Tax Rebate Follies

Come on mrpaige... that's bias showing. Your famous objectivity is cracking, here.

It's not a repudiation of their OWN beliefs, merely an acknowledgement that their theoriesare based on the concept of BALANCE. The right solution to our current economic problem is a tax cut according to the Keynsians... but said tax cut will do more harm than good long-term if it's not repealed.

This isn't hypocrisy; it's the realization that you can't adopt a half-policy and expect it to function properly. You're only looking at half the context, and that's beneath you.

I'm actually not a Keynsian - alhtough their arguments do resonate well sometimes, for me. I'm opposed to a tax cut because it means you can't pay down the debt (like you) but also because I think we need MORE social services, particularly for education and child care.


One other thing: your argumen that the tax cut of 90 caused a recession is false. A recession had already begun as a result of hte poor fiscal policy of the Reagan years. Bush just didn' tmanage to SOLVE the problem.


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Newbiehad... coming to a bbs near you, October 31st.

[This message has been edited by haven (edited June 26, 2001).]

 

I said the Tax Increase of 1990 spurred the slowdown of the Early '90s. And that's true. In 1989, the GDP growth rate was 3.5% (ahead of some of the growth rates of the mid-90s). In 1990 after the tax increase, it was 1.8. In 1991, it was in negative territory. Heck, the first quarter GDP growth was over 5% (up from the previous year), then we pass the tax increase, and it's recession city.

But even if we accept the idea that the country was headed into recession anyway (a dubious assumption), passing a big tax increase was exactly the wrong thing to do in order to make the economy better, and it certainly didn't achieve what it was supposed to (decrease the deficit) and it likely made the economic slowdown worse than it would've been otherwise.

As for arguing balance in the Keynesian philosophy, they can argue for it. But they are not arguing for it. They are saying, Do nothing now even though Keynesian philosophy would tell us to cut taxes now. When the economy starts growing again, they can't then argue for tax increases because they didn't argue for tax cuts when their philosophy told them they were necessary. Even if balance is what they were looking for, their new philosophy is "Don't Do Anything". They can't argue one part on one hand and then not argue the other part on the other hand.

The way to support balance is to support your beliefs all the time rather than supporting your beliefs sometimes and not others. Do you really expect that Keynesians will, in the future, say that they don't support a tax increase when the economy is chugging along? Since they didn't support a tax cut, how could they then support a tax increase? But I'm willing to wager we will see Keynesians supporting a tax increase when the economy gets back on track even though that would throw their "balance" all out of whack.

And the whole reason they aren't now supporting their philosohpy is entirely political. There's no economic basis to support going against their principles based on their opinion of the President.


[This message has been edited by mrpaige (edited June 26, 2001).]

[This message has been edited by mrpaige (edited June 26, 2001).]

 

Guess it's time to agree to disagree... again.


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Newbiehad... coming to a bbs near you, October 31st.

 

I just wish I didn't misspell philosophy so often.

The point is, though, that I've never seen economists behave that way before. They have supported their ideals always, and when the government didn't agree with their philosophy, they came out and said so very strongly. But they always supported it when the government policies coincided with their economic beliefs. We're not seeing that this time, and the only way to explain it is political.

The idea that they would not support what their philosophy requires because they are uncertain of the future is ludicrous. There is always uncertainty about the future. That's part of economics. And that uncertainty or even their guesses about what the government would do never stopped them from advocating what they believe in in the past. Now they are willing to give up what they believe in (and give up their future beliefs. They can't well argue for a tax increase later now) solely based on their political opinion of the man in the White House. They've never done that before that I can recall.

Economics is not supposed to be political to economists. It's about doing what they think is the right thing and strongly advocating those things at the time they are needed without regard for what you personally think of the people in the government.

