Right and Wrong
Posted on April 2, 2003 Posted by John Scalzi 25 Comments
The interesting thing about the erupting tiff concerning the war plan is not whether the plan has been successful or not — the fact is, griping aside, the US military is currently in ass-kicking mode in what is still a pretty short and casualty-low pocket war. We may still get the actual killing-and-bombing thing done within a month. The interesting thing is just how bad a job the administration is doing in convincing anyone that the successes of the war have anything to do with it. The current line about this thing seems to be that the troops on the ground are making good progress despite the fact that the administration — particularly Rumsfeld and his pals — cut its legs out from under it by underestimating the number of troops needed initially and overestimating just how quickly the Iraqis would fold. This has thrown Rumsfeld into highly visible and somewhat amusing fits, and put the administration in the position of defending what is, from a pragmatic, results-oriented point of view, a pretty successful plan so far.
But isn’t that like this administration to have to justify its successes. It comes in part from the growing realization that the boys have done so many things badly (mismanaging the economy, bungling foreign diplomacy, and meting out blunt force trauma to the Bill of Rights are the things that immediatelycome to mind) that any assertion of continuing, ongoing incompetence in any aspect of their organizational purview comes across as sounding just about right.
(Of course, some folks on the hard right seem to think this sort of thing isn’t a bug, it’s a feature — by swelling the deficit, going unilateral and hammering on individual rights while they’re in power, they make it so less like-minded administrations have to spend most of their time cleaning up their messes rather than pursuing their own agendas. I think this is a very interesting political philosophy, since it seems to incorporate the idea that failure is built-in to the mechanics of their administration (you don’t plan to sabotage liberal administrations if you don’t expect they will eventually win), which is a refreshing admission of the limitations of their politics. It’s either that or the hard right actually feels we as a citizenry are actually better off isolated, in debt and stripped of our rights. Either way, these sorts of maneuvers do not engender trust.)
The more prosaic factor to consider is simply that the Dubyites are reaping what they have sown. When you deal with people in a smug, high-handed manner, they’re more inclined not to feel terribly wracked with guilt about messing with you even when you’re right. This is why the US had to grovel in the UN for Security Council votes it ultimately didn’t get but should have gotten, no grovelling involved, and why Pentagon colonels are now falling over each other to anonymously whack at Rumsfeld as if he were a piñata at a New Yorker inside source party. It’s not enough to be right; you need to be right in a way that doesn’t make people actively hate you for it.
This is a little factor the Dubyas don’t understand, which is why they have such a hard time dealing with it. They really ought to get used to it. It’s not going to get any better from here on out.
Here’s what I’ve learned so far..(Or rather, what I like to think I have learned)
Rumsfeld really has no clue what he is talking about. Even when he’s right, he..in a sense..is wrong. I’ve learned to take anything he says with a grain of salt, because it will more than likely be proved wrong within days of him saying it.
John, I don’t want to start a political mosh-pit here, but what exactly did you mean in that parenthetical paragraph when you said, “I think this is a very interesting political philosophy, since it seems to incorporate the idea that failure is built-in to the mechanics of their administration (you don’t plan to sabotage liberal administrations if you don’t expect they will eventually win), which is a refreshing admission of the limitations of their politics.”
You kinda lost me there. Are you saying the current administration is intentionally screwing up our government (which I agree they are doing quite well, er, bad, er, whatever) so they can then hand over the scraps for a new administration to lick the plate clean? Politicians might be stupid sometimes, conniving at others, and down-right slime balls, but I know they’re power-hungry and to give up that power would be like suicide to them. Maybe I read into that completely wrong.
“You kinda lost me there. Are you saying the current administration is intentionally screwing up our government (which I agree they are doing quite well, er, bad, er, whatever) so they can then hand over the scraps for a new administration to lick the plate clean?”
No, they’re intentionally screwing up the government so that the *next* administration, if it is, say, a Democratic one, will have to spend a non-trivial amount of time correcting the problems created by its predecessor — which will give it less time/energy to pursue its own agenda. This is why, for example, Republican administrations of the last two decades have run deficits.
Well, you say, what happens if they actually get re-elected? What do they do with the deficits then? Well, they just keep racking them up for the next guy to deal with, regardless of his political persuasion. This is what sunk Bush I, among other things.
