Should taxes be raised at the end of this year?

[SpaceCadet]

The tax rates you are discussing here were designed to expire.  That is the law.  Why do you not want to follow the law?

I didn't say I don't want them to expire.  I'm just trying to understand the various hypotheses on fiscal policy.

[Velleity]

So, it is agreed that tax cuts do tend to contract the economy.  But we're not too worried about that at this time because these particular tax cuts mostly favor the wealthy and they can afford it, and the economy is growing (albeit weakly) so it's likely not to do too much damage to the economy?

Meanwhile, the corresponding spending for stimulus is likely to do more good for the economy than the damage that letting the tax cuts expire will do?

This question has not been answered yet:  Should stimulus spending ideally be paid for with higher taxes?  Does it make sense to do that, or should stimulus spending be borrowed from future growth, in order to prevent removal of capital from the present economy?

One other question:  How do you cut federal taxes without favoring the wealthy, since they have most of the income?

The wealthy are paying the lowest overall tax rate (not just income taxes) that they have paid since the 1950s. You're citing the "conservative" argument and you're making the same mistake they make--you're ignoring the overall tax burden. State taxes are up. Local taxes are up. Property taxes are up. Employment taxes are regressive and while they're not up, they haven't gone down.

What makes you think government spending necessarily comes out of future growth?

You're thinking like a "supply-sider" again. There is currently no valid theory, in terms of math or empirical evidence, that anything we do affects the supply curve in any meaningful way. There is a lot of conjecture but no model to support it.

I don't perceive you as a person who likes to just make stuff up. So understand this: no one can give you any meaningful prediction about the economy more than 6 months from now. No one. There are too many variables.

What you want, SpaceCadet, is a steady growth. You don't want booms. You don't want busts. You want a nice, long, protracted period of sustainable recovery.

The rest is bullshit and you know it's bullshit because I've seen you declare it to be bullshit and your declaration is both concise and impressive. Tell me that Laz isn't batshit crazy. Tell me that Obs has done his homework and presents a well thought out argument.

You can't tell me that.

SpaceCadet, there is only one school of economic thought that even has a model for the current conditions, and that school of thought tells us that the only thing that matters is keeping the economy close to full employment. I'm not going to tell you that model is perfect. I do think we ended up with stagflation in part because of problems with this model. However when you reach the zero bound, like we're at right now, there is one and only one prescription. It's just not the right time to worry about austerity.

Consumer Spending + Investment + Government Spending + Exports - Imports = GDP.

And it's all about expectations. And it's all about consumer spending so what you have to work on right now is fixing the problems that are preventing consumers from consuming. It will happen sooner or later. Until then what do you do here?

I'll take a slow recovery because it's better than the alternative.

[SpaceCadet]

Assume that I'm onboard with deficit spending by the government in order to stimulate the economy.  While the economy is still struggling, shouldn't we also keep tax rates lower, rather than higher?  Wouldn't allowing them to go back to the levels they were at before, at this particular time, partially work against what we're trying to do?  Or would that combination, of more deficit spending and tax rates that are too low, simply create a completely unmanageable budget deficit?

[Velleity]

I didn't say I don't want them to expire.  I'm just trying to understand the various hypotheses on fiscal policy.

Of course that's what you're doing, but you're letting "conservative" disinformation confuse you.

The debate between Keynesians and monetarists was not about what you seem to think it was about. The monetarists, being into econometrics, found correctly that monetary policy took about 6 months to take effect whereas fiscal policy took at least 18 months. So there was a rapprochement between the two schools of thought. Monetary policy was preferable because by the time fiscal policy took effect it was most likely the wrong policy for current conditions.

However right now there can be no monetary policy because we're in a liquidity trap and we're at the zero bound. So monetary policy is the only prescription.

The rest of the stuff out there is nonsense. John Boehner, Mitch McConnell, and Observer became fiscal conservatives on January 20, 2009. What does that tell you?

