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Best Stimulus is a Tax Holiday

Submitted by TomGrey on Thu, 01/15/2009 - 10:10
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The voters are demanding that the gov’t “Do Something” -- what is it that Conservatives should be asking the gov’t to do?

In good times, the gov’t should be cutting gov’t spending. NOT increasing it. In bad times, the gov’t should be cutting taxes. It’s that simple.  We are in bad times, the gov't should be cutting taxes.

 

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Oh, but you forgot to cut the

Submitted by In between on Thu, 01/15/2009 - 10:30.

Oh, but you forgot to cut the spending when times were good.

Weak sauce

Submitted by johnson springs on Thu, 01/15/2009 - 10:37.

Without specifics this is pretty weak sauce.

Unless tax cuts are tuned to provide stimulus they are going to do more damage in terms of increasing public debt than they will provide stimulative benefits. Overall tax cuts do not perform as well as spending to boost demand. Untargeted tax cuts would be a net negative for our overall fiscal picture.

With the demand curve in a nosedive, supply-side intervention is swimming upstream.

Well, yes and no.

Submitted by chemjeff on Thu, 01/15/2009 - 10:42.

I agree that the tax holiday by itself is unlikely to have a huge stimulative effect.  (Whether I care or not, is a different matter...)  IMO the ideal conservative stimulus plan would be corporate & capital gains tax cuts, and spending cuts on government programs that are, quite frankly, luxuries in financially difficult times.  That is, we should advocate government do for its budget what we would do for our own household budgets when faced with financial difficulties.  We cut back on luxuries and attempt to find new ways to grow our income (i.e., economic development).

But that is bad economic policy

Submitted by johnson springs on Thu, 01/15/2009 - 12:27.

This is a bad idea:

IMO the ideal conservative stimulus plan would be corporate & capital gains tax cuts, and spending cuts on government programs that are, quite frankly, luxuries in financially difficult times. 

And on top of that, whatever else it might be, it is not a "stimulus" plan.

That is, we should advocate government do for its budget what we would do for our own household budgets when faced with financial difficulties.  We cut back on luxuries and attempt to find new ways to grow our income (i.e., economic development).

Is there a valid economic reason to equate government finances to household finances?  I don't think so. Were I to stretch my finances too thin, I should scale back my spending, economize and save to get my finances in order. My contraction will not perceptibly impact the larger economy. However, if everyone does that at the same time as is currently the case we have real problems. Now, on top of that, you want the government to stop spending as well. That's some stimulus plan.

Let's say we cut corporate taxes to 0 across the board and cut all benefits to people who are not working. Demand is already down so corporate sales are low and going lower. Corporations that are earning previously taxable income will see an improvement in their pre-tax/after-tax earnings ratio (no more taxes) but not from sales growth (weak demand) thus effectively making more per sale on a shrinking number of sales. Do you anticipate, putting on your rationale economic actor hat, that those corporations now go out and build new factories, increase capacity, and hire new workers? No. There's not enough demand for their products and services. It is much more likely that they will buy up distressed competitors and further reduce the workforce while capturing a larger share of an ever shrinking market. The newly unemployed will have no money to spend on anything but the bare essentials. Does the economics of that scenario trouble you at all?

That is not a good plan on the merits and it is not a good plan for winning elections.

What has happened to conservative economic thought? Do we now advocate deficit spending during good times and spending cuts when times are bad? Or do we advocate deficit spending when we hold the purse strings and cuts when we don't? In either case, it is not going to win back our favorables on handling the economy.

stimulus

Submitted by chemjeff on Thu, 01/15/2009 - 18:56.

Well I don't think the entire idea of stimulus is a good one. Let's follow good economic policy at all times - low taxes and low spending.

If no stimulus, then what?

Submitted by NextRightNando on Fri, 01/16/2009 - 11:12.

How do we pull out of the recessionary cycle absent a stimulus?

alternative to stimulus

Submitted by chemjeff on Fri, 01/16/2009 - 11:54.

This may come as a shock to you, but I think we should cut taxes, cut spending, and cut regulations instead.  And I don't mean just a little bit of trimming around the edges.  I mean you go after spending in a big way.  Cut everything that's non-essential.  Reform entitlements immediately to make them sustaniable in the long term - I believe this must include some aspect of privatization.  (Hell at this point I'll even take Bill Clinton's 1990's privatization plan.)  Go through the Federal Register of regulations with a fine-toothed comb (states and municipalities should do the same thing) and eliminate everything that is redundant, absurd, wasteful, and seeks only to empower one competitor over another.  You do that in a big way and I guarantee you will see an explosion of economic activity like you've never seen before.  Why?  Because:

(1) People will have more money in their pockets.

