Tax cut = Good economy?

[Vermouth]

I remain unconvinced that tax cuts spur the economy. There are a million ways to look at the data and make it show whatever you want. As long as tax rates are within a reasonable range, the effect on the economy is negligible.

The Center on Budget and Policy Priorities (CBPP) is a liberal think tank that opposes the extension of many of the 2001 and 2003 tax cuts (the refundable child tax credit is a notable exception). It argues that its evidence "provides no support for the claim that the tax cuts generated exceptional economic growth." In its April 22 report — "How Robust Was the 2001-2007 Economic Expansion?" — the center compares how the economy performed over the 23 quarters following the 2001 recession's trough (which occurred in the fourth quarter of 2001) with how the economy performed during the first 23 quarters after the trough of the 1990-91 recession. The report also compares the post-2001 expansion, which CBPP terminates after the third quarter of 2007 because fourth-quarter data were so weak, with the average economic performance during the 23 quarters that followed the nine previous postwar recessions. Worth noting is that the economy had already reverted to recession at some point during the 23-quarter period for six of the nine previous expansions.

Based on its analysis of the changes in gross domestic product (GDP), consumption, business investment, household net worth, wages and salaries, employment and corporate profits, the CBPP concluded that the post-2001 recovery "was weaker, overall, than its performance in the equivalent years [April 1991 through December 1996] of the 1990s, years following significant tax increases." Not only was GDP growth during the post-2001 expansion weaker than it was during the 1991-96 period, but "job creation, investment and wage and salary growth all were substantially weaker."

Specifically, the annual growth rate of business investment, which averaged 7.5 percent during the 1991-96 expansion and 6 percent for the nine previous postwar expansions, grew by only 3.7 percent during the 2001-07 expansion. The average annual growth rate of employment was less than 1 percent during the latest expansion, compared to 2.5 percent for the nine previous recoveries and 1.9 percent for the 1991-96 expansion. Wages and salaries during the 2001-07 expansion grew at less than half the average annual rate for the previous nine recoveries.

http://www.washingtontimes.com/article/20080429/EDITORIAL/213121666/1013/editorial

[they call me MR. GRUMPY god damn it!]

money left in the hands of people that generate it and earn it is a baaaaaad thing 

[Vermouth]

money left in the hands of people that generate it and earn it is a baaaaaad thing 

That's a different argument.

The argument for tax cuts should be that the government doesn't need the money, i.e., cut spending.

[Peter1469]

 Do tax cuts benefit the economy?  It depends.  You cannot measure the effects of a tax cut in a vacuum.  You have to consider many economic indicators and factors so that you are comparing apples to apples.  For instance, the article states:

Based on its analysis of the changes in gross domestic product (GDP), consumption, business investment, household net worth, wages and salaries, employment and corporate profits, the CBPP concluded that the post-2001 recovery "was weaker, overall, than its performance in the equivalent years [April 1991 through December 1996] of the 1990s, years following significant tax increases." Not only was GDP growth during the post-2001 expansion weaker than it was during the 1991-96 period, but "job creation, investment and wage and salary growth all were substantially weaker."

Specifically, the annual growth rate of business investment, which averaged 7.5 percent during the 1991-96 expansion and 6 percent for the nine previous postwar expansions, grew by only 3.7 percent during the 2001-07 expansion. The average annual growth rate of employment was less than 1 percent during the latest expansion, compared to 2.5 percent for the nine previous recoveries and 1.9 percent for the 1991-96 expansion. Wages and salaries during the 2001-07 expansion grew at less than half the average annual rate for the previous nine recoveries.

All that is being compared is certain economic benchmarks against a tax increase (in the 1990s) with a tax cut (in 2001-07.)  This cannot provide much useful information, and no information whatsoever if your question is “do tax increases help the economy.”  In other words, the economy is effected by so many factors that we cannot know whether the economy would have performed any better in the 1990s will a smaller tax increase or even a tax decrease.  We must ask ourselves, what were the fundamental strengths and weaknesses of the economy when these measures were enacted?  You also have to look at the economic cycle.  If the economy is strong either a tax cut or taxi increase is going to have less impact.  If the economy is weak you will see more benefit from a tax cut but more harm from a tax increase.

