Laffer curve - the real laugh

[tw]

Originally posted by bepatient
...
First, how do you determine that a tax cut is a bad thing? Historically, tax cuts on this scale have actually increased revenue to the federal government. Its a phenomenon know as the Laffer curve. It worked for Kennedy, Reagan and will probably work the same for Bush. You AND the Fed get more money. Win Win.

Also, maybe you're too young to remember the 70's, but I'm not. We are definitely 25 years into an energy crisis...largely un-noticed until last year when OPEC decided to hold us hostage again. ...

Had this been posted by the youngsters, then I could understand how spin doctors lies are believed. But you were there. Why do you believe their lying - by half truths? Why do you believe outright lies about Win win.

Tax cuts are narcotics. They create a quick boom followed by a recession. GNP numbers do no reflex economic growth That is exactly what happened with the Kenndey Tax cut. Do you forget the recession of four years later.

Look. I run a factory. I then hire some security guards. Therefore I have increased the nation's GNP numbers. However did I create economic growth? Of course not. That is what tax cut numbers do. They make higher GNP without any economic growth. You are old enough to understand these money games.

I develop a new medical procedure that gets the patient out of the hospital in 2 days instead of 6. Have I increased the nation's GNP? No. But I have increased the countries economic productivity. Again you are old enough that these number games are well known to you. Therefore you should have the knowledge to see right through the Laffer curve.

The Laffer curve is promoted to youngsters who do not understand those above economic money games. You saw too many government created recessions - so many that you should have been advocating the lynching of those spin doctors - to save democracy.

We know - at least we who would burn all spin doctors at the stake - that money invested today takes at least 4 years to create a profit. Obviously because innovative products require 4 to 10 years to reap economic rewards. Only neo-classical economists don't understand these basic economic principals. Since the tax cut did not result in a productivity increase - just a hard drug high - then an economy recessioned four years later. Welcome to the full story of the Kennedy tax cut - the part they forget to remind you about because they would lie only in their own interests.

There is no such economic reality as Win Win. Win win is the fiction of spin doctors. By now you have been around long enough to appreciate why Greenspan is so effective. Government cannot create economic boom - it can only create recessions. Government can make the ground fertile for a boom - but cannot create a boom. Only those of low intelligence would say otherwise. Those previous tax cuts resulted in following recessions. Greenspan simply adjusted liquidity to market needs. He does not create booms and withdraws liquidity when liquidity, rather than innovation, is creating too much economic activity. Greenspan is the only part of government that should be adjusting for the economy. No president has ever created economic growth - not one.

Anyone who knew the 60s and 70s understands that recessions are created by a shortage of innovative products. No tax cut nonsense has ever created innovation. However throwing too much money at innovation has actually destroyed innovation. Again you are now old enough to have seen that.

Money does not make economic growth. We know from too many historical examples that too much money or not enough money creates recessions. However those who still worship the high priest of political parties then still think government can create economic growth. At our age, having seen all those ups and downs, I am embarrassed to think that another who was also there STILL does not understand the lies by half truths. They are politicans masking as economists. You know they are lying - their lips are moving.

The Laffer curve can only be believed by those who read too much fiction in the 60s, 70s, and 80s. Clinton had it correct. Don't try to create innovations through money games. Don't try to create growth. Don't mortgage the government. Let the people who come from where the work gets done do the innovation - create the growth. Only then does America grow.

Ironically you have simply advocated the American version of communism - that government can create growth. This absolutely embarrasses me that another who live through all those bad times still does not see. The Laffer curve is being sold to those who didn't yet exist and who are easily lied to by half truths. You should be too old to buy into such silly lies such as the Laffer curve.

George Jr's tax cut is a bad thing - just as history has repeatedly demonstrated. Name a tax cut that did not result in recession.

[Undertoad]

But why was productivity growth slowed in the 70s - and why did it take until the 90s to recover?

I believe that government stifles innovation in quite a few ways.

