As President Bush and Fed Chair Bernanke work out how to fix an ailing economy, most of the focus seems to be fixed around some sort of tax break, or stimulus package that puts money directly into the people's hands to spend. Near as I can tell, the thought behind this is that with a consumer driven economy, and with consumer spending down, an influx of cash will spur things moving again.
But how responsible is that really? The deficit is exploding, the debt has doubled since Bush took office, housing values are tanking, the trade deficit at near (or actual?) all time highs. Any sort of stimulus package will basically be a handout from the government to the people or to businesses, and knowing this government, there would not be an equivilant drop in spending to pay for it. So essentially it's borrowing money from China to try and give a kickstart to the economy, or if you want to look at it another way, as I heard one man in an interview say "the government is bribing us with our own money."
I think things will sort themselves out eventually. We're in the midst of a big correction, between the housing market collapse, an economic downturn, a major increase in the price of energy and the private sector's efforts to correct it. Is there any merit in maybe the government just butting out this time? I'd worry about another rate decrease, since so many nations are already dropping the dollar for higher yields in other currencies, but really, at what point does a bit drive to spur spending really just indicate further irresponsibility in spending from the government?
Thoughts?
Posted by fugu13 (Member # 2859) on :
The current economic crisis is, essentially, a cash crisis. No financial institution has much cash, especially cash they are willing to lend. By infusing cash into the economy, the idea is that this would flow to the trouble spots. Another bit of logic is, the next likely problem spot in the economy is credit cards. Default rates are just starting to increase rapidly as people are feeling the pinch in real estate implements.
Of course things will sort themselves out eventually. This is what business cycles are all about. The question is, how do we make the current downturn less painful than looks to be likely.
I'm against the cash infusion, actually, but the reasoning isn't awful.
Posted by Scott R (Member # 567) on :
A lot of the problems would be helped by the President standing up in June or so and saying, "Look-- I encourage everyone in the country to have a humble Christmas. Don't buy that Wii. The manufacturers and retailers are going to flip; I can hear my phone ringing now, but really, pay off some debt this year instead of incurring it."
Posted by MrSquicky (Member # 1802) on :
I'm not sure why you think that would help the problems (assuming that people listen the President). That's exact opposite of what they would be wanting for a tax rebate. It's not an economic stimulus if people don't spend it.
edit: People not spending other money is going to make the cash crunch worse, not better.
[ January 17, 2008, 03:21 PM: Message edited by: MrSquicky ]
Posted by Lyrhawn (Member # 7039) on :
Well if we have two problems, debt and a lack of spending, how do you solve it? Give them twice as much money and tell them to buy the Wii AND pay off their debt?
I know it's too late now, but if the government was really going to do something, they should have done it 5 or 10 years ago when people were in the midst of spending way beyond their means, instead of now when the chickens are coming home to roost.
Scott's suggestion might not help the problem currently at hand, bue he's certainly addressing the problem we have on deck.
Posted by mr_porteiro_head (Member # 4644) on :
quote:A lot of the problems would be helped by the President standing up in June or so and saying, "Look-- I encourage everyone in the country to have a humble Christmas. Don't buy that Wii. The manufacturers and retailers are going to flip; I can hear my phone ringing now, but really, pay off some debt this year instead of incurring it."
That would be awesome.
Posted by fugu13 (Member # 2859) on :
Debt defaults are the symptom. The problem is a lack of cash (and I mean cash literally; most problem-plagued companies have plenty of assets).
Posted by MrSquicky (Member # 1802) on :
The debt is a problem that will develop in the long term. The cash (and credit) crunch and resulting problems are short to medium term ones.
I'm on board with moving away from Americans relying so much on incurring debt, but doing so will exacerbate the problems we are talking about here.
Posted by fugu13 (Member # 2859) on :
Neither the US national debt nor debt owed by individuals are particularly extreme, on average. The situation could be improved, but there is less of a problem than it is fashionable to complain about.
And even if debt were a problem, that is still not the root problem. The root problems are distorted incentives due to US gov't programs, such as large tax breaks to those owning homes.
Posted by Lyrhawn (Member # 7039) on :
quote:Originally posted by mr_porteiro_head:
quote:A lot of the problems would be helped by the President standing up in June or so and saying, "Look-- I encourage everyone in the country to have a humble Christmas. Don't buy that Wii. The manufacturers and retailers are going to flip; I can hear my phone ringing now, but really, pay off some debt this year instead of incurring it."
That would be awesome.
Maybe a compromise would be, say, don't buy that Wii, instead buy American! Get that Xbox you always wanted, but get the cheaper version, and just one game instead of a half dozen.
Only mildly kidding.
Posted by scholar (Member # 9232) on :
Wouldn't this only help if people spend in the right ways? I used all the money I got for Christmas for mortgage and food. I imagine that I would do the same with a larger tax refund. I buy the same stuff, just don't take out as much student loans.
Posted by Dan_raven (Member # 3383) on :
Actually Lyr, you must realize that despite common sense, economics is not a 0 sum game.
In other words, sometimes in order to increase tax revenues, we have to spend tax money. Sometimes, if we don't spend tax money, then our deficit grows.
Here is the basic idea.
Company A makes 100. It pays 20 in taxes. This is during a common year.
When a reception hits, it makes only 70. It then only has to pay 14 in taxes.
The Recession took 6 out of our tax base.
Now if the government gives out 2 they are going to spend it, where they wouldn't before. What is amazing about economics is that same 2 will get spent several times, by the people who receive it and by the companies they buy the products from, and their employees, etc.
That 2 may allow Company A to have an above average year--120. Then they'd pay taxes of 24, and our deficit would shrink.
There are a lot of details, formulas, and discussions (if by discussion you mean screaming yelling tantrums on the MBA level and higher) about the details of what and how exactly this works. It is why the President and Congress are talking to so many economists, trying to find out what would do the most bang for our bucks.
One big question that I am upset about is whether to give $ to the people, or cut taxes to the Corps. The Corp tax cutters say, "Cut taxes and companies will probably not fire as many people, and may give some folks a raise." That will not do much to help the average person or the middle class in the short term--which is where this Recession is sitting, but it will help to make the wealthier even wealthier.
Posted by Lyrhawn (Member # 7039) on :
They assume that we'll be irresponsible and use it to take a vacation. And they're probably right.
On average, no, I don't think the debt by the average person is extreme (depending on your definition of extreme), but the average savings, the average safety net Americans have are either small or non-existant. In other words, when people get hit, they have no money to back them up, and debts, no matter how not extreme, that need to be paid.
That wasn't the case with my grandparents' generation. They had money in the bank, and less debt, and I think they were much better off and less vulnerable to swings in the economy. Is it really better to have a populace that depends on the government for regular handouts to stablize their personal finances and the national economy rather than being financially secure to begin with themselves?
Dan, I don't automatically have a problem with that. I guess my bigger concern, that I maybe didn't quite spell out in my op, was that we're always focused on short term fixes, and we never seem to look ahead to see what pitfalls are before us. We'd rather spend $150 billion on cure and nothing on prevention. If I thought this money would spur the economy now (and I think it would) and then we'd spend some effort on fixing the problems that might lead to the NEXT problem, then I'd be in favor of it. But I don't like a purely reactionary stance, in any part of government. It's why our energy prices are so high right now, and our debt, among other problems.
Posted by MrSquicky (Member # 1802) on :
quote:That wasn't the case with my grandparents' generation. They had money in the bank, and less debt, and I think they were much better off and less vulnerable to swings in the economy.
I don't know about you, but my grandparents' time included the 1930s.
Posted by fugu13 (Member # 2859) on :
Yeah, ditto here. I don't know about less debt, because there wasn't anyone about to lend money to most people, but otherwise that's pretty much dead wrong.
Posted by MrSquicky (Member # 1802) on :
quote: The root problems are distorted incentives due to US gov't programs, such as large tax breaks to those owning homes.
That sounds like an article of faith, not a fact. It definitely isn't a proximate cause of the mortgage crisis and I can't see how the proximate causes can be definitively traced to it. (edit: That came across a somewhat too harsh. I'm open to being convinced otherwise, but I've seen arguments like this advanced many times and the reasoning that I get for it rarely passes the laugh test.)
From what I can see, the root cause is economic decisions made without sufficient rigor and an eye on the short term as a opposed to the long term. People and businesses were stupid and/or greedy.
Lyr, As I said, I'm all on board with the redection of Americans dependence on debt, but the basic problem is that, without some pretty strong impetus, that's not going to happen. We're a financially irresponsible people.
Saying "we'll cut off the support and corrections to counteract people's irresponsibility" isn't going to make a large number of them responsible, unless the problems that people's financial frippery gets us into is really bad. Speaking as someone who'd get seriously screwed by that even though he does a pretty good job of handling his money, I'd prefer different ways of promoting responsibility.
