Originally Posted by pramjockey

Because at least the Dems don't do their spending on credit?

Originally Posted by TSGracchus

The consumers, without whom the rich would hog their money rather than investing it in job-creating ventures.

What you've stated, LS, is the classic supply-side fallacy, well disproved by the economic history of this country. And while you're at it, you also stated another: the idea that a business charges for its products what it must, and no more. A parallel fallacy is the idea that a business pays its workers what it can.

In reality, it's the other way around. A business pays what it must, in all business expenses -- labor costs, materials costs, administrative overhead, etc., etc. and any way that it can find to cut these costs it will use. And a business charges its customer what it CAN -- which means what its customers are able and willing to pay.

The idea that the economy does better, more jobs are created, and so on the greater the share of the nation's wealth is hogged by those at the top, is nonsense. Investors always have more capital than they are willing to invest in job-creating ventures. Tossing yet more their direction, even if it could be created from nothing by the wave of a magic wand, would not spur investment.

In reality, though, it's actually counterproductive, because that wealth is transferred to them from the middle class, who represent the bulk of the consumers. And with less money to spend, people buy less, which means business is less profitable, which means there is less incentive to invest in it.

The economy does better the more broadly wealth is distributed -- exactly the opposite of what you seem to believe.

Originally Posted by Americano

I don't understand the general lack of common investment knowledge displayed by many posters, yourself and a couple of other posters excepted, with regard to windfall tax breaks. Some posters actually seem to believe those savings are going back into the US economy in the form of fresh business capital. In this era of capital flight, declining USD valuation and a faltering US service economy driven by consumers with stagnated wages, that's the last place it'll go.

I also recognize many posters are unaware of the ramifications of wealth redistribution heading to the top or the priorities of operating a business. Perhaps they're young, but hopefully sooner or later they'll understand most business entities are not structured for the primary benefit of workers and their futures or consumers.

Originally Posted by SomeMarine

You're much smarter than that. Don't follow others down the rabbit hole.

Originally Posted by pramjockey

Oh, don't worry. I'm all sorts of claustrophobic - rabbit holes aren't my thing...

Originally Posted by Skerlnik

I'm no economist, but I am having difficulty seeing how this country is going to remain functional much longer, running a deficit but not raising taxes. I hear lots of tortured, convoluted explanations on the news and other places, but nothing that makes much sense to me.

Maybe I am just too simplistic in thinking of things like a checkbook. I don't think there's anything magical to cutting spending and raising taxes to get things back in order. Just like losing weight, it's not going to be easy or fun, but it's not rocket surgery.

There's a piper to be paid for years of hyper-inflated prosperity, and I applaud the realism of owning up to that unpleasant fact.

Originally Posted by Americano

You didn't bother to look at the federal tax revenues by year that I posted? They dropped with the Bush tax cuts.

Originally Posted by TSGracchus

You're looking at a very narrow slice of time, affected by other factors, and considering only one piece of the whole wealth-redistribution puzzle (tax rates) and not by any means the most important one, and besides that when you say Clinton gave the rich tax breaks you are factually inaccurate. (Unless, again, you are using an idiosyncratic definition of "rich.")

The most important factors in terms of how wealth is distributed aren't taxes but labor, immigration, and trade policy. Taxes do make a difference, but those three things set the ground rules and parameters within which market forces establish prevailing real wages, which is the biggest single determinant of wealth distribution.

The time frame to look at begins after the Civil War. That's when the U.S. became unambiguously an industrial nation, and also when the labor wars began. We have had essentially three economies since then. My description of them is necessarily going to be long; unfortunately there is no simple and easy way to understand such a complicated topic -- frankly, your attempt to simplify it is exactly what is leading you into error.

The first economy continued from the end of the Civil War until the onset of the Great Depression. It was characterized by government policy that almost completely favored capital and suppressed the aspirations of labor. (There were some moderate stabs at reform under Theodore Roosevelt and Woodrow Wilson, but on the whole what I said is true.) Forming a labor union was considered radical and dangerous, and unions were suppressed violently. There were no regulations regarding workplace safety, no minimum wage, and immigration policy was set to ensure a very large pool of labor so as to keep wages low. It was also characterized by a dramatic boom-bust cycle, with periodic panics far worse than any recession today, punctuated by booms that were lower, not higher, than what we have now. All predictable IMO: wages were too low to fuel healthy consumer demand that would have sustained the economy well, and the "booms" were mainly driven by investor speculation, inevitably disappointed after the first few years when consumers ran out of money. The last "boom" from this economy occurred in the 1920s, and was followed by the biggest "bust" of all.

