Both make a case that Republicans should be making more often and more forcefully: The path out of our troubles requires spending cuts, and especially entitlement reform, but above all it requires growth. Without dramatically improved economic growth, no amount of austerity could help us avert a fiscal catastrophe, let alone improve the economic state of the average family. How to achieve dramatically improved economic growth is, of course, no simple question. But we can be pretty sure that tax increases on investors and job creators are not the way.
But it’s the only play the Democrats have in their playbook.
Let’s see. We have been cutting taxes for 30 years to solve the problem of the national debt by growing the economy. And for 30 years it’s been getting bigger while the economy went through two bubbles that burst making the problem worst.
So the solution is to keep cutting taxes just as we have been doing…
Thomas is right! I can testify. When I noticed the VISA bill growing by $500 a month, I started “saving,” as they call it, by not buying Starbucks twice a week, and it didn’t work. The VISA bill kept growing.
All this nonsense about eliminating debt by not spending is just some kind of God-damned voodoo economics. I’ve tried not buying coffee, not ordering dessert when I go out — even cancelling the premium cable channels! — and not once has any of this paid for my annual ski trip or the daughter’s college tuition.
Every year the tax revenues increased, spending increased even faster. As long as that continues, there’s no way to reduce the deficit no matter how much you increase taxes. Only a fool would think otherwise.
Carl,
On the other hand if you started making more then the minimum payment you would find that the bill would go down fast.
Larry,
You are making the classic mistake of confusing revenue with tax rates.
If the tax rates were higher the revenue would have gone up even more, while the public, feeling the pain from the increased taxes, would have put more pressure on the politicians to NOT spend.
The vast majority of the public is not going to get upset about government spending when their own tax rates are getting lower, upset enough to allow the political leaders to do something. Look at the push back on cutting Medicare spending.
As a follow on, the vast majority of the public isn’t that interested in the debt ceiling issue at the moment. But when the Social Security checks to Grandma stop, the pay checks to the military and the many other checks, they will be, and they will place the blame directly on the Tea Party Congressman that voted against raising the debt limit. They won’t care about their philosophical arguments on debt, they will want the Social Security Grandma earned from 40 years of work, NOW. They will want their military to be paid NOW! They won’t want philosophical preaching on the evils of national debt from the Tea Party.
Pity the Tea Party, they are too zealous to see the bus rushing towards them.
Thomas, I never said a word about tax rates. Learn to read for comprehension instead of refutation.
During the 1980s when tax revenues increased, spending increased even faster by about $1.50 of additional spending for each dollar of additional revenue. This has happened repeatedly. To deny it is to deny historial fact.
There are always two factors in the deficit: revenues collected and spending. Spending is totally out of control and until that changes, there is no hope of reducing the deficit. In the past (such as in 1991 when Bush 41 broke his “Read my lips, no new taxes” pledge), Congress has promised to cut spending while at the same time they raised taxes to reduce the deficit. As always, they lied. The taxes were raised but spending was never cut. Anyone who trusts Congress to cut spending while raising taxes is a damned fool (that’s you, Thomas). Cut spending first, and when it can’t be cut any more, then we can talk about increasing tax revenues.
If the tax rates were higher the revenue would have gone up even more,
Perhaps so. And then government would have spent 50% more than the increased revenue justified, because that’s what they always do. The Federal government has never increased revenue through more taxation and not increased spending to eat up the additional revenue and then some. Take a look, for example, at all the Social Security “fixes” in the 80s, during which the SS tax was hiked steeply, so that we wouldn’t be in the hole that we in fact are. I remember being promised that these tax hikes would ensure that SS was solvent when I retired. It was all lies. The money was spent decades ago. It always is.
Which leads us to…
while the public, feeling the pain from the increased taxes, would have put more pressure on the politicians to NOT spend.
And yet your argument is that this won’t happen now, because spending outstrips revenue and the citizenry gets more in benefits than it pays in taxes.
Do you understand you’ve got a perpetual motion machine here? Jam yesterday and jam tomorrow, but never today?
As long as government spends more than any additional revenue from more taxes, which it always has, we will always be in the present situation, in which you say, since government benefits exceed government revenues, citizens are more motivated to protect their benefits than protest their taxation. There is no escape from the treadmill short of a collapse of the entire Ponzi scheme.
You might barely have a case if the taxes you and everyone else were advocating were on those who get government benefits, if you wanted to reduce the “progressivism” of the tax code, i.e. raise taxes on the poor. If people pay for what they get, see a direct connection, then of course they are much more likely to weigh carefully whether they really need it and want it, or can do without. Everyone always wants the best possible free lunch. A lunch you have to pay for gets much more scrutiny. In that case, and that case alone, your argument, that the pain of taxes would moderate the demand for benefits, might have some weight — because the same people would be feeling the pain as getting the benefit.
