Sowell Makes The Case For Tax Cuts
Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010. Using long, drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.
If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck, through increased credit card purchases beforehand. If all this sound and fury in Washington was about getting an economic crisis behind us, tax cuts could do that a lot faster.
38 Comments:
Even if that $355 billion could be spent by government immediately, I would not be in favor of it.
Regardless of the timing, government spending does not create jobs, it destroys them. This is because government sucks the spending power out of a dollar, compared to that same dollar's spending power in the private sector. The value lost is due to the activities of bureaucracy.
It probably takes the government $1.25 to procure the same amount of goods and services that can be procurred in the private sector for only $1. Therefore, spending power -- and any job that spending power creates -- is lost when a dollar goes from the pocket of a private citizen to the government. Multiplied over billions of times, this is a lot of jobs that do not come into existence because of government spending.
Needless to say, Sowell and I agree on this: the road to a re-energized economy is a reduction in tax rates.
---Tom Nally, New Orleans
Are tax cuts good for unskilled workers?
Tax cut = unskilled low-wage worker has a few additional dollars to spend.
Tax cut = middle class workers have many more additional dollars to spend.
Some of these additional dollars are spend on housing, bidding up its price.
The additional dollars (and then some) of the unskilled are consumed by higher rents, leaving them worse off than before the tax cuts.
The market cannot help these workers in the short run because supply cannot be adequately increased in the short run.
poor boomer> last I checked there was a pretty big oversupply of housing.
"Are tax cuts good for unskilled workers?"...
No since they don't deserve it...
They don't pay their fair share for their part of the socialist nanny state...
the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%....
If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck
NO!!!!!!!!!! THIS IS WRONG!! I am tired, VERY TIRED, of hearing conservatives claim that tax cuts will boost spending more than just direct spending will.
As last year's stimulus proved, pure tax cuts in this environment aren't spent, they are mostly saved. And please don't even start with
"That's fine because savings lead to investment."
NOT IN THIS ECONOMY! Savings lead to money in banks which is the equivalent of putting it in a mattress right now.
I am not sure what people don't get about this. If your goal is to increase spending, then....SPEND! The argument against the stimilus is that only a fraction of the money will be spent in the first year. This may be true (although we can work to structure the stimulus so that money is spent faster), but at least we know it will be spent. If we simply hand out tax rebates, it will mostly be saved not spent.
When the government borrows money to spend, it competes with the private sector for capital. This competition makes drives up the cost of borrowing making it more expensive for companies to fund expansion and consumers to finance consumption. Further, government spending is directed not by economic need but by political consideration. Thus, we wind up with 4.9 billion dollar gifts to corrupt groups like ACORN and hundreds of millions going to Planned Parenthood. Whatever the political merits of these expenditures they will not contribute to the productivity of the economy.
What's lacking in this discussion is any sense of outrage at the bankrupting of our children and grandchildren. One generation does not have the right to squander the potential of the next. Certainly not on what are essentially political party favors to connected constituencies.
RebelRenegade said:
"poor boomer> last I checked there was a pretty big oversupply of housing."
Then why am I paying 65 percent of my income to rent a room in a house?
1 said:
"No since they don't deserve it...
They don't pay their fair share for their part of the socialist nanny state...
the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%...."
I work hard and contribute tens of thousands to my employer and through hom also tens of thousands in income taxes.
Two dozen employees here earned $400K last year. Our employer made $3M last year.
We did almost all of the hard work.
How exactly does our employer deserve a tax cut more than we do?
And what about those who pay taxes without working or earning? Do they deserve a tax cut more than my co-workers?
Re: stimulus that was saved and not spent
Last year, my stimulus payment was intercepted by Dept of d for student loans.
Was this counted as "stimulus not spent" or was it counted in some other way.
Surely Machiavelli can't blame me for not spending a stimulus that was intercepted before getting to me.
Perhaps if there was a less politically charged person to bring the message, it might have some good to it. In this respect, Sowell is damaged goods.
Drop the taxes on business to a .01% (not 1%, 1/100 of 1%) from their current levels. Then throw a measure that at least gets the confidence of those of the recently unemployed in the Rust Belt with respect to jobs.
