Wouldn't tax hikes be less harmful to the US economy?

[King]

I'm no economist nor have as deep an interest like many of you here so I may be complete wrong.  Please educate me.

We have about a trillion dollar deficit, correct? I remember hearing we take in, say, $2.3 trillion in taxes and spend $3.3 trillion.  Well, obviously, we want all would sleep better at night with a balanced budget.

So, we cut spending by 1 trillion dollars. What happens to that $1 trillion?  It doesn't go to the taxpayers.  It's not the taxpayers money.  It's borrowed.  We can't just give a $1 trillion tax cut because then we'd have $1.3 trillion in taxes and spend $2.3 trillion and we'd be back to where we started.   $1 trillion would be exported out of the United States economy and into China, Japan, EU, or whoever loaned.  They then spend it on whatever and wherever they choose.

So, we raise taxes by 1 trillion dollars. That's $1 trillion out of the pockets of taxpayers.  It sounds terrible.  But where does it go? From the United States public to the United States government and back through the United States economy.  All the money stays here.  It doesn't leave.

Is this not correct? It seems too simplistic so it might not be.  Obviously I realize the government (DoD and State mainly) spends money outside of the United States all the time, but not a trillion.

An interesting angle to look at deficit reduction nonetheless.

[memphis]

Yes, but the larger point is that inciting a moral panic about debt during an employment crisis while interest rates are low is lunacy.

[RI]

Tax increases would be better and less damaging to the economy, though not necessarily for the reasons you mentioned. Memphis is right, too, of course.

[anvi]

It's perhaps about how the money is used in the economy.  One would have to figure out the effects on production and consumption in both alternatives.  If you raise taxes by $1 trillion, you're taking that money out of production and consumption that would ordinarily take place, but the money the government spent on various sectors and industries in the forms of subsidization and consumption would be returned to the economy in quite different patterns.  On the other hand, if you cut spending by $1 trillion, that would allow much current production and consumption to go on, but one would have to weigh how much consumption would be depressed by decreasing redistribution and how much production would be effected through ending various forms of subsidization.  I'm not an economist either, but it might be an interesting, and very complex, experiment to work through all that stuff.

[I spent the winter writing songs about getting better]

You act like the teabaggers actually think about this type of stuff. Their entire mindset is "OMG TAXES AND BIG GUBMINT BAD!"

[○∙◄☻¥tπ[╪AV┼cVê└]

Clinton raised taxes, and had a net increase of 22.7 million jobs. Bush cut taxes, and had an increase of only 1.1 million.

[King]

You act like the teabaggers actually think about this type of stuff. Their entire mindset is "OMG TAXES AND BIG GUBMINT BAD!"

People think how they are informed.  You'll never turn on a TV and see any sort of explanation of the budget deficit other than it exists.

[tpfkaw]

Since liberals can't understand anything that isn't in anecdote form, I'll explain this rather simple concept with a metaphor.

Raising taxes is like taking King's paycheck/welfare check/allowance (not sure which, most likely the third), and telling him that instead of spending it on useful, self-improving, productive things, he can only spend it on cheeseburgers and cheap pot.  Writ large, it is immensely damaging to the economy.

(oh, wait...)

[King]

Since liberals can't understand anything that isn't in anecdote form, I'll explain this rather simple concept with a metaphor.

Raising taxes is like taking King's paycheck/welfare check/allowance (not sure which, most likely the third), and telling him that instead of spending it on useful, self-improving, productive things, he can only spend it on cheeseburgers and cheap pot.  Writ large, it is immensely damaging to the economy.

(oh, wait...)

Since Libertarians can only speak in idealism that has no practical application and disregards current events, I'll restate my post in the following manner:

You grow three tall trees,
Across the pond is not you,
They drink your milkshake.

[King]

Since liberals can't understand anything that isn't in anecdote form, I'll explain this rather simple concept with a metaphor.

