News Can Income Tax Rate Hikes Close the Deficit? (interesting article)

[Evo]

From deleted website containing intentionally misleading and incorrect information

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million.

Excellent! How long have the dead not been paying taxes? Freeloaders...

Here is the actual information.

footnote 1 on page 127 of the President's budget. That note reads: "The estate tax is maintained at its 2009 parameters.

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million -- $7 million for couples -- from any taxation. The value of estates above that would be taxed at 45%.

http://online.wsj.com/article/SB123172020818472279.html

So the first $3.5 million isn't taxed. AND inheritances passed on to a spouse are exempt AND there are always ways to get around it.

 

[OmCheeto]

From deleted website containing intentionally misleading and incorrect information

Here is the actual information.

http://online.wsj.com/article/SB123172020818472279.html

So the first $3.5 million isn't taxed. AND inheritances passed on to a spouse are exempt AND there are always ways to get around it.

Thank you.

That's an interesting little article.

The campaign seemed to have succeeded in 2001 when, with huge projected budget surpluses, Mr. Bush pushed and Congress approved an estate-tax repeal.

But to win the necessary votes for the larger, $1.35 trillion tax cut of which it was part, Republican leaders used legislative tactics that mandated the entire tax package expire in a decade. To lower the 10-year cost, the estate tax didn't begin dropping significantly until the end of the window and wouldn't disappear until 2010.

A $1.35 trillion tax cut over ten years?

Seems like almost a joke in hindsight, given we'll have increased the http://en.wikipedia.org/wiki/United_States_public_debt" ¹ by nearly $10 trillion in those ten years.

ref 1:
2001...$5,769,900,000,000
2011 (est.)...$15,673,900,000,000

 

[CAC1001]

Deleted

 

[CAC1001]

From deleted website containing intentionally misleading and incorrect information

Sorry, didn't realize that link was so misleading.

Here is the actual information.

So the first $3.5 million isn't taxed. AND inheritances passed on to a spouse are exempt AND there are always ways to get around it.

Thank you for the correction. Was the rest of the information in the link incorrect, or that particular part? (I know President Obama has said he will not expire the Bush tax cuts on those earning under $250K a year, so for example the 25% rate would not return to the 28% rate as an example? will the child tax credits go back to $500?).

 

[OmCheeto]

Sorry, didn't realize that link was so misleading.

Thank you for the correction. Was the rest of the information in the link incorrect, or that particular part? (I know President Obama has said he will not expire the Bush tax cuts on those earning under $250K a year, so for example the 25% rate would not return to the 28% rate as an example? will the child tax credits go back to $500?).

In addition to closing loopholes that allow wealthy investment managers to not pay income taxes on their earnings and ending subsidies for big oil, gas, and coal companies, the Budget eliminates the Bush tax cuts for those making more than $250,000 a year and devotes those resources instead to reducing the deficit. Our Nation could not afford these tax cuts when they passed, and it cannot afford them now.

Page 4
http://www.gpoaccess.gov/usbudget/fy11/index.html"
Fiscal Year 2011

I expect the tax form I fill out next year will be no different than this years.

 

[mheslep]

Sorry to be hard of understanding but how were the two sources cited not academic?...

I'm not talking about Stiglitz et al, but your #29 comments (and the agenda site). It's an unfortunate but not uncommon practice: link to some source that may indeed have a valid, supported, alternative point of view and then introduce it with unsupportable and sweeping commentary, as if it were the only One True point of view.

But I then pointed out that there is widespread agreement these days that economic analyses have to look wider than simple GDP measures.

Now here, except for 'widespread agreement' which may be true but is unsupported, I agree you have a reasonable thesis, unlike #26 (now). Moving on ...

 

[Evo]

Sorry to be hard of understanding but how were the two sources cited not academic?

That first link was not a valid source. If i had seen it when it was first posted, it would have been deleted. For that matter, a number of links in this thread are not valid sources, I have not spent enough time in here.

 

[OmCheeto]

That first link was not a valid source. If i had seen it when it was first posted, it would have been deleted. For that matter, a number of links in this thread are not valid sources, I have not spent enough time in here.

