOT and Homeland Security.

 

[Aquarian]

First, please explain the practical difference between a raise in taxes and an "un-reduction" in taxes. Hint: there is none.

hint: some folks don't think they should have been lowered in the first place, therefore returning them to what they had been is only a raise comparative to the lowered rate. while there is no practical difference, the semantics of 'un-reduction' (which ain't really a word ) carry a different connotation than a raise. The phrase 'restore taxes to their proper level' may be substituted for discussion purposes. Not an economist so can't properly state whether the reductions were proper or not, and I sure liked my $300 which came in just as I needed some car repairs, but overall I get the impression that the tax cuts helped most those who don't need it... whether or not they are entitled to it is another discussion, they don't need it My impression anyway.

Second, raising taxes is shown to reduce tax receipts in the long run (i.e. 2-5 years). Conversely, lowering income tax rates is shown to increase tax receipts.

Really? what accounts for that, more honest reporting since folks feel less like they are being skinned? Or businesses able to reach higher profits by holding on to more of their earnings to reinvest? Interesting phenomenon if provable. This isn't related to the 'trickle down' economics is it?

well spoken on your third point.

 

[MtnBiker]

Originally posted by Aquarian
Really? what accounts for that, more honest reporting since folks feel less like they are being skinned? Or businesses able to reach higher profits by holding on to more of their earnings to reinvest? Interesting phenomenon if provable. This isn't related to the 'trickle down' economics is it?

well spoken on your third point.

Jeff may have been thinking of the Laffer curve.

Taxes, Revenues, and the "Laffer Curve"

JUDE WANNISKI
Associate Editor
The Wall Street Journal
JUNE, 1978



As Arthur Laffer has noted, "There are always two tax rates that yield the same revenues." When an aide to President Gerald Ford asked him once to elaborate, Laffer (who is Professor of Business Economics at the University of Southern California) drew a simple curve, shown on the next page, to illustrate his point. The point, too, is simple enough -- though, like so many simple points, it is also powerful in its implications.

When the tax rate is 100 percent, all production ceases in the money economy (as distinct from the barter economy, which exists largely to escape taxation). People will not work in the money economy if all the fruits of their labors are confiscated by the government. And because production ceases, there is nothing for the 100-percent rate to confiscate, so government revenues are zero.

On the other hand, if the tax rate is zero, people can keep 100 percent of what they produce in the money economy. There is no governmental "wedge" between earnings and after-tax income, and thus no governmental barrier to production. Production is therefore maximized, and the output of the money economy is limited only by the desire of workers for leisure. But because the tax rate is zero, government revenues are again zero, and there can be no government. So at a 0-percent tax rate the economy is in a state of anarchy, and at a 100-percent tax rate the economy is functioning entirely through barter.

In between lies the curve. If the government reduces its rate to something less than 100 percent, say to point A, some segment of the barter economy will be able to gain so many efficiencies by being in the money economy that, even with near-confiscatory tax rates, after-tax production would still exceed that of the barter economy. Production will start up, and revenues will flow into the government treasury. By lowering the tax rate, we find an increase in revenues.

On the bottom end of the curve, the same thing is happening. If people feel that they need a minimal government and thus institute a low tax rate, some segment of the economy, finding that the marginal loss of income exceeds the efficiencies gained in the money economy, is shifted into either barter or leisure. But with that tax rate, revenues do flow into the government treasury. This is the situation at point B. Point A represents a very high tax rate and very low production. Point B represents a very low tax rate and very high production. Yet they both yield the same revenue to the government.

The same is true of points C and D. The government finds that by a further lowering of the tax rate, say from point A to point C, revenues increase with the further expansion of output. And by raising the tax rate, say from point B to point D, revenues also increase, by the same amount.

Revenues and production are maximized at point E. If, at point E, the government lowers the tax rate again, output will increase, but revenues will fall. And if, at point E, the tax rate is raised, both output and revenue will decline. The shaded area is the prohibitive range for government, where rates are unnecessarily high and can be reduced with gains in both output and revenue.



Tax rates and tax revenues

The next important thing to observe is that, except for the 0-percent and 100-percent rates, there are no numbers along the "Laffer curve." Point E is not 50 percent, although it may be, but rather a variable number: it is the point at which the electorate desires to be taxed. At points B and D, the electorate desires more government goods and services and is willing -- without reducing its productivity -- to pay the higher rates consistent with the revenues at point E. And at points A and C, the electorate desires more private goods and services in the money economy, and wishes to pay the lower rates consistent with the revenues at point E. It is the task of the statesman to determine the location of point E, and follow its variations as closely as possible.

This is true whether the political leader heads a nation or a family. The father who disciplines his son at point A, imposing harsh penalties for violating both major and minor rules, only invites sullen rebellion, stealth, and lying (tax evasion, on the national level). The permissive father who disciplines casually at point B invites open, reckless rebellion: His son’s independence and relatively unfettered growth comes at the expense of the rest of the family. The wise parent seeks point E, which will probably vary from one child to another, from son to daughter.

