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post #81 of 87
Quote:
Originally Posted by FormerLurker View Post

I won't disagree that it demonstrates the possibility that these specific tax cuts led to tax receipts increases. But I'm not sure this is a convincing argument when discussing the net revenue effects of tax cuts today.

So the tax cuts were enacted when the federal income tax was 8, 11, and 13 years old. Income taxes were pretty young, and it's fair to say that the complexity of their interaction with the entire national economy was several orders of magnitude less than they are today.

But the principles of what created this phenomenon haven't changed. The central issue is that the more governments tax, the more effort people will put into tax avoidance. Furthermore they will withdraw their money from the most productive (incoming producing) uses (because greater taxation has created and incentive for them to do so). When government reduces tax rates, the incentives change. People put much less effort into tax avoidance and they put more money to productive uses which leads to...


Quote:
Originally Posted by FormerLurker View Post

Isn't it possible that the increase in revenues from the upper income brackets were a result of huge income gains from the stock market (which of course skew heavily to the upper income brackets)?

Absolutely.

Now, what caused the stock market expansion?

Isn't the most sensible explanation that when people have less of their money confiscated by the government, they have more of it to spend and invest?


Quote:
Originally Posted by FormerLurker View Post

It's the usual problem of "how do we know that tax receipts wouldn't have increased as much or more without the cuts, or that the economic growth was primarily due to the tax cuts?".

Quite true. However there appears to be a pattern that is exhibited in the 1920s, 1960s and 1980s tax rate reductions. Greater economic growth. More people making more money. Increased tax revenue. See these:

http://www.house.gov/jec/fiscal/tx-g...t/reagtxct.htm
http://www.heritage.org/Research/Taxes/wm327.cfm


Quote:
Originally Posted by FormerLurker View Post

Regardless, the 1920's stock market spike makes economic data from that time somewhat suspect when used as a reference and comparison.

You have a correlation. The question is what is the causal relationship? Is it that:

1) government reduces the amount of money is confiscates from people
2) because of 1, people have more money to spend and invest (and do)
3) because of 2, an expansion of the stock market occurs


Quote:
Originally Posted by FormerLurker View Post

Your example has a much, much larger time gap than mine, so that statement discredits your example much more than it discredits mine. It should be obvious that the Bush tax cuts are a much more relevant metric to practical discussions of today's tax policy than the 1920s tax cuts.

This would be true if the basic principles involved don't apply. But they do. It might also be true if their weren't other examples from the 1960s and the 1980s.


Quote:
Originally Posted by FormerLurker View Post

we have many more economists from a diversity of the political spectrum analyzing them than just "Veronique de Rugy, Fiscal Policy Analyst, Cato Institute" from the study you cited.

Don't make the mistake of assuming because you've seen only a single briefing to mean that the tax cuts in the 1920, 1960s and 1980s haven't been extensively analyzed by "economists from a diversity of the political spectrum".


Quote:
Originally Posted by FormerLurker View Post

Though I'm sure you wouldn't deny the conservative and "Free Market" philosophy and agenda of The Cato Institute, I'm not going to try to attack your source. But since my sources references the conclusions of multiple economists based on extensive Congressional Budget Office data, including a study by the Presidents own Treasury Department, I'll call your source significantly less reliable than mine.

Fair enough.

However, for full-disclosure, it should be noted that the link you provided ("TAX CUTS: MYTHS AND REALITIES") is from the "Center on Budget and Policy Priorities" which couldn't be fairly described as a source of "economists from a diversity of the political spectrum". This organization is best described as a liberal "think tank".

I don't point this out as an ad hominem argument, but merely for full and fair disclosure.


Quote:
Originally Posted by FormerLurker View Post

If nothing else, your links provide a powerful counterpoint to the arguments that "Bush's tax cuts paid for themselves" and that "tax cuts automagically lead to LESS spending".

First, I haven't claimed that the Bush tax cuts, specifically, "paid for themselves". I simply pointed out that the relationship between tax rate cuts and tax revenue increases or decreases is an "it depends" kind of thing. Not a slam dunk in either direction. Though there appears to be a pattern of showing that tax rate cuts can, and do, lead to greater economic growth and increased tax revenue.