Should we PM you when we see such links? Or should we just push the "Report" button? I feel like such a tattle tale when I do that.

ps. And you may want to change the wording in the "Report" window:

Note: This is ONLY to be used to report spam, advertising messages, problematic (harassment, fighting, or rude) and unappropriated posts.

It says nothing about "trash talk" web sites.

 

[mheslep]

It says nothing about "trash talk" web sites.

"Trash talk" web sites are inappropriate, per the PF guidelines.

 

[Evo]

Should we PM you when we see such links? Or should we just push the "Report" button? I feel like such a tattle tale when I do that.

ps. And you may want to change the wording in the "Report" window:



It says nothing about "trash talk" web sites.

Hit the report button. The wording on the report button is very misleading.

 

[apeiron]

That first link was not a valid source. If i had seen it when it was first posted, it would have been deleted. For that matter, a number of links in this thread are not valid sources, I have not spent enough time in here.

Try these instead then.

http://www.uvm.edu/giee/?Page=genuine/index.html
http://www.edmonton.ca/business/documents/Edmonton_GPI_Final_2008_Report.pdf

But why a source cited by two Nobellists doesn't pass muster with PF sure beats me.

 

[Evo]

Try these instead then.

http://www.uvm.edu/giee/?Page=genuine/index.html
http://www.edmonton.ca/business/documents/Edmonton_GPI_Final_2008_Report.pdf

But why a source cited by two Nobellists doesn't pass muster with PF sure beats me.

The thread is about closing the deficit. I don't see where discussion of environmental "green" economics is on topic.

The matter remains controversial and is a main issue between advocates of green economics and neo-classical economics. Neoclassical economists understand the limitations of GDP for measuring human wellbeing but nevertheless regard GDP as an important, though imperfect measure of economic output and would be wary of too close an identification of GDP growth with aggregate human welfare. However GDP tends to be reported as synonymous with economic progress by journalists and politicians and the GPI seeks to correct this shorthand by providing a more encompassing measure.

Some economists, notably Herman Daly, John B. Cobb[1] and Philip Lawn[2] have asserted that a country's growth, increased goods production, and expanding services have both "costs" and "benefits"--not just the "benefits" that contribute to GDP. They assert that, in some situations, expanded production facilities damage the health, culture, and welfare of people. Growth that was in excess of sustainable norms (e.g. of ecological yield) had to be considered to be uneconomic. According to the "threshold hypothesis", developed by Manfred Max-Neef, the notion that when macroeconomic systems expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs. (Max-Neef 1995.)

According to Lawn's model, the "costs" of economic activity include the following potential harmful effects:[3]

Cost of resource depletion
Cost of crime
Cost of ozone depletion
Cost of family breakdown
Cost of air, water, and noise pollution
Loss of farmland
Loss of wetlands

This is not to start a discussion of the environment, but to clarify what your post was about.

http://en.wikipedia.org/wiki/Genuine_progress_indicator

Let's get back to the topic "Can Income Tax Rate Hikes Close the Deficit?"

 

[brainstorm]

Second is the implicit assumption that government spending is equivalent to private sector spending. But the reality is that government employees are paid more for less production than their civilian counterparts and government projects are typically more wasteful than private ones (because they aren't required to profit). Most people know these things, but many ignore them.

I think this issue of efficiency vs. waste in expenditures is so important and receives far too little attention. Doing more with less is absolutely the best road to improving the economy in a qualitative way, where it counts, instead of in empty quantitative terms (i.e. GDP increase).

The problem is that spending-behavior responds to quantitative increases in GDP, revenues, and incomes. This would not be a problem if the money that was flowing in a shrinking economy was flowing to everyone in relatively equally reduced amounts. However, when GDP decreases, everyone works that much harder to shift the cuts away from themselves. The result is that certain sectors and individuals end up with almost no income while others actually profit from deflation.

So the only real purpose of inflating GDP through fiscal stimulus spending is to ensure enough money flowing so that people who need money for basic survival can get it in one way or another. The problem is that once you stimulate spending to the levels needed to ensure such access to income for the poorest people, you have destroyed any impetus to reform other economic activities to higher levels of efficiency and less waste. In other words, with plenty of revenues coming in most businesses just go on doing business as usual, wasting whatever they can in an effort to maximize revenues - i.e. the standard model of business.