The Depression itself should not really be considered as part of any of the economies; it was transitional between the first and the second, and was so very bad that it will give an unfair thrust downward to either one in which it is incorporated. But it was during the Depression that the ground rules were changed to make government policy more labor friendly. After the jump-start provided by the massive federal spending necessary to fight World War II, and after the war was over and we were able to return to a peacetime economy, these rule changes put us into the second economy.

The second economy ran from about 1946 or 1947 until about midway through the first Reagan term, say 1982. It was characterized by federal regulations of most businesses, labor-friendly policies, and more restrictive immigration policies that kept wages high. It was also the strongest and most stable the U.S. economy has ever been. There were still recessions, but nowhere near as bad as in the first economy, and the booms were boomier. Higher highs, and higher lows as well. All the major industries were unionized, which drove real wages up even in those that weren't. Two things happened that hurt this economy and opened the door to the Reagan counterrevolution. The first was the Vietnam War, which caused massive federal deficits (although nothing like what we have now), and the second was the oil embargo of the 1970s, which created artificial oil shortages and drove up the price of everything while stagnating the economy. The second of those was particularly disastrous, but predictably temporary; we had only reached the U.S. oil production peak (which allowed OPEC to impose an embargo, something that would have been impossible when the U.S. was a net oil exporter), and the global peak was still decades away, so there were still untapped reserves around the world that, together with improved efficiency, allowed the problem to be overcome pretty easily. But while it lasted, the effect was very harmful.

This situation allowed Reagan to be elected and to enact his changes to policy. Under him, the government became less union-friendly, and the tax code was changed to shift the burden downward. More importantly, though, the groundwork was laid for the third economy through the first "free trade" agreements that, together with advanced communication technology, allowed capital transfers overseas to countries that had not undergone our own labor wars and still had downtrodden, oppressed labor pools that could be hired dirt-cheap. The effects began immediately but the worst of them did not appear until after Reagan left office. During his terms, the economy recovered, despite his policies not because of them. The reason for the recovery was that the suppressing effect of the artificial oil shortage was overcome right around the time he took office. This was, of course, not because of anything he did (and only slightly because of anything Carter did), it was simply market forces driving improvements in efficiency and the opening of new oil fields, which were still there to be opened in those days. In short, the Reagan economy showed improvement not because Reagan's policies were good, but because he was the beneficiary of lucky timing.

Since then, the general trend has been downward. More and more industries move overseas, and more and more of the federal budget is devoted to paying interest on the national debt. The effect is a decline in real wages over decades, and reduced buying power, partially offset by the aggressive promotion of consumer credit at cheap rates -- but that, too, is now coming to an end, as it had to. Although the rules of domestic employment haven't changed dramatically, this end-run around those rules available to employers who can ship their operations overseas has put us back into the old boom-bust cycle, and as before, now the "booms" are primarily driven by investor speculation. The last major boom was in the 1990s with the dot-com explosion, which was exactly the sort of speculative boom that the country used to go through periodically, followed by exactly the sort of contraction it used to have when the speculators wised up. (The '90s boom had little to do with Clinton policies. He did balance the budget, which helped, but he also negotiated still more "free trade" agreements, which hurt more. The downturn in the Bush years was predictable, accelerated but not caused by Bush's own foolish policies, both fiscal and military.)

Over this span of decades, it is easy to see that when the government's policy has been labor-friendly and when wealth has been distributed broadly -- again, more due to other policies than to taxes, although that is also a factor -- the economy has done best, and when policies have been followed that favored capital, and wealth was concentrated most in fewest hands, it has done worst.

Your own experiences as a small-business owner in no way contradict this trend. If the policies from the 1960s had remained in place instead of being reversed, our economy as a whole would be much healthier now, and you would have been able to expand your business with or without those tax cuts.

Originally Posted by Imperator

well heres a torch for mcCain to carry if hes up to it....good advcie.

McCain and Taxes
April 25, 2008; Page A14
John McCain, the Republican nominee for President, has proposed extending the Bush tax cuts. So as morning follows night this week, Democratic news analysis has been pouring forth to proclaim that his tax ideas are a threat to the republic because they'll explode the budget deficit. The Senator needs to understand that he can't win this election by playing on this economic turf.

The subtext of the criticism of the McCain tax plan is that it would somehow "starve" the government of revenue. The figures being tossed around for the "cost" of the McCain tax plan have been estimated at $2 trillion by the liberal Center for American Progress, while the Brookings Institution estimates $5.7 trillion.


