Mark Zandi, chief economist at Moody Analytics, once and for all has settled (with the help of the CBO) the 500+ comments thread from a while back over at TSM.
Some supporters thought the lower tax rates would spur much stronger economic growth, and a few even hoped there would be so many new, high-paying jobs that tax revenues would actually increase, despite the lower rates.
There is no evidence that this happened, however.
The nonpartisan Congressional Budget Office recently estimated that the Bush-era tax cuts cost the U.S. Treasury $1.6 trillion during the 2000s. Combined with the $1.2 trillion spent on the Iraq and Afghanistan wars and the $1.8 trillion needed to fight the Great Recession, this put the federal government deeply into the red. The nation's debt load today is as heavy as it has been since the 1940s and getting heavier.
To put it simply, they didn't generate growth nor revenue. Now that that is settled (although I'm nearly certain that the financial wizards at TSM, with their vast experience and day to day work with economics, will disagree:)), how do we solve the problem of the deficit? Well, exactly like I have been saying...one third tax cuts, two thirds spending cuts.
Extend the tax cuts for everyone except high-income taxpayers. The economy isn't great, but it is strong enough to handle higher tax rates on the wealthy. And we need the extra revenue, which under reasonable assumptions would reduce the federal deficit by nearly $1 trillion over the next decade.
Raising tax rates on wealthier households is necessary, but so, too, are more cuts in government spending. Washington last summer agreed to cut $1 trillion over 10 years as part of the deal to raise the Treasury's debt ceiling. Even with $1 trillion in additional tax revenues from affluent households, it will take an additional $2 trillion in cuts, under reasonable assumptions, to get our fiscal house in order. Given how politically difficult this will be, any agreement to raise taxes on the wealthy should also include more cuts in government spending.
And what will the result of all this be?
If policymakers follow this script, federal tax revenues will eventually rise to equal just over 19 percent of the nation's GDP, and government spending will fall to the equivalent of 21.5 percent of GDP. These are roughly the average ratios seen since 1980. In other words, government's role in our economy and our lives will be about what it has been for the last three decades. The deficit will still equal 2.5 percent of GDP (21.5 percent minus 19 percent); while more than ideal, this will be manageable, given the economy's expected growth.
That's right, folks, it's just that simple. Anyone think it will happen?
27 comments:
Well, exactly like I have been saying...one third tax cuts, two thirds spending cuts.
when the hell have you ever said that? You argue against spending cuts every chance you get. The closest you've ever gotten to that statement is saying ’we can't do it with cuts alone’, followed by another screed about how cuts to government spending will hurt the economy. And how we hate government because we think they should cut spending.
Incredible.
I have supported a compromise like the Simpson-Bowles proposal since before it was even announced, and I as recall so has Mark. There need to be significant revenue increases (in particular, capital gains should be taxed like regular income again) and significant expenditure cuts, especially in the bloated areas of defense, Social Security and Medicare.
I started right out of college working on a government defense contract, and my wife spent more than half of her career working at a company that did defense contracting. Conservatives like to think that politicians are nothing but liars, but companies that provide services to the government make politicians look like pikers.
Defense contractors either get cost-plus contracts, where they get paid no matter how badly they screw up, or intentionally underbid on multiyear contracts knowing that once the government has sunk billions into a project, they can't pull the plug when it's half done. And during the project the bosses tell the engineers to never tell the auditors anything. The bosses always lie about the true state of affairs, keeping the truth in their back pocket in case it comes in handy some day. That's why most every defense contract goes WAY over budget.
In the case of Social Security and Medicare, during the 1980s Ronald Reagan and Congress instituted formulas that caused the cost of living adjustments to be greater than real inflation, making benefits rise faster than wages. Payroll taxes were increased, as was the cap on Social Security, but not as fast as benefits rose. Even back then a lot of people knew that Social Security would go bust some time after the baby boom retired, but they still voted for the increases because old people vote.