This is a set-up that can only work because we set limitations on presidential terms, thus allowing presidents to engage in short-term strategies like this. Which is not to say we should repeal the 22nd Amendment. It’s just an interesting side effect.
Yes, I realize this sounds vaguely paranoid. But on the other hand, what are the deficit projections at right now?
I don’t understand left/right, democrat/republican well enough to care, but I do _enjoy_ Rumsfield at a press conference. I have seen reporters ask *stupid* questions of countless people – athletes, entertainers, victims, businessmen, politicians – and all of those people had to a) answer and b) answer politely. Otherwise they faced the scorn of the media from there on forward. But this guy, he answers stupid questions with direct responses like; “No” and “I’m not going to answer that”. I find that refreshing. Sometimes humorous.
I have never liked the idea of a “budget deficit”. We keep electing morons. This one’s too hard, that one’s too soft, the other one is a wacko. Geeze.
I paraphrase this quote:
“The penalty good men pay for indifference to public affairs is to be ruled by evil men.” – Plato.
Yep, written thousands of years ago, about politicians and people in general. We haven’t changed, they haven’t changed.
Kinda sucks, eh?
It seems to me, with my understanding of macro economics, that tax cuts are generally a good thing for an economy, and tax increases are bad. The former frees up discressionary spending and the latter locks it up. Since the Republicans generally believe in letting individuals actually keep the money they earn, they push tax cuts. But since Congress is actually in charge of the cash, not the President, and Congress has a good percentage of Democrats, who generally believe that the Government is a good thing and a big Government is better, spending rarely decreases. Thus deficits. And since the U.S. economy is still in a recession, doing something about the deficit would not help, it would make things worse because conventional wisdom says that you need to raise taxes to reduce the deficit. Not that conventional wisdom is all that wise, mind you, I feel raising taxes at all is always a bad thing.
I would also point out that when people blame Bush for the current bad economy, I would remind them that the economy tanked almost a full year before he took office and that it’s generally accepted by economists that the recession started in March of Clinton’s last year in office. Having said that, I would certainly say that Bush hasn’t done enough to help the economy. In fact he’s done done a few things to make it worse.
Personally, I would like to see broader tax cuts and sever cuts in government spending.
“It seems to me, with my understanding of macro economics, that tax cuts are generally a good thing for an economy, and tax increases are bad.”
I’m not necessarily opposed to tax cuts in a general sense(and less so at the moment, because I’ve been looking at my taxes), although I think one can fetishize tax cuts to a ridiculous degree, and many conservative people do. When times are flush, the conservative response is to want to cut taxes, and when times are difficult, the response is the same. There is never a time where conservatives *don’t* want to raise taxes, a policy which followed to its absurd end eventually means no tax revenues. That may be fine for some, but I enjoy a certain level of state-supported benefits, a level that is probably slightly higher than most conservatives, so I don’t think that’s much of an answer.
There’s also the more on-point issue that it’s also a matter of which taxes one cuts, and who they benefit. Cutting taxes on dividends, for example, does nothing for the average person whose retirement accounts, should they exist (don’t get me started) are likely to be in tax-deferred 401(k)s or IRAs as it is.
I don’t think one needs to *raise* taxes to erase the deficit, particularly if current tax revenues are running a surplus, but I’m also not in a big fat rush to lower them, either, especially when doing do raises the level of the deficit over the long term. A sensible level of taxation doesn’t impede economic growth (this much should be obvious, given the strength of the US economy both in itself and relative to other economies), and it allows us to tend to long-term debt issues so our kids aren’t wondering how they hell they’re going to service the debt we’ve run up.
In short, at a certain point, massive tax cutting becomes stupid and irresponsible particularly when it endemically favors one economic level of citizen (i.e., the well-off) at the expense of the other levels. Right now is one of those times I think a massive tax cut is not the most repsonsible thing to do.
Although, in general, I can agree that tax cuts would spur spending, as people then have more money overall for the year, but c’mon – if the government just takes the money in taxes, they get it in their pockets to spend on things like the budget.
