Saturday, July 24, 2004
Iron Blog Ultimate Topic ListHere is a work-in-progress list of topics for Iron Blog Battles. I need your input on topics I'm obviously missing. Leave suggestions in the comments.
Abstinence-Only Sex Ed
Assault Rifle Ban
Bush Tax Cuts
Campaign Finance Reform
Church and State
Cloning (Human Body Parts)
Compulsory Organ Donation
Condoms In Highschools
Corporal Punishment (In Schools)
Creationism As Science
Disability Rights (Accessibility)
Disability Rights (Employment)
Evolution As Science
Foreign Policy (Multi-lateral)
Foreign Policy (Uni-lateral)
Geneva Conventions (General)
Geneva Conventions (War on Terror)
Hate Speech (Should It Be Protected)
Healthcare (Universal, Multi-Payer)
Healthcare (Universal, Single-Payer)
Homeland Security (Policy)
Homeland Security Department (Should It Exist)
Instant Runoff Voting
Intelligence (Iraq War)
Judicial Nominees (Bush)
Line Item Veto
Medicare (Prescription Drug Bill)
National Sales Tax
North Korea (Policy)
No Smoking Bans
Nuclear Weapons (Retain or Reduce)
Oil Exploration (Alaska)
Oil Exploration (Offshore)
Patients' Bill Of Rights
Pledge Of Allegiance
Prayer In School
Reasonable Search and Seizure
Right To Privacy (Boundaries)
Social Security (Privitization)
Social Security (Solvency)
Special Education (Integration v. Isolation)
Stem Cell Research
United Nations (Membership)
United Nations (Reforms)
War On Terror (Policy)
War On Terror (Success)
Updated GuidesNew versions of the IB Guide and Judges' Guide are up. There aren't a /ton/ of changes, but a few things have been clarified, so be sure to look it over.
Judges will note that the 1pt for NOT using new arguments or sources in a closing has been removed, and now it is an AUTO ZERO for the ENTIRE post if a Combatant introduces new items in the Closing. IB's and Challengers, beware.
Also, in the IB Guide, there are now a few paragraphs on proper etiquette and behavior. Starting with our next Battle, excessive (in The Chairman's opinion only) snark will get a Combatant a private, email warning to tone the rhetoric down. Further abuse may result in The Chairman instructing all Judges to dock a certain number of points, or even in disqualification. Under this new system, Dan would have received a warning in private email after his Opening Arguments to tone his snark down, and if he didn't comply (though Dan's good about complying with my requests) I could have instructed the Judges to dock a number of points from his posts equal to the level of snark at my sole discretion. Or, I could have simply dq'd him.
Before IB's and IB regulars freak out, no this doesn't mean there can't be snark - it simply means don't go crazy with it. Dan admitted he felt he may have abused it, and I agree that he did. Every previous battle has been fine, and in cases, like Rose v. PG, where the snark is heavy but both combatants are enjoying it, I'll stay out of it. Suffice it to say, however, that Dan's strategy of snarking his way out of a battle and getting the dirty win (the official Iron Blog Chewbacca Defense) will no longer fly. But then, it shouldn't have to, as I'm being even MORE extra-super-careful to make sure both Combatants are comfy with the Topic and their side in it.
Also, there's a new rule about battles in progress - combatants need to complain to /me/ in /email/ during a battle if they wish to protest something, from a Judge's slip in the comments like PG made to an expression of displeasure with their opponent, as Stirling did. Email only. Going into the comments and complaing, or going to your own site or a third-party site and complaining about Iron Blog, its rules, participants or Chairman /during/ a battle will now be an instant disqualification. If you can't let a battle finish and let the Judges do their job before declaring the blog a joke or worthless or teh suXX0r, don't play here. Period. AFTER the battle, well, do what you will.
That said, have fun, don't take the battles personal and remember - at the end of the day, it's just a blog, and it's just a game.
Battle Tax Cuts - Challenger - ClosingFrom: email@example.com
Subject: Closing Statement
Date: July 24, 2004 1:13:02 AM EDT
Lionel Robbins, libertarian economist and supporter of FA Hayek, defined economics as the study of choices between scarce resources that have alternate uses. Alfred Marshall, who literally did write the book on Principles of Economics argued that economics is the social science that focuses on what is measurable.
