Great New Yorker article on "Tax cuts pay for themselves"

[bdk3clash]

[ QUOTE ]
Even if what you're saying is true, i.e. that the rich end up "paying a larger portion of total income taxes", it does not necessarily mean that the rich are paying a larger proportion of their income.

[/ QUOTE ]
This rhetorical sleight of hand device shows up quite frequently in discussions of tax rate cuts and their effects on relative tax burdens--see this thread, this thread (about a Wall Street Journal Op-Ed piece, of course), and this thread to see it in action.

[ConstantineX]

[ QUOTE ]
cliff notes?

If they don't mention monetary inflation, it's worthless. It really is the case that when government cuts taxes tax revenues go up, but only because they simultaneously create an artificial boom by inflating the money supply.

[/ QUOTE ]

This is nonsense. How are they increasing aggregate demand in any way? Actually a tax cut could be deflationary depending on how immediate consumption the government undertakes, while individuals and corporations can invest in technology to shift the supply curve.

[ConstantineX]

[ QUOTE ]
[ QUOTE ]
Supply-side theory is clearly plausible, but what any particular economy would have done absent a tax cut cant be proven, because there is no control.

[/ QUOTE ]
It cannot be proven, but it can be reasonably estimated, and that estimate is going to be a hell of a lot more plausible than supply side theory. We have plenty of historical data showing how tax receipts grow naturally from year to year even without change in policy. Supply-side theory is plausible only in theory, which is why it wont't die.

Anyone who says that tax cuts increase revenue, because 2007 tax receipts are greater than 2000 tax receipts (or something of that nature), is for certain full of [censored]. Any argument which compares 2000 tax dollars to 2007 tax dollars without even mentioning adjusting the numbers to the same basis is meant to deceive, not to be meaningful.

[/ QUOTE ]

If you use a CPI deflator, you still get a persistent increase in tax revenues compared to predicted levels. If you look at the data, it CLEARLY shows this for the Bush tax cuts for capital gains where tax revenue has ballooned.

Their is definitely some BS employed by supply side economists though. Their main [censored] claim is that supply side cuts "pay for themselves". Of course this is handy politically, because it implies that there's a free lunch in a populist stance, whilst spending can continue. But it's not all BS - prominent economists have established and calculated and found "clawback" factors that figure in to how much a tax cut will actually cost in terms of lost revenue to the government. I think either Greg Mankiw or Feldstein at Harvard estimated it to be $0.24 cents per dollar of revenue foregone, which is still QUITE an amount. But it's not a free lunch. Eventually, however, with higher economic growth, the tax cut will "pay for itself" - if spending doesn't rise concordantly with GDP growth. Of course, it all depends on the time scale one uses to judge "paying for itself".

That's not to say there isn't the same sort of hypocrisy amongst liberals. Liberal thinkers (let's not pigeonhole everyone, let's just say the prominent POLITICAL ones) are usually Keynsians, who believe the government can spur aggregate demand when its fallen below "normal" levels, and that this growth in government spending has a "multiplier" effect - that is, when you increase consumption a little bit (via government purchases, like dumping airplanes in the Atlantic), people respond and increase investment a little bit, increasing consumption some more, in a feedback loop that multiplies the total investment. So most liberals defend government spending in that way. Yet they refuse to entertain the idea of a similar multiplier effect on the supply side, shifting the supply curve outward by more than "nominally" (that is, the initial decrease of the tax cut).

I find the liberal argument about tax cuts for the "rich" a little bit founded too. It's patently unfair that we have differing tax rates for capital gains and income, especially since the rich have much more of their disposal income in capital than wages, which they use to great extent in the form of stock options and bizarre partnerships that structure their incomes in such a manner. If you judge the morality of earning from capital and income as different (which I don't), it makes it even egregiously unfair. Of course, the answer is to just levy a flat consumption tax on everyone, and then voucher away for the needy...but that's not politically palatable, and thus will never happen.

[ConstantineX]

[ QUOTE ]
[ QUOTE ]
cliff notes?

If they don't mention monetary inflation, it's worthless. It really is the case that when government cuts taxes tax revenues go up, but only because they simultaneously create an artificial boom by inflating the money supply.

[/ QUOTE ]

This is nonsense. How are they increasing aggregate demand in any way? Actually a tax cut could be deflationary depending on how immediate consumption the government undertakes, while individuals and corporations can invest in technology to shift the supply curve.

