The Economist graphs what has contributed to the U.S. federal deficit (wars, TARP...)

[daishi5]

You serious? Hint: During a Recession Consumers are Reluctant to Spend. Like I said, you want to be sure, you Spend, not hope others do.

Let's assume for a moment that we Know that Consumers will Spend X% of any Tax Cut: 1) They will only Spend, predictably, X%; 2) So if you Need $Y into the Economy and are going to use Tax Cuts, the amount of Taxes cut has to take into that the Tax Cuts have to Amount Z so that X% is achieved.

That shit is not efficient and given the need of this current Recession to get the Stimulation necessary, it would exceed the Amount of Taxes Collected. aka, you would have to give a Tax Free Year across the board.

Also note that whether Government Spends or gives a Tax Cut, it is going to have to Increase the Deficit. So if Government is going to take on a large Deficit, it should not dicker around with questionable procedures.

I need to hope they spend? Are you even remotely aware of the savings rate in the United States? It was 4-5% during 2009, the worst recession in over 50 years, and people only save 4 to 5 cents of every dollar they earn. Do you believe a tax rebate is somehow magically different that people will treat that income as special, and not spend it while they spend 95% of every other form of income they earn?

http://www.bea.gov/BRIEFRM/SAVING.HTM

http://www.recovery.gov/Pages/home.aspx states that around 58 Billion has been received, when we budgeted 700 billion dollars. They have awarded 200 Billion dollars. If we need to be sure they spend the money why are we relying on a government that is so slow to spend the money, when the american people are guaranteed to spend the money?

Yes, both of them result in deficits, however you are completely wrong if you imply that the government will be faster and more reliable in actually spending the money. For the American people to spend less than 95% of the money we give them in one year would be almost unheard of. The government pledged 700 Billion and so far has given out less than 10%.

And finally, money saved is not the same thing as money not spent. Money that is put into almost any form of savings besides a matress is an investment, which is loaned out to other people. This lowers the cost of capital, which if companies are going to expand to meet the rise in demand, they need capital. When you choose to save money, you are actually choosing to give it to someone else to spend in return for a part of their increased income in the future. So, even money that is saved is spent by someone else.

 

[Jhhnn]

Lemme see... if people get a taxcut, they'll spend it, probably on more chinese trinkets... if the govt spends the money instead, they'll probably hire americans to build a road, or teach school or some other such nonsense... maybe increase emergency preparedness, step in to provide funds for projects and maintenance that states and munis have put off because of their drop in revenues... nah, couldn't be...

Every Rightie in the country craves a taxcut, because it's all about them...

 

[sandorski]

I need to hope they spend? Are you even remotely aware of the savings rate in the United States? It was 4-5% during 2009, the worst recession in over 50 years, and people only save 4 to 5 cents of every dollar they earn. Do you believe a tax rebate is somehow magically different that people will treat that income as special, and not spend it while they spend 95% of every other form of income they earn?

http://www.bea.gov/BRIEFRM/SAVING.HTM

http://www.recovery.gov/Pages/home.aspx states that around 58 Billion has been received, when we budgeted 700 billion dollars. They have awarded 200 Billion dollars. If we need to be sure they spend the money why are we relying on a government that is so slow to spend the money, when the american people are guaranteed to spend the money?

Yes, both of them result in deficits, however you are completely wrong if you imply that the government will be faster and more reliable in actually spending the money. For the American people to spend less than 95% of the money we give them in one year would be almost unheard of. The government pledged 700 Billion and so far has given out less than 10%.

And finally, money saved is not the same thing as money not spent. Money that is put into almost any form of savings besides a matress is an investment, which is loaned out to other people. This lowers the cost of capital, which if companies are going to expand to meet the rise in demand, they need capital. When you choose to save money, you are actually choosing to give it to someone else to spend in return for a part of their increased income in the future. So, even money that is saved is spent by someone else.

The Savings Rate only verifies one of my points. People are reluctant to Spend. Before this Recession, the Savings Rate was near 0 and/or Negative. Again, you are engaged in wishful thinking.

How much cheaper can Credit get than 0%?