Posted by Lyrhawn (Member # 7039) on :
Well, when my grandparents were adults, it was the late 40's onwards, I don't count their teen years because frankly at that point their debt and savings didn't much matter nationally. But the debt to savings ratio was different than it is now. They had a lot more money in the bank, they spent less of their money.
Squick -
What would you suggest?
Posted by Enigmatic (Member # 7785) on :
If they wind up doing a tax rebate or tax cut, I just hope it doesn't turn into another situation where working people get a few hundred bucks, rich people get thousands, and corporations get millions. I understand the "trickle down" arguements, I just don't think they work nearly as well as getting money to people who NEED help first and letting that benefit trickle up to other sectors.
What I'd really like to see, but probably won't, and this is more of a mid- to long-term fix anyway: Increased spending on things that create jobs and provide an end-benefit to the country, like major infrastructure upgrades. Improving and repairing roads, bridges, and public transportation like light rail helps the construction companies involved, creates jobs, and can improve property values in some cases. Improved public transit also can help poorer people find work, by expanding the range they can commute to without a car. We could have a major nationwide project in upgrading our electrical grid too, which would also create jobs and lower energy costs with efficiency improvements.
I'm not in favor of the government just creating busywork jobs or useless pork barrel projects. However, if they're going to be throwing tax money at the solution one way or another, creating jobs building something with a lasting benefit seems better to me than giving out cash. (Though giving out some cash may also be helpful in the short-term, of course.)
--Enigmatic
Posted by Javert Hugo (Member # 3980) on :
I'm not amazingly well versed in the history here, but as I understand it, the late 40s and the 50s were a time of basically uninterrupted economic prosperity for America. There weren't so much market swings and consumer spending was constantly on the rise.
Again, I don't really have enough to say knowligably, but I'd image that the lack of available credit had a deal to do with the difference in the debt to savings ratio.
Of course, I don't actually disagree all that much with the point. To think, all it took to encourage that level of thriftiness was a decade of crushing economic despair.
---
We do have a widespread problem with people making poor economic decisions. The solution of having bad things happen to those people may be satisfying, but then we'd have widespread bad things happening to people, which is a really bad thing for the entire economy.
Posted by MrSquicky (Member # 1802) on :
quote:What would you suggest?
The only non-push/pull solution I can come up with to people being stupid, greedy, and irresponsible is to get people is to encourage them to be less stupid, greedy, and irresponsible.
Our economy is set up to work in an environment like this. To change the situation without really screwing things up, you need vast transformations in the populace and the economic system and the result will be a significantly different social and economic landscape.
---
Of course, I wouldn't being adverse to have no limit hunting seasons on most people who work in advertising.
I think the second is much more likely than the first, however.
Posted by lobo (Member # 1761) on :
The good old days weren't always so good and tomorrow ain't as bad as it seems...
Posted by fugu13 (Member # 2859) on :
The rate of savings after the depression was mostly a reaction to the depression, and happened to coincide with an upswing in the business cycle. People were not particularly better off in that period because they were saving more.
Most systemic problems with economic decisions we've had are traceable to perverse incentives created by the government. For instance, people were pouring too much debt into their houses in large part because the government made it cheaper to put debt in houses ('promoting home ownership', as it is also called). Often these subsidies feel good, but end up screwing the economy over for a good bit. From what I'm reading, many people in this thread and otherwise seem to think the way to fix the problems is by creating new subsidies and incentives (that will of course not create perverse situations that screw the economy over again).
Posted by Jhai (Member # 5633) on :
quote:Originally posted by lobo: The good old days weren't always so good and tomorrow ain't as bad as it seems...
This bears repeating. Long-term the US economy, relative to all other countries' economies, has no real structural problems. What we're seeing is simply the business cycle doing its thing, in a similar manner to what happened after the last bubble (dotcom) popped. It'll hurt some, things will clean themselves up, and life will continue.
Also, as always (le sigh), I agree with everything fugu said before I got here.
Posted by Lyrhawn (Member # 7039) on :
I have a hard time believing that people today wouldn't be better off if they had substantially more in savings to buffer them from wild swings in the economy.
I'm not sure what I think the best way to tix the problem is, I haven't advocated anything specific because I don't know what the best solution is, I'm just skeptical of the proposed quick fix. We're a society of quick fixes, and not particularly cognizant of long term problems that extend beyond quick fixes.
quote:The good old days weren't always so good and tomorrow ain't as bad as it seems...
In history classes the lesson we often get from profs is that there were no good old days. I don't know if I believe that or not, but the more history books I read, the closer I come to that position.
Posted by Tresopax (Member # 1063) on :
quote:Well if we have two problems, debt and a lack of spending, how do you solve it?
What we should be doing is borrowing money to spend extra when the economy is doing poorly and paying that debt back during times when the economy is doing well.
Posted by fugu13 (Member # 2859) on :
I believe that strategy has been invalidated by public choice theory. That is, even if it is preferable, it will never be followed through on consistently enough. I think this makes the new keynesian preference for money supply manipulation more persuasive. Of course, that has serious problems as well.
Lyrhawn: while savings are important, savings are easily wiped out, and if most people save large amounts, the value of those savings go down. It is a combination of judicious savings (which, despite popular belief, many people in this country have. I recall a paper some months back that found that a very high percentage of people are on track to an amount of retirement savings necessary to sustain their standard of living) with the availability of credit to deal with drastic situation changes that protects best against downturns.
Unfortunately, the negligence of derivative creators in creating diversified bond derivatives, of derivative ratings agencies in rating overly-concentrated bond derivatives too highly, and of derivate purchasers in buying derivatives insufficiently diversified has created a major cash crunch as backing assets fail at too high a rate (which would be easily dealt with given sufficiently diversified instruments) and derivative holders attempt to unwind. This cash crunch has dried up credit availability.
Posted by Juxtapose (Member # 8837) on :
When I first saw this thread I thought it read "Get monkey to the people."
I'm disappointed. I've always wanted a pygmy marmoset.
Posted by Lyrhawn (Member # 7039) on :
I'm sure there's a section of government working on it.
Congress can't dare offend the pygmy marmoset lovers of the electorate.
Posted by CaySedai (Member # 6459) on :
I didn't get a rebate check last time because I hadn't paid enough in taxes to get anything. (Because of not making enough money to pay much in taxes.) I'm not holding my breath this time.
Posted by MrSquicky (Member # 1802) on :
quote:For instance, people were pouring too much debt into their houses in large part because the government made it cheaper to put debt in houses ('promoting home ownership', as it is also called).
I'd counter that people were pouring too much debt into their houses because the credit market was offerring what seemed like favorable conditions for everyone but that only worked in the short to short-medium term and only if the current environment didn't change.
Also, many people were using their real estate purchases as short-term investments that again, only works if the housing market continues booming.
Tulipmania occurs but I don't think you can trace its roots to the government.
---
The invisible hand of the market relies on assumptiosn that haven't been true since at least the 50s. It doesn't work on affluent populations (supply of basics always excedes demand), it doesn't work in large, interconnected economies where, because of affluence, most of the people are above subsistence economic players, and it especially doesn't work when there is a mutli-billion dollar industry whose only interest is manufacturing demand.
Posted by Redskullvw (Member # 1549) on :
Fair Tax Plan would seem to be the better option. Mind you, right now I get taxed at the higher personal income level right now. And under the trial balloon they just floated in Congress I could expect to get a $1,800 rebate check, so it would seem that I would suddenly get a sort of belated tax break as a result.
Why don't they switch it to a tax that hits up economic activity as under the fair tax? Those of us who invest, would resultantly pay more. Those of us who save would pay resultantly less. Low income people would pay even less than they do- as well as get rebated to them their purchase taxes. Solves Medicare/Medicaid/Social Security problem. And it would get rid of the idiotic tax code that has lobbyists getting tax law code advantages.
Thing is, I'm kinda insulted by a $1,800 rebate for two reasons. Reason one is that it simply throws money at everyone regardless of need. Second reason, on a personal level, it does nothing to address the fact that of every one dollar I make 42 cents of it goes to taxes.
That is unreal. Keep the money and either make the code taxpayer neutral so that most of us pay the same relative level of our incomes as tax- or replace the code with something that by its very nature would be a huge economic incentive such as te Fair Tax.
But the rebate thing is really smoke and mirrors. Put a few bucks in everyone's hands for a temporary economic boost that would be minimal at best and still not correct the fundamental problem of our tax code being essentially written in Sanskrit so that the "pygmy marmoset lovers" get a write off for building new marmoset cages every year.
Bernanke is turning out to not be so good a replacement for Greenspan.
Posted by MrSquicky (Member # 1802) on :
quote:Put a few bucks in everyone's hands for a temporary economic boost that would be minimal at best and still not correct the fundamental problem of our tax code being essentially written in Sanskrit so that the "pygmy marmoset lovers" get a write off for building new marmoset cages every year.
