Tax cuts don't make basic economic sense

If tax cuts boost economic growth then the added taxes will do just the opposite when it comes time to pay it back.

Taking on debt to give tax cuts may not be such a good idea.

How can you use "more economic growth" to justify tax cuts when those tax cuts are paid for by more borrowed money?

 

Here's something to consider:
There were six times in US history in which budget surpluses were achieved for long enough to retire a significant amount of debt. Five of those were followed by depressions, the last of which culminated in the Great Depression of the 1930s.
When you start taking money out of the economy to pay down debt (either through higher taxes or less government spending) that starts causing the economy to contract.
What I'm saying is it's going to be very difficult to pay down this debt, and in the meantime time just the costs of servicing it are going to eat away a substantial chunk of the government budget.

Of course the root of problem wasn't trying to get out of debt but getting into it in the first place.

 

And it is because of this basic economic fact, that republicans should be barred from holding public office. They do this every time they are in office, and drive up the debt as a result. The short term economic stimulus of a tax cut can not and will not "pay for itself" as evidenced by every single time it's been implemented.

 

Maybe it's not their fault, maybe it's the particular crowd of economic advisors they listen too.
Most true conservative economists (while they do believe high tax rates are harmful) don't believe getting into more debt is a good thing, but they seem to make up only a minority in the current crowd of economists. A lot of economists are constantly telling politicians that the economy needs more "stimulus". The problem is they're never telling them things need to "cool off" and people need to save more money. As a result, even if you believe the Keynesian perspective, there's a drastic imbalance.

 

Paying down the debt in and of itself doesn't "take money out of the economy".

The debt is paid down when money is transferred from private individuals (or companies) to the government in the form of taxes, which then transfers that money back to private individuals (or companies) to redeem outstanding debt.

The net amount of money in the economy is the same.

 

By creating more revenue streams.

Lowering taxes creates jobs, and allows more start ups.

 

Too bad it's hard to lower taxes if lots of people are struggling and poor and your country is in a huge amount of debt.

Sort of a Catch-22, a difficult hole to get out of.

 

No it's not.

The poor and the "struggling" pay little to no tax. Poor people with children actually benefit to the tune of thousands of dollars. They actually make a profit when filing taxes.

The people who DO pay the taxes are the people who create more jobs.

The biggest killer of jobs and growth is government regulation.

Look what is happening to the restaurant industry in New York.

 

Paying for these tax cuts by borrowing money is just pushing the problem further down the road. You're still not dealing with it.

Do you believe the rate of economic growth from these tax cuts will exceed the interest payments (or accumulating compounding interest), along with the contraction in economic growth that will follow from when taxes do eventually have to be raised to pay for all these years of lowered taxes?

Here's another way to look at. Suppose the normal tax rate is 10%. Now suppose the government does a little experiment and decides to go 5 years with a 0% tax rate, followed by 5 years with a 20% tax rate. Do you think over those 10 years the government will come out ahead? (as opposed to if they had just gone 10 years with a 10% tax rate)

This is just my thinking, but as the tax rate increases it becomes exponentially more harmful - that is a 20% tax rate will hinder economic activity more than twice as much as a 10% rate.

The real question is whether those first 5 years of low taxes are enough to grow the economy to offset the latter 5 years of higher taxes.

 

tax cuts, by definition, results in lower revenue.

No it doesn't. The only thing that creates jobs is demand for increased production.

 

Yes that's why all of our businesses were fleeing to more tax friendly countries and taking the jobs with them, and shoring their profits in tax friendly countries.

Believe what you want. The economy speaks for itself.

 

no. because they can pay 3rd world wages to make the same **** that we make here for $16 an hour.

yes, and economics 101 shows that you, and all the other trickle downers, are completely wrong. As evidenced by every single time this is tried, we go into MASSIVE debt, and the only result is the richest 1% consume more of the nations wealth, while the middle class shrinks into non existence.

 

How much debt did we incur from 2008 to 2016.

 

A lot. We also had the worst recession in 80 years as a result of republican incompetence. Recessions are expensive.

 

So the global banking crisis was caused by Republicans?

Tell me more.

Tell us about the bipartisan support for the 1999 Gramm-Leach-Bliley Act which was supported by most Democrats and signed into law by Bill Clinton.