 

[daishi5]

Thank you for addressing the actual material I provided. A few points in response.

While you are correct that the Treasury Department did not provide any conclusions on the revenue side, the first link I provided bases its conclusions on an analysis of the TD data that was done by the Congressional Research Service, which I gather is something like the CBO but a different agency. There is an open access website for the CRS reports but not all of them are online and it is difficult to search so I can't find that particular study.

Your substantive point is more interesting, however. You are pointing to the fact that tax revenues as a percent of GDP went up in 2006 and 2007. First of all, please note that the link I provided says that tax revenues will decline by an amount equal to 1.27% of GDP, not that the revenue/GDP ratio will decline by that amount. I assume there are other variables affecting that statistic than Bush's tax cut.

The salient point here is this - the theory of tax cuts "paying for themselves" is not that revenue in relation to GDP will be unchanged. It is assumed that this ratio will be negatiely affected by the tax cut, but rather, that the tax cut will increase the actual GDP, meaning that tax revenues are a smaller portion of a larger pie. On that score, the Bush taxes cut does not fare very well, as economic growth, which peaked in 2004, declined through 2005, 2006, and 2007, then ultimately became negative in 2008. This does not disprove the stimulatory effect of his tax cut as there are obviously other variables, but it doesn't bode all that well for them either.

As to why the ratio peaked back up in 2007 and 2008, I don't know. As I said, I assume there are other variables that will affect the ratio. I am aware that there is a theory that changes in the tax rate don't affect revenues all that much. It is a controversial theory. Reagan lowered the top bracket rate from something like 70% to 30 something percent, and it didn't have the dramatic effect on revenues that one might think, but if memory serves, that was because the prior top end rate was largely illusory. There were massive loopholes and top earners were not actually paying anything near the stated rate, and many of those loopholes were closed when the rate was lowered. What I am saying here is that when tax rates undergo seemingly large changes, other measures may be enacted to blunt what would otherwise be a dramatic change in revenue, because there is no intent to change the revenue base to such a large extent. The theory is that for some mystical and unexplained reason, the revenues never change substantially when tax rates are raised or lowered, but in reality the intent with a given tax cut or increase at a given time may be to effect small and measured changes in revenue rather than larger changes.

BTW, the discussion in these past couple of pages of this thread are of a higher caliber than is typical at P&N, but that is just IMO.

- wolf

I have to be honest, I started reviewing the study, found no reference to the 10% of cost, then started reviewing the first link. As I started looking, I discovered that they discussed the cost of the deficit by showing how much Bush had lowered the tax revenues as a % of GDP. They picked two dates, the highest tax revenue as a % of GDP in history and the second lowest rate in history to prove that he had caused tax revenues as a % of GDP to drop almost 3.5%. (Note, I am giving them benefit of the doubt, and assuming the second date was corrected at a later date to be around the normal %, but they did understate the second date by .8%) After I saw cherry picking of the data points, and an earlier statement where they twisted a reduction in the labor force due to increased income into meaning larger unemployment I just stopped reading.

However, to be clear I have never stated I believed tax cuts pay for themselves, in a long term balanced budget government tax cuts are a form of deficit spending. I was merely addressing the links and their claims.

Going back to the original discussion

Your substantive point is more interesting, however. You are pointing to the fact that tax revenues as a percent of GDP went up in 2006 and 2007. First of all, please note that the link I provided says that tax revenues will decline by an amount equal to 1.27% of GDP, not that the revenue/GDP ratio will decline by that amount. I assume there are other variables affecting that statistic than Bush's tax cut.

I think both of those are the same thing. For example we have a GDP of $1,000 and a tax revenue equal to 10% of GDP, or $100 revenue. If we lose income equal 1.2% of GDP, we lose 12 dollars, which brings us to revenue of 8.8% of GDP, a reduction of revenue as a % of GDP of 1.2%. If they define the cost of the tax cut as being, a reduction in tax revenue equal to a % of GDP, then if our tax revenue as a % of GDP goes back up, the cost has in effect gone down. I really would need to see more of how they made their assumptions to know if I am not understanding something, but from what I see in the tax data it appears that their assumption regarding reduced tax revenue is false. Therefore their conclusions regarding the cost of the tax cuts are also false, although it does not mean that they are wrong about the tax cuts not paying for themselves.