It makes it easier to compete by creating an atmosphere where fewer companies can compete, by creating a business-prohibitive atmosphere. ("What's good for GM is good for the country." Nope. See the movie "Tucker".)

It creates artificial barriers to entry through regulation, heavy and bizarre taxation and tax rules, etc. (Insurance)

It removes productive human activity from the marketplace by pushing it towards unproductive choices. (Instead of being an environmental engineer, my friend Dave is chatting with Indians about EPA regs)

It semi-nationalizes certain industries, setting up strict rules by which supposedly private industries must operate. (Public utils, transportation, PGW, etc.)

It acts as a buyer itself, but a very political buyer, not a smart buyer. It buys a tremendous amount of things, but doesn't know how to price-compare, sets up its own rules, etc. (Defense, Medicare)

It competes directly against for-profit businesses with the might of its special nature as government. (Education, waste management, development)

Lastly, nowadays, it is joining WITH big companies (and not small ones, who are more likely to be innovative) in corporate welfare deals that are entirely political and entirely non-market based. (Stadium deals, shipyard deals, bogus "job creation grants", etc.)

That's just off the top of my head. How to prevent that kind of crap? Well it certainly won't happen overnight. The only recourse is to set into place courses of events.

We've known for a couple decades that government could be reduced by one-half to two-thirds. Reagan set up the Grace Commission to determine how the Federal government could achieve its goals. They recommended $400B of cuts of things that are irrelevant, etc.

But how to get there from here? Once a government proigram is started, it cannot be stopped. Government agencies are established under the idea that problems should be solved, but a government agency has no interest in solving a problem and thus putting itself out of business. Once the bureaucracy is in place, its central interest is in preserving itself, which it will do first and foremost, before anything else.

We know from history that the federal government will spend $1.25 fo every $1 that it thinks it has. So one way to start is to reduce what they have. The harder job is to actually cut spending, which you can only do (if you are a pol) by calling in political favors, etc. There is just no motivation to do that.

The only power the president has over actual spending is by submitting the budget.

So if I were Pres, I would submit a tax cut on day one regardless of what the actual conditions were. Can a president stop a recession. No, recessions are inevitable, and probably good for the economy anyway. What you say? Yup, I figure, the destructive nature of the recession generates new economic activity by shaking things up. The cruddy business plans fail; the expanding industries catch their breath; everyone takes a step back.

But knowing that, if I were Pres, I'd submit a tax cut ANYWAY, tell the country that it was an emergency measure because of the recession, and take 100% of the credit for the growth that -- again, inevitably -- follows the recession.

And during the recession, when confidence is at its lowest -- I would take that time to sell government cuts on the basis of the fact that it is necessary to tighten all belts, even the government belts.

[elSicomoro]

Originally posted by Tony Shepps
So if I were Pres, I would submit a tax cut on day one regardless of what the actual conditions were. Can a president stop a recession. No, recessions are inevitable, and probably good for the economy anyway. What you say? Yup, I figure, the destructive nature of the recession generates new economic activity by shaking things up. The cruddy business plans fail; the expanding industries catch their breath; everyone takes a step back.

I agree with most of what you wrote, Tony. However, I say the hell with any kind of tax cut. Quite frankly, our tax rates are rather low, compared to Canada, Scandanavia, etc. And what are we now starting to see in these countries? Canada's social insurance system is worse off than our own Social Security system. Sweden's socialist-like system is starting to show cracks as well.

Recessions ARE a good thing. Unfortunately, you mention the word, and stock brokers are ready to dive off the World Trade Center. However, the very definition of recession is "slow or no growth." (Someone correct me if I'm wrong on this.) No growth would imply status quo (at least to me) while slow growth implies that the growth is still there (obviously), just not as fast as, say 1998.

A recession would actually help retail. A lot of part-time workers in their late teens/early 20s have this "the world owes me" mentality that has actually hurt the retail/service sector. Why work for $5.15, when you can get $5.75? Why work for $5.75 when they'll offer you $6.50? Now, with slower sales, the hours won't be as plentiful. So, you want to give the bulk of your hours to the better associates. The weak will be cut off, left to drift or to get their game together. Thank God! I am tired of dealing with these little turds, and I'm tired of getting shitty service.