[/ QUOTE ]

In general, alot of Ron Paul supporters are way too caught up with inflation. Even if you think the government is lying, inflation is not more than 10%, so it's not egregiously high as into interfere with people's long-term decisions (like in Zimbabwe, where money becomes so quickly worthless you would rather be paid in bread). What matters more than inflation is the market's future inflation EXPECTATIONS. The government consistently inflates, don't you think the market takes this into account in nominal interest rates? So what matters more than the government inflating to cheapen its debt is the changes in government policy that causes changes in inflation expectations. So say an unpaid war is very worrisome because of increased AD, which shifts the price level up more than previously expected in contracted debt rates. But the fact that government continually spends above its budget isn't the problem, it's the fickle changes in the size of its appetite.

[West]

[ QUOTE ]
I find the liberal argument about tax cuts for the "rich" a little bit founded too. It's patently unfair that we have differing tax rates for capital gains and income, especially since the rich have much more of their disposal income in capital than wages, which they use to great extent in the form of stock options and bizarre partnerships that structure their incomes in such a manner.

[/ QUOTE ]

Do you find any tax structure that isn't effectively flat "patently unfair"? How about the widening income gap?

[ConstantineX]

[ QUOTE ]
[ QUOTE ]
I find the liberal argument about tax cuts for the "rich" a little bit founded too. It's patently unfair that we have differing tax rates for capital gains and income, especially since the rich have much more of their disposal income in capital than wages, which they use to great extent in the form of stock options and bizarre partnerships that structure their incomes in such a manner.

[/ QUOTE ]

Do you find any tax structure that isn't effectively flat "patently unfair"? How about the growing income gap?







[/ QUOTE ]

Pragmatically, I support progressive taxation - I guess that's what it takes to keep the plebes satisfied. I don't see any real moral reason that income inequality is necessarily bad, though I can imagine some societal reasons why "we" might want to discourage it, because the already endowed rich actually push for the most destructive policies that the poorest think they benefit from. Also, I'm not sure how I feel about the subsidization of education and research (pvn, if ideas aren't scarce, why shouldn't we subsidize the tools that produce those ideas?)

To liberal minded thinkers - is it so implausible that the richest members of society are far more productive than ordinary people? There may be compelling arguments for income redistribution if the rich are somehow appropriating their income unfairly - but is that guaranteed? If we could prove that our economic system was mostly pareto efficient, would that change your views on redistribution? Even if the market was free that doesn't necessarily mean you support its allocation of resources, of course. I personally think the richest members of society are definitely the most "productive", and it's reflected in all sorts of ways by our tastes. I looked at my Last.fm playlist recently, and it follows a nice little Long Tail distribution - I consume the work of my favorite artists much more than even middling ones. People enjoy Michael Jordan clips far more than the hundreds of talented NBA players (think how much skill the league just requires)! Oprah's phenomenal income reflects how much pleasure she provides to millions of soccer moms everywhere - their incomes are a reflection of tournament tastes. With tools like the Internet and better distribution networks the tale of the super-stars is only going to continue.

Moreover, the richest don't really do nefarious things with their money, now often just giving lots of it away. Most can barely spend it, or work so hard their money is mainly a status comparison rather than any morally dubious "conspicuous consumption". I also think our idea of who exactly the rich are is rapidly changing. 'round here in Durham there are an awful lot of well-off people who sold stakes in promising acquired startups, people walking around with realized equity wealth from very innovative companies. These aren't even suited, cigar-smoking TV capitalists, but people in blue jeans who mainly think they are ordinary, and that's become more so all the time (think Larry and Serge from Google). Even if the advantage they have in buying the newest, most life-changing goods isn't as great as we think. Some rich person will undoubtedly try the newest gene therapies first, ahead of some of us perhaps deserving hoi polloi, but the same capital from which so much of their wealth derives is rapidly innovating to bring us those goods cheaply. Seriously, anyone who thinks the poor are worse off than years ago should just ponder the deflationary effects of rapidly improving computer technology and ordinary utilities (which existing wealth made possible), like the following fact:

"In 1970, according to the American Housing Survey (from HUD and the Department of Commerce ,then called the Annual Housing Survey, Table A-1, p. 32), 36% of the 67 million households in America had air conditioning, 11% had central air. This is the earliest data available from this survey.

In 2005, the most recent data from the same survey, (Table 2-4, p. 66) 82% of the 15 million households with income below the poverty line had air conditioning, 52% had central air."

The consumer surplus that I garner from things like my iPod and Macbook more than compensates me for any shortfall in my real earning growth, especially since I think the rich deserve their incomes more and more. I think the world would much better off in realizing how satisfying we have it and how better it will get than assuaging our short-term envy.

[AlexM]

[ QUOTE ]

Do you find any tax structure that isn't effectively flat "patently unfair"?

[/ QUOTE ]

Now, now. No need to go around qualifying these things.

[West]

[ QUOTE ]
[ QUOTE ]
I find the liberal argument about tax cuts for the "rich" a little bit founded too. It's patently unfair that we have differing tax rates for capital gains and income, especially since the rich have much more of their disposal income in capital than wages, which they use to great extent in the form of stock options and bizarre partnerships that structure their incomes in such a manner.

