Tax Cuts vs Government Stimulus

[Vorde]

In the thread concerning the second Presidential Debate Russ_Watters just posted advocating tax cuts vs stimulus (edit: no longer there).

I want to see if I can start a debate on this, but I didn't want to sidetrack the original thread. So I'd like to ask this question here, hopefully some people will answer.

I have not taken an economics class (though I will in college), and therefore I struggle in topics like this because I cannot give first hand reasoning.
I am a supporter of a stimulus plan because it seems to me that this creates a stronger government to help the people instead of a stronger people. This may not sound preferable, but it seems to me better to have a safety net of a strong government in case individuals fail, rather than putting all the chips in the individual's corner.

Can anyone weigh in on this? Whether that consists of showing why my logic is false (as I am ready to believe) or counterarguments?

Thank you.

 

[Evo]

Romney's tax cut

The nonpartisan Tax Policy Center, a joint project of the Urban Institute and Brookings Institution, has said the Romney proposal would cost $360 billion in the first year before it is offset by closing loopholes, which others have extrapolated to estimate that it would amount to $5 trillion over the decade.

The report said the loopholes – popular deductions including those for mortgage interest, charitable giving and others – are not plentiful enough at the top of the income scale to cover the estimated $360-billion annual cost of reducing tax rates by 20%.

The gap would need to be filled by closing loopholes for those at lower ends of the income scale, those earning less than $200,000. Estimates say those earning between $100,000 and $200,000 would be significantly hit.

Also, the report said the trade-off between lower rates and loopholes would benefit higher-income households, which would see their overall tax burden go down while middle- and lower-income households would see their taxes rise.

http://www.latimes.com/news/politics/la-pn-fact-check-debate-romney-tax-20121003,0,3813713.story

 

[russ_watters]

I am a supporter of a stimulus plan because it seems to me that this creates a stronger government to help the people instead of a stronger people. This may not sound preferable, but it seems to me better to have a safety net of a strong government in case individuals fail, rather than putting all the chips in the individual's corner.

Can anyone weigh in on this? Whether that consists of showing why my logic is false (as I am ready to believe) or counterarguments?

Unless we quantify goals and success (which is extremely difficult), it isn't a question of logic it is a question of values. You value a stronger government and I don't and it really doesn't get much deeper than that.

I will ask this though: why do you trust government to make the right decisions on matters of market control? Do the recent failures of alternate energy companies chosen by the Obama administration to receive hundreds of millions of dollars in grants/loans shake that trust any?

 

[Angry Citizen]

Unless we quantify goals and success (which is extremely difficult), it isn't a question of logic it is a question of values. You value a stronger government and I don't and it really doesn't get much deeper than that.

I will ask this though: why do you trust government to make the right decisions on matters of market control? Do the recent failures of alternate energy companies chosen by the Obama administration to receive hundreds of millions of dollars in grants/loans shake that trust any?

russ, it's important to understand that start ups, particularly in new technological fields, sometimes fail. I don't know if you're here on these boards as a physicist, but if so, one must ask: do all your research projects pan out, or are some just dead sticks? It's not any different in economics. Solyndra is a non-scandal manufactured by the conservative howler monkeys, and is ignorant of even basic business practice.

 

[Vorde]

Unless we quantify goals and success (which is extremely difficult), it isn't a question of logic it is a question of values. You value a stronger government and I don't and it really doesn't get much deeper than that.

I will ask this though: why do you trust government to make the right decisions on matters of market control? Do the recent failures of alternate energy companies chosen by the Obama administration to receive hundreds of millions of dollars in grants/loans shake that trust any?

The recent failures of several companies don't really shake that trust much, largely for the reasons Angry Citizen said. However it's not that I stake that much belief in the Obama administration (though I do support many of it's decisions). But rather, as someone who knows they know very little about economics and markets, I trust people who have spent their lives dedicated to that field to know better than I.

That said, even as a teenager, I think I know far more about markets and finances than most Americans! And I know practically nothing! My support in large government stems largely from the willingness to put elements of my life into the hands of people who are elected based on their ability to judge these things better than me (whether or not those who are elected do this is another issue entirely).

Large government I believe is rooted around this idea. Small government is rooted around the idea (this is an opinion) that each person manages their lives better than anyone else. It may be cynical of the human race, but I do not believe that notion is correct.

 

[rootX]

Unless we quantify goals and success (which is extremely difficult), it isn't a question of logic it is a question of values. You value a stronger government and I don't and it really doesn't get much deeper than that.

I will ask this though: why do you trust government to make the right decisions on matters of market control? Do the recent failures of alternate energy companies chosen by the Obama administration to receive hundreds of millions of dollars in grants/loans shake that trust any?

Would we have computers/space explorations without government? There are so many technologies that it just doesn't make sense private companies to invest in because the returns will be so far in the future.

Under financially weaker government system incapable of funding long term research projects, who will be willing to fund those projects?