Raising taxes is like taking King's paycheck/welfare check/allowance (not sure which, most likely the third), and telling him that instead of spending it on useful, self-improving, productive things, he can only spend it on cheeseburgers and cheap pot.  Writ large, it is immensely damaging to the economy.

(oh, wait...)

To answer seriously now, this not a discussion about whether I would want to pay high taxes.  I think everyone would want to pay 0.  I would like to add that ideally I would be immortal as well.

This is about paying off a deficit the easiest way possible and you do not address my point one iota...

The United States government takes my money away and where does it go? The United States economy whether in the form of a social security check, weapons manufacturing, or hell to pay the salary of some halfwit working at the Lobster Museum in Maine.  The United States gets rid of its excess money and where does it go? China's economy.

We are in a $1 trillion dilemma.  I would rather give $1 trillion dollars to the halfwit in Maine than the halfwit in east Asia as the former halfwit is about 100% more likely to spend that money in the United States.

[J. J.]

Clinton raised taxes, and had a net increase of 22.7 million jobs. Bush cut taxes, and had an increase of only 1.1 million.

Actually, it was more of the 1997 Clinton tax cut on capital gains that brought lower unemployment; most noticeably, it changed the trend from relatively flat to lower unemployment.

The 2003 Bush tax cuts also had a similar effect.

Both were capital gains cuts. 

Conversely, when income taxes cut or raised, the short term effect was negligible.

[Gustaf]

I'm no economist nor have as deep an interest like many of you here so I may be complete wrong.  Please educate me.

We have about a trillion dollar deficit, correct? I remember hearing we take in, say, $2.3 trillion in taxes and spend $3.3 trillion.  Well, obviously, we want all would sleep better at night with a balanced budget.

So, we cut spending by 1 trillion dollars. What happens to that $1 trillion?  It doesn't go to the taxpayers.  It's not the taxpayers money.  It's borrowed.  We can't just give a $1 trillion tax cut because then we'd have $1.3 trillion in taxes and spend $2.3 trillion and we'd be back to where we started.   $1 trillion would be exported out of the United States economy and into China, Japan, EU, or whoever loaned.  They then spend it on whatever and wherever they choose.

So, we raise taxes by 1 trillion dollars. That's $1 trillion out of the pockets of taxpayers.  It sounds terrible.  But where does it go? From the United States public to the United States government and back through the United States economy.  All the money stays here.  It doesn't leave.

Is this not correct? It seems too simplistic so it might not be.  Obviously I realize the government (DoD and State mainly) spends money outside of the United States all the time, but not a trillion.

An interesting angle to look at deficit reduction nonetheless.

There are a couple of problems with this. A basic observation is that some of the debt owned by the US government is owned to people within the country. So if you cut spending to pay them back you're simply shifting money around within the economy. Another point is that there is something of an element of Ricardian equivalence. That is, people tend to save more if there is a deficit because they realize that they will have to pay the deficit in higher taxes in the future. And thirdly, some of tha tmoney which flows into the pockets of external lenders will be spent by them on American products and thus come back into the economy.

None of tha twould explain away your basic point though.

The key problem however is that you create deadwight losses when you raise taxes. For instance, if you increase taxes on capital gains, some people will choose to invest some of their capital abroad instad. That will obviously hurt the economy. If you increase taxes on labour income, people will work less and that will also hurt the economy. And so on and so forth.

What people on both sides of the aisle don't seem to realize is that it matters a lot more precisely what taxes you increase and what spending you cut when talking about the effects on the economy. There are better and worse ways of dealing with both taxation and spending aside from the level.

[Person Man]

Basically, taxing and spending specifically discourages and encourages specific types of behavior instead of having a broad range of affect?

I was of the thinking that raising taxes on those who had the highest incomes would both be an easier to absorb tax burden for those who could afford it and to give smaller firms a chance to compete with larger firms. I have a major problem with the entire Republican/Austrian/neo-liberal idea that taxes should simply be treated as fixed costs, even if its simply based on the assumption that money should be kept in the hands with those who make it.

[Grumpier Than Uncle Joe]

Maybe we could stop spending $2billion a week in Afghanistan?