Something for the Right, something for the left. It isn't 0%, but it certainly is close enough to matter.
When the government borrows money to spend, it competes with the private sector for capital.
Again...NO WRONG!! This is another statement that is true most of the time, but not in this economic environment. Its not as if there is a person out there with a million dollars in capitol who is sitting there thinking:
"Well, I would be willing to invest in some private company right now, but instead I am going to go buy these 2% yielding treasury securities."
Fear and concern over short term uncertainty keeps capitol away from the private sector right now, not the availability of low yielding treasury securities.
If treasury securities were not made available for these people to invest in, they would just hold all of their capitol in cash.
oh thankx meachiavelli you just blew away my comment
("conflicting edit" error, somment lost)
I wanted to add how I see most stimulus debates happen on TV between economic pundits:
Liberal: Demand is falling, we need to ramp up spending to fill the gap in falling demand.
Conservative: Fine, but lets do it with tax cuts because government spending is inefficient and takes a long time
Liberal: Yes, but no one is spending right now
Conservative: So what? They'll spend some of it and save the rest. Either way its good.
And that's usually where I see the argument end between TV pundits. I don't know why they don't take it farther. As last year's stimulus bill proved, simple tax rebates are mostly not spent but saved. And the savings will mostly not be invested, but just deposited in checking accounts. So, just a rough guess if you do pure tax cuts, 20% of the money will be spent and the rest will be dumped into a paralyzed financial system.
If your goal is to increase spending, then.... just SPEND IT! Rather than go through the middleman which is the taxpayer.
The inefficiency in turning appropriated funds into actual spending is much higher if you go through the tax payer than if you go through any government bureaucracy.
If we spent $3 Trillion for a tax cut rather than govt stimulus, bank and auto bailouts, TARP, etc. that would be about $10K per US citizen or $40K for a family of four.
If median household income is $50K and median private household debt service cost is approximately 20% of income then the median family spends about $10K to service debt. So the median family can either use their $10K/person ($35K/family?)to pay off their ~$40K/person ($140K/family?) in total debt (lowering their monthly service cost) or, if debt is manageable, they can use the money for investment or consumption.
So how do conservatives (other than "1") respond to my question:
Are tax cuts good for unskilled workers?
This is a question I *NEVER* see asked or addressed by any of the talking heads or by so-called journalists.
Again...NO WRONG!! This is another statement that is true most of the time, but not in this economic environment.
It's true in every environment. Investors shift their assets into short term treasuries in times of panic and stress as a substitute for cash. That is precisely why treasuries yield only "2%". There is approximately 9 trillion dollars being held in cash and cash equivalents right now:
There’s more cash available to buy shares than at any time in almost two decades, ...
The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, ...
Bloomberg link
This money will either go into the private equity and bond markets, fueling future investment and growth, or it will go into the government debt markets to pay for the myriad of nonsense that Obama and the Dems believe will get them re-elected. The government must always, "rob Peter, to pay Paul".
Are tax cuts good for unskilled workers?
First, "unskilled workers", for the most part, do not pay taxes under the current tax code. In fact, they are more likely to receive the "unearned tax credit". A kind of welfare.
Second, if the tax cuts are given to the "unskilled workers" employer, than yes, he benefits. His employer now has more capital and greater incentive to grow his business, creating opportunities for the worker.
The next generation speaks out!!
Anonymous said:
"First, "unskilled workers", for the most part, do not pay taxes under the current tax code. In fact, they are more likely to receive the "unearned tax credit". A kind of welfare."
WhereTF did you get THAT idea?
I earn minimum wage and I pay federal and state income taxes. And I earn too much to qualify for the Earned Income Tax Credit.
And howTF is it an "unearned [sic] tax credit"? Only earning makes a person eligible for it.
Anonymous said:
"Second, if the tax cuts are given to the "unskilled workers" employer, than yes, he benefits. His employer now has more capital and greater incentive to grow his business, creating opportunities for the worker."
Exactly what "opportunities" become available to an unskilled worker if his employer has more available capital?
Increased capital for minimum wage employers could well lead to job losses, not job gains.
Anonymous said:
The next generation speaks out!!