Bernanke is turning out to not be so good a replacement for Greenspan.
What do you think the role of the Fed Chief is? It sounds like you want him to rewrite the tax code (and to a contraversial and heavily opposed one, at that). That's not something he has any control over.
Posted by pooka (Member # 5003) on :
I'm kind of concerned about some of the invisible mousetraps that are out there, like credit card rates that jump to 31% if one fails in their terms which can include due dates that vary by +/- 5 days per cycle. Why do credit card companies want to be so evil? Such tactics seem much more like they are set up to torment people pointlessly rather than bring about cost effective compliance. I only have one credit card with the +/- 5 day thing, and that was a recent change to terms, but it really ticked me off.
Posted by Redskullvw (Member # 1549) on :
MS
I realize what the Fed Chair's role is. The issue is Congress. And as to the FT being "heavily opposed" it has a ton of co-sponsors in Congress. The only thing controversial about it is that a ton of lobbyists in Washington would suddenly be out of jobs. If there is no tax loophole to lobby for what would they then do in Washington?
Bernanke's problem is that he essentially let the Fed Rates get behind the curve. That allowed the "mortgage crisis" to essentially develop. His only options are now to either recommend the Treasury siphon back the circulating currency or pull back the inter-bank rate by half a basis point. Neither are good solutions because neither solves the basic problem that is impossed by Congress. I.E. tax code.
When your tax code law grows beyond 1000 pages, something has gone inherently wrong. The result is the unfair taxation levels we face, a stranglehold effect on the entire economy, and a large group of people whose only activity is either advocating for loopholes or figuring out how to dodge tax payment by accountant tricks.
The IRS, the lobbyists, CPA's, and Tax attorneys like the way it currently is.
Taxpayers and economists continually note the system we have doesn't work well or even fairly.
If not the Fair Tax then what? I for one am sick of how many taxes I do pay. My dislike is one based upon the reality that what we have is about as inefficient and unjust a system as can possibly be put together. If it turns out under a fairer system that I start paying 60% on the dollar in taxes I could live with it. But paying taxes as we do now, while Congress doesn't even own up to its own culpability in the problem seems to be too cheaply bought with what would amount to a bribe of a rebate.
The FedChair essentially lost control of the rates in relation to the economy seven months ago and it isn't likely he is going to catch the tiger now.
Posted by Dagonee (Member # 5818) on :
quote:And as to the FT being "heavily opposed" it has a ton of co-sponsors in Congress. The only thing controversial about it is that a ton of lobbyists in Washington would suddenly be out of jobs.
You have no hope of convincing people to support the fair tax if this is your view of why it's controversial.
Posted by fugu13 (Member # 2859) on :
It is unlikely housing would have become as large a bubble absent gov't incentives to make housing a cheaper place to put debt and particular gov't interest rate policies. Might it have been a bubble? Sure, but if it were several thousands of dollars less advantageous to put your debt into your house (that is, if gov't subsidies of that sort of debt were repealed), fewer people would have done so. Do you deny this?
Strangely, when mentioning reasons the invisible hand doesn't work, you mention things that the invisible hand is not based on. And, strangely, supply of basics does not exceed demand in the US by any appreciable amount, except in areas with extensive gov't subsidies (certain farm products). This is, unsurprisingly, exactly as predicted by 'invisible hand' theories. Unless you know of any non-subsidized 'basics' of which there is a great surplus that you could point out to me?
Redskull: the FairTax is a bad idea because it is hard to police consumption goods and even harder to police services. Black markets would be a significant problem, and would be breeding grounds for organizing crime. I am not, however, opposed to a VAT, which would be essentially identical from a consumer point of view.
Posted by Mucus (Member # 9735) on :
quote:Originally posted by Redskullvw: Why don't they switch it to a tax that hits up economic activity as under the fair tax? Those of us who invest, would resultantly pay more. Those of us who save would pay resultantly less.
I must admit, I have not read up on how the fair tax interacts with investments. But asking out of curiosity, why would there be a big disparity between those that save money (under their mattress?) and those that invest (in stocks, bonds, etc)?
Posted by MrSquicky (Member # 1802) on :
quote:It is unlikely housing would have become as large a bubble absent gov't incentives to make housing a cheaper place to put debt and particular gov't interest rate policies. Might it have been a bubble? Sure, but if it were several thousands of dollars less advantageous to put your debt into your house (that is, if gov't subsidies of that sort of debt were repealed), fewer people would have done so. Do you deny this?
Of course I'm not going to deny that government subsidies played a role and exacerbated the situation. But, as far as I can tell, your claim went much further than that by saying that the government subsidies were the root cause. This situation would have occurred without government subsidies - although, yes, it likely would have been less severe. Take away what I said (and don't replace it with other conditions that would cause it) and I don't see how the government sudsidies would cause this. Do you disagree with that?
---
quote:Strangely, when mentioning reasons the invisible hand doesn't work, you mention things that the invisible hand is not based on.
How is externally manufactured demand not a part of the invisible hand? Again, how do you explain Tulipmania and related phenomna as not failures of the invisible hand?
I spoke poorly abotu the supply exceding demand. That isn't even really true for food, because the government pays people not to grow it or destroys surplus food, so it really doesn't reach supply. Rather, what I meant was potential supply. Our capacity for production far outstrips the needs of the populace.
Natural demand can be met many times over, which is one of the major reasons why there is so much money in manufacturing artifical demand which generally aims at creating demand for a product or service that is at best loosely tied to the qualities of that product.
Lastly, a large, inconnected affluent populace tend to magnify the ripple effects caused by economic downturns. This isn't so much a place where the invisible hand breaks so much as the assumption that we can let the market correct itself may very well elad to a situation that is unacceptable to the people living in that economy.
[ January 18, 2008, 11:42 AM: Message edited by: MrSquicky ]
Posted by Enigmatic (Member # 7785) on :
fugu, when you're talking about "putting debt into your house" are you referring to things like home equity loans and second mortgages, or does your initial mortgage to buy the home count as "putting debt into your house" for the purposes of this discussion? I'm just trying to understand what you're saying the problem was there. To me some of your posts sound like they're written with some basic economist assumptions that I'm missing by not being an economist.
I happen to agree about farm subsidies, btw, and think that they need to be seriously reduced and re-evaluated, if not totally eliminated. I don't think that's something that could get done in an economic slowdown or recession though, because everybody would cry foul about cutting subsidies increasing food costs when people are already struggling to make ends meet. (Whether that would actually happen or not, that would be the rallying cry.)
--Enigmatic
Posted by Redskullvw (Member # 1549) on :
fugu
You realize that the FT makes a black market almost completely impossible?
Dagonee
It seems that the best way to get people to support it is to lend them a copy of the book. Until I read it, i was extremely opposed to it.
Mucus
In a nutshell what you save you keep. As long as you don't cash in an investment, you wont be paying taxes. And even if you do cash in an investment, you only pay taxes once you buy something.
All in all the problem is Congress and the tax code. Unfortunately all the presidential candidates who support the FT are people I could never vote for.
So I guess we all like the system we have now.
I look forward to my $1,800 rebate. I'll stick my CPA on to how I can avoid making tax payments, and start stockpiling money in non-taxable investments. Assuming everyone goes out and blows their rebates, it will make mine all the more valuable in the long term.
Posted by Jhai (Member # 5633) on :
quote: Bernanke is turning out to not be so good a replacement for Greenspan.
Almost every economist I've talked to/read on this topic agrees that by the time Bernanke was in office, there wasn't much he could do. If he had moved quicker on changing interest rates, then perhaps the downturn wouldn't be quite as severe (or long), but that's only a perhaps.
Posted by Mucus (Member # 9735) on :
Redskullvw: I understand what you said. I just can't see how it means that "Those of us who invest, would resultantly pay more"
Posted by Redskullvw (Member # 1549) on :
Mucus
Because high wage earners wouldn't be eligible for the rebate. You have investments, you don't get the monthl;y/quarterly rebate check sent out to lower income/non-investment citizens.
Posted by Zalmoxis (Member # 2327) on :
I would be for taking some of the tax subisidies involved in home ownership and shifting that money to investment in hard infrastructure (roads, bridges, rail lines, etc.). I'm not sure how exactly you do that and in what amounts/percentages, but I'm worried that as a country, we've placed too high of a priority on living space and too little in the guts that allow those living spaces to be livable.
Posted by fugu13 (Member # 2859) on :
The fair tax does not make a black market almost impossible. How do you believe it does that?
Enigmatic: both do, but second mortgages and the like were particularly problematic.
Squicky: I don't know if it would have happened without gov't subsidies, but I do know it would have been a good deal better without them, which is all I'm arguing.
