Congress Raises the Debt Limit (again)

[bmulligan]

For those of you who haven't followed this for the last few years(or decades), here is a good overview of the debt limit scenario by former Libertarian, now Republican, Ron Paul:

http://www.lewrockwell.com/paul/paul89.html

In the middle of a hasty retreat from washington for their winter vacation, Congress voted to raise the debt carried by the federal government for the third time in 4 years. Over 500 billion in 2002, 500 billion in 2003 and over 800 billion more for 2004. Hey, that rhymes ! When Bush took office, the debt ceiling was at @ 6 trillion, now it stands at almost 8 trillion. almost 70% of the value of the entite yearly US economy.

Now before you guys start blaming your least favorite Republican, take a look at your own representatives in congress who are responsible for this. There is plenty of blame to spread around. And all of this is on the cusp of an impending medicare and social security implosion in the coming decade. Somethings gotta give, and it might be your pocketbook and portfolio if the balanced budget ammendment ever passes.

I'm not a religious man, but I'm praying that Bush's lame duck status in the next 4 years will prompt him to bully the congress to cut spending. And maybe, maybe he'll start acting like a republican and delivering on that smaller government promise he made just 4 years ago.

 

[Trancendental]

I'm gonna start anyway

You see, the tax-and-spend liberals understand that you have to

TAX (get money)

so that you can

SPEND (lose money)

If the Iraq war was god's will, he should have to pony up the dough. Why do we have to pay for it?

 

[bmulligan]

but when you lower the tax rate, you get more compliance, and greater revenues by volume when the economy is allowed to grow. Increase in taxation thwarts growth, therby decreasing revenue.

 

[bmulligan]

There are many other things we pay for besides the Iraq war. And the problem is not revenue which increases every year, its the spending which is not being curtailed.

 

[Drocket]

[quote name='bmulligan']but when you lower the tax rate, you get more compliance[/quote]
So in other words, you reduce the number of people breaking the law by changing the law so that what they were doing anyway isn't illegal anymore.

and greater revenues by volume when the economy is allowed to grow. Increase in taxation thwarts growth, therby decreasing revenue.

This has been tried 4 times now. So far, the total number of successes is a whopping 0. The vast majority of economists have given up on the theory because it simply doesn't work.

Actually, I can tell you why it doesn't work, if you're interested (or at least the main reason): the stock market is broken. There's essentially no connection between the price of stock and how well the company does. When you give tax breaks, it invariably favors the rich (simply because they pay the most taxes (not in total, but in terms of percentage of income.)) In theory, the rich people invest that money, which creates jobs, which moves the economy.

In reality, the rich people buy more stocks. The stock prices go up somewhat, and the end result is just some money passing back and forth between rich people (usually untaxed or very lowly taxed because they're 'investing'.) The company doesn't benefit from its higher stock price - it recieves no money no matter how much its stock price goes up. Because it has no additional capital, it doesn't hire anyone new, and the economy basically does squat. The investment firm who handled the stock transaction gets some income from the fees, but that's chump change compared to the huge expense of the tax break.

The key problem is that the ties between a company and its stock have mostly been cut. I could go into detail about how this has happened, but its pretty late and its boring and complicated topic. If anyone actually cares, I can post more about it tomorrow. Anyway, my point is that tax breaks don't fire the economy, mostly because the main tool that they're supposed to do so through is borked.

 

[bmulligan]

You're incorrect. Kennedy signed a major tax cut and the economy blossomed. Reagan had similar results. Economists have not given up on the theory, but it has its limits. And it depends on which taxes are cut. A vast majority of economists have not given up on the theory, they are as divided and as partisan as the rest of the american voting public.

While you're right that stock prices have no bearing on company performance due to the fact that is has nothing to do with their capital influx, cutting the capital gains tax on investment income can be a powerful boost not only to the stock market, but to individual companies who issue more stock, or go public. It does give more incentive to invest, which is necessary for growth. The stock market is not 'broken', it's always functioned in this manner.

Cutting payroll taxes is a better way to reach the average middleclass and lowerclass worker and usually has a more immediate impact on the economy. Tax credits and deduction allowances can also impact the average family's botttom line allowing for more savings, investment, and spending. And the more people spend, the more tax the government collects.

http://www.heritage.org/Research/Taxes/BG1086.cfm

So in other words, you reduce the number of people breaking the law by changing the law so that what they were doing anyway isn't illegal anymore.