So the real question would be how to allow fiscal conservatism to discipline everyone's budgets to the extent that everyone is stimulated to work and consume more efficiently WITHOUT squeezing certain people or businesses so hard that they completely fail. Whoever solves this conundrum should win a nobel prize or something because it is pathetic to see the endless cycle perpetuate where fiscal conservation is followed by liberal rescue of the victims by increasing spending again, which reduces all the reform pressure of the fiscal conservation. Economically vulnerability and victimization needs to be averted without exempting anyone from the call to reform. This would improve the economy tremendously, imo.

 

[OmCheeto]

Let's get back to the topic "Can Income Tax Rate Hikes Close the Deficit?"

The answer is yes.
Would it be wise to do that at the moment? No.

As was pointed out in https://www.physicsforums.com/showthread.php?t=321825&page=16", the answer should have been yes over the last 40 years.

http://www.cbo.gov/ftpdocs/110xx/doc11014/MainText_HseVersion.28.1.3.png

All we had to do was to pay an additional 2.7% in taxes and there would be no deficit.

 

[CAC1001]

When you say an additional 2.7%, you mean society overall though right? I am guessing a simple 2.7% increase in tax rates won't close the deficit.

 

[OmCheeto]

When you say an additional 2.7%, you mean society overall though right? I am guessing a simple 2.7% increase in tax rates won't close the deficit.

Not now. It took 40 years at an average 2.7% deficit to create the $13 trillion debt we are currently looking at.

A more logical solution would be to get the economy back on it's feet and then start reducing the deficit over the next 40 years.

It took Clinton 8 years to reduce the deficit spending to zero. These things have to be done slowly, predictably, and transparently. Otherwise, no one knows what to do, and the economy will suffer.

Debt added each year as a percent of GDP

And people always whine about http://www.bls.gov/data/inflation_calculator.htm", but it can also be our friend. If it tracks for the next 40 years as it did for the last 40, even if we only balance the budget, the debt will be reduced to only $2.3 trillion.

The only problem is, we keep voting for people who say they are going to cut taxes, which in essence, cuts our own throats.

 

[mheslep]

It took [STRIKE]Clinton 8 years[/STRIKE] to reduce the deficit spending to zero.

Newt Gingrich 6 years (strike out mine)

 

[mheslep]

A $1.35 trillion tax cut over ten years?

Seems like almost a joke in hindsight, given we'll have increased the http://en.wikipedia.org/wiki/United_States_public_debt" ¹ by nearly $10 trillion in those ten years.

I think you mean debt, not deficit, and if you are talking about 2000-2008 no the increase was more like $1.8 trillion (constant 2009 dollars).

 

[OmCheeto]

[STRIKE]Newt Gingrich[/STRIKE] 6 years (strike out mine)

Bill Clinton. (I see your strike out, and call)
The pubs only controlled congress for the last 6 years.

Orange(congress) and green(president) low are Democrat, high is Republican.




ps. Thank you CRGreathouse for making me get that graph ready.

 

[CAC1001]

I'd say the Republicans mostly kept Clinton in line with his spending. Remember he tried universal healthcare before the Republicans gained control of Congress. Clinton then pivoted. If Clinton had had a Democrat Congress throughout his entire presidency, things might have been different.

 

[OmCheeto]

I think you mean debt, not deficit, and if you are talking about 2000-2008 no the increase was more like $1.8 trillion (constant 2009 dollars).

I stand corrected. That should have read debt.

 

[mheslep]

Bill Clinton. (I see your strike out, and call)
The pubs only controlled congress for the last 6 years.

Yes 6, as I said, which was enough.

 

[mheslep]

Let's get back to the topic "Can Income Tax Rate Hikes Close the Deficit?"

The answer is yes. [...]