Measurable trade offs then, are at the heart of any discussion or debate about an economic policy. To fail to lay out the trade offs of an economic policy is to engage in bad faith.
I would like to start with an example of how to propose a series of tax reductions, from Kennedy's two speeches, first in 1961, and then in 1963.
First, in both addresses, note his continual laying out of the balancing alternatives. His 1961 tax plan includes, not only extensions of existing taxes, but decisions not to back tax increases which had been proposed, and closing of loopholes, including the use of Social Security Numbers to track income tax.
Second, not how he connects with each proposal, exactly how it is to produce expected gains. For example, he points out that commercial aviation produces benefits in the economy beyond those captured by the companies themselves, and that therefore during the transition to broader use of jets, aviation fuel should not be taxed as heavily, but that the tax on fuel would be raised, gradually until “the entire cost is recaptured".
Finally, note that he does not ask that the Congress count these chickens before they hatch. Instead, he labels losses in revenues where they occur, and balances them with exactly how the new tax structure should produce effects:
But continued confidence at home and cooperation abroad require further administrative and legislative inroads into the hard core of our continuing payments deficit-- augmenting our long-range efforts to improve our economic performance over a period of years in order to achieve both external balance and internal expansion-stepping up our shorter run efforts to reduce our balance of payments deficits while the long-range forces are at work--and adding to our stockpile of arrangements designed to finance our deficits during our return to equilibrium in a way that assures the continued smooth functioning of the world's monetary and trade systems.
Before turning to the specific measures required in the latter two categories, I must emphasize once again the necessity of improving this Nation's over-all long-range economic performance--including increased investment and modernization for greater productivity and profits, continued cost and price stability and full employment and faster growth. This is the key to improving our international competitiveness, increasing our trade surpluses and reducing our capital outflows.
In otherwords, even if the Federal Budget is to run a deficit, it will improve the gold flight problem, which would undermine the US trade position. He is saying that his trade off, even if the tax plan does not work as well as hoped, is domestically held federal deficit for foreign held trade deficit, and that over time high yielding investments overseas would return more than domestic investment. Bush, in contrast, has allowed the trade deficit to explode, making the devaluation argument, while forgetting that much of our trade deficit is for oil, and the Saudis don't buy our consumer goods, no matter how cheap they are.
Particularly in the 1963 address, he relentlessly underlines the particular economic condition that prompts his action, namely the need to maintain the gold peg of the dollar, and slow the outflow of gold from the United States. He underlines the need for the United States to undertake these agreements.
The Council of Economic Advisors at the time realized that the tax cut had inflationary implications, and felt that, under the then commonly held view of how the Phillips Curve worked, that they could allow a certain amount of price inflation, in return for wider employment. The wider employment would then bring down prices because of economies of scale, if, there were enough investment in automation to provide those economies of scale. So the demand side, tax reductions, linked to the supply side through, as Kennedy put it, automation improving productivity. But note as well that he is committed to making sure that the losers of the automation advancement would be caught, rather than simply dumped into unemployment. Even when the trade off is generally positive, the costs are recognized.
History has seen that the Kennedy tax bill helped sustain expansion in the 1965-1968 period, but that it had the effect of creating pressure on the dollar and increased pressure on oil supplies. It was Nixon's inability to deal with these pressures that caused him to lift oil import quoats in 1973, and to go off gold in 1971. The lesson is that tax policy cannot be set on autopilot, but must constantly be reexamined in the light of the market's response to incentives. Kennedy himself points out a tax provision of 1954 which, despite reasonable arguments for its passage, should be repealed.
The standard set here, for what a tax package should look like, is not met by the various tax bills which taken together form the revenue reductions. The underpinnings of these bills are either the “starve the beast" hypothesis of Grover Norquist. Which is to say that one cuts revenues, and then nasty effects force people to cut spending. This is based on the work of Robert Mundell. Or one can believe “Ricardan Equivalence Hypothesis" of Robbert Barro and argue that people will get a tax windfall, and then save all of it to pay for the tax increase they know is coming. But even Barro admits that the particulars of a tax policy have an impact, and therefore should be looked at.
