aspose file tools*
The moose likes Meaningless Drivel and the fly likes question on (U.S.) conservatives and tax policies Big Moose Saloon
  Search | Java FAQ | Recent Topics | Flagged Topics | Hot Topics | Zero Replies
Register / Login


Win a copy of Spring in Action this week in the Spring forum!
JavaRanch » Java Forums » Other » Meaningless Drivel
Bookmark "question on (U.S.) conservatives and tax policies" Watch "question on (U.S.) conservatives and tax policies" New topic
Author

question on (U.S.) conservatives and tax policies

fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11417
    
  16

I fully expect this topic to degrade to the point where it gets deleted, but I'm hoping...

Here is my question...

I often hear the conservative politicians in the U.S. say that we need to get the debt under control by a) lowering spending, and b) lowering taxes.

I get the first part. that makes sense to me. But the second leaves me baffled. If i were to say "I'm in debt, so I'm going to ask my boss to LOWER my salary", you'd think I was crazy. How can lowering taxes help reduce the U.S. debt/deficit?

Please please please let's not get into an argument over whether this is a good policy, the right policy, etc. I just want to know the rational for HOW it is supposed to help.

And any other moderator, please feel free to delete this post at any point.


There are only two hard things in computer science: cache invalidation, naming things, and off-by-one errors
Matthew Brown
Bartender

Joined: Apr 06, 2010
Posts: 4422
    
    8

I think the rationale is lower taxes => greater incentive to work harder/innovate => greater personal income => greater total tax income

See the Laffer curve for example.

My personal opinion is that, while this may be true for some parts of the curve (e.g. try setting tax at 100% and see how much you get), it's highly unlikely that the US is on the downward slope.
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11417
    
  16

I fail to see how my employer paying less in taxes would have any impact on how hard I work. I am salaried, so my 'greater personal income' is not impacted in any way, from what I can see.

I freely admit I never took macro- or micro-economics, and my education in the matter is lacking. But it still doesn't make sense to me.
Bear Bibeault
Author and ninkuma
Marshal

Joined: Jan 10, 2002
Posts: 61430
    
  67

And while it could be argued that paying less taxes might stimulate the economy, I don't see what effect that has at all on the national debt. Which is the debt I assume that is being discussed?

To me, "less taxes" is simply jargon for "get elected".


[Asking smart questions] [Bear's FrontMan] [About Bear] [Books by Bear]
W. Joe Smith
Ranch Hand

Joined: Feb 10, 2009
Posts: 710
Bear Bibeault wrote:And while it could be argued that paying less taxes might stimulate the economy, I don't see what effect that has at all on the national debt. Which is the debt I assume that is being discussed?

To me, "less taxes" is simply jargon for "get elected".


We just elected a new governor here that was elected on the "I'm going to balance the budget and lower taxes" campaign. Less than a year now, and he is already pushing to increase the gas tax by at least 10 cents a gallon to cover budget shortfalls.


SCJA
When I die, I want people to look at me and say "Yeah, he might have been crazy, but that was one zarkin frood that knew where his towel was."
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11417
    
  16

Bear Bibeault wrote:I don't see what effect that has at all on the national debt. Which is the debt I assume that is being discussed?

Yes, I was referring to the U.S. national debt/deficit. As I understand it, the deficit is how much more we spend than we earn each year. The debt is the total amount we owe everyone (mostly China, from what I understand). So the debt is the sum of all the deficits over the years + interest - any payments made on it over the years.

I think it is impossible to get the debt under control until we get the deficit under control.

And strangely, a few presidents ago there was talk about the DANGER of having a budget surplus, and what that would do to the world economy if nobody could park their money in U.S. dollars.
Gregg Bolinger
GenRocket Founder
Ranch Hand

Joined: Jul 11, 2001
Posts: 15299
    
    6

I found this extremely informative:

http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html?_r=1&scp=1&sq=debt&st=cse


GenRocket - Experts at Building Test Data
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11417
    
  16

Gregg Bolinger wrote:I found this extremely informative...