(2) People will have less uncertainty about the future because they know the government is getting its house in order, so they will know that they WON'T be on the hook for some unknown trillions of dollars in higher taxes in the future.  In other words it will cut down on future long-term uncertainty, which is a key barrier to economic growth right now.

(3) That sort of economic climate is absolutely ideal for economic development.  If this doesn't do it, nothing will; might as well nationalize the factories at that point.

Bottom line: Real economic growth happens in the private sector.  Even if some government stimulus causes a blip in GDP for a quarter or two, it is not sustainable anyway unless followed up by private economic growth.  So I suggest cutting out the middleman, i.e. government.

None of which will counter the cycle we are in.

Submitted by NextRightNando on Fri, 01/16/2009 - 12:06.

Can you show me any credible economist who thinks that what you proposed will do anything to fix the immediate problem, which is the falling off of demand. As long as demand continues to fall, more people will become unemployed, and that will aggrevate matters even further.

 

I concur. Add to that we send

Submitted by In between on Fri, 01/16/2009 - 12:25.

I concur. Add to that we send our money to Iraq and our jobs overseas. Still no adequate answer from republicans. 

Data, please

Submitted by NextRightNando on Thu, 01/15/2009 - 12:09.

Data to support your argument?

Tax cuts are OK short term, better mid and long term

Submitted by TomGrey on Fri, 01/16/2009 - 13:31.

The important anti-tax cut comments here:

Overall tax cuts do not perform as well as spending to boost demand.

Dems have little evidence that this is true even in the short term, but it's much less true in the long term.  Just as wages have difficulty in going down (well known "wage stickiness downward"), it is quite hard to stop gov't once it gets started.  Look at the coming balanced budget State governments which are having problems, asking for money, but don't want to reduce the State spending.

Tax cuts that increase pay checks this week certainly boost demand more next week than any stimulus in a few months or longer.  Only rebate checks boost demand faster in terms of time of program approval and actual spending in stores.

Recall that the Dem opposition to drilling is that it takes 10 years before we get more oil.  A reasonable Rep opposition to new, previously unplanned and not yet agreed to spending programs is that it takes at least 10 months to get reasonably non-wasteful spending planned and in process.  Tax cuts can happen NOW.  Even retro active to 25% tax holiday for 2008, from Oct - Dec, would allow folks and businesses more cash.

Where will the future successful companies be?  Mostly from those paying the most tax now -- exactly those who get the most benefit from tax cuts. 

 You have had 8 years of tax

Submitted by In between on Fri, 01/16/2009 - 13:38.

 You have had 8 years of tax cuts and we see the deficits and debt. The tax cuts have become ineffective. How many times do we cry wolf?

Read this from USA Today.

"For no good reason — other than a philosophical aversion to taxes and reluctance to call for sacrifice — Bush squandered the budget surplus he inherited and almost doubled the national debt at a time of relatively robust economic growth. In so doing, he stimulated the economy when it was not needed, making it harder to do so now when it is. His fleeting and politicized attempts to address looming cost crises in Social Security and health care were fruitless, and both problems deepened."

Robust growth AFTER the tax cuts

Submitted by TomGrey on Fri, 01/23/2009 - 12:34.

Remember Clinton's dot.com bubble pop? Maybe a trillion USD lost in paper wealth, and huge mal-investment in most internet start-ups.

Bush's tax cuts are exactly why there was so much economic growth, tho the low rates of the Fed also contributed. 

The 'no good reason' was to try to create a 'compassionate conservatism' based on big gov't spending, instead of based on more real support for private, peaceful organizations.  Politically, Bush tried to bribe the voters in a way similar to what Dems have been doing -- and Dems and media still consistently called for more gov't spending!

Repacing gov't spending programs with peaceful spending programs is often as hard in good times as in bad.

The financial crisis of mal-investment in housing, and terrible understating of the risk along with trillions of risk insurance contracts that can not be enforced, was not based on the tax cuts but on the silly idea that house prices only go up.

<<Bush tax cuts>> The Bush

Submitted by In between on Fri, 01/23/2009 - 13:21.

