Economic Question.

[Jesus-Owns-X]

Is it a sound plan to raise taxes during an economic downturn?

[Der-Lowe]

At 5/11/08 02:08 PM, Jesus-Owns-X wrote: Is it a sound plan to raise taxes during an economic downturn?

"Upon entering office in 1993, President William Clinton faced a painful set of fiscal dilemmas. The deficit remained stubbornly high, yet the economy was stagnating and the rate of joblessness was unacceptably high. Should the president tackle the deficit, increasing the level of public saving by raising taxes and lowering spending, so that the higher public saving led to an increase in national saving and investment? Or should the president worry that higher taxes and lower G [(govt purchases of goods and services)] might lower output as the fiscal contraction reduced C+I+G [(Consumption, Investment and govt purchases of goods and services)] and choked off investment?
After wrestling with this dilemma, President Clinton decided that deficit reduction was the top priority. The Budget act of 1993 enacted fiscal measures that lowered the fiscal deficit by about $150 billion (or 2 percent of the GDP) over the next 5 years. This combinations of restrictions on spending, rising tax revenues, a booming economy, and high stock prices surprised all the experts by producing a budget surplus in 1998."

"Economics" 18th Edition, by Paul A Samuelson, Nobel Prize in Economics 1970, and William D Nordhaus, Sterling Professor, Yale University. Chapter 24, Page 496.

[Memorize]

And yet Hoover decided to raise taxes by a huge margin, against the wishes of 1000 economists who signed against it, when the nation was experiencing the stock market crash.

Needless to say, it worsened. Unemployment sky-rocketted even further off the charts than it already was ect..

It depends. You really need someone who can handle financial restraint well.

[Der-Lowe]

The thing is fiscal policy is not considered to be very relevant, it's not the determinant of the economy's development.
And the Monetary policy is not what it used to be, either; the market looks unresponsive to the continuous reductions to the discount rate.

I've been wanting to buy Keynes' "The General Theory of Interest, Unemployment and Money", because he has talked about the "low interest trap", a phenomenon which has become quite relevant. For Americans, at least; the Japanese have been dealing with it for some years now.

Heh, I got off-topic fast :)

[Elfer]

Only in the event that the government uses the extra money responsibly to fund essential programs that will really help people out financially.

In other words, no.

[ThePretenders]

At 5/11/08 02:08 PM, Jesus-Owns-X wrote: Is it a sound plan to raise taxes during an economic downturn?

No, its a bad fiscal policy. Taxes need to be cut to increase comsumption (which is component of aggregate, or, total demand in the economy) because tax cuts increase disposable income, which citizens spend on, and therefore increase GDP. Government spending should be raised so that the government creates demand in the economy, in the form of demanding goods and services. This was advocated by Keynes and part of what he advocated remains in place. The opposite is true in a boom, so that economic growth is subdued.

[Der-Lowe]

At 5/11/08 04:14 PM, Elfer wrote: Only in the event that the government uses the extra money responsibly to fund essential programs that will really help people out financially.

In other words, no.

It uses the money to stop enlarging its debt, that is an essential program that will really help people financially, since it lowers interest rates.

At 5/11/08 04:29 PM, ThePretenders wrote: No, its a bad fiscal policy. Taxes need to be cut to increase comsumption (which is component of aggregate, or, total demand in the economy) because tax cuts increase disposable income, which citizens spend on, and therefore increase GDP. Government spending should be raised so that the government creates demand in the economy, in the form of demanding goods and services. This was advocated by Keynes and part of what he advocated remains in place. The opposite is true in a boom, so that economic growth is subdued.

He also said that the State should balance its budget when the economy is back on its tracks, as you've said, but that has not happened, and no State can afford to live in a constant budget deficit.
Believe me, I'm Argentinian.

[DeathAura]

Raise taxes for the rich. Its the best strategy out there unless you want to be like Bush and tax the poor and middle class which gets you no where.

