Important Distinction: Giving People Tax Cuts Is NOT Giving People Money; It's ***THEIR*** Money
HT: Paul Ringstrom
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Tuesday, September 21, 2010
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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34 Comments:
On the other hand, giving farmers subsidies is the taking of your money to give it to other business operators.
Perhaps this will help people understand why things are so fouled in government these days:
Government (federal, state, local) believes WE work for it (them).
Repeat this a few times and let it marinate. Trust me, it's really thereputic to look at it this way, because it helps explain things a bit. It also helps provide the clarity we will need to fight the institutional lunacy in place all around us.
When you view government as a thing that feeds off of us, a huge beast that views us a livestock or a wheat field, it sure does explain why those deficits never really get solved.
I don't know when it happened that we started working for government the thirties, the seventies or the oughts...but it is happening now.
If even Chris Matthews now grasps this concept, we are making some progress here. Now, if we can just get this idea Obama's thick skull...
Benji: We all agree that farm subsidies should be curtailed. Why do you continue to bring up this other than to provide a feeble smokescreen for your communist boyfriend, Obama?
Chris Matthews discovers that the tingle up his leg was caused by a pinched nerve. Due-Dilligence and Emotion don't mix.
Umm, not necessarily.
Suppose people use government services and infrastructure that have not been paid for because the taxes are insufficient to support them.
In that case they will have spent money that is not theirs, and giving thme a tax cut, or refusing to have taxes equal to government costs, is exactly giving them money.
"Government (federal, state, local) believes WE work for it (them)."
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That has not been my experience. As a consultant I have worked with numerous government employees and they are always saying "We have to save the taxpayers money."
They may be incompetent at doing that, but I do not believe the vast majority are deliberately trying to figure out how to get more out of us for their use.
I can't say the same for many businesses I deal with.
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"On the other hand, giving farmers subsidies is the taking of your money to give it to other business operators."
Other examples: the protectionism advocated by some furniture makers who have a rough time competing with the Chinese. Also, an inflationary Fed advocated by bad real estate investors.
Hydra, so would these great, altruistic government workers would privatize their pensions, reduce their benefits and take a 25% cut in pay then? No way! No drop of water takes blame for the flood.
Talking to government workers about cutting government costs is like asking a drug dealer where to find rehab. Kind of a conflict of interest...
Completely agree, that the argument against the extension or for that matter the existence of the Bush tax cuts, is based on an implicit assumption that the government is giving the tax payer something back. Believe government does not exist without a transfer payment from the private sector. Hence the money begins as the private property of the private sector (you).
However, the sub-argument against the Bush tax cuts is that the tax reduction increases deficits. The argument leaves out “spending” and hence the debate point left over for one to debate is taxes. The argument makes the implicit assumption that current spending levels are correct/required/efficient/needed. Spending is purposely left out of the debate/talking point causing taxes to be the only point to debate.
One missing point is “tax time horizons”. Extending a tax reduction for one year or two years is a short time horizon. Short time horizon tax reductions cause economic behavior completely different to long term tax time horizons.
A second missing point is the across the board marginal tax reductions is a theory within supply side economics. That all brackets must be reduced as the members of the differing brackets work together as an economic growth engine. That an interaction occurs between the members of the differing brackets. Like an orchestra. Leave out any single bracket from receiving a marginal reduction, much like leaving out the drum section of an orchestra, and the economic tune is not a memorable tune.
Milton Friedman, long ago, stated the problem was not the deficits, it is the spending.
What a comedic clip. I love watching analysts disect interviews with politicians. Obama's phrasing makes the occassional listener think that he is working for us and not us for the government. He really sounds convincing that he (and the government) is giving us money when really they are just returning what is already ours.
If only more people would pay attention to what is actually being said and really going on...
Man, that's a long way from getting a thrill up his leg. Things are looking up.
Paul said...
"Other examples: the protectionism advocated by some furniture makers who have a rough time competing with the Chinese. Also, an inflationary Fed advocated by bad real estate investors."
Ouch!! That's too close to home for some commentators here.
Nice work, Paul.
"Suppose people use government services and infrastructure that have not been paid for because the taxes are insufficient to support them"...
Which government? Local? State? Federal?
What infrastructure are you alluding to and by which government?
Got any specifics in mind?
W.E. Heasley brings up an interesting point: "However, the sub-argument against the Bush tax cuts is that the tax reduction increases deficits"...
Hmmm, Bush did seem to have an adverse allergy to the 'veto pen' but back to your statement which I think is a good one...
You might find the following interesting by Steven Gross: Bush Tax Cuts Increased Tax Revenue After Enacted
The eye catcher for me in this posting is this: 'In a letter written by Peter R. Orszag, May 18, 2007, ( Orszag was Director of CBO “Congressional Budget Office” at the time), he stated, “receipts as a share of GDP rose from 16.5 percent to 18.4 percent”. The period was from 2003- 2006.'...
It is also true that the spending of the government is your money too. It is a bill that WE owe. There is no one else to pay for it except your children and grand children. It is great to talk about tax cuts (we all want them) but the only worthy conversation is the one telling your congressional representative what to cut. At the Federal level you have three main choices each spending about $1 trillion per year and they are defense, pensions, and healthcare. For my two cents, a lot of defense is spent in other countries with 1,000 bases outside US. A good place to start?
"At the Federal level you have three main choices each spending about $1 trillion per year and they are defense, pensions, and healthcare"...