For the political leader on the national level, point E can represent a very low or a very high number. When the nation is at war, point E can approach 100 percent. At the siege of Leningrad in World War II, for example, the people of the city produced for 900 days at tax rates approaching 100 percent. Russian soldiers and civilians worked to their physical limits, receiving as "pay" only the barest of rations. Had the citizens of Leningrad not wished to be taxed at that high rate, which was required to hold off the Nazi army, the city would have fallen.

The number represented by point E will change abruptly if the nation is at war one day and at peace the next. The electorate's demand for military goods and services from the government will fall sharply; the electorate will therefore desire to be taxed at a lower rate. If rates are not lowered consistent with this new lower level of demand, output will fall to some level consistent with a point along the prohibitive side of the "Laffer curve." Following World War I, for example, the wartime tax rates were left in place and greatly contributed to the recession of 1919-20. Warren G. Harding ran for President in 1920 on a slogan promising a "return to normalcy" regarding tax rates; he was elected in a landslide. The subsequent rolling back of the rates ushered in the economic expansion of the "Roaring Twenties." After World War II, wartime tax rates were quickly reduced, and the American economy enjoyed a smooth transition to peacetime. In Japan and West Germany, however, there was no adjustment of the rates; as a result, postwar economic recovery was delayed. Germany's recovery began in 1948, when personal income-tax rates were reduced under Finance Minister Ludwig Erhard, and much of the government regulation of commerce came to an end. Japan's recovery did not begin until 1950, when wartime tax rates were finally rolled back. In each case, reduced rates produced increased revenues for the government. The political leader must fully appreciate the distinction between tax rates and tax revenues to discern the desires of the electorate.

The easiest way for a political leader to determine whether an increase in rates will produce more rather than less revenues is to put the proposition to the electorate. It is not enough for the politician to propose an increase from, say, point B to point D on the curve. He must also specify how the anticipated revenues will be spent. When voters approve a bond issue for schools, highways, or bridges, they are explicitly telling the politician that they are willing to pay the high tax rates required to finance the bonds. In rejecting a bond issue, however, the electorate is not necessarily telling the politician that taxes are already high enough, or that point E (or beyond) has been reached. The only message is that the proposed tax rates are too high a price to pay for the specific goods and services offered by the government.

Only a tiny fraction of all government expenditures are determined in this fashion, to be sure. Most judgments regarding tax rates and expenditures are made by individual politicians, Andrew Mellon became a national hero for engineering the rate reductions of the 1920s, and was called "the greatest Treasury Secretary since Alexander Hamilton." The financial policies of Ludwig Erhard were responsible for what was hailed as "an economic miracle" -- the postwar recovery of Germany. Throughout history, however, it has been the exception rather than the rule that politicians, by accident or design, have sought to increase revenues by lowering rates.

The graph did not copy, here is a link.
Link

 

[Aquarian]

wow, thanks MtnBiker! Interesting.

 

[5stringJeff]

Originally posted by Aquarian
hint: some folks don't think they should have been lowered in the first place, therefore returning them to what they had been is only a raise comparative to the lowered rate. while there is no practical difference, the semantics of 'un-reduction' (which ain't really a word ) carry a different connotation than a raise. The phrase 'restore taxes to their proper level' may be substituted for discussion purposes. Not an economist so can't properly state whether the reductions were proper or not, and I sure liked my $300 which came in just as I needed some car repairs, but overall I get the impression that the tax cuts helped most those who don't need it... whether or not they are entitled to it is another discussion, they don't need it My impression anyway.

Ok... well some folks did think they should have been lowered. And you hit the nail on the head - "there is no practical difference." The semantics are how the liberals are trying to propose tax increases without saying "tax increases." That's my whole point.
What should the proper level of taxation be? Well, if you read mtnbiker's post (excellent, BTW, and yes I was referring to the Laffer curve) you'll see that there is a certain level of taxation that collects the most tax receipts. Most economists I've heard (no, I don't remember where, most of them were on the radio) say somewhere around 15-20%. In a wartime economy, which we are in, I would assume that they are a little higher - maybe up to 25%. Much higher than the 33% Bush had to fight tooth and nail for.
Whether people "need" the tax cuts... from my perspective, the correct question to ask is whether the government needs it. It is not the government's money to dole out as it sees fit; it is the taxpayer's money, to be taken as frugally as possible. So maybe a guy earns $400,000 a year, and gets a $10,000/year tax break. Huge break, right? He can afford it, right? That's not the proper question to ask. The right thing to ask is, "Does the government need to be taking this much money?"

 

[Aquarian]

semantics, connotations, implications and inferences... the english language, while being the best tool we have to convey ideas, is a blunt instrument at times. I was attempting to convey the subtle difference that the phrasing makes in explaining the rationale behind the proposed actions rather than defending them per se.

