Back to Republican bashing. We're in the Q&A session now, and it's hard not to notice that no matter what the subject, Kemp brings the topic back to tax cuts. I love me some tax cuts--at least as long as they're accompanied by complementary spending cuts--but they've turned into the ginseng of the Republican party, a broad-spectrum economic snake oil that cures whatever problem you currently have.
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Kemp brings the topic back to tax cuts... they've turned into the ginseng of the Republican party, a broad-spectrum economic snake oil that cures all...
You're right -- and the Republicans are cuting their own throats with this. They've thrown away a chance for an historic gain on the Democrats by fooling themselves with their own ploy.
As Milton Friedman pointed out, it is impossible to cut taxes without cutting spending. Spending = taxes. The government has no source of revenue for spending other than taxes (unless it is going to start selling off national assets, like the Grand Canyon to Disney). So all spending pulls in taxes.
Deficit spending -- which is what you get if you "cut taxes" without reducing spending -- doesn't in fact reduce taxes by a penny.
This is because the resulting debt incurs interest which must be paid via taxes. And the present value of that interest exactly equals the face value of the amount of debt to the penny.
That is, if the govt wants to spend $1,000 it can...
* Collect $1,000 of taxes to pay for it.
* Issue $1,000 of debt and then, with say an interest rate of 5% on federal bonds, collect $50 of taxes per year forever to pay the interest on it, which = $1,000 of taxes at present value.
Either way, $1,000 of spending results in $1,000 of taxes. It is just that the second way much of the tax collection is deferred.
But saying that deferring taxes via deficit spending is "cutting taxes" is exactly the same as saying deferring your personal spending by charging up your credit card instead of paying cash is "cutting spending".
Now Friedman famously supported all tax cuts of any kind for any reason on any excuse -- but only as a political tool to reduce spending, since he believed the resulting deficits would be a constraint on spending. (And going by Krugman's recent whining about the low tax revenue baseline set by Bush, that Obama is so reluctant to increase, Friedman certainly may have been right about that -- I sure think he was.)
But the dumbass Republicans have forgotten this! To the extent they follow Cheney's creed, "Reagan taught us deficits don't matter" (a false lesson -- Reagan certainly never believed or said that no matter how big his deficits turned out to be), they've thrown tax cuts as a constraint on spending into the garbage. They now think they can win politically simply by spending all they want tax free! (See Medicare part D).
But spending = taxes. Spending determines taxes. This is going to come back and bite them in the butt.
Huge, monster tax bills are going to be coming due in the next 20 years, with hikes beginning well before then -- a 50% income tax rate increase across-the-board, or equivalent, by 2030.
The Republicans had a chance to pull a reverse-FDR and pin this all on the Democrats, destroy the Democrats' fiscal credibility for a generation, if only they had maintained some image of fiscal responsibility.
Think how the AARPers are going to feel come 2030 when a 50% income tax increase lands on their IRAs, fixed-income pensions, and Social Security benefits! All that wrath would have landed on the Democrats who kept telling them "no problem until the 2040s, and then only a teeny weeny problem that won't be yours". But now the Republicans have signed on for a full measure of that wrath -- and they fully deserve it.
Spending = taxes. Spending sets taxes.
When Kemp & his kind today ingore this and go on and on about "cutting taxes" without any concern about cutting spending, they've simply fallen for their own propaganda.
That's a bad mistake, and you know what happens to people who make it.
I know McCain is a RINO, but he is the presumptive nominee of the party. He is 'here, now' to paraphrase Al Haig. He's the guy who voted against Bush's tax cuts because of a lack of offsetting spending cuts. He approaches the budget with that perspective.
Michael-
I agree, I too think McCain has calculated that he'll never be called out to actually extend the Bush tax cuts. Despite what he has said to the contrary, I think he's just good old-fashioned lying.
Jim-
Yes, you have captured the essence of it. But, the Republican party does not win elections on a national level by taking away benefits, they learned that lesson in the late 20th century. Reagan's paradigm is what all good conservatives fear: fiscal irresponsibility.