On the other hand, how does Delaware, with its no sales tax and lax business laws, continue to thrive?

[Sawzall]

tw wrote: No tax cut nonsense has ever created innovation.

I will grant you that. But I would suggest that *overtaxation* has stifled innovation time and time again. Why? Because innovation, beyond an idea, requires free cash flow in order to be converted into actual productive goods or services.

I do not see it as a zero sum game - the ideal tax rate will generate the maximized tax revenue. A rate too high will evenutally fail since it "eats the seed corn" of enterprise. I generally find the concept of a rate too low as absurd, but then again, I tend not to support government beyond the basics.

[tw]

Originally posted by Sawzall
tw wrote: No tax cut nonsense has ever created innovation.

I will grant you that. But I would suggest that *overtaxation* has stifled innovation time and time again. Why? Because innovation, beyond an idea, requires free cash flow in order to be converted into actual productive goods or services.

I do not see it as a zero sum game - the ideal tax rate will generate the maximized tax revenue. A rate too high will evenutally fail since it "eats the seed corn" of enterprise. I generally find the concept of a rate too low as absurd, but then again, I tend not to support government beyond the basics.

That logic holds except for a few blaring problems. First, the US has a world's lowest tax rates. IOW if a tax cut (without corresponding reduction in spending and debt) will improve an economy, then taxes all over the world are way too high - innovation is being stifled everywhere. In some countries with low tax rates, there is a shortage of innovation. But in other high tax rate countries there is a booming economy due to great innovation. IOW there is no relationship between stifled innovation and tax rates.

Second, there is no shortage of capital. The "eats the seed corn" is a classic Reaganomics sound byte without any basis in facts. A shortage of capital is indicated by high interest rates. Where are those high interest rates?

Innovation does not have a capital shortage. Historically, capital shortages are directly traceable to a shortage of capitalists who can appreciate and invest in innovative products. This is the reason for success created by venture capitalists - people who can invest in innovation because they recognized what is innovative before it comes to market. However the anti-innovation GM could raise all the capital they wanted in the 1970s and early 80s because American capitalist were mostly MBS educated - did not have a clue as to what a computer chip was (see Intel's long suffering because they could not raise capital). There is no shortage of capital - obviously. So why do we need tax cuts? Because emotion has replaced logic.

Third, many governments with higher taxes have strong economies. Innovation is not a function of tax rates. Economic health is a function of whether government can also invest wisely. If government is a poor investor, then the tax cuts must be associated with corresponding reductions in spending. Some economies (ie Scandanavian) provide more social services, have extraordinarily high taxes, and have some of the world's best living standards. High taxes are associated with responsible government spending - therefore stronger economy. Tax cuts only solve a problem when associated with corresponding spending reductions.

Four, the next post will demonstrate the real mindset behind the 'cut taxes' concept being pushed by low intelligence but power hungry politicans.

We do know that tax cuts without paying off debt and without reducing spending is an economic narcotic - long proven in history. A short term increase in GNP (that does not represent growth) followed by a recession is what tax cuts create. If the economy ever needed a financial boost, that is Greenspans job. Why do some think a low intelligent politican knows better? Emotion has replaced logic.

Even if the White House doesn't understand economics - they have political promises to keep. Screw the economy. George Jr's tax cut is all about politics. Anyone who thinks this tax cut is healthy for the economy - espeically since we are still paying done the Reagan debts - is simply fooling themselves.

We have this grand oppurtunity to finally pay off Reagan's mortgages. Instead another political type is more interested in his political standing (and reelection) than in doing the job. Taxes do not stifle innovation - as demonstrated above three time over. Number four will demonstrate why so many don't know what the back room power brokers are really doing. Notice the real mindset of tax cuts.