From my point of view, this really does not make sense, I am not saying I fully believe what I am seeing from the data, because it almost seems like we gave people tax cuts without actually cutting government revenue. It is almost like we took $5 less from each person, but at the end of the day, we still had their $5 dollars, and so did they.

 

[daishi5]

The Savings Rate only verifies one of my points. People are reluctant to Spend. Before this Recession, the Savings Rate was near 0 and/or Negative. Again, you are engaged in wishful thinking.

How much cheaper can Credit get than 0%?

Umm, yes, people do not spend all of their money. But, how would Americans spending only 95% of money they are given equate to being less likely to spend then the american government who has awarded 200B dollars, but only 58B has been received. The government has spent 29%. Is 95 less than 29? And just for the record, you have said

3) In short, No. Businesses are not just going to spend money unless they can see some sort of Return. When the Economy turns down they are primarily concerned with Lowering Costs, not increasing them. Stimulation does not come from Private Industry spending in Anticipation, it comes from Government Buying things.

"Opinion", nah, it's just Common Sense. It may not always be the case, I mean People/Business may see an extra $X in their Pocket and rush out and buy trinkets. However, People/Business already have $ to buy trinkets, but they are not because they lack confidence in the future. This is why Government Spending is the best course to take. The Government is not going to sit around second guessing the decision, they'll buy shit. What the Government Buys is also very different and usually has Longterm benefit and/or was needed anyway. Roads, Bridges, Sewer/Water systems, Airports/Railways, etc etc etc. Not only do those things improve Infrastructure, but they also Employ many People. Thus providing Incomes down to the Working Class, a sense of Financial Security, Confidence in the future, and last but not least something to do rather than fret(related to previous point).

Tax Cuts are just a shot in the dark in comparison. Sure, you could do it. It may even work, but while you're waiting to see if it did work, things can be getting much worse on the Street compounding the problems further. Economic Downturns such as this should not be treated in a casual manner, they are very serious and demand swift action, not Ideological Experimentation.

So, you stated the government would not sit around and second guess, they would go out and buy shit. I have data that shows that when you give people money, that in that year they will spend 95% of it, or in other words, they go out and buy shit. However, at the same time, the Government has spent at a much lower rate then the american people. If you want swift action, citizens spend 95% in one year, the government less than 30%. Do you have any evidence at all to back up your idealogical statement that the government will spend money faster than the citizens will?

 

[sandorski]

Umm, yes, people do not spend all of their money. But, how would Americans spending only 95% of money they are given equate to being less likely to spend then the american government who has awarded 200B dollars, but only 58B has been received. The government has spent 29%. Is 95 less than 29? And just for the record, you have said

So, you stated the government would not sit around and second guess, they would go out and buy shit. I have data that shows that when you give people money, that in that year they will spend 95% of it, or in other words, they go out and buy shit. However, at the same time, the Government has spent at a much lower rate then the american people. If you want swift action, citizens spend 95% in one year, the government less than 30%. Do you have any evidence at all to back up your idealogical statement that the government will spend money faster than the citizens will?

1) Your Math is screwy nonsense.
2) Like I said, prior to this Recession Consumers were Spending 100% or more of their Income. The current 95% shows a Contraction in Spending and there is No Guarantee that it would stay at 95% if you gave them more money. It is equally likely that the % would drop and Savings Rate Increase.

 

[daishi5]

1) Your Math is screwy nonsense.
2) Like I said, prior to this Recession Consumers were Spending 100% or more of their Income. The current 95% shows a Contraction in Spending and there is No Guarantee that it would stay at 95% if you gave them more money. It is equally likely that the % would drop and Savings Rate Increase.

My math is screwy nonsense? How so?
And your belief that tax cuts are bad are based on "the savings rate might go up even higher?"

