GOP Tax Bill Is The End Of All Economic Sanity In Washington - Forbes

[Jimmy Higgins]

Isn't there a shortage of aggregate demand? Isn't there excess capacity? Doesn't consumer spending drive two thirds of the economy? Aren't consumers highly leveraged? If we can't raise their wages, we can let them keep more.

If a demand side cut only leads to short term growth, I'll take it.

What growth? We keep hearing about growth, but haven't seen it. Obama cut taxes in '09 in an attempt to get a bit more money into the economy to stop a Depression from forming. That was crucial.

Well, at least the tax cuts did come while the economy was still in the dumpster, but I'd say that the FR did more of the heavy lifting...

The Reagan and W tax cuts were not followed by growth, but recessions.

The Reagan tax cuts of 1981, were signed in August 1981. The recession was July 1981 – Nov 1982. I don't really see how one hangs the recession on the tax cut there...never mind that the recession was very much driven by the actions of Volker's FR IMPOV. The Shrub tax cuts have a similar timing problem: Tax cuts signed June 2001; recession was Mar 2001– Nov 2001. Not that I am arguing cause and affect with the Reagan tax cuts, but the below generally looks looks like pretty darn good GDP growth numbers by the time one could realistically expect the tax cuts to have an impact on the numbers:

Year GDP growth
80 -0.2%
81 2.6%
82 -1.9%
83 4.6%
84 7.3%
85 4.2%
86 3.5%
87 3.5%
88 4.2%

Must explain why G HW Bush was a two term President.

 

[laughing dog]

The deficit is a bunch of shit.

The problem with this bill is it exacerbates income inequality. Taxes should be lower - for working people. A payroll tax holiday wwould stimulate growth, this bill won't.

There is very little empirical evidence to support the idea that any tax cut has much effect on long-run growth. Tax cuts may spur spending in the short-run, but spending does not drive growth unless it is spent on capital goods or productivity enhancing technology in significant amounts.

Isn't there a shortage of aggregate demand? Isn't there excess capacity? Doesn't consumer spending drive two thirds of the economy? Aren't consumers highly leveraged? If we can't raise their wages, we can let them keep more.

Putting excess capacity to work is not economic growth. Economic growth usually means increasing productive capacity, not using it. Demand "management" is effective in getting existing capacity and existing people back to work, but it cannot really get more capacity and more people and better technology.

As I said, there is little empirical justification that tax cuts have a significant effect on economic growth. But that does not mean there are no benefits to reducing taxes.

If a demand side cut only leads to short term growth, I'll take it.

At any cost?

 

[Horatio Parker]

There is very little empirical evidence to support the idea that any tax cut has much effect on long-run growth. Tax cuts may spur spending in the short-run, but spending does not drive growth unless it is spent on capital goods or productivity enhancing technology in significant amounts.

Isn't there a shortage of aggregate demand? Isn't there excess capacity? Doesn't consumer spending drive two thirds of the economy? Aren't consumers highly leveraged? If we can't raise their wages, we can let them keep more.

Putting excess capacity to work is not economic growth. Economic growth usually means increasing productive capacity, not using it. Demand "management" is effective in getting existing capacity and existing people back to work, but it cannot really get more capacity and more people and better technology.

As I said, there is little empirical justification that tax cuts have a significant effect on economic growth. But that does not mean there are no benefits to reducing taxes.

That empirical evidence, is it supply side?

I suppose I'm using "growth" a bit loosely. How about increasing working class prosperity?

If a demand side cut only leads to short term growth, I'll take it.

At any cost?

Such as?

 

[laughing dog]

Putting excess capacity to work is not economic growth. Economic growth usually means increasing productive capacity, not using it. Demand "management" is effective in getting existing capacity and existing people back to work, but it cannot really get more capacity and more people and better technology.

As I said, there is little empirical justification that tax cuts have a significant effect on economic growth. But that does not mean there are no benefits to reducing taxes.

That empirical evidence, is it supply side?

Not necessarily.

I suppose I'm using "growth" a bit loosely. How about increasing working class prosperity?

Nothing wrong with that. But I don't think the proposed tax cuts by themselves will have much effect on the prosperity of the working class.

Such as?

If you mean working class prosperity improvement, then the only cost might be large reductions in future working class prosperity when the payment on the deficit is required.

 

[Horatio Parker]

Not necessarily.

I suppose I'm using "growth" a bit loosely. How about increasing working class prosperity?

Nothing wrong with that. But I don't think the proposed tax cuts by themselves will have much effect on the prosperity of the working class.

Such as?

If you mean working class prosperity improvement, then the only cost might be large reductions in future working class prosperity when the payment on the deficit is required.

How does this repayment and subsequent austerity work? My understanding is that a fiat currency govt can purchase anything available for sale in its currency, which would include retiring or rolling over its "debt". What was under the gold standard borrowing is now a reserve maintenance operation.

If the bond markets don't want treasuries, not likely in the foreseeable future, the treasury can direct the fed to buy them.

 

[laughing dog]

Not necessarily.
Nothing wrong with that. But I don't think the proposed tax cuts by themselves will have much effect on the prosperity of the working class.

Such as?

If you mean working class prosperity improvement, then the only cost might be large reductions in future working class prosperity when the payment on the deficit is required.

How does this repayment and subsequent austerity work? My understanding is that a fiat currency govt can purchase anything available for sale in its currency, which would include retiring or rolling over its "debt". What was under the gold standard borrowing is now a reserve maintenance operation.

If the bond markets don't want treasuries, not likely in the foreseeable future, the treasury can direct the fed to buy them.

At some point, debt is repaid - either with tax revenue or inflation. If that cost is sufficiently high, then it may not be worth it. For example, if the result is hyperinflation, then it probably was not worth it.

Right now, the treasury can ask the Fed, but it cannot direct it.

 

[Horatio Parker]

Not necessarily.
Nothing wrong with that. But I don't think the proposed tax cuts by themselves will have much effect on the prosperity of the working class.

If you mean working class prosperity improvement, then the only cost might be large reductions in future working class prosperity when the payment on the deficit is required.

How does this repayment and subsequent austerity work? My understanding is that a fiat currency govt can purchase anything available for sale in its currency, which would include retiring or rolling over its "debt". What was under the gold standard borrowing is now a reserve maintenance operation.

If the bond markets don't want treasuries, not likely in the foreseeable future, the treasury can direct the fed to buy them.

At some point, debt is repaid - either with tax revenue or inflation. If that cost is sufficiently high, then it may not be worth it. For example, if the result is hyperinflation, then it probably was not worth it.

Right now, the treasury can ask the Fed, but it cannot direct it.

So on the one hand, demand side cuts won't stimulate growth because there is already excess capacity, but at the same they'll cause inflation? Doesn't add up.

I think you're wrong on the second point - the fed is a creation of Congress, all profits go to the treasury, and the FOMC members can be fired. They can refuse to buy bonds from banks, but that's part of their reserve operations and done in tandem with the Treasury.