The Popularity Of Tax Cuts

A Supply-Side World


Democrats in Congress remain committed to raising taxes on grounds that tax rates don't much matter to economic growth, and in any case they only help the rich. They may be the last public officials on the planet to believe this. In recent weeks alone, some of the unlikeliest political leaders have endorsed tax rate cuts in the name of making their economies better.

Start in Europe, where Socialist Party Prime Minister José Luis Rodríguez Zapatero pledged in December that if re-elected, "One of the first decisions I would take is to eliminate the wealth tax [up to 2.5%]," which he says is one of the highest in Europe and "punishes savings." Mr. Zapatero is no conservative. But he's joining the European march down the Laffer Curve on taxes, having already phased in reductions in Spain's corporate tax rate to 30% from 35% and its personal income tax rate to 43% from 45%.

Like France and Germany, Spain is cutting rates because of the tax competition from their European Union neighbors such as Ireland and East Europe. There are now at least 11 nations formerly behind the Iron Curtain with flat rate taxes of 25% or lower. On January 1, a new flat tax of 10% became law in Bulgaria, replacing its progressive rate structure and as far as we know the lowest such rate in the world. The newly elected Polish parliament is also planning to cut taxes, though an earlier flat-tax proposal earned a veto threat from the president.

And this just in: In the Middle East, Kuwait has decided to slash its corporate income tax on foreign companies to 15% from 55%. Finance Minister Mostafa al-Shemali argued for the cut, noting that Kuwait attracted less than $300 million in foreign investment last year, compared to some $18 billion in lower-tax Saudi Arabia (which has a religious tax but no corporate or income tax on Saudi nationals). "This law will encourage foreign investors to enter Kuwait," says Ahmed Baqer, head of the parliament's finance panel.

It's getting lonelier all the time at the top for America, which with a corporate tax rate of 35% is one of the few developed nations left with a rate of more than 30%. Economist Dan Mitchell tracks these trends for the Cato Institute, and he finds that 26 developed nations have cut either personal or corporate income tax rates since 2005. Since 1980, OECD nations have sliced their average personal income tax rate by 24 percentage points, to 40% from 64%. Corporate tax rates have fallen by more than 20 percentage points. Foreign leaders have learned that, in a world of easy global capital flows, high tax rates chase away investment and entrepreneurs.

Some of these tax-cutting nations -- such as Estonia, Ireland, Russia and Spain -- have seen revenues rise even as rates have fallen. This is what turns socialists into supply-siders in Spain, if regrettably not in the U.S.

 

This is why I'd like to see a republican elected president for the economy. The democratic candidates if elected will be raising taxes to expand the role of gov't, but the experiances of some of the European welfare states,who many American liberal democrats want to emulate,shows that the taxes needed for big government is counter-productive to economic growth. Hillary said something about giving every baby born in America a $1,000. Well that sounds like more taxes. Why not promote a tax policy that will help to attract more investment,creating more job growth so that the parents of those babies will have more employment opportunities instead? This won't happen much with the higher taxes that will come with those $1,000 checks.

 

*economically uneducated*

1990's ! great times under Clinton, lots of work, pumping economy, and the fed gov't raised taxes!
I heard that raising taxes sometimes helps shit. Was it all dot com bubbles that propped up the economy or did raising taxes play a role too?

Can someone explain????It will help a young man cast the right voooote!!!!

 

^

This clarifies the Clinton years.


" Clinton can also be given credit for reappointing Alan Greenspan as head of the Federal Reserve, where the economist was widely credited with a masterly performance in handling interest rates. This was an unusual move for a Democratic president, as Greenspan is a libertarian Republican who had been a close economic adviser to Republican Presidents Gerald Ford and Ronald Reagan. Greenspan and Clinton worked closely, and in 2007 Greenspan praised Clinton's handling of the federal deficit and his support for liberalized trade, calling him "the best Republican president we've had in a while."

But many other factors, having little or nothing to do with government, also were at work during the Clinton years.

Personal computers and the Internet came of age, bringing a revolution in the efficiency of processing information and making workers more productive. Manufacturing companies embraced more efficient production methods.