I question his statement that "it's debt we mostly owe ourselves" and the implication that that means the debt is less relevant. If it was the federal government owing the federal government money, that's one thing.

But if I owed Paul Krugman $10,000, i doubt Paul Krugman would say "well, it's money Fred and Paul owe to themselves, so it doesn't matter". It matters VERY MUCH to the specific person who is owed the money.

Or did I miss his point?

There is an old Bloom County cartoon where out of Binkley's Closet of Anxiety there come TWO economists, who start talking about...the economy.
Paul Clapham
Bartender

Joined: Oct 14, 2005
Posts: 18658
    
    8

If you listen to the economists who support the politicians you're talking about, you'll hear them talking about "productivity". At least I do; we're always being told that the "productivity" of the Canadian economy is less than that of the US economy. I could never figure out why raising the value of the Canadian dollar from 63 cents US to 90 cents US (which actually happened a few years back) didn't increase Canada's "productivity" by 20%, but none of them ever discussed that.

But then I happened to come across some things in my reading. In my naive way I had been assuming that my "productivity" referred to something like the number of lines of code per day I could write, or something like that. But no. This economist who would be classified as conservative said something like "The way to improve the productivity of the middle classes is to reduce their taxes". Now obviously reducing my taxes doesn't make me produce applications any faster, so that can't be what he meant by "productivity". But it does give me extra money to spend, or invest, or save. That's assuming of course that the tax reductions aren't replaced by other compulsory things I have to spend my money on. So "productivity" means the amount of economic activity I can produce as a cog in the vast machine which is the economy.

So okay. Reduce my taxes, my "productivity" goes up. But as we all know, you can't change just one thing. The "productivity" of the social worker who was let go because the government can't afford as many social workers goes down. Do all of these changes to "productivity" add up to something positive? There don't seem to be that many economists who can answer that question. Or perhaps the ones who can aren't the ones getting their opinions published in my local newspaper.
Jeanne Boyarsky
author & internet detective
Marshal

Joined: May 26, 2003
Posts: 30762
    
156

The theory is that lower taxes means more money available for other things. For example, suppose you own a small business like a coffee shop. If your taxes go down, you can afford to buy a new oven. Which results in faster service and all your customers not leaving. Which means you pay more taxes in the long run. However, as noted above this doesn't happen in isolation. And the "cut spending creates job argument" handwaves away the jobs that are being cut to save that money. Not saying which is right or wrong but "cut spending/lower taxes/create jobs" obscures away some meaning.

I like the article Gregg linked to as well. If you owe me money, it's not money "we owe ourselves." It's money you owe me. Whereas if I owe you "Jeanne's jellybeans", you know I'll pay you back because I can more of them in circulations. I can devalue them to the point they are almost worthless and give you a trillion jellybeans. While I've technically paid you back, it doesn't really make you happy. I think his more important point is that if you hold the debt and the economy grows, it becomes a moot point. Suppose you got to pay the bank mortgage for your house in 1980 dollars. Happier?


[Blog] [JavaRanch FAQ] [How To Ask Questions The Smart Way] [Book Promos]
Blogging on Certs: SCEA Part 1, Part 2 & 3, Core Spring 3, OCAJP, OCPJP beta, TOGAF part 1 and part 2
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11417
    
  16

if you hold the debt and the economy grows, it becomes a moot point.

I will grant you point #1 - the U.S. DOES hold a lot of debt. However, I think point #2 is a real problem. IF the economy grows. That is a pretty big assumption, especially given what we've seen in the housing market. House prices were supposed to do nothing but go up, forever, until the sun dies. As we all now realize, that is just crazy talk.

If the economy grows...
If it grows fast enough...
If the GDP/debt ratio doesn't grow faster (slower? whichever way it needs to grow)...

CAN the economy really keep growing forever? I think that is a faulty assumption.
Pat Farrell
Rancher

Joined: Aug 11, 2007
Posts: 4659
    
    5

I reject that the current GOP folks who argue about being "conservative" are actually conservative. And I reject that they have a coherent philosophical basis that provides the foundation for their positions.