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Even Greenspan around last December, along with most all economists, argued the most fiscally irresponsible decision our government could make would be to cut taxes in a way that balloons our federal debt further. An economist in the real world, instead of considering their economic theoretical leanings in a vacuum, would not support such a tax cut unless they would be sure 1) taxes would be raised later to make up the deficits, or 2) spending would be cut so that we would avoid deficit spending as we go along. The tax bill had neither such commitments, so Haven's point is right on in my view. A pragmatic economist, even if they are Keynesian in leaning, who foremost wants to avoid the worst case scenario, is consistent with their philosophy by going against the tax cut if they were confident #1 or #2 would not happen along with the cut. Certainly such conditions were not in place in the bill though they could have been written in. Strict supply siders would have a different view on taxes in high productivity times, but they also would rigorously support a cut in government spending, which they would have to weigh as whether there is the political capital to cut (government) spending. I don’t think because economists think pragmatically and consider the larger political climate, and consider the likelihood of a series of events versus a single focus on a specific immediate event they are abandoning their ideals.

Also, many persons had trouble with the tax cut, not because of its size but because of the constituents most effected. With the estate tax abolishment clause included (although admittedly it only truly lasts one year, estate tax “reductions” is what it should really be called if both sets of partisans were honest) the cut was disproportionately slated to the very wealthy. Not to get the “well we pay more in taxes so we should get more back argument”, but it is clear which constituents the bill most favored.

The funny thing to me is I don’t think the tax bill is really all that radical given the expiration of the estate tax clause and other less noticeable details that limit its true impact on deductions and its overall modest lowering of marginal rates. Thus I don’t see either side really having that strong of feelings about it. However, despite its modestly I personally don't think it was needed (so you know where I come from on it). Further I think the bill is mainly symbolic and has political more than economic implications. Of course I also believe what the Fed does with interests rates--though more important that such modest tax cuts on the economy, isn't ultimately that important either. You can't mask changes in things like overall productivity despite what the Fed does with rate cuts, the former is also more symbollic than a direct economic engine.

 

As if they were Keynsian? Aren't they ?

I opposed the tax cut because it was predicated on mid-90's economic growth. That growth ain't comin' anymore. Even Republicans who opposed Bush were mentioning this in the primary. Now it seems to have all dried up.

Look at the context that this thing was concieved. At the time, Bush's staff was small. He devised the tax cut for the *specific* reason of taking Steve Forbes' pet issue out of the race. His own strategist admitted as much.

Yet there isn't much economic sense behind it, other than "gee, I'll cut taxes and they'll vote for me." Now, with a flagging economy, there's no way that this tax cut can be handled responsible. Programs are going to be cut, or at the very least, will not grow with the rate of inflation.

Already, some things didn't receive adequate funding, since the tax cut was put in FIRST, and the budget was squeezed in the Bush economic package around it.

Stupid idea.


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Newbiehad... coming to a bbs near you, October 31st.

 

Every dollar counts... tell Bush that when he predicated his tax cut on mid-90's growth. Didn't count several hundred billion dollars then...

... but the contest is still assinine. I'm sure those charities will be happy to get the cash. But real differences in life-quality only come with collective action/taxes. That's not going to happen with this trite little idea.

Booo!

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Newbiehad... coming to a bbs near you, October 31st.

 

I agree with Achebe, that I have not really noticed much of a change. I am not saying that to be rude, either.

I think you should do some research.

 

For years and years and years, our government economic policy was based on the idea that we cut taxes in a flagging economy and raise them in a good economy. It's actually worked pretty well more often than not. It actually makes perfect economic sense because the tax cut is supposed to be a stimulus in a flagging economy, and the tax increase during the boom times is supposed to fight inflation. The only way it can not make economic sense is if we pretend that taxes do not change behavior and that the level of taxes does not effect the economy at all. I don't know of any economists (though they may be out there) who would argue that.

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The point is that a central theme of almost any opposition to the tax cut/rebate was that the government needs the money MORE than the individual citizen does.

The lack of activity in VOLUNTARILY returning the money to the government (by god, the local school system not the Fed either) proves that that argument is lacking substance and the argument was insincere when made.

The funny thing is that this illustrates exactly the opposite of what you're trying to point out.

First off, lets clarify one thing -- most Democrats did not argue based on not needing money. Everyone can use extra money; that's pretty much a given. The primary Democratic argument was that we simply couldn't afford it -- not surprisingly, this has turned out to be the case. There's currently $600 million in discretionary spending awaiting funding. To keep with Bush's budget, Congress can spend $9 million. Unfortunately, that's what happens when you fund a tax cut separately from the rest of the budget.