Besides that, they’re just hoping that the money will bolster the economy, perhaps even that they’ll end up collecting MORE taxes when the people are motivated to earn money.
Honestly, I have no faith in this administration – the Clinton admin was on track to have no deficit in the future. As soon as Bush and his cohorts run in they just blow the budget out of the water, screwing (among other things) NASA out of funds in the process.
I’d like to quote my friend Ryan, as it made me laugh:
“they launched a campaign without a) world support, b) country support, c) enough ground troups, d) enough missiles, e) enough money. did they have ANYTHING they needed to start this???”
Yeah, they had enough dead civilians in New York, Washington and Pennsylvania.
“Yeah, they had enough dead civilians in New York, Washington and Pennsylvania.”
The whole Osama/Saddam connection is very weak, evidence-wise (as were most of their heavily publicized arguments), and was more of a way to try and convince the average citizen to support the war rather than explain a lot of the depth of why we’re getting into it. Saddam and Osama trading nukes and VX gas convinces more people than saying the slow rot from inactivity at the U.N. needs to be stopped.
We’re basically fighting in Iraq because it was time to finally call Saddam’s bluff. There’s no love lost between the two; in fact, there’s quite a bit of animosity. That being said, our administration was quite ill-prepared for this war. If they hadn’t set out laying down “You’re with us or you’re against us” ultimatums to the world, we’d have a heckuva lot more support than we do now. A little diplomacy can go a long way towards furthering your cause. I once read that a good commander remembers the 7 P’s when planning an operation: Proper Previous Planning Prevents Piss Poor Performance. Although I’m a liberal hawk, I think the administration has done a very poor job of preparing and executing this war.
Maybe they’ll actually remember to allocate funds for rebuilding post-war Iraq, instead of forgetting like they did in Afghanistan. Chaos and anarchy in a country that we destablized their country would probably be more conducive to terrorist operations than a country that we’re monitoring and guiding through the process of rebuilding. Speaking of Afghanistan and the war on terror, keep in mind that we only have a limited supply of intelligence assets (agents, equipment, analysts, etc), and that anything that goes to Iraq can’t be used to track down the rest of Al Qaeda. Only time will tell if the trade was worth it.
I am not a strong supporter of politicians in general. I am suspicious of them, and consider them selfish at my expense.
I have no doubt that there would have come a time that one of the Hussein’s would have sold one of the Al Qaeda a WMD and it would have ended up in London or New York.
I prefer the US have a foreign policy that consists of “Leave us alone”. I know that previous administrations have “fiddled” in other regions (and have been doing so since before my grandfather’s birth). Probably before that.
Each and *every* administration is going to have people who disagree with what they did. I heard on a radio station years ago that the Clinton Administration decreased our missile stocks to very low levels and other military stocks as well. Can *someone* “blame” the Clinton Administration for the shortage we have today – at the benefit of erasing the deficit? Sure *someone* could. Is it worth blaming them? No. What we have today, we have to deal with today. What we see coming for tomorrow we can prepare for. What has happened in the past we cannot change. It is reality – we must accept it, and stand on it, and work from it. I think we should try to do better than we have in the past.
Heck, I’m still upset that the Carter Administration required Auto Manufacturers to “increase security” of their vehicles, so Ford made the door lock and ignition different keys. The result is that my 1984 Mercury Capri needs two keys to operate. And that’s pretty dang petty. But I still have that grudge.
You make great points. We need to lean on the policitians to do their jobs – and do them right. *OUR* lives depend on it. Not just our freedom – our LIVES. Instead of asking how many rounds of ammo were found, the reporters should be asking where is the bill to pay for their destruction is in Congress. Instead of blocking New York traffic protesting a war that is already happening (e.g. can’t be changed / stopped), I think those people should be bugging their representatives about ensuring that our efforts should not *end* with the war.
I don’t expect anyone (especially John) to agree with me on this, but when it comes to tax cuts I tend to see eye-to-eye with the Bush administration. I do agree that they can be a bit heavy-handed, but I agree with their approach much more than the Democratic approach.
I guess I see it this way: if you were to take $5 million dollars and give a million people in America five dollars, they’d go and buy either some fast food or maybe some toy for their kid (half of which are made in China, and don’t do anything for our national deficit.) If they were to split it up and give $250,000 to 20 of the right people, those people could expand their small businesses and create new local jobs in their cities.
