Cycloptichorn wrote:georgeob1 wrote:Cycloptichorn wrote:I just don't believe there is any validity in economic theories for which no actual evidence can be presented.
Cycloptichorn
Well, you certainly haven't presented any evidence in support of yours.
Only this: I have yet to study a period of American history in which people did not attempt to better their businesses and selves through innovation and investment. I find the notion that small tax rate changes affect this principle to be laughable.
Luck is as much as a factor as anything else in determining where our economy will head; technology alone can rapidly evolve economic situations, as it did in the 90's.
Cycloptichorn
Well there is plenty of historical evidence that if you entirely destroy the potential for self-enrichment as in a socialist system, the result will be stagnation, low production, virtually no innovation and uniform poverty. It is reasonable to assume that this is not merely a binary function: that intermediate levels of confiscation will yield intermediate levels of innovation and efficiency. I make no assertion here about the relationship between the two, only to say that one exists and that greater profit potential yields greater innovation and efficiency by some rule, known or unknown.
What do you mean by "small tax rate changes"? Thirty Five years ago the marginal Federal tax rate in the highest brackets was over 65%: today it is 38% - a rather large difference. In those days investment of capital and employee compensation were heavily influenced by various artfully contrived tax dodges that generally distorted the economic benefit that would otherwise have resulted from capital accumulation and investment. The Reagan tax cuts ended that and did indeed stimulate economic activity, ending the period of "stagflation" as it was then known - a pernicious combination of high inflation, low growth and high unemployment.
Lower tax rates for capital gains and corporate dividends are clearly beneficial to the economy as a whole. Prior to the lower tax rate few corporations continued to pay dividends precisely because they came out of profits, which unlike employee salaries were already taxed at a Federal rate of 35%. If Hillary gets her way they will also be taxed at the marginal federal income tax rate (instead of the present 15%) and there will be little incentive to issue them, thus rendering investment less attractive.
In any event with "small tax rate changes" you are now highly qualifying your rather sweeping claim made earlier.
I have not heard this or read this anywhere, but it is my thought that if it begins to look likely that Hillary will be elected as the election approaches next year, most people in the know are saying that you will see a sell off of assets. Hillary will sell Alaska to Russia and sell Oklahoma/Texas to the Chinese in order to fund socialized health care. The nation's capitol will be moved to San Francisco and Bill will be named chairman of the joint chiefs of staff at the Pentagon.
georgeob1 wrote:I suppose that the economic performance of Sweden is the convenient reference for those inclined to promote (or merely excuse) high tax rates.
It's not just Sweden. Look at America from Truman to Nixon (top marginal tax rate: 70-90%). Look at America after Clinton raised it to 39%, and after "people in the know" at the
Wall Street Journal predicted mayhem because of the tax hike's bad supply-side effects.
Notice that I was talking about
long term growth. Keynesian effects aside, most economists will agree with you that income taxes produce a deadweight loss of efficiency, and that cutting income taxes will reduce that loss. Income tax cuts, then, will produce a one-off rise in the
level of economic output. Technically, in economic statistics, this level change would look like a short-term spurt in growth until the economy adapts to the lower tax level. But after that, the tax cut will have only increased the level of economic output, but not the rate of its change. That's what I meant about tax cuts having no effect on long term growth.
And to my knowledge, the econometric statistics confirm this. Beyond the one-off change in the output level, you see no effect of tax cuts on GDP growth in a proper multiple regression analysis.
cicerone imposter wrote:okie wrote:The tax code is used extensively to influence economic behavior, imposter. This is not even arguable.
Taxes affect profits.
Incidentally, a 5% rise in capital gains tax rate on 10 million is a half million dollars. That could affect profits after tax, don't you think?
Show me proof that the tax code has influenced the buying and selling of stock?
It doesn't have to be stock. It could also be a business that somebody is contemplating selling, and if they sell ahead of a rise in capital gains, it could be the factor that spurs them to sell sooner.
The effects are difficult to measure, but taxes are another expense that businesses consider, along with fuel costs, labor costs, rent, production costs, and all the rest. Taxes are another factor, and to argue that taxes do not affect a business is as blind as contending that labor costs or fuel costs do not affect business. Taxes affect behavior, including business decisions.
"The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."
--President John F. Kennedy, 1963
okie quotes JFK, Interesting.
JFK did one good thing, he spurred the economy and tax revenues by lowering tax rates.
okie wrote:cicerone imposter wrote:okie wrote:The tax code is used extensively to influence economic behavior, imposter. This is not even arguable.
Taxes affect profits.
Incidentally, a 5% rise in capital gains tax rate on 10 million is a half million dollars. That could affect profits after tax, don't you think?
Show me proof that the tax code has influenced the buying and selling of stock?
It doesn't have to be stock. It could also be a business that somebody is contemplating selling, and if they sell ahead of a rise in capital gains, it could be the factor that spurs them to sell sooner.