Polling has repeatedly shown that huge majorities of the tea-party and similar wings of the GOP believe that cutting taxes is good, and that cutting wasteful government spending is good, but only if they keep the cuts away from their medicare and social security. Push farther, and they also don't want cuts in Department of Defense spending.

I hate to be the one bringing reality into the discussion, but if you can't cut medicare, social security and DoD, you can eliminate everything else the Federal government does and it won't have any impact on the deficit/budget. And, while we think of DoD as protecting is, it is, in practice, a giant government jobs program. What is the fundamental difference between having a million people work as federal employees and having Boeing, Lockhead-Martin, and General Dymanics hire a million people to work making ships and fighter planes that the generals and admirals don't want or need?

For me, conservative means changing slowly. Or keeping to the way we did things in the olden days. A lot of the things the US did, slavery and later discrimination, monopolies, "trusts", etc. are not thing we want to continue.
Jeanne Boyarsky
author & internet detective
Marshal

Joined: May 26, 2003
Posts: 30762
    
156

fred rosenberger wrote:CAN the economy really keep growing forever? I think that is a faulty assumption.

You asked about the rationale. So I posted about the rationale and kept my opinions out of it. There's actually another way - which is hyperinflation. But that's worse than no growth.
fred rosenberger
lowercase baba
Bartender

Joined: Oct 02, 2003
Posts: 11417
    
  16

Jeanne Boyarsky wrote:You asked about the rationale. So I posted about the rationale and kept my opinions out of it. There's actually another way - which is hyperinflation. But that's worse than no growth.

True, I did. But when I hear someone's rational, if it doesn't make sense, I'm going to question them and try to point out the flaws as I see them. I do that partially to learn how well though out their argument is, but also because it help ME think through things and understand them better.

Maybe I do need to go back and take a macroeconomics class...
frank davis
Ranch Hand

Joined: Feb 12, 2001
Posts: 1479
Q: "Can the economy grow forever?"

leads to:

Q: "Can productivity increase forever?"

leads to:

Q: "Can technological improvement be incorporated into more efficient providing of goods/services forever?"

leads to:

Q: "How can we increase the above factors long term?"

leads to:

A: We can't know in advance which technologies will lead to the greatest long term increases in productivity. But we do have evidence that centrally planned economies where the govt dominates resource allocation fail miserably in comparison to those with more diverse and free markets who utilize the "wisdom of the crowds". Simplifying; the more a government dominates resource allocation of a society via taxation or legislation, less application of the crowd wisdom. There are numerous points to attack on this simplification and generalization, but the bigger point remains on allocating resources to more productive or less productive resources and the long term impacts. Of course a minimal level of government is needed for even a "free" market to operate and there is sweet spot for the size of govt - that's why the Laffer Curve isn't the Laffer Line.

Most people probably suspect that long term, a debt level surpassing GDP is very likely to have some negative consequences, especially when a significant amount (20-25%) of the debt is held by foreigners as is the case in the US and when interest payments on that debt starts to approach a similar proportion of annual govt spending when such interest payments represent lost investments in productivity ("opportunity costs"). I've seen abstracts of economic studies suggesting that a debt level of 60% of GDP can negatively impact economies and also where the govt spending "multiplier effect' is less than 1.0 (indicating that every dollar spent by govt reduces overall spending - see the book "Currency Wars" near the end).

There are reasoned and principled arguments to reduce taxation for the good of society long term, besides the moral arguments on a smaller scale regarding ownership rights of individuals to the fruits of their own labors.
Tim Moores
Rancher

Joined: Sep 21, 2011
Posts: 2408
herb slocomb wrote:Q: "Can the economy grow forever?"
leads to:
Q: "Can productivity increase forever?"