Then you think increasing tax rates by 2.4X (240%), immediately, is possible?
Again, from the OP's source:
http://www.ourfiscalfuture.org/can-income-tax-rate-hikes-close-the-deficit/

According to the Tax Foundation’s Microsimulation Model, to erase the 2010 deficit, Congress would have to multiply each tax rate by 2.4. So the 10-percent rate would be 24 percent; the 15-percent rate would be 36 percent, etc., on up to the top rate, currently 35 percent which would have to be 85 percent. These rates are simply untenable.

Original source for the above:
http://www.taxfoundation.org/publications/show/25415.html

Table 1
Federal Individual Income Tax Rates for Joint Tax Returns
Current Law Versus Rates Necessary to Erase Deficit 2010

Joint tax bracket      Current rate     Rate needed
0 to $16,750                10%         27.2%
$16,751 to $68,000          15%         40.8%
$68,001 to $137,300         25%         68.0%
$137,301 to $209,200        28%         76.2%
$209,201 to $373,600        33%         89.8%
$373,601 and over           35%         95.2%

 

[Gokul43201]

Newt Gingrich 6 years (strike out mine)

Clinton was cutting deficits under a Dem Congress for the first 2 years at similar rates to what was being cut under the Gingrich Congress. Moreover, Gingrich left Congress in 1998, and Clinton continued to cut deficits after that, with a more or less evenly split Congress. The common denominator during the entire period of deficit cutting was Clinton (your line ran a little high, so I lowered it a bit). And to cap it off, both Bush Sr and Bush Jr were raising deficits under their terms, with virtually the same Congress that Clinton inherited/handed over at the beginning/end of his tenure.

http://www.usgovernmentspending.com...it As Percent Of GDP&state=US&color=c&local=s

http://en.wikipedia.org/wiki/107th_United_States_Congress

http://en.wikipedia.org/wiki/103rd_United_States_Congress

 

[brainstorm]

Clinton was cutting deficits under a Dem Congress for the first 2 years at similar rates to what was being cut under the Gingrich Congress. Moreover, Gingrich left Congress in 1998, and Clinton continued to cut deficits after that, with a more or less evenly split Congress. The common denominator during the entire period of deficit cutting was Clinton (your line ran a little high, so I lowered it a bit). And to cap it off, both Bush Sr and Bush Jr were raising deficits under their terms, with virtually the same Congress that Clinton inherited/handed over at the beginning/end of his tenure.

My impression was that the Clinton administration may have reduced deficits but that involved taxing an economy that was running hot due to stimulus and dot-com bubble explansion. I once read that Clinton's view was that a rising tide raises all boats, but by now we're aware that the dot com bubble burst and the real-estate bubble that ensued and burst as an aftershock were not positive. Currently, we are dealing with endless stimulus to keep an insatiable consumer culture on life support. This seems to all be the result of an approach to economics that GDP should be driven by consumption and that as long as consumption grows, GDP will continue to grow and that such growth can only be good.

Isn't it obvious that oil conflicts, spills, and most social problems are the result of this hyperactive consumption culture? What is needed is not just to close the budget on the big balance sheet but to close the deficit between what people consume in their everyday lives and what the economy can sustain without suffering more problems than the complexity is worth.

 

[Gokul43201]

My impression was that the Clinton administration may have reduced deficits but that involved taxing an economy that was running hot due to stimulus and dot-com bubble explansion.

I have no comment on this at the moment. My response was not about the method of deficit cutting, but only limited to pointing out that it is unfair to say that deficit cuts during the Clinton period were the work of Gingrich, when Clinton cut deficits both before and after Gingrich was in charge of Congress.

 

[brainstorm]

I have no comment on this at the moment. My response was not about the method of deficit cutting, but only limited to pointing out that it is unfair to say that deficit cuts during the Clinton period were the work of Gingrich, when Clinton cut deficits both before and after Gingrich was in charge of Congress.

I don't see the point of crediting one politician or another, except political party ego-boosting. The important issue, imo, is understanding the relationship between government spending, economic growth, and debt. People have the mentality that it is good to spend a bunch of money, heat up the economy, and then pay off the debt as a result - but I think this ignores the bigger picture of what is getting produced with and for the money. In other words, what kind of economy is resulting from stimulus and growth? Sure, you can stimulate cash flows by giving people a bunch of money and getting them to spend it all on hula hoops and pet rocks (dumb examples, I know). But the result is an economy that runs on frivolous sales.