I realize I’m only addressing a small piece of the puzzle here, but I’d like to hear other peoples’ thoughts.
“I guess I see it this way: if you were to take $5 million dollars and give a million people in America five dollars, they’d go and buy either some fast food or maybe some toy for their kid (half of which are made in China, and don’t do anything for our national deficit.) If they were to split it up and give $250,000 to 20 of the right people, those people could expand their small businesses and create new local jobs in their cities.”
Not unlike the Small Business Administration (the budget of which Bush has proposed cutting, again)?
I suppose the question might be who the “right” people are, and whether providing them a tax cut is the smartest way to go about building those businesses. After all, there’s no guarantee that the 20 people receiving the $250,000 won’t spend it on fast cars and bubble gum.
A couple of points
John – “I don’t think one needs to *raise* taxes to erase the deficit, particularly if current tax revenues are running a surplus, but I’m also not in a big fat rush to lower them, either, especially when doing do raises the level of the deficit over the long term.”
Not to nit-pick (OK, to nit-pick), I think what you mean here is debt. Afterall, if we are running a surplus then by definition there is no deficit but there may still be a debt.
More substantively, I really doubt that any administration pursues a policy intended only to create a mess for the subsequent administration. This runs contrary to conventional political motivation – pursuit of power, and pursuit of legacy. More realistically, I think this is a case of what Lenin called “heightening the contradictions”. That is, conservatives see deficits as an incentive to cut spending. If taxes are lowered leading to higher deficits it creates pressure to cut spending. Unfortunately, this never quite plays out because, fortunately, all administrations and congresses have to share power to some extent with their ideological enemies.
Finally, John – “A sensible level of taxation doesn’t impede economic growth (this much should be obvious, given the strength of the US economy both in itself and relative to other economies)”
Both a banal observation and an ill-supported one. A sensible level of taxation cannot impede economic growth by definition. That is, to the extent that it impedes economic growth, it is no longer “sensible”. Of course, you can argue with my definition of sensible but it seems pretty plain to me. Secondly, the strength of the US economy, both singularly and relatively, does not support the argument that our current taxation levels are sensible (in the sense, cited above, of not impeding economic growth). Surely, it proves that economic growth is possible under our current tax scheme but it cannot be said that, were taxes higher or lower, assuming the optimal level of taxation for economic growth can be found, that economic growth would not be higher and, therefore, impeded by our current tax scheme.
“I’m not necessarily opposed to tax cuts in a general sense(and less so at the moment, because I’ve been looking at my taxes), although I think one can fetishize tax cuts to a ridiculous degree, and many conservative people do.”
I’m not suggesting that we cut taxes to the point where even the basic functions of government can no longer function. What I am suggesting is that if taxes are raised, tax revenues go down because people find ways of not paying. When taxes are lowered, tax revenues go up. This was seen in the 60’s when JFK lowered taxes and in the 80’s when Reagan did it. Reagan later raised taxes and regretted it. Both Reagan and Clinton have publicly said that the biggest mistake they made as President in regards to economic policy was to raise taxes.
I don’t buy the argument that tax cuts only help the rich, for a lot of reasons that have to do with the way the tax margins are defined, what motivates entrepeneurs to start companies and create jobs, etc.
I, like you John, have a personal interest in seeing my taxes go down. I earn a salary that puts me in the top 13% of income earners. So, according to statistics I’ve seen, I am in a group that provides the government with 54% of it’s yearly tax revenues. If you listen to the rhetoric coming from the left, that makes me rich. Anyone of them is welcome to help me pay my monthly bills and see how much money I have left to last me the month. I don’t live high on the hog. I send my kids to public school, I have a mortgage on a house in Southern California (I can hear the laughing from here, John), I drive a Chrysler, and my wife drives a 6 year old Ford Contour. Please give me a tax cut that benefits the rich. But because of that rhetoric, no tax cut I’ve seen come from the Bush administration does that. In fact, most proposed tax cuts that have been proposed anytime in the last 6 years have targeted people who earn between 35 and 60k a year. These kind of cuts can hardly be said to benefit the rich.