OK, all you economics geniuses, please explain something to me......how come government tax revenue, and ecomonomic growth always occurs AFTER tax cuts? That is an historical FACT.
Spending cuts DO NOT have to accompany TAX CUTS (but boy it sure would be nice if they did......)
Please, educate me......
OK, all you economics geniuses...
Hey, that's me! I'm here!
"how come government tax revenue, and ecomonomic growth always occurs AFTER tax cuts?"
Economic growth always occurs, period. (We hope! Well, for the last 200 years.) The question is whether fiscal policy speeds it or slows it.
Spending cuts DO NOT have to accompany TAX CUTS
Let's say you really really believe in the value of tax cuts -- and I do! You must admit that deferring taxes and adding interest to them is not cutting taxes.
And let's say you are scheduled to collect $1 billion of taxes over 10 years, $100 million each, to cover promised spending. So you have a "tax cut" in the first four years of $50 million each, which results in a tax increase in the last four years of $50 million each *plus* interest.
Have you cut taxes? For a great benefit?
As Milton Friedman pointed out, this is exactly what happens if you don't cut spending -- because spending can ONLY be financed with taxes, either current taxes or DEFERRED taxes *plus interest*, THERE IS NO OTHER WAY.
There is no tax-free spending. Like there is no Tooth Fairy.
There is lots of evidence that economic growth can be boosted by cutting taxes *and* spending (Ireland, etc.). There is *zilch* showing growth is boosted in the long run by preserving or increasing spending and cutting taxes to increase deficits and debt. Exactly the contrary. It *hurts* growth in the long run.
Why: The government's cash flow on spending must balance. Spending out must = cash in. And the government's only source of cash is taxes. Borrowing = deferred taxes in the borrowed amount. You can't get out of repaying it because you have to repay the interest on it from taxes, and the interest = the borrowed amount.
Thus, if cash-flow spending stays unchanged, and taxes today are reduced, then taxes in the future must increase ... and all tax-cutters know that increasing taxes that way will be bad for the economy!
Spending unchanged with taxes reduced today = taxes increased in the future. It is the Iron Law Of Arithmetic.
Please, educate me....
Let the Bush Treasury do it, quoted by Bush's former economics advisor Greg Mankiw.
I assume that Bush's people are pro-tax cuts enough to be credible with you...
~~ quote ~~
...Lesson No 3: How tax relief is financed is crucial for its economic impact.
Like all of us, the government eventually has to pay its bills.... This means that when taxes are cut, other offsetting adjustments are required to make the numbers add up.
The Treasury's main analysis assumes that lower tax revenue will over time be accompanied by reduced spending on government consumption.
But the report also shows what happens if spending cuts are not forthcoming. In this alternative scenario, a permanent extension of recent tax relief is assumed to lead to an eventual increase in income taxes.
The results are strikingly different. Instead of increasing by 0.7% in the long run, GNP now falls by 0.9%.
Tax relief is good for growth, but only if the tax reductions are financed by spending restraint.
One exception: Lower taxes on dividends and capital gains promote growth, even if they require higher income taxes...
~~~
Thus speak Bush's own tax-cutters. [With emphasis added]
Jim- Yes, you have captured the essence of it. But, the Republican party does not win elections on a national level by taking away benefits...
Of course not, but they didn't have to take away anybody's benefits. All they had to do was stick to the policy they (apparently in pretense, but voters generally believed them) previously long endorsed, of "fiscal responsibility".
That is, Bush comes in just as he did and has his initial $ trillion tax cut to wipe out the surplus, before Congress squanders it, and produce a balanced budget. Fine. Congress would have squandered the surplus, Milton Friedman supported that tax cut for just that reason, and that was good enough for me.
From then Republicans could have stuck to a balanced budget policy, maintaining fiscal credibility for a modestly "long game" looking just a few years ahead -- the right thing to do both in substance and in politics!