 

[russ_watters]

russ, it's important to understand that start ups, particularly in new technological fields, sometimes fail. I don't know if you're here on these boards as a physicist, but if so, one must ask: do all your research projects pan out, or are some just dead sticks? It's not any different in economics. Solyndra is a non-scandal manufactured by the conservative howler monkeys, and is ignorant of even basic business practice.

I'm an engineer. Again, these are not R&D projects, they are production companies.

The scandal part of Soylandra comes from whether or not the Obama administration knowingly and therefore illegally violated legal procedure in ramming through the loan. But if the alleged illegality didn't happen, that still makes it a bad business deal, and that's the subject of this thread and my post, not the alleged illegality.

 

[russ_watters]

Would we have computers/space explorations without government? There are so many technologies that it just doesn't make sense private companies to invest in because the returns will be so far in the future.

Under financially weaker government system incapable of funding long term research projects, who will be willing to fund those projects?

For the third time: This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.

 

[rootX]

For the third time: This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.
This was not R&D.

I replied to this part of your post

You value a stronger government and I don't

What I don't understand how your weaker government can even support R&D.

But, I do agree that government shouldn't support alternative energy companies. The technology is still not feasible.

 

[CAC1001]

One thing that many get confused about on the "tax cuts versus stimulus" is that tax cuts are a form of Keynesian fiscal stimulus. Keynesian stimulus is about increasing demand in the economy. This can be tried in a few ways:

- the government spending money on things like infrastructure projects or military (military Keynesianism)

- mailing checks out to people

- subsidizing businesses and industries so that said businesses and industries do not have to lay off employees

- demand-side tax cuts (to let people keep more of their money)

Supply-side economics entails supply-side tax cuts, which seek to increase investment, business growth, job creation, etc...all tax cuts and tax increases have both a demand and supply-side effect, just some lean much more one way than another.

Regarding government as a venture capitalist, one reason not to have government engage in venture capitalism is a more subjective reason, but basically that someone spending someone else's money is never as careful as someone spending their own money. For example, a bureaucrat with $50 million of taxpayer's money to give to a company of their choice probably won't be nearly as careful in their due diligence as they would be if it is their own $50 million.

 

[CAC1001]

Would we have computers/space explorations without government? There are so many technologies that it just doesn't make sense private companies to invest in because the returns will be so far in the future.

Under financially weaker government system incapable of funding long term research projects, who will be willing to fund those projects?

IMO, the difference though is the government engaging in industrial policy where they think they can sort of direct or plan out the future of the economy. It's where bureaucrats who are very smart or who think they are very smart decide what the industries of the future will be and direct funds to companies of those and also direct major companies to create products in said industries (i.e. Chevy Volt). For example, alternative energy such as wind and solar. Repeatedly, we hear from people like President Obama that these are the energy sources of the future. Says who? There's no way to know that right now.

Government financing of research and development into solar and wind energy is fine, in the hopes that it will pay off at some point, but government supporting solar and wind companies is wrong IMO. If/when the technology becomes viable, the private sector will support such companies. It's like quantum computing. Some say it is the computing of the future, others say it's a pipe dream, but the government supports it because if viable, it will yield massive improvements in computing power.

Computers and space travel the government financed the R&D for, not the companies themselves.

 

[rootX]

IMO, the difference though is the government engaging in industrial policy where they think they can sort of direct or plan out the future of the economy. It's where bureaucrats who are very smart or who think they are very smart decide what the industries of the future will be and direct funds to companies of those and also direct major companies to create products in said industries (i.e. Chevy Volt). For example, alternative energy such as wind and solar. Repeatedly, we hear from people like President Obama that these are the energy sources of the future. Says who? There's no way to know that right now.

Government financing of research and development into solar and wind energy is fine, in the hopes that it will pay off at some point, but government supporting solar and wind companies is wrong IMO. If/when the technology becomes viable, the private sector will support such companies. It's like quantum computing. Some say it is the computing of the future, others say it's a pipe dream, but the government supports it because if viable, it will yield massive improvements in computing power.

Computers and space travel the government financed the R&D for, not the companies themselves.

Russ (conservatives in general) appears to favor a weaker government. I ask "weak government" supporters if the weak government will be able to finance R&D.

It might prove fruitless spending too much money into solar or quantum R&D fields but no one knows as of know. However, what's clear that we advance financing technologies whose potentials are uncertain. That has been the case for last thousands of years and will be for all period we are here to live. Someone has to be there to spend money into things whose potential is unknown at the moment. What I see that under conservatives type of government is we wouldn't have computers or anything. Our future will be determined by short sighted business people.

Government acting as a venture capitalist is wrong as you already pointed out.

 

[CAC1001]

Russ (conservatives in general) appears to favor a weaker government. I ask "weak government" supporters if the weak government will be able to finance R&D.

It might prove fruitless spending too much money into solar or quantum R&D fields but no one knows as of know. However, what's clear that we advance financing technologies whose potentials are uncertain. That has been the case last thousands of years and will be for all period we are to live. Someone has to be there to spend money into things whose potential is unknown at the moment. What I see that under conservatives type of government we wouldn't have computers or anything. Our future will be determined by short sided business people.