Any thoughts on the flat tax proposed by Forbes during his run for the nomination in 96? I believe he was proposing 17% which would fall right into the 15-20 range you mentioned. I was ready to vote for him based on that plank of his platform but he did not get the nod. (side note, I didn't realize he tried again in 2000 until just now, actually the republican nomination process from that year escapes me entirely while the field of choices on the gop side in 96 seems much clearer... )

 

[5stringJeff]

Originally posted by Aquarian
Any thoughts on the flat tax proposed by Forbes during his run for the nomination in 96? I believe he was proposing 17% which would fall right into the 15-20 range you mentioned.

Not a Forbes fan per se, but the flat tax (or proportional tax, as it's called in conservative circles nowadays) is, IMO, the best income tax plan we could devise.

My plan would lower everyone's income tax to 22% (we are at war), while allowing for three exemptions: 1) all income up to whatever the poverty line is, for either a single person or a married couple, 2) a $1,000/child tax credit, and 3) interest on a home mortgage loan. No other exemptions (e.g. capital losses, charitible giving, etc.) would be allowed, but since most people will have a lot more disposable income, it will offset.
In later years, when the GWOT subsides, cut the tax rate to 17-18%.

 

[MtnBiker]

Right on Jeff, flat tax, yes!

 

[dijetlo]

Outstanding article MtnBiker.
The problem with the laffer curve is the calculation of the intersection. In short, there is little agreement that 17% flat tax rate would provide you with the returns your projecting. The curve is also appropriate for analyzing progressive taxation, so if the tax cut was effective economics, we ought to see revenues begin to climb to the pre-2002 levels by 2004. Otherwise we are on the bottom of the laffer curve and the economic argument for maintaining the tax cut is vapor.
BTW Aquarian, I tend to agree with you about the semantics. This is the dems issue, they'll make lots of hay with the image of the republican controlled congress teaming up with the president to trample the little guy. They will frame it with words like repealing "welfare-for-the-rich". Some people will cry foul, but if it's a game of hyperbole and sophistry, and the repubs play it pretty well too.

 

[MtnBiker]

The problem with the laffer curve is the calculation of the intersection. In short, there is little agreement that 17% flat tax rate would provide you with the returns your projecting. The curve is also appropriate for analyzing progressive taxation, so if the tax cut was effective economics, we ought to see revenues begin to climb to the pre-2002 levels by 2004. Otherwise we are on the bottom of the laffer curve and the economic argument for maintaining the tax cut is vapor.

I realize that Dijetlo is no longer with us, however in time I was going to reply to the revenue vapor idea. Here it is:

July 16, 2004, 8:30 a.m.
Kerry’s Economic Deficit

The challenger will have trouble darkening this bright picture.

If it’s not bad enough that rapid economic recovery has neutered Sen. Kerry’s principal domestic criticism of President Bush, now comes even worse news for the Democratic campaign: The budget deficit is starting to substantially shrink.

The latest budget numbers show a $19.1 billion surplus for June, $3 billion higher than the $16 billion Wall Street expectation. It seems that a flood of new tax collections, spurred by fatter employment payrolls and corporate profits, is rapidly reducing the federal budget gap. Tax receipts from businesses rose an astonishing 38 percent over the past twelve months and personal income-tax collections increased almost 9 percent. What’s happening? Could it be that stronger economic growth from lower tax rates is producing more tax receipts? I believe it’s called supply-side economics.

Just as the 1.5 million new jobs created since last August has terminated talk of a jobless recovery, the chatter over widening budget deficits will end. The fiscal-year 2004 budget deficit now looks to come in around $435 billion, less than 4 percent of GDP. This would be almost $100 billion below early-year estimates from the Office of Management and Budget and about $50 billion less than Congressional Budget Office forecasts. The administration is also getting its arms around federal spending. Fiscal year to date, domestic discretionary program spending has slowed to 2.7 percent from 6.8 percent a year ago.

As the tax-cut-led recovery continues, deficits will rapidly wane over the coming years.

Former Clinton economic officials Robert Rubin, Gene Sperling, and Bowman Cutter — all now advising Kerry — continue to obsess over the alleged economic consequences of budget deficits. But there is virtually no evidence that the budget gap (two-thirds of which emanated from the Clinton recession) has had any negative effect on U.S. recovery prospects. In fact, even with the fastest economic growth in twenty years, long-term Treasury rates remain at 4.5 percent, the cheapest money in over forty years.

All this is why Kerry’s proposal to raise tax rates on upper-income individuals, small businesses, and key investment categories like capital gains and dividends is so completely out of touch. The Kerry tax hikes will blunt the good news on growth and deficits, exactly the reverse of what the pessimistic Kerryites are predicting.

Like the modern Democratic party, the Kerryites neither understand nor acknowledge the tax-incentive model of economic growth that simply restates an old truism: Individuals produce and invest more if it is more profitable after-tax to do so.

Full Article

Lets not forget Kerry's position on the matter either.

Kerry (D-MA) Wants To Raise Taxes. “We have to either roll back or prevent the top end of Bush tax cuts from taking place ... I’m prepared to go at it and say we’re going to take it away.” (“Kerry: ‘Worst Jobs Record’ Since Hoover,” The Washington Post, 7/11/03)