You're going to first have to define what you mean by "externally manufactured demand". Of course, it doesn't much matter, because equilibrium economics does not depend on where demand comes from, merely that it exists, and that it be characterized by certain simple characteristics (more is better, more variety is better -- only more specific meanings of these).
Posted by Mucus (Member # 9735) on :
Redskullvw: Are you sure high wage earners wouldn't be eligible? I was under the impression that everyone with a valid SIN got those prebate payments. http://www.fairtax.org/site/PageServer?pagename=about_faq_answers The website doesn't make any mention of a high wage cutoff either.
See questions like "Is it fair for rich people to get the exact same FairTax prebate from the federal government as the poorest person in America?"
Posted by Redskullvw (Member # 1549) on :
Maybe I better let someone else answer the questions.
Fugu
My understanding is that blackmarket can't exist in a situation where the tax is based upon consumption. Maybe it can. Maybe it can't. But right now we have a huge blackmarket and grey market. At the very least the fair tax would make the greymarket go away.
Mucus
It was my understanding that the rebate would be income caped. Meaning a rich person can't get the rebate. Its been over a year since I read it so I could be wrong. But from what I remember, if you pass by some threshold the rebate doesn't apply. I think I remember John Linder saying that at his speech in Gwinnett Civic Center about the FT. But again its been years.
As I said, I didn't like the FT at all. But eventually came to the conclusion its not only fair for everyone, but it also would jump-start our economy.
Posted by Redskullvw (Member # 1549) on :
Looks like the cap is $46K a year ?
Posted by fugu13 (Member # 2859) on :
A blackmarket exists easily when a tax is based upon consumption, and right now our black market and grey market are tiny in comparison to places with real black/grey markets.
For an example of how a black market would exist: a business takes a percentage of their goods and sells them without sales tax, keeping the percentage within reasonable loss due to shoplifting and the like. Ta-da, free money. How does a consumption tax do anything but encourage this behavior, particularly as there is no longer substantial data being collected at a low level on economic activity outside of sales?
Several countries have tried national sales taxes. Most stopped, frequently moving to VAT, in large part because national sales taxes are extremely hard to police.
Posted by stihl1 (Member # 1562) on :
quote:Originally posted by Dan_raven: Actually Lyr, you must realize that despite common sense, economics is not a 0 sum game.
In other words, sometimes in order to increase tax revenues, we have to spend tax money. Sometimes, if we don't spend tax money, then our deficit grows.
Here is the basic idea.
Company A makes 100. It pays 20 in taxes. This is during a common year.
When a reception hits, it makes only 70. It then only has to pay 14 in taxes.
The Recession took 6 out of our tax base.
Now if the government gives out 2 they are going to spend it, where they wouldn't before. What is amazing about economics is that same 2 will get spent several times, by the people who receive it and by the companies they buy the products from, and their employees, etc.
That 2 may allow Company A to have an above average year--120. Then they'd pay taxes of 24, and our deficit would shrink.
There are a lot of details, formulas, and discussions (if by discussion you mean screaming yelling tantrums on the MBA level and higher) about the details of what and how exactly this works. It is why the President and Congress are talking to so many economists, trying to find out what would do the most bang for our bucks.
One big question that I am upset about is whether to give $ to the people, or cut taxes to the Corps. The Corp tax cutters say, "Cut taxes and companies will probably not fire as many people, and may give some folks a raise." That will not do much to help the average person or the middle class in the short term--which is where this Recession is sitting, but it will help to make the wealthier even wealthier.
This is the best post so far, right on the money. The only thing I would add, is as a small business owner tax breaks and incentives aren't going to help. The way that works for busineses is that you spend more, and more of that spending is deductible. You still have to have that $$ to spend that $$. Better for businesses would be grants, or direct rebates, or sb loans that would put cash in the hands of the business so they can spend it.
And let's remember. Our economy is based a market system. When people have money, they spend money. Our economy is driven on people spending. When times are tough, people stop spending money, the economy starts to recess instead of growing. Giving stimulus packages like this (hopefully) encourages everyone to spend, which gets the economy to grow again. Which ends the recession. People spending money is exactly what we need now.
Posted by Redskullvw (Member # 1549) on :
Well its a market based system saddled with almost 43% taxation.
When you are dealing with profit margins in tenths of a single percentage point, the room for self correction in the market as a whole is almost impossible. Stimulus packages usually don't even impact the quarter they get released.
Remeber the last rebate? Its effect was nothing.
Tax breaks do work, but then again the passage of time between when you give them, and when the poorest of our people get any benefit from them is sometimes measured in years.
In light of our collapsing dollar value, withdrawal of investment from international groups, China's currency/inflation problems, and our own collapse on Wall Street, having people spending money is not only what we do not need right now but is also likely to push consumer rates beyond what the average person can support.
Posted by fugu13 (Member # 2859) on :
It is not almost 43% taxation. Total GDP is a bit over $13 trillion, while total federal receipts are a bit under $2.5 trillion. Even if state taxes and fees were the same amount (and they're not, they're less), that would still be under 38%. The real number is probably more like 30% (I'd have to have state level data).
However, I suspect we overall agree more than we disagree.
Posted by pooka (Member # 5003) on :
I used to think it was bad for the national economy for people to keep money in savings (while being prudent for them personally). But when people put money in savings, the bank turns around and lends it out. How are we as a nation getting by with so little in savings?
Posted by Jhai (Member # 5633) on :
Because foreigners believe in our economy so much that they supply the money for investment.
Posted by fugu13 (Member # 2859) on :
Something else I should note: a lower tax burden would not raise typical profit margins (note: I think a lower tax burden is a good idea, just for other reasons).
Posted by Lyrhawn (Member # 7039) on :
Either that or they don't, but they are afraid that if we collapse we'll drag them all down with us.
Here's an article on how the tax rebate being discussed works, but I'm fuzzy on some details. I'm curious as to how it effects me personally. I work part time and make slightly less than $15K a year, so I pay something like $800 or so in Federal taxes, but generally get most of that back, mostly because of school credits.
So I'm trying to figure out what, if anything, I'd get from this credit, and would it effect my tax refund? Seems like a lot of gobbldygook in there. fugu, my official financial gobblydygook decoder, if you could clarify for me I'd appreciate. I guess I don't get what they are using to generate individual rebates, and what effect that has on the refunds of people who get them (if it has any effect at all).
[ January 18, 2008, 03:20 PM: Message edited by: Lyrhawn ]
Posted by fugu13 (Member # 2859) on :
They bought even more into us when the economy was doing really well. Unless you're saying their prescient?
And many (most?) of them stand to gain by a recession in the US, so it doesn't make sense for that reason, either.
Posted by Blayne Bradley (Member # 8565) on :
scrap the United States military, sell everything in one massive arms base garage sail, cut back the military budget by 99% over 12 years, boom 700 billion dollars a year in surplus to be invested in paying off debts. To think that a broken window invigorates the village economy is ignoring the fact that a window had to be broken in the first place the money spent on a superpower's military once spent is gone forever.
Posted by Jhai (Member # 5633) on :
quote:Originally posted by Lyrhawn: Either that or they don't, but they are afraid that if we collapse we'll drag them all down with us.
That doesn't make any economic/game-theoretic sense. Suppose that the world, on the whole, believes that if the American economy tanks, the world economy will tank (a fairly reasonable belief & based on historical evidence). Now assume that everyone believes that, left on its own, the American economy is going to do badly. That doesn't mean that any particular investor will invest in sinking ship of America for the good of the world economy. It's a classic prisoner's dilemma: to simplify a bit, if the American economy does poorly, he's better off investing elsewhere, and if the American economy does well, all the other economies will do well, and he'll be just as good off investing elsewhere. So he should invest elsewhere. So if everyone truly believes that the US economy will do badly unless the world keeps investing in it, then no one would invest in the US.
Since we see continued investment in the US, I suspect that most foreigners invest in the US because they believe that it's a good longterm investment. And it is a good long-term investment. Name me one other country that has a significant structural advantage in the factors of economic growth. The US has a well educated populace, excellent infrastructure, good natural resources, good government policies for economic growth & innovation, and highly developed financial & asset markets. There's really no possible scenario, outside of disease & war, that will lead to "collapse".
fugu, I'm unclear about who your remarks are addressed towards.
Posted by fugu13 (Member # 2859) on :
Wrt the rebates: if Bush gets his way, you'll get your money back, but no more. This will apply to everyone up to the amount of the rebate. So the curve will be flat up until the top of the first tax bracket, then it will get steadily more progressive. If the Dems get their way, you'll get the full rebate if you have any earned income (which everyone who has a job does, pretty much). So the curve will be progressive all the way down.
Either way, it should affect your (in the specific you) tax refund.
Posted by fugu13 (Member # 2859) on :
Jhai: the first part of Lyrhawn's post (which was the whole post when I responded). I agree with you.