[tw]

From The Economist of 31 Mar 2001 with editorial parallels to current federal mindset in [ ]s:

""James Gilmore of VA, the man President Bush picked to be the Republicans' national chairman, talks a lot about broadening the party's base. ...

Mr Gilmore ... was elected in a landslide on a promise to do away with the much-loathed annual tax on personal motor vehicles. Virginia is now covered with sprawling suburbs; everyone, Mr Gilmore argued, needs a car, and working families could not afford to pay a tax that ran, in some counties and cities, to $1000 or more a year. Not only would the tax be abolished, but taxpayers would get refunds.

In 1998, the Republican controlled legislature happily [emotion] voted to phase out the tax. Some ... wondered how Virginia would afford both the refunds, and the services and programmes that were partly paid for out of the car tax [thinking logically]; but, at that stage, politicans expected economic growth far into the future [more emotional conclusions]. The state would probably have ample funds to cover a phase out that would cost, said Mr Gilmore, $621m over five years [also the mindset of George Jr's tax cut].

Unfortunately the price of the programmme quickly doubled to $1.2billion [just like Bush says we can pay down the Reagan debt and still cut taxes] ... the cost peaked in the last half of 2000 just as the economy skidded to a standstill. By that point, Mr Gilmore found there was a $421million hole in the budget. He cannot run a deficit: state law does not allow it.

[OK - now we have a politican who has been playing Reaganomics and without a David Stockton to blow a whistle. Curious we now have a President advocating same tax cuts while increasing spending - justifying all this with expectations of continued economic growth. It suggests what we face with Jr's tax cuts - advocated for emotional rather than logical reasons. So what does the VA governor do?].

Mr Gilmore had promised, in 1997, that he would slow down the pace of the car-tax refunds if the economy slowed. [Like a current politican who forgot a Greenhouse gas promise]. He seemed to forget that; instead, he ploughed on with the refunds, and asked at the same time for spending cuts [more Reaganomics also being advocated by George Jr]. ... By March 27th the budget deadline loomed, with no budget and thousands of state workers and teachers without the pay rises the legislature had already promised them.

[Watch - more Reaganomics to such up money anywhere at the expense of the future] At the last minute, Mr Gilmore managed a magic trick. He declared (as the governor can) that the Virginia Retirement System was overfunded and could reduce its rates. This would save state and local governments $125m in contributions, and the money would be spent on the promised pay rises. With this book-keeping fiddle, Viginians can get their refunds and their pay rises too.""



Is that not what Reagan then did to coverup a cash flow problem? Of course. Reagan found sources of cash, then used illegal accounting tricks to strip the FAA, SS, and Highway Trust funds - taking the money without leaving an IOW. (On CNN, the current GAO director was asked the same queston and answered as written above.) George Jr has a future income stream intended to pay down Reagans debts - the 'yet to materialize' surplus. Geroge Jr will take those funds because so many emotionally and incorrectly feel the surplus has already arrived.

Since Bush has his own short term political interests (and "talks a lot about broadening the party's base"), he has others even in the Cellar saying we can pay down Reagan's debts (which we have not started to do yet) AND raise spending AND give a tax cut. Guns and butter? History alone says that does not happen. Ahhh but the tax cut is all about emotion - the facts be damned.

Logic folks. Anyone advocating the Bush tax cut nonsense is only appealing to emotional conclusions - the same reasoning used in Reaganomics and ***demonstrated by the current Republican national chairman***. That is the mindset of tax cuts - the facts be damned.

Logic says that paying down Reagan's debts first has the greatest ROI. Ahhhhh but a man already with a long history of screwing up American foreign relations in only three months and with no history of running successful free market corporatons is considered intelligent? Go figure. Tax cuts are only supported by emotional thinking. We have a perfect example in what to expect from these tax cuts. We have a Republican national chairman's recent history in running government into debt - then using MBA cash flow games to cook the books. The mindset of a President who promoted that governor to Republican national chairman is obvious.

