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Do tax cuts spur growth? What we can learn from the Kansas budget crisis.

 
 
Reply Mon 10 Sep, 2018 07:42 pm
Four years ago, businesses in Kansas went from paying over 6 percent taxes to paying nothing at all, as part of a Republican experiment to boost the limp state economy. But when the massive drop in tax revenue destabilized the economy lawmakers started slashing the budget and social programs and underfunding schools. Economics correspondent Paul Solman reports on what happened next.

Published on Dec 7, 2017
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Type: Discussion • Score: 2 • Views: 729 • Replies: 14

 
camlok
 
  1  
Reply Tue 11 Sep, 2018 12:58 pm
@Real Music,
Quote:
Four years ago, businesses in Kansas went from paying over 6 percent taxes to paying nothing at all


This sounds so crazy, so out of touch with reality [the legislators, not RM] that I find it hard to believe it could actually happen.
Real Music
 
  1  
Reply Wed 12 Sep, 2018 11:12 pm
@camlok,
It's all about unapologetic GREED.
vikorr
 
  1  
Reply Thu 13 Sep, 2018 02:07 am
@Real Music,
Over the breadth of a country, tax cuts can spur growth / inflation. The problem arises when politicians don't take them back after the economy has stabilised. If you look at Whitehouse stats on federal revenue, corporations and the public contributed roughly equal amounts to Federal Revenue in 1930. Today the public contributes over 6.5 times that of corporations (last I saw figures, 2011 I think). That discrepancy in contribution is accelerating.
camlok
 
  2  
Reply Thu 13 Sep, 2018 08:38 am
@Real Music,
It sure is.
0 Replies
 
Setanta
 
  2  
Reply Thu 13 Sep, 2018 02:55 pm
@vikorr,
That's a blanket statement which is not specific to Plump's tax cut. Truly wealthy individuals don't pay the standard income tax rate, because their income derives from capital gains. The capital gains tax currently (except for the "one time/first time" 5% rate) is 15%, far below the previous highest nominal income tax rate. I suspect that Plump relied on Wilbur Ross to craft this tax cut. He was never actually a billionaire, and he derives very little income from capital gains. Each time that one of the four corporations he founded tanked, his buddy Wilbur Ross stepped in to negotiate a deal with the corporate board and share holder representatives. In each case, Plump gets a hefty fee for the use of his name. The Plump tax cut actually benefits the highest earners who don't primarily rely on capitals gains, which is to say, Plump himself, and ironically, Actors, Singer/Songwriters, Directors, Producers (including recording industry producers) and others who derive large incomes from performances or other public activities. Only a small handful of people derive significant income from the use of their names. You are right, of course, about the continuing fall of corporate taxes--Congress made sure that people such as their buddies, the Koch brothers, would benefit from this tax cut.

The alleged prosperity so far in Plump's tenure comes from the healthy economy that Mr. Obama left him, and the unrealistic optimism of Wall Street after Plump's election. The big players there know it is smoke and mirrors, but you can bet your bottom dollar that they will cash in their chips before the market tanks, which may be soon, as this is the time of year when big investors do their profit taking. Stock which are being short-sold will come due shortly after that. It is the punters at home trading with unrealistic attitudes from their PCs who will take the hit, and provide the profits the big players will enjoy.

The big Republican economic myth is that tax cuts stimulate investment. That's BS--investors don't have a "I'll take my marbles and go home attitude." They don't make any money unless their money is invested, and they will invest no matter what the tax rate is. Of course, the real elephant in the room, which incredibly seems to remain invisible to the punters, is that tax cuts don't affect the capital gains tax, and haven't for almost 50 years. Construction workers pay more in income tax than the 15% of the capital gains tax.
vikorr
 
  1  
Reply Thu 13 Sep, 2018 03:16 pm
@Setanta,
Hi Setanta, I was replying to RealMusic's post, which appeared generic in nature, hence the generic reply.

