[hotShot]

Competition does not work properly in many sectors. One of them is energy.

[PassedOut]

David Leonhardt has a piece today that discusses tax cuts and growth: Were the Bush Tax Cuts Good for Growth?

Quote

Those tax cuts passed in 2001 amid big promises about what they would do for the economy. What followed? The decade with the slowest average annual growth since World War II. Amazingly, that statement is true even if you forget about the Great Recession and simply look at 2001-7.

The competition for slowest growth is not even close, either. Growth from 2001 to 2007 averaged 2.39 percent a year (and growth from 2001 through the third quarter of 2010 averaged 1.66 percent). The decade with the second-worst showing for growth was 1971 to 1980 — the dreaded 1970s — but it still had 3.21 percent average growth.

Tax cuts for the rich did not produce more jobs in the past. It seems risky (to say the least) to count on the opposite result in the future.

And Nicholas Kristof discusses the unwarranted economic inequality in the US: A Hedge Fund Republic?

Quote

The best data series I could find is for Argentina. In the 1940s, the top 1 percent there controlled more than 20 percent of incomes. That was roughly double the share at that time in the United States.

Since then, we’ve reversed places. The share controlled by the top 1 percent in Argentina has fallen to a bit more than 15 percent. Meanwhile, inequality in the United States has soared to levels comparable to those in Argentina six decades ago — with 1 percent controlling 24 percent of American income in 2007.

At a time of such stunning inequality, should Congress put priority on spending $700 billion on extending the Bush tax cuts to those with incomes above $250,000 a year? Or should it extend unemployment benefits for Americans who otherwise will lose them beginning next month?

For three decades now the rich have been waging very successful "class warfare" against their fellow citizens. I don't think that this can go on indefinitely without a backlash.

[phil_20686]

PassedOut, on 2010-November-18, 09:55, said:

David Leonhardt has a piece today that discusses tax cuts and growth: Were the Bush Tax Cuts Good for Growth?

As we discussed before, tax rates under bush were still a lot higher than in the 1970's, to the tune of about 5% of GDP. WRT growth, I dont think *who* you tax is that important, only total government revenue. I agree that the us should significantly rebalance its tax system to reduce inequality. Not sure that Argentina is that relevant, as i am pretty sure you would find that the absolute wealth of the top 1% increased steadily and that most of the progress was in making other peoples wealth increase faster. Argentina is still far from "developed" compared to US or UK, but it has exploded its middle class.

[PassedOut]

phil_20686, on 2010-November-18, 10:27, said:

As we discussed before, tax rates under bush were still a lot higher than in the 1970's, to the tune of about 5% of GDP.

We have indeed discussed this, but your statement above is quite wrong. Tax rates in the the 1970s were higher than under George W. Bush, but economic growth was faster in the 1970s (and in every other decade as well) than it was under Bush. The Bush tax cuts failed to produce the promised growth.

[nigel_k]

PassedOut, on 2010-November-18, 12:31, said:

We have indeed discussed this, but your statement above is quite wrong. Tax rates in the the 1970s were higher than under George W. Bush, but economic growth was faster in the 1970s (and in every other decade as well) than it was under Bush. The Bush tax cuts failed to produce the promised growth.

I think Phil misspoke slightly by saying 'tax rates' but his reference to GDP makes it clear what he meant. Of course total taxes are much higher now than in the past. After adjusting for inflation and population growth there is approximately a 50% increase since the 1970s. This comes back to what I suggested earlier, that if government spending could just be prevented from increasing faster than the rate of inflation there would be no real problem balancing the budget and having lower taxes.

[PassedOut]

nigel_k, on 2010-November-18, 13:13, said:

I think Phil misspoke slightly by saying 'tax rates' but his reference to GDP makes it clear what he meant.

No, Phil's statement is quite wrong in terms of percentage of GDP. Taxes in the 1970s were higher as a percentage of GDP. To say they were 5% lower is wildly off the mark. No need to take my word for it: anyone can check the facts.

Believe me, as a businessman I would be most happy if low taxes correlated historically with strong economic growth. However, I just don't believe in falsifying data to advance my interests.