While I agree with Roger’s conclusion – cutting taxes is good for the economy, ceteris paribus. I have to argue with his reasoning. Tax revenues don’t decrease after a tax hike because “people find ways of not paying”. Afterall, the only way you can find to not pay is through ‘loopholes’ which are themselves targeted taxcuts. Social policy through selective taxation if you will. The reason revenues, theoretically, increase after a cut is that economic growth is stimulated. Tax revenues do tend to go up when taxes are raised but this isn’t always a good thing. In truth, this isn’t such an easy question, as anyone who has studied the matter without ideological bias can tell you. If, for instance, we have an economic situation comprised of endemic hoarding of cash (which we don’t) by corporations (they rarely hoard and nearly always reinvest) or individuals (come on, maybe in Japan but not here) then it may be prudent for the government to raise taxes, remove the money from the hands of the hoarders, and spend it. This creates demand and spurs the economy. This is the essence of the Keynesian argument. Under certain conditions it is possible to raise taxes and by doing so, spur economic growth and increase revenues. I don’t think, however, that this is our current situation. It is more likely that a tax hike now would stifle economic growth and lead to revenue growth disproportionate to the marginal increase. That is, if we increased taxes by 10% we would see an increase of less than 10% in revenue.
Clearly, as I alluded to in my previous comment, there is an optimal level of taxation at which the economy performs best. The problem is that this is hard to find because, well, the problem is complex and the environment is dynamic. I happen to believe that the optimal level is lower than our current rates.
The biggest problem i see with using a tax cut for the wealthy as an economic incentive to spur commercial growth and thus provide new jobs and such, is that it relies on the good will of the people to whom it is giving the money, while giving them little incentive to do anything productive with it… it just hands them a note that says: Congratulations, you make a lot of money, and must therefore be a steadfast and trustworhty guardian of our nation’s economy. Please take this bag of money and do what you will… we know you’ll do the right thing!
How about if instead of that dubiously placed trust, we instead offered tax INCENTIVES to businesses who actually DO expand their operations and/or hire more people, thus contributing to the common good of the economy? Or how about special tax cuts for businesses that offer benefits or compensation in excess of minimum wage? That way the behavior we’d like to see is BUILT IN to the reward, and not just some vague hope of philanthropy on the part of the people holding the money.
“That way the behavior we’d like to see is BUILT IN to the reward, and not just some vague hope of philanthropy on the part of the people holding the money.”
I like this goal, and I think that there is a simpler way to accomplish it. Let me rephrase what I think the goal is. It is good for the economy if money is invested, which creates jobs. It is preferable if people save/invest their money rather than spending it on bubble gum and fast cars. In other words, what we invest is what we add to society. What we consume is what we take out of society.
So, we make a consumption tax rather than an earnings tax. Not that we would change the progressive structure of taxation. The rich should pay more taxes. They get more benefit from government spending. But money that is earned should not be taxed until it is spent. This is not as complicated as it sounds. All you need to do is deduct from your taxable income the amount that you have invested. Of course, the rates would have to be totally refigured after that to come up with the same tax base. But in the end, I think the economy would be much stronger.
By the way, I didn’t invent this idea. I think I heard it on the radio. But I think it is a really good one. I’d love to hear what you all think of it.
About Macro Economics: The economy is stimulated by the net amount of money spent; people who argue for tax cuts always like to point this out. What they always forget to mention that money spent by the government must be included in “the net amount of money spent”. If you cut taxes for a million people by $5 AND all those people chose to spend the tax cut, you have stimulated the economy by $5 million. If you increase welfare benefits for a million people by $5, and those people chose to spend the money, you have just achieved EXACTLY the same amount of economic stimulation.
But this is key: the stimulation doesn’t happen if the recipients of the extra cash don’t spend it. Answer me the following question: Who is more likely to spend an extra $5? An executive making 6 figures in salary, who has hefty stock dividends, or the family who has to eat mac & cheese every night?
No one ever says anything so heretical out loud, but the truth is that increasing welfare benefits would actually be one of the best ways to stimulate the economy, since welfare recipients are the most likely to turn around and spend that money immediately.