Logics says that anyone finding an advantage to Bush's tax cuts has simply replaced logic with silly emotion. Of course the above story from The Economist is new news to the many who believe in tax cuts - more history to ignore. Facts have a funny way of being ignored when people's thinking is so easily distorted by emotional fiction - such as George Jr's tax cuts to boost the economy.

Some even emotionally believe there is a shortage of capital - despite facts such as interest rates.

[elSicomoro]

Virginia sucks. I hope none of you techies are entertaining thoughts of moving to the Dulles Corridor.

Sycamore--Hell is a place much like New Jersey
http://syc75.tripod.com
ICQ--7810696

[Griff]

"Mr Gilmore had promised, in 1997, that he would slow down the pace of the car-tax refunds if the economy slowed.[Like a current politican who forgot a Greenhouse gas promise]. He seemed to forget that; instead, he ploughed on with the refunds, and asked at the same time for spending cuts [more Reaganomics also being advocated by George Jr]. ... By March 27th the budget deadline loomed, with no budget and thousands of state workers and teachers without the pay rises the legislature had already promised them."

Mr. Gilmores rational desire to help the working people of his state and get re-elected was attacked by folks with an irrational attachment to higher government spending. An unintended consequence of this oppressive tax was the supression of new car sales, forcing folks to drive older cars with high emissions or resorting to inflexible public transportation. A friend of mine who was a social worker in DC when this was originally being debated was driving the nastiest piece of crap econobox you could imagine. He refused to change cars until the repeal. He lived in an apartment complex populated mostly by foreign nationals who worked as maids and the like and were forced to spend their days carrying groceries on buses. If you want to stop urban sprawl in Virginia, without coercion, cut off the torrent of tax dollars to D.C.

[tw]

Originally posted by Griff
Mr. Gilmores rational desire to help the working people of his state and get re-elected was attacked by folks with an irrational attachment to higher government spending. An unintended consequence of this oppressive tax was the supression of new car sales, forcing folks to drive older cars with high emissions or resorting to inflexible public transportation. ...

Instead the VA government subsidized sales of luxery cars. That part was not included previously but should have been obvious to anyone familiar with the program. Instead we have the Republican party line - a half truth that some have swollowed - hook, line, and sinker.

The tax cut program's $600m debt jumped to $1.2billion because the state of VA was subsidizing rich luxery car owners. It was Mr Gilmore's 'rational' desire to help his political allies and his 'rational' desire to increase government spending on allies - made woefully obvious by early results his luxery car subsidy program. Results that even today, Mr Gilmore's fellow tax cut advocates forget to mention.

Mr Gilmore is a rich Republican in the tradition of trickle down economics and mythical tax cuts. His desire to help a poor 'bus riding' stiff is stuffed full of half truths. Gilmore should have terminated the program immediately when the first flood of car sales were higher priced luxery cars. But as long as the many don't know these facts - even today in the above post - then Gilmore subsidized rich supporters - the public still not knowing - the public be damned.

Had Mr Gilmore been interested in helping poor, carless, citizens, then obviously he would have placed a limit on the price of those cars. Mr Gilmore did not for obvious reasons - his real intent was to subsidize rich car owners and mutliple car owners. The person "with an irrational attachment to higher government spending" is the man advocating tax cuts - both in VA and US Federal governments.

Yes - those tax cuts only INCREASED government spending while loyal disciples preach mythical virtues of tax cuts. Tax cuts are promoted by the irrational who would increase government spending - then call those increases as tax cut.


[Edited by tw on 04-17-2001 at 11:40 AM]

[Griff]

I won't argue that politicians, GOP and Dem alike, are not usually two-faced.