[mike777]

For sake of discussion, if raising or lowering marginal income tax rates keeps revenues the same, 19.5% of GDP and lowering rates does not increase gdp growth what can?

Would lowering marginal tax rates increase long term productivity?


Does lowering marginal rates decrease the growth rate in govt spending and increase nat. income?

In any event it would seem that raising rates will not in increase revenues and reduce the debt on its own.


http://www.suite101....ect-gdp-a239727



"In order to evaluate the relevance of overall GDP being affected by aggregate taxation, assume that increases in Top Marginal income tax rates change revenues as a percentage of GDP. W. Kurt Hauser made the empirical observation that no matter what the top marginal tax rate had been in late 20th century America; the increases to 94% in 1944 or the reduction to 28% in 1984, they had remained constant at 19.5% of GDP. [4] Hauser’s supporters have been criticized for suggesting this could mean higher marginal rates would not affect growth, as Hauser’s observation includes social security taxes

Read more at Suite101: Do Marginal Tax Rates Affect GDP? http://www.suite101.com/content/do-marginal-tax-rates-affect-gdp-a239727#ixzz15fa0CELa"



Relationship between GDP and Tax Rates
The null hypothesis should not be rejected. Research shows that Top marginal Tax rates have no statistically significant relationship with Gross Domestic Product. Marginal Income tax rates do not affect GDP because, in accordance with Hausser’s law, they stay relatively constant to GDP over time.

"This conclusion should not be surprising to government economists, as presumably, any change in the tax code that is not accompanied by changes in spending would have to be revenue neutral in order to balance the budget. The tax burden itself has, in aggregate, seemed resistant to change and therefore has resisted an effect on GDP. Changes in the Marginal tax rates do not, therefore, determine the reallocation of revenues, but rather what class is financing the reallocation of revenues.



Read more at Suite101: Do Marginal Tax Rates Affect GDP? http://www.suite101.com/content/do-marginal-tax-rates-affect-gdp-a239727#ixzz15faCeBnG"

[phil_20686]

PassedOut, on 2010-November-18, 14:11, said:

No, Phil's statement is quite wrong in terms of percentage of GDP. Taxes in the 1970s were higher as a percentage of GDP. To say they were 5% lower is wildly off the mark. No need to take my word for it: anyone can check the facts.

I submit the following graph to the panel:

http://www.usgovernm...color=c&local=s

During the 70s us tax was about 30% gdp. The average over the bush years is closer to 35%. Its true that i have these figures from an internet source, but I have no reason to beleive them to be untrue unless you have another reference?

[phil_20686]

mike777, on 2010-November-18, 14:53, said:

Relationship between GDP and Tax Rates
The null hypothesis should not be rejected. Research shows that Top marginal Tax rates have no statistically significant relationship with Gross Domestic Product. Marginal Income tax rates do not affect GDP because, in accordance with Hausser’s law, they stay relatively constant to GDP over time.

"This conclusion should not be surprising to government economists, as presumably, any change in the tax code that is not accompanied by changes in spending would have to be revenue neutral in order to balance the budget. The tax burden itself has, in aggregate, seemed resistant to change and therefore has resisted an effect on GDP. Changes in the Marginal tax rates do not, therefore, determine the reallocation of revenues, but rather what class is financing the reallocation of revenues.

That seems to be in line with the expectation that who you tax should not be too important, provided it is not too extreme. Only how much.

[blackshoe]

That's total government revenue, not just taxes.

[PassedOut]

Here are charts illustrating the taxes per year collected by the US government as percentage of GDP:

Tax Revenue as a Fraction of GDP

Overall federal tax collected in percentage of gross domestic product for the United States.

[Winstonm]

For 2009, Medicare and Medicaid accounted for 33% of the budget. Defense spending 20%. Social Security 21%.

To balance the budget, these are the 3 areas that must be addressed - there simply isn't enough savings to matter elsewhere.

Who has the strongest and deepest lobby and who will avoid most cuts? Defense, no doubt. I dont' see this as pessimistic, but a realitstic assessment of the priorities of power. Bob Woodward alluded to this power in his latest book, showing that the Pentagon simply ignored President Obama's call for Afghanistan plans that were limited and contained an exit plan - and Andrew Bacevich commented also on the falacious belief that the military is commanded by civilian authority.