THose commercials annoy me. The kid still sleeps in a crib and he's buying stock?
I wanna know Where did he get the money? He certainly didn't EARN it!
A $2,000 per worker tax cut, along with a similar increase in unemployment benefits (for unemployed workers), is much more effective to actually stimulate growth than government spending. Workers will catch-up on their bills, pay-down debt, increase saving, spend more on goods & services, etc. The Bush tax cuts in 2001 and 2008 both proved effective.
An increase in government expenditures is generally a slow, inefficient, and unfair way to stimulate growth. Currently, there are too many real assets and goods in the U.S. economy (which is why asset prices are falling and deflation is taking place). Real output will not increase, and inflation will not accelerate, until excess assets and goods clear the market.
One way to clear the market of excess real assets and goods is Bernanke renting a helicopter and shoveling as much cash as he can out the window, e.g. above shopping malls or car dealerships. Digging holes and filling them up over and over will not spur real economic growth, and spending $2 to produce $1 of output is an inefficient way to spur growth.
"If your goal is to increase spending, then.... just SPEND IT! Rather than go through the middleman which is the taxpayer."
HOLY CRAP! Did Mach just say that the taxpayer is the middleman? Shouldn't the government be the middleman? If the taxpayer is the middleman instead of the government in the minds of the average citizen this country is F'ed up too bad to save.
It is unbelievable to me someone here perceives the taxpayer as the middleman. Talk about "top down", "elitist thinking", this statement takes the cake.
Here is another thought on why the so called stimulus package will not do the job. First we had the 1/2 billion for free condoms, now we have 1/2 billion for "neighborhood stabilization" which means organizations like ACORN get a big handout from the taxpayer. I can bet there are at least a couple of hundred more worthless efforts in the package that do nothing for the economy. That is how politicians work.
The whole effort is a complete joke and if there was any sanity in Washington it would be abandoned in favor of tax cuts 1st to boost spending. Second, permanent business tax cuts or incentives such as R&D, depreciation and other areas that will spur investment. Third, open up the Arctic preserve for oil drilling and provide incentives for cos. to get started quickly. Fourth, complete tort reform to remove the layer upon layer of legal wrangling that prevents businesses from starting. Fifth, initiate plans for the building of Nuclear power plants to provide clean energy. And last, an honest effort to reduce and/or eliminate all of the stupid and wasteful programs the government is engaged in. That type of effort would inspire confidence in the people and would start the money flow back to the equities where it is needed to generate real jobs not the BS jobs people like Pelosi, Dodd, Frank and others desire.
Of course, this will not happen because of the vested interest of the left in expanding the power of the state. The way to maintain that power is have a minority pay the bills and then redistribute it to the non payers.
Government also redistributes upward.
Don't you love your homeownership tax breaks?
How 'bout that homestead exemption and nonhomestead tax?
Article: 10 Reasons to Whack Obama's Stimulus Plan
An economic recovery package that's heavy on government spending and light on tax cuts is just the opposite of what we should be doing right now:
1) A 2005 study by Andrew Mountford and Harald Uhlig "analyzed three types of policy shocks: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes) and a deficit-financed tax cut, in which revenues increase but government spending stays unchanged. We found that a deficit-spending shock stimulates the economy for the first 4 quarters but only weakly compared to that for a deficit-financed tax cut." In other words, FDR vs. Clinton vs. Reagan, Reagan wins.
2) Harvard economist Robert Barro looked at the multiplier effect of World War II military spending -- supposedly the Mother of All Stimulus Plans and found that "wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier." Barro prefers eliminating the corporate income tax to massive government spending.
3) Alberto Alesina of Harvard and Luigi Zingales of the University of Chicago want to adress the fear and confidence issue by creating "the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years."
4) An initial CBO analysis found that a mere $26 billion out of $274 billion in infrastructure spending, just 7 percent, would be delivered into the economy by next fall. An update determined that just 64 percent of the stimulus would reach the economy by 2011.
5) University of Chicago economist and Nobel laureate Gary Becker doubts whether all this stimulus spending will do much to lower unemployment: "For one thing, the true value of these government programs may be limited because they will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies. For another thing, with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative."