Tell us how the Commodity Modernization Futures Act signed in 2000, also under Bill Clinton went. You know, the one Greenspan and Larry Summers (who also was an Obama appointee and led the "stimulus" package) lobbied for on behalf of Enron.

No. The 2008 financial crisis had nothing to do with Republicans or Democrats. It was the worst of the swamp in both that caused it.

 

Yes.

The only bill passed by a house of congress to regulate fanny and Freddy Mac, was killed by republicans in 2005.

See above

But in reality, it’s the republicans.

 

Sure. You should let everyone else know, since the cause of the recession has been analyzed for years and no one else with any actual knowledge or skills came to that conclusion.

 

Everyone else does know, lol.

 

It sort of does. Because once all those Treasury bonds are gone, the people who owned them replace them with some sort of other savings.
All these people with Treasury bonds are expecting money, once the maturation dates come due. It's almost sort of like they already have money, as far as effects on the economy are concerned. Once government pays those debts off, that money is taken out of the economy. This is especially true when you consider what the economics definition of "money" is. Treasury debt functions as money. Sometimes in business deals one side will even pay the other side in Treasury notes.

It would be like if I started buying things from you with paper notes that said I promised to repay you with money. That expectation of getting future money functions as money now.

 

If I have a $100 and you have 0$, and I loan you the $100, we haven't added more money to the economy.

The government is not a bank that re-loans out the proceeds of a loan, multiplying accounts.

 

But I think that I have more money.

Theoretically, you are right. But that's not how it ends up actually happening. People in the economy don't really account for the massive government debt and the fact it's going to have to be paid back in taxes in the future. So when Treasury bonds are issued the economy acts like that's going to be new money into the economy (because obviously those bonds will turn into money at their maturity dates) and so inflation happens.

Something very similar happened during the housing bubble, people thought their houses were worth more money than they actually were. Just that very expectation led to a build-up of inflation. Remember the news articles that many economists were so concerned about deflation after the housing bubble imploded?

You don't actually have to add real money to cause inflation. If people think there's more money (wealth) than there actually is, that alone will cause inflation. As you know, for example, most of the money in bank accounts does not correlate to actual money that was issued by the U.S. Federal Reserve, yet these bank accounts still act as money.

While many people mistakenly believe the money in bank accounts causes inflation, I disagree with them, because the money is balanced out by someone else's debt. If you actually owe a lot of debt, you're going to spend less money (if your consumer behavior was rational and logical).

Let's go back to your example. You write me an IOU note. It says "the bearer of this note is entitled to $100". What if I give that note back to you, using it like money to buy something, and then you forgot you were the one who actually wrote it? (Maybe you have lots of IOU notes from different people, and the names are written really small on the paper)

Now you think you have $200.

 

How do you think you have more money? You're confusing assets with money.

It's no different than any other loan. If the Govt didn't lend so much a bank could.

I don't see how that is similar at all. The housing bubble was a speculative spiral. How does that show Govt debt increases money?

I think you're confusing bank lending and Govt loans. When banks lend, it increases the amount of deposits (which is why the amount of bank accounts doesn't correlate to base money). That doesn't happen when the Govt lends.

Inflation is ultimately a function of the amount of money relative to goods and services and how fast the money cycles. There is a supply and demand, though that is of course a simplification. Deposit accounts function as a type of money so the more that is in deposit accounts, the more money is available for spending in the economy.

 

People think the overall economy has more money than it actually has. People forget that there is, at some point, going to have to be a massive increase in taxes or cuts to government services to pay for all this debt that people are entitled to.

Imagine every year the government takes $100 from you and pays it back to you, hiring you to do something for them. They also owe you another $100. You don't bother considering this but one of these years they'll have to take your $100 and not pay you to do something. That's the only way they're going to be able to deal with the debt. But you were expecting $200 that year.

Does that make sense?

 

I'm not sure if it's because they think that or they just don't care as long as they get their tax cut.

Not really.

 

When the government issues more debt, people in the economy behave as if the government is going to issue more money.

That's because an individual person who's holding a Treasury bond in his hands essentially almost feels like he's holding money. But the taxes that will have to pay for that bond are a lot more diffuse and don't fall on anyone in particular (at least in the immediate timeframe).

If I told you you were going to have to be the one to pay the taxes to pay off your own Treasury bond, it wouldn't contribute inflation to the economy. (You'd have to pay your regular taxes plus additional taxes)