The dot com economy exploited the dream of digital culture to stimulate investment in lots of intellectual property resulting in many people making it big and re-investing their winnings in real estate, causing the real estate market to bubble. At a practical level, these kids of get-rich-quick economies cause people to completely lose track of what is really produced by an economy, i.e. food, shelter, and basic consumption. Instead of being satisfied with filling their needs, people become insatiable consumers of culture and lifestyle to the point that they demand as much money as possible to reach unreachable ideals.

Fiscal conservatism is unpleasant when it works to cause people to reduce their consumption and live more modestly, but the effect is priceless in that people end up appreciating what they have a lot more instead of insatiably desiring more more more. Bush 1&2 might have spent lots of money on the military, but military life disciplines people and causes them to appreciate what they have a lot more than the might if they had not had to spend time in the desert and contemplate losing loved ones, their lives, etc.

I don't advocate the torture of military life and war at all, mind you. I would much prefer if people would get disciplined another way. Plus, it is hardly nice that soldiers returning from war are alienated by people because they have learned a level of discipline that others find discomforting or even threatening. Yet, people don't seem to realize that the cause of war in the first place was a culture of economic excess reaching its limits. Obviously the causes of terrorism and aggressive nationalism can be debated, but it seems fairly obvious to me that it wouldn't have been the "world trade center" that was attacked if there hadn't been enormous fears of globalization and "US imperialism" that were nothing more than a reaction to excessive global economic prosperity.

It's not so important to blame some people over others for all these interconnected policital-economic events; but I think it would help to realize that the economic excess in consumption that has become commonplace in western culture is far from innocent. There's just so many individuals who want to ignore their role in that culture because they just see themselves as living the same as anyone else. Yet it is this culture of everyday excess that the global poor see and resent as they know that they will never be included in that excess. This is what creates the feeding grounds for recruiting terrorists, and in the west itself it breeds the culture of discontent that lead to civil strife and general malcontent despite the unprecedented levels of consumption and prosperity.

 

[OmCheeto]

Then you think increasing tax rates by 2.4X (240%), immediately, is possible?

Mathematically, yes.

Again, from the OP's source:
http://www.ourfiscalfuture.org/can-income-tax-rate-hikes-close-the-deficit/


Original source for the above:
http://www.taxfoundation.org/publications/show/25415.html

Table 1
Federal Individual Income Tax Rates for Joint Tax Returns
Current Law Versus Rates Necessary to Erase Deficit 2010

Joint tax bracket      Current rate     Rate needed
0 to $16,750                10%         27.2%
$16,751 to $68,000          15%         40.8%
$68,001 to $137,300         25%         68.0%
$137,301 to $209,200        28%         76.2%
$209,201 to $373,600        33%         89.8%
$373,601 and over           35%         95.2%

Thank you. We are in agreement. The numbers work out. Though you quoted "untenable", and I said "unwise".

To me, it's the same thing.

 

[mheslep]

Clinton was cutting deficits under a Dem Congress for the first 2 years at similar rates to what was being cut under the Gingrich Congress. Moreover, Gingrich left Congress in 1998, and Clinton continued to cut deficits after that, with a more or less evenly split Congress. The common denominator during the entire period of deficit cutting was Clinton (your line ran a little high, so I lowered it a bit). And to cap it off, both Bush Sr and Bush Jr were raising deficits under their terms,

First a bit more detail:

1. Gingrich left Jan 1999.
2. The budget in place for the fiscal year under which a given President concurrently enters office in January is created as law by the preceding President and the preceding Congress. So the 1993 US budget was Bush Sr's, which cut the '92 budget deficit by $53B (2005 $)[1]. Likewise, both the FY 2000 and 2001 budgets were Clinton's. The dot com crash was well underway by 2000, on Clinton's watch, and as the revenues collapsed the surplus was cut in half in 2000-01 and was gone in 2001 mostly before Bush W pushed a fiscal button [2].
3. The Republicans held control of the House from '94 through the remainder of Clinton's term. While minority parties in Congress can stop some actions or slow them down, they can originate almost nothing, certainly not big spending programs. So especially with regard to budgets, I contend there's no such thing as a 'more or less evenly split' Congress, as the majority party no matter how slim calls the shots, and spending originates in the House.