About being “rich”: I too am in a fairly high tax bracket. I too always feel like I don’t have as much money as I’d like, but think about this: If you have trouble (in the top 13%) paying all your bills, what do you think it’s like making HALF as much money?
Do I want a tax cut for me? Of course! I like money as much as the next guy. But as painful as my financial situations seems, there are many, many people who have it much worse. (In your case, 87% of people are in worse shape than you.)
I’m a fan of flat income tax. The government can use “coupons” and “rebates” (like manufacturers of retail products do) in order to provide selective rewards for particular investments.
It just grinds me that the numbers increase as they do. I understand statistics, and I realize that a flat (30%?) tax would mean that a lower income person would have less money left-over, but they had less money to begin with. It would have the additional benefit of nearly eliminating the need for the world’s most powerful organization – the IRS. With a flat tax, you wouldn’t need to file if your job took your taxes out.
If you wanted to take advantage of some government sponsored rebate, you would send away for the coupon, fill it out, attach the required documentation, and send it in. All the IRS would be used for is these rebates, people who were self-employed, and corporations.
I think flat tax is the way to go.
A couple of comments:
Kris – The government need to give an incentive to invest the money to the rich. Free market economies offer their own incentives – that is, a risk adjusted return on dollars invested. It has nothing to do with philanthropy and everything to do with self-interest. If you are a billionaire and you receive a couple extra bucks, it doesn’t go into a jar or in your mattress, it goes to your broker who reinvests the money in stock, bonds, derivitives, futures, etc. Also, I don’t like the idea of targeting these things principally because doing so rarely has the intended benefit. The economy is very complex system. That said, if your goal is social policy and not economic policy and you view taxation as a moral means to acheive these ends – then go to it. I tend to prefer more straightforward methods, like a simpler tax system with government benefits for those who acheive social ends.
Henry – Sometimes it’s a good idea for people to save more but sometimes the economy is in trouble because people aren’t spending enough also. It takes two to tango – supply and demand. More often than not, you need a little bit of both. Also, a consumption tax, which I do find interesting, is a regressive tax. The rich would pay more in real terms but the poor pay more relational to their income. And that is how we discern a regressive scheme from a progressive scheme. Consumption taxation also has the nasty effect of stifling consumption during hard times which is exactly the time when you don’t want to stifle consumption or government revenue for that matter.
Dete – Exactly right, welfare benefits would stimulate the economy, if demand is anemic. This isn’t always the right answer but it can be a good one. Under these conditions, I tend to prefer payroll tax (as oppossed to income tax) holidays or temporary cuts. These have a disproportionate positive effect on the working poor and middle class who are very likely to spend money and stimulate demand.
Jon – The flat tax is great for it’s simplicity. But it isn’t the only way to have a simple tax code. It is possible (whether its a good idea is another matter) to have a progressive simple tax system – no ‘loopholes’.
First, let me state that I find this a very stimulating thread of conversation. Thank you all for very well reasoned points of view.
Let me be clear. I’m not actually struggling to pay my bills. But I’m not rich and for various reasons that have to do with property taxes, past spending habits and car maintenance, I don’t have a lot in savings. But I do take offense when I find myself classified as rich. Bill Gates is rich, not me.
Dete, less than 10 years ago I was part of that 87%. In the early 90’s I made less than 25K a year. I have memories of what it was like to struggle to live paycheck by paycheck. But by hardwork, self study, and getting and doing well in a couple of good jobs I was able to increase my salary. Frankly I don’t want to ever go back to what I made then.
Kris, your comments about taxing the rich strike at the heart of my argument. I find it insulting to my intelligence that an outside agency would have the gall to assume to know how I should and will spend the money I worked my ass off to earn. They don’t know the particulars of my life, they don’t have a right to say if I should keep my money and how I should spend it. Kris, who decides what the right thing is? You? Bush? Clinton? My neighbor?
Increasing welfare to increase consumer spending is an interesting idea in theory, but I don’t think it would work. The underlying problem with that is that welfare is an entitlement program that redistributes wealth from productive wage earners to people who are not. It creates a dependence on government services that is harmful to economic growth because people on welfare would be less likely to get up and get a job, or start a company or do anything else that stimulates the economy.
