raise income tax bracket rates to create economic/job growth

[jdw_fire]

in an earlier thread i postulated that raising income tax rates would increase employment and create more investment in business. you can find my 1st post in that thread (there are many more that follow it) here http://www.early-retirement.org/for...at-do-we-really-want-56805-6.html#post1088362. suffice it to say, that opinion didnt seem to go over well but i just heard a statistic today that, to me, supports my statement that at lower tax rates business owners are more likely to take the business profit (hence paying tax on them). that statistic (announced on CNBC) is that business profit as a percentage of GDP just hit a 60 year high. it isnt a huge leap, considering the low growth in GDP and the high unemployment rate, to recognize that those record profits arent being used to increase/update equipment or hire new employees in that company (if they were they wouldnt be profits anymore) thus producing economic/job growth but instead are being obtained by cost cutting (including firing employees). the profits are then just being extracted from, or being held as cash in, the companies, neither of which grows the company or the economy. i am making the argument that todays low tax rate environment is encourging this action and that raising the tax bracket rates would provide incentive to business owners to reinvest those profits in their companies thus producing economic/job growth.

let the flaming begin.

 

[ERD50]

I would like to continue that discussion (I had some errors in one of those posts, and I would like to correct that). But that thread was closed, I don't know if my postings contributed to the closing or if it was other posts, but I don't want to continue if it is seen as trying to circumvent the moderator's efforts.

At any rate, I'll be out most of today and tomorrow, so may not get a chance to post much anyway. Also, in one of those posts I tried to characterize your view rather than just sticking to commenting on the numbers. In retrospect, I see that was not constructive and I will avoid it in any future posts. I think it was a worthwhile discussion overall.

-ERD50

 

[jdw_fire]

I would like to continue that discussion (I had some errors in one of those posts, and I would like to correct that). But that thread was closed, I don't know if my postings contributed to the closing or if it was other posts, but I don't want to continue if it is seen as trying to circumvent the moderator's efforts.

At any rate, I'll be out most of today and tomorrow, so may not get a chance to post much anyway. Also, in one of those posts I tried to characterize your view rather than just sticking to commenting on the numbers. In retrospect, I see that was not constructive and I will avoid it in any future posts. I think it was a worthwhile discussion overall.

-ERD50

i dont mean to be circumventing the moderators efforts either so i will stop if this does (moderators, please let me know) but i think it is obvious that alot of the current thinking on this board supports the idea of tax cuts stimulating investment in domestic business (which actually didnt happen with the Bush tax cuts) and this alternate view is important to discuss. i really think those people are over looking the behavior that actually happened by people in those higher tax brackets when the top rates were higher.

back when the top tax rates were higher there were seminars and courses teaching a major tax reduction play, which i dont see much of now that the top tax rate isnt so high. this tax reduction play was to start a small business and invest in it to create a tax write off by either expensing or capitalizing/depreciating that investment. if creating a non profitable business actually made sense from a tax perspective for tax payers in the top tax brackets why, if the top tax brackets were higher, wouldnt owners of successful/profitable small businesses who were in the top tax brackets be motivated to take would be profits and find some meaningful way to invest said profits in their business so as to not have to pay tax on a profit? this would have a duel advantage for the small business owner of growing their company through increased investment and avoiding paying taxes at the higher tax rates. and this would have the benefit for the US of increased economic activity and/or job creation.

 

[Texas Proud]

in an earlier thread i postulated that raising income tax rates would increase employment and create more investment in business. you can find my 1st post in that thread (there are many more that follow it) here http://www.early-retirement.org/for...at-do-we-really-want-56805-6.html#post1088362. suffice it to say, that opinion didnt seem to go over well but i just heard a statistic today that, to me, supports my statement that at lower tax rates business owners are more likely to take the business profit (hence paying tax on them). that statistic (announced on CNBC) is that business profit as a percentage of GDP just hit a 60 year high. it isnt a huge leap, considering the low growth in GDP and the high unemployment rate, to recognize that those record profits arent being used to increase/update equipment or hire new employees in that company (if they were they wouldnt be profits anymore) thus producing economic/job growth but instead are being obtained by cost cutting (including firing employees). the profits are then just being extracted from, or being held as cash in, the companies, neither of which grows the company or the economy. i am making the argument that todays low tax rate environment is encourging this action and that raising the tax bracket rates would provide incentive to business owners to reinvest those profits in their companies thus producing economic/job growth.

let the flaming begin.