You've been calling for cuts in government spending Markadelphia? Go ahead and find the links to your words, then find the ones where you say that we needs more government spending because there are a lot of those too.
Mr Black and White - tax rates are the only thing that drive the economy, eh?
Raising taxes on the rich will raise only a fraction of the money needed to close the deficit and operate this country on a more sound fiscal basis.
I'll support a tax increase. The day after I see real spending decreased. I ain't holdin' my breath.
I'll tell you what, rld. I'll provide them if you make more than one comment and actually offer an analytic argument.
"Anyone think it will happen?"
No.
Hopefully the NYT isn't too right-wing of a media source.
In 1962, we were laying down the foundations of prosperity. About 32 cents of every federal dollar, excluding interest payments, was spent on investments, only 14 percent on entitlements. In the mid-70s the lines crossed. Today we spend less than 15 cents on investment and 46 cents on entitlements. And it gets worse.
And as usual, Samuelson is dead on:
The investors piling into Treasuries and driving rates down aren't buying risky stocks or using their cash to expand businesses. They're protecting themselves against unknowns. The question is whether the resulting plunge of rates signals something more ominous: renewed recession, deflation or both.
Just as "irrational exuberance" drove the economic boom, so the bust is sustained by an almost-pathological and self-fulfilling pessimism. The unspoken faith in economics -- that governments could prevent another Great Depression and ensure that recessions, though unavoidable, are limited -- has given way to profound skepticism.
But by ALL MEANS - let us just pretend that we can return to those golden days of yore.
actually offer an analytic argument.
analyze
[an-l-ahyz] Origin
an·a·lyze
...
2.
to examine critically, so as to bring out the essential elements or give the essence of: to analyze a poem.
3.
to examine carefully and in detail so as to identify causes, key factors, possible results, etc.
...
argument
[ahr-gyuh-muhnt]
ar·gu·ment
[ahr-gyuh-muhnt]
...
2.
a discussion involving differing points of view; debate: They were deeply involved in an argument about inflation.
...
4.
a statement, reason, or fact for or against a point: This is a strong argument in favor of her theory.
...
You've been calling for cuts in government spending Markadelphia? Go ahead and find the links to your words, then find the ones where you say that we needs more government spending because there are a lot of those too.
Analytic argument in plain words so Mark can understand: Your statement is false. You cannot and have not shown proof that it is true, and a search of your own works will prove it false.
How's that?
You cannot and have not shown proof that it is true, and a search of your own works will prove it false.
http://markadelphia.blogspot.com/2012/01/true-gem.html
Spend more than we are now? Or much more? How much? Where? This seems too vague and doesn't make much sense considering the unemployment has dropped in the last few months without increased spending. While I don't think we need the Draconian cuts called for by many on the right, we also don't need increased spending. In fact, we could cut spending in the Big Three (Defense, Social Security, Medicare) in a number of ways that won't erode employment as much as Krugman thinks and do quite a bit to reduce our long term debt and deficit. Throw in the end of subsides and tax cuts on the wealthy and things look even better. So, on this point, I simply can't agree with him.
I don't mind illustrating this for you, GD, but rld rarely sticks around for more than one comment so that's why I made the comment. I know you'll be around.
If you'd like some more examples, I'd be happy to provide them. There are many in comments.
So a weasel worded "we could cut spending" overrules many pages of comments and posts where you argue against cutting spending, argue against balanced budgets, argue for increased spending and in general poo-poo spending cuts in favor of tax hikes?
Like rld said after finding this link, find the many more that show you favor increased government spending.
Well, that's where your perception turns you into an hysterical old woman, GD. I favor government spending which translates into increased spending in your heard.
Long term, we are going to have to make spending cuts in order to deal with our debt and deficit issues. We are also going to have to raise taxes and cut subsidies. Even with all of this, we can still cut corporate taxes which will likely increase revenue.
Even with all of this, we can still cut corporate taxes which will likely increase revenue.
Channeling Laffer there M? What makes more sense - cutting corporate taxes and raising capital gains? Or leaving the status quo? What about favorable treatment of dividend income?