A massive reduction in military spending, begun during the George H.W. Bush administration following the collapse of the former Soviet Union, allowed capital to be deployed to more economically productive ends. No major war disrupted the world's rapidly growing trade.

Good luck also played a role. Oil prices declined during much of Clinton's presidency, partly because of squabbling and cheating among the OPEC oil-producing nations. As late as 1999 crude oil was selling for less than $10 per barrel and gasoline hit a low of 95 cents per gallon at the pump... "

Factcheck.org

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To add,I think it's agreed by most economist that the U.S economy was recovering from the early 90's recession just when Clinton came into office in 93.

 

I don't think there is a quick answer for the economy- strictly speaking, cutting taxes (republican) or adding more jobs (democrats) are supposed to "save" the country from economic troubles. This seems blatantly oversimplified. For the tax cuts, how can the government keep giving back money while spending keeps increasing? Does no one else see this as a bad idea, to have less money but spend like we have more? This is a sure fire way to create debt, but that is never mentioned.

More jobs, where are they going to come from, who will be qualified to work, what are the wages, etc? How is a 50 year old factory worker going to get another job when the factory work moves overseas? What would he be able to do- obviously he can't go back to college to get trained for a better job, so is he going to be stuck working a minimum wage job at McDonald's or Walmart?

I think there are too many questions for either side when it comes to their mantra of "tax cuts" or "more jobs"- what are the logistics of their plans? A 2 word answer ain't gonna cut it.

Peace and love

 

George Bush is considered to be a bad example of a fiscal-conservative by most other fiscal-conservatives. Many have criticized him for not combining his tax cuts with matching spending cuts.

 

I just don't see how giving people $600 is going to do anything for the economy. How is this going to make a difference? It seems like a tiny band-aid for a missing arm. People who are losing their homes- is $600 going to save their home? Or $900? I just find this idea that tax cuts will "fix" everything is a very naive statement and shows a misunderstanding for the complexity of economics.

Peace and love

 

It won't really fix anything in the long run, most economic reforms take time though while this is injecting more money into the economy right now. The therory is while each person generally gets $600, more if they have kids, less if they don't pay taxes, it's not alot but when 125 million people are getting it this adds up to tens of billions of dollars going out to people in the course of a few months which ideally they'll go spend at stores and such to help boost the current economy since it is service based. But the flip side is people might just save the money, or use it to pay off current debts, or the question of how much it really helps the US economy specifically, because yes if people spend it that money goes into stores and our economy, but 90% of what people buy at stores comes from China, Japan, Taiwan, ect, so at the end of the chain they just wind up getting our money.

 

That was what I was thinking, that it wouldn't be Americans who would be reaping the benefits. Perhaps we'll be supported the lead paint industry in China- who knows? Let's hope people will think about what they do with their money. I can only hope Americans will be more responsible w/ the tax money they may receive. I don't know, I feel like the American forefathers, who didn't trust the general population in making important decisions. I'm just afraid that the average American is not only uneducated, but purposely miseducated by the media (yes, I made up a word). For example, many Americans want to abolish the death tax, not realizing that they or those they know will not pay it (unless their names happen to be Bill Gates or Donald Trump.) Oh well, let's hope something good may come....

Peace and love

Peace and love

 

LINK

One of these economist may have an answer for you about the stimulus package. They have a video.

 

Sorry, but that link raised more questions, especially when a couple of the economists also said this was too little, too late. I'll break down the parts that leave me extremely skeptical.

"So I think putting dollars in the pockets of consumers will really help to offset the double-digit increases we've seen in home heating oil prices, the more and more dollars being spent at the gas pump by our residents and consumers, and I think really start to bring some relief."
~How? Exxon's had record breaking profits and that has not helped the economy. Instead, it seems like they are profiting off of the hardship they are putting on the working people. Why would giving people a few hundred dollars help when oil and gas prices keep going up- this just delays the inevitable, when oil prices will be too high for the public to afford. Yes, maybe it won't be today or tomorrow when it happens, but what about in a year? Two years? Ten years?