Power will be retained, so look for erosions of health care by way of lowered coverages for Medicare, Medicaid, and erosion of Social Security benefits, further alienating the have and have nots and creating even more of a third world division between rich and poor in the U.S.

That's not pessimism; that's simply recognition from history of how power operates.

[blackshoe]

It seems Eisenhower was right.

[Winstonm]

blackshoe, on 2010-November-18, 18:18, said:

It seems Eisenhower was right.

I don't think Ike would be shocked, but rather appalled that we allowed ourselves to get to this position.

For anyone interested, here is a link to the Bacevich article that addresses how the Pentagon stonewalls interventions from civilian command and then goes about its own agenda: http://www.tnr.com/b...er-barack-obama

[PassedOut]

blackshoe, on 2010-November-18, 18:18, said:

It seems Eisenhower was right.

Indeed he was.

[phil_20686]

PassedOut, on 2010-November-18, 17:29, said:

Here are charts illustrating the taxes per year collected by the US government as percentage of GDP:

Tax Revenue as a Fraction of GDP

Overall federal tax collected in percentage of gross domestic product for the United States.

This is only federal taxes, you also need to include state level taxes, if you want the relationship between taxes and growth.

I dispute that there is an important difference between revenue and taxes. Most so called "non-tax revenue" means fees for government services, or fees for resource extraction. All those things, to my mind, are taxes. I.e. money extracted from the citizenry for services rendered. Another good example might be toll roads, that are meant to be self financing, but to my mind this is precisely another tax, levelled at those who use a particular service, certainly from the point of the growth-tax argument, it should be included as a tax. Non-tax revenue that you would wish to exclude would include foreign aid, or profits from nationalised co-operations, and America receives neither of those things.

[hrothgar]

phil_20686, on 2010-November-19, 07:52, said:

I dispute that there is an important difference between revenue and taxes.

King Knut disputed with the waves...
They gave him little notice.

[phil_20686]

Since both charts claim to be made from teh same data series, I have produced a breakdown that explains the apparent dis-similarity. Here is a graph showing what appears on the Passed out reference from my initial reference, ie federal taxes only. You can see the various taxes made explicit and it is clear that they are from the same data series, with the comment that passed out graph does not include the ad-valoreum taxes. I.e. property tax, sales tax, excise duty, alcohol duty etc. These do not chance the overall picture much, which is that overall federal tax receipts were between 15 and 20% of gdp throughout that time.

http://www.usgovernm...color=c&local=s

However, it is clear that passed out reference does not include any state taxes. When state taxes are included the picture changes considerably:

Here is graph of state taxes only:

http://www.usgovernm...color=c&local=s

and you can see that they form a significant fraction of gdp, accounting for the most of the difference between my initial figures and Passedut's. The remainder is from the "local" column. I did not realise that the US had regional taxes below state leve, but apparently they do. Here are teh "local" taxes

http://www.usgovernm...color=c&local=s

Here are the total figures for reference:
http://www.usgovernm...color=c&local=s

where i have broken up the stack for federal/state/local.

[phil_20686]

hrothgar, on 2010-November-19, 08:36, said:

King Knut disputed with the waves...
They gave him little notice.

King Canute wanted to prove to his courtiers that he was not all powerful, because they kept flattering him. So he was the winner of the argument.

well, my exploration of data series this morning suggests that if America has any non-tax revenue sources, they represent less than one percent of gdp. So I am pleased that, like king knut, I am the winner of this argument

PS: just looked on wikipedia about king canute, seems like the story is probably apocryphal

[hrothgar]

phil_20686, on 2010-November-19, 08:48, said:

King Canute wanted to prove to his courtiers that he was not all powerful, because they kept flattering him. So he was the winner of the argument.

Agreed, but his feet still ended up wet...

More to the point, you're free to invent whatever bizarre non standard definitions that you like.
Just don't expect people to waste time effort paying attention to you.

Disciplines standardize on vocabularies because it facilitates discussion.
Redefining terms to fit your ideological convictions might feel good, but it cripples your ability to communicate with anyone outside your little cult.