I agree that many conservatives are for too limited a government, as they think the economic prosperity of the 20th century was solely due to the private-sector/free market. They don't realize the enormous R&D role played by the government inadverdently for national security purposes, which had an enormous economic effect.

 

[Jimmy Snyder]

I'm against the stimulus or any other program in which the govt, not the free market, is choosing the winners and losers.

However, ...

The money lost by investing in those two energy companies that failed was part of a larger program that invested in many companies. What percentage of them failed? What was the total return? No venture capitalist hits 100%. What was Bain's percentage?

 

[Oltz]

Jimmy if there were successes don't you think we would hear about them every time a failure is mentioned? I know of none that are growing only some that are not dead yet.

If anyone can find a victory for the loan program I would like to see it.

The governemt should do R&D that is what Nasa and half of the pentagon exist for they should not be trying to subsidize third party companies to produce technology that is not even research oriented.

Weak government versus strong government is the wrong terminology IMO its Large government versus Small. Size and reach of federal government has nothing to do with its ability to do cutting edge research. Its about how involved it is in the aspects of day to day life and how controlling it is of each smaller layer of government.

We have a hierarchy of governmental responsibility for a reason in this nation that has been corrupted by all the programs that are based on withholding federal funds from smaller level government unless they comply with the will of the fed.

In a small government federal spending drops dramatically and so do federal taxes, BUT if states/county/city/local governments with the will of the people choose to create similar programs those entities raise taxes to fund them at the appropriate level.

The beauty is that is how the system was designed so the will of the people makes a choice and if you do not agree it is much easier to move away from the district as a means of expressing your freedoms. If a policy is bad enough the tax base will leave and the policy will fail. See exodus from Cali.

Until the 16/17 amendments the Federal government could not directly tax the people and it would send a bill to each state each year on its share of federal expenses per capita. Each state would raise those funds in any way it saw fit some used toll roads others had income taxes and fees for various activities most used a mix of many different revenue streams.
Also until that point state legislatures selected the 2 state senators so lobbyists needed to be in all 50 state capitals to actually make an impact instead of being able to lobby 100 individuals they needed to sway an entire legislature and 50 governors. This was designed to keep the voices of the states strong and allow the governors and state legislature to have a powerful voice on budget and spending bills as well as war. Granted we have not even passed a budget in forever so...

 

[Jimmy Snyder]

Jimmy if there were successes don't you think we would hear about them every time a failure is mentioned? I know of none that are growing only some that are not dead yet.

So it's 0%. I don't think so. Here is one example that the DOE mentions

Caithness Energy.

It was a 1.3 billion dollar loan guarantee. According to the link, the status is closed. Does that mean the loan was paid back or that the guarantee was rescinded? I don't know.

 

[russ_watters]

I replied to this part of your post

What I don't understand how your weaker government can even support R&D.

The difference is pretty straightforward since they are separate things, so I don't see a problem. Just support one and not the other.

 

[Oltz]

So it's 0%. I don't think so. Here is one example that the DOE mentions

Caithness Energy.

It was a 1.3 billion dollar loan guarantee. According to the link, the status is closed. Does that mean the loan was paid back or that the guarantee was rescinded? I don't know.

According to the press release I found ti became operational on Sept 22nd I find no reference to a repayment of the loan yet as it has been operational for less then a month. It will be interesting to look in a year and see what its actual power generation numbers are since numerous studies report that wind farms produce on average less then 30% of their designed capacity.

http://www.oregonlive.com/environment/index.ssf/2012/09/green_oregon_sheperd_hills_win.html

http://www.bbc.co.uk/news/uk-scotland-12985410

Even the wind industry itself has been quoted

Statements made by the wind industry and government agencies commonly assert that wind turbines will generate on average 30% of their rated capacity over a year, it said.

But the research found wind generation was below 20% of capacity more than half the time and below 10% of capacity over one third of the time.

Hard to call that a win for the loan program until more data is in for now I will call it a no result. Like I said I can find no success stories.

 

[Jimmy Snyder]

The fact that the average is 30% of the peak doesn't tell me anything about whether it is a failure or a success.

 

[Oltz]

The fact that the average is 30% of the peak doesn't tell me anything about whether it is a failure or a success.

Well let me put it this way. A new 800MW natural gas power plant is going to cost 850 Million dollars and actually produce 800 MW of power every day all day.

http://www.toledoblade.com/Energy/2012/09/06/Natural-gas-fired-power-plant-planned-on-1.html

This wind farm has a rated capacity just over 800 MW let's say that it produces 40% and be optimistic so that comes to 320 MW of generation that will come at variable rates at variable times for a total cost of 1.9 Billion.

So that is equivalent to 2 Gas power plants for a total of 1600 MW for the cost of an optimistic 320 MW of wind power. On 30 (60 for 2) acres instead of spread out over 30 square miles.

I do not know if they will make money or not based on the higher per kWh rate that wind energy gets paid due to subsidy so it may be a "success" we will need to wait and see it is clear though that without government involvement this project would be a flop.