# Do tax cuts pay for themselves?

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Skyhunter
With the $100 billion a year for the Iraq/Afhgan wars, and now$60 billion for Katrina, we are going further and further into debt as a nation.

I hear the argument all the time in support of Reagans 'voodoo economics', which this administration has embraced, that cutting taxes increases revenues.

I read a few articles a few weeks ago saying that federal revenues are up this year and the presidents projections of halving the deficit in 5 years is on course. This is an obfuscation of the facts.

Here is an in depth analysis of the tax revenue picture.

Temporary Factors Related to the Revenue Increase
Much of the recent upsurge in revenues appears to stem from temporary developments, not from tax-cut-fueled economic expansion. In fact, one of the causes of the sizeable increases in tax receipts between 2004 and 2005 is the expiration of a large tax cut.

A large business tax cut enacted in 2002 — the accelerated depreciation tax cut — expired at the end of 2004. This is producing a significant increase in business tax payments in 2005 — an increase estimated at $51 billion by the Joint Committee on Taxation when the provision was enacted. Revenues are rising in this case because a tax cut is no longer in effect. The expiration of the accelerated depreciation tax cut causes tax revenue from businesses to jump significantly from 2004 to 2005, and then jump again from 2005 to 2006. But the unusual increase in revenues cannot be repeated thereafter because the provision can expire only once. The future growth rate of business tax revenues will revert to normal, all other things being equal.[6] Tax returns for 2004, which are filed in fiscal year 2005, appear to have included a substantial increase in capital gains tax payments, reflecting the increase in the stock market in 2004. The stock market now appears to have stopped rising; it has been flat in recent months. Capital gains revenues cannot be expected to continue increasing at the rate they did between 2004 and 2005. (See the box above, which cites an analysis of this issue by the investment firm Goldman-Sachs.) An additional one-time boost in 2005 revenues is occurring because last fall’s corporate tax legislation allows businesses with foreign profits being held abroad to bring the profits back to the United States in 2005 only and pay taxes at a modest 5.25 percent rate, rather than at the normal corporate tax rate of 35 percent. This will increase revenues by several billion dollars (or more) in 2005, as corporations rush to take advantage of this windfall, but according to the Joint Tax Committee’s estimates, it will result in modest revenue losses in 2006 and thereafter. To be sure, 2005 tax receipts are running higher this year than CBO and OMB projected earlier this year. But the greater-than-anticipated revenue growth comes mostly from increases in corporate income taxes and non-withheld individual income taxes, as CBO repeatedly stresses, not from increases in taxes on wages and salaries. If the tax cuts had been sparking a “supply-side miracle” by inducing people to work more or encouraging businesses to expand employment, then real economic growth, job growth, and withheld taxes would have significantly surpassed expectations, as well. Instead, economic growth and job growth have been modest, and CBO’s current estimates for 2005 economic and job growth are now very slightly lower than CBO’s January forecast. In addition, withheld tax receipts appear to be similar to CBO’s expectations.[7] [8] http://www.cbpp.org/7-12-05bud.htm ## Answers and Replies SOS2008 Gold Member Perhaps it depends on the tax cut. Personally I believe tax cuts given to the average American results in stimulation to the economy more than to the wealthy and big business. Trickle down, means "to flow slowly in a thin stream" if indeed it ever does find it's way to the poor (like aid--if you want to ensure people receive donations, give it directly to the people). At this time of deficits that will now increase, there must be a different approach in regard to revenues. This article discusses options for the Estate Tax, which I feel cannot be completely repealed--ever. Under current law, the estate tax will be repealed in 2010, and then will be reinstated in 2011. This strange sequence of events will occur because the tax cuts enacted in 2001, including those related to the estate tax, expire after 2010, restoring the law that was in effect prior to 2001. The Administration has called for making the repeal of the estate tax permanent after 2010. The Joint Committee on Taxation estimates that this would reduce revenues by$290 billion through 2015, including $72 billion in 2015 alone. But this estimate essentially captures only the cost of four additional years of estate tax repeal; the revenues losses associated with 10 more years of repeal — for the period 2012 through 2021 — are much higher, about$745 billion. And when the associated $225 billion in higher interest payments on the debt are taken into account, the total cost of repealing the estate tax for a decade would be nearly$1 trillion.
For more: http://www.cbpp.org/3-16-05tax.htm

Jobs produced by tax cuts. What does a job cost? One hellava lot.