Posted by Threads (Member # 10863) on :
quote:Originally posted by Redskullvw: Bernanke's problem is that he essentially let the Fed Rates get behind the curve. That allowed the "mortgage crisis" to essentially develop. His only options are now to either recommend the Treasury siphon back the circulating currency or pull back the inter-bank rate by half a basis point. Neither are good solutions because neither solves the basic problem that is impossed by Congress. I.E. tax code.
Is this really a fair criticism? I don't think the Fed stayed with "the curve" under Greenspan either (iirc I think I read about a successful preemptive rate increase in the mid 90s but thats about it). That's an inherent result of trying to predict the future of the economy from historical data.
Posted by Lyrhawn (Member # 7039) on :
quote:Originally posted by fugu13: Wrt the rebates: if Bush gets his way, you'll get your money back, but no more. This will apply to everyone up to the amount of the rebate. So the curve will be flat up until the top of the first tax bracket, then it will get steadily more progressive. If the Dems get their way, you'll get the full rebate if you have any earned income (which everyone who has a job does, pretty much). So the curve will be progressive all the way down.
Either way, it should affect your (in the specific you) tax refund.
So really the rebate would just give me my refund ahead of time? How does that even cost them any money? I would've gotten that anyway.
Jhai -
quote:Suppose that the world, on the whole, believes that if the American economy tanks, the world economy will tank (a fairly reasonable belief & based on historical evidence).
That's what I was referring to, really. I sort of just tossed it out there, flippantly, to be honest, I wasn't really pushing the argument. Your take makes sense.
quote:The US has a well educated populace, excellent infrastructure, good natural resources, good government policies for economic growth & innovation, and highly developed financial & asset markets. There's really no possible scenario, outside of disease & war, that will lead to "collapse".
Well, to be fair, didn't the US before the Great Depression, compared to the rest of the world, have a relatively well educated population with a decent infrastructure, etc? Militarily we might have been a bit behind Europe, but realistically that's really a moot point. Either way, I think there are countries in the world with better educated populations, and if anything recent studies have shown our infrastructure is crumbling and desperately in need of repair (trillions of dollars worth, literally) in many areas. But that's really neither here nor there, you're right, we aren't going anywhere any time soon, and certainly not going to collapse like anything that's happened to us in the last century or so. I just like to nitpick Posted by pooka (Member # 5003) on :
The mortgage crisis developed because everyone was determined to ride the pony until it dropped dead. Homes just got too expensive for people to buy.
Posted by Redskullvw (Member # 1549) on :
fugu
For the average consumer/worker it is 40% or slightly more or less depending upon where you live.
In my case its 42.5% total tax. Rounded up it is 43%.
Corporations get charged less.
To figure it out for your own value, start with your Federal income tax rate, add to it your portions of SSI and FICA, add your state income tax rate, your local sales taxes, ad velorum taxes, property taxes, and any capital gains taxes you have. That gives your your gross total tax rate.
And it will indeed be a remarkably high percentage of your own personal gross income.
but on the whole we probably agree more than is easily established on this type of media.
Posted by pooka (Member # 5003) on :
Elaborating on the mortgage crisis, things got overinflated in many markets when people investing at a distance purchased homes at what seemed like a deal, establishing comparables on which local homeowners were able to get artifically high appraisals on which to refinance. It's kind of amazing, really, how homes got quite a bit more expensive than people could actually afford.
Posted by fugu13 (Member # 2859) on :
Oh, I thought you were talking about your actual taxed amount, not your refund. If you're refunded all you pay, then the rebate will give you something under the Dem plan, and won't give you something under Bush's plan.
We didn't have all that spectacular an infrastructure when the great depression came, but more importantly, there were several exceedingly stupid decisions by the federal gov't and central bank that made it a lot more than a severe recession.
Redskull: that still isn't almost 43% taxation. Taxation is remarkably non-local, though the differentials do change incentive structures. That is, the effects of taxation in the US are on the order of 30 to 35% overall taxation, not on the order of 43% overall taxation.
Posted by Jhai (Member # 5633) on :
My lengthy nitpick of your nitpick :
quote:Originally posted by Lyrhawn: Jhai -
quote:Suppose that the world, on the whole, believes that if the American economy tanks, the world economy will tank (a fairly reasonable belief & based on historical evidence).
That's what I was referring to, really. I sort of just tossed it out there, flippantly, to be honest, I wasn't really pushing the argument. Your take makes sense.
Actually, there is some data that suggests the world economy is becoming less dependent on the US economy. To paraphrase an article from the Economist, the old saying that "the US sneezes and the world catches a cold" is becoming less accurate. I haven't been following the literature enough to tell you exactly how that conclusion has been reached, but I suspect it has a lot to do with the strength of the developing economies in Asia and the general economic steadiness of the Euro area. The former, in particular, is a relatively new addition to the equation. But it's still reasonable to think that the world economy will not be humming if the US seriously falters.
quote:
quote:The US has a well educated populace, excellent infrastructure, good natural resources, good government policies for economic growth & innovation, and highly developed financial & asset markets. There's really no possible scenario, outside of disease & war, that will lead to "collapse".
Well, to be fair, didn't the US before the Great Depression, compared to the rest of the world, have a relatively well educated population with a decent infrastructure, etc? Militarily we might have been a bit behind Europe, but realistically that's really a moot point. Either way, I think there are countries in the world with better educated populations, and if anything recent studies have shown our infrastructure is crumbling and desperately in need of repair (trillions of dollars worth, literally) in many areas. But that's really neither here nor there, you're right, we aren't going anywhere any time soon, and certainly not going to collapse like anything that's happened to us in the last century or so. I just like to nitpick
I think the US is in a much better place than it was prior to the Great Depression. First, there's no reason to believe a crazy, world-wide trade decline is about to take place. Second, the Federal Reserve has much, much better data, tools, and understanding of macroeconomics (historical action-reaction, if nothing else) to bring to bear on problems in the business cycles. Also, we're not dealing with the same sort of bank failure as you saw leading up the Great Depression. Here's an article on the subject.
I'm fairly certain there are countries with overall better-educated populaces, but I'd be surprised if there's one with a populace with as good human capital for economic growth. That is, the US is very good at producing enough entrepreneurs and business leaders to keep the economy going, as well as scientists and creative types to keep innovation going. And if we can't produce them ourselves, we'll entice them over from other countries. (The numbers on business owners who are immigrants or children of immigrants, as well as the number of foreign-born students in technical Ph.D are astounding.)
As far as infrastructure goes, well, I worked on this exact issue (aging infrastructure in the US) a couple of summers ago for an urban economist. It was very amusing to read news reports from the 80's & even 60's on how the nation's infrastructure is about to implode. The bottom line is that, again compared to other (developed) countries, the US is in pretty good shape - not great, not horrible. The engineers & agencies that give out the horrible "report cards" on the nation's infrastructure tend to view the problem as a "how far away are we from perfection" issue. Economists prefer to look at the root issue of opportunity costs, which suggest that we should be spending somewhat more on maintaining infrastructure than we currently do, but that we're not doing that badly, given all the other worthwhile things our public money could be flowing towards.
Posted by Redskullvw (Member # 1549) on :
fugu
If you can take my federal tax rate of 25%, add to it my state income tax of 6%, county/city tax rate of 7%, advelorum tax rate of 2.5%, property tax tax, ssi & FICA it is indeed 42.5% of my gross income per year. And I am far from the Federal tax maximum rate of 35%.
Heaven help those people in the high tax bracket in places like Iowa or Minnesota where their state income tax rate for high brackets is over 8%. Imagine you are in the Federal tax bracket for 35% and live in Hawaii where you get socked another 8.25%.
All other taxes aside, a person in this case would be paying a minimum of 43.24% per year. I have a feeling their final tax rate inclusive of county/local, property, etc would be 50%.
Thats why we have thousands of pages of tax-codes and loopholes, and accountants and CPAS working so incredibly hard to figure out how to save more than 58 cents on the dollar.
Posted by fugu13 (Member # 2859) on :
How much you are paying in taxes is not how much you are paying in taxes. If there were substantially lower taxes, or if taxes were distributed differently, your salary would be very different. When talking about how much taxes are a burden on the overall economy, and even on individuals in the aggregate, it makes sense to talk about taxes in receipts divided by GDP, because that accurately reflects how much of all the stuff we produce is going to the government, and the rest is stuff that goes to people.
That is why it is disingenuous to talk about the tax burden in the US being 43%. It is much more like 35%.
Now, the degree to which you pay more (or less) taxes than a specific individual person can tell us something about your relative tax burdens, but not your absolute tax burden, in a 'how much would I make if I weren't paying taxes' sense.
Posted by Mucus (Member # 9735) on :
quote:Originally posted by fugu13: How much you are paying in taxes is not how much you are paying in taxes.
I haven't been completely following the broader economy conversation, so this sentence seems very "Zen" to me
quote:Originally posted by Redskullvw: Looks like the cap is $46K a year ?