BTW, personally, I don't care to see the government get additional tax revenue except for the purpose of reducing outstanding debt. I've stated before that I believe tax cuts should be accompanied by spending cuts (particularly in the three largest budget items...social security, welfare and defense). I also think that the the government's ability to take on debt or inflate the money supply (another surreptitious form of taxation) should be eliminated or significantly curtailed to prevent the government from shifting its spending burdens to others (e.g., the poor, future generations, borrowers, lenders, etc.)

Second, I've never claimed that "tax cuts automagically lead to LESS spending".
post #82 of 87
Quote:
Originally Posted by Jubelum View Post

Please, use the word "strawman" one more time. I'm starting to like it.

I like it too... it reminds me of "Hee-Haw".

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #83 of 87
Quote:
Originally Posted by Jubelum View Post

blah blah blah candy-eater blah blah pathetic... 7th grade again.

You cut taxes, and tell government to live within a BUDGET, just like the rest of us do.

Well no, you cut spending FIRST and decide whether the pay down the debt or give a tax break. If you can cut spending enough you might get to do both. Of the two, I'd rather pay down the debt.

Screw tax cuts.

Whining that the government is too big and spends too much money is simpky evading the issue. We spent all that money already, the tax payers may or may not have gotten their money's worth but the money is owed.

We can pay it or we can sluff it off on our kids. At this point tax cuts are a luxury. Its like having $50,000 in credit card debt but still wanting $50/month cable TV because its "cheap entertainment" that "saves you money".

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Outrage? Sure, I am outraged. You want to maintain perpetual political power for your side, while you get the taxpayers to fund it. That IS outrageous!

False outrage. The government is big, that horse left the barn a while ago. It might be fixiable in the long term, it might not but one thing is for sure...CUTTING SPENDING is something WE CAN DO and that should in NO WAY BE LINKED TO TAX CUTS.
post #84 of 87
Quote:
Originally Posted by Jubelum View Post

Please, use the word "strawman" one more time. I'm starting to like it.

Well, if you'll promise to keep trying to argue against stuff I haven't said, I'll promise to keep using it - deal?

Quote:
Please, if you are going to post about being misrepresented, make sure you are making true representations of others.


I've quoted your misrepresentations of my arguments - let's see you quote what you say are mine.

As far as your questions - I haven't seen you provide any evidence to disprove any of the following, and you've avoided answering every single one of my questions while asking a bunch of your own, so I guess we're done here...


Quote:
Originally Posted by FormerLurker View Post

Summary of points made in responses to sslarson and Jubelum:

1. It may have been shown that the 1920s tax cuts led to higher tax revenues (or not - the answer is most likely more complex - but it is "possible").

2. It is theoretically possible that cutting tax revenue will cut spending and government growth, but it is far from being a certain result.

3. The Reagan and Bush tax cuts did NOT lead to higher tax revenues than would have been taken in without the tax cuts.

4. The Reagan and Bush tax cuts did NOT lead to reduced government spending and growth.

5. As both of the major tax cuts in the past 25 years have led to neither reduced spending OR increased revenues, it is logical to believe that a third such tax cut would have the same lack of promised results.
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post #85 of 87
Quote:
Originally Posted by sslarson View Post

But the principles of what created this phenomenon haven't changed. The central issue is that the more governments tax, the more effort people will put into tax avoidance. Furthermore they will withdraw their money from the most productive (incoming producing) uses (because greater taxation has created and incentive for them to do so). When government reduces tax rates, the incentives change. People put much less effort into tax avoidance and they put more money to productive uses which leads to...

This all sounds like economic theory to me, and it's far from being the only theory out there (or even the most prevalent one). Perhaps you could provide some evidence of the above, besides the cato.org opinion article and research project you've already cited.