No flame.... just that historical data seems to prove you wrong... but I am not going to do the research for ya...

I would like to point out a flaw in your thinking... that the business owner 'keeping' the profits keeps it from being invested.... where do you think that the business owner is going to do with all that cash Hide it in his mattress No, it is very likely that he will invest this money in some money making way... and that money making way is not as swayed by taxes... which means a lower tax puts capital to its best use.... and that higher taxes puts capital to use in tax schemes that might not be the best use of capital....

I remember way back when... during my MBA courses that our economic teacher would tell us that there is a difference in micro and macro economics.... so what might or might not be good at the micro level does not mean it is the same at the macro.... you keep talking about a busines owner (micro) making a decision based on a macro policy... sure, some might do as you say for the reasons you say... but in the macro economics it does not hold up....

 

[eridanus]

No flame.... just that historical data seems to prove you wrong... but I am not going to do the research for ya...

The historical evidence for tax cuts in no way supports the theory that tax cuts favor increased job investment activity. The Bush tax cuts are only the latest example. Likewise, I'm not going to do the research for you...just be aware that a lot of the charts out there have cherry picked data.

 

[ziggy29]

The historical evidence for tax cuts in no way supports the theory that tax cuts favor increased job investment activity. The Bush tax cuts are only the latest example. Likewise, I'm not going to do the research for you...just be aware that a lot of the charts out there have cherry picked data.

Let's just say this -- in terms of tax cuts and economic recovery, I think in the Reagan years it worked (or at the very least, appeared to work). Whether or not it was mostly the tax reform, the use of increased public debt, the cyclical nature of economics or something else, the bottom line is that taxes were (mostly) cut and the economy boomed in the 1980s. This is the most enduring remnant of the so-called "Reagan Revolution," I think -- the idea, even among the middle/working class, that cutting taxes across the board will create a rising tide that will lift *all* boats.

The problem is, I have seen little evidence to suggest it has worked after that time.... except to pad corporate profits and help the economic elite become even more elite. Tax cuts haven't "trickled down" to higher wages and more jobs since the 1980s. They have produced more private wealth, arguably, but that is largely gained by a relatively small percentage of people. Certainly not the average working person. The tide may be rising overall, but only a few boats are rising. Most are beginning to take on water.

I'm not suggesting tax hikes are the answer -- but it looks to me that nothing that's happened on a macroeceonomic scale since the turn of the millenium has done anything to help the retirement prospects of most folks, especially in the private sector.

 

[Texas Proud]

The historical evidence for tax cuts in no way supports the theory that tax cuts favor increased job investment activity. The Bush tax cuts are only the latest example. Likewise, I'm not going to do the research for you...just be aware that a lot of the charts out there have cherry picked data.

You did the false assumption that a lot of people do... going completly to the other side from the stmt that I made...

I did not say that tax cuts favored increased job investment activity... I said there is eveidence that tax increases do not...

 

[eridanus]

You did the false assumption that a lot of people do... going completly to the other side from the stmt that I made...

I did not say that tax cuts favored increased job investment activity... I said there is eveidence that tax increases do not...

just that historical data seems to prove you wrong

I wasn't sure of what you meant by that statement so, yeah, I made an assumption.

What about the Clinton tax increases? They preceded a booming economy. Ahh, one could say, that was because of A and B and C but not tax increases! What about those super-high tax rates and a good economy in the 1950s? No, no, that, too, was different because of X, Y, and Z.

I don't know if I trust "evidence" in economics. It might work in game theory but there are too many variables in the real world. Is voodoo economics really the panacea it's claimed to be? Was Keynes right? Is the gold standard all that? Why is the Finnish economy doing so well even with their socialized healthcare and nanny state? Why does Alaska mooch off the rest of us even with their huge oil sales and trust fund?