Very interesting wordplay, we seem to be separated by a common language. The absence of a tax, until fairly recently, wouldn't be considered a subsidy. This kind of thinking assumes that a persons production or in this case property, belongs to the state, which to my over-simplifying, emotional mind is the equivelent of servitude to the state. I will cheer a Republican when he cuts taxes, any taxes. I won't be pleased with or support the GOP until more of them behave like Rep. Ron Paul and start seriously trying to reduce spending. As far as Gilmores situation is concerned, I don't know his budget priorities. I only know my friends reaction to the earlier tax situation. Two years ago he came to Sycamores conclusion decided that Virginia sucked and moved up to Maryland. We all make emotional decisions, based in part on ideology, which we fall back on after hopefully exposing it to rigorous scrutiny. Those emotional decisions are hopefully the result of the long term digestion of history, politics and current events. We give weight to occurances based on our values. One of my main values is individual liberty. I find taxation and more often than not government spending to be a direct attack on that value.

[tw]

Originally posted by Griff
... The absence of a tax, until fairly recently, wouldn't be considered a subsidy. This kind of thinking assumes that a persons production or in this case property, belongs to the state, which to my over-simplifying, emotional mind is the equivelent of servitude to the state. I will cheer a Republican when he cuts taxes, any taxes. I won't be pleased with or support the GOP until more of them behave like Rep. Ron Paul and start seriously trying to reduce spending. ...

Appreciate what Gilmore was selling as a tax cut - the spin not consistent with reality. He did not cut taxes across the board while cutting spending. He cut taxes selectively - declaring he was making it easier for the poor to buy a car but; but subsidizing the rich - the more expensive the car, then the higher the "tax cut". Furthermore he "tax cut" by stealing from the VA retirement funds. IOW he was really only increasing spending. What kind of tax cut is that?

The only 'tax cut' that is an effective economic boost is one that also cuts spending where the spending does not contribute to economic growth. Ask a politican to define what is and is not economically viable? He will first consult his political contributors.

In a parallel case - when we talk about genetics - what are we talking about? In Europe, it is a poltical discussion abot GM. In America, it might be about the Human Genone Project. But more interestingly, is a shortage of knowledge on the subject - especially on cloning and real genetic research.

Anyone remember Reagan - the man who himself cannot remember that he stifled stem cell research that could have prevented his current brain disease. That research has been forced into limited laboratories in Norway, etc because Reagan was too religious - too political and too uninformed - to permit innovative research.

What does this have to do with tax cuts? Those same Reaganite politicans that have all this 'religious' opinions on genetics - and on tax cuts - but know nothing about genetics or economics. Thank goodness that Greenspan exists. Those silly politicans FEEL that a 'selective' tax cut will solve economic problems - regardless of whether economic problems even exist. These same FEELings then go in search of reasons to justify their FEELings. Political laws about genetics and about tax cuts are both based upon ignorance - and who pays for their campaign costs - the truth be damned.

When was the last time that a politican noted that recessions are created by a shortage of innovative products? Ahhh - but that would mean a politican cannot 'fix' the economy. So instead they lie about the virtues of tax cuts.

We have long since learned that politicans can only screw up the economy or leave it status quo. Their first priority should be to stop weakening the economy - to pay off the debts. Those unpaid debts do more to undermine the economy than anything else - except politicans.

Tax cuts do not solve economic problems - and that is based repeatedly in history - dispite the hypothetical reasoning to the contrary that also is not supported by history.

One would have to be a 'bought and paid for' politican (or simply unintelligent) to promote tax cuts to stimulate the economy - an economy that has plenty of stimulous from Greenspan. But then Bush has yet to display intelligence or a grasp of political or economic problems. Hopefully this will change in the next two years when he starts addressing his job rather than repaying political debts.

Who set new records for campaign contributions without matching government funds? The most 'bought and paid for' president we every had - who is curiously promoting silly tax cuts in the tradition of VA's Gilmore - the current Republican party chairman.

[Griff]

Tax talk, brought to you by Random Thread Picker a service of Steve Dallas enterprises.

[classicman]

Are cliff notes available for some of these posts?

[lookout123]

Recessions ARE a good thing. Unfortunately, you mention the word, and stock brokers are ready to dive off the World Trade Center

i didn't even look at the dates of the posts until i read this in sycamore's post.

[classicman]

One of the unexpected pleasures of the Random Thread Picker.
Love that thing!