An Economics Lesson for Democrats

[Jimbo]

I'm sure AndyFox does of fine job of helping his company stay profitable. Also Cyrus is probably able to balance a checkbook (albeit with a little help from Quicken) and Pokerjo probably can keep track of his piggy bank on most sunny days. What they don't seem to understand is why lowering taxes is good for the people of this country as well as for our economy.

Taxes have been lowered across the board. The current defecit projection has been lowered by 60 billion dollars. Inflation is stable and low. The total number of employed Americans has been steadily increasing. Although the dollar is currently at a 9 year low against most currencies this does help exports and at the same time helps to curb imports without adding any pesky tarrifs. The Fed is carefully increasing interest rates at a pace designed to keep inflation in check while at the same time not slowing our economic growth (which as a byproduct will slowly increase the dollars' strength).

If anyone can describe how the current economic climate can be described as anything less than spectacular considering the increased spending required to continue the fight against terrorism I'd love to hear their explanation.

Jimbo

PS: Now West, Gray and Christina will have no clue as to whether our country is doing well or not so any responses from them or other radical liberals are best left ignored.

[Abednego]

I think the problem most liberals have regarding tax cuts is that they don't understand the dynamic nature of our vibrant economic engine. They constantly hear poiticians opposed to tax cuts (usually invoking class warfare tactics - which are extremely divisive and harmful to the country) saying things like .... we have to find a way to pay for these tax cuts .... meaning if we cut taxes here we need to raise them here .... which is a static view ..... They hear people like Robert Riesch (sp?) say things like .... supply side economics doesn't work ..... Well I am sorry, but I have seen with my own eyes that it does work. Reagan's tax cuts nearly tripled revenues in the 80's. (The fact that spending increases outstripped the revenue increase is beside the point ..... cutting taxes increased federal revenues). This fact is easily verifiable.

So the two diametricaly opposed sides are dynamic vs static. The way we will overcome the deficit is by growing our way out of it .... this along with spending cuts .... which with the Republicans more firmly in control I would expect to see .... to the right programs.

Now there are those who will point to the Clinton tax increases and the subsequent economic expansion of the 90's. What happened then was the debt was refinanced using short term interest rates which were at historic lows. This along with Republican (Republicans were swept into power gaining control of Congress - where all spending is initiated - for the first time in over 40 years) spending decreases (little was actually cut only the rate at which spending increased was slowed) aided the economy to grow in spite of the largest tax increase in history that Clinton gave us. (This was of course after promissing a middle class tax cut and then telling the nation that he had worked harder than anything in his life to make it happen but he just couldn't find a way to do it).

Simply put tax cuts work by letting people keep more of their own money which creates more demand for products which leads to more jobs which leads to more people working creating more demand etc. This broadens the tax base and generates greater revenue. And this is what we are seeing at the present time thanks to W's sound economic policy of pushing tax cuts through Congress.

[aces961]

My question about the american ecomomy is this, what is the largest amount of national debt that the U.S. ecomomy and govermentment can sustain. Is it $30000 per american, $60000, or something higher like $300000 per american or some other number. One has to wonder what will happen when the national debt surpasses that amount.

I think that we need to consider this question first, which I doubt we can find an answer to, but I would suspect some economist could give us a good idea of what this is within some reasonable order of magnitude. Then once we have this number we need to keep in mind that while tax cuts may work in the short term they are part of an overall economic strategy by the governemnt that has done nothing to curb the national debt, and I have no evidence that they will do anything until its too late. I'm not claiming that tax cuts casue the debt to rise, but that the overall governmental tax rates and spending policies lead to the debt rising.

[andyfox]

"What they don't seem to understand is why lowering taxes is good for the people of this country as well as for our economy."

I understand it. Do you understand it's better for some people than for others, depending on which taxes are lowered and by how much? If lowering them are just plain good, period, why not lower them to zero?

[Randy_Refeld]

If lowering them are just plain good, period, why not lower them to zero?

At some level (which we haven't reached) revenues go down with a decrease in raxes rather than up. The government does need some revenue to operate.

How does cutting the highest tax rates hurt poor Americans? It helps them by creating jobs so why are the democrats opposed? Is the only reason so they can cry "tax break fro the rich?" Class warfare works becasue the typical low income earner beleives they pay more in taxes than a high income earner. Does the democratic party have an econmic policy other than saying "vote for us, we'll make the man pay"?

RR

[lu_hawk]

"Although the dollar is currently at a 9 year low against most currencies this does help exports and at the same time helps to curb imports without adding any pesky tarrifs"

You can spin it to make it sound nice but a weak dollar is a terrible thing over the long term.

[aces961]

[ QUOTE ]
"Although the dollar is currently at a 9 year low against most currencies this does help exports and at the same time helps to curb imports without adding any pesky tarrifs"

You can spin it to make it sound nice but a weak dollar is a terrible thing over the long term.

[/ QUOTE ]

You know what is worse for the country over the long term, a trade deficit. Its sort of cyclical, a continual trade deficit will lead the to dollar weakening which will in turn cause the trade deficit to eventually become a surplus since its cheaper for american companies to produce goods now and more expensive for other companies to sell goods here. And the trade surplus will cause the dollar to become strong again.

Now if the weak dollar has other root causes such as the national debt rising causing less faith in the u.s. to pay off that debt eventually, that is a horrible thing since that type of weakening is very hard to reverse.

[andyfox]

There is no evidence that cutting the highest marginal tax rate creates jobs. In fact, there is evidence that productivity goes down when the highest marginal tax rate goes down. A government has a choice about where and from whom it will collect revenues. A decision to lower the tax rate on X usually means a decision not to lower the tax rate, or to raise the tax rate, on Y. For example, President Bush has said that he would like to see the tax code simplified during his second term and that he would like such simplication to be revenue neutral. Unless everybody ends up paying the exact same amount they would have without simplification, a revenue neutral plan will result in some paying more and some paying less. The argument, no doubt, will be over exactly who pays more and who pays less.

When the impact of all taxes, not just the federal income tax, is taken into account, the middle class pays about the same rate as those above them.

As for the Democaratic Party, my sentiments, as I have indicated here before, is that is it the party of no ideas. As for the charge that the Bush tax breaks were breaks for the rich, Bush's own rhetoric contributed to this. When he says that a waitress making $20,000 a year and a corporate lawyer making $200,000 deserved the same percentage tax cut, he leaves himself open to the charge.

[Chris Alger]

is that they're so utterly delusional they can write, for all the world to see, things like this:

[ QUOTE ]
Reagan's tax cuts nearly tripled revenues in the 80's. (The fact that spending increases outstripped the revenue increase is beside the point ..... cutting taxes increased federal revenues). This fact is easily verifiable.

[/ QUOTE ]
One doesn't need to "verify" this because its such obvious nonsense on its face. Under Reagan, real federal revenues increased about 20% (they doubled, but never tripled, nominally during the 1980's). This increase only occurred because Reagan signed tax increase legislation every year from 1982 through 1986, leading to a net increase in the federal tax burden. See Bruce Bartlett on Reagan tax increases.

[Randy_Refeld]

Andy,
I have a feeling you and I aren't THAT far apart on these issues. Thinking baout this stuff reminds me of why I went into microeconomics rather than macro. I did take some macro along the way. I have always gone with the republicans on the single issue of taxes; I beleive the US is overtaxed.

RR