But as long as the people who are getting the benefits aren’t the people paying the taxes, and the people paying the taxes are in the minority, there is nothing short of economic implosion to stop the majority from looting the minority forever.
Larry,
Yes, but you are missing the key point. The revenues would have been even higher higher tax rates while the pressure to cut spending would have been stronger. But by lowering the tax rates they took away the political pressure to cut the spending.
Higher with higher tax rates – I left out with
[[[But as long as the people who are getting the benefits aren’t the people paying the taxes, and the people paying the taxes are in the minority, there is nothing short of economic implosion to stop the majority from looting the minority forever.]]]
Which is why you need to rise tax rates ACROSS all the brackets and eliminate/reduce most of the deductions that eliminate taxes for most folks. So more folks are feeling the pain of taxes and demand the cuts.
That is also why I would prefer a national sales tax to an income tax, so folks feel the cost of government every time they go to store.
You also left out your expectation of higher revenues with higher tax rates ignores what happens when people don’t want to give more to the government. You ASSUME revenues would be higher but you don’t KNOW whether the taxes would have stunted growth and reduced revenue or not. The typical mistake liberals make. Why is it tax revenue projections on higher taxes rarely come true?
Sure, Thomas. Count me in. But let me know how well you do in the elections with your new slogan (“We need to raise taxes on the poor, so that they stop demanding so much government benefits!”). Don Quixote has nothing on you.
Furthermore, have you stopped to think about the endgame? If in the end you have government taxing you on April 15 in order to provide you (the same person) with a roughly equal benefit in October (minus the salaries of administering bureaucrats, natch) — doesn’t this strike you as a little bizarre? Why not cut out the middleman, and just have government not tax you on April 15 and not give you the benefit in October?
And if that’s the endgame — why not go there in one step? Why screw around through this strange transition period when people who get Food Stamps are charged for them every April 15, and families who get student loans pay for them in taxes beforehand? Why don’t we just admit wealth-transfer Ponzi schemes are stupid and futile, and stop them, right now. Stop spending the money. Right now.
Bill,
But you don’t know if by reducing growth they might have prevented the Bubble that created the current mess we are in. And provided more stable revenue over the long term.
Carl,
Your post makes no sense. Sales taxes are collected on a continual basis. While withholding is also collected continually. I think you have been hanging around the Tea Party folks too much.
Thomas,
If cutting taxes over the past 30 years is the root of most or all of the nation’s current fiscal ills, I wonder how the nation survived at all for many decades before approval of the Sixteenth Amendment to the Constitution… 🙂
BlueMoon
Thomas Matula Says:
June 28th, 2011 at 5:16 pm
Since the bubble started when Clinton expanded the the CRA, I think the crash would have happened anyway.
Your post makes no sense to me.
Fixed that for you, Tom. It makes perfect sense to loads of other people, however, which is why there are enough of them Tea Party types around to make you nervous. Boo!
Sales taxes are collected on a continual basis.
It was what we in The Academy call a metaphor. The government taking from you on April 15 only to give back (almost as much) in October represents, figuratively, a range of variations on the strange shell game you imagine, in which the same persons are both being taxed and enjoying tax-funded benefits.
“April” could represent “your working years” or “when you were a renter” or “when you were healthy” or “when you exploited America’s Addiction To OilTM by drilling for the stuff in the Gulf,” and “October” could represent “your retirement years” or “when you bought a house” or “when you got sick” or “when you successfully bid on a shovel-ready high speed green jobs project,” and so forth. Really, the variety of ways in which politicians promise if you give them $20 today they’ll magically return you $25 next Tuesday are near infinite.
Bill,
No it was Newt Gingrich’s Tax Relief Act of 1997 that made houses tax free investment instruments that created the demand for flipping them that cause the housing crash.
Carl,
I know, the Tea Party feels it was so much better in the old days before Social Security when folks worked until they died.
Generally it was, Tom. People did die with their boots on, so to speak, not because the lack of SS kept them plowing fields and welding truck frames until deep into their 80s (as if!), but because life expectancy was nontrivially lower. Before antibiotics and IV fluids loads of people got carried off in their 30s and 40s by TB, or in their 50s and 60s by pneumonia and influenza.
And for those who did not, they were generally sustained by (1) private pensions, (2) savings and investments, and (3) family.
I’m mystified by why you think no one will plan (or did plan) for his old age unless government does (or did) it for him, or more generally why you imagine what government plans will be substantially better than what people plan for themselves. These are the same fools that brought us Fannie and Freddie and the CRA and “quantitative easing” and a $1 trillion “stimulus” to keep unemployment below 8%. If they were held to even a small part of the fiduciary duties any ordinary investment manager has towards the investor, they’d all be in jail for the next thousand years.