If you step back and look at the issue in the abstract, it is easier to see the benefit that can be gained by tax cuts.  If people (including business) have more money, they spend it and produce more economic activity.  If the government takes more money through taxes, people and business have less money to spend.  The question is at what point will taxes be high enough to change behavior?  How much change in economic behavior will it take to hurt the economy? 

And as with all things we have to know what we are asking for.  Tax cuts without spending restraints will not benefit the economy in the long run.  The chickens (not the Rev. Wright chickens) will come home to roost on our current inflated spending regardless of the tax rates. 

[BIGTEX]

The key to balancing the budget and lowering the deficit is to dramatically cut spending - PERIOD!  It matters not one whit how much money the government takes in - or doesn't take in; it will all be spent, and then some.

BIGTEX never thought he would live to see the Berlin Wall come tumbling down, but he did.  He now hopes to see the day that he can stand in the middle of Washington, D. C., yell at the top of his lungs, and have his voice echo from the crumbling facades of the abandoned buildings made useless by cutting the unnecessary functions of our federal government.

[spunkloaf]

I agree there.  We don't need these amenities to spend our money on.  I don't agree paying for the maintenance people, the cleaning people, the constant re-construction, repairing and renovating.  I bet, nation-wide, that expenses like these can account for a considerable part of our tax spending.  Why can't they do business in a wood shack?  Or outdoors, when the weather permits?

It's not that I don't care about the comfort of our national leaders, but when they talk about wasting money...damn.

[spunkloaf]

I also agree, we need to cut spending.  The war is a good place to start, I think--but that's me.

Otherwise, let's evaluate the programs that are not making much of a difference in this country in ratio to their financial needs, and reduce government fiscal help to them.  Times are tough.  Sorry.  Raise some money for yourself.

[BIGTEX]

Wrong.

The place to start is to ELIMINATE the Departments of Education, Agriculture, Commerce, Labor, Health and Human Services, Transportation, Hoursing and Urban Development . . .

BIGTEX doesn't benefit from any of those programs, therefore he doesn't need them.  If you need them, BIGTEX has nothing but pity for you.

[spunkloaf]

Umm......okay.

Spunkoaf takes a slightly different point of view, but spunkloaf does not entirely disagree with BIGTEX's.

[Peter1469]

If you want to make cuts in federal spending I offer a pre-written text found in the US Constitution at Article 1, section 8. http://www.law.cornell.edu/constitution/constitution.table.html#articlei

I bet that Big Tex doesn't need the reference. 

[BIGTEX]

Good point!

If we stuck to ONLY Constitutionally-mandated expenditures all of us (except for the welfare bums) would have MUCH, MUCH more money, wealth and FREEDOM!

[spunkloaf]

But, doesn't the constitution say to provide for general welfare?

I'm not on welfare, so I guess cutting welfare wouldn't negatively affect me...

But how do you get these people to look for better jobs and make a living for themselves?  I know welfare is not helping...but how should we assess the problems that welfare tries to provide for?

[BIGTEX]

If a person is not sufficiently motivated by his own self-interest to find a better-paying job, then that should be HIS problem and NOT the problem of BIGTEX.

Much of the welfare class is multigenerational, which leads BIGTEX to the assumption that possibly denying these people the right to perpetuate their class by having children might be in order.

[they call me MR. GRUMPY god damn it!]

spunk the point would be that if the govt stuck to spending money within the constitutional authority provided, the general welfare would be provided for as envisioned by the founders.  we have somehow expanded "general welfare" to mean that the govt will now gift wrap life!  no ups, no downs, no challenges, no failure, no consequences for bad decisions etc.....well who pays for that??

[Peter1469]

The general welfare clause is the preamble of Article one section 8 and is followed by specific enumerated powers that Congress has (to provide for the general welfare).  If we read the term general welfare out of this context it can mean anything we want it to mean and we can get uncontrolled spending – you know, sort of like we have now.  

Also, don’t forget the Constitution ends (prior to the later added amendments) by stating that the powers not specifically given to one of the three branches of the federal government are reserved for the States and the people.