But to see how Bush has done so far, let's start by looking only at what the tax cuts will have cost through the end of 2004: $749.1 billion. And let's say the economy continues to create 300,000 jobs a month from here to the end of the year, something even the pollyannas in the Bush administration wouldn't predict. At the moment, Bush is still 1.84 million jobs in the hole, but 9 more months at 300,000 jobs per month would leave him at the end of the year with a net of 860,000 jobs created for his first term. That gives us the following:$749.1 billion (cost of tax cuts, 2001-2004)

/ 860,000 jobs

= $871,046 per job http://gadflyer.com/articles/?ArticleID=70 [Broken] Last edited by a moderator: 'Voodoo' economics. That alone sounds like bull****. Entropy said: 'Voodoo' economics. That alone sounds like bull****. It's called supply side economics. I don't know where the name Voodoo economics came from but obviously it's a loaded term. I guess attaching a BS name to a theory you don't like is some how good logic..... Pengwuino Gold Member Townsend said: It's called supply side economics. I don't know where the name Voodoo economics came from but obviously it's a loaded term. I guess attaching a BS name to a theory you don't like is some how good logic..... Yah it is called supply side economics. Reagan's critics were the ones who coined the term "voodoo economics" when Reagan introduced the idea. Pengwuino said: Yah it is called supply side economics. Reagan's critics were the ones who coined the term "voodoo economics" when Reagan introduced the idea. Vice President Bush (1) was a Reagan critic wasn't he? While the term was coined when the two were vying for the presidential nomination nod in 1980 the term sprang up before the economic policy was put into place so either name is equally applicable. I say Tom-a-toe(phonetic) you say To-motto(phonetic). I say you have to tax the public to pay for governmental programs while you think a sprinkle of fairy dust from Tinker-Bell's b-hind will do the trick. http://www.investopedia.com/terms/v/voodooeconomics.asp http://www.tompaine.com/feature.cfm/ID/6751 http://en.wikipedia.org/wiki/Voodoo_economics Townsend said: It's called supply side economics. I don't know where the name Voodoo economics came from but obviously it's a loaded term. I guess attaching a BS name to a theory you don't like is some how good logic..... The name has been attached as long as the theory has been floating around. See links above. faust9 said: I say Tom-a-toe(phonetic) you say To-motto(phonetic). I say you have to tax the public to pay for governmental programs while you think a sprinkle of fairy dust from Tinker-Bell's b-hind will do the trick. So you say liberalism I say communism...same thing I guess? faust9 said: The name has been attached as long as the theory has been floating around. See links above. Attaching a loaded name to a thing to change the way the public perceives it is an unsound practice. It is for all intents and purposes, lying. Townsend said: Attaching a loaded name to a thing to change the way the public perceives it is an unsound practice. It is for all intents and purposes, lying. George Bush 1 was the first person to use the term Voodoo Economics" extensively. That is the term he used to describe Ronald Reagan's proposed economic policy when they ran against each other in the 1980 primary election. It is also called the trickle down theory ie if the wealthy have more money it will trickle down to the lower classes. It never happened with the Reagan tax cuts. Most of the money saved by wealthy businessmen went to pay for moving factories to Mexico starting in the late 80's. It appears that the GW Bush tax cuts are helping to send jobs to China and India. edward said: George Bush 1 was the first person to use the term Voodoo Economics" extensively. That is the term he used to describe Ronald Reagan's proposed economic policy when they ran against each other in the 1980 primary election. It is also called the trickle down theory ie if the wealthy have more money it will trickle down to the lower classes. It never happened with the Reagan tax cuts. Most of the money saved by wealthy businessmen went to pay for moving factories to Mexico starting in the late 80's. It appears that the GW Bush tax cuts are helping to send jobs to China and India. I never said it was the best policy.....I realize it has problems like what you mentioned, to some degree anyways. I read above that Bush senior was the first to use the term...I didn't know that before but it doesn't change the fact that attaching a negative name to something is dishonest. Does that mean I am calling Bush senior dishonest, of course. Most politicians are dishonest and I hate their dirty little underhanded tricks, like this one, that they use to manipulate the public. Townsend said: I never said it was the best policy.....I realize it has problems like what you mentioned, to some degree anyways. I read above that Bush senior was the first to use the term...I didn't know that before but it doesn't change the fact that attaching a negative name to something is dishonest. Does that mean I am calling Bush senior dishonest, of course. Most politicians are dishonest and I hate their dirty little underhanded tricks, like this one, that they use to manipulate the public. I agree with you on this one. Both political parties are guilty of doing it. The problem with supply-side economics is that it ignores the saving vs. income distribution. It is a well-documented fact that propensity to save increases with income, not because richer people are necessarily smarter, but because people who make$20,000 a year are forced to spend all of their money on food, rent, and utilities, while people who make $200,000 might only spend$80,000 on those same things. Therefore, tax cuts to the poor typically go directly into the economy, while tax cuts for the rich will mostly go into savings accounts or other assets. So, supply-side economics might work when your goal is for people to save up for a rainy day, but it doesn't really work that well in recession, when it is better for tax cuts to go straight into the economy.