Let us go over this one more time the savings rate in the US is 5%, if it doubled and we gave the american people 200B dollars, they would spend 190B dollars within the year. In 2009 the American Government awarded 200B dollars, and has given out 58B. You stated we needed swift spending by people who would not just sit on the money.

 

[sandorski]

My math is screwy nonsense? How so?
And your belief that tax cuts are bad are based on "the savings rate might go up even higher?"

Let us go over this one more time the savings rate in the US is 5%, if it doubled and we gave the american people 200B dollars, they would spend 190B dollars within the year. In 2009 the American Government awarded 200B dollars, and has given out 58B. You stated we needed swift spending by people who would not just sit on the money.

Still nonsense. What do any of those numbers have to do with one another?

You are Assuming they'd Spend 95% of whatever you gave them. That assumption can not be made with any degree of Confidence. Utter nonsense.

 

[werepossum]

1) Your Math is screwy nonsense.
2) Like I said, prior to this Recession Consumers were Spending 100% or more of their Income. The current 95% shows a Contraction in Spending and there is No Guarantee that it would stay at 95% if you gave them more money. It is equally likely that the % would drop and Savings Rate Increase.

Kid, not taking people's money does not equal giving them money, unless you are a total Marxist and believe government owns everything. Even the Soviets allowed and the Red Chinese allow people to keep some part of their earnings without claiming that money to be a gift from government. Only North Korea and American liberals claim that a tax cut is a gift from government.

 

[Jhhnn]

Kid, not taking people's money does not equal giving them money, unless you are a total Marxist and believe government owns everything. Even the Soviets allowed and the Red Chinese allow people to keep some part of their earnings without claiming that money to be a gift from government. Only North Korea and American liberals claim that a tax cut is a gift from government.

Mere semantic duh-version and obfuscation, a chance to pounce and spout slogans...

 

[daishi5]

Still nonsense. What do any of those numbers have to do with one another?

You are Assuming they'd Spend 95% of whatever you gave them. That assumption can not be made with any degree of Confidence. Utter nonsense.

So you honestly believe that a nation of 300 million people who spent 95% of their discretionary income, is going to suddenly change their spending habits when they get some more money? Do you realize your argument now rests on the people of america all at once deciding to completely change their behavior just because we gave them some free money?

Oh, and those numbers, which numbers? Are you referring to the 200 billion dollars, the 190 billion, and the 58 billion. The 200 billion dollars is how much the government has already awarded, direct from recovery.gov, the 58 billion is how much money they have actually given out, also from recovery.gov. The 190 billion is how much money the american people would spend if we gave them the money directly, and the all decided to save at twice the rate as they have all year. (note, I doubled the savings rate, which is way more then any change in spending behavior I could rationally believe would happen.) Can you tell me how those numbers are nonsense, I think I explained how I came up with them clearly.

 

[sandorski]

Kid, not taking people's money does not equal giving them money, unless you are a total Marxist and believe government owns everything. Even the Soviets allowed and the Red Chinese allow people to keep some part of their earnings without claiming that money to be a gift from government. Only North Korea and American liberals claim that a tax cut is a gift from government.

Ok, minor point, but a point.

 

[daishi5]

Ok, minor point, but a point.

Not really, I have to side with you on this, because we keep spending the taxes we don't collect. So it is a gift, which we are financing with debt.

 

[sandorski]

Not really, I have to side with you on this, because we keep spending the taxes we don't collect. So it is a gift, which we are financing with debt.

That's a point too. werepossum was getting into another issue entirely, so I just glossed over the response to avoid another tangent of discussion.

 

[werepossum]

Not really, I have to side with you on this, because we keep spending the taxes we don't collect. So it is a gift, which we are financing with debt.

Bullshit. Spending has little to do with taxes. If an individual is given a tax break and also a government stipend you could make some sort of connection. But the vast majority of spending is on either public projects or entitlements. If a thief takes your wallet and not your watch you don't thank him for the gift of your watch because the watch was yours to begin with. A gift by definition is something which was not yours. Only if you take the position that government automatically owns everything could a tax break be considered a gift. When you describe a tax cut as a gift you automatically cede to the government rightful ownership of your income. Since you have ceded to the government the right to the fruits of your labor you have effectively made yourself property. The economic system under which one entity owns the product of an individual's labor is slavery.