You cannot equate this with all other law breaking. All tax collection is punative, with no crime being committed. A better analogy would be parking ticket amnesty. Detroit and Ann Arbor, MI have gained enoumous compliance and revenue from eliminating penalties for these 'law breakers'. A criminal is more likely to skip bail when facing 20 to life, but more likely to plead guilty if he's only facing 90 days in the slammer for the same crime.

 

[David85]

I hear 7 trillion, anyone for 8 trillion? I have 8 trillion for the old white guys in the back, do I hear 10 trillion? Yes 10 trillion coming up next year.

The funny thing is Bush made fun of Kerry because he has going to spend so much and wondered where he was going to get the money from.

 

[ZarathosNY]

[quote name='bmulligan']You're incorrect. Kennedy signed a major tax cut and the economy blossomed. Reagan had similar results. Economists have not given up on the theory, but it has its limits. And it depends on which taxes are cut. A vast majority of economists have not given up on the theory, they are as divided and as partisan as the rest of the american voting public.

While you're right that stock prices have no bearing on company performance due to the fact that is has nothing to do with their capital influx, cutting the capital gains tax on investment income can be a powerful boost not only to the stock market, but to individual companies who issue more stock, or go public. It does give more incentive to invest, which is necessary for growth. The stock market is not 'broken', it's always functioned in this manner.

Cutting payroll taxes is a better way to reach the average middleclass and lowerclass worker and usually has a more immediate impact on the economy. Tax credits and deduction allowances can also impact the average family's botttom line allowing for more savings, investment, and spending. And the more people spend, the more tax the government collects.

http://www.heritage.org/Research/Taxes/BG1086.cfm

So in other words, you reduce the number of people breaking the law by changing the law so that what they were doing anyway isn't illegal anymore.

You cannot equate this with all other law breaking. All tax collection is punative, with no crime being committed. A better analogy would be parking ticket amnesty. Detroit and Ann Arbor, MI have gained enoumous compliance and revenue from eliminating penalties for these 'law breakers'. A criminal is more likely to skip bail when facing 20 to life, but more likely to plead guilty if he's only facing 90 days in the slammer for the same crime.[/quote]

First off, you forget a couple of things. After Reagan made his tax cut, he created HUGE deficits. When he realized how bad these deficits were, he then turned around and RAISED taxes. Basically, Reagan cut taxes on the wealthy, and raised them on the lower and middle class. The economy taking off on his watch had nothing to do with his cutting taxes. If this were true, then when Clinton raised taxes on the wealthy, the economy should have tanked, like many repubs were crying when he did it. Instead the economy took off. You CAN stimulate the economy by lowering taxes, but you have to lower it on people who will actually spend their money, ie the lower and middle class. Ours is a consumer driven economy, and cutting taxes on people who are just going to save it does nothing for the economy. Which do you think has more of an effect on the economy, Dick Cheney saving $90k on his, or 100 middle class people saving $900 on theirs. You know that Cheney will sit on his $90k, but you can pretty much gaurantee that the 100 ppl will put their money back into the economy.

 

[bmulligan]

Rich people spend their money. It doesn't go under a mattress somewhere. They buy houses, cars, boats, vacations, furniture, and other high ticket items. Most all are produced in the United States. They build buildings, factories, housing developments, businesses. This employs people, thereby creating more tax revenue. I love rich people, we need more of them.

It's government spending that creates deficits.

 

[Drocket]

[quote name='bmulligan']You're incorrect. Kennedy signed a major tax cut and the economy blossomed. Reagan had similar results. Economists have not given up on the theory, but it has its limits.[/quote]
It depends on how one defines success. Bush's tax cut was VERY successful, for instance, given that you believe that the economy would be in far worse situaiton than it is now. You juggle the numbers enough and you can prove anything.

And it depends on which taxes are cut.

Quite true. So would this be agreement that Bush's tax cuts were badly made?

While you're right that stock prices have no bearing on company performance due to the fact that is has nothing to do with their capital influx, cutting the capital gains tax on investment income can be a powerful boost not only to the stock market, but to individual companies who issue more stock, or go public. It does give more incentive to invest, which is necessary for growth. The stock market is not 'broken', it's always functioned in this manner.

I certainly hope you're joking on that last point. Limited-liability corporation (and their stock) bear absolutely no resemblance to what they were originally created to be. Limited liability corporation status was (for the most part) created in the 19th century as an extremely narrow set of rights granted to a company (usually several companies working together, actually) as long as they functioned within the greater public good. The main reason for granting this status was the need to build a national railroad system, a project far too big for a single company, so some corporations were formed and granted 'extra' rights to accomplish this. The key limitation here was that if and when it was decided that the corporation was no longer acting for the greater public good, the status could immediately be revoked.