I'm not sure about the specifics of the tax cut you were discussing, but it sounds plausible.

In terms of markets tanking. I have a bigger overall picture to offer you. Economies do get stimulated by interest rates cuts, and Western countries each had a board responsible for the official interest rate, which started off high. At each recession, they slashed interest rates. Housing prices eventually went up because of that. So each subsequent time, they were unable raise interest rates as high as the previous period (else the housing market would fall over, and business suffers in the disposable income shortage). So each recession, the official interest rate got lower and lower, until it was basically minimum rates with nowhere for the government to go.

So the only way to stimulate the economy is to borrow, or cut tax (which governments have never taken back). Currently, there appears no political taste for recessions (which correct a lot of price blowouts), so governments are left with either borrowing, or cutting tax.

The Western worlds debt is piling up, and continues to grow (with several basket cases, or borderline basket cases in Europe already). That is patently unsustainable. Governments say it is, and they promise to return to surplus...but for many western countries, the return to surplus isn't happening, nor getting close to happening.

If you look at my previous post - the pattern is that the burden (ie both debt, and tax revenue for the government) of stimulating business is being transferred to the workers. There is a growing divide between rich and poor which backs this up.

This problem set aside (and it is a problem)....the other problem is, the system cannot sustain ever increasing debt. At some stage, it has to come crashing down. If I had to guess, I'd say it will trigger a depression, rather than just a recession.
Setanta
 
  1  
Reply Thu 13 Sep, 2018 03:25 pm
It is worth noting that China holds a good deal of the industrial world's debt, and most of American government debt.
vikorr
 
  1  
Reply Thu 13 Sep, 2018 03:34 pm
@Setanta,
Well, China is most likely aiming for being the reserve currency, which the US currently holds. Were I Chinese, I'd think my government stupid if it weren't aiming for it.
0 Replies
 
Real Music
 
  1  
Reply Thu 13 Sep, 2018 11:32 pm
@vikorr,
Quote:
In terms of markets tanking. I have a bigger overall picture to offer you. Economies do get stimulated by interest rates cuts, and Western countries each had a board responsible for the official interest rate, which started off high. At each recession, they slashed interest rates. Housing prices eventually went up because of that. So each subsequent time, they were unable raise interest rates as high as the previous period (else the housing market would fall over, and business suffers in the disposable income shortage). So each recession, the official interest rate got lower and lower, until it was basically minimum rates with nowhere for the government to go.

Yes, I agree that cutting interest rates does stimulate the economy. Lower interest rates makes financing a car more affordable. It makes financing a mortgage more affordable. It makes personal loans and credit card financing more affordable. So, yes I do agree that lowering interest rates does spur growth and stimulate the economy. But, lowering interest rates is a different topic from cutting taxes. The discussion of this thread is whether or not tax cuts spur growth. Cutting or lowering interest rates is a different topic.
0 Replies
 
Real Music
 
  1  
Reply Thu 13 Sep, 2018 11:53 pm
theTRUTH: Trickle Down Economics Don't Work.

According to the International Monetary Fund there's a major problem with trickle-down economics: it not only doesn't work, but it ends up backfiring by actually shrinking a country's GDP.

camlok
 
  1  
Reply Fri 14 Sep, 2018 12:02 am
@Real Music,
We all knew this back when the shithead Reagan offered his nonsense.
Real Music
 
  1  
Reply Fri 14 Sep, 2018 12:06 am
@camlok,
Yes. I agree.
Yet, Trump and the rest of the republicans are still trying to fool everyone with that same crap today.
camlok
 
  3  
Reply Fri 14 Sep, 2018 12:10 am
@Real Music,
https://bobbiblogger.files.wordpress.com/2012/01/trickle-down.jpg
Real Music
 
  1  
Reply Fri 14 Sep, 2018 12:11 am
@camlok,
Yep. That meme pretty much sums it up.
0 Replies
 
 

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