A Happy Video, showing the birth of, at least a portion of, modern Republican economic philosophy.
The congressional budget office in 2005 did a study, headed up by former head of John McCain’s presidential economic team Douglas
Holtz-Eakin. That study pointed out the inefficiency of an across the board tax cut of 10% of all income ranges. It did have some positive effects, but those effects were more than countered by the debt it created. The tax cuts would be on all income, AMT, capital gains, dividend income, the whole nine yards. the study…ummm.. studied the “supply side effects of the tax cut”. The Laffer curve is a core component to supply side economics and republican economic philosophy, and as such is a centerpiece of this study.
The positive effect of tax cuts would be in increased work done, and increased efficiency in labor. People work harder when they are paid more(or think they are paid more), and are therefore more willing to work more hours. The opposite effect does also exist, when people are too onerously taxed, they are getting less for the amount of work they do, and as a consequence they work less.
However, The 10% across the board tax cut ends up costing, after 10 years with debt service added to it, a total of: One Trillion five hundred and fifty seven billion dollars. Over a trillion and a half dollars in lost revenue. There were a few variations in the model though. The negativity of the number there goes down somewhat… if the people know that there will be an inevitable and permanent tax increase, and work harder and save money (called maximum foresight in the paper), the number drops to: One trillion two hundred and twelve billion dollars.
To sum up. Supply side economic policy and across the board tax cuts actually costs over a trillion dollars long term at least in this circumstance. The Bush tax cuts were based on this economic principle, and helped to put us in the hole we are in today. When those tax cuts were put out, they were criticized by some as being a “reverse distribution of wealth” taking from the poor and middle class and giving to the rich.
The Laffer curve is a nice classroom tool, but isn’t something you should necessarily base a national economic policy on.
I do understand that there is a point of diminishing returns in taxation, where too much taxation from the government actually gets them less money percentage wise, and is therefore self defeating, just like the laffer curve lesson shows. But the question is exactly where that line of diminishing return resides and that is an area of debate that is, from what i gather, a hot topic of debate amongst economists. I’ve heard numbers as small as 15 percent(very nice, but services are cut to nothing and millions of jobs are lost), and as large as 65+%(ARE YOU INSANE!!??!! TOO MUCH, WAY TOO MUCH!!!!AAAAAAAA!!!!). But this study does fairly well prove that too low a taxation rate hinders the nations ability to pay for itself. The author of the study did in fact defend the Bush tax cuts when he was #1 economic adviser for John McCain’s failed presidential bid.
The study does say that shrinking government would have a positive effect on the amount we would owe out. And for obvious reasons, less people working for the government, less infrastructure to pay for, less services rendered, the less it costs to actually do business. But that would have a very negative effect on the economy. That of greatly increased unemployment. Think about this. If you cut hundreds of billions of dollars in taxes, and hundreds of billions of dollars in infrastructure, you will also have to cut hundreds of billions of dollars worth of local, state and federal jobs to accommodate this paradigm shift. Even in the best of times, tossing at the very least a few million people out of work will have an amazingly negative effect (DUH!) Which is why supply side economics, and large scale tax cuts at this point in time make no sense whatsoever.
And since government has never shrunk, not in my life, and I guarantee it hasn’t shrunk in yours either, talk of cutting government programs to cut costs is ridiculous. In these times, thanks in no small part to the effect of the Bush tax cuts, we unfortunately need MORE government services, not less. The republicans, with their insistence that wholesale tax cuts is the way to go looks from here like sheer denial. Reality says it doesn’t work, but they just don’t seem to care about that.
Ya know what? I have something for you to read, an article from the brookings institute on the Bush tax cuts that speaks to the errors in endless tax cuts, and speaks with much more in the way of Clarity than I can. This article is from may 2003. BTW, this article is from then Brookings Institute senior fellow and current director of the office of management and Budget, Peter Orszag. Watch Pete here, in an interview with Rachel Maddow.
That’s it for me. Later!
Today’s Nuggets, by Adam Smith, Via wikiquote: When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment. The raising of the denomination of the coin has been the most usual expedient by which a real public bankruptcy has been disguised under the appearance of a pretended payment.
What improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can be flourishing and happy if the greater part of the members are poor and miserable.