The mortgage bomb looms

[NUKE_CLEVELAND]

Sometimes I feel bad about the way i respond to some of your posts. That said, your previous post makes me want to scream.

Its a real easy equation. Tax Revenue - Spending = Deficit/Surplus. When you cut taxes, the government gets less money.

 

 

The government gets less money? Explain to me then why the government has taken in more money in every year since the initial Bush tax cuts of 2001 took hold? Or every year after Reagan's tax cuts took hold in the 1980's. You completely ignore the facts when you make the case that tax cuts cause the government to take in less money.

 

The federal government has taken in an all time high 2.153 trillion dollars in the last fiscal year. In fact.....revenues have increased from 1.8 trillion in 2003 coming out of the recession to the current figure ( thats 350 billion dollars ).

 

I'll even draw you a picture.

 

Oh by the way.........Here's the CBO's rollup of revenues for this year.

 

http://www.cbo.gov/showdoc.cfm?index=7627&sequence=0

 

2.406 trillion dollars taken in in FY '06

 

Less money indeed. Next time you try to insult my intelligence and take a condescending tone with me you better be prepared to back up what you say. I would like to thank you for the great siggy material though.

Edited October 13, 2006 by NUKE_CLEVELAND

[NUKE_CLEVELAND]

Now lets focus our attention on Capital Gains tax.

 

http://www.nationalreview.com/nrof_luskin/...00601270946.asp

 

The salient points here:

 

Table 3-5 on page 60 in CBO’s Budget and Economic Outlook published in 2003 estimated that capital-gains tax liabilities would be $60 billion in 2004 and $65 billion in 2005, for a two-year total of $125 billion.

 

 

Tax cut takes effect during 2003.

 

 

New estimates based on Abe's "logic" that lower tax rates will cost us revenue.

 

Table 4-4 on page 82 in CBO’s Budget and Economic Outlook of that year shows that the estimates for capital-gains tax liabilities had been lowered to $46 billion in 2004 and $52 billion in 2005, for a two-year total of $98 billion. Compare the original $125 billion total to the new $98 billion total, and we can infer that CBO was forecasting that the tax cut would cost the government $27 billion in revenues.

 

 

Now to what actually happened.

 

Take a look at Table 4-4 on page 92 of the Budget and Economic Outlook released this week. You’ll see that actual liabilities from capital-gains taxes were $71 billion in 2004, and $80 billion in 2005, for a two-year total of $151 billion. So let’s do the math one more time: Subtract the originally estimated two-year liability of $125 billion from the actual liability of $151 billion, and you get a $26 billion upside surprise for the government. Yes, instead of costing the government $27 billion in revenues, the tax cuts actually earned the government $26 billion extra.

 

 

Less money indeed.

[AbeFroman]

Look, you cannot look to taxes as the only reason an economy succeeds. Its popular politically, but its analytically innacurrate. It does not explain economic growth in the 90's (after we raised taxes twice.) It does not explain why high tax nations succeed economically. Your position implies that only tax cuts can cause higher tax revenues... thats outright untrue. I find your characterization of Bush Sr/Clinton tax raises as "mere" still curious.... By comparison, Bush Jr's tax cuts were also "mere." If mere tax raises didn't hurt the economy, then why did mere tax cuts help it so much?

 

Tax revenues are driven by economic performance. Our nations economy is driven by MILLIONS OF VARIABLES. The most important one is Monetary Policy. When interest rates are low, inflation is in check, and businesses have easy access to investment capital. This leads to bigger profits and bigger tax revenues. Tax cuts, are only a tiny variable in the equation that is economic growth. I've addressed this as throughly as I'm inclined to do in post #95.

 

Here's my economic portrait of the early 2000's - Low interest rates, companies can borrow cheaper, investors want stock cause its return is better than the interest rate, home prices soar, people have more equity in their homes, profits on the sale of homes increase because they are worth more and buyers can borrow more (bc of low i rates), homeowners can afford to take equity out of their homes cause interest rates are cheap... All of these things have pumped HUGE volumes of money into the economy. Thats why tax revenues are rising.

