So much for no tax increases on the middle class

[MrSheepish]

The problem is mal-investments. By bailing out companies and industries that should otherwise fail, you are artificially propping up failure. Allowing companies to fail cleanses the economic system of mal-invenstments which are then replaced by more efficient and productive investments.

The Bush administration bailouts are a different matter. The people advocating them would agree with what you have said, they were just scared that having most of the banking sector fail simultaneously would ruin the economy and sink us into a second Great Depression. That argument makes sense to me, as does the argument this provides future incentive for bad behavior. That's why I really hope that we either a) restrict bank sizes, or b) restrict bank behavior more heavily in the future to prevent this from happening again.

For a real world example, consider the massive success that VHS tapes had when they were first introduced. It gave rise to video rental giants like Blockbuster and Hollywood video.

As technology progressed, the VHS was replaced by DVD's and these companies managed to stay with the times and remained in business. Once the internet became fast enough, and computers powerful enough, for streaming video to become popular, new rental giants like Netflix, who revolutionized the industry by doing mail order DVD's and streaming online movies.

I agree with this, but propping up failing industry is not what the stimulus was. If you break the spending down by categories, most of the $ went to tax breaks, supporting state economies with things like medicaid and education, unemployment compensation and food stamps, and construction/repair projects. Honestly, I wish that we had spent a lot more on our infrastructure. Our nation has been letting its bridges, roads, trains, and sewers crumble for half a century now, and it will take about 2 trillion $ of work to repair everything, according to estimates (direct link broken, had to link an article about it) by the American Society of Civil Engineers. Only a very small part of the stimulus went to things like renewable energy projects, which is the only thing on the list I can see which might fit the description of what concerns you.

Thanks for sharing the video by the way. I didn't follow everything, but it was interesting and funny.

 

[dogtowner]

It certainly does. Your argument is that the stimulus made more people unemployed because more people are unemployed now than we were expecting. Similar argument: I put in a lot of overtime recently on a project that I thought would take me one week to finish. Instead it took me two weeks. Does that mean that I shouldn't have worked overtime because it slows down the project?

It is easy to see how economists can underestimate how bad a recession is and predict less employment than we end up experiencing despite a stimulus. It is harder for me to see how spending raises unemployment on the short term as you claimed. How can creating jobs for people boost unemployment on the short term?

it didn't create jobs. it added massive debt which further tightens the overall capital market which depresses a company's outlook for growth.

many economists knew Obama's claims were bunk. why didn't his ? either they are not very good at their jobs or they were lying.

 

[GenSeneca]

The Bush administration bailouts are a different matter.

Government, the public sector, doesn't have its own money, only the private sector has money. For any government spending to take place, the money must first be taxed from, or borrowed against (future taxes), the private sector economy (which is were wealth is created, as opposed to the public sector where that wealth is consumed).

You point out that the majority of the money went to tax breaks, those are not tax cuts... Tax breaks and tax credits are subsidies. Subsidies do not stimulate the economy, tax cuts do. And while you do not see the stimulus package as a bailout, it was a bailout to the states. Bailouts also do not stimulate the economy.

The 5.7% growth of GDP is misleading because government spending is treated as private sector growth in their formula. If we spent enough money (by taxing it out of or borrowing against the economy) the GDP could be 50% but that would not be private sector growth generating wealth, it would be public sector spending consuming wealth.

Thanks for sharing the video by the way. I didn't follow everything, but it was interesting and funny.

You're quite welcome and I'm glad you enjoyed it. If you get a chance to learn more about Hayek and Keynes, and you have an interest, you should check them out.

 

[MrSheepish]

You point out that the majority of the money went to tax breaks, those are not tax cuts... Tax breaks and tax credits are subsidies. Subsidies do not stimulate the economy, tax cuts do.

I don't understand the distinction you are making here. Can you explain? If people are paying less taxes as a result of the plan, then they are paying less taxes. Who cares what you call it?