Well Michael Cottle I don't disagree with what you're saying at all but I do have one question and that is, why did you leave out the staggering costs entitlements?
On the other hand, I think it was a big mistake for Bush to zero out the taxes paid by millions of lower income earners. I believe it was a revenue loser, and it took their "skin out of the game."
Other examples: the protectionism advocated by some furniture makers who have a rough time competing with the Chinese.
Fine, let the furniture makers have what they want - it favors our country and our government, not someone else's.
Hydra, so would these great, altruistic government workers would privatize their pensions, reduce their benefits and take a 25% cut in pay then? No way! No drop of water takes blame for the flood.
Talking to government workers about cutting government costs is like asking a drug dealer where to find rehab. Kind of a conflict of interest...
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This misses the point to which I was responding, which is the claim tha t government workers think we work for them, that their sole goal is to find more ways to take money from us, or that they are fundamentally corrupt.
Most of the government workers I have dealt with work hard against enormous beaurocratic obstacles, and often in crappy offices to not waste taxpayer money. Many of them feel the same as you do because they are taxpayers, too.
As for all the fabulous government pay and benefits, all I can tell youis that every time I considered a government job, it meant a big pay cut, so I never took the job.
There is nothing preventing government from getting people more cheaply, but if you think they are incompetent now.......
Why would you wish for that?
Government workers are no different from anyone else when it comes to cutting their own salary and benefits: you would not like it and neither do they, but they don;t set those benefits, congress does. so don't set that against them, only.
What I'm saying is that they do not using government authority to deliberately spend or waste taxpayers money.
Which does not preclude them from being incompetent.
Which government? Local? State? Federal?
What infrastructure are you alluding to and by which government?
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Why does it make any difference? The argument is that if government has already spent (borrowed) money on your behalf, then it is a little bit fuzzy to claim that a tax cut is giving you back YOUR money.
Assuming that there is no government debt, then a tax cut would amount to giving you back your money, but government would probably also have to take back the "merchandise" it formerly provided for that money.
Total Cost = Production Cost + External Costs + Government Costs where benefits equal negative costs.
If you reduce government costs and benefits equally, total cost doesn't change. But governemtn is not efficient, so if we lower government costs costs will come down faster than benefits, and total costs should go down - just not nearly as much as the cuts would suggest. And, you can probably expect external costs to go up, as well, as a result of the loss of services (like not eneough egg inspection).
I did not find Steven Gross' article to be very convincing.
"Why does it make any difference? The argument is that if government has already spent (borrowed) money on your behalf, then it is a little bit fuzzy to claim that a tax cut is giving you back YOUR money"...
Ahhh, minor detail here hydra it wasn't done on my behalf and it what was done was at best constitutionally questionable...
"I did not find Steven Gross' article to be very convincing"...
Well hydra after reading some of your comments I can understand why...
Gross deals in facts sir, facts are not unimportant...
WHERE SOME OF THOSE EXTORTED TAX DOLLARS GO
Check out the catalog of Federal Domestic Assistance - 2,061 programs...
Now check out the numbers of this Cato Institute article: All Aboard the Gravy Train
Note the increase in programs in five year increments: 1970 - 1019 programs to 2008 where there were 1804 programs...
Now look at it, in two years 200+ programs added!
Isn't America a great place to live if one likes to leech off the backs of the taxpayer?!?!
juandos said...
A good deal of them wouldn't if not for the steadfast refusal to hire, or by making workers take on more risk than reward.
"A good deal of them wouldn't if not for the steadfast refusal to hire, or by making workers take on more risk than reward"...
Well sethstorm what's stopping YOU from taking that risk with YOUR money?
"Well sethstorm what's stopping YOU from taking that risk with YOUR money?"
Well, for one thing the couch in his mother's basement is sooo comfy.
Seriously, it would be great fun to watch Sethstorm try to start up an initiative and then try to live up to his wacky prescriptions for other people who risk their capital. Obviously, he'll never do it.
"Seriously, it would be great fun to watch Sethstorm try to start up an initiative and then try to live up to his wacky prescriptions for other people who risk their capital"...
Well Paul there's probably a Federal Domestic Assistance program where sethstorm could gamble with taxpayer money to see if he could be forced off that couch...:-)
juandos & Paul said...
You might have a point if it not for the political component in that lack of hiring. I would rather have that political refusal-to-hire component killed, such that a recovery can begin.
If you want to talk about lazy people, this is hardly the time to talk about it.
"I would rather have that political refusal-to-hire component killed, such that a recovery can begin"...
sethstorm that sentence doen't mean anything in the real world...
What part of this: 'It's ***THEIR*** Money"' confuses you?
Juandos:
What part of politically-charged refusals to hire do you not understand?
If someone wants to stand in the way of a recovery by not hiring, that is where things stopped being a question of who owned what resources. It became a question of how the damage can be minimized and a question of how to deter others from causing the damage. There is a recovery to be had; one needs not to wait for the right politician to allow it to happen.
Hydra, it's really simple. If you a US government worker, you are working for a bankrupt company. They can all try to be the very best box checker (or form of boxes to be checked originator) there has ever been and it doesn't change the situation that their employer is broke. And I'll wager that if 30% of Fed programs disappeared tomorrow, we'd be just fine in a shocking amount of time. I'll bet the pay/employment equation will equalize pretty fast, too.
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