Is that necessarily the case? In a growing country like the USA, as long as employment growth keeps up with population growth, even a static productivity would lead to a growing economy, no?
Paul Clapham
Bartender

Joined: Oct 14, 2005
Posts: 18658
    
    8

herb slocomb wrote:There are reasoned and principled arguments to reduce taxation for the good of society long term


When you wrote this, did you actually mean there are arguments to have low taxation? Or did you mean that taxation should continuously be reduced? (I have seen people at the other end of the spectrum complain that their entitlements are being cut, when the fact is that the percentage increase of said entitlements is being reduced.)
Paul Clapham
Bartender

Joined: Oct 14, 2005
Posts: 18658
    
    8

Tim Moores wrote:
herb slocomb wrote:Q: "Can the economy grow forever?"
leads to:
Q: "Can productivity increase forever?"

Is that necessarily the case? In a growing country like the USA, as long as employment growth keeps up with population growth, even a static productivity would lead to a growing economy, no?


leads to:

Q: "Can population increase forever?"
frank davis
Ranch Hand

Joined: Feb 12, 2001
Posts: 1479
Tim Moores wrote:
herb slocomb wrote:Q: "Can the economy grow forever?"
leads to:
Q: "Can productivity increase forever?"

Is that necessarily the case? In a growing country like the USA, as long as employment growth keeps up with population growth, even a static productivity would lead to a growing economy, no?



I know population growth is a factor of economic growth and explicitly a part of GDP, but I tried to simplify the arguments for this forum primarily to focus on what I am ultimately concerned with which is a standard of living. Now again, another simplification, although fairly reasonable along most points of a continuum, aggregate real wage increases, over long periods of time, are largely correlated with productivity gains and result in real wage (above inflationary adjusted) increases that are an important factor of living standards. Again, we'll concede the govt has roles that affect living standards irrespective of wage increases. But the bottom line point is that simply growing the population at a rate equal to stabilize employment rate may lead to a "growing economy", but in that case a growing economy with static productivity would lead to static wages and static living standards. Most people reflexively think of a growing economy as one with increased economic opportunities and prospects for an increased standard of living, but static productivity can negate that.


Increasing the size of the pie (the economy), while at the same time increasing the number of slices (population growth), doesn't mean each person served can get larger slice of the larger pie.
frank davis
Ranch Hand

Joined: Feb 12, 2001
Posts: 1479
Paul Clapham wrote:
herb slocomb wrote:There are reasoned and principled arguments to reduce taxation for the good of society long term


When you wrote this, did you actually mean there are arguments to have low taxation? Or did you mean that taxation should continuously be reduced? (I have seen people at the other end of the spectrum complain that their entitlements are being cut, when the fact is that the percentage increase of said entitlements is being reduced.)



Yes.

Yes, to the extent and to the point, which may vary over time, that it allows more efficient private allocation of societal resources.
frank davis
Ranch Hand

Joined: Feb 12, 2001
Posts: 1479
Paul Clapham wrote:
Tim Moores wrote:
herb slocomb wrote:Q: "Can the economy grow forever?"
leads to:
Q: "Can productivity increase forever?"

Is that necessarily the case? In a growing country like the USA, as long as employment growth keeps up with population growth, even a static productivity would lead to a growing economy, no?


leads to:

Q: "Can population increase forever?"


Q: Does population need to increase forever?

A: A static population could increase its aggregate productivity rate to the extent that its total production of real wealth increases and also that individual wages increase. Maybe that is a case of the pie size increasing, but the number of slices staying the same so a larger potential slice to each individual.
frank davis
Ranch Hand

Joined: Feb 12, 2001
Posts: 1479
Bear Bibeault wrote:And while it could be argued that paying less taxes might stimulate the economy, I don't see what effect that has at all on the national debt. Which is the debt I assume that is being discussed?

To me, "less taxes" is simply jargon for "get elected".


Well, cutting of tax rates did increase tax revenue for Kennedy, Reagan, and Bush.
Whether the increased tax revenue is overshadowed by yet an even more increased spending is another matter.
 
permaculture playing cards
 
subject: question on (U.S.) conservatives and tax policies