If this were really true, the lower Bush rates of 2003 already would be draining money away from Uncle Sam. Instead, even amid an economic slowdown, tax revenue stands at nearly 19% of GDP. That's above the modern historical average, and there is no precedent in recent history for raising and maintaining the tax take significantly higher than that.

If all the tax cuts expire, however, we would see the largest tax increase in U.S. history and that percentage of national income going to the Treasury would climb steeply higher. In which economics text is it written that the cure for a slowing economy is an unprecedented tax increase?

Senator McCain has also proposed moving the U.S. corporate tax rate, currently the second highest in the world after Japan, to a rate closer to the international norm. The point here is to stop driving investment and jobs overseas. Even House Ways and Means Chairman Charlie Rangel has recognized this. Once-sleepy Ireland cut its corporate tax rate to 12.5% from 48%, and tax receipts have soared because of its revived economy. Incentives work.

We've made no secret of our disagreement with the Bush Administration's willingness to accept a weak dollar. Yet that's what we've got. As such, a low tax rate on capital-gains and dividends is even more crucial if we are to attract capital into the U.S. economy.

The criticism of the McCain plan by Barack Obama and Hillary Clinton, echoed in the media analysis, is that his reductions merely direct benefits to "the wealthiest." But these people already pay nearly all the income tax burden. Meanwhile, the politicians make sure the middle class gets socked by payroll and state taxes.


This said, it isn't going to be sufficient for Senator McCain to simply tout these tax cuts without offering a strong rationale. The standard trap the left sets whenever tax cuts are mooted is to wave the "deficit" that will result. Absent a counterargument, Mr. McCain will spend the campaign playing on this liberal ground. In particular, he has to make the case that tax cuts do not lose as much revenue as the static, dollar-for-dollar revenuers claim. He has tax-cut history on his side. The threats of revenue catastrophe did not happen in the 1960s (the Kennedy tax cuts), the 1980s (Reagan) or after 2003 (Bush). See the nearby table.

Senator McCain has to find a way to make the case that his economic plan and its attendant tax cuts are intended to spur economic growth. So much the better if he doesn't feel personally comfortable making that argument in the sort of dry terms his economic advisers might favor.

Growth is the product of work performed by a huge nation of individuals seeking to support families, small businesses and communities. Virtually everyone understands that the nation only thrives if people are able to invest their money and labor and then reinvest it in more of the same. They will only do that, at every income level, if the government consents to allowing most of the fruits of this effort to remain with individuals in the private economy.

Senator McCain doesn't need a doctorate in economics to understand this debate. As a Member of Congress and Presidential candidate, he has listened endlessly to Democrats mau-mau their opponents with rhetoric about "fairness" and the "deficit" and, best of all, the "investment needs" of the government, aka, spending.

The past week's criticisms are intended to bait Mr. McCain into debating his tax cuts on these liberal terms. He can only win this debate, and the election, by breaking free of that mindset and making his own personal case for lower taxes and the prosperity they help to create.

McCain and Taxes - WSJ.com

Originally Posted by Oreo

1960's = John F. Kennedy who also gave a huge tax cut, that also stimulated the economy. In fact, it was the largest prior to Ronald Reagan.

Originally Posted by SomeMarine

That is the most communistic line of thought I have read in a very long time.

Originally Posted by TSGracchus

You're looking at tiny little snips of the whole picture. You need to look at a MUCH broader stretch of time.

If you compare the entire period from after World War II until Ronald Reagan's presidency, to the entire period from the end of Reconstruction until the Great Depression, you will find that the later period featured greater prosperity by every measure: faster growth, higher per capita GDP, higher standards of living, less severe and less lengthy recessions. That's true regardless of tax policy. It was true under Kennedy's tax cuts, and also true under Eisenhower's higher taxes. So while Kennedy's tax cut may have blipped the charts with a slight short-term boost (paid for later, in that it led to deficit spending just as later tax cuts did), it does not account for the whole picture we see nor even a significant part of it.

Now, the prediction of supply-siders would be the other way around, because the pre-Depression economy favored capital much more. The rich were richer in that period (comparatively speaking), and of course taxes were lower. Yet the economy didn't do as well. Why is that?

The answer is simple: supply-side thinking is flawed and wrong. The economy DOES NOT do better the greater the gaps in income. Just the opposite. It does better the more broadly and equally wealth is distributed. The reason being that it is dependent on consumer spending, and that in turn is dependent on the consumers having money to spend.