Where is the US economy headed?

@okie,

I'm sure republican logic is better; don't pay for what you spend today, and let our children pay it.

Yeah, great republican logic.

1 Reply

@okie,

An example of the principle of the Laffer Curve would be as follows. Let us assume our tax rate was 25% of $100, with the $100 representing our total economy, yielding tax revenues of $25. Let us say that we are spending $30 per year, so that our deficit is $5. Politicians could say, hey let us increase tax rates to 30%, thus eliminating our deficit. However, because of the higher tax rates, people worked much less and consumed much less, so that the economy was $80. In that case, 30% of $80 results in a tax revenue of $24, which leaves a larger deficit of $6 instead of a balanced budget. Conversely, it might be possible to decrease the tax rate to 24% and if the economy increased because of this to $110, the resulting tax revenue would be $26.40, which would lower the deficit from $5 to $3.60.

Now, the trick here is to know how much the overall economy is affected by overall tax rates. Sadly, we cannot get all politicians to admit to the reality that tax rates affect the economy, but if we could, then we could have a profitable debate about it and hopefully come up with more reasonable and logical tax policy.

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@Cycloptichorn,

Cycloptichorn wrote:

What do you trust? Theory, or fact?

Cycloptichorn

If tax incentives or tax rates did not affect human behavior, then we might as well throw all of our tax code out the window, cyclops. The entire tax code is full of Laffer Curve types of issues. We give tax breaks for this, for that, to spur greater participation or greater consumption in those things that we want to help the economy in specific ways. I know we've discussed this repeatedly, but frankly for anyone to deny the basic premise of the Laffer Curve is just silly. For you to doubt that the stuff already in the tax code makes any difference then is a matter of theory or fact. You call it a theory, but it is no doubt a fact. If it isn't a fact, I suggest you call Obama and break the news to him, and tell him to take all that crap out of the tax code that is there already.

1 Reply

@cicerone imposter,

cicerone imposter wrote:

I'm sure republican logic is better; don't pay for what you spend today, and let our children pay it.

Yeah, great republican logic.

Not paying for what you spend today is the description of many Democratic inventions, such as Obamacare. The entire Social Security system is in fact built on that premise. Let future workers pay the bills.

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@okie,

Quote:

However, because of the higher tax rates, people worked much less and consumed much less,

There's no evidence that 5% raises in taxes causes anyone to work less, let alone to work 'much less.' Can you point to a time in history where this actually happened?

That is the problem with your theory: no proof in the real world. However, there is ample proof that tax cuts lead to less money to pay down deficits.

Cycloptichorn

1 Reply

@okie,

Quote:

Politicians could say, hey let us increase tax rates to 30%, thus eliminating our deficit. However, because of the higher tax rates, people worked much less and consumed much less, so that the economy was $80.

One small problem with that okie. We have a real life example
Clinton increased tax rates. The increase in tax rates helped to eliminate the deficit. The economy did NOT drop in size. Instead it grew at a pace much quicker than it did when taxes were reduced under Bush.

Quote:

Sadly, we cannot get all politicians to admit to the reality that tax rates affect the economy

Sadly we can't get you to live in reality okie. The reality is that the tax rate doesn't affect the economy in the ranges that we are talking about. The Laffer curve shows the effect is only on the extreme ends of the tax range. Tinkering in the middle has little effect.

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@parados,

Quote:

Tinkering in the middle has little effect.

However, tinkering in the middle actually leads to a LARGE effect when it comes to balancing our budgets and paying down debt.

Every anti-tax argument boils down to the same bullshit, doesn't it? Appeals to extremes, theories which don't match reality, assertions.

Cycloptichorn

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@parados,

parados, That's not the only problem with Bush's tax cuts; more people are falling into poverty, because they can't find jobs. Bush's tax cuts didn't help our economy, jobs, or economic stability. It resulted in all the problems now associated with the Great Recession - the worst since the Great Depression.

Why conservatives and some democrats can't see these truisms is that they are incompetent in financial management matters.

One question they have never answered is, "where are the jobs creation by Bush's tax cuts?"

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TRUTH!

