Tax Cuts and Revenue

[jem]

that is odd advice considering real life experience. When Bush Reagan Kennedy and Mellon cut taxes the treasury reported an increase in revenue. I presented the link to show that a few pages back.

its also odd that you are seemingly contradicting Keynes on the subject:

“Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increase, of balancing the budget.”

If you want to decrease tax revenue, cut taxes. But then you'll have to cut back on services.

What services do you want to reduce or eliminate?

 

[Tsing Tao]

OK. Whatever. Your silly question got the answer it deserved.

Just curious, why was it silly? Because you can't answer it without looking like an idiot?

You began the hypothetical with saying that if you and Ben Bernanke were in a room and one had to be the Fed chair, you would have picked Bernanke.

 

[Tsing Tao]

If you want to decrease tax revenue, cut taxes. But then you'll have to cut back on services.

What services do you want to reduce or eliminate?

Why do we have to cut back on services? Why can't we just take the existing services and make them more efficiently managed and handled? Or do you believe that all government programs function at peak efficiency?

 

[Ricter]

Why do we have to cut back on services? Why can't we just take the existing services and make them more efficiently managed and handled? Or do you believe that all government programs function at peak efficiency?

You can reach a point in productivity initiatives where you're spending as much looking for improvement as you're likely to get back. Unless you yourself, as manager, know for certain where you should be, maybe because you've seen with your own two eyes how the competition does it, or because you have real vision, or at least a good hunch : ), you're probably making people miserable for no good reason. This is one reason why it's important that government can compete and offer compensation comparable with the private sector. If they don't, then we the people have two problems, the first being the obvious, government doesn't have competition so they have no motive to be better, and the second, you add the problem of not having the best people on board.

Edit: I'm not suggesting government departments shouldn't have tight budgets, or auditory oversight, or outcome analysis.

 

[piezoe]

It is a lot less expensive to raise revenue via direct taxation, but politically less palatable, than it is to raise revenue by indirect taxation via the borrowing, spending and inflation cycle.

All of our experience since 1971 indicates that when revenues fall short the difference will be made up by borrowing. Neither starving the government by cutting taxes, nor breaking it by stalling, disruption, and refusal to cooperate will succeed in making government smaller, more efficient and less expensive.

 

[lotek771]

It is a lot less expensive to raise revenue via direct taxation, but politically less palatable, than it is to raise revenue by indirect taxation via the borrowing, spending and inflation cycle.

All of our experience since 1971 indicates that when revenues fall short the difference will be made up by borrowing. Neither starving the government by cutting taxes, nor breaking it by stalling, disruption, and refusal to cooperate will succeed in making government smaller, more efficient and less expensive.

so what does our experience say since 1971? When tax revenues are raised do the people make up the difference by pulling out their credit cards and borrowing on their home equity?

It would seem that neither starving the people with higher rates, or stalling their tax reform, or disrupting their business with uncertainty will ever make them more efficient or less expensive.

 

[dbphoenix]

so what does our experience say since 1971? When tax revenues are raised do the people make up the difference by pulling out their credit cards and borrowing on their home equity?

With regard to "the people", there's always the possibility of managing one's finances as one did before credit cards. There was a brief return to this after the collapse, but it didn't last long.

Government does the same thing. When it runs low on money, it borrows. And it runs low on money because people want so much (or it wants to conduct a couple of unnecessary and expensive wars). But the people who want so much are always "them". "Our" projects are always necessary.

I missed the libertarian response to the Highway Trust Fund issue.

 

[Tsing Tao]

You can reach a point ...

You can. But we are light years away from that point. I have said many times (several times on this forum) I would not mind the concept of higher tax rates IF and only IF the government was operating near efficiency. But asking me to pay more for a broken and inefficient model just encourages more waste as those departments that are horrific at efficiency have no incentive to improve.

 

[Tsing Tao]

It is a lot less expensive to raise revenue via direct taxation, but politically less palatable, than it is to raise revenue by indirect taxation via the borrowing, spending and inflation cycle.

All of our experience since 1971 indicates that when revenues fall short the difference will be made up by borrowing. Neither starving the government by cutting taxes, nor breaking it by stalling, disruption, and refusal to cooperate will succeed in making government smaller, more efficient and less expensive.

Of course it won't succeed. This is because of your beloved Fed. It finances this overspend and inflates the debt away through currency depreciation, which everyone else has to shoulder the burden for. If the US had to incur higher and higher debt costs as a result of it's continued spending spree, it would become more and more difficult to run such a large deficit. The market would prevent it.

 

[piezoe]

so what does our experience say since 1971? When tax revenues are raised do the people make up the difference by pulling out their credit cards and borrowing on their home equity?

It would seem that neither starving the people with higher rates, or stalling their tax reform, or disrupting their business with uncertainty will ever make them more efficient or less expensive.

The majority of Americans want lower taxes and tax reform. Unaccountably, they are also OK with spending ten times more per capita on their military then other industrialized countries do. Huge expenditures on the national "security" apparatus, which includes the NSA, CIA, and Homeland Security, doesn't seem to bother them much. They don't like what these agencies do, but you never hear them advocating their budgets be cut.

Furthermore, the American people seem to favor, more and more, a uniform, non-progressive income tax structure such as might be provided by a "flat tax". They also continue to support taxing income earned on capital at a lower rate than income earned on labor, having been convinced by their politicians that making the wealthy wealthier will somehow help the "little guy" keep a job.

During Reagan's presidency, spurred by enthusiasm for "supply-side" economic reform, the progressive income tax structure was substantially flattened. Top rates were much reduced, and the rate of the lowest bracket raised. These policies failed to produce the intended results, but did initiate a shift of real income from lower wage earners toward those at the top. Today, Americans are critical of the dramatically skewed income distribution in the U.S.; one more typical of a developing country than a modern industrialized one. But oddly, despite decrying the income skew, they continue to support and champion the policies that contributed to it, and Reagan remains one of the countries most popular Presidents.

The American psyche is schizophrenic. Americans want lower taxes, and a less skewed income distribution, while they also want expenditures and policies that are incompatible with these goals. This schizophrenia is nowhere more evident than in today's Tea Party movement.

With regard to your question: " When tax revenues are raised do the people make up the difference by pulling out their credit cards and borrowing on their home equity?", I would say that American tax structure combined with the expenditure choices Americans have made, rather than high taxes, per se, is responsible for lower wage Americans living on credit. As real wages in the middle class declined, the shortfall was made up by borrowing in an effort to maintain their standard of living. Yet many of the same Americans affected the worst by declining real wages opposed, and still oppose, tax policy that would have slowed or even prevented this decline. (There are other factors too of course.)

Were Marie Antoinette alive today, instead of saying: "let them eat cake", she would say, "let them eat credit."