I’m agnostic/utilitarian: I’ll use whatever tool works — but still, this cracked me up:
When even the comics at Yahoo! know that Supply Side economic theory is "flawed," you gotta wonder about the Politicians who haven’t figured it out yet.
Tax Cuts Stimulate the Economy
September 29, 2005 9:30am by Barry Ritholtz
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Bruce Bartlett gave a great speech on this topic recently. Excerpt:
“Let me be clear that I am no advocate of higher taxes. I’m the one who drafted the Kemp-Roth bill back in the 1970’s and I have spent most of my career looking for ways to cut tax levels and tax rates. But that was predicated on an assumption those supporting tax cuts also wanted to downsize government. I never saw tax cuts as a substitute for spending cuts, but more as sugar to make the medicine go down. My ultimate goal was to reduce both taxes and spending.
Unfortunately, few in my party seem to share this philosophy any longer. For many, tax cuts have become a substitute for spending cuts. It truly amazes me how often I hear people on my side talk about cutting taxes as if this is the only thing necessary to downsize government. They seem genuinely oblivious to the fact that the burden of government is largely determined by the level of spending, not taxes. Nor do they understand that in the long-run, all spending must be paid for one way or another. Increasing spending today, therefore, absolutely guarantees that taxes will have to be raised in the future.
I am often criticized by friends on my side of the aisle for implicitly endorsing tax increases. I do no such thing. I am simply adding two and two and getting four while my friends seem to think there is some way of only getting three.
They also criticize me for implicitly abandoning the fight to cut spending and downside government. Again, I plead innocent. It is not I who has abandoned the fight, but my party. I don’t need to remind anyone here that the biggest spending increases in recent years passed Congresses with Republican majorities largely without Democratic votes. Nor do I need to remind anyone here that during the Clinton years we not only went from budget deficits to budget surpluses, but did so to a large extent by cutting spending—something my conservative friends seldom acknowledge.”
Are you proposing that taxes be raised to stimulate the economy, that they stay the same, because it doesn’t matter or that they be lowered anyway and just to not use economic expansion as the excuse?
I’m proposing that the comic is funny . . .
The WSJ had a list of the top 100 countries for business competitiveness. Eyeballing this list I don’t see any correlation to national tax rates.
The top 10 were:
Finland
US
Sweden
Denmark
Taiwan
Singapore
Iceland
Switzerland
Norway
Australia
Infact most of these nations have significantly higher tax rates that the US.
Interestingly most have very little in the way of natural resources, providing a good education and favorable technology development polices appears to be the winning ticket.
In reply to Chad K,
I think fiscally responsible government policies would stimulate the economy. Currently no one knows when or where the inevitable tax increases and spending cuts will fall. Balancing the budget removes significant uncertainty in future spending and taxation policies and provides a better environment for business planning.
Tax Cuts Stimulate the Economy?
The Big Picture: Tax Cuts Stimulate the Economy. When even the comics at Yahoo! know that Supply Side economic theory is flawed, you gotta wonder about the Politicians who haven’t figured it out yet.
The burden of gov’t is what it spends–regardess of whether it extracts the costs from its citizenry via taxes, borrowing, or inflating. The lower the burden of gov’t, the better it is for the economy. To the extent lower taxes makes it harder for the gov’t to spend, lower taxes are a good thing. Additionally, lower marginal taxes rates do encourage positive economic activity. (Don’t dividend-paying companies have a little easier time raising capital now than before the lower div. tax rate?)
Will:
I have issues with that statement. I think Americans need a paradigm shift when it comes to taxes and government spending.
You are assuming that government can’t do anything better than private enterprise. Enron? Worldcom? Is that all forgotten? That was private enterprise and we all know how efficient they were!
I strongly believe there are some areas where government can serve Americans better than private enterprise.
If Americans actually started valuing the benefit of taxes and government spending maybe your leaders wouldn’t have to lie as much about their motives. And maybe a bigger focus would be put into electing quality leaders instead of electing those who work insidiously through the corporate world because the population blindly believes in the godly powers of corporate America.
“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” — Winston Churchill
We wouldn’t set taxes at 100% (no one would work) nor would we set taxes to 0% (no military, schools, roads, police, etc).
If 100% and 0% are both not the number, then the focus should be on what IS the ideal rate.
This nonsense that all taxes are bad — or good for that matter — is besides the point. Life isn’t black or white.
The interesting thing about the list of countries that are highly competitive is not that they have high or low tax burdens — all the nordic countries have much larger welfare states then we do. Rather, they have well managed government. Moreover, therir tax policies are designed to support capital spending and they seem to work.
In contrast for 25 years we have had supply side policies based on the theory that individual tax cuts would stimulate savings and investment. But over this period the savings rate has fallen from 13% to zero.
Moreover, the share of nonresidential fixed investment — capital spending — done by households, partnerships and sole prpoieterships — the sectors impacted by personal taxes –has fallen from some 16% of capital spending to 11%. The shsres of capital spending are : corporate 82%, nonprofits 7% and the above 11%.
All the supply side tax cuts have done is shifted the US from the worlds largest creditors to the largest debtor.
What is it going to take to make us realize that our policies are not working and are probably counterproductive.
Starve the beast does not hurt government. Rather, it hurts business.
You know it may be a lot like I use to say about Nixon and Burns, with friends like this business does not need enemies.
What do high growth rates in Singapore, Hong Kong, Easter Europe have in common? LOW TAXES.
Singapore, Hong Kong and Eastern Europe are relatively poor countries starting to break out.
But they all have well educated work forces that are cheap by world standards.
Per capita GDP in Hong Kong and Singapore is about the same as in Portugal — the poorest Western European country.
I think the main point is that low taxes don’t magically create a good business environment. The top countries show no significant correlations between tax rates and economic development.
It is how you spend the money that counts, and there are quite a few areas were governements can spend to significantly improve a countries business outlook: infrastructure, research, education, security, corporate and government transparency, and the institution of fair laws.
Added some tax info.
corp individual VAT — Tax %GDP(2000)
Finland 26% 10.5 -33.5% 22% — 46.9
US 35% 0-35% 0 — 29.6
Sweden — 54.2
Denmark 30% 38-59% 25% — 48.8
Taiwan 25% 6-40% 5%
Singapore 20% 2%-22% 5%
Iceland — 37.3
Switzerland — 35.7
Norway 28% 28-55.5%% 24% — 40.3
Australia 30% 17-47% 10%GST — 31.5
I really dont see any correspondence between the ranking and the tax rates.
Anyway, it’s not because Bush is cutting tax rates that he is shrinking government. In fact it’s ballooning! He’s cutting the tax rate and collecting the missing dollars from foreigners. America can now be proud to say that foreigners own 50% of its treasuries, 25% of its corporates and 12% of its equities.
I guess when times get tough, all America has to do is deflate the debt and expect foreigners to jump up for joy!