 

[jdw_fire]

No flame.... just that historical data seems to prove you wrong... but I am not going to do the research for ya...

you are the 1 making the assertion that there is historical data that supports your statement. i have 2 comments: 1) it is your statement so it is up to you to support it, not mine. 2) it is funny that when i have pointed out times where there was economic growth in the US after tax increases (eg. during the clinton administration) or the converse that tax cuts didnt produce growth (eg. g. w. bush administration) there is always the response that there are so many things in the economy that can influence the growth i am not allowed to make a cause/effect argument of higher taxes to higher growth. therefore why should you be allowed to make a cause/effect argument of lower taxes to higher growth?

and another thing, if the cause/effect relation to tax levels could be made, what makes you think that how the economy reacts to a tax cut isnt similar to the way tax revenues react to tax cuts? if the 2 curves are similar then there are points where tax increases increase economic growth just like there are points where tax increases increase tax revenues.

as a direct response: history also proves you incorrect and therefore me correct (eg. 1990's and 2000's)

I would like to point out a flaw in your thinking... that the business owner 'keeping' the profits keeps it from being invested.... where do you think that the business owner is going to do with all that cash Hide it in his mattress No, it is very likely that he will invest this money in some money making way... and that money making way is not as swayed by taxes... which means a lower tax puts capital to its best use.... and that higher taxes puts capital to use in tax schemes that might not be the best use of capital....

if your theory is that investing in the stock or bond market produces economic growth in the country, then that is something not born out by the recent run ups in the US stock market (mid 2000's and early 2010's). an investment in the stock or bond market (unless in an IPO or an initial bond issue) doesnt provide the company whos stock/bond you buy those funds, so what makes you think that investment of funds will in any way be an investment in equipment or jobs leading to growing the economy or producing jobs? if more investment in the stock/bond markets produced economic growth, please explain why our economy is doing so poorly right now considering all the money that was put into the stock and bond markets since march 2009.

I remember way back when... during my MBA courses that our economic teacher would tell us that there is a difference in micro and macro economics.... so what might or might not be good at the micro level does not mean it is the same at the macro.... you keep talking about a busines owner (micro) making a decision based on a macro policy... sure, some might do as you say for the reasons you say... but in the macro economics it does not hold up....

well if you look at macro economics as global economics then US economics are micro to that.

as i said earlier (previous thread) if the most efficient use of funds is for said funds to flow off shore to another country why would that help economic/job growth in the US and why would we want that? raising the higher tax bracket rates would actually keep the investment (made as a result of that higher tax bracket rate) in this country, thus producing economic/job growth in this country.

 

[jdw_fire]

Let's just say this -- in terms of tax cuts and economic recovery, I think in the Reagan years it worked (or at the very least, appeared to work). Whether or not it was mostly the tax reform, the use of increased public debt, the cyclical nature of economics or something else, the bottom line is that taxes were (mostly) cut and the economy boomed in the 1980s. This is the most enduring remnant of the so-called "Reagan Revolution," I think -- the idea, even among the middle/working class, that cutting taxes across the board will create a rising tide that will lift *all* boats.

The problem is, I have seen little evidence to suggest it has worked after that time.... except to pad corporate profits and help the economic elite become even more elite. Tax cuts haven't "trickled down" to higher wages and more jobs since the 1980s. They have produced more private wealth, arguably, but that is largely gained by a relatively small percentage of people. Certainly not the average working person. The tide may be rising overall, but only a few boats are rising. Most are beginning to take on water.

I'm not suggesting tax hikes are the answer -- but it looks to me that nothing that's happened on a macroeceonomic scale since the turn of the millenium has done anything to help the retirement prospects of most folks, especially in the private sector.

maybe it was the huge amount of deficit that improved the economy during the reagan administration (anyone heard of keynes?)

 

[Texas Proud]

I wasn't sure of what you meant by that statement so, yeah, I made an assumption.

What about the Clinton tax increases? They preceded a booming economy. Ahh, one could say, that was because of A and B and C but not tax increases! What about those super-high tax rates and a good economy in the 1950s? No, no, that, too, was different because of X, Y, and Z.

I don't know if I trust "evidence" in economics. It might work in game theory but there are too many variables in the real world. Is voodoo economics really the panacea it's claimed to be? Was Keynes right? Is the gold standard all that? Why is the Finnish economy doing so well even with their socialized healthcare and nanny state? Why does Alaska mooch off the rest of us even with their huge oil sales and trust fund?