They'd have sponsored SS Reform, citing the fiscal crush nightmare to come by 2030 -- tax hikes larger than to pay for World War II! Democrats would have defeated that, just as they did, saying "Pooh, pooh. No problem, none at all until the 2040s..." Republicans would have videotaped every Democrat who said that.
Then when the monster tax hikes start arriving in a few years, and the Repubs started playing those tapes, the Democrats would have been crushed by enraged AARPers crying "I have to pay a 50% income tax increase on my IRA and pension and Social Security benefits to pay for my Social Security benefits AGAIN!??? You damn liars!" A reverse-FDR!
But what actually happened? The Democrats started making noise about a prescription drug benefit.
Bush could have responded: "Great! I'll agree to that ... IF you also propose the income tax increase needed to fund it on an actuarially sound basis, that's $450 billion a year, PLUS an extra tax increase to amortize the $8 trillion start-up cost over say 30 years..."
That would have been like a 20% across the board income tax increase, no Democrat would have gone anwhere near it, Bush would have had the high ground, the Dems would have been exposed as the "something for nothing-ers" *again* ... and be set up to get hammered that much *worse* when the huge tax increases arrive.
INSTEAD, Evil Genius Karl Rove decides, "Let's put this $8 trillion plus $450 billion a year on OUR tab, to take the issue away from the Dems and get a few votes in the next off-year election! ... (and lets make sure our own numbers are doctored, and force our people to lie about them, to get this passed!)"
Follow that by buying more short-term votes with Bridges-to-Nowhere and a Congressional Pork Pork Pork festival, and the long-term value of the Republican brand re fiscal responsibility went flushing down the toilet.
Bush then proposes a SS reform in the name of fiscal responsibility and everyone goes "Ha! ha! ha!", as well they should.
The Republicans could never beat the Dems at buying votes with entitlement hand-outs, it was stupid -- it was trying to fight the other side on the other side's high ground. Just stupid.
And in the process they handed to the other side, gave away, their own high ground -- in the public's mind the Dems now at least match the Repubs as being "fiscally responsible"
And the point is, it was not politically necessary at all -- the Republicans had viable alternative political strategies. They voluntarily chose to be dumbasses. It was a leadership decision.
The Democrats are stuck with being in denial about entitlements, their cost, the federal budget, and with having no fiscal integrity. When they finally come out and say: "Look, we overpromised with Medicare, Medicaid and SS, so we are going to have to start imposing far higher income taxes than we ever said, and also means tests and higher benefit ages..." their own constituents are going to kill them. The longer they put it off the worse the killing will be. And that day is coming -- there is no out for them.
But the Bush-era Republicans volunteered themselves to be in that same position at that same time, and to forfiet their ability to take advantage of the Democrats' troubles then.
The idea of politicians playing a "long game"! Ha!
This is why I am an independent.
As with the Iraq Invasion, some of us have been saying this for years. Per usual, you're ridiculously late to the party.
Uhh...Mr Glass. Inflation. No problem paying off todays borrowing if the money you intend to pay it with is worth crap.
Do you think it's an unintended consequence that the price of a bag of coffee in now $7.oo for the non-starbucks, normal stuff? That the Loonie is now on par with the dollar? That the Euro has gained 40 % since the present Admin was sworn in?
That's not some accidental 'collateral damage'. It's a policy. Properly thought of, the difference between the purchasing power of your dollar in 2000 and 2008 is a tax. And it's not the only tax that the Bush presidency has given us. I read that if you add all the 'Collateralized Debt Oblications' together that banks have had to write off--the value that the bank paid for in real money disappearing into the ether with the stroke of a pen--it is greater than $5 trillion. Then you divide that sum by all the homeowner in America who have watched the value of their home sink by 25 % annual rate--the homeowners have seen $60,000 per home taken because of gov't policy. And that is a tax.
As they say on TV: Wait!! There's MORE!! When we pump $4.50 gas (my mustang requires premium with the new pistons) we're paying a tax to the Saudi Royal Family, or Vladimir Putin or Hugo Chavez. And that is a direct result of gov't policy so it is a kind of tax.