Gosh Mark, you're right. I'd have to be a hysterical old woman to hear you say you favor government spending and not think that you.....favor government spending....
You are a ridiculous ninny to be able to square in your head the conflicting thoughts that you both favor government spending and spending cuts at the same time.
And just because you are such a ninny....
Long term, we are going to have to make spending cuts in order to deal with our debt and deficit issues.
Why? You argued ad infinitum that the government won't go broke due to deficit spending. Why the hell, in your expert opinion, would we have to deal with the debt? Are we going to fall into a boiling pit of sewage if we don't? When? What date will that happen?
Well, it's not surprising that you are not thinking very rationally here so let's see if you can be straightened out.
Our country has always had debt and we have been just fine. We've operated with deficits for a number of years and we've been just fine. As Dick Cheney said, "Reagan proved that deficits don't matter." Now, do you agree or disagree with this information thus far?
Short term, we can run high debt to GDP and high deficits. This has been done in the past in times of crises and we have been just fine. Long term, however, we do need to look to getting the debt and deficit down to lower levels. That's where the tax increases, spending cuts, and corporate tax cuts come in to play. I'm not talking 1-3 years...more like 10-15 years. Having lower debt and deficits in the long term is important because it's more healthy...economically speaking. Of course, Japan has had very high debt to GDP and done alright but we aren't Japan. We are the largest economy in the world and, in so many ways, the rest of the countries on Earth look to us for a strong foundation. Could we provide that if we are running 100 percent debt to GDP for 10 years? I don't think so.
So, you have to look at this in a more nuanced way and not so (ahem) black and white. Think about the short term effects of debt compared to long term. Thoughts?
As Dick Cheney said, "Reagan proved that deficits don't matter." Now, do you agree or disagree with this information thus far?
I don't give a fuck what Cheney says? Why do you? Do you believe everything that passes his lips?
Long term, however, we do need to look to getting the debt and deficit down to lower levels.
In other words IT ISN'T SUSTAINABLE, which might also mean in one person's more colorful formulation - we will eventually end up in a boiling pit of sewage.
black and white
Nothing like projecting your own binary vision onto everyone that disagrees with you.
IT ISN'T SUSTAINABLE,
Well, you bring up a good point...how much debt is sustainable? 50 percent of GDP? 60? 70? How much for the deficit? 2 percent? 3 percent? 4 percent? Obviously, we have gone for many years with some of these numbers.
And how many years has Japan gone with 245 percent debt to GDP? I really don't know...I'm asking.
Japans economy has been in the toilet for a ling time.
I really don't know...I'm asking.
Not that long. Prior to their own economic collapse into stagnation, the Japanese debt to GDP was below 50% (though it was on a pretty steady path of growth). It would appear that all of the Keynesian attempts to re-inflate the Japanese economy did nothing but saddle the country with more debt.
If you are truly interested in this subject and how it relates to the U.S. in particular I would suggest the Friedmans' Monetary History of the United States.
I'm well aware of Friedman's central thesis, juris. I take it that you believe that our economic problems are mostly related to the Fed?
I'm well aware of Friedman's central thesis, juris. I take it that you believe that our economic problems are mostly related to the Fed?
Your second sentence belies the first. You are familiar with leftie/proggie criticism of Friedman, but I know for a fact that you've never actually read him (and his wife/collaborator).
You know for a fact? Since we don't know each other personally, that's a bold statement.
I studied Friedman and his works extensively as an undergraduate. Recently, I've spent time looking at some of the more critical views of Friedman. I'm curious as to what your criticisms are of him, in particular, his involvement with Augusto Pinochet.
Regarding your other quip...
"The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 ... Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government." (Milton Friedman)
Agree of disagree?
Since we don't know each other personally, that's a bold statement.
I'm just going based on what you have said.
I studied Friedman and his works extensively as an undergraduate.