Lastly, I’m not advocating a tax cut for the rich. I want to see tax cuts across the marginal tax rate board. I want to see tax cuts for everyone who pays taxes.
Archibald – Very well put. Regarding your issues with my plan (stifles demand, regressive), I agree on the first point. There is a balance that must be maintained. It seems like we are currently far from the correct balance because most of the middle class does not invest/save enough (which causes the need for the social security system and welfare and other problems). If we moved towards a consumption based tax, I think that would be closer to the correct balance. But I agree with you that an absolute consumption tax could go too far.
On the second point, the regressive problem, I agree that this is an issue. However, if we just have lower tax rates for savings (again, finding that balance), and refigure both the savings and consumption rates to be more progressive than they currently are, I believe we could solve that problem. In other words, people making 15,000 or less could still pay no taxes even if they spent it all. And people making $1M a year would pay taxes even if they invested it all, but they would pay far less taxes that way then if they spent all of it.
I don’t think we will ever see significant movement on lowering income taxes or moving to a consumption tax until people really see the bite income taxes take out of their paycheck.
Prior to WWII, there was no withholding of income tax. People just had to pay their share come tax day. Which meant, I’m sure, that most people saved for that. Withholding came about because the government need to guarantee tax revenues to cover the war expenses. I also believe that there was a tax increase somewhere in there as well and the government knew it would not go over well. So the economists working on the problem, one of which was Milton Freedman, came up with the idea of withholding a certain amount from everyone’s pay check. The logic was that if you didn’t see it, you didn’t miss it. Withholding was supposed to end after the war, but of course it didn’t, to Freedman’s eternal regret.
So if we eliminated withholding, there would be some really immediate benefits for people in terms of larger paychecks as well as visibility to the hard numbers that represent a 15% or 28% tax bracket, or what have you.
Once people had to write a large check to the government each year, I would bet all sorts of tax cut proposals would crop up, as well as discussions of moving to consumption taxes.
Rumsfelds War… most of the sniping and second guessing of Rumnsfeld by “current and former military officers” are running skirmishes in the larger war that he is engaged with with the “old guard” military. Rumsfeld came into office with the sole goal of overhauling the military into a smaller, precise, tactical operator. The US military prior to the current day has had one mode of operation: the human wave. They bury any resistance under a mountain of men and materials. That is effective, but not cost effective in lives, time or material. Precision weapsons, targetting and communication have greatly enabled light/joint tactical operations, reducing the aggregate numbers of artillary and infantry needed for any operation, or so Rumsfeld believes and the “old guard”, including generals of the previous gulf war, do not belive. The protracted battles over the Crusader mobile artillary was the most recent battle prior to this, as is the increased use of marines and airborne using air support instead of armor and artillary. There have been no surpises in the campaign to date — bypassing centers of resistance on your way to the ultimate objective is a great tactic to win fast if you can suck up the hits on your logistics, which we can. The “old guard” officers are using this well known issue as a petard on which to hoist Rumsfelds whole battle plan. I perceive his current and long term plans to be correct, but civil wars are always bloody.
Roger–you said something along the lines that wellfare would not be the optimal way to spend money to increase demand: true. It is a transfer payment, and since it produces nothing right away, it therefore skips the first step of the multiplier process (the idea that each person spends a percentage of what they make or any additional income that they recieve; that percentage in turn is spent by the people who receive it, a process which continues out to the limit. It’s a basic macroeconomic concept, taught in macro 101). A much better idea (if you approve of spending money in the firs place) would be to increase government spending on actual products, like highways or something physical. That way the whole multiplier is used (no-one can save any of the money in the first round of purchases). This same multiplier argument applies to tax cuts as well–people will save some of the tax cut and spend the rest of it; all other things equal, a tax cut and a spending increase of equal size will have the spending increase give a bigger boost to the economy.
An interesting point for taxes is that it doesn’t matter who is actually taxed overall to see who bears to the cost of taxation; the real determinent of that is how much demand changes based on an increase in price: for goods that have a large change in demand for a small change in price, the suppliers bear the burden of the tax, while for a product that has a small change in demand for a large change in price will place the burden on consumers. Both of those statements hold true _regardless of who is taxed_.
Just a couple of points to consider.