Quote:

http://www.freerepublic.com/focus/f-news/2051527/posts
Partial History of U.S. Federal Income Tax Rates
Highest and lowest Income Tax Rates 1971 to 2009
...
1971-1981: minimum = 14%; maximum = 70% [CARTER 1977-1981]
1982-1986: minimum = 11%; maximum = 50% [REAGAN 1981-1989]
1987-1987: minimum = 11%; maximum = 38.5%
1988-1990: minimum = 15%; maximum = 33% [BUSH41 1989-1993]
1991-1992: minimum = 15%; maximum = 31%
1993-2000: minimum = 15%; maximum = 39.6% [CLINTON 1993-2001]
2001-2001: minimum = 15%; maximum = 39.1% [BUSH43 2001-2009]
2002-2002: minimum = 10%; maximum = 38.6%
2003-2009: minimum = 10%; maximum = 35%
2009-2010: minimum = 10%; maximum = 35%[OBAMA 2001-2010]

http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf
Year.......FEDERAL RECEIPTS FINAL FULL YEAR OF TERM
1980......$0.517 trillion [CARTER]
1988….…$0.909 trillion [REAGAN]
1992.......$1.091 trillion [BUSH41]
2000......$2.025 trillion [CLINTON]
2008......$2.521 trillion [BUSH43]
2010.......$2,931[OBAMA] (current estimate for year not end of term)

Year.......FEDERAL OUTLAYS FINAL FULL YEAR OF TERM
1980.......$0.591 trillion [CARTER]
1988….….$1.064 trillion [REAGAN]
1992........$1,.382 trillion [BUSH41]
2000.......$1.789 trillion [CLINTON]
2008.......$2,931 trillion [BUSH43]
2010........$3,399 trillion [OBAMA] (current estimate for year not end of term)

Year………FEDERAL DEFICITS
1980.......$0.074 trillion [CARTER]
1988….….$0.155 trillion [REAGAN]
1992........$0.291 trillion [BUSH41]
2000.......SURPLUS $0.236 trillion [CLINTON]
2008.......$0.410 trillion [BUSH43]
2010........$0.160 trillion [OBAMA] (current estimate for year not end of term)

Year………GROSS FEDERAL DEBT
1980.......$0.909 trillion [CARTER]
1988….….$2.601 trillion [REAGAN]
1992........$4.002 trillion [BUSH41]
2000.......$5.629 trillion [CLINTON]
2008.......$9.654 trillion [BUSH43]
2010.......$10.954 trillion [OBAMA] (current estimate for year not end of term)

ftp://ftp.bls.gov/pub/suppl/empsit.cpseea1.txt
Year……TOTAL US CIVIL EMPLOYMENT
1980……………..99 million [CARTER]
1988…………… 115 million [REAGAN]
1992…………….118 million [BUSH41]
2000……………137 million [CLINTON]
2007………..….146 million [BUSH43]
2008………….. 145 million [BUSH43]
2009,……….....140 million [OBAMA]
2010.……………139 million [OBAMA] (as of August 2010 and not final year of term)

Year.…….PERCENT OF CIVILIAN POPULATION EMPLOYED
1980…………………………………….59.2 [CARTER]
1988…………………………………….62.3 [REAGAN]
1992…………………………………….61.5 [BUSH41]
2000…………………………………….64.4 [CLINTON]
2007…………………………………….63.0 [BUSH43]
2008…………………………………….62.2 [BUSH43]
2009…………………………………….59.3 [OBAMA]
2010…………………………………….58.5 [OBAMA] (as of August 2010 and not final year of term)

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@realjohnboy,

Here is an update based on the CPI that came out this morning. The September. 2010 number is my estimate. Hence the (?).

realjohnboy wrote:

CPI-W for July, 2010 and August, 2010:
The BLS came out with the index for Urban Wage Earners and Clerical Workers (CPI-W). This statistic will be closely watched in July, August and September because it is used to determine how much if any increase there will be in Social Security payments in 2011.
July, 2008: 216.304 ..... August: 215.247 ..... September: 214.325
July, 2009: 210.526 ..... August: 211.156 ..... September: 211.322
July, 2010: 213.898 ..... August: 214.205 ..... September: 214.600 (?)
Retirees got no increase in benefits in 2010 because the average of the indices for the 3rd Q, 2009, declined vs 2008. And they will likely again get no increase next year either.
The 3rd Q of 2008, particularly in July, was impacted by a spike in oil prices that summer. The index held relatively steady for the rest of the 3rd Q before tanking in November, 2008.
I see that oil prices, an important component of the CPI, have declined several dollars a barrel in August.
The September index, the final piece of the data needed to be able to certify the 2nd year of no SS increase, will come out on, I believe, October 15th. Right before the election!