 

[sandorski]

Bullshit. Spending has little to do with taxes. If an individual is given a tax break and also a government stipend you could make some sort of connection. But the vast majority of spending is on either public projects or entitlements. If a thief takes your wallet and not your watch you don't thank him for the gift of your watch because the watch was yours to begin with. A gift by definition is something which was not yours. Only if you take the position that government automatically owns everything could a tax break be considered a gift. When you describe a tax cut as a gift you automatically cede to the government rightful ownership of your income. Since you have ceded to the government the right to the fruits of your labor you have effectively made yourself property. The economic system under which one entity owns the product of an individual's labor is slavery.

Oy vey. Sell your vehicles, turn off your Water/Sewage, don't call 9/11 or Emergency Services, cancel your Phone/Internet, etc etc etc.

Your rhetoric may seem reasonable to you, but it's not.

 

[Specop 007]

Yup. When asked repeatedly, not one person would even attempt to answer the question: What Programs has Obama initiated that has contributed to the Deficit?

It was simply ignored or whined about. They all know the Truth of it, just trying to score cheap Political points for some reason that only makes sense to them.

Thats an easy answer.

No new programs as of yet, but a continuation of all the old ones. I suppose that just makes it all ok doesnt it?

Why is it the answer to budget problems is always raise taxes, take more from the people? Always. What happened to spend less?

 

[QuantumPion]

Lemme see... if people get a taxcut, they'll spend it, probably on more chinese trinkets... if the govt spends the money instead, they'll probably hire americans to build a road, or teach school or some other such nonsense... maybe increase emergency preparedness, step in to provide funds for projects and maintenance that states and munis have put off because of their drop in revenues... nah, couldn't be...

Every Rightie in the country craves a taxcut, because it's all about them...

You are living in a fantasy land full of wishes and good intentions and ignoring reality. The stimulus bill has done none of those things. Primarily the money has been given to state governments to balance their budgets in the face of decreasing tax revenues. Sure, some roads have been fixed up, but states already have employees that do that sort of thing anyway. Maybe some union workers get some extra work to do, but no new jobs have been created.

Why don't you ask some Walmart employees if they think Americans buying Chinese crap is bad for them. Or the truck drivers that deliver the crap to the warehouses. Or the dock workers that unload the boats. Or the accountants and managers that schedule all the deliveries. Or the retired people whose income comes from the stock they own in those companies.

 

[sandorski]

Thats an easy answer.

No new programs as of yet, but a continuation of all the old ones. I suppose that just makes it all ok doesnt it?

Why is it the answer to budget problems is always raise taxes, take more from the people? Always. What happened to spend less?

It isn't, anymore than "Spend Less" is the sole answer only. Do both or Fail.

 

[sandorski]

You are living in a fantasy land full of wishes and good intentions and ignoring reality. The stimulus bill has done none of those things. Primarily the money has been given to state governments to balance their budgets in the face of decreasing tax revenues. Sure, some roads have been fixed up, but states already have employees that do that sort of thing anyway. Maybe some union workers get some extra work to do, but no new jobs have been created.

Why don't you ask some Walmart employees if they think Americans buying Chinese crap is bad for them. Or the truck drivers that deliver the crap to the warehouses. Or the dock workers that unload the boats. Or the accountants and managers that schedule all the deliveries. Or the retired people whose income comes from the stock they own in those companies.

Thanks to the Feds funding State Governments at this time.

 

[zephyrprime]

So, you stated the government would not sit around and second guess, they would go out and buy shit. I have data that shows that when you give people money, that in that year they will spend 95% of it, or in other words, they go out and buy shit. However, at the same time, the Government has spent at a much lower rate then the american people. If you want swift action, citizens spend 95% in one year, the government less than 30%. Do you have any evidence at all to back up your idealogical statement that the government will spend money faster than the citizens will?