[SmilezRoyale]

The poster above me is very intelligent.

[n64kid]

At 5/11/08 09:03 PM, SmilezRoyale wrote: The poster above me is very intelligent.

The poster two posts above me is very intelligent.

[TheMason]

At 5/11/08 08:53 PM, DeathAura wrote: Raise taxes for the rich. Its the best strategy out there unless you want to be like Bush and tax the poor and middle class which gets you no where.

Actually as a tax payer who qualifies as poor...Bush did not raise taxes on the poor and middle class. If anything he screwed up the tax code by using it as a hand-out program for the poor. Under Clinton when I was married w/one child all I got back in terms of my refund was less than $700. On the other hand, under Bush I was getting between $2,500-4,000 as my income tax refund. All of this while supporting a wife going through Medical School while an E-4 in the USAF.

Furthermore, cries for taxing the rich (while politically popular) historically results in the rich paying less taxes. As the tax rate goes up the rich donate more to charity (which is superior to govt wealth re-distribution) or other tax shelters.

[n64kid]

At 5/12/08 12:45 AM, TheMason wrote: Furthermore, cries for taxing the rich (while politically popular) historically results in the rich paying less taxes. As the tax rate goes up the rich donate more to charity (which is superior to govt wealth re-distribution) or other tax shelters.

To support this, if a democrat does win election and tries to tax the rich, I'm moving my ass to Dubai, Monaco, or Bora Bora just out of spite.

I haven't found it wise to form an S-corp to funnel money to avoid higher taxes. Moving will just be easier.

[Gunter45]

At 5/12/08 12:56 AM, n64kid wrote: To support this, if a democrat does win election and tries to tax the rich, I'm moving my ass to Dubai, Monaco, or Bora Bora just out of spite.

I haven't found it wise to form an S-corp to funnel money to avoid higher taxes. Moving will just be easier.

Right, since you're a wealthy taxpayer.

[The-evil-bucket]

At 5/11/08 08:53 PM, DeathAura wrote: Raise taxes for the rich. Its the best strategy out there unless you want to be like Bush and tax the poor and middle class which gets you no where.

That's most people's answer to everything. Federal deficit looking nasty? Tax the rich! Need some money for some pork spending? Tax the rich! Government businesses crashing due to awful management? Tax the rich!

And who is this "rich". You're not "rich". I'm not "rich". He's "rich"! Bill Gate's is "rich". Just raise taxes for Bill Gates, we all know he's "rich".

Sure you could define "rich" by income or by land ownership. but do you target a few multi billionaires? Or, do you consider "rich" to be relative to the majorities income? If someone has a nice car, a good house, and a PS3, do you increase their tax burden by 30%?

Or, you know, you could stop wasting money on projects that do nothing for society, and generally eradicate spending on useless side projects like bridges to nowhere in Alaska.

[Al6200]

At 5/12/08 12:45 AM, TheMason wrote:

Furthermore, cries for taxing the rich (while politically popular) historically results in the rich paying less taxes. As the tax rate goes up the rich donate more to charity (which is superior to govt wealth re-distribution) or other tax shelters.

Hence the brilliance of a flat income tax.

Now we won't have to worry about anyone donating money to charity! : )

[mrhardrock]

i think it is a btr idea to lower taxes to encourage mor spending and lowering intrest rates on loans to encourage mor loans but taxing people more would give them less money to spend which would then lead them to stop spending like barak obama or hillary clinton would raise taxes which could turn a recesion into a depression if the situation is right

[TheMason]

At 5/12/08 05:52 PM, Al6200 wrote:

At 5/12/08 12:45 AM, TheMason wrote:

Hence the brilliance of a flat income tax.

Now we won't have to worry about anyone donating money to charity! : )

The thing about flat tax is that really does advantage the rich. Last year making less than $25K my income tax burden was 7.5%. The tax rate for the richest Americans was about 30%. So it really would screw all the people who live on a fixed income or tight budget.