6) Christina Romer, the new head of the Council of Economic Advisers, coauthored a paper in which the following was written about taxes: "Tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects." And former Bush economic adviser Lawrence Lindsey tack on this addendum: "The macroeconomic benefits of tax cuts can be two to three times larger than common estimates of the benefits related to spending increases. The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet."
7) Economists Susan Woodward and Robert Hall find that the multiplier effect from infrastructure spending maybe just 1-for-1, less than that 3-to-1 ratio for tax cuts that Romer found: "We believe that the one-for-one rule derived from wartime increases in military spending would also apply to increases in infrastructure spending in a stimulus package. We should not count on any inducement of higher consumption from the infrastructure stimulus."
8) Economist John Taylor thinks it better to let the Federal Reserve deal with the short-term problems in the economy, while fiscal policy should attend to long-term issues: "In the current context of the U.S. economy, it seems best to let fiscal policy have its main countercyclical impact through the automatic stabilizer ... It seems hard to improve on this performance with a more active discretionary fiscal policy, and an activist discretionary fiscal policy might even make the job of monetary authorities more difficult. It would be appropriate in the present American context, for discretionary fiscal policy to be saved explicitly for longer-term issues, requiring less frequent changes. Examples of such a longer-term focus include fiscal policy proposals to balance the non-Social Security budget over the next ten years, to reduce marginal tax rates for long run economic efficiency, or even to reform the tax system and Social Security."
9) Massive stimulus didn't work in the Great Depression. As this Heritage Foundation study notes: "After the stock market collapse in 1929, the Hoover Administration increased federal spending by 47 percent over the following three years. As a result, federal spending increased from 3.4 percent of GDP in 1930 to 6.9 percent in 1932 and reached 9.8 percent by 1940. That same year-- 10 years into the Great Depression--America's unemployment rate stood at 14.6 percent." Same goes for Japan and its Great Stagnation of the 1990s.
10) Olivier Blanchard, the chief economist of the International Monetary Fund, coauthored a paper which found "that both increases in taxes and increases in government spending have a strong negative effect on private investment spending."
"NO!!!!!!!!!! THIS IS WRONG!! I am tired, VERY TIRED, of hearing conservatives claim that tax cuts will boost spending more than just direct spending will"...
Get used to being WRONG mach, because you are wrong again...
"As last year's stimulus proved, pure tax cuts in this environment aren't spent, they are mostly saved. And please don't even start with
"That's fine because savings lead to investment."
NOT IN THIS ECONOMY! Savings lead to money in banks which is the equivalent of putting it in a mattress right now."...
Hmmm, according to whom?
poor boomer says: "I work hard and contribute tens of thousands to my employer and through hom also tens of thousands in income taxes."...
Hmmm, let's ask your employer if you are worth the money he spends on your wages and government mandated expenses for your job...
"Two dozen employees here earned $400K last year. Our employer made $3M last year"...
Are you working for a charity poor boomer?
If you don't like the compensation for the work you alledgedly do the answer is simple, leave...
poor boomer then says: "How exactly does our employer deserve a tax cut more than we do?"...
Unlike you poor boomer, your employer is actually a productive member of society...
Your employer is STUCK with paying part of YOUR FICA (money he'll never see again), your workmans' compensation insurance (money he'll never see again), and any other extortions the local, state, and federal government sees fit to foist off on him...
"And what about those who pay taxes without working or earning? Do they deserve a tax cut more than my co-workers?"...
Are you complaining that those with money and paying taxes are somehow being unfair to YOU because they are paying more?
I mean just how much more socialistic does it need to be since there a progressive taxation system in place now?
Why should those with more income than you make pay even one penny more than you do?
WhereTF did you get THAT idea?
I earn minimum wage ...
Proof positive that markets are efficient!!
Anonymous said:
WhereTF did you get THAT idea?
I earn minimum wage ...
Proof positive that markets are efficient!!
I point to the high productivity my co-workers and I have demonstrated.
Hardly our fault that our compensation lags so far behind out superior productivity.
My employer is very good at hiring. In the five years I've been employed there, we had only one really bad hire, who is a cousin of one of our best employees.