The stock that the corporations issued was based on direct ownership of the corporation. If you owned 25% of the stock, you quite literally owned 25% of the company. Because the corporation could be disolved at any time (and most of them were skirting that edge constantly because of greed and corruption...), the value of the stock was pretty much directly tied to the value of the corp - if the corp. was worth $15M and had 1M shares of stock, the stock was worth $15, since there was never any guarantee that the corp. would be there next month. The main incentive for buying stock generally came from dividends, which were generally just considered interest on an investment.

The biggest change to corporations came from what was probably the single most bizzare court decision ever: a lawyer actually argued in court that corporations were not merely a collection of contracts, but were in fact virtual people, with all the rights of a real human being. Somehow, a judge bought this, and the era of the corporation began.

After that things get a lot more boring. The role of corporations and the laws that they function under have continued to change constantly, but its mostly a bunch of boring small changes that I'll just skip for now (Unless you're really interested ) The key is that the ownership of a corporation and its stock have mostly been broken. The biggest divide is between limited (the 'real' stock) and unlimited stock (loans the company has no intention of paying back, ever.) The latter exists to sucker newcomers to the stock market into investing their money in what are ultimately worthless scraps of paper. One of them 'the rich get richer and the poor get poorer' sort of things.

Getting back on topic, though...

but to individual companies who issue more stock

How often exactly does this happen? Answer: pretty much never because it dillutes the value of the existing shares.

or go public.

Still doesn't help the company much, because their stock is already owned by IC firms. The only people who make money are a few multi-billionaires who once again will do little more than continue to buy up more stocks increasing the value of the stock market without actually creating real value.

Cutting payroll taxes is a better way to reach the average middleclass and lowerclass worker and usually has a more immediate impact on the economy.

Quite true. Too bad Bush decided to throw most of the tax cut at the wealthy.

So in other words, you reduce the number of people breaking the law by changing the law so that what they were doing anyway isn't illegal anymore.

You cannot equate this with all other law breaking. All tax collection is punative, with no crime being committed. A better analogy would be parking ticket amnesty. Detroit and Ann Arbor, MI have gained enoumous compliance and revenue from eliminating penalties for these 'law breakers'. A criminal is more likely to skip bail when facing 20 to life, but more likely to plead guilty if he's only facing 90 days in the slammer for the same crime.

Bad analogy, simply because people virtually never just skip out on their taxes entirely: doing so generally tends to involve getting caught very, very quickly. Realistically, people cheat on their taxes. Lets just say we have someone who SHOULD pay $2M per year in taxes. Instead, he'forgets' to report a few sources of income so that his only pays $1.5M per year. What you're proposing is that we should lower what he really owns to $1.5M - hey, we have more people compiant, right? Realistically, he's going to keep right on 'forgetting' to report some of his income and now only pay $1M.

 

[bmulligan]

I agree there will always be people who will cheat on their taxes and try to pay virtually nothing if they can get away with it. But there are others who don't pay, or pay people to find them ways to cheat. If you lower the reate to begin with, then they may be more willing to just pay the tax instead of dealing with the hassle of cheating.

Here's a hypothetical example: I look at taxes as part of the cost of doing business. If I've done $100,000 worth of business, I know I'll be paying about 30% of that in taxes to the IRS (100,000- 30,000=70,000 net profit). I'm offered a contract for an additional $50,000 which would take me into a higher tax bracket of let's say 45%. I would choose not to take that contract because my taxes on 150,000 would be 67,500 leaving me with 82,500. So, for 50% more work, I'd end up with only 12,500 extra dollars. I'ts not worth that cost, I decline the contract, and the government doesn't get anything extra from me.

Now lets say the tax rate was lowered to a 25% flat tax. I'd take that extra contract, my income would be 150,000. The government would get 37,500 in taxes. A net gain of 7,500 for the treasury, growth for my business, and the incentive to take on more work and possibly hire more employees.

I have hourly people tell me the same thing when they work overtime. They'll only work a certain amount because after that point of diminnishing returns, they realize more taxzes get taken out of their check, and the money is not worth the extra time. Lowering the tax rates and flattening them would give incentive to be more productive when you know you will be able to keep more of what you earn.