And while you do not see the stimulus package as a bailout, it was a bailout to the states. Bailouts also do not stimulate the economy.

I agree that a significant part of the stimulus went to the states, and that was a bailout, after a fashion. Since a large fraction of state income comes from income taxes, stock market earnings, property taxes, etc, it is inevitable that when people start losing their homes, their jobs, and the stock market tanks, the state budgets are going to start going way into the red. Unlike the federal government, most states are not allowed to run a deficit, even temporarily. So they would either have to drastically raise taxes, or drastically cut important programs. These funds that you call bailouts, therefore are used to keep teachers and doctors employed, while preventing education and health care services from being interrupted. Food stamps are another good example. You could certainly call them bailouts, but this is a direct injection of spending into the private economy, keeping jobs for food-services employees, while keeping people from starving. The extension of unemployment benefits serves a similar function. So I would call all of this a stimulus, compared to the much worse economic situation that would arise without it.

The 5.7% growth of GDP is misleading because government spending is treated as private sector growth in their formula. If we spent enough money (by taxing it out of or borrowing against the economy) the GDP could be 50% but that would not be private sector growth generating wealth, it would be public sector spending consuming wealth.

Agreed, but without that spending, many more people would be unemployed right now, and more companies would now be out of business. If the economy recovers before the stimulus ends (a big if) then those businesses will no longer need government funding because people will be buying things again.

You can call these things bailouts if you want, but this is very different from supporting antiquated technology, or bailing out banks that have over-extended themselves. Roads need to be built, kids need to learn, and the poor need to eat and to see doctors when they get sick. These spending projects do not seem wasteful to me, and they keep people employed, at least for the time-being.

 

[GenSeneca]

I don't understand the distinction you are making here. Can you explain?

Glad to... and I should have been more specific to begin with. Across the board reductions in the tax rates are legitimate tax cuts. The first time home buyers tax credit and the Cash for Clunkers tax credit are both examples of subsidies via the tax structure.

If people are paying less taxes as a result of the plan, then they are paying less taxes. Who cares what you call it?

Two major reasons, subsidies distort the market (encouraging further mal-investments) and they do not stimulate the entire economy.

These subsidies are industry specific, only those specific industries will be "stimulated" by the tax credits offered to the consumer.

Across the board tax cuts stimulate the entire economy at all levels and in all industries.

I agree that a significant part of the stimulus went to the states, and that was a bailout, after a fashion.

Subsidies and bailouts do not stimulate the entire economy, it only props up specific failing areas of the economy with deficit spending.

Unlike the federal government, most states are not allowed to run a deficit, even temporarily.

Why is the federal government allowed to run a deficit and perpetually expand on our national debt but the states are not?

The answer to that question is very important.

So they would either have to drastically raise taxes, or drastically cut important programs.

That is a fallacy of false dilemma.
Why do you believe that raising taxes increases revenue and lowering taxes would reduce them?
Why do you believe that important (as opposed to redundant or unnecessary) programs would have to be cut?
Why do you believe that cutting even "important" programs would be necessarily be a bad thing?

this is a direct injection of spending into the private economy

Again, I must point out that Government has no money of its own to "inject" into the economy, any money that it puts into the economy must first be taxed away from the current economy, or borrowed against (printed [with the potential of causing inflation] with the idea of raising taxes later) future economies.

without that spending, many more people would be unemployed right now, and more companies would now be out of business.

This is a bare assertion fallacy and a Fallacy of Necessity.

Substituting consumer demand with government spending does not result in true economic stimulus and it retards recovery. The rise in GDP will cause the illusory effect of making it appear as though the economy is gaining strength, or has ceased in its decline, but this illusion only lasts as long as the government spending continues.

The entire time the illusion is allowed to continue, capital investments are likely to be misdirected because of the illusion and the inflated credit markets and currency create a bubble in the capital markets. If you thought the bursting of the housing bubble was a catastrophe, it will look like a mildly rainy day compared to the fallout from rupturing a capital market bubble.

