Economics pros, What happens if the Tax Cut does not work?

[LunarRay]

Etech
HJD1,

It is normal and the accepted practice on this board to attribute a copy and paste by posting a link to the orginal page.

Keynesian Economics

As stated above every economist has a different theory on how to boost an economy out of a recession. This downturn started before Pres. Bush took office and has had some extra shocks to deal with as well. The Keynesian theory that cutting taxes will increase consumer spending, while it has some detractors, is an accepted method of stimulating the economy leading to more income for businesses and more jobs.[/quote]
**************

Well... I do thank you for the admonisment and for taking the time to post the link for me.
I've posted that link a couple of times in the past... because I knew that it was accepted practice on this board to attribute a copy and paste by posting a link to the original page.
Your taking the time to remind me of this is very kind of you and I am sure you do so for the benefit of folks who may be interested in the entire article or the posted portion's source. My apologies to any who were offended by my oversight.

 

[LunarRay]

Etech Quote in part

Keynesian Economics

As stated above every economist has a different theory on how to boost an economy out of a recession. This downturn started before Pres. Bush took office and has had some extra shocks to deal with as well. The Keynesian theory that cutting taxes will increase consumer spending, while it has some detractors, is an accepted method of stimulating the economy leading to more income for businesses and more jobs.[/quote]

Yeah, there are as many theories as there are economists each with a twist because of the myriad influences that can affect the economy. Where the various major camps sit is important when one reads their statements. The link:
LINK

I think tax cuts can be good but, I'd prefer to see tax credits directed toward specific targets aimed at stimulating market segments. A tax credit well directed can have an immediate influence where as tax cuts are more a blindfolded shotgun approach. (IMO)

 

[JellyBaby]

the only benefit is that government growth will be stopped by the huge deficits

Stopped? You must be joking. We run huge deficits as it is and even with the "fiscally responsible" Rs calling the shots the federal government is expanding by leaps and bounds.

 

[Dari]

The tax cut is not a short-term solution to the current economic environment (as Bush has been promising), but it is prudent policy. More money into the hands of individuals is important. In the current economy, it allows individuals to pay off debt and save a little. In the long run, with debt paid off, individuals will began to spend again. As for the rich, they will probably invest their windfall of extra cash, which can't hurt the economy. As the US tries to fend off deflation (which is much more dangerous than inflation because it starts a vicious cycle of price reduction), pumping more money into the economy by is smart to me. However, should deflation become a bigger problem than envisioned by most economists today, the gov't should start printing more money to offset it. We don't want to become another Japan (or future Germany).

 

[LunarRay]

Not too often mentioned in economic circles is the reality of population growth as it relates to economic growth. We often see "the GDP grew on an annualized basis of 2%" That may be true but, I'd like to see it always presented as Real GDP to eliminate inflation and to consider how much was attributable to population growth, alternate purchases (buying from foreign source) as a reduction. The population growth does not diminish GDP and is rightly included, obviously. It seems, however, equally important to know how much a point in time base grew and add the other issues to it or subtract as is appropriate. I say this because the spending habits of the generational increases or inflow of people from other nations are real and to effect prudent fical policy the stimuli ought to be directed as best as can be discerned.

 

[Dari]

Originally posted by: HJD1
Not too often mentioned in economic circles is the reality of population growth as it relates to economic growth. We often see "the GDP grew on an annualized basis of 2%" That may be true but, I'd like to see it always presented as Real GDP to eliminate inflation and to consider how much was attributable to population growth, alternate purchases (buying from foreign source) as a reduction. The population growth does not diminish GDP and is rightly included, obviously. It seems, however, equally important to know how much a point in time base grew and add the other issues to it or subtract as is appropriate. I say this because the spending habits of the generational increases or inflow of people from other nations are real and to effect prudent fical policy the stimuli ought to be directed as best as can be discerned.

How important are the differentials for it to warrant further scrutiny (even though I'm sure its been studied before)?

And if you want to know about real GDP as opposed to nominal GDP, then factor in inflation.

 

[LunarRay]

Dari,

How important are the differentials for it to warrant further scrutiny (even though I'm sure its been studied before)?

And if you want to know about real GDP as opposed to nominal GDP, then factor in inflation.[/quote]

Yeah, back when I was in grad school we attempted to evaluate and create models for this and that (30 yrs ago) I get these niggley wiggley what if's still today. I enjoy an enviornment that is settled and not dynamic with all sorts of issues changing all the time. The analogy I use is; using a .22 to shoot at a bunch of flocking geese. I'm not a practicing economist, I'm a bloody accountant (CFO/Controller who teaches a Managerial Cost Accounting course now and then) dealing mainly with historical issues...but, forced to think about the tomorrow as well. History... I like it better... I get to evaluate what occured not just try to risk enormity for the sake of pride or try to out guess much smarter folks.

 

[CaptnKirk]

Lets see - if the tax cuts provide a million jobs, that makes $ 550,000 for each job created.
Wouldn't it be a little less expensive to hire those million people at $ 25,000 each and
put them to work fixing streets, highways, bridges, or even working at Mc Donalds ?
Saves a lot more money, but the wealthy don't get their cut for bankrolling the Republicans.

 

[Moonbeam]

You got it Captn, Corporate america has finally tipped over the top of the roller coaster and it's all down hill now. They got the money, the media, and buy the programming fed the people from birth. We have become a Americo Inc.

 

[LunarRay]

Originally posted by: CaptnKirk
Lets see - if the tax cuts provide a million jobs, that makes $ 550,000 for each job created.
Wouldn't it be a little less expensive to hire those million people at $ 25,000 each and
put them to work fixing streets, highways, bridges, or even working at Mc Donalds ?
Saves a lot more money, but the wealthy don't get their cut for bankrolling the Republicans.