One of the big problems with this discussion is in your last paragraph... there ARE to many variables in the real world... the business cycle is a lot stronger motivator for investing than tax policy... IOW, if there are customers to be had and investing would make more money... the heck with the tax rate, let's make more....

But, there is not currently the demand to invest in higher employment because there are not customers for that employment... so higher taxes or lower taxes will not get people back to work... and as an accountant, I can say that most of the tax credits that have been put out there for business to hire have a lot of strings attached and do not work... our company did hire the last time and got burned since the owners could not use the research credits that were 'earned'....

I lived in the UK for a bit over a year.... I can say that a lot of people I talked to would invest their money offshore since the taxes were lower... it is kind of simple... invest here are pay higher taxes or invest 'there' and pay lower.... lower won most of the time if there was that option...

 

[BTravlin]

Before we go and raise tax rates I believe we should cut some of the fat out of the budget.

Senators urge end to US development aid to China - Yahoo! Finance

Seriously? If they're still wasting our money on a program like this I'm sure we can find many billions more quite easily.

 

[jdw_fire]

Before we go and raise tax rates I believe we should cut some of the fat out of the budget.

Senators urge end to US development aid to China - Yahoo! Finance

Seriously? If they're still wasting our money on a program like this I'm sure we can find many billions more quite easily.

i am in favor of both spending cuts and tax rate increases. i made the argument that tax rate increases would increase job/economic growth because someone asked for such a scenerio and 1 came to mind. i really think that the tax rates for the higher income levels are too low and this causes a number of problems for our country.

 

[Surewhitey]

Quite honestly, I am looking at FIRE for a few reasons. One is I'm tired of 50 cents of my earnings going to pay for other people's crapola. I pay 33% + 10% state + 6.2% + 10% sales tax + fees, taxes, etc...you name it, its taxed. I hope Mexico will be a bit better for consumers...

Just tired of being squeezed like a juicy lemon to make their Koolaid...
One more month!!!

 

[Surewhitey]

I also think business should be run on profits, not handouts & tax loopholes. I wonder what would happen if all these were taken away? I say sink or swim for the biz men.

I would love to give a flat tax or consumption tax a try, personally. Get rid of ALL deductions and live like we did back in the day...are we really doing "better" with this complex web we've weaved called government & tax system?

 

[BTravlin]

i am in favor of both spending cuts and tax rate increases. i made the argument that tax rate increases would increase job/economic growth because someone asked for such a scenerio and 1 came to mind. i really think that the tax rates for the higher income levels are too low and this causes a number of problems for our country.

I would agree to higher rates once they wring all the excess spending from the budget. I think we have a bit of a wait ahead of us.

And I don't believe that higher tax rates generate higher economic growth.

 

[ERD50]

i dont mean to be circumventing the moderators efforts either so i will stop if this does (moderators, please let me know) ...

Ok, looks like the water is safe...

Let me grab a few comments from the other thread. First, I want to make sure we have this framed properly, so we aren't trying to make different points and talk past each other. You said:

I can see how raising the tax rates at the higher income levels can lead to job and therefore economic growth.

I want to make sure we have this right - you are saying that overall, higher taxes would promote more economic growth than lower taxes? I want to be clear on that, because one can always make a single case for just about anything. But I think it's only relevant here if it applies generally. We are holding cap gains rates constant for this comparison, right?

If so, then let's base it on the cases I used from the previous thread, and label them "Case L" for relatively lower income tax rates, and "Case H" for relatively higher income tax rates. Let's spread it over 10 years.


Let's put numbers to it - Say a person has a $1M taxable gain each year. Let's look at 10 year results with 50% effective tax rates versus 25% effective tax rates:

Case H: @ 50% rates, $10M gain, $5.0M Tax, $5.0M Take Home
Case L: @ 25% rates, $10M gain, $2.5M Tax, $7.5M Take Home

So consider if they invest the first year profits at the beginning of the year, and assume they get 25% higher profits each year based on their investment for the next 10 years. That is $12.5M over the ten years minus the $1M reinvested = $11.5M

Case H: @ 50% rates, $11.5M gain, $5.750M Tax, $5.750M Take Home
Case L: @ 25% rates, $11.5M gain, $2.875M Tax, $8.625M Take Home

In the other thread, you wanted to factor in the increased value of the business if it was sold, at 10x the increased annual profits...