You can call these things bailouts if you want

When government pumps money into a failing industry in hopes of keeping it from collapsing, you recognize this government action as a bailout. Yet... When government pumps money into the economy in hopes of keeping it from collapsing, you do not recognize this government action as a bailout but a stimulus.

 

[MrSheepish]

Glad to... and I should have been more specific to begin with. Across the board reductions in the tax rates are legitimate tax cuts. The first time home buyers tax credit and the Cash for Clunkers tax credit are both examples of subsidies via the tax structure.


Two major reasons, subsidies distort the market (encouraging further mal-investments) and they do not stimulate the entire economy.

These subsidies are industry specific, only those specific industries will be "stimulated" by the tax credits offered to the consumer.

Across the board tax cuts stimulate the entire economy at all levels and in all industries.

Even if for some reason you think industry-specific tax cuts are bad, most of the stimulus cuts are not industry-specific. The examples you used are the $3 billion cash for clunkers (if you can call that a tax credit), and the recently expanded first time homebuyers tax credit, which looks like it's projected to cost around 20$ billion total. In contrast, the alternative minimum income tax patch and the general income tax cuts for all workers are expected to add up to around 180$ billion. So more than 80% of the stimulus tax credits are spread out as tax cuts for individuals. This does reach all sectors of the economy.

Why is the federal government allowed to run a deficit and perpetually expand on our national debt but the states are not?

The answer to that question is very important.

I'm not arguing the reasons, that's just how it is. Running a deficit is not necessarily a bad thing, it depends on the details. Most states are not even allowed to have a small deficit, while the federal government is allowed to reach dangerously high levels of debt.

That is a fallacy of false dilemma.
Why do you believe that raising taxes increases revenue and lowering taxes would reduce them?

Clearly a 100% tax rate and a 0% tax rate both lead to a revenue of zero. Somewhere in between is a maximum level of revenue for the government, and I think it is significantly higher than where we are now, as do most economists. Obviously this maximum shouldn't be our goal because that would be very hard on many people.

Why do you believe that important (as opposed to redundant or unnecessary) programs would have to be cut?
Why do you believe that cutting even "important" programs would be necessarily be a bad thing?

Because I've seen important programs being cut in the past. If I were in charge of a state and I had to trim 20% off it's budget, I wouldn't know where to take it from. Would you? Let's take the largest state, California, as an example. Which parts of its budget would you cut?

Again, I must point out that Government has no money of its own to "inject" into the economy, any money that it puts into the economy must first be taxed away from the current economy, or borrowed against (printed [with the potential of causing inflation] with the idea of raising taxes later) future economies.

In this case it is all borrowed from future economies. I think that's reasonable to do if you are trying to stave off a depression, which was what we were worried about.

The rise in GDP will cause the illusory effect of making it appear as though the economy is gaining strength, or has ceased in its decline, but this illusion only lasts as long as the government spending continues.

Sounds correct.

The entire time the illusion is allowed to continue, capital investments are likely to be misdirected because of the illusion and the inflated credit markets and currency create a bubble in the capital markets. If you thought the bursting of the housing bubble was a catastrophe, it will look like a mildly rainy day compared to the fallout from rupturing a capital market bubble.

You have hit the limits of my economic knowledge. I will have to learn about capital markets. Does this come down to worries about inflation and interest rates?

When government pumps money into a failing industry in hopes of keeping it from collapsing, you recognize this government action as a bailout. Yet... When government pumps money into the economy in hopes of keeping it from collapsing, you do not recognize this government action as a bailout but a stimulus.

I don't really care what you call it. I buy the argument that even though there will be a depressant effect when the government spending ends, recovery will be faster overall than without it because it minimizes the number of businesses that failed at the same time during the first couple years. Further, the vast majority of the non-tax-break price tag goes to vital things like education, food, medicine, and the repairing of our crumbling national infrastructure. Overall it seems like a net good thing to me.