"In addition, I think it's a significant move, the proposal to raise the conforming loan rates. Here in New England, where our housing prices are relatively high, moving that level up will allow many more of our homeowners who are in the so-called jumbo loan area to refinance and others to buy, which I think will start to relieve some of the significant pressure we've been feeling in the housing market here."
~Please explain how raising loan rates will help the crisis. From what I've read, conforming loans are loans that terms are decided by Fannie Mae and Freddie Mac. "These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans." I don't understand how this helps the average American w/ jumbo loans, unless the maximum loan is raised and then jumbo loans can be turned into conforming loans, w/ hopefully, lower rates. But if someone can't afford their bills, how is a few hundred dollars going to help. It's not like these people will be receiving this amount as a supplement on a monthly basis, so this again seems like a short term fix for a long term problem, and it is delaying families from losing their homes in April until next January. It Seems like this is borrowed time.

"The rebate checks, they'll help a little, too. In Florida, we have seen a significant negative wealth effect. Consumer spending has actually dropped in Florida over the last year. And this should help offset some of the sting from fallen home prices. It's not going to offset all of it, but it's not designed to. It's really designed to cushion the blow. And I think it has a good chance of doing that."
~How? Do you really think that the retired will go out and spend all this extra money? Or will they be using this money for the medications they can't afford, doctor's visits, etc? I doubt people who are really struggling will want to go out and improve the economy when they are barely getting by.

"Yes, I know, the timing of it is a little dicey here. You know, we had a similar experience back in 2001 with the rebate checks, and those were incredibly well-timed. It may have been the best-timed fiscal stimulus in the history of the country."
~Could the 9/11 attacks have had more affect when we went to war w/ Afghanistan? I believe many have said the Great Depression was ultimately ended by WWII.

"And so, because of that, people are going to be on unemployment longer. And because of this recession, if they're able to extend it a little bit, that will help people to kind of get back on their feet, maybe even go back for education or training, so they can get new jobs and better jobs."
~I can't imagine a 50 year old welder going to college for a degree. Yes, maybe younger workers might have a chance at retraining to find a different job, but what about people who don't have another other options? What are they supposed to do? Are they supposed to find a minimum wage job at Walmart? How are they supposed to survive?

Well, here's some of the things that seem more viable.

"Well, we've had a lot of trouble with our housing market here in Arizona. And unfortunately, I think the amount that people will be getting back is not enough to offset the problems that we've seen in housing prices and the decline in house price over here. People's equity position has been deteriorated quite a bit over the last number of months, so it still remains a problem for us, not enough to offset it."

"I have some concerns about it, because I'm not sure if it's really targeted to the right people. And also, in the Midwest, one of the biggest problems we've had is unemployment. And because they've taken the extension of the unemployment benefits off the table, it may not have as much of an impact as the Congress would hope."

There is more, but I will leave it at that. These are all found in the link you provided.

Peace and love

 

People like to keep the product of their labor and taxes are enforced by tyranny, of course tax cuts are popular.

 

Would I rather pay more taxes and get better financial aid and health care or pay less taxes and have to pay more out of pocket for education & health care? I don't know, I guess it depends on what is offered for both choices. I don't think there is only one simple answer to this question.

Peace and love

 

As far as healthcare are you assuming that a tax funded gov't run healthcare system would be better? Those types of system like Canada's have their share of problems.

 

The US has a savings rate below zero, yet people prefer blaming government fiscal policy for firms moving overseas.

 

As I said, I don't know. I'm not going to rule something out right away. BTW, no system will be perfect. There will be problems no matter what system we chose, whether it is gov't funded or private as it is. If you think there is one simple answer, this idea is rather naive. As is the idea that tax cuts or jobs would solve all the economic problems.

Peace and love

 

No doubt this is a last ditch effort by the bush administration to save face, but it won't work. I don't see tax cuts or rebates as having much effect on the economy, other than increasing the national debt. Folks that are hurting will use the money to pay off bills. Those who aren't will be more likely to save it than put it into circulation or investments. With the stock market in the toilet and unemployment on the rise, no one has any confidence, why would they blow a windfall they get from the IRS when the future's so insecure?

I love how now that the stock market takes a dive, the economists are finally starting to admit we're in trouble, when the rest of us have seen it for years manifested as a rising cost of living, lower wages, and increasing unemployment.