[Velleity]

Assume that I'm onboard with deficit spending by the government in order to stimulate the economy.  While the economy is still struggling, shouldn't we also keep tax rates lower, rather than higher?  Wouldn't allowing them to go back to the levels they were at before, at this particular time, partially work against what we're trying to do?  Or would that combination, of more deficit spending and tax rates that are too low, simply create a completely unmanageable budget deficit?

SpaceCadet, there is no such thing as "a completely unmanageable budget deficit" when you're talking about the United States of America.

We aren't Greece. We have our own currency and we're still by far the most important economy in the world.

What we really need to do is fix the tax mess that Bush created, but that's another issue. Again, you have to take the politics into consideration here too.

[SpaceCadet]

The wealthy are paying the lowest overall tax rate (not just income taxes) that they have paid since the 1950s. You're citing the "conservative" argument and you're making the same mistake they make--you're ignoring the overall tax burden. State taxes are up. Local taxes are up. Property taxes are up. Employment taxes are regressive and while they're not up, they haven't gone down.

Do you think these local taxes are actually going to go down if we tax the wealthy more at the federal level?

What makes you think government spending necessarily comes out of future growth?

I don't think I said that is necessarily does.  I asked if it would be better to pay for it with tax increases on the wealthy, or if it would be better to borrow it.  Without some tax hikes, we have no choice but to borrow it.  But at the same time, does taking money from one place in the economy in order to inject it into another segment of the economy actually accomplish anything?

You're thinking like a "supply-sider" again. There is currently no valid theory, in terms of math or empirical evidence, that anything we do affects the supply curve in any meaningful way. There is a lot of conjecture but no model to support it.

Ok.

I don't perceive you as a person who likes to just make stuff up. So understand this: no one can give you any meaningful prediction about the economy more than 6 months from now. No one. There are too many variables.  

I fully believe that.

What you want, SpaceCadet, is a steady growth. You don't want booms. You don't want busts. You want a nice, long, protracted period of sustainable recovery.

I believe that.

The rest is bullshit and you know it's bullshit because I've seen you declare it to be bullshit and your declaration is both concise and impressive. Tell me that Laz isn't batshit crazy. Tell me that Obs has done his homework and presents a well thought out argument.

You can't tell me that.

I wouldn't attempt to.

SpaceCadet, there is only one school of economic thought that even has a model for the current conditions, and that school of thought tells us that the only thing that matters is keeping the economy close to full employment. I'm not going to tell you that model is perfect. I do think we ended up with stagflation in part because of problems with this model. However when you reach the zero bound, like we're at right now, there is one and only one prescription. It's just not the right time to worry about austerity.

Consumer Spending + Investment + Government Spending + Exports - Imports = GDP.

And it's all about expectations. And it's all about consumer spending so what you have to work on right now is fixing the problems that are preventing consumers from consuming. It will happen sooner or later. Until then what do you do here?

I'll take a slow recovery because it's better than the alternative.

Me too.  I'm still wondering, though, if it would be better to keep taxes lower in the near term.  Perhaps, politically, we have to let the tax rate cuts expire on schedule, rather than raising them later, in order to ever be able to get them back up.  But I'm trying to stay away from political considerations for now.  I'd just like to gain a better understanding of what would be in our best economic interest if politics played no role in it.

[SpaceCadet]

Of course that's what you're doing, but you're letting "conservative" disinformation confuse you.

The debate between Keynesians and monetarists was not about what you seem to think it was about. The monetarists, being into econometrics, found correctly that monetary policy took about 6 months to take effect whereas fiscal policy took at least 18 months. So there was a rapprochement between the two schools of thought. Monetary policy was preferable because by the time fiscal policy took effect it was most likely the wrong policy for current conditions.

Makes sense.

However right now there can be no monetary policy because we're in a liquidity trap and we're at the zero bound. So monetary policy is the only prescription.

Did you mean to say fiscal policy?

The rest of the stuff out there is nonsense. John Boehner, Mitch McConnell, and Observer became fiscal conservatives on January 20, 2009. What does that tell you?

They're bullshitters looking for votes by promising lower taxes.