 

[GenSeneca]

So more than 80% of the stimulus tax credits are spread out as tax cuts for individuals. This does reach all sectors of the economy.

Rich people need not apply for tax savings.

If a lower middle class guy saves 5% on his taxes, he might be able to go out and get a big screen TV. When a billionaire saves 5% on his tax bill, that's enough capital to expand his business in a new market, or start a brand new company, things that result in long term stimulus to the economy and grow the GDP.

I understand the class envy and the populist sentiment of soaking the rich with ever higher taxes, and never giving them tax breaks because they're evil bastards hoarding wealth under their mattress in hopes that it causes poor people to die faster, but for the most part, rich people have their wealth because they are good at generating wealth. People who generate wealth grow the GDP, create new jobs, and that drives long term economic recovery.

I buy the argument that even though there will be a depressant effect when the government spending ends, recovery will be faster overall.

That's the problem... when government spending ends, you're right back to where you were before the bailouts only now you have debts too... you have deficit spent money that you are now paying interest on, the system hasn't cleansed itself of mal-investments, and the capital markets are artificially inflated.

Remember TARP (Toxic Asset Relief Program)? That was supposed to be used to buy up all those toxic assets, that caused the crash of the housing bubble, and get them out of the economy... That didn't happen. Those toxic assets are still floating around in the global economy. (Do you know what that money was actually used for?)

But don't take my word for any of this, just keep your eye on the Piigs. We are not the only nation in the world that operates on the Keynesian economic model, every country does, so it's wise to watch how other Keynesian countries are fairing as a result of their own programs of bailouts and stimulus. Not well.

 

[Gipper]

Had BO lower taxes on the rich and middle class when he took office, our economy just might be rebounding now. This is what Reagan did after taking office to get us out of the disastrous years of Jimma Carter and the economy boomed for years.

But progressives will never do this. They see big government as the ONLY answer and individual liberties as the enemy.

The American people are waking up the evil ways of the progressive. Real change is coming.

 

[ktucan1]

So let me get this straight we're talking about no tax increases for the middle class. Excuse me but I see local and state governments as the real threat to the middle class. Property tax and sale tax increase are far worse and how come there is no outcry when property taxes go up along with the sales tax? All day I hear about are the feds doing this and with taxes but nothing about when local and state governments do it??? You want to give the middle class tax relief then do it across the board. Don't exclude city hall and state capitals.

 

[GenSeneca]

Property tax and sale tax increase are far worse and how come there is no outcry when property taxes go up along with the sales tax? All day I hear about are the feds doing this and with taxes but nothing about when local and state governments do it???

I hear complaints about that all the time in my little town and around the county. Every time there is a new school levy (which is every year) there is a massive split in the community that gets all kinds of local news coverage. Becuase such issues are local, you're not going to hear about it on the national news.

 

[MrSheepish]

Rich people need not apply for tax savings.

If a lower middle class guy saves 5% on his taxes, he might be able to go out and get a big screen TV. When a billionaire saves 5% on his tax bill, that's enough capital to expand his business in a new market, or start a brand new company, things that result in long term stimulus to the economy and grow the GDP.

As you have pointed out, one-shot tax cuts aren't going to get people to start up businesses because they won't be able to pay for it in later years. The goal was to make a stimulus to as broad a sector of the economy as possible. Thus, they cut taxes for everyone, but capped at 6.2% of earnings, and $400 per person, $800 per couple. For the very rich, this is not a lot of money. But for everyone else it is a lot of money, and it is money that they are much more likely to spend than if they are rich. It is also only a temporary measure which helps out people who are likely to spend it. Hence the name stimulus.

What you seem to want is another permanent tax cut for everyone, including the rich, on top of the Bush tax cuts. I agree that that would stimulate the economy in a big way, but we can't afford it. The type of cut you are describing would make the stimulus deficit seem like small potatoes. Unless you can figure out how to substantially trim the federal budget at a time when we are undertaking two major military campaigns, we are stuck.