Or have you drunk so deeply of the Kool Ade that you believe in Government Loaves and Fishes? If we tax you at 6% for 30 years we can then support you at 50% of your average salary for 30 years of retirement! Call now, operators are standing by!
I can think of one new tax that would (eventually) lead to economic growth. Eventually, because it would have part of its effect by changing people’s employment choices.
A 100% tax on banking industry bonus payments, payable by the individuals getting them – and if possible backdated for as long as possible. Result – much less emphasis on short-term profits and eventually fewer of the best and brightest going into a “profession” that is basically parasitic.
Tort reform would help a lot, too. Why is it that the USA has 5% of the world’s population and 50% of its lawyers? And this is one reason for high US medical costs…
Sorry – editing glitch. The last comment was mine. Mods please correct?
Thomas Matula Says:
June 28th, 2011 at 7:47 pm
No, Thomas. The CRA created the demand for more housing since there were now more eligble buyers. You know, that whole supply and demand thing. If people were flipping houses, they had to come from somewhere and be sold to someone else.
Larry,
Yes, but you are missing the key point. The revenues would have been even higher higher tax rates while the pressure to cut spending would have been stronger. But by lowering the tax rates they took away the political pressure to cut the spending.
Raising rates doesn’t automatically mean you get additional revenues. A few weeks ago, I linked to a government source tha showed the historical percentage of GDP collected as tax revenues has been about 18-20% for over 50 years regardless of the marginal tax rates. You’re falling for the stupid notion that people won’t change their behavior in response to economic conditions like increased tax rates. That’s the absurd static analysis that assumes everyone is a good little drone and will simply comply with whatever the government demands. The reality is that people do change their behavior when tax rates change. Raise them and people have less incentive to work, so revenues don’t increase and may in fact decline. Lower them and people get to keep more of what they earn, so they’re inclined to earn more. There is ample historical evidence that shows increased revenues when tax rates are lowered, up to a point of course.
The real stupidity of your post is that you ignore the increases in spending that always exceed the increases in revenue. Entitlement spending is already 62% of the federal budget and rising rapidly. It’s clearly unsustainable and only “economic reality deniers” (h/t InstaPundit) argue otherwise. Spending cuts are critically needed across the board or we’ll be heading the way of Greece pretty soon.
“I know, the Tea Party feels it was so much better in the old days before Social Security when folks worked until they died.”
I was waiting for the first reference to the Tea Party. Watch out, Matula, or one day you’ll wake up to find the severed drip spout of your espresso maker on the pillow next to you.
That sound. That… that’s a whistling tea kettle! It’s coming from… INSIDE THE HOUSE!!!
Bill,
If what you said had any truth then the epicenter of the housing meltdown would have been in the eastern Urban areas that the CRA was targeted at, not in the high income suburbs of Southern California, Las Vegas, Phoenix and Florida. All you are doing it just parroting a Tea Party myth. You really need to move beyond Fox News for your information.
Larry,
Actually changed behavior is exactly what you rise rates to accomplish. The idea is to throttle back economic expansion so its sustainable, not a series of increasing booms and busts as was has been the case in the last decade. And so the economic gains are across ALL sectors of the economy, not just Wall Street.
And as I noted, the higher the tax rate, the more real pressure to control spending. Look at government spending in the pre-Reagen era when tax rates were “high”.
Andrea,
Nature huggers drink Tea, Liberals drink Espresso. I drink regular coffee like a real Americans 🙂
You mean you drink that weak brown water that so many of my fellow citizens deludedly call “coffee”? So much is explained.
PS: liberals don’t drink espresso, they drink lattes, which are milk drinks with a tiny amount of espresso just so people won’t think they’re drinking warm milk.
Thomas Matula Says:
June 29th, 2011 at 10:59 am
Thomas, you need to kiss my a$$, you condescending a$$hole. The epicenter would be in areas of the highest value and unemployment since the same % of decline would result in more lost dollars and risk of default. There are PLENTY of lower income urban areas with default problems. Those homes are easier to buy renovate and rent than McMansions.
Bill,
You need to look where it hit first. Banks knew the risk from CRS and controlled it. But they didn’t recognize the risk from Newt Gingrich’s Tax Relief and that is why they were blindsided by it.
Andrea,
I guess if you are a member of the Tea Party you are able afford a $5/cup coffee. But it’s too expense if you a member of the working class they are trying to destroy.
Liberal latte drinkers are members of the Tea Party? What the hell are you talking about?
Also, yeah I’m rich. I have a part time job that pays 8 bucks an hour. I’m so rich that I can afford to eat ramen twice a week. You are a real piece of work.
Now if you’ll excuse me, I have to go beat my houseboy. He gave me espresso with steamed milk in it when I expressly ordered it con panno. You can’t accept incompetence from the help, not when smuggling them overseas in containers costs so much.