Now, the core Democratic argument for spending is that there are certain services that the government has a basic role in providing -- because they can't and won't be done by individuals. One example of this was Welfare Spending. Before welfare reform, one major argument by Republicans was that charities should take on a larger share of the burden in welfare, and that by reducing taxes, individuals would have more money and be more likely to donate and fund those charities.

The example above clearly illustrates that this is not the case. When presented with money, most individuals will take it. That is exactly why government must do some of the spending. If we didn't have the tax cut, that money could have actually gone to education or other useful services like the Republican stunt was trying to get them to do. Unfortunately, because of the tax rebate, Education and various other government services will lose those billions of dollars.

Democrats generally aren't liberal out of charity - they simply realize that government has a role that can't and won't be filled by individuals. Republicans, I'd assume, feel the same way. The only difference is how far reaching those services are.

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http://www.swirve.com ... more fun than a barrel full of monkeys and midgets.

 

mrpaige:

That would assume that I'm arguing that ANY tax cut would have been irresponsible. I'm not claiming this. I'm asserting that the tax cut was overly large. It wasn't an economic stimulus package; it was a "the economy has grown nicely, let's give back to the people" sort of idea. Well, he gave back what the government could afford to give based on mid-90's economic growth. That isn't possible in a recession economy (well, we're not ina recession yet, just a slowdown). I'm not really sure if I would have opposed a smaller tax cut or not - i might have endorsed one had it been targeted at specific industries, etc.

And I haven't heard a ringing endorsement of the Bush tax cut plan by economists. Individual ones, yes... but you also hear a great many censure it.

I'm also not convinced of the efficacy of cutting taxes to spur economic growth. Not that I think raising them is the answer either - I think incentive is the best solution in case of recession.

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Newbiehad... coming to a bbs near you, October 31st.

[This message has been edited by haven (edited June 26, 2001).]

 

For years and years and years, our government economic policy was based on the idea that we cut taxes in a flagging economy and raise them in a good economy. It's actually worked pretty well more often than not. It actually makes perfect economic sense because the tax cut is supposed to be a stimulus in a flagging economy, and the tax increase during the boom times is supposed to fight inflation.

Absolutely -- this is the theoretical way to do it, although that also depends on government managing its budget better. The scenario above will generate huge deficits and if not paid back, that creates excessive debt.

In this particular case, Bush developed his tax cut in a strong economy. As circumstances changed, his approach did not change one bit -- that indicates there was no logical financial motive behind his thinking.

In addition, I can almost guarantee that should the economy improve, Bush will not raise taxes.


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http://www.swirve.com ... more fun than a barrel full of monkeys and midgets.

 

RichRocket:

But what have you proven? If they're willing to give the money up in taxes, how is it even relevant that they're not via another avenue?
There isn't any significance to this.

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Newbiehad... coming to a bbs near you, October 31st.

 

The people I have the most respect for are the ones that say they're going to turn around and send the check to the DNC as soon as they get it. At least those people are actually taking some sort of corrective action.

 

RichRocket:

It proves no such thing. All it proves is that they're not going to donate their own money if it's not going to create a significant differences in society as a hole.

Shanna also had a good explanation for this. According to her, you're proving the REVERSE of what you want, since you're prank is simply illustrating the fact that charity isn't the answer.

At best, your prank proves nothing. At worst, it hurts your case.


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Newbiehad... coming to a bbs near you, October 31st.

 

I see sort of an inconsistency in this. It's like you think they're saying "I don't mind paying the taxes because I think all of the money I pay makes a difference. All of it matters, so don't cut my taxes even by $300. That $300 makes a difference. Oh, what, you're giving it back? OK, well then I'll keep it".

If people really think what you think they think, it seems like they'd be beating down the doors to donate the money in some form or fashion, because they think it makes a difference. I know this isn't an organized or even well-publicized effort at encouraging those donations, but it would seem like there'd be more of a push for just this sort of thing.

PS: Shanna is a guy. I'm pretty sure he's a guy. I met him once. If that was actually a chick, well, she's got the heaviest 5 o'clock shadow I ever saw.

[This message has been edited by BrianKagy (edited June 26, 2001).]