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Manchot said:
The problem with supply-side economics is that it ignores the saving vs. income distribution. It is a well-documented fact that propensity to save increases with income, not because richer people are necessarily smarter, but because people who make $20,000 a year are forced to spend all of their money on food, rent, and utilities, while people who make$200,000 might only spend $80,000 on those same things. Therefore, tax cuts to the poor typically go directly into the economy, while tax cuts for the rich will mostly go into savings accounts or other assets. So, supply-side economics might work when your goal is for people to save up for a rainy day, but it doesn't really work that well in recession, when it is better for tax cuts to go straight into the economy. I thought that the idea was to increase savings for the rich so they would increase their spending in areas like starting new businesses which create jobs. Tax cuts for the poor might go directly into the economy but the idea of supply side economics is that by increasing savings and investments you expand the PPC (production possibility curve) which will raise the countries GDP which will have the effect of increasing the wealth of everyone in that country. Skyhunter Townsend said: I never said it was the best policy.....I realize it has problems like what you mentioned, to some degree anyways. I read above that Bush senior was the first to use the term...I didn't know that before but it doesn't change the fact that attaching a negative name to something is dishonest. Does that mean I am calling Bush senior dishonest, of course. Most politicians are dishonest and I hate their dirty little underhanded tricks, like this one, that they use to manipulate the public. I used the term deliberately to cast aspersions, because it was Bush's daddy who popularized the term. He may even be the one who coined the phrase, but I don't know that for certain. In any case, as an economic theory, it has been demonstrated that it does not work. At least it does not work to generate enough tax revenue to balance the federal budget. Skyhunter said: In any case, as an economic theory, it has been demonstrated that it does not work. At least it does not work to generate enough tax revenue to balance the federal budget. I am not defending it per say....I already said I don't think it is the best system out there. I was simply explaining that when rich people invest it expands the PPC which is good for everyone including the poor. I have a theories about what would work best and while I will not disclose any details (I wouldn't let you animals any where near my personal ideas) I can assure that my ideas are a long ways from anything that has ever been tried before. Townsend said: I thought that the idea was to increase savings for the rich so they would increase their spending in areas like starting new businesses which create jobs. Tax cuts for the poor might go directly into the economy but the idea of supply side economics is that by increasing savings and investments you expand the PPC (production possibility curve) which will raise the countries GDP which will have the effect of increasing the wealth of everyone in that country. Ah, but in a recession, the wealthy will not want to invest in small businesses. The recession environment is inherently difficult to work in, and many would-be small businesses would go belly-up. Honestly, if you made$1 million per year, and suddenly received a 5% tax break during a recession, would you invest that 50 grand or hold onto it until the recession ends? It's almost like a failed self-fulfilling prophecy: yes, reducing taxes on the rich can encourage some small business growth, but only when the recession is over. During a recession, those tax cuts are useless, and cannot dislodge the economy from the recession.