Where did you find this out?
Posted by Redskullvw (Member # 1549) on :
Which is all well and good. But it still doesn't get around the fact that as an individual, under the current laws, I pay 42.5% in total taxes vs income each year. Whether you are talking theory, relative, or absolute burden- that is what I pay.
If you aggregate me with a representative sample of 100 citizens then yeah, since 75% pay a Federal Income tax rate that adjusts down to around 17% each would also have a much lower tax rate in total. But then you get to the issue of the fact that those 75% of the people pay less than 30% of the cost to run the government. By the time you get to me and the other 25% who pay the 70% it takes to run the government each guy up to the last one of the twenty five would be paying increasingly larger taxes.
So maybe, I see things differently because my family is part of the 25% who pay most of the tax burden anyway. I can see what you are saying though. A guy making 30K a year, who owns no real property,or a business could possibly get away with a tax rate in the mid 20's.
Just keep in mind, the cash cows the rest of you rely on are already paying a pretty hefty base rate.
Posted by Redskullvw (Member # 1549) on :
Mucus
On the faq page you posted?
Posted by fugu13 (Member # 2859) on :
Just so long as when we talk about how big the gov't is, or how much Americans (in aggregate) pay in taxes, the number we talk about is around 35%. Which is still too high, though I think being high is the least of the problems.
My personal favored tax reform is scrapping the current income tax code and replacing it with a three tiered income tax with no deductions. The three tiers being: no taxes on the first N dollars; a low tax rate on the next M dollars; a slightly higher tax rate on all dollars past that.
Perhaps call it a slightly inclined tax .
That's just personal income taxes. Other taxes need to be reformed, but starting with the most convoluted and costly (in terms of overhead) system, then letting things settle down before tackling the next area, makes sense IMO.
Posted by Redskullvw (Member # 1549) on :
I used to favor a tiered system as well. Now, I think I am about 85% convinced that the Fair Tax is the best for the poor and the middle class. I don't think it does much for rich people. It does eliminate the existence/justification of tax lobbyists. Should be remarkable low in terms of overhead and compliance costs.
Spent many years supporting a straight flat tax of 15%-20% as a better idea than what we have now.
Then again anything that replaces the current reverse regressive tax law we have now would be nice. Hell i'd settle for a progressive version of our current law. But something is really wrong when a minority pays 75% of all taxes.
Posted by Mucus (Member # 9735) on :
Redskullvw: Where on the faq page?
Posted by Lyrhawn (Member # 7039) on :
quote:As far as infrastructure goes, well, I worked on this exact issue (aging infrastructure in the US) a couple of summers ago for an urban economist. It was very amusing to read news reports from the 80's & even 60's on how the nation's infrastructure is about to implode. The bottom line is that, again compared to other (developed) countries, the US is in pretty good shape - not great, not horrible. The engineers & agencies that give out the horrible "report cards" on the nation's infrastructure tend to view the problem as a "how far away are we from perfection" issue. Economists prefer to look at the root issue of opportunity costs, which suggest that we should be spending somewhat more on maintaining infrastructure than we currently do, but that we're not doing that badly, given all the other worthwhile things our public money could be flowing towards.
Meh. Our waterworks infrastructure in many areas is failing terribly. Potable water is going to become a serious issue in the coming decades, and we've done nothing to plan for it, except for a few states here and there, but nothing federally. The recent Water Bill that overturned Bush's veto is a fantastic bill. Sewers overflow and dump untreated sewage into waterways, aquifers are being drained at unsustainable rates, etc. Our major interstate system is 30+ years old, roads and bridges are falling apart, the rail system is in disrepair, in part because the government wants private industry to pay for upgrades, but industry feels the government should, and in the impasse, neither side is doing anything noticeable about it. That's changing a little bit now, there's major talk for a push to upgrade and expand rail as an alternative to trucks on the road, especially with newer more efficieny locomotives coming online from GE and others. The T&D network in this country needs MAJOR overhaul, and it's starting to get a little attention from private business with a few HVDC lines starting to pop up, or at least, plans to, but they are meeting major resistance from environmental groups, some who have valid complaints, but these lines MUST be built somewhere, especially if we are ever to create a renewable energy economy. We want upgrades, or even money spent to keep the status quo, but it's expensive and most people don't want to pay for it.
Progress is being made, very, very recently, but we could do a lot more. Europe is way ahead of us in infrastructure upgrades. I don't think we're falling apart, not yet anyway by any means, but it's a sign of trouble to come, and we have a history of ignoring warning signs.
Posted by fugu13 (Member # 2859) on :
The FairTax would shift significantly more of the tax burden to the middle class than the current system. If you want to remove burden from the middle class, FairTax is not the way to go.
Flat taxes also have low overhead and compliance costs -- arguably lower than VATs, which are the only practical fairtax-like taxes -- and my proposal should share that attribute.
I did forget an important part of how I would restructure things. Every household would receive an amount, determined by household size and income. The amount would start at some number of dollars O (probably around $10 to 15k for an individual), and for every dollar a person earned, that amount would be reduced by fifty cents (or some similar amount).
Posted by ElJay (Member # 6358) on :
quote:Originally posted by Redskullvw: If you can take my federal tax rate of 25%, add to it my state income tax of 6%, county/city tax rate of 7%, advelorum tax rate of 2.5%, property tax tax, ssi & FICA it is indeed 42.5% of my gross income per year. And I am far from the Federal tax maximum rate of 35%.
Is the "county/city tax rate of 7%" you're talking about here the sales tax? The only county or city taxes I can think of are sales tax and property taxes. If so, you can't just add that into your total tax rate as a percentage, because you do not pay it on your entire income, just on that portion you spend. If you remove that 7% from your 42% total, you get a 35% tax rate. . . which is the number fugu has been using. It will be a little higher, of course, because of the sales tax, but since you don't pay that on your mortgage, not that much. You're also failing to account for the fact that you don't pay taxes on a good chunk of your income at all -- anything you're putting into pre-tax retirement savings. If you're trying to figure your true tax rate, you should figure it based on your true income.
I live in Minnesota, by the way. Our state tax rate may be a little higher, but we don't have sales tax of food or clothing. I think it evens out.
Posted by Redskullvw (Member # 1549) on :
on the tables for rebates?
Figure one? Lists the rates of allowed consumption annualized and then the prebate level returned.
I don't quite get what the point of the comment or figure is. In the comment it implies that everyone gets a prebate. In the figure it implies that you get a prebate under certain thresholds. The max was 40K or so. Not sure what it means though on second reading. If it means people under 40k a year with kids get prebates-great. If it means everyone gets a prebate-great.
Either way I don't see much of a downside in either dircetion.
Posted by Redskullvw (Member # 1549) on :
Eljay
That would be the local county income tax. But the Sales tax is 8% going to 9% in 2009.
Dont get me stated on the ancillary taxes I haven't included. And we do have sales tax on food and clothing.
Posted by ketchupqueen (Member # 6877) on :
ElJay, in some cities or counties you do pay a local income tax.
Posted by rivka (Member # 4859) on :
quote:Originally posted by fugu13: I did forget an important part of how I would restructure things. Every household would receive an amount, determined by household size and income. The amount would start at some number of dollars O (probably around $10 to 15k for an individual), and for every dollar a person earned, that amount would be reduced by fifty cents (or some similar amount).
Even with that, doesn't your plan penalize households with two earners?
Posted by Enigmatic (Member # 7785) on :
quote: But something is really wrong when a minority pays 75% of all taxes.
Not if that same minority has 75% (or more) of all the money.
--Enigmatic
Posted by Mucus (Member # 9735) on :
Redskullvw: That prebate is indexed by family size, not by consumption allowed. (i.e. 1 person with 2 children gets a bigger rebate than 1 person with 1 child)
Not looking for a downside, just trying to be accurate Posted by Threads (Member # 10863) on :
quote:Originally posted by Redskullvw: I used to favor a tiered system as well. Now, I think I am about 85% convinced that the Fair Tax is the best for the poor and the middle class. I don't think it does much for rich people. It does eliminate the existence/justification of tax lobbyists. Should be remarkable low in terms of overhead and compliance costs.
Could you elaborate on this a bit? I thought that consumption taxes end up hurting the poor and middle classes more than the rich because the rich tend to spend less money as a percentage of their income.
Posted by TomDavidson (Member # 124) on :
quote:I don't think it does much for rich people.
Rich people seem to disagree with you.
Posted by King of Men (Member # 6684) on :
quote:Originally posted by Enigmatic:
quote: But something is really wrong when a minority pays 75% of all taxes.
Not if that same minority has 75% (or more) of all the money.
--Enigmatic
That does mean, though, the the majority can vote new taxes without hurting itself, which is not so great.