That's the problem... when government spending ends, you're right back to where you were before the bailouts only now you have debts too... you have deficit spent money that you are now paying interest on, the system hasn't cleansed itself of mal-investments, and the capital markets are artificially inflated.

And yet that's still better than being in a depression. That's why they did it.

Remember TARP (Toxic Asset Relief Program)? That was supposed to be used to buy up all those toxic assets, that caused the crash of the housing bubble, and get them out of the economy... That didn't happen. Those toxic assets are still floating around in the global economy. (Do you know what that money was actually used for?)

Not sure, but I do know that the majority of it has been repaid.

 

[GenSeneca]

$400 per person, $800 per couple.

Two things here, first, they were not lump sum. My paycheck increased by $13 a week and that lasted several months.

Second, while that money was not withheld in payroll taxes, it is subject to the income tax. Minimum tax bracket is 15%, making the $400, $360 after income tax and that's just federal, still have local and state income tax to pay on that $400.

For the very rich, this is not a lot of money. But for everyone else it is a lot of money, and it is money that they are much more likely to spend than if they are rich.

$13 a week is not a lot of money.

Hence the name stimulus.

$13 a week is not much of a stimulus.

What you seem to want is another permanent tax cut for everyone, including the rich, on top of the Bush tax cuts. I agree that that would stimulate the economy in a big way, but we can't afford it.

You agree it would stimulate the economy, growing GDP, but you claim we cannot afford it... The only way to increase tax revenues is to grow the GDP.

If you look at THIS REPORT from the CBO, on page 4 it shows the historical tax revenue as a % of GDP. Regardless of tax rates between 1968 and 2007, the average revenue from taxes is about 18% of GDP.

The lesson should be clear, the only way to increase revenue is to grow the GDP. If you agree that massive tax cuts would "stimulate the economy in a big way", then you would have to recognize that 18% of a larger GDP is going to be far more revenue than 18% of a smaller GDP.

The type of cut you are describing would make the stimulus deficit seem like small potatoes. Unless you can figure out how to substantially trim the federal budget at a time when we are undertaking two major military campaigns, we are stuck.

As you can see above, real, across the board tax cuts pay for themselves by growing GDP. The problem is, as you point out, spending. Yes, we should drastically slash spending. Details for how to accomplish that would probably be best suited for conversation in a separate thread.

And yet that's still better than being in a depression. That's why they did it.

We haven't staved off a depression, we're making things worse. Let's say you make $50,000 a year but you spend $60,000 a year. You can't maintain that level of spending so you get a credit card for the deficit. You have to pay interest on that debt but you're still making $50,000/yr.

So the second year you spend $61,000, and the $11,000 deficit goes onto the credit card, causing you to pay even more in interest. Third year, you're spending $65,000, fourth year $70,000, fifth year $75,000, sixth year $88,000, seventh year you've reached spending levels that double your income.

All that spending is done to maintain your current standard of living but it is not sustainable. At some point, what you owe in interest will consume all of your revenue and eliminate the possibility of you every paying down the principle. At some point the credit card company will cut you off. At some point the whole house of cards collapses.

People think the Bailouts and Stimulus packages have worked because they have allowed us to maintain our living standard but as I said in an earlier post, this is just an illusion that will make life exponentially more miserable the longer it continues. At some point there will be no more cards in the deck to build our house and the whole thing will collapse under the weight of reality.

Not sure, but I do know that the majority of it has been repaid.

It was sold to us as necessary to buy up all the toxic assets and get them out of the system. If we would have done that, there would have been nothing to pay back and those assets wouldn't still be floating around the economy.

Rather than purchasing the toxic assets, we "loaned" the money to mega banks (too big to fail) and instructed them to use the funds to go out and buy their weaker competitors (who didn't get bailout money).

This consolidation of banks placed an elite few in possession of an overwhelming majority of capital and customers and made governments control of the banking industry much easier. At the same time, government offered banks low interest loans of freshly printed money, which they borrowed and used as funds to repay the TARP money.