1 said:
I mean just how much more socialistic does it need to be since there a progressive taxation system in place now?
Our so-called progressive tax system might be progressive at the top and at the bottom, but it is hardly progressive in the middle.
Childless adults earning $20K often pay higher effective tax rates than homeowner families with $50K-$100K income. Heck, I earn minimum wage, pay income taxes, and receive NO tax breaks beyong the universal standard deduction and personal exemption.
Anonymous said:
WhereTF did you get THAT idea?
I earn minimum wage ...
Proof positive that markets are efficient!!
Actually, that is anecdotal evidence and not proof positive.
You fail at logic.
Re: my employer as a productive member of society (relative to poor boomer):
he spends approx 40 percent of the year globetrotting, and therefore does nothing productive during that time. (I wish while traveling he would research finding new cool stuff to sell at the store, but no such luck).
So at least 40 percent of the productivity is attributable to the employees.
Damn the 1% of the tax payers that pay 40% of the tax are starting to catch on that they can pay a lower rate if they don't work so hard and make less. Those people are going to red flag the government and put unskilled worker at a higher tax rate.
Actually, as Robert Kiyosaki has pointed out many times, employee income faces the highest tax rate and people don't have to "not work as hard and make less" to enjoy lower tax rates, all they have to do is make money without working for it.
Is this a great country or what?
In the five years I've been employed there, we had only one really bad hire...
So, you consider yourself a "good hire" and you've stuck around for FIVE YEARS making minimum wage ?
Your free! If you think your worth more, stop whining and get another job. Or, grow a set and start your own business. Go ahead, show us all how it's done.
Bizzare statement from planet mach: "The inefficiency in turning appropriated funds into actual spending is much higher if you go through the tax payer than if you go through any government bureaucracy"...
How this works on planet Earth though is quite different...
Peter Ferrara writting in American Spectator shows us how: Good Morning, Suckers
Barack Obama and Congressional Democrats are playing the voters for fools with the so-called stimulus package. The massive $825 billion package is not even targeted on programs to stimulate the economy. Instead, it is laced with runaway government spending for increased welfare, overgrown bureaucracy, pork, political payoffs, and other waste. That runaway spending is causing record smashing deficits of $1.5 trillion or more, equivalent to over 50% of the entire federal budget for fiscal 2008...
Then there is this twisted bit of logic from poor boomer: "he spends approx 40 percent of the year globetrotting, and therefore does nothing productive during that time. (I wish while traveling he would research finding new cool stuff to sell at the store, but no such luck).
So at least 40 percent of the productivity is attributable to the employees."...
Well poor boomer, I think its time you read the following since you can't seem to get your head around the realities: A Letter From The Boss…
poor boomer you'll see that being the 40% you claim your boss isn't productive, is a lot more complicated than meets the eye...
Congressional Democrats Bankrupted the Nation
Even though the US congress has been mucking up the banking industry since 1916, few Americans are familiar with GSE’s, (Government Sponsored Enterprises). As a result, the people have hired the same people who destroyed the US economy to begin with, to fix the US economy. Those people are now attempting to save the nation from complete economic collapse via the same failed economic policies that caused the crisis…...
1 said:
Your employer is STUCK with paying part of YOUR FICA (money he'll never see again), your workmans' compensation insurance (money he'll never see again), and any other extortions the local, state, and federal government sees fit to foist off on him...
Actually - and here I think you know this and are simply being disingenuous - the "employer share" of FICA taxes is a obfuscatory fiction created to hide the reality that for most employees, both halves of FICA taxes come out of their wages and salaries.
Of course in the case of minimum wage employees, the employer share of FICA really does gouge the employer rather than the employee, which I suppose creates an additional argument against the minimum wage.
poor boomer says: "Actually - and here I think you know this and are simply being disingenuous - the "employer share" of FICA taxes is a obfuscatory fiction created to hide the reality that for most employees, both halves of FICA taxes come out of their wages and salaries"...
Actually what you said is complete nonsense and is your attempt to rationalize the FDR Ponzi scheme...
Neither half would come out of one's wages if that fraudulent program wasn't extorting money from almost everyone that works...
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