Sadly, none of these taxes result in better transport, schools, levees or health care. It is squandered as debt service (when we didn't need to borrow) or supports the extravegant life styles of the worlds worst characters. One of the Kuwaiti Royals is s'posed to favor gold plated toilets--matches the decor. We bought them for him because of our gov't policy. So the Repubs have us paying a Gold-Plated-Toilet tax.
Remember this crap the next time some 'supply-sider' tries to tell you the benefits of the Bush tax cuts.
See, the thing about Kemp is, he's 1) not very bright (never has been), and 2) a ginormous blowhard.
That's a terrible - but not all that uncommon, sadly - combo.
Uhh...Mr Glass. Inflation. No problem paying off todays borrowing if the money you intend to pay it with is worth crap...
The problem is that today's borrowing isn't the problem -- tomorrow's spending is.
Today's borrowing is $5 trillion debt owed to the public, while the accrued net liability for promised spending is >$50 trillion of debt at present value, rising about $2.4 trillion annually.
Alas, this is for Social Security, which is indexed, and Medicare/Medicaid which are for real services, not nominal dollar amounts that can be inflated away.
So, yeah, if you own long T-bonds their value may get wiped out by inflation, but that's not going to give you much tax relief.
(And don't call me "Mr." Only my mother does that, when she's mad at me, and it makes me nervous.)
"turned into"?
Seriously, where have you bee-ahh, never mind. Like talking to a brick wall, I swear.....
"OK, all you economics geniuses, please explain something to me......how come government tax revenue, and ecomonomic growth always occurs AFTER tax cuts? That is an historical FACT.
Spending cuts DO NOT have to accompany TAX CUTS (but boy it sure would be nice if they did......)
Please, educate me......
Posted by jwh | July 4, 2008 6:16 PM"
I propose that we cut taxes down to negative infinity so that our economy can grow to infinity tomorrow.
OK, all you economics geniuses, please explain something to me......how come women who sleep with me always win millions of dollars in the lottery? That is an historical FACT.
Threesomes DO NOT have to accompany sleeping with me (but boy it sure would be nice if they did......)
Please, educate me......
Confusing assertion with evidence is fun!
Jim, I did think you were making good points--just over-looking the inflation--policy--tax equivalent meme belonged right in there with 'em.
And you can call me John. Thanx
Likely inflation will be built into the interest rates on the gov't debt.
The problem with this interpretation is that this is not what the American people want - they want some sort of relief from insurance and medical costs, and it doesn't matter whether it's a Rep or a Dem in office. The only thing the president can realistically change is who benefits from the new policy - in this case, the pharmaceutical industry.
And this is the problem with cutting taxes and services; everyone wants a tax cut, no one wants a cut in services. Given tax cuts then, it all comes down to who has the power to see that their ox is not the one being gored, and after thirty-some years, most of the more powerless constituencies have been muscled out. Iow, there is no more 'waste' to cut. So one is left with the option of cutting popular social programs, and being given the boot in the next election, or the option of cutting programs with few but powerful beneficiaries. You know, the ones that fund election campaigns.
My money is on the People, bless their black flabby little hearts. Taxes will be raised - though not on the majority - and programs which benefit primarily the wealthy, such the military, will be cut.
That is the true difference between the Republicans and the Democrats; the former want to cut programs that benefit the many, the latter want to cut programs that benefit the few.
Neither particularly wants to pay for what's left.
"-but they've turned into the ginseng of the Republican party, a broad-spectrum economic snake oil that cures whatever problem you currently have."
What year are we in?
And, I didn't know you were such a fan of Krugman.
Jim-
Fiscal responsibility? The one thing Clinton did, and did well enough to earn praise from Greenspan? That Fiscal respnsibility? I whole-heartedly agree with your assesment. I don't have a particular stringent view on taxes, to me its math and you stay in black. Those are the only rules, the challenge is making the math produce optimal results balancing short and long-term concerns.