Posted by Enigmatic (Member # 7785) on :
Sure we can. Just as soon as we can get the politicians to stop listening to those handful of folks who have all the money to contribute to their campaign funds.
--Enigmatic
Posted by fugu13 (Member # 2859) on :
rivka: it doesn't have to. Leaving that off, the easiest way would be to not have joint returns (well, there could be joint returns that're really just a quicker way to fill out the paperwork for two different people). With that, there are still several ways to deal with it.
Posted by rivka (Member # 4859) on :
Ok. Other than that, I like your plan.
Posted by Fusiachi (Member # 7376) on :
Not to derail the thread, but this comment I found to be particularly absurd:
quote:Originally posted by Blayne Bradley: scrap the United States military, sell everything in one massive arms base garage sail, cut back the military budget by 99% over 12 years, boom 700 billion dollars a year in surplus to be invested in paying off debts. To think that a broken window invigorates the village economy is ignoring the fact that a window had to be broken in the first place the money spent on a superpower's military once spent is gone forever.
A.) To whom will we sell all of our military wares? We already sell to our allies--in what circumstances would the US want to sell military goods to anyone who we already aren't aren't providing? Furthermore, flooding the market (increasing supply) would drive the price down. The sale, then, mightn't generate as much revenue as you'd think. In fact, you could take a loss here.
B.) US military expenditures total maybe 4-5% of US GDP. Given that the existence of a military in the modern world is necessary, I don't look at 4% as anything outrageous. What does (and I'm picking a country completely at random, here...) China, for example, spend as a percentage of GDP? Or for that matter, what do most of the unstable and politically hostile countries in the world spend as a percentage of GDP? Shouldn't we be on competitive terms with them? That's not to say I don't support a somewhat drastic reduction in military expenditure, but 99% reduction is just silly. That would put us on par with... Iran in total expenditure. This is not currently in our best interest. And the fire sale would be absolutely necessary were we to reduce spending by such a large percentage--otherwise maintenance costs would be overwhelming.
C.) Citing the old "broken window" seems out of place for a self-proclaimed socialist/communist/whatever. It's quite out of character. And, in the context of your post, it could, well, use some context. If I didn't already have an idea where you were going with it, you'd make no sense. Not that I should've expected as much.
------------------
Back to the topic... Fiscal stimulus is not an ideal solution. I think Bernanke's point, more than anything, was that if you're going to do it, it needs to be done now, rather than later. Otherwise you overheat the economy and catch it during an upswing. It's a tricky business.
No need to panic, though. The unofficial motto of the local PennDOT employees: "Don't get excited." It's good advice.
Posted by Lyrhawn (Member # 7039) on :
To be fair, there's plenty of stuff that we don't sell, even to our allies, but a big reason why a lot of it isn't sold is because no one is willing to pay what it would cost to buy it. The French have two carriers (well, one, and one under constructions), the British might have one or two, I can't remember though I do remember reading that they were considering another one, and I think the Italians have one. The Russians had a couple, and just sold one of them to China to be used as a floating casino. The problem is that modern carriers, besides being individually expensive, are ridiculously expensive to cotinually run, and refit, and stock with trained crew, plus planes. Add to that submarines, several hundred million dollar air superiority fighters etc.
If your complaint Blayne is that our military is too expensive, and the rest of the world spends but a fraction of what we do, then who the hell is going to buy our stuff? To say nothing of the fact that if we sold it all for what they'd actually pay, we'd be giving unimaginable destructive power to the lowest bidders. You're selling powder kegs. Do you want to light the match yourself, or wait for someone else to do it?
I think Blayne was kidding though. Besides, despite the anti-American rhetoric you hear all over the place, at the end of the day I think a lot of people (in the government at least), breathe a sigh of relief that we're footing the bill for the world's police force. We're out there fighting pirates, rescuing cruise ships, making the world's waterways safe for international commercial shipping, etc, etc.
Posted by MrSquicky (Member # 1802) on :
quote:I don't know if it would have happened without gov't subsidies, but I do know it would have been a good deal better without them, which is all I'm arguing.
Maybe the disagreement is over terminology then. When you said
quote:The root problems are distorted incentives due to US gov't programs
I took that to me that you were saying that the government programs were the primary cause of this situation, rather than an exacerbating condition. To me a "root cause" is something that was necessary for something, which doesn't seem to be something that either of us believe about government intervention here.
To take it further, part of what I'm getting at is that the problems with the housing market developed in large part because of the actions of the market - that is, the "root causes" (by my definition) were the mostly natural actions of the lenders and the borrowers, which seems to me to be the opposite of the position you were taking.
Posted by fugu13 (Member # 2859) on :
The actions of the borrowers and lenders were natural because there were incentives for them to act in that way. A substantial part of those incentives were governmental in nature.
I strongly suspect this particular bubble would not have been a bubble, but just normal variation, absent gov't's perverse incentives.
I say root cause because I assume a fairly high amount of variability in the business cycle, due to the sloshing about of capital and consumption (so to speak). However, I strongly suspect that major crashes with long term impact are produced largely via government policy. This is in large part because, every time one of those crashes happens, it always seems to be in relation to a sector gov't has substantial fingers in the pot for.
Posted by MrSquicky (Member # 1802) on :
quote:A substantial part of those incentives were governmental in nature.
Which incentives were those?
As I've said, the primary incentives I saw as responsible for this was the short-term beneficial lending and taking of credit that was disadventageous in the long term and/or when the housing market changed. I don't see these as coming from the government.
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edit:
quote:However, I strongly suspect that major crashes with long term impact are produced largely via government policy. This is in large part because, every time one of those crashes happens, it always seems to be in relation to a sector gov't has substantial fingers in the pot for.
I assumed that Tulipmania was a well known term, but maybe it doesn't register with you. Are you familiar with the it or should I explain what I mean by it?
Posted by Redskullvw (Member # 1549) on :
There will always be people assuming the market will always increase for the product they are investing in.
Tulipmania was what happened when Dutch investors sought to invest in get rich quick schemes that centered around the sale of tulip flowers. Tulips started out as exotic flowers brought to Holland as the result of the vast Dutch merchant fleet. They originally could be afforded only by very rich people. Then someone got the bright idea that you could grow tulips in Holland. Before you knew it, everyone was investing in the get rich quick scheme of growing tulips. Compounding matters was the Dutch government actively promoting the schemes by favorable investment policies so that the government could later tax the ever increasing crop. They even eventually went so far as to garuntee the price of tulips for sale.
Problem was, eventually there were so many tulips for sale that the investors couldn't even give them away. Resulted in a collapse of Holland's economy and helped allow Great Britain to become the world leader of oceanic mercantile trade.
Holland and its currency never fully recovered.
Posted by MrSquicky (Member # 1802) on :
quote:Compounding matters was the Dutch government actively promoting the schemes by favorable investment policies so that the government could later tax the ever increasing crop. They even eventually went so far as to garuntee the price of tulips for sale.
Where did you get that from? When I studied Tulipmania, I read that the Dutch government took steps to try to cool the runaway tulip market by (among other things) making it very clear that they would not guarantee the prices.
Posted by Marek (Member # 5404) on :
I persoanlly liked Lewis Black's idea of a large public work, preferrably one so large that it might even attract tourist, but basically just the idea of paying more people for services to put money into the economy instead of just cutting taxes.
Posted by Lyrhawn (Member # 7039) on :
I like the idea too. It worked in the 30's and 40's. But it has to be something functional and not just a make work job. Projects like that created the parks system, made a lot of natural resources accessible to visitors like Yellowstone and Mammoth Caves. They created the TVA and the Hoover Dam. The problem is in part getting people to leave their family and homes almost military style and getting them to go wherever the government sends them, but I do like the idea, so long as we get value for it.
Posted by fugu13 (Member # 2859) on :
Tax breaks on mortgages are a huge incentive to move other sorts of debt (for which one does not receive a tax benefit) into mortgage debt. There were also several less direct incentives, such as some particular gov't interest rate policies. Oh, and a lack of policing against due diligence fraud in mortgage issuance.
The first made it several thousand dollars more advantageous to have a mortgage than other sorts of debt -- that's a huge incentive.
Re: public works, whether or not that worked is a considerably unsettled question.
Posted by Lyrhawn (Member # 7039) on :
Worked in what sense?
Posted by Jhai (Member # 5633) on :
Worked as in actually helped get the country out of its economic downturn. I don't know much about economic history - only had one semester in the subject - but I do remember that the topic is still ferociously debated.
Posted by Redskullvw (Member # 1549) on :
MrSquicky
I was taught that the government moved into the equation when the German market collapsed by changing the contract laws that governed the tulip trade. It allowed the contracts to become options to buy instead of contracts to buy at a set price and quantity mandatorially. To keep the farmers from going completely bust the government set a minimum floor on contracts to the cost of stock and planting.
None of which prevented the bubble from bursting.