Rather than take a position on these theories, I've laid out a practical case: namely that energy prices have jumped, that as a result real wages have been squeezed. That the chances for genuinely new businesses dropped, and that new company formation has fallen through the floor. These are the root problems in the economy: rising energy costs and falling chances for new business. The tax reductions have not addressed this problem, nor can they – because even under their own theory of REH, they have to be poured into investment. Investment that must produce efficiencies to pay for itself and remain neutral. But investment isn't remaining neutral, on the contrary, it is over inflated by historical norms – that's the Price to Earnings graph.
In other words, for the deficits “not to matter", even under their own theory, they can't be of any help in paying for the current squeeze, and they can't be used to get us out of recession. Because that would be spending, and not saving.
What this means, even under their own theory is:
1. The tax reductions are going to be paid by higher taxes down the line. Not saying what these taxes are – means that we have people buying lottery tickets on their not being around to pay the results.
2. The tax reductions have to be shown to be increasing investment that will specifically drive down the cost of scarce resources. They have to do this without buying signals from the demand, because, under their own theory, there can't be any demand. This is “getting from the demand side to the supply side". They haven't done this either. I have pointed out that Iraq was an attempt to ease they supply side energy problem, but there is nothing in the tax bill that would do this.
3. For the REH to hold, all the money has to be investment, and all the investment has to be effective. Leaving aside Stiglitz and others who deal with imperfect information, investment has a supply and a demand. New investment demand, which under REH government deficits have to be, will eventually saturate investment supply. This is why I talked about P/E ratios in investing: because if investment is saturated, which by every historical measure it is, more money will not produce more efficiency, merely asset inflation.
So that is the case: we have energy and asset inflation already, before Bush was inaugurated in fact. Cutting general revenues exacerbates these problems, regardless of whether you want lower taxes or not, regardless of whether you want smaller government or not. As with Kennedy and the problem with gold flight, it is these problems that are hindering our economy: the cost of energy, and the paucity of chances for genuinely new areas of business. We see these hit the average citizen in the cost of gasoline, falling real wages, and stagnant employment. That these conditions have remained true, even after the tax bills is a practical indication that they have failed to deal with the very problem that forced Greenspan to raise interest rates quickly in 2000, and then slash them to historical real lows in 2001-2002.
If people are getting tax reductions and spending them, even under the theory that is advanced to say deficits don't matter, then tax reductions will be their borrowing against having to pay higher taxes later. And one way or the other, through higher interest rates, higher taxes or higher inflation, they will lose out. This was the point of the investment in the S&P - that the best case family that Republicans crow about as "getting more money", would have to turn around and invest all of it in the Standard and Poors, and still be behind what the tax package would have to charge them. Even under the conservative assumptions, best case, the middle class tax payer is behind. Thus, when someone says "deficits don't matter", the reply is "they don't matter only to people who don't need to spend the money".
Finally, if the argument is that a tax policy is meant to stimulate the economy, then it should be as cheap as possible. This way the later tax burden is small, and does not need to be paid by large cuts to expenditures, or large tax increases. The chance that the savings of people's lives and capital and the social fabric will offset most of the costs is higher, if the later costs are lower. In short, if you are going to be liberal, be cheap. It's Machiavelli's old advice from The Prince
And that is why I say, focus on the real bottom line. If government policy isn't dealing with the real present dangers to the economy, regardless of what the nominal dollars do, then it will fail as a policy. This may sound like a harsh standard, and it is. It also refutes many policies that you will hear from the Democratic side of the aisle as well – because they too do not address the root problems. The present tax policy will make worse the problems faced, because it dumps inflationary dollars into the system and those dollars do not address why we aren't getting ahead. Perhaps some other tax policy would do this.
I've attempted to make this complex case, and refrence this more complex material because it is essential for the public to know the words being thrown around on the inside. Instead of accepting the sound bite debates, the internet, and forums like this one in particular, give us a chance to deal with matters as they are, even if it takes longer to do so. The readers of this forum should congratulate themselves, they've read more on the tax debate than the average American will see and hear during the entire 4 years of Bush's tenure in office, and more than they will hear during the campaign.
But it is not time to rest on those laurels. Because the root problems, of lack of chances for new business, and increasing energy cost pressures, are going to be with us for sometime to come. And while the current tax bill has been a miserable failure in dealing with those problems, it is not enough to know what not to do, it is important to know what must be done, and to hold congress' collective feet to the fire to make sure that the solutions that are proposed meet the problems we actually have.