Case H: annual after-tax profit increase due to investment = $0.750M; x10 = $ 7.50M more sale value
Case L: annual after-tax profit increase due to investment = $1.125M; x10 = $11.25M more sale value

edit/add - each sale would be reduced by (an assumed) 15% cap gains rate, but .85 of each doesn't change anything.

So how can higher income tax rates motivate one to invest (compared to lower income tax rates, not compared to lower cap gains rates), when the result is less money in the pocket? That's not usually a motivator. Can you present numbers where it would do so?

I'm guessing your thinking is that cap gains rates being lower than income tax rates would drive a shift from income to cap gains (just like stock investors do with cap gains versus divs). OK. And the larger that delta, the larger the motivation to shift income types. But businesses don't have that much of a choice, do they? They hire people and invest to make products/services, and that profit from those activities is income. I don't think the average business in the US can turn investment into cap gains year after year. What would you do, grow your business and simultaneously sell off a chunk of it each year, staggering this each year for LT cap gains? Maybe there are a few cases where that could be done, but I don't think it applies generally, as in creating real sustainable job growth.

-ERD50

 

[ERD50]

Let's just say this -- in terms of tax cuts and economic recovery, I think in the Reagan years it worked (or at the very least, appeared to work). ...

... a lot of the current thinking on this board supports the idea of tax cuts stimulating investment in domestic business (which actually didnt happen with the Bush tax cuts) ...

I just can't see trying to derive anything from such a small sample with such a complex system.

And who can say that the last round of tax cuts didn't help to stimulate the economy? The economy isn't a laboratory where we can run two separate experiments and see the effects.

I think I made this analogy earlier, but I have great certainty that adding insulation will reduce my energy usage for the year. But there are a lot of variables, the weather can change, I can have more/less people in the house with different schedules, and the price of energy can change. So if I add insulation, and my bill does not go down, does that 'prove' that adding insulation is 'bad' for my energy usage? No, my bill would have been even worse w/o the insulation. So I can have a relative improvement over what might have been, even if it is negative in absolute terms in real life. Tax rates could be the same way, and we could have been even worse in the 2000's with higher taxes, or not. But it doesn't hold that because the economy was bad that it 'proves' lower taxes are 'bad' for the economy.

-ERD50

 

[veremchuka]

Keynesian economics, an abject failure.

"Free market capitalism is the best path to prosperity" as Larry Kudlow says every evening and I agree. On Jan. 20, 1981 Ronald Reagan said "In this present crisis, government is not the solution to our problem; government is the problem." and I agree with that also.

It's almost 2 am and I'm too tired to read beyond the op's comments but I will next time I come here.

 

[jdw_fire]

If so, then let's base it on the cases I used from the previous thread, and label them "Case L" for relatively lower income tax rates, and "Case H" for relatively higher income tax rates. Let's spread it over 10 years.


Let's put numbers to it - Say a person has a $1M taxable gain each year. Let's look at 10 year results with 50% effective tax rates versus 25% effective tax rates:

Case H: @ 50% rates, $10M gain, $5.0M Tax, $5.0M Take Home
Case L: @ 25% rates, $10M gain, $2.5M Tax, $7.5M Take Home

So consider if they invest the first year profits at the beginning of the year, and assume they get 25% higher profits each year based on their investment for the next 10 years. That is $12.5M over the ten years minus the $1M reinvested = $11.5M

Case H: @ 50% rates, $11.5M gain, $5.750M Tax, $5.750M Take Home
Case L: @ 25% rates, $11.5M gain, $2.875M Tax, $8.625M Take Home

In the other thread, you wanted to factor in the increased value of the business if it was sold, at 10x the increased annual profits...

Case H: annual after-tax profit increase due to investment = $0.750M; x10 = $ 7.50M more sale value
Case L: annual after-tax profit increase due to investment = $1.125M; x10 = $11.25M more sale value

edit/add - each sale would be reduced by (an assumed) 15% cap gains rate, but .85 of each doesn't change anything.