[Velleity]

Do you think these local taxes are actually going to go down if we tax the wealthy more at the federal level?

If we use increased tax revenues to fund unfunded mandates, sure. It can be done.

I don't think I said that is necessarily does.  I asked if it would be better to pay for it with tax increases on the wealthy, or if it would be better to borrow it.  Without some tax hikes, we have no choice but to borrow it.  But at the same time, does taking money from one place in the economy in order to inject it into another segment of the economy actually accomplish anything?

Why wouldn't you want to put unused capacity to work now?

Me too.  I'm still wondering, though, if it would be better to keep taxes lower in the near term.  Perhaps, politically, we have to let the tax rate cuts expire on schedule, rather than raising them later, in order to ever be able to get them back up.  But I'm trying to stay away from political considerations for now.  I'd just like to gain a better understanding of what would be in our best economic interest if politics played no role in it.

But the politics is a reality and you're right in your assertion. If you were a Democrat why would you let Republicans off the hook for their own legislation? I wouldn't. I'd take the revenue and I'd put it toward education and infrastructure. It's not like we don't need to put it there anyway.

[Velleity]

Yes, sorry. I meant fiscal policy.

[dagon]

How does the middle class automatically gain a tax break simply by raising taxes on the wealthy?  Doesn't that simply keep the tax rates the same for the middle class and result in higher general tax revenue for the federal government?

they don't but obama has pledged to pass some of the of this on as middle-class relief.  don't you remember the tax rates under clinton?  that's all that is mean to happen.

as john points out,  the bush cuts were MEANT to expire;  and they are.

peace

[dagon]

Oh, and to rephrase the question, the wealthy have the vast majority of the income.  A family of 4 with an income of $40,000/yr currently pays no federal income taxes.  So, if the wealthy have the vast majority of the income, and pay the vast majority of the income taxes, then if you wanted to reduce those taxes, how would you do so without favoring the wealthy?

apples to oranges SC.  we DON'T want to reduce those taxes on the most wealthy.  that's kind of the point;  they've already had a windfall.  i don't know what you're not getting here.

peace

[SpaceCadet]

If we use increased tax revenues to fund unfunded mandates, sure. It can be done.

It could be done, but I'm very dubious that it would be done.

Why wouldn't you want to put unused capacity to work now?

I'd love to, but I don't know what that has to do with my question, or how you envision that happening.  Are you postulating that by taxing the wealthy more, and channeling that into stimulating the economy, that the unused capacity would be put to work, thus generating additional tax revenue for the government?

But the politics is a reality and you're right in your assertion. If you were a Democrat why would you let Republicans off the hook for their own legislation? I wouldn't. I'd take the revenue and I'd put it toward education and infrastructure. It's not like we don't need to put it there anyway.

Fair point.

[SpaceCadet]

apples to oranges SC.  we DON'T want to reduce those taxes on the most wealthy.  that's kind of the point;  they've already had a windfall.  i don't know what you're not getting here.

peace

I guess I'm trying to figure out what exactly is meant by the phrase "tax cuts for the wealthy".  I guess we're saying that any federal income tax rate cut is a "tax cut for the wealthy", since they are the ones who are paying those taxes.

[SpaceCadet]

they don't but obama has pledged to pass some of the of this on as middle-class relief.  don't you remember the tax rates under clinton?  that's all that is mean to happen.

as john points out,  the bush cuts were MEANT to expire;  and they are.

peace

What form would that middle-class relief take?  I can see the scenario of returning to the tax structure we had under Clinton, with the corresponding tax surplus for the treasury.  But I don't know what "middle-class relief" means.

[SpaceCadet]

BTW, while this thread is still hot, I'd just like to thank everyone for the stimulating and civil discussion.  This is exactly the way I wish more Internet discussions would go, and I could never have a discussion like this at a place like NoPC without it immediately degenerating into a bunch of name calling and liberal bashing.  Likewise, I'm sure there are some more militant liberal-leaning boards where the opposite would happen.  So I think this is a testament to this site.