Bullshit. By your own statements you have taken ONE economics course and Friedman never produced an undergrad text on economics. He wasn't even required reading for me and it was my fucking major.
I've spent time looking at some of the more critical views of Friedman.
That I believe, though I doubt you've read in depth on that either.
his involvement with Augusto Pinochet.
Standard left-wing trope - you can fuck yourself. If you cared you would quote Friedman himself on that.
Agree of disagree?
I don't know for certain, but I would tend to disagree since that view fails to account for global financial conditions (and in particular Britain's return to the gold standard in 1925) nor the non-financial problems in the U.S. at the time. That said, Monetary History is still a sublime work and contains a great deal of good material. Quite unlike the People's History that most left-tards are sooooo in love with.
By your own statements you have taken ONE economics course and Friedman never produced an undergrad text on economics.
So what? Friedman was a key figure in history and political science as well as international affairs. Rest assured, I have taken many classes on the subject including one from a former member of the Chilean government.
Why do you get so pissed when I know things, juris?:)
Monetary History is still a sublime work
The problem I have is that he can't shake "The Market is Perfect" mantra and refuses to accept that, as Mankiw noted, government can sometimes improve market efficiency.
Getting back to the Great "Contraction," Friedman's argument states that it was caused by the Fed's refusal to inflate, correct? I'm not actually certain that's why I'm asking.
So what?
Because you just proved that you lied about having studied him. You have read people that criticize him. You may have read some blurb that he wrote - possibly. But you have never read a single book he wrote.
Why do you get so pissed when I know things, juris?:)
I get pissed when you lie about what you know. When you ask legitimate questions - like about Japan's debt, how do I respond? What pisses me off is the pretense that having read some little, left-tard critique of Friedman you feel entitled to criticize as though you actually read and understood what Friedman wrote.
The problem I have is that he can't shake "The Market is Perfect" mantra and refuses to accept that
Further proving that you've never read Friedman because he did address externalities and market failures. You can't grasp that he wrote things that refuse to conform to your miniaturized stereotype - the only yardstick you ever use to judge.
Friedman's argument states that it was caused by the Fed's refusal to inflate, correct?
No, what he said was that the Fed's actions contracted the money supply and credit. His fundamental argument is against counter-cyclical policy a la Keynes and for a steady monetary supply (allowing the market to go up or down without amplification).
It is too bad you haven't read more about what he had to say about govt debt relative to GDP and the size of the federal govt.
I don't get it, juris. I'm trying to have an honest discussion with you about Friedman and you turn it into to a discussion abut who has a bigger dick. Why? Obviously, you think the man is an economic genius and are likely too emotional about it.
What pisses me off is the pretense that having read some little, left-tard critique of Friedman
I wouldn't exactly call Gary North, a former economist of Ron Paul, a left-tard critic.
http://www.garynorth.com/public/9871.cfm
And you are going to have to do better than this...
Standard left-wing trope - you can fuck yourself
on Chile. If you choose not to, I'm going to take out the word "left" and put in the word "right" as a response to assertions you make.
Obviously, you think the man is an economic genius and are likely too emotional about it.
Sure, that's why I disagreed about his assessment of the Fed's role in the Great Depression. Don't project your own hero worship of authority figures onto me. If you recall you had a hard time understanding why I don't admire great men like you do.
North appears to be one of Ron Paul's anti-Fed gold-worshippers. This was to me the weakest part of Paul's program, and here you cite it to criticize Friedman (who supported the Fed but disgreed about what it should do). Sure enough that source is not a leftie - it is from someone even further out in the fringe. But here's the REAL point - you don't even know who you are citing when attempting to criticize Friedman.
you don't even know who you are citing when attempting to criticize Friedman.
Well, he falls in line with the Austrian school critics of Friedman and I brought it up because of your continual insistence that I'm being brainwashed by the left.
North might be fringe but I'm pretty hard pressed to see how he is wrong given the data he presents. Your thoughts on his views regarding Friedman and his seeming ignorance of FDIC?
Post a Comment