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@talk72000,

The tax cuts + the lack of any supervision on the part of the government = recession.

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@okie,

Laffer has his favorite theory called the trickle down theory.

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@Cycloptichorn,

Cycloptichorn wrote:

There's no evidence that 5% raises in taxes causes anyone to work less, let alone to work 'much less.' Can you point to a time in history where this actually happened?

That is the problem with your theory: no proof in the real world. However, there is ample proof that tax cuts lead to less money to pay down deficits.

Cycloptichorn

Nonsense. There's lots of evidence that very high tax rates lower economic growth rates while lower rates promote higher economic growth. However, these aren't the only variables that affect economic growth. In particular government spending and borrowing are major independent factors. Most of the comparisons offered here to support various arguments are meaningless in that tax increases and decreases take time to have their effects and the "everything else being equal" part of the comparison is usually missing. The chronic higher economic growth rates in the USA compared to Europe are generally credited to our less rigid labor markets and relatively lowerr tax rates.

Added taxes do indeed increase the relative share of economic product taken by the government. However if economic activity is reduced as a result fewer dollars are collected. If economic growth continues, but at a reduced rate, ther net revenue gain for the government may not be much at all.

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Quote:

The American economy is on its knees and the suffering has reached historic levels. Nearly 44 million people were living in poverty last year, which is more than 14 percent of the population. That is an increase of 4 million over the previous year, the highest percentage in 15 years, and the highest number in more than a half-century of record-keeping. Millions more are teetering on the edge, poised to fall into poverty.

More than a quarter of all blacks and a similar percentage of Hispanics are poor. More than 15 million children are poor.

The movers and shakers, including most of the mainstream media, have paid precious little attention to this wide-scale economic disaster.

Meanwhile, the middle class, hobbled for years with the stagnant incomes that accompany extreme employment insecurity, is now in retreat. Joblessness, home foreclosures, personal bankruptcy — pick your poison. Median family incomes were 5 percent lower in 2009 than they were a decade earlier. The Harvard economist Lawrence Katz told The Times, “This is the first time in memory that an entire decade has produced essentially no economic growth for the typical American household.”

I don’t know what it will take, maybe a full-blown depression, for policy makers to decide that they need to take extraordinary additional steps to cope with this drastic economic and employment emergency

http://www.nytimes.com/2010/09/18/opinion/18herbert.html?_r=1&hp

In theory the rise of the tea party with its desire to take a ax to Washington would be a clue to the elites that something that they dont understand is going on...Right now Washington is owned by the Corporate class, and they dont see the destitution of the American people as a problem for them. It is.

1 Reply

@hawkeye10,

What little I see of the Tea Party seems designed to make it look ridiculous. I can hardly believe my eyes when I see Mrs Palin and Ms O'Donnell.

It is possible hawk that the system is unworkable.

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@georgeob1,

georgeob, There is no historical support for higher taxes lowers economic growth, but I will agree that there are just too many variables to simplify economic growth based on tax rates.

Just looking at our recent past when GW Bush lowered taxes twice during his term, we do not find "real" economic growth, and most of the middle class and the poor did not keep up with inflation while productivity increased during this same period.

What we see as economic growth before the financial crisis of 2008 was based on speculation in the housing market, and consumer spending from the equity in their homes, and not from income growth.

The primary issue about taxes, especially while our country is involved in two wars, must be paid for by the current income earners, and not our children. That is the reason tax rates must increase.

On the flip side of that same coin, we know that our government(s) does not spend money efficiently; that's been an on-going problem, and nothing new.

Because the middle class are the ones suffering job and home loss in this current economic crisis, it's only fair that the high income earners pay more in taxes.

That's what Obama is planning to do, but most republicans and many democrats want the Bush tax cuts to remain intact. They are all fiscally irresponsible, and should be thrown out of office.

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http://www.care2.com/causes/politics/blog/1-in-7-americans-live-in-poverty-the-bush-legacy/

1 Reply

@plainoldme,

pom, I read recently that 4 million more Americans fell into poverty this year.

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@cicerone imposter,

ci, where are all the reporters to go out and talk to all the poor homeless sleeping under bridges, like they did during the Reagan years? How come they don't report it as much now? It couldn't be biased journalism, could it?

1 Reply

@okie,

No, many reporters also lost their jobs, and they're amongst the unemployed.
Four million Americans were added to the poverty rolls during the past year.

1 Reply

Where is the US economy headed?

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