 

*** I don't place a lot of value in the National review. Its got a political agenda and this influences its economic outlook (as well as everything else).***

Edited October 13, 2006 by AbeFroman

[kapkomet]

Why are higher taxing nations more successful? Because the corporate tax structure is not that different or less then it is here. You're talking individual vs. corporate taxes IIRC (I'll have to look at Sweden, since you brought it up earlier).

 

Taxes come from all different sources, not just individuals. And, individual tax brackets go down, the more times money turns in the economy. It's been proven.

 

Abe, this is a good discussion, even if I disagree with a part of your premise.

[NUKE_CLEVELAND]

Look, you cannot look to taxes as the only reason an economy succeeds. Its popular politically, but its analytically innacurrate. It does not explain economic growth in the 90's (after we raised taxes twice.) It does not explain why high tax nations succeed economically. Your position implies that only tax cuts can cause higher tax revenues... thats outright untrue. I find your characterization of Bush Sr/Clinton tax raises as "mere" still curious.... By comparison, Bush Jr's tax cuts were also "mere." If mere tax raises didn't hurt the economy, then why did mere tax cuts help it so much?

 

Tax revenues are driven by economic performance. Our nations economy is driven by MILLIONS OF VARIABLES. The most important one is Monetary Policy. When interest rates are low, inflation is in check, and businesses have easy access to investment capital. This leads to bigger profits and bigger tax revenues. Tax cuts, are only a tiny variable in the equation that is economic growth. I've addressed this as throughly as I'm inclined to do in post #95.

 

Here's my economic portrait of the early 2000's - Low interest rates, companies can borrow cheaper, investors want stock cause its return is better than the interest rate, home prices soar, people have more equity in their homes, profits on the sale of homes increase because they are worth more and buyers can borrow more (bc of low i rates), homeowners can afford to take equity out of their homes cause interest rates are cheap... All of these things have pumped HUGE volumes of money into the economy. Thats why tax revenues are rising.

 

*** I don't place a lot of value in the National review. Its got a political agenda and this influences its economic outlook (as well as everything else).***

 

First of all, I wasn't talking about the nations economic success, simply federal revenues. I also never said anything about tax cuts ALONE causing the increase in revenues. You said federal revenues would be hurt by tax cuts and the facts dont support that. Also, I don't disagree that there are a lot of other factors contributing to economic growth ( especially interest rates and I have made that case before ) but to discount the effect of tax cuts ( which are another injection of capital into the economy ) is foolish.

 

Also, about not placing value in the NR article, do you also believe that the CBO ( whose official statistics were quoted in that article ) also has an agenda?

[NorthSideSox72]

To see why we leapt out of the 2001-2003 recession so quickly, you have to look at many factors. Taxes is one part of the picture. The housing boom, as discussed earlier, also played a part. So did interest rates, and a drive by American companies to profits by outsourcing, etc.

 

But honestly, I cannot see how anyone can point to any ONE of those factors and say it was THE reason for economic upturn, or even THE reason for increase in tax receipts. The relationship Nuke tried to illustrate is a correlation - not necessarily causation. And besides, amounts collected via tax receipts is not a reliable measure of economic strength, since it involves such a complex set of rules and variables to derive the end result. From what I have seen, I feel that the housing market was the single biggest factor, followed by monetary policy (interest rates), then tax changes, then a smattering of smaller effects.

 

And one other thing to note - all those factors that caused the upturn also have a negative side to them. Housing boom caused a bubble (at least in some locales)... lowering of interest rates caused a rise in dangerous high-risk mortgaging strategies... changes to the tax structure caused a further split between haves and have-nots. There are always reactions to these things, not all positive. No economic trend is 100% positive - ever.

[AbeFroman]

Why are higher taxing nations more successful? Because the corporate tax structure is not that different or less then it is here. You're talking individual vs. corporate taxes IIRC (I'll have to look at Sweden, since you brought it up earlier).

 

Taxes come from all different sources, not just individuals. And, individual tax brackets go down, the more times money turns in the economy. It's been proven.