[krazen1211]

The state of New Jersey has doubled state spending since 1998. And for what, exactly?

[Zarn]

I know the answer to that one.

Corruption and harsher laws! Yay!

[WillK]

Well, obviously, we want all would sleep better at night with a balanced budget.

Would we? 

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The $1Trillion would not be borrowed through the issuance of government securities like Treasury Bills. Those who would have otherwise bought the securities would look somewhere else to buy some similar investment paper, perhaps buying previously issued US securities from some other investor or perhaps buying some other securities -- state bonds, other countries bonds, something else, who knows.

At the same the the $1Trillion would not be spent but the US there by reducing GDP by more than $1 trillion, due to indirect effects of laying off government workers, reducing orders to vendors and reducing the demand for government contractor work.

So yes, drag on economy.

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The effect on people's work and spending habits depends on who, what and how is taxed.  How this may or may not drag on the economy is hard to tell without more specifics about the tax plan.

[WillK]

Clinton raised taxes, and had a net increase of 22.7 million jobs. Bush cut taxes, and had an increase of only 1.1 million.

Actually, it was more of the 1997 Clinton tax cut on capital gains that brought lower unemployment; most noticeably, it changed the trend from relatively flat to lower unemployment.

Most of the decrease in unemployment during the Clinton administration occurred before the 1997 tax cut. 

When Clinton took office, unemployment was a little over 7%; by 1997 it was a little under 5% -- that's more than 2% drop prior to the 1997 tax cuts. 

Once those tax cuts took effect it dropped by less than 1%.

[J. J.]

Clinton raised taxes, and had a net increase of 22.7 million jobs. Bush cut taxes, and had an increase of only 1.1 million.

Actually, it was more of the 1997 Clinton tax cut on capital gains that brought lower unemployment; most noticeably, it changed the trend from relatively flat to lower unemployment.

Most of the decrease in unemployment during the Clinton administration occurred before the 1997 tax cut. 

When Clinton took office, unemployment was a little over 7%; by 1997 it was a little under 5% -- that's more than 2% drop prior to the 1997 tax cuts. 

Once those tax cuts took effect it dropped by less than 1%.

Well after the 1993 tax act.  The first year, unemployment was down less than 1%, and it started downward before the act was passed.  One it dropped, 1995-96, it stabilized, at a higher rate.

There seems to be a relationship between capital gains taxes and lower unemployment, one that isn't there with income taxes.

[WillK]

There seems to be a relationship between capital gains taxes and lower unemployment, one that isn't there with income taxes.

I agree that there isn't an apparent relationship between unemployment and tweaks to the income tax;
but I am not convinced that there is a relationship between tweaks to the capital gains tax and unemployment. 

[opebo]

The state of New Jersey has doubled state spending since 1998. And for what, exactly?

Civilization, krazen.  Preventing deaths of poors, etc.  Generally speaking more government spending is a good thing both for quality of life and the economy.  And less is worse.  You need to change your thinking - government spending is GOOD, not bad.

As for the original question, obviously a very large tax increase upon the elite controllers is in order.  But by the same token running a large deficit right now is appropriate to the depression conditions caused by the Republicans.

I would favor a 70% top tax rate, but with spending increases to that next year's deficit was somewhat greater than this years.

[J. J.]

There seems to be a relationship between capital gains taxes and lower unemployment, one that isn't there with income taxes.

I agree that there isn't an apparent relationship between unemployment and tweaks to the income tax;
but I am not convinced that there is a relationship between tweaks to the capital gains tax and unemployment. 

It looks stronger.  Capital gains might be the key (though not politically palatable).

[Mercenary]

Should taxes be fair or should taxes be based on what works best for the economy?

I think the least harmful would be analyzing what spending is least beneficial and cutting that in addition to raising revenues.

If you care about what is most fair as opposed to what is most efficient though, you're going to get different answers. I think it is more fair for capital gains to be taxed higher than income taxes, but is that necessarily the most beneficial? Probably not.