Also, you're arguing about what people do when tax rates increase, in a discussion about tax CUTS. Even IF avoidance increases when taxes increases, what would make it decrease when taxes are cut? Are people getting mass doses of conscious and suddenly deciding that cheating the government is wrong (but it was OK last year when taxes were higher)? Or that tax cheating is no longer worth the risk (but they got away with it for the past several years, and maybe they still could get away with it and pay even less tax.... HMMM).

The majority of evidence I've seen suggests that the last two major tax cuts (Reagan and Bush) did not lead to greater tax revenues than would have been seen absent the cuts.

Quote:
Isn't the most sensible explanation that when people have less of their money confiscated by the government, they have more of it to spend and invest?

Are you saying that tax cuts are the ONLY possible way people could get more money for spending and investing?

I'll address the more likely causes of the 1920s stock market expansion in a separate post.

Quote:
However there appears to be a pattern that is exhibited in the 1920s, 1960s and 1980s tax rate reductions. Greater economic growth. More people making more money. Increased tax revenue. See these:

http://www.house.gov/jec/fiscal/tx-g...t/reagtxct.htm
http://www.heritage.org/Research/Taxes/wm327.cfm

You have a correlation. The question is what is the causal relationship? Is it that:

1) government reduces the amount of money is confiscates from people
2) because of 1, people have more money to spend and invest (and do)
3) because of 2, an expansion of the stock market occurs

Again, this is great (though overly simplistic) theory - but where is the data to suggest that the tax cuts were the primary cause of stock market expansion, or that the markets would not have expanded without the cuts? I've already shown data suggesting that tax revenue from 2001-2006 would have increased MORE without Bush's tax cuts, than it actually did following them.

And why did investment increase following tax INCREASES in the 1990s, if changes in tax rates are such an important factor in investment rates?



Quote:
Don't make the mistake of assuming because you've seen only a single briefing to mean that the tax cuts in the 1920, 1960s and 1980s haven't been extensively analyzed by "economists from a diversity of the political spectrum".

Sounds good. "Show me the money" - let's see some of those extensive analyses!

Quote:
Fair enough.

However, for full-disclosure, it should be noted that the link you provided ("TAX CUTS: MYTHS AND REALITIES") is from the "Center on Budget and Policy Priorities" which couldn't be fairly described as a source of "economists from a diversity of the political spectrum". This organization is best described as a liberal "think tank".

I don't point this out as an ad hominem argument, but merely for full and fair disclosure.

Well, there is nothing "liberal" about the CBO numbers used to support their conclusions... nor about these sources they quoted:
Quote:
But when Treasury Department staff simulated the economic effects of extending the President’s tax cuts, they found that, at best, the tax cuts would have modest positive effects on the economy; these economic gains would pay for at most 10 percent of the tax cuts’ total cost. Under other assumptions, Treasury found that the tax cuts could slightly decrease long-run economic growth, in which case they would cost modestly more than otherwise expected. (http://www.cbpp.org/7-27-06tax.htm)

Edward Lazear, the current chair of President’s Bush’s Council of Economic Advisers, has stated, [/b]“I certainly would not claim that tax cuts pay for themselves.” [/b]

N. Gregory Mankiw, President’s Bush’s former CEA chair and a well-known Harvard economics professor, has written that there is “no credible evidence” that “tax revenues… rise in the face of lower tax rates.”

Quote:
First, I haven't claimed that the Bush tax cuts, specifically, "paid for themselves".

Really? Despite your continuing argument that suggests any tax cut will most likely do so?
"But the principles of what created this phenomenon haven't changed. The central issue is that the more governments tax, the more effort people will put into tax avoidance.", and all that?
Fine.

I've argued that the Bush tax cuts did NOT (despite the claims of at least one other poster here, and of course good ol' GWB himself).

So if they didn't, then WHY didn't they? And why should we believe that future cuts would "pay for themselves" if the most recent ones (which were promised to do so) did, in fact, NOT?

Quote:
I simply pointed out that the relationship between tax rate cuts and tax revenue increases or decreases is an "it depends" kind of thing. Not a slam dunk in either direction.

I'm pretty sure I never claimed it was a slam dunk in either direction in general - just with the Bush cuts specifically.