 

Abe, this is a good discussion, even if I disagree with a part of your premise.

 

Thanks Kapko... Its a good point about corporate taxes also... One I'll have to investigate as well.

 

On your wording, I wouldn't necessarily say that higher taxing nations are more successful per se. Just that they can be sucessful. And you are definitely right that as tax brackets adjust, more money does flow into the economy. I do think it does tend to be inflationary though... and its also a little inefficient cause not all that money stays in the American market. If it has a trickle down effect here, it also has a trickle down effect in other countries too.

 

This has been a fun discussion for me. I'm pretty geeky about this, and I appreciate your thoughtful input Kapko.

[NUKE_CLEVELAND]

I've said this in here before... our current curriculum in high schools (private AND public) around the country has a big hole in the middle of it - HOW TO FUNCTION AS AN ADULT. And I don't mean socially, or in the workplace - I mean day to day things like basic finance, basic practical nutrition, etc.

 

High school students should be required to take a course in basic personal finance. Do that, and you give them all the tools to spend and save defensively.

 

 

Im going back in the thread a little and I completely agree with this. I got such a course ( Applied Economics ) when I was a junior in HS and its lessons are the reason I got interested in money and investing. The result being that Im in infinitely better financial shape than most of my peers.

[AbeFroman]

First of all, I wasn't talking about the nations economic success, simply federal revenues. I also never said anything about tax cuts ALONE causing the increase in revenues. You said federal revenues would be hurt by tax cuts and the facts dont support that. Also, I don't disagree that there are a lot of other factors contributing to economic growth ( especially interest rates and I have made that case before ) but to discount the effect of tax cuts ( which are another injection of capital into the economy ) is foolish.

 

See I think a Nation's economic success causes higher tax revenues. It makes sense that when people and companies make more money, the federal government gets more money too.

 

I think taxes help the economy. I just don't think it helps much. I do think that tax cuts cause deficits. Here's a chart of federal deficits by administration. Keep in mind that we saw tax cuts under Reagan and Bush Jr. Under Bush Sr. and Clinton, we saw tax raises:

 

 

To me, that seems to show that when taxes get cut, we see deficits. Obviously, if Congress could control spending, then deficits wouldn't occur. But its unreasonable to think that Congress will ever be able to control itself... so you have to build that into the equation.

 

Also, about not placing value in the NR article, do you also believe that the CBO ( whose official statistics were quoted in that article ) also has an agenda?

 

I do believe the CBO... My understanding of their role is simply to inform congress without any partisanship. Generally, i think lefties and righties tend to view the CBO as unbiased. NorthsideSox is right though... I think their stats just show correllation... Not causation.

[NUKE_CLEVELAND]

See I think a Nation's economic success causes higher tax revenues. It makes sense that when people and companies make more money, the federal government gets more money too.

 

I think taxes help the economy. I just don't think it helps much. I do think that tax cuts cause deficits. Here's a chart of federal deficits by administration. Keep in mind that we saw tax cuts under Reagan and Bush Jr. Under Bush Sr. and Clinton, we saw tax raises:

 

 

To me, that seems to show that when taxes get cut, we see deficits. Obviously, if Congress could control spending, then deficits wouldn't occur. But its unreasonable to think that Congress will ever be able to control itself... so you have to build that into the equation.

I do believe the CBO... My understanding of their role is simply to inform congress without any partisanship. Generally, i think lefties and righties tend to view the CBO as unbiased. NorthsideSox is right though... I think their stats just show correllation... Not causation.

 

 

Again. With revenues rising during periods of high deficits it stands to reason that spending and not taxes is to blame. Indeed, spending has exploded under Bush and the Republican Congress, as it did under Reagan and the Democratic Congress, and that is a major concern of mine.

 

Your graph is innacurate also as it shows estimates for 2003 and 2004. The deficits were 396 billion in 2003, 362 billion in 2004, 318 in 2005 and now to 247.7 I think the actual number was in 2006 so the trend has definitely changed for the better thanks to the economic expansion that has been underway.