Reducing government beurocracy might seem like an attractive solution, but government is what protects us against predatory corporations, or at least that's what they should be doing. The problem is investors and corporations have been fleecing the economy for years in the form of outsourcing, which is profitable in the short term, but is unsound in the long run, because if more of what we consume is produced elsewhere than here, we can't sustain ourselves.

The bush administration has massively cut social services, yet we have the highest national debt in history, and somehow we have the funds for a war that has accomplished nothing. Social programs are an investment in our lower class, who keep the economy rolling more than the rich people do. If we can reverse the "reverse Robin Hood" economics, maybe we can turn things around.

I've got an idea, let's tax the rich people and the corporations.

 

^^^
I can't disagree too much.

Peace and love

 

What do you mean when you say we won't be able to sustain ourselves because of outsourcing? Where do you fit insourcing into your analysis where foriegn companies provide jobs for Americans(Toyota plants in Alabama etc)?

Going into Iraq has been one of Bush's biggest economic mistakes. I agree with the tax cuts though. The problem is that you must have matching spending cuts which the Iraq war has affected. Supposed Bush had the same tax cuts but with matching spending cuts?

I also wonder how Reaganomics would have turned out if he didn't have to spend so much on military spending because of the Soviets?

Are social programs the only way to help the lower class? Low income areas suffer from a lack of investment/job creation. Doesn't the tax policy affect this investment as shown by those countries in the first post who have cut their taxes to stimulate needed investment for their countries?

 

I don't see nearly as much insourcing going on as outsourcing, and I'm guessing that a Toyota plant in Alabama produces Toyotas for Americans, giving us a net export of zero.

However, after more thought I've come to the conclusion that we can sustain our habit of consuming more than we produce, we've done it for years by exploiting third world countries and stealing their resources. It's the American Way.

I won't argue with you there, I'm just concerned where the tax cuts and the spending cuts are going. I read somewhere recently that Greenspan deliberately did away with the budget surplus left over from the Clinton administration because the economists were afraid of what the bush administration might do with it (I would be too, LOL). Of course no one had any idea the drain the Iraqi war would have on the economy (should've kept that surplus guys).

Reaganomics was a sham, it paved the way for corporate corruption like Enron and the mortgage fallout we've seen recently under the bush administration, remember junk bonds? Like typical Republican economic policy, there's no oversight, so the rich get richer, and the poor get poorer. The less conscience you have, the more money you make. The Reagan years taught us that "greed is good", right? Greed is not good. We need government oversight to keep the corporations honest, and maybe we're better off in the long run if we put our people to work here in the good ol' USA than elsewhere. Sure it costs more, but we're worth it.

I've been hearing this crap about economic prosperity for so long now from the bush administration, it makes me sick. It's good to see they no longer have excuses, now that the fat cats on wall street are suffering along with the rest of us. Sure, lots of jobs are being created, now that thousands of professionals with college degrees have been hopelessly displaced from the work force, but hey, McDonalds is hiring, right?

On the bright side, at least Exxon is showing record profits...again, at the expense of the rest of us.

OK, I'll buy that corporate tax cuts are a necessary stimulus to bring investment and job creation to a community, but it's a matter of degree. When I hear of large corporations moving in and displacing mom and pop businesses, I think there's my tax dollars hard at work. It's often a win-win situation for them too, 'cause the corporations are often so liberally subsidized, there's no risk on their part. Business could go belly up the minute they open their doors, and they'll still end up ahead.

I'm also not so sure large businesses are more productive than smaller ones. Granted they have a better infrastructure to get things done, but look at the beurocracy of all the layers of management, and have you seen CEO salaries lately? No wonder so many corporations are having problems when they pay their top dogs millions of dollars, whether or not they perform.

Poor people who are barely able to make ends meet are more likely to spend any windfalls they get from the IRS. They'll stimulate the economy more than rich people, who already have everything they need, and who will sit on anything they get till the economy improves.

And just to be sure you know where I'm coming from, I don't live from pay check to pay check like most Americans. I could live for years without working, and I hold a professional job, unlike so many of us who have been displaced. I would actually stand to lose from a more socially responsible distribution of wealth that I've proposed, but I still think it's more economically sound to do the right thing in the long run. It's an investment in us as a people.