Posted by fugu13 (Member # 2859) on :
The reality falls more in line with typical business cycle activity.
Posted by MrSquicky (Member # 1802) on :
quote:The reality falls more in line with typical business cycle activity.
Again, I really wish you didn't pass off statements of faith as fact. You would like to bevieve that it falls in line with typical business cycle activity. This may even be the case, based on the incomplete evidence we have. However, the evidence is ambiguous and the case for it being a run away market is at least on the same level of support as what you are suggesting.
Posted by fugu13 (Member # 2859) on :
I haven't read the book, but I've hunted down a number of reviews. Unless the author is making some very amateur mistakes, he dissects the idea pretty well. He shows external demand for tulip products, continued trading after the 'crash', that the price fluctuations generally reported are not accurate reflections of far more sedate price movements, that the economy was not overly harmed by the 'crash', et cetera.
Also, the government was breaking contracts and setting minimum prices, and those are substantial interventions that could accelerate any crash that did happen. So, either it wasn't a major crash, in which case your argument for major crashes caused by investors without specific perverse incentives by gov't falls apart, or it was a huge crash, but the gov't manipulation of the market helped it along.
New example?
I am being perhaps somewhat unfair. Gov't tends to have its fingers in everything, at least a little. However, I am willing to sign on to a stronger statement: major crashes with long term effects always seem to be in areas incentivized by gov't policies that have changed within a decade or less before the 'crash', or are subject to major gov't interventions during the early stages of the crash that accelerate the decline, or both (which seems to be the case today, see below).
Btw, I think this morning we saw an excellent example of bad policy choices by the federal reserve. They made a major rate cut to forestall market declines, which has that effect in the short term, but provides, again, even more incentive to acquire debt. I'm in favor of the fed member who argued that we should take the hit now so as to be in better shape latter.
Posted by fugu13 (Member # 2859) on :
quote: Some claim that war is a benefactor, since historically it often has focused the use of resources and triggered advances in technology and other areas. The increased production and employment associated with war often leads people to claim that "war is good for the economy." Others claim that this is an example of the broken window fallacy. The money spent on the war effort, for example, is money that can't be spent on food, clothing, health care, consumer electronics or other areas. The stimulus felt in one sector of the economy comes at a direct—but hidden—cost to other sectors.
More importantly, however, war literally destroys property, buildings, and lives. The economic stimulus to the defense sector is offset not only by immediate opportunity costs, but also by the costs of the damage and devastation of war. This then becomes the basis of a second application of the broken window fallacy: it is claimed that the rebuilding that follows war and its destruction provides a further stimulus to the economy, this time mainly in the construction sector. However, immense resources are spent merely to restore things to the condition they already were before the war began. After the war, the nation has a rebuilt city; before the war, it had a city and time in which its labour could have been used for more fruitful purposes. Further, the fixed amount of natural resources could have been used to build a second city rather than to rebuild a destroyed city, hence highlighting the occurrence of waste. An example of this in America is that many highway and bridge projects that were planned in the late '30s had to be put off until after the end of the Second World War, and the pent-up demand for not only roads, but houses, cars, and even radios led to massive inflation in the late '40s. The war also delayed the commercial introduction of television, among other things, and the resources sent overseas to rebuild the rest of the world after the war were not available to directly benefit the American people.
Thus the 500+ billion$ spent on a military could be spent on paying off the debt, on improving health care, on balancing the trade imbalance, stabilizing the dollar and invested in the developing economies abroad for a better tomorrow. Instead we have a military machine that was meant to fight a power that nolonger exists, and is hugely unbalanced and hamstrung to a doctrine of overwhelming force in the wrong conflict at the wrong time. The US needs its armed branches, its needs them professional and well trained as every nation as a fundamental right for self defence and there is nothing wrong with the US obligating itself to making the sea routes a little bit safer for civilian boats, but it doesnt need 13 super carriers, 13 helicopter/jump carriers would dramatically reduce costs for the same effect, you dont need dozens of seawolf class submarines, 2-3 would constitute a suitable deterrent.
The United state doesn't need 3 million men and woman or to defend against the soviet union, it can call back many of its forces and demobilize them freeing up resources for the public sector, some countries like american bases and troops but they dont need entire divisions, a few regiements or a brigade at most would be sufficient.
Does America need 2000 F-35's? 250 would be arguably sufficient in peacetime producing maybe 1000 export models for sail to allies is one thing, but building a huge crap tonne for personal use is absurd.
The funding spent on the military would be better used sending men to Mars, on increasing NASA's budget, on the economy, on the american people. The US has friends, you have allies with considerable and very capable navies, armies, and airforces that would gladly step in if given the chance with a few garantees from the Americans.
Posted by Lyrhawn (Member # 7039) on :
Neithere here nor there, but the next generation of carriers will likely be smaller, and strange as it may sound, even a bit stealthier, but we're long past the time when baby flat tops is going to cut it. The only way you can project force at sea is with a carrier. They give you forward operating capacity, they're like mobile bases, and since 2-4 of them are constantly in port for refitting, there's really only 8 or so at sea at any given time, and it's a big ocean. Besides, once they are built, running them is a drop in the bucket of the larger defense budget.
But regardless, I'm all for reduced military spending. Cut a hundred billion, close some bases, maybe less overall troops, but not for a reduced Navy or Air Force. Troops can be trained a lot faster than we can build more planes or ships in a pinch. China, India, Russia, some of Europe, there's a quiet arms race going on right now, and while I'm not of the opinion that we're going to be invaded sometime soon, withdrawing in the way you suggest would leave a massive power vacuum in the world, and I can't even imagine what the reprecussions from that would be.
Like us or not, we do provide an important stablizing function in the world. Yes by the way, we do need a lot of F-35s. It's the next generation fighter. F-14s were just phased put, we don't really use F-16s anymore, they're for export, the F-15 is falling apart due to age, and the F-18, while a multi role fighter bomber, doesn't have stealth capacity, and there aren't enough of them. So we need F-35s and F-22s, and then we don't have to buy any more for a couple decades. Military procurement is something I'm generally going to get behind, because technology is what has allowed us to use so small a number of people compared to other nations for the level of force that we actually project. Besides, I think it's cheaper in the long run than just having sheer numbers.
And btw, it's not just about "making sea routes a little bit safer for civilian boats." We make international trade without threat of piracy a reality. Before us it was the British navy, and they weren't nearly so good at it as we are. If you removed the US Navy from the world's oceans as the force of power it is today, I think you'd see an explosion in piracy, and a bit of chaos in international trade as a result.
Posted by Blayne Bradley (Member # 8565) on :
the smaller carriers I was talking about are the stealth jump carriers you speak of, I'm talking about the ones described in a Popular Mechanics magazine.
Airforces cannot win wars, its is the infantryman that occupies the land, instead of using an overwhelming amount of force, like think of it this way I am not asking to reduce say 300 aircraft down to 50, I am saying reduce 5000 down to 500-750 you would get the same effect for a fraction of the cost.
And calling it an arms race? Not really, the Russian T-90 and the Chinese T-99 had been in development for the last 15 years, an arms race implies sides building up large and larger stockpiles of weaponry, both China and Russia are downsizing their respective military while replacing obsolete hardware with more capable ones, not exactly an arms race.
Protecting the sea routes is not something that only America can do, they can with the help of countries near the major routes secure them, if more effort was spent sharing the defence burdon onto others then less effort would be needed.
To quote Linux: less is more!
Posted by Lyrhawn (Member # 7039) on :
I'm all about shared defense burdens. Now you can take your show on the road and convince the rest of the world that they need to spend more on their navies. I think you'll hear a lot more silence when it comes to the complaints in US military spending. They like to rail against us, but they don't want to pick up the tab themselves.
There'll still be the supercarriers, and I guess I don't know what you mean by when you say "jump carriers." Carriers will always have catapault launched aircraft, until we can build a VTOL aircraft that has all the same capabilities that a launch aircraft does. Arguably we'll have that with the F35 JSF Marine variant. But we're still out to lunch on that one.
And come on Blayne. China is increasing their military spending by leaps and bounds every year. Do they lag far behind the US? Yes. Are they pumping it up their spending every year by the billions? Yes. They're buying ships, planes and tanks from Russia, or building the designs to make them themselves, to say nothing of stealing technology from us. India just bought 900 T-99s from Russia, and licensed the ability to build their own afterwards. That's not a build up of arms?
They're beefing up, and with bigger and better arms, they aren't downsizing for the sake of efficiency like you seem to be implying. And as to the air force, can an air force with an invasion? No. Can they repel invaders? Sure. Sure they can. Your invading soldiers can't get to my shores when I blow up your ships before they get here. Air superiority is probably the single biggest advantage you can have in a war.
Posted by Fusiachi (Member # 7376) on :
As a percentage of GDP, the US and China are spending similar amounts on the military... Just saying.
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