 

Left out of this discussion was the work Gingrich and Clinton did during the 1990's to rein in spending. That was the driving force behind the improving budget numbers during that time.

Edited October 13, 2006 by NUKE_CLEVELAND

[kapkomet]

Also what are these numbers as they relate to an overall % of GDP?

[NUKE_CLEVELAND]

Also what are these numbers as they relate to an overall % of GDP?

 

 

If I remember right I think the FY '06 deficit counts as 1.9% of GDP.

 

 

That is immaterial to me though. We REALLY REALLY need to stop spending so much money. My way of doing that would be a spending freeze to allow revenues to catch up to expenditures. A Line Item veto would be nice also and disallowing spending riders ( forcing a vote on each spending bill on its own merits ) would do much as well.

[kapkomet]

I agree with your general premise that if they reigned in spending, we would all be better off.

[Texsox]

If I remember right I think the FY '06 deficit counts as 1.9% of GDP.

 

 

That is immaterial to me though. We REALLY REALLY need to stop spending so much money. My way of doing that would be a spending freeze to allow revenues to catch up to expenditures. A Line Item veto would be nice also and disallowing spending riders ( forcing a vote on each spending bill on its own merits ) would do much as well.

 

While I greatly respect President Reagan, he sold us a couple lies. The biggest was spend and don't tax government. I have respect for tax and spend politicians and respect for don't spend and cut taxes politicians. The spend and don't tax is our ruin. We have lost the connection of why we pay taxes, and that is to pay for our government. Sadly, if anyone in media would report that, they would be labeled as liberally biased, and if a judge somehow showed it was unconstutional to spend more than the revenue, they would be labeled as activist judges.

[AbeFroman]

Again. With revenues rising during periods of high deficits it stands to reason that spending and not taxes is to blame. Indeed, spending has exploded under Bush and the Republican Congress, as it did under Reagan and the Democratic Congress, and that is a major concern of mine.

Congress is never going to control spending... so when you cut taxes, essentially you're creating deficits. Spending in the Reagan administration was not so totally out of control so as to cause the deficits. I don't have the numbers on me, but I don't think Reagan elevated spending so out of control to cause the deficits. I'm pretty sure spending was flat to slightly up over the course of his administration.

 

Left out of this discussion was the work Gingrich and Clinton did during the 1990's to rein in spending. That was the driving force behind the improving budget numbers during that time.

 

In my opinion, the "welfare debate" is over. The Temporary Assistance to Needy Families act (TANF), which was hammered out between Clinton and the 94 Gingrich Congress very effectively reined in spending and limited welfare to deserving parties. It's a good law. I agree with you here.

 

Line-item veto isn't legal unless we get a constitutional amendment. I have mixed feelings about the line item veto... On one hand, its a great way to kill pork. On the other hand, I think it give the president too much power. I'd hate to see a President cut a military spending project or social program just because he disagrees with the premise.

[kapkomet]

Clinton's welfare package (which he had a lot to do with, along with Gingrich) was one of the best things he did as president.

[NorthSideSox72]

I have respect for tax and spend politicians and respect for don't spend and cut taxes politicians. The spend and don't tax is our ruin. We have lost the connection of why we pay taxes, and that is to pay for our government. Sadly, if anyone in media would report that, they would be labeled as liberally biased, and if a judge somehow showed it was unconstutional to spend more than the revenue, they would be labeled as activist judges.

I think this is right on - I can respect the economic policies of people up and down the spectrum (as far as amount of government spending), as long as they balance the budget. The current Congress has overspent, although they have made strides to reign it in recently (thanks in part to pressure from Bush).

 

Deficit spending contributes positively to GDP in a vacuum, but of course there is a backlash. The money spent that isn't earned, is debt. That debt has cost - interest expenses, and further, opportunity cost. And contributing to the national debt has a negative effect on the strength of our international economic power, which just furthers the trade deficit. Ultimately, that means fewer jobs and less revenue in international trade for the U.S. Deficit spending is not free.