So how can higher income tax rates motivate one to invest (compared to lower income tax rates, not compared to lower cap gains rates), when the result is less money in the pocket? That's not usually a motivator. Can you present numbers where it would do so?

-ERD50

you are making the argument that if the business owner acts the same in case H as in case L then the small business owner will be better off under case L. however i have made the argument that the small business owner wont act the same in case H as in case L. i made the argument several times that in case H the small business owner is more likely than in case L to invest his profit back into his business for the dual advantage "of growing their company through increased investment and avoiding paying taxes at the higher tax rates." i backed up this argument multiple times, once with a personal example from my real estate investing and then with

i did address your numbers but since you dont think i did let me give you another example, 1 from the residential real estate business. i dont know if you are aware but when upgrading a house, the owner rarely gets his money back for the cost of a given upgrade (unless said upgrade is required to make the property liveable). for example, when adding a bedroom to a house the owner can expect the value of the house to go up by about 80% of the cost of the remodel. so with no tax advantage, i.e. a regular home owner who cant deduct the expense, this remodel doesnt really make sense immediately prior to sale. for the real estate business person who plans to flip this house, is in the 25% tax bracket and can deduct the cost of the remodel, since s/he will really only be paying 75% of the cost of the remodel s/he may consider it but because of the variability in the real estate business, it may very well not make sense to do the remodel. however, for that same real estate business person who still plans on flipping this house but now s/he is in the 50% tax bracket, it makes sense to invest in this remodel because the owner only has to pay 50% of the cost of the remodel (the government pays the rest in refunded tax money) and s/he is likely to do the remodel provided the business is sufficiently capitolized. so if there is already net profit in the company this remodel is very likely to take place. hence, economic/job growth as a direct result of higher tax rates.

and also with

please recognize that the person reinvesting only 2/3s of his after tax profit ($500k at the tax rate of 25%) back into his business isnt getting as large an investment in his business (only $666.67k worth of equipment/employees) as the person who invested all of his after tax profit ($500k at the tax rate of 50%) which would result in $1M worth of equipment/employees. so given your example, at the higher tax rates more investment gets done and hence more economic/job growth would take place. even if this person in the 25% tax rate invested the remaining $250k after tax profit in something other than his business the total investment would still be less ($250k + $666.67k < $1M). however what i am also suggesting is that since taking the money out of the business is so cheap when the tax rate is 25%, that is what is likely to be done, atleast it is more likely to be done at the 25% tax rate than when the tax rate is 50%.

and with this, from this thread

i really think those people are over looking the behavior that actually happened by people in those higher tax brackets when the top rates were higher.

back when the top tax rates were higher there were seminars and courses teaching a major tax reduction play, which i dont see much of now that the top tax rate isnt so high. this tax reduction play was to start a small business and invest in it to create a tax write off by either expensing or capitalizing/depreciating that investment. if creating a non profitable business actually made sense from a tax perspective for tax payers in the top tax brackets why, if the top tax brackets were higher, wouldnt owners of successful/profitable small businesses who were in the top tax brackets be motivated to take would be profits and find some meaningful way to invest said profits in their business so as to not have to pay tax on a profit? this would have a duel advantage for the small business owner of growing their company through increased investment and avoiding paying taxes at the higher tax rates. and this would have the benefit for the US of increased economic activity and/or job creation.

however for case L i make the argument that the business owner is more likely than in case H to not invest his profit back into his company but rather just take the profit out of the company and pay the taxes at the low rate. and i support that with this, also from this thread

i just heard a statistic today that, to me, supports my statement that at lower tax rates business owners are more likely to take the business profit (hence paying tax on them). that statistic (announced on CNBC) is that business profit as a percentage of GDP just hit a 60 year high. it isnt a huge leap, considering the low growth in GDP and the high unemployment rate, to recognize that those record profits arent being used to increase/update equipment or hire new employees in that company (if they were they wouldnt be profits anymore) thus producing economic/job growth but instead are being obtained by cost cutting (including firing employees). the profits are then just being extracted from, or being held as cash in, the companies, neither of which grows the company or the economy. i am making the argument that todays low tax rate environment is encourging this action and that raising the tax bracket rates would provide incentive to business owners to reinvest those profits in their companies thus producing economic/job growth.

now it may not be that every small business owner behaves the way i have described above in the 2 different tax rate cases but i am suggesting that many will (i have given multiple reasons, examples and a stat that support my opinion) and those many will create more jobs/economic growth here in the USA in case H than in case L.