Cap'n the math is off a bit but the notion is good.
If we have mfg workers unemployed and use the supply side notion we could give tax credits to mfg companies to hire the unemployed who will make the supply side product that everyone will run out and buy. Since the divident paying stock holder may not spend the windfall the effect of the tax cut may be nil. The tax cut that affects others may serve to stimulate so long as the debt don't climb outta sight... which it will... so buy gold.

 

[Dari]

Originally posted by: CaptnKirk
Lets see - if the tax cuts provide a million jobs, that makes $ 550,000 for each job created.
Wouldn't it be a little less expensive to hire those million people at $ 25,000 each and
put them to work fixing streets, highways, bridges, or even working at Mc Donalds ?
Saves a lot more money, but the wealthy don't get their cut for bankrolling the Republicans.

Using the public money to finance public projects is an excellent idea, Cap'n. But the problem with that is that every politician will want to do their own pet-project. There will be enough pork created to make Terror Lord bin Laden surrender. The problem with pork (and other special-interest jobs) is that it brings little return (or value) for the public.

It's a great idea, but politicians will take advantage of it and ruin it.

 

[LunarRay]

Dari,

Using the public money to finance public projects is an excellent idea, Cap'n. But the problem with that is that every politician will want to do their own pet-project. There will be enough pork created to make Terror Lord bin Laden surrender. The problem with pork (and other special-interest jobs) is that it brings little return (or value) for the public.

It's a great idea, but politicians will take advantage of it and ruin it.[/quote]

What ever happened to the cross country maglev train that was touted as being both a economic stimuli and a blessing for travel?

Your first sentence is the best use of public funds but, does only have a 1.5 or so multiplier.

 

[Zebo]

I donno Hoover Dam went pretty well. 14 million under buget, 2 years early and is still pumping out very cheap power for LA customers.

 

[Dari]

Originally posted by: Carbonyl
I donno Hoover Dam went pretty well. 14 million under buget, 2 years early and is still pumping out very cheap power for LA customers.

that was before politicians lost all sense of shame and went on the hunt for pork. Of course it was all done in the name of "the public good."

 

[CaptnKirk]

I suppose that something like The W P A which our country invested in to help break the Great Depression
would be out of the question, as it might make something that would be usefull to all citizens, and not just the corprate elite.

I looked up Dubya college grades at Yale for his Economics and Political Science classes
*Note - Gore wasn't the class poster child on this for grades either, but where and when I went to school, a 69 was an F, and 70 to 73 was D- .

Bush's good side

 

[KenGr]

Originally posted by: CaptnKirk
Lets see - if the tax cuts provide a million jobs, that makes $ 550,000 for each job created.
Wouldn't it be a little less expensive to hire those million people at $ 25,000 each and
put them to work fixing streets, highways, bridges, or even working at Mc Donalds ?
Saves a lot more money, but the wealthy don't get their cut for bankrolling the Republicans.

Whether or not you realized it, this is just copied from Paul Krugman's recent column on the tax cut. This was another column that, for a Nobel winning economist, is just plain embarrassing. It missed/ignored a few facts. Such as, the million jobs is just an estimate and the tax cut does more than just create jobs. The jobs created were assumed by Krugman to last one year exactly and then, apparently disappear. The tax cut was assumed to occur immediately, all in one year instead of spread over 10 years (or wages and inflation were assumed to freeze for 10 years). It also assumed that none of those "new jobs" would be taken by people who will then pay taxes. Finally, the numbers it used don't correspond to the tax cut which was passed or the one which was under consideration at the time the column was published.

Independent assessments estimate the "cost per job" (I personally don't consider a tax cut a "cost") of $20,000 to $45,000. But, after all, what's a factor of 10 or 20 to a New York Times columnist.

 

[glugglug]

Originally posted by: CaptnKirk
Lets see - if the tax cuts provide a million jobs, that makes $ 550,000 for each job created.
Wouldn't it be a little less expensive to hire those million people at $ 25,000 each and
put them to work fixing streets, highways, bridges, or even working at Mc Donalds ?
Saves a lot more money, but the wealthy don't get their cut for bankrolling the Republicans.

You may be on to something....
Now that we've taken over Iraq its time to build some McDonald's there. This prevents them from going to war with us again as no nation with a McDonald's has ever gone to war with the U.S. Once those McDonald's are built, we'll take over Syria and Iran and put McDonald's there too. All these McDonald's will provide a boatload of newly created American jobs.

 

[JellyBaby]

You may be on to something....
Now that we've taken over Iraq its time to build some McDonald's there. This prevents them from going to war with us again as no nation with a McDonald's has ever gone to war with the U.S. Once those McDonald's are built, we'll take over Syria and Iran and put McDonald's there too. All these McDonald's will provide a boatload of newly created American jobs.

That will only work until the radical Islamic Entrepreneurialists create MeccaDonalds. Fries can be Muhammad-sized for only an extra 10 denars and all stores are oriented eastward to facilitate proper prayer to Allah!

 

[sMiLeYz]

Originally posted by: Dr Smooth

Originally posted by: tnitsuj
If the tax cut fails to stimulate the economy what are the posible consequences down the line for the government, the taxpayer, and the economy as a whole?

Bush probably will not be the next president of the US.

Which can only be a good thing for the american people.

 

[LunarRay]

I don't agree with the basic premise of this but, it is interesting I thought.

Deman side dogma ... comments against or for?