It's actually a pretty well known joke that government stimulus spending is slow and out of touch. There was this famous case in the 70's when a recession ended before congress got around to passing a stimulus bill finally. Plus, a lot of the stuff congress buys is not the best stuff to spend on during a recession. E.G.: All of Japan's spending on infrastructure. Infrastructure takes a long time to get you your return on investment. Also, infrastructure use declines during a recession. For sheer speed, I agree with you that you cannot beat consumer spending. Government spending is very slow in comparison.

However, I do not think that the whole issue of the gov spending only 29% while the consumer spends 95% is an issue. The government is borrowing all the money it is spending on stimulus so the 71% that hasn't been spent yet hasn't necessary been borrowed yet either. Because the money is borrowed rather than being a big pile of money sitting around somewhere, the remaining 71% of $700B isn't necessarily being underutilized at the current moment.

 

[daishi5]

It's actually a pretty well known joke that government stimulus spending is slow and out of touch. There was this famous case in the 70's when a recession ended before congress got around to passing a stimulus bill finally. Plus, a lot of the stuff congress buys is not the best stuff to spend on during a recession. E.G.: All of Japan's spending on infrastructure. Infrastructure takes a long time to get you your return on investment. Also, infrastructure use declines during a recession. For sheer speed, I agree with you that you cannot beat consumer spending. Government spending is very slow in comparison.

However, I do not think that the whole issue of the gov spending only 29% while the consumer spends 95% is an issue. The government is borrowing all the money it is spending on stimulus so the 71% that hasn't been spent yet hasn't necessary been borrowed yet either. Because the money is borrowed rather than being a big pile of money sitting around somewhere, the remaining 71% of $700B isn't necessarily being underutilized at the current moment.

I don't think it is a joke, it is a result of the nature of government spending. Each decision the government makes needs to be planned at least to some degree, if they spend $700B, $20 at a time, they need to make 35 billion decisions that are all very minor, but they still need to make and document them. Very inefficient, very high overhead. At the other end of the spectrum, they can make $100 million dollar decisions, and only need to make a 1,000. Only now, they need a lot of thought and planning. Finding, planning, and executing a spending project worth $100 million is going to be slow, because it needs to be done right. Tax refunds are a fast form of stimulus where you just basically inject unexpected money into the system, spending projects are slow stimulus that injects expected money into the system.

I think the stimulus plan needed to dedicate some more money to a tax rebate at the start, just to give the economy a fast "fix" or kick in the pants, while the spending projects started to get moving. I think too many people think that it is either tax cuts or spending, when both can be used in a more comprehensive plan. But, I still think the big stimulus plan can help with recovering from a major long term recession.

 

[Darwin333]

1) Your Math is screwy nonsense.
2) Like I said, prior to this Recession Consumers were Spending 100% or more of their Income. The current 95% shows a Contraction in Spending and there is No Guarantee that it would stay at 95% if you gave them more money. It is equally likely that the % would drop and Savings Rate Increase.

He still makes a valid point. For the sake of argument, lets say consumers will spend 80% of any tax break, it still gets into the economy quicker than the governments current rate.

IMO, targeted tax cuts sound like they would work even better. You entice consumers to leverage their own money with the tax cuts so that you can stimulate specific sectors that will have the most desired affect. Kind of like government tax credits for renewable energy, you get consumers ponying up some of their own money so it doesn't cost the gov the full amount, you get consumers investing in sectors that the government wants and you can be reasonably sure where the money will be going.

 

[sandorski]

He still makes a valid point. For the sake of argument, lets say consumers will spend 80% of any tax break, it still gets into the economy quicker than the governments current rate.

IMO, targeted tax cuts sound like they would work even better. You entice consumers to leverage their own money with the tax cuts so that you can stimulate specific sectors that will have the most desired affect. Kind of like government tax credits for renewable energy, you get consumers ponying up some of their own money so it doesn't cost the gov the full amount, you get consumers investing in sectors that the government wants and you can be reasonably sure where the money will be going.

Targeted Tax Incentives(I wouldn't really call them "Cuts") probably would be a good thing. C4C was such a Program. I think many of those are already been implemented, if so, some new ones would seem appropriate.