[1] http://www.usgovernmentspending.com...e=US Federal Deficit&state=US&color=c&local=s

[2] http://www.usgovernmentspending.com...e=US Federal Deficit&state=US&color=c&local=s

with virtually the same Congress that Clinton inherited/handed over at the beginning/end of his tenure.

I must be reading something different there from what you intend, because the 1994 Republican takeover of the House well deserves the label revolution, as the Democrats held the House continuously for many decades prior. The Jim Wright-Tom Foley US House Clinton inherited, with the same committee chairmen in place for decades, was radically different from the one under which Clinton left office.

That said, I don't credit the all the yearly deficit results to any single politician, as if this was akin to yearly rainfall statistics. Instead I credit several significant events along the way as dominating the results of the entire period, and those events do mostly deserve credit to one side or the other:

1. The 'defense dividend' as it was called. The fall of the Berlin wall and subsequent collapse of the former USSR allowed the US defense budget to fall. Bush Sr started cutting and Clinton and Congress continued through '96. Perhaps Clinton deserves some credit for actually following through on the cuts, since there always seems to be plenty of congressmen and senators who want new military spending for contractors and bases in their district. [3]
2. Tax increases leading to more tax revenues, credit to Clinton. Works if the additional taxes don't slow down the economy as they are predicted to do, which luckily didn't happen because of the ...
3. Dot Com boom and consequent growth in tax revenue. No credit to Clinton, or even to Al Gore ;-)
4. Welfare reform. Welfare entitlements were periodically exploding prior to reform. Clinton veto'd the effort a couple of times, but eventually did sign it. Almost all credit to Gingrich and Congress for this one, as it was one of the planks of the http://en.wikipedia.org/wiki/Contract_with_America" that brought them to office in 94-95, and such a bill would have never emerged from the earlier D. congresses.
5. General holding the line on non-defense spending by the post '94 Congress. Gingrich's Congress refused for a time to increase the debt limit, eventually forcing a shutdown of the government for a couple of days in attempts to obtain Presidential approval of additional non-defense spending cuts. Eventually non-defense spending went up as Clinton won politically, but Gingrich and company clearly opposed spending increases, Clinton favored them.
6. Dot Com crash, and consequent collapse of revenues starting in 2000 and continuing to 2003.

[3] http://www.usgovernmentspending.com...tack=1&size=m&title=&state=US&color=c&local=s

 

[Gokul43201]

(numbering to match your first set of numbered points)

1. So Clinton remained for a couple of years after Gingrich left.

2. So, the 1994 and 1995 budget cuts under Clinton with a Dem Congress ought to be owned (at least in some significant part) by Clinton and/or the Dem Congress. And while the surplus may have been gone by 2001, before Bush pushed any fiscal buttons, the deficit continued to rise for at least the next 2 fiscal years, after several buttons were pushed, and with the still Republican Congress helping to push them.

3. The "more or less evenly split" Congress observation was not meant to obscure the fact (I believe it's a fact - haven't checked too closely) that Republicans controlled Congress during the last 2 years (albeit, not under Newt's leadership). It does not take away from the other fact that Clinton's deficit cutting began under a Dem Congress.

Additional note: Yes, I think you may have read something different from what I intended. The 1994 republican storm came 2 yrs after Clinton took office. The composition of Congress changed little between 1991 -1992 (under Sr) and 1992-1993 (under Clinton).

Extra additional note: The dot com boom (to my knowledge) started at least a year or two after the Republicans took over Congress, not during those first 2 years when Clinton had a Dem Congress.

Possibly final note: If point number 1 in your second set of arguments can be read as anything close to replacing "not Clinton, but Gingrich" (being responsible for deficit cutting), with "largely due to Gingrich while he was leading Congress, but Clinton was doing alright (even if out of sheer dumb luck) with a Dem Congress too" then I have no further arguments to make (which is a good thing, as I do not anticipate finding much time to make them). If nothing close to that is intended, I may still not be able to pursue this any further.