So you would agree that I was not wrong when I disagreed with a poster who made a definitive statement that "tax cuts lead to increased tax revenue" in my first post in this thread?

Sounds like progress to me!

Quote:
Though there appears to be a pattern of showing that tax rate cuts can, and do, lead to greater economic growth and increased tax revenue.

It's far from having been shown to be a conclusive causal pattern, and it's been shown that other factors are likely to be more responsible for the economic growth of at least one of the periods in question. I'm open to any credible evidence you can provide to the contrary.

Quote:
BTW, personally, I don't care to see the government get additional tax revenue except for the purpose of reducing outstanding debt. I've stated before that I believe tax cuts should be accompanied by spending cuts (particularly in the three largest budget items...social security, welfare and defense). I also think that the the government's ability to take on debt or inflate the money supply (another surreptitious form of taxation) should be eliminated or significantly curtailed to prevent the government from shifting its spending burdens to others (e.g., the poor, future generations, borrowers, lenders, etc.)

Except for the fact that we're not talking about "government getting additional tax revenue" but about not losing revenue due to tax CUTS, I'm down with that.

Quote:
Second, I've never claimed that "tax cuts automagically lead to LESS spending".

My apologies if you thought I was referring directly to you. I should have said "other posters who believe that tax cuts..." instead.
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post #86 of 87
Quote:
Now, what caused the [1920s] stock market expansion?

Well, off the top of my head, I've seen it stated many times that relaxed credit practices and skyrocketing use of "buying on margin" was the biggest factor in the 1920s stock market expansion.

Another example I shouldn't have to provide specific citations for would be the jump in consumer spending and available consumer goods and services in the 1920s. This is the era of Henry Ford's Model T for every working man, right? Besides the automobile boom and resulting oil company and road infrastructure building booms, this was the decade that introduced movies, radio, and even electric utilities to their first widespread consumption.

A third common example unrelated to tax cuts would be the "post-WWI-economic-boom".

Other important factors would include the Fed's dramatic increase of the money supply, and an increasing wealth inequality (more money available to the "investor class" top 5%):
http://www.amatecon.com/gd/gdcandc.html
Quote:
The Fed took several actions that, in retrospect, were quite bad. The first thing it did was to inflate the money supply by about 60% during the 1920's. If the Fed had been a little more careful in expanding the money supply, it might have prevented the artificial Stock market boom and subsequent crash.

In The Great Depression: An International Disaster of Perverse Economic Policies, Hall & Ferguson write that:
Wages grew more slowly than output per worker, which suggests that corporate profits were rising. This change shows up as rising dividends, which constituted 4.3 percent of national income in 1920 and rose to 7.2 percent of national income by 1929 (Soule 1947, 284). Since 82 percent of all dividends were paid to the top 5 percent of income earners, this clearly helped contribute to the change in income inequality (Potter 1974).

See also
http://www.fee.org/publications/the-...e.asp?aid=3651
regarding Fed policy

The valuation of intellectual property and technology advances increased greatly during this period (reminds me of a familiar phrase - "dot-com" anyone?)
I found the following from Harvard Business School:
http://drfd.hbs.edu/fit/public/facul...olas%40hbs.edu
Quote:
Does Innovation Cause Stock Market Runups? Evidence from the Great Crash

This article examines the stock market's changing valuation of corporate patentable assets between 1910 and 1939. It shows that the value of knowledge capital increased significantly during the 1920s compared to the 1910s as investors responded to the quality of technological inventions. Innovation was an important driver of the late 1920s stock market runup and the Great Crash did not reflect a significant revaluation of knowledge capital relative to physical capital.

And, it seems there was a bestseller that popularized stock investment, as well:
http://stlouisfed.org/publications/r...yond_risk.html
Quote:
In the early 1920s, stock market valuation was comparatively low, as measured by the inflation-adjusted present value of future dividends. The attractive valuation of stocks relative to bonds became a widely held belief after Edgar Lawrence Smith published in 1924 a book on stock market valuation, titled Common Stocks as Long Term Investments. Smith argued that stocks not only offer dividends, but also capital appreciation through retained earnings. The book, which was reviewed by John Maynard Keynes in 1925, gave cause to an unprecedented stock market appreciation. The inflation-adjusted average annual growth rate of a buy-and-hold investment in large-company stocks established at the end of 1925 amounted to a staggering 32.13 percent at the end of 1928.