The effects are difficult to measure, but taxes are another expense that businesses consider, along with fuel costs, labor costs, rent, production costs, and all the rest. Taxes are another factor, and to argue that taxes do not affect a business is as blind as contending that labor costs or fuel costs do not affect business. Taxes affect behavior, including business decisions.
"The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."
--President John F. Kennedy, 1963
And yet, we have continued to see capital investments during both high and low tax rates. Prove this statement wrong.
The U.S. has had the highest GDP in the world, and tax structure has had something to do with that, don't you think?
http://education.yahoo.com/reference/factbook/countrycompare/gdp/2d.html;_ylt=AtEC0HEIfU5S.nXbZOOCJrvPecYF
Well, if taxes really have somethng to do with it then you are of course referring to Gross Domestic Product (nominal) per capita, okie.
No, it doesn't seem so.
No, okie, it's called "innovation" and "productivity."
Walter Hinteler wrote:Well, if taxes really have somethng to do with it then you are of course referring to Gross Domestic Product (nominal) per capita, okie.
No, it doesn't seem so.
Per capita, I think the U.S. is still near the top of the heap. I don't think Luxembourg is large enough to be statistically significant.
And cicerone, I think tax structure and other factors that provide the "playing field" are what produces innovation and productivity. If tax structure, property ownership, and other factors that allow citizens to maximize the rewards of their hard work do not make any difference, then how come South Korea's GDP is more than 10 times that of North Korea?
Thomas wrote:georgeob1 wrote:I suppose that the economic performance of Sweden is the convenient reference for those inclined to promote (or merely excuse) high tax rates.
It's not just Sweden. Look at America from Truman to Nixon (top marginal tax rate: 70-90%). Look at America after Clinton raised it to 39%, and after "people in the know" at the
Wall Street Journal predicted mayhem because of the tax hike's bad supply-side effects.
Notice that I was talking about
long term growth. Keynesian effects aside, most economists will agree with you that income taxes produce a deadweight loss of efficiency, and that cutting income taxes will reduce that loss. Income tax cuts, then, will produce a one-off rise in the
level of economic output. Technically, in economic statistics, this level change would look like a short-term spurt in growth until the economy adapts to the lower tax level. But after that, the tax cut will have only increased the level of economic output, but not the rate of its change. That's what I meant about tax cuts having no effect on long term growth.
And to my knowledge, the econometric statistics confirm this. Beyond the one-off change in the output level, you see no effect of tax cuts on GDP growth in a proper multiple regression analysis.
I think I understand the economic argument - at least I am familiar with the linear/small perturbation arguments (and all-too-familiar graphs) put forward to support these ideas. However the real dynamic of economies - even as we intuitively plan our own economic activity - is highly non-linear and involves significant variables not represented in the economic models. In effect you are asserting that the dynamic equations for gross economic activity are somewhat dependent on the time rate of change of taxation, but not at all on the level of taxation. This defies common sense and it is not at all difficult to construct contradictions, based on the proposition.
The US economy in the post WWII years was buoyed up by the physical facts that (1) we retained most of the undamaged physical plant and productive capacity of the world; and (2) we had most of the capital. Demand for US manufactures and the debts of other advanced countries combined to make our currency abnormally valuable giving us extraordinarily cheap access to needed commodities and other resources. The truth is that during those halcyon years of high taxation, high employment and high economic growth the our relative investment in innovation was low, particularly compared to Japan and Germany which by the 1970s were able to establish huge and growing favorable balances of trade with us. In retrospect it is clear that we should have then been investing more in the modernization of our economic infrastructure, and relying less on the transient advantage given us by the ravages of the war. I don't think your example materially reinforces your argument.
I think you will agree that our current economic era began with the end of the "stagflation" of the late 1970s & early 1980s. A combination of harsh monetary policy and significant tax cuts altered the dynamic to reduce inflation, stimulate real economic growth, and reduce unemployment, ultimately yielding sustained low inflation at unprecedented high levels of employment. Throughout the period, investment and innovation yielded increases in labor productivity that usually outstripped that of our principal competitors. The accelerating stimulus of the global economy further contributed to sustaining this condition.
Under these conditions the Clinton increases in the high bracket tax rates from 35% to 39% didn't hurt much, but I don't think that establishes a general proposition for the future. The best feature of our governance in the Clinton years in my view was the gridlock that resulted from a Republican Congress and an adroit Democrat President. I doubt we will enjoy that benefit in the next Administration and the prospect fills me with dread.
Where is the economy headed?
Into a cycle that's different than any experienced in the past. That's because today's economy doesn't resemble anything we've had in the past.
Bank of America to Eliminate 3,000 Jobs- AP
Bank of America Corp. said Wednesday it will eliminate 3,000 jobs, an announcement that came less than a week after the nation's second-largest bank reported a huge drop in earnings for the third quarter.