 

[Drocket]

[quote name='bmulligan']Here's a hypothetical example: I look at taxes as part of the cost of doing business. If I've done $100,000 worth of business, I know I'll be paying about 30% of that in taxes to the IRS (100,000- 30,000=70,000 net profit). I'm offered a contract for an additional $50,000 which would take me into a higher tax bracket of let's say 45%. I would choose not to take that contract because my taxes on 150,000 would be 67,500 leaving me with 82,500. So, for 50% more work, I'd end up with only 12,500 extra dollars. I'ts not worth that cost, I decline the contract, and the government doesn't get anything extra from me. [/quote]

Except what was the point in lowering the tax rate to 25%? If it stayed at 30%, they'd STILL take the extra work, and the government would be making 5% more. Somebody is going to point out that its not the government's right to take money just because it can, and that holds up, right up to the point where the government is hemorrhaging money like there's no tomorrow.

More than that, though, going from a 30% tax rate to a 45% tax rate just isn't something that actually happens. The differentials between tax levels just isn't that high. And even if it WAS, the company would most likely take the plunge anyway because, being larger, they would benefit from economies of scale (AKA, they'd be buying enough supplies to get a better discount, and they'd be able to partition their workforce to be more efficient and reduce wasted time.)

 

[Sarang01]

[quote name='bmulligan']I agree there will always be people who will cheat on their taxes and try to pay virtually nothing if they can get away with it. But there are others who don't pay, or pay people to find them ways to cheat. If you lower the reate to begin with, then they may be more willing to just pay the tax instead of dealing with the hassle of cheating.

Here's a hypothetical example: I look at taxes as part of the cost of doing business. If I've done $100,000 worth of business, I know I'll be paying about 30% of that in taxes to the IRS (100,000- 30,000=70,000 net profit). I'm offered a contract for an additional $50,000 which would take me into a higher tax bracket of let's say 45%. I would choose not to take that contract because my taxes on 150,000 would be 67,500 leaving me with 82,500. So, for 50% more work, I'd end up with only 12,500 extra dollars. I'ts not worth that cost, I decline the contract, and the government doesn't get anything extra from me.

Now lets say the tax rate was lowered to a 25% flat tax. I'd take that extra contract, my income would be 150,000. The government would get 37,500 in taxes. A net gain of 7,500 for the treasury, growth for my business, and the incentive to take on more work and possibly hire more employees.

I have hourly people tell me the same thing when they work overtime. They'll only work a certain amount because after that point of diminnishing returns, they realize more taxzes get taken out of their check, and the money is not worth the extra time. Lowering the tax rates and flattening them would give incentive to be more productive when you know you will be able to keep more of what you earn.[/quote]

Let's not forget the benefit of the Itemization form as well as deductions though b.
If we have Flat Tax where does that fit in for example?

Let's be serious though. Conservatives will never get a Flat Tax. It sounds good yes but it's NOT a Panacea and I'm sick of Conservatives preaching it as such. I'm not saying it's you but I've heard it preached as such.
Consider if I make less than $10K or $10K a year with a flat tax of 25%. Why should I have to pay $2.5K of my $10K when that's not much of a living wage to begin with?

 

[Trancendental]

Don't forget that corporations that do the bulk of their business in the USA, but incorporate in places like Bermuda to avoid paying US taxes, are now getting the juiciest government contracts and even being supported by congress when the hypocracy becomes too large to be ignored

Link

It's like giving work to bad tenants who don't pay their rent.

 

[ZarathosNY]

[quote name='bmulligan']Rich people spend their money. It doesn't go under a mattress somewhere. They buy houses, cars, boats, vacations, furniture, and other high ticket items. Most all are produced in the United States. They build buildings, factories, housing developments, businesses. This employs people, thereby creating more tax revenue. I love rich people, we need more of them.

It's government spending that creates deficits.[/quote]


So you're telling me that Cheney would spend his entire 90K refund back into the economy? I think not. You give the tax break to people who will put the money back into the economy, which is the middle and lower class. When they do, it benefits coroporationd and businessmen, and puts more money in their pockets.

You're also not entirely correct about deficits. It's the govet spending more money than it takes in. This is what repubs do. They cut taxes and increase spending.

 

[Trancendental]

When the government gave out $300 checks, Walmart opened its doors and the poor/mid-class swarmed in to buy all the crap they always wanted but could never afford.

When the government gives Bill Gates another $2.5 million dollar tax cut, his tax accountant may get a chuckle but do you think Bill G. even notices?

Neither act was responsible, but at least one of the actions drove the economy forward at the expense of our mounting debt.