[/ QUOTE ]

Do you find any tax structure that isn't effectively flat "patently unfair"? How about the growing income gap?







[/ QUOTE ]

[ QUOTE ]
If we could prove that our economic system was mostly pareto efficient, would that change your views on redistribution?

[/ QUOTE ]

I'm not an economist, so your wikipedia link is appreciated. Kind of hard to see how we could be pareto efficient when any multimillionaire could give $10,000 to a poor person and not notice the difference. In fact, I think pareto efficency speaks to exactly the problem I have with Bush's tax cut.

[ QUOTE ]
Seriously, anyone who thinks the poor are worse off than years ago should just ponder the deflationary effects of rapidly improving computer technology and ordinary utilities (which existing wealth made possible), like the following fact:

"In 1970, according to the American Housing Survey (from HUD and the Department of Commerce ,then called the Annual Housing Survey, Table A-1, p. 32), 36% of the 67 million households in America had air conditioning, 11% had central air. This is the earliest data available from this survey.

In 2005, the most recent data from the same survey, (Table 2-4, p. 66) 82% of the 15 million households with income below the poverty line had air conditioning, 52% had central air."


[/ QUOTE ]

Wow, man. Memo from the rich: be thankful that you (might) have air conditioning. The rising tide lifts all boats. Now gimme my tax cut.

[ QUOTE ]
To liberal minded thinkers - is it so implausible that the richest members of society are far more productive than ordinary people?

[/ QUOTE ]

What, intrinsically? Don't you think George Bush kind of hurts this argument? Do you think that if we reincarnated all rich people into poor circumstances in another life they would grow up to be as 'productive' as a group as in their previous lives?

From the income gap link I posted:

"Others have portrayed inequality as a necessary condition for socioeconomic mobility, arguing that people who are willing to work hard and play by the rules face a better chance of making it to the top here than in any other country. But here, too, the evidence suggests otherwise. Even as economic inequality has been rising, social mobility has been declining. According to sociologist David Wright, the probability that a child born to parents in the third quartile of the income distribution would move up into the top quartile was only half as large in 1998 as in 1973. Economist Thomas Hertz has found that children whose parents are in the bottom fifth of the income distribution have only a 7.3 percent chance of making it into the top fifth. In contrast, children born in the top fifth have a 42.3 percent chance of remaining there. Contrary to popular impressions, socioeconomic mobility is now lower in the United Stated than in most other industrialized countries."

[ QUOTE ]
Pragmatically, I support progressive taxation - I guess that's what it takes to keep the plebes satisfied.

[/ QUOTE ]

Something for the plebes' listening and viewing pleasure [img]/images/graemlins/wink.gif[/img]

[Dima2000123]

[ QUOTE ]
If you use a CPI deflator, you still get a persistent increase in tax revenues compared to predicted levels. If you look at the data, it CLEARLY shows this for the Bush tax cuts for capital gains where tax revenue has ballooned.


[/ QUOTE ]
Applying CPI deflator is not enough to compare the numbers from two different years. You also have to deflate them for change in GDP. If the tax rate stays the same, then tax receipts grow at the rate of inflation multiplied by GDP growth, which is around 5% or so per year.

I don't think anyone denied that you do get some stimulus from tax cuts. However, there is a world of difference between saying that you get some of the lost tax revenue back through economic stimulus, and saying that you get more revenue back than you lost through tax cut.

The first statement is true, and relatively obvious. The second statement is extraordinary, and requires extraordinary proof beyond just waving hands, and comparing numbers from different years without adjusting them is waving hands. It always drives me to the point of seizure when I listen to such "straight talkers" like McCain repeating that same old "tax cuts pay for themselves" lie.

[NeBlis]

[ QUOTE ]
That's because they receive a massively disproportionate percentage of the income.


[/ QUOTE ]


You see this is where the disconnect is. They do not "receive" they EARN. Receive has a connotation of a gift. And nothing in this world is free. ...well other than the handouts you would like to provide whit your thievery.


[ QUOTE ]
Opposing tax cuts for the mega rich is hardly advocating "a welfare state" or "revenge". I "rant and rave" because I don't like it when people mischaracterize Bush's tax cuts.


[/ QUOTE ]


Funny ... I get angry at mischaracterization also.

how "mega rich " someone is is none of your business. Nor does it influence "fairness" in any way. Simply because I can afford to pay twice as much for goods and services as my neighbors is irrelevant to the issue of fair pricing.

At the end of the day the only thing "wrong" with the Bush tax cuts is that they were not nearly deep enough, and were not coupled with radically deep spending cuts also.