Likewise, many of the wealthy are wealthy because they're heavily involved with big business. Do you think that Bill Gates or the Waltons are going to invest in small business if they are given the chance?

On a side note, the PPC cannot shift outward due to increased savings or even increased financial investment. The PPC only encodes the current...er...production possibilities. Just because you have a billion dollars in the bank with which you could conceivably build a candy factory, it doesn't mean that you can produce candy. By definition, it will only shift outwards due to capital investment.

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Let's not forget all the small businesses that arn't on the open market. This is all just another example on how the current system is descriminatory against the poor/small.

Manchot said:
Ah, but in a recession, the wealthy will not want to invest in small businesses. The recession environment is inherently difficult to work in, and many would-be small businesses would go belly-up. Honestly, if you made $1 million per year, and suddenly received a 5% tax break during a recession, would you invest that 50 grand or hold onto it until the recession ends? It's almost like a failed self-fulfilling prophecy: yes, reducing taxes on the rich can encourage some small business growth, but only when the recession is over. During a recession, those tax cuts are useless, and cannot dislodge the economy from the recession. It's been a while since I studied macro economics but from what I remember Keynesian economics suggest that because of the lack of flexibility in certain areas of the market place, like employment, it can take a long time to recover from a recession. In order to speed this recovery up he suggest that the government run a deficit to kick the economy into gear. Those tax cuts are needed along with increased government spending to take up the slack when the economy is in a recession. Am I wrong about that? Likewise, many of the wealthy are wealthy because they're heavily involved with big business. Do you think that Bill Gates or the Waltons are going to invest in small business if they are given the chance? There is more than one kind of wealthy...there is well to do and then there is richer than god. I like the idea of becoming well to do and I like the idea of having a system that promotes people working to become well to do. However to become richer than god you need to practically have a monopoly which I am wholly against. On a side note, the PPC cannot shift outward due to increased savings or even increased financial investment. By definition, it will only shift outwards due to capital investment. So increased savings does not lead to increased capital investment? If buy some stock as an investment..what happens to that money? russ_watters Mentor Skyhunter said: In any case, as an economic theory, it has been demonstrated that it does not work. At least it does not work to generate enough tax revenue to balance the federal budget. Reagan wasn't trying to balance the budget, he was trying to stimulate economic growth. Whether he was personaly responsible for the prosperity of the '80s or not is another issue... Skyhunter russ_watters said: Reagan wasn't trying to balance the budget, he was trying to stimulate economic growth. Whether he was personaly responsible for the prosperity of the '80s or not is another issue... I believe the economy during the 80's benefited from the computer revolution and the exponential growth in productivity. Reagan and Bush both ran a deficit. When you run a deficit a large portion of tax revenue goes to service the debt. In the nineties Clinton raised taxes, and invested in infrastructure. He also streamlined government, reformed welfare, balanced the budget, started to pay down the debt, and still managed the longest economic expansion in history. He made plenty of mistakes, but he ran on economics and he delivered. If you look at the numbers in the 80's, 90's, and now 2000-2005, and compare economic growth, job creation, and revenues there is just no way you can say that the Reagan/Bush economic model is superior to Clinton's. Reagan inherited an economy in horrible shape, and Republicans like to blame Carter, which I won't defend Carter, but in large part Carter got stuck with an economy that was still adjusting to our currency being taken off of the gold standard. loseyourname Staff Emeritus Gold Member edward said: Most of the money saved by wealthy businessmen went to pay for moving factories to Mexico starting in the late 80's. It appears that the GW Bush tax cuts are helping to send jobs to China and India. That's an awful lot of jobs created in places where people weren't exactly prospering before. Sounds like some amount of wealth has trickled down to me. Unless you're being completely nation-centric, how can you consider this an entirely negative thing? A lot of people advocate giving aid to other countries because of the plight of their masses. We've seen that what often ends up happening there is that the money gets lost in a corrupt, bureaucratic mess. Why not give the money directly to the people by locating plants in their countries and employing them? They might be working for terribly low wages in bad condition relative to what we had here, but if it's better than what they had before, isn't it at least a step in the right direction? Even the US had to go through stages where laborers earned ridiculously low wages and worked in poor conditions to get to our current state of prosperity. It seems that one of the biggest problems with supply-side economics is that it takes a long time to manifest any real results. Well then, why don't we contrast it with the obvious alternative? What about demand-side economics? Give tax cuts to the middle and lower classes, with the idea being that they will then spend the money and boost the economy. The problem I see with doing this is that you're forcing the economy to rely even more on consumerism. Granted, the consumer-driven economy we've had since the 50s has sky rocketed like no economy that ever came before, but is it really the best way to build a prosperous nation long-term? You create a greedy culture that constantly wants more without ever looking to the future. You end with schemes like planned obsolescence and ridiculous marketing campaigns that increase the rate of eating disorders in young girls (granted, I'm being hyperbolic here, making an appeal to emotion, but still). I've always been of the school that encouraging investment and savings, sound long-term plans, is the better way, rather than creating a culture dependent on want and need. Aren't Americans constantly being criticized because we consume so damn much without any thought to the effect it has, both on our own psyches and on the environment? Do you really want to create an economy dependent on that? loseyourname Staff Emeritus Gold Member Manchot said: The problem with supply-side economics is that it ignores the saving vs. income distribution. It is a well-documented fact that propensity to save increases with income, not because richer people are necessarily smarter, but because people who make$20,000 a year are forced to spend all of their money on food, rent, and utilities, while people who make $200,000 might only spend$80,000 on those same things. Therefore, tax cuts to the poor typically go directly into the economy, while tax cuts for the rich will mostly go into savings accounts or other assets. So, supply-side economics might work when your goal is for people to save up for a rainy day, but it doesn't really work that well in recession, when it is better for tax cuts to go straight into the economy.