<<Bush tax cuts>>

The Bush tax cuts were overdone. You should only have about 2 years of tax cuts to stimulate the economy along with lower interest rates from the fed. After that you work on the budget. But Bush did a "guns and butter." Bush had tax cuts throughout his 8 years, he had a war, and did not cut government spending. What you have is deficits and debt.

Now that we are back into a recession, more tax cuts will not do the job. Especially at a time when our jobs are going overseas.

And yes at the same time you had everyone targeting the housing situation which is another crisis by itself. The real area to be targeted is globalization. 

The other stimulus is the

Submitted by In between on Fri, 01/16/2009 - 13:59.

The other stimulus is the lowering of interest rates by the federal reserve. The interest rates are at their lowest levels. Nothing happening yet, it may, but it creates inflation down the road. If we are heading for a depression, none of this will work. So what is the answer?

And what can the tax cuts buy? Chinese goods? 

Tax cuts work.

Submitted by davidfarrar on Fri, 01/23/2009 - 23:36.

April 15, 2009, is just around the corner. Pres. Obama could wave his magic executive pen and sign an executive order stopping the IRS from taxing individual labor as wage. This act alone would directly keep 1.1-trillion dollars in the economy, directly into the pockets of the consumers.

Let's go for it!

And not just that, let's extend that tax free holiday on personal labor for the next five years. Just think of it, while the economy picked up speed, government spending was reduced to it bear essentials. God help us, but I think I am on to something here.

ex animo

acedance

davidfarrar

 

What were the estimates? of gov't revenue, of spending?

Submitted by TomGrey on Sun, 02/01/2009 - 19:16.

Hey InBetween -- what were the CBO estimates of gov't revenue and expenditures?

I understood that, with the tax cuts and growth, revenue estimates were reached.  But spending went WAY over.  If you check that, and find out that it was spending going 'above trend', would that be a fact that indicates you're wrong and I'm correct?

If so, it's worth checking.  If not, perhaps you could suggest some fact that supports your claim about tax cuts for only 2 years being optimal. (I don't think you can, but I'm interested.)

 

http://www.concordcoalition.o

Submitted by In between on Sun, 02/01/2009 - 20:50.

http://www.concordcoalition.org/files/uploaded_for_nodes/docs/WebSiteCha...

What we do know is that supply side economics left deficits. (Reagan and Bush). It all comes down to management and governing. We will be 1 trillion short for 2009, and we were short close to 500 billion short for 2008. 

But if you want to cut spending, you could be more specific. For instance, you cannot cut back on the interest on the debt. Social programs need to be worked on, but at best you can only cut back so much. Defense spending is over 600 billion, maybe that can be cut back 50 or 100 billion dollars. Of course, we have to rebuild our Army and take care of wounded soldiers for the rest of their lives. We are in over 100 countries for what reason I don' know.

We are behind in infrastructural spending, such as an electrical grid, a new air traffic control system. And the B52's are just getting older. Along with the fact the baby boom generation is retiring adding to the burden of government.

We also know that the middle class is losing jobs and those jobs are going overseas and cities and states are going broke. There is nothing as far as alliances with government and business to create new technologies for the future as we lose jobs. China is building the largest nanotechnology plant in the world with the help of their government. Singapore is taking our scientists for embryonic stem cell research again with the help of the government.

So we have a lot to do. Add to that, the only thing Bush did is the old "guns and butter" trick. LBJ did this and it cause inflation for 20 years.

But let us suppose we could cut 200 billion dollars a year out of the budget. Bush left an added 4 trillion dollars and a 500 billion dollar deficit. So that means cutting 200 billion dollars a year on those deficits and debt alone would take over 20 years to fix and that is not counting anything else. And add to that the spending needed for infrastructural spending which was neglected in the past, and what we need for the present and future. The outlook does not look good. Somehow after 8 years the Republicans woke up to deficits.

As far as tax cuts for two years. That is the norm for stimulating the economy along with lower interest rates. Beyond that, the tax cuts was just borrowed money from other countries creating a false economy. The economy was further false as the politicians and Alan Greenspan targeted housing. They should have had their eyes on globalization.

The economy would have ran fine without the added burden of borrowing more for tax cuts. Add to that a war which is not paid for and drained at least 1 trillion dollars out of our economy.

Now supply side economics could have worked if government had the money to give, but to borrow that money for an ideology did not work.

 

In addition in 2007 Bush was

Submitted by In between on Sun, 02/01/2009 - 21:01.

In addition in 2007 Bush was predicting a balanced budget for 2012. A total erroneous report when he said it. I had that bookmarked, but that info is now in an archive.