[Jesus-Owns-X]

So im hearing a yes.....no....maybe........what?

[CatherineElizabeth]

At 5/11/08 03:43 PM, Memorize wrote: And yet Hoover decided to raise taxes by a huge margin, against the wishes of 1000 economists who signed against it, when the nation was experiencing the stock market crash.

Needless to say, it worsened. Unemployment sky-rocketted even further off the charts than it already was ect..

It depends. You really need someone who can handle financial restraint well.

Yeah, Tariffs, not taxes on Capital Gains and higher Income earners, but the great depression couldn't be blamed entirely on the tariffs. The Fed's insane contraction of money hit the economy hard (Ben Bernanke, chairman of the Fed today, issued an apology stating the depression was mostly the Fed's fault), and large amounts of rent-seeking in stocks and land caused excessive debt to build up and crowded out productive uses of stocks and land.

[CatherineElizabeth]

At 5/11/08 02:26 PM, Der-Lowe wrote:

At 5/11/08 02:08 PM, Jesus-Owns-X wrote: Is it a sound plan to raise taxes during an economic downturn?

"Economics" 18th Edition, by Paul A Samuelson, Nobel Prize in Economics 1970, and William D Nordhaus, Sterling Professor, Yale University. Chapter 24, Page 496.

You hit the nail on the head and cited my favorite lower level Econ textbook. Thumps up!

[ThePretenders]

At 5/11/08 05:24 PM, Der-Lowe wrote:

He also said that the State should balance its budget when the economy is back on its tracks, as you've said, but that has not happened, and no State can afford to live in a constant budget deficit.

No country can live on a constant budget deficit beacuse you need a budget surplus to pay of the national debt, otherwise the debts will build up to an unsustainable level. The problem is that governments do not cut spending or raise taxes, during a boom, for political or ideological reasons. President Bush did the opposite and cut taxes and raise spending during a boom, instead of developing a budget surplus to pay off debt, which creates problems for the U.S. because the deficit is going to be even bigger to pull the U.S. out of a recession and this will increase the national debt.

Believe me, I'm Argentinian.

I don't know much of the Argentinian crisis but according to Wikipedia, the budget deficit was at an unsustainable level beacuse of massive tax evasion and money laundering, which reduced tax revenue and high government spending.

[JackPhantasm]

Why don't we just make more money.

I know inflation.

But that wouldn't happen. Just pay all the federal/state workers with money that you make. Straight from the mint.

Like we could essentially just pay out our debt like that. Because we owe ourselves.

[Der-Lowe]

At 5/13/08 08:28 AM, ThePretenders wrote:

At 5/11/08 05:24 PM, Der-Lowe wrote:

He also said that the State should balance its budget when the economy is back on its tracks, as you've said, but that has not happened, and no State can afford to live in a constant budget deficit.

No country can live on a constant budget deficit beacuse you need a budget surplus to pay of the national debt, otherwise the debts will build up to an unsustainable level. The problem is that governments do not cut spending or raise taxes, during a boom, for political or ideological reasons. President Bush did the opposite and cut taxes and raise spending during a boom, instead of developing a budget surplus to pay off debt, which creates problems for the U.S. because the deficit is going to be even bigger to pull the U.S. out of a recession and this will increase the national debt.

We agree! Let's eat a cookie together ^_^

Believe me, I'm Argentinian.

I don't know much of the Argentinian crisis but according to Wikipedia, the budget deficit was at an unsustainable level beacuse of massive tax evasion and money laundering, which reduced tax revenue and high government spending.

yay someone that reads!
Well, although evasion is a major problem, there was a complete tributary system overhaul, the Argentine state had been having a structral deficit for many many years, it solved it by printing money in the 80s, and by selling companies and then borrowing money in the 90s.

Government spending was not high; after five years of constant (and high; 36% annual) increases of spending, we've reached the spending level of the US.