BusinessWeek
A Record Year for Layoffs in Finance
Tuesday October 23, 8:08 am ET
By Steve Rosenbush
It's official. This is the worst year ever for layoffs in the U.S. financial-services industry -- and there's still more than two months to go.
As of October, finance companies had announced 130,000 job cuts for the year to date, according to outplacement firm Challenger, Gray & Christmas. That's more than double the 50,000 cuts announced in 2006 and well ahead of the record 116,000 announced in 2001. Finance firms are reeling from deep losses in subprime mortgages, as well as from risky corporate bonds and loans. "It's the worst year on record for job cuts in the financial-services sector," says John Pedderson, a Challenger, Gray spokesman. While the firm tracks job cuts, it makes no effort to compare them to job creation, or to track total employment for the sector.
Wall Street Slashes Workforce
About 80% of the job cuts have been announced during the last two months, as the depth of the housing recession has become more apparent, according to Pedderson. The cuts have hit mortgage lenders particularly hard, which isn't a surprise. Countrywide Financial (NYSE:CFC - News), the largest U.S. mortgage lender, cut jobs in September. The lender, which employed about 56,000 people before the cuts, eliminated up to 12,000 positions. Mortgage lender IndyMac Bancorp (NYSE:IMB - News) said in September it would eliminate about 1,000 workers. Accredited Home Lenders Holding said in August it would cut about 1,600 jobs. That same month Capital One (NYSE:COF - News) said it would close its Greenpoint mortgage unit, eliminating about 1,900 jobs.
The job cuts have spread well beyond brokers in the subprime mortgage business, though. Senior mergers-and-acquisitions bankers, financiers, and traders are getting the ax, too. On Wall Street, losses stemming from a liquidity crisis (BusinessWeek.com, 9/17/07) are leading to the first major job cuts since 2003. Morgan Stanley (NYSE:MS - News) is slicing 300 jobs and Bear Stearns (NYSE:BSC - News) 310. HSBC (NYSE:HBC - News) is eliminating 750 positions, Credit Suisse (NYSE:CS - News) is cutting 170, and UBS (NYSE:UBS - News) is eliminating 1,500. Merrill Lynch (NYSE:MER - News) is slashing an undisclosed number of jobs from its subprime mortgage unit.
georgeob1 wrote: In effect you are asserting that the dynamic equations for gross economic activity are somewhat dependent on the time rate of change of taxation, but not at all on the level of taxation. This defies common sense and it is not at all difficult to construct contradictions, based on the proposition.
Yes I do assert that -- at least for time periods greater than three years, and for rates of taxation that free countries from Hong Kong to Sweden might realistically enact.
georgeob1 wrote:The US economy in the post WWII years was buoyed up by the physical facts that (1) we retained most of the undamaged physical plant and productive capacity of the world; and (2) we had most of the capital.
If I understand you correctly, you are saying that America's growth in the fifties and sixties was primarily export-driven, and that's why it's weak evidence for my point. I'm not buying your argument for two reasons.
a) The numbers don't match. During the period we're discussing, the current surplus as a share of GDP was some single-digit number of percents. (I'm too lazy to look up the precise value.) Therefore, even if the
growth in net exports had been really spectacular during this period -- say 10-20% per year -- it would still have been way too small to account for much of America's GDP growh.
b) The timing doesn't match, either. If export driven growth explained America's growth ca. 1950-1970, we should see America's trade surplus crash when GDP growth slowed to a crawl. But we don't see this in the data. By contrast, GDP growth slows in the early 70s, but the current account surplus doesn't turn into deficit until the 80s.
georgeob1 wrote:I think you will agree that our current economic era began with the end of the "stagflation" of the late 1970s & early 1980s.
No, actually I don't agree with that. After correcting for the business cycle, GDP growth in the 80s remained as slow as it had been since the early 70s. It didn't resume its pre-70s speed until the end of the 90s.
Maybe here's a more succinct way of making the same point I made in my last post. It is to look at productivity over time. This indicator is a good way to filter out the business cycle, exports, and other demand side effects. Instead, it gives a direct look at the economy's supply-side. Here is how it developed over the last 60 years:
[URL=http://imageshack.us][img]http://img458.imageshack.us/img458/695/2007102020labor20pdty20ko8.jpg[/img][/URL]
Source: Bureau of Labor Statistics (by way of [url=http://delong.typepad.com/sdj/2007/10/the-end-of-the-.html]Brad deLong's website[/url])
The new era George is talking about began in the late 90s, not the early 80s. His theory of recent economic history explains facts of economic history that aren't real.
I believe that the US economy was able to sustain long-term growth based on the ability of WWII veterans to attend college at record numbers.
Also, during the war, many earned income by working in defense factories, and after the war, the housing industry created jobs. It helped our economy grow because we already had the infrastructure for factories for the production of goods.
For georgeob and anyone else interested. This is the new Supercarrier, USS Ronald Reagan.