 

[jdw_fire]

I just can't see trying to derive anything from such a small sample with such a complex system.

And who can say that the last round of tax cuts didn't help to stimulate the economy? The economy isn't a laboratory where we can run two separate experiments and see the effects.

I think I made this analogy earlier, but I have great certainty that adding insulation will reduce my energy usage for the year. But there are a lot of variables, the weather can change, I can have more/less people in the house with different schedules, and the price of energy can change. So if I add insulation, and my bill does not go down, does that 'prove' that adding insulation is 'bad' for my energy usage? No, my bill would have been even worse w/o the insulation. So I can have a relative improvement over what might have been, even if it is negative in absolute terms in real life. Tax rates could be the same way, and we could have been even worse in the 2000's with higher taxes, or not. But it doesn't hold that because the economy was bad that it 'proves' lower taxes are 'bad' for the economy.

-ERD50

to which a response i have already made applies

... it is funny that when i have pointed out times where there was economic growth in the US after tax increases (eg. during the clinton administration) or the converse that tax cuts didnt produce growth (eg. g. w. bush administration) there is always the response that there are so many things in the economy that can influence the growth i am not allowed to make a cause/effect argument of higher taxes to higher growth. therefore why should you be allowed to make a cause/effect argument of lower taxes to higher growth?
...

so therefore it doesnt hold that tax cuts or low income taxes are good for a nation's economy either.

 

[chinaco]

Let's just say this -- in terms of tax cuts and economic recovery, I think in the Reagan years it worked (or at the very least, appeared to work).... .

That is what you are told by some who want people to believe it.

Govt spending remained high... They just spent the FICA income! Taxes did not get cut... the people that paid the taxes (to support the govt spending back then changed).

Govt ramped up spending. Remember Star Wars and Spending the Soviet Union into the ground!

The big change was Paul Volcker (and finally the politicians) being willing to move interest rates up (first) to break inflation... which had a painful effect of creating a recession. Of course there was a recovery.

Some believe Volcker actions were Keynesian.... not what was labeled as Reaganomics (supply side).

Spending just shifted. The fuel crisis was over and SDI was on. I can remember some of Carter's Energy Related Programs being shutdown and new ones like SDI replacing it.

 

[ERD50]

I'll address the other responses later, but for now...

Originally Posted by ERD50
I just can't see trying to derive anything from such a small sample with such a complex system.

to which a response i have already made applies


so therefore it doesnt hold that tax cuts or low income taxes are good for a nation's economy either.

Please note that I didn't try to make the case that it 'proves' the opposite either. I said, "I just can't see trying to derive anything from such a small sample with such a complex system."


That's why I'm trying to stick to numbers to illustrate this, which I'll get back to later.

-ERD50

 

[Texas Proud]

I will go to a very micro level...

I know that my boss will not invest in his company with higher taxes... he is already planning for the tax increase when the Bush/Obama tax cuts expire in 2013... and he is trying to maximize profits NOW....


Another flaw that I see is that it assumes that the person will sell the business to get that (what you claim) increased value from investing... most people don't sell their business....

I am curious.... do you REALLY believe what you are saying If so, then you are like my friend who thinks the gold standard would actually matter and no amount of words would change your mind....

 

[Hamlet]

Of course, right after Ronald Reagan said that, he went out and implemented policies that would have been almost exactly what Keynes would have recommended.

Deficit spending will tend to juice economic activity in the short term. Is there anyone who actually disagrees with that?

Note that good Keynesian economics would have the government paying back the debt accumulated during a recession in the next boom.

To my knowledge, we've never actually tried that.

Keynesian economics, an abject failure.

"Free market capitalism is the best path to prosperity" as Larry Kudlow says every evening and I agree. On Jan. 20, 1981 Ronald Reagan said "In this present crisis, government is not the solution to our problem; government is the problem." and I agree with that also.

It's almost 2 am and I'm too tired to read beyond the op's comments but I will next time I come here.