TARP was a shell game that didn't fix the problem of toxic assets. People like yourself only seem to care that it was paid back, you don't seem to be bothered at all by the fact that we were lied to about it's real purpose in order to get it passed.

 

[GenSeneca]

Two things here, first, they were not lump sum. My paycheck increased by $13 a week and that lasted several months.

Second, while that money was not withheld in payroll taxes, it is subject to the income tax. Minimum tax bracket is 15%, making the $400, $360 after income tax and that's just federal, still have local and state income tax to pay on that $400.

$13 a week is not a lot of money.


$13 a week is not much of a stimulus.


You agree it would stimulate the economy, growing GDP, but you claim we cannot afford it... The only way to increase tax revenues is to grow the GDP.

If you look at THIS REPORT from the CBO, on page 4 it shows the historical tax revenue as a % of GDP. Regardless of tax rates between 1968 and 2007, the average revenue from taxes is about 18% of GDP.

The lesson should be clear, the only way to increase revenue is to grow the GDP. If you agree that massive tax cuts would "stimulate the economy in a big way", then you would have to recognize that 18% of a larger GDP is going to be far more revenue than 18% of a smaller GDP.


As you can see above, real, across the board tax cuts pay for themselves by growing GDP. The problem is, as you point out, spending. Yes, we should drastically slash spending. Details for how to accomplish that would probably be best suited for conversation in a separate thread.


We haven't staved off a depression, we're making things worse. Let's say you make $50,000 a year but you spend $60,000 a year. You can't maintain that level of spending so you get a credit card for the deficit. You have to pay interest on that debt but you're still making $50,000/yr.

So the second year you spend $61,000, and the $11,000 deficit goes onto the credit card, causing you to pay even more in interest. Third year, you're spending $65,000, fourth year $70,000, fifth year $75,000, sixth year $88,000, seventh year you've reached spending levels that double your income.

All that spending is done to maintain your current standard of living but it is not sustainable. At some point, what you owe in interest will consume all of your revenue and eliminate the possibility of you every paying down the principle. At some point the credit card company will cut you off. At some point the whole house of cards collapses.

People think the Bailouts and Stimulus packages have worked because they have allowed us to maintain our living standard but as I said in an earlier post, this is just an illusion that will make life exponentially more miserable the longer it continues. At some point there will be no more cards in the deck to build our house and the whole thing will collapse under the weight of reality.


It was sold to us as necessary to buy up all the toxic assets and get them out of the system. If we would have done that, there would have been nothing to pay back and those assets wouldn't still be floating around the economy.

Rather than purchasing the toxic assets, we "loaned" the money to mega banks (too big to fail) and instructed them to use the funds to go out and buy their weaker competitors (who didn't get bailout money).

This consolidation of banks placed an elite few in possession of an overwhelming majority of capital and customers and made governments control of the banking industry much easier. At the same time, government offered banks low interest loans of freshly printed money, which they borrowed and used as funds to repay the TARP money.

TARP was a shell game that didn't fix the problem of toxic assets. People like yourself only seem to care that it was paid back, you don't seem to be bothered at all by the fact that we were lied to about it's real purpose in order to get it passed.

Facts and logic... the Achilles heel of leftists.

 

[dogtowner]

Had BO lower taxes on the rich and middle class when he took office, our economy just might be rebounding now. This is what Reagan did after taking office to get us out of the disastrous years of Jimma Carter and the economy boomed for years.

But progressives will never do this. They see big government as the ONLY answer and individual liberties as the enemy.

The American people are waking up the evil ways of the progressive. Real change is coming.

and limit those tax breaks to taxpayers, makes a huge difference.

 

[LTKrgm]

Actually it is mainly due to his giant spike in spending which helped spike the unemployment rate which made the otherwise lost tax revenue all the more vexing.

So the choice is really rather simple, if you don't have the money, you DON'T spend anyway.

Kindly explain to me how spending helped spike unemployment.