Also, the 1920s stock market expansion was international in nature (see table, "International Stock Market Returns 1921-1929"):
http://www.gold-eagle.com/analysis_98/taylor061798.html

Were the stock market expansions in all those other countries also primarily due to tax cuts?
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post #87 of 87
Quote:
Originally Posted by FormerLurker View Post

This all sounds like economic theory to me,


If you get a tax cut what would you do with the money?


Quote:
Originally Posted by FormerLurker View Post

and it\\'s far from being the only theory out there (or even the most prevalent one).

What are the other theories?


Quote:
Originally Posted by FormerLurker View Post

Also, you\\'re arguing about what people do when tax rates increase, in a discussion about tax CUTS. Even IF avoidance increases when taxes increases, what would make it decrease when taxes are cut?

It isn\\'t difficult to see how these tendencies would reverse when tax rates are cut. This is about return on time and money spent. The effort to avoid taxes costs time, energy and money. As tax rates increase the return on the time and money spent trying to reduce tax liabilities goes up. As tax rates decrease the return goes down.


Quote:
Originally Posted by FormerLurker View Post

Are people getting mass doses of conscious and suddenly deciding that cheating the government is wrong (but it was OK last year when taxes were higher)? Or that tax cheating is no longer worth the risk (but they got away with it for the past several years, and maybe they still could get away with it and pay even less tax.... HMMM).

Note that I didn\\'t say tax \\"cheating\\". I said tax avoidance. One can avoid taxes without \\"cheating\\". To be sure some of that avoidance is accomplished through illegal means (\\"cheating\\"). Not all of it though. The point about the return on the time and money spent trying avoid taxes would apply in either case.


Quote:
Originally Posted by FormerLurker View Post

The majority of evidence I\\'ve seen suggests that the last two major tax cuts (Reagan and Bush) did not lead to greater tax revenues than would have been seen absent the cuts.

I can\\'t dispute that.


Quote:
Originally Posted by FormerLurker View Post

Are you saying that tax cuts are the ONLY possible way people could get more money for spending and investing?

No. I\\'d argue that it is the simplest and most direct way though. The money has already been earned. It\\'s now not being confiscated by the government so it\\'s instantly available for spending and investment.


Quote:
Originally Posted by FormerLurker View Post

Again, this is great (though overly simplistic) theory

I\\'m sorry that the theory isn\\'t more complex. Sometimes the explanations are relatively straightforward. I\\'ll go with Occam\\'s Razor on this one.


Quote:
Originally Posted by FormerLurker View Post

but where is the data to suggest that the tax cuts were the primary cause of stock market expansion, or that the markets would not have expanded without the cuts?

Argument from ignorance.


Quote:
Originally Posted by FormerLurker View Post

Really? Despite your continuing argument that suggests any tax cut will most likely do so?

That isn\\'t the argument I\\'ve made. I\\'ve said that there is at least one tax cut (the 1920s) that appears to have led to an increase in economic growth, incomes and tax revenue whether you agree with the data and analysis or not. There also happen to be two others (1960s and 1980s) that seem to show this pattern too. I wouldn\\'t say it happens all the time. In fact I\\'ve repeatedly said it depends. It seems to depend on the type of tax cuts, the amount of them, etc. For example, in the Bush 2001 tax cuts consisted primarily of rebates, child tax credits, etc.that did not improve incentives to work, save, and invest.


Quote:
Originally Posted by FormerLurker View Post

So you would agree that I was not wrong when I disagreed with a poster who made a definitive statement that \\"tax cuts lead to increased tax revenue\\" in my first post in this thread?

Yes. Do you agree that tax rate cuts can lead to greater, faster economic growth, income growth and tax revenue growth? If so we can end this.
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