At 5/13/08 12:40 AM, Jesus-Owns-X wrote: So im hearing a yes.....no....maybe........what?

hahahaha, Economics is not an exact science, Economists don't give yes/no answers most of the times.
Theory says it is not, but we don't live on theory, we have to analyze the situation, consider the theories, and then act.

At 5/12/08 05:52 PM, Al6200 wrote: Now we won't have to worry about anyone donating money to charity! : )

What the Mason said; the flat tax ignores one of the major Economic objectives : Equality.

At 5/13/08 12:46 AM, CatherineElizabeth wrote: Ben Bernanke, chairman of the Fed today, issued an apology stating the depression was mostly the Fed's fault

I remember he said that to Milton Friedman and his wife.
FUN FACT TIME!

me>Imperator

At 5/13/08 08:53 AM, JackPhantasm wrote: Why don't we just make more money.

I know inflation.

But that wouldn't happen.

You're already (and we, the rest of the world, too) experiencing rising levels of inflation, fostering inflation during this kind of moments makes it get out of control.

Believe, I'm Argentinian.

[Slizor]

hahahaha, Economics is not an exact science, Economists don't give yes/no answers most of the times.
Theory says it is not, but we don't live on theory, we have to analyze the situation, consider the theories, and then act.

I agree, with one modification
"Economics is not a science." As soon as economic variables can be isolated and tested I will retract that statement, but currently economic systems have far too many unfixed variables to claim that economics is anywhere near a science.

[TheMason]

At 5/14/08 06:05 AM, Slizor wrote: "Economics is not a science." As soon as economic variables can be isolated and tested I will retract that statement, but currently economic systems have far too many unfixed variables to claim that economics is anywhere near a science.

That's my exact criticism against global warming/climatology.

sorry...could not resist! :)

[Der-Lowe]

At 5/14/08 06:05 AM, Slizor wrote: "Economics is not a science." As soon as economic variables can be isolated and tested I will retract that statement, but currently economic systems have far too many unfixed variables to claim that economics is anywhere near a science.

A science does not have to be exact. The definition of science is:

mw:
2 a: a department of systematized knowledge as an object of study <the science of theology>

wiki:
science (from the Latin scientia, meaning "knowledge") refers to any systematic knowledge or practice. In its more usual restricted sense, science refers to a system of acquiring knowledge based on scientific method, as well as to the organized body of knowledge gained through such research.

It doesn't need to be exact; in your point of view, social sciences do not exist, you restrict the classification of science to math, chemistry... and that's it.

Expecting linear relations throughout all the world, is not only impossible, but also, I'd dare say, pathological.

[Slizor]

It doesn't need to be exact; in your point of view, social sciences do not exist, you restrict the classification of science to math, chemistry... and that's it.

Expecting linear relations throughout all the world, is not only impossible, but also, I'd dare say, pathological.

I work with the wiki definition "In its more usual restricted sense, science refers to a system of acquiring knowledge based on scientific method, as well as to the organized body of knowledge gained through such research."

And no, I don't think "social sciences" do exist, I think they are areas of study rather than "sciences".

[Tri-Nitro-Toluene]

At 5/15/08 09:17 AM, Slizor wrote:

It doesn't need to be exact; in your point of view, social sciences do not exist, you restrict the classification of science to math, chemistry... and that's it.

Expecting linear relations throughout all the world, is not only impossible, but also, I'd dare say, pathological.

I work with the wiki definition "In its more usual restricted sense, science refers to a system of acquiring knowledge based on scientific method, as well as to the organized body of knowledge gained through such research."

And no, I don't think "social sciences" do exist, I think they are areas of study rather than "sciences".

You do realise that within the social sciences there are methods of study which utilise the scientific approach right?

Positivism is one of the leading schools of epistemological ( or is it ontological?) thought and works within the same boundaries as the natural sciences such as Chemsitry and physics.