Exactly the kind of myopic thinking, with no eye to the future, that I was referring to.

loseyourname
Staff Emeritus
Gold Member
Skyhunter said:
I used the term deliberately to cast aspersions, because it was Bush's daddy who popularized the term. He may even be the one who coined the phrase, but I don't know that for certain.

In any case, as an economic theory, it has been demonstrated that it does not work. At least it does not work to generate enough tax revenue to balance the federal budget.

As Townsend said, though, the idea isn't just to pay off the deficit. A deficit in and of itself is not the worst thing in the world, just so long as you always have the ability to make your payments on time. The idea is to increase the PPC and GDP, making the deficit a smaller percentage of our overall net worth. There is more than one way to skin a cat. One way might take a little longer, but that doesn't make it the worse way. Of course, presidents in our country have to get elected every four years, and not very many people are willing to stay the course for a decade to see if a strong, long-term strategy will work while they struggle to pay the bills on a monthly basis. That's just one of the weaknesses of our species. I wish I could remember who said and how it went exactly, but this calls to mind a quote that my ex-girlfriend used to keep on her door from a scholar of human evolution, bemoaning the fact that it was advantageous for our ancestors not to think more than a few days into the future or more than a few miles outside their immediate homes. Unfortunately, that trait persists today when it isn't as useful as it was 5 million years ago.