Friday, July 23, 2004
Battle Tax Cuts - Iron Blogger Republican - What would have been my closing statement and a disclaimerMy understanding is that due to a mutual agreement between the Challenger and the Chairman, the remainder of this debate has been cancelled. The Chairman, who knows how hard I worked on my closing statements, has allowed me a paragraph or two to explain how my closing argument would have gone and to post the disclaimer that I would have posted AFTER the scoring was official.
If you are interested in the full text of my closing remarks, email me at firstname.lastname@example.org and I will forward it to you.
Basically, it is a summary of the points I felt Stirling didn't respond to, coupled with the simple fact that Stirling, while more than equipped to defeat me in a straight-up battle of economy, didn't read the guidelines. He even posted a third rebuttal at one point, which I don't bring up to point out anything negative but to say that he had ideas of what our site was that didn't mesh with the guidelines. I was arguing for IB points and he was arguing what he THOUGHT the site should be like. I flesh this out with no snark or even sarcasm (very different from my first three posts - which I thought were funny and snarky but everyone else thought were crude and mean and snarky) and it sounds much nicer than that in the full version, and there's a clever bit about dodgeball in there. I then encourage visitors from Daily Kos to read the battle I had with Rose and notice it was a different me then, so there must be a reason for handling the debate the way I did.
Then there is this, a sort of disclaimer that I was going to post only after the final scores were posted:
Post-Debate Apology and Revelation from the IB Republican
First of all, I apologize to the Iron Blog readership for leaning so hard on the sarcasm this time out. I didn’t see a choice other than simply forfeiting the debate as we will see in a moment.
Also, I would like to apologize to Stirling for my use of sarcasm. I trust he and his friends will read my previous posts and the debate with Rose (where I was my normal me, prompting Rose at the end to say on her website that it was hard to debate me because I was so sweet!) and see who I usually am.
So I intentionally used sarcasm, simply because from the Chairman’s post announcing the topic, I knew I was in big trouble, and not because I thought Stirling knew more than I did about economics.
See, I am a liberal Christian and a conservative in politics. This skews my thoughts on certain issues.
I am, by way of revelation, against Bush’s tax cuts. I am a conservative, and I think Reagan’s cuts were ideal for the situation the country was in AND I could defend both them and small government, but I think cuts are not good for where we are right now. In fact, as you know if you’ve read my comments in the past, I’m not sold on Bush himself, but think he’s the lesser of evils.
I also have to admit that it intrigued me as being a true test of debate skill: to defend successfully a position you don’t hold!
Nevertheless, I took what I saw as the only route available to me that could still win: become a pro-Bush hyper-conservative. Even on Stirling’s own website, I posted defending my arguments in favor of George W. I intentionally, on Sunday night, read over 30 of Ann Coulter’s archived columns and tried as hard as I could to channel her into every post here other than the closing. I went to new blogs in assumed personas and tried out approaches to defending Bush’s tax cuts.
Read the death penalty me and the tax cut me… same guy? No, but once the topic was announced it was either that or delay the debates yet another week. I didn’t even email that revelation to the Chairman, who is a growing-close friend of mine, because I wanted the opportunity to see new faces from Daily Kos to go on.
I knew from the first moment that I could make it close if we disagreed and I battled him on the appropriate stage. However, there was no way I could win if I thought he was better at economics than me (not smarter, thank you) AND if I agreed with what he was likely to say.
So I played the game. I made him play on my ball field. When I heard he was letting me have it on his website, I even went there and stirred the pot more. Dan Coulter! More than any economics training or debate training, my acting classes carried me in this debate.
We now return you to your regular Dan Champion, already in progress. From now on, let’s confirm the topic with the debaters JUST before posting it: in this case, a tweak to "tax cuts" from "Bush’s tax cuts" would have made all the difference and I could have conceded that Bush was using them as a political ploy and still debated the usefulness of tax cuts when used appropriately.
The worst part of the week, by the way, was when I thought I had offended Pineapple Girl with the new snark. I hope you know I adore you, PG.
I promise to be good from now on.
P.S. Here's where I need the affirmation and the love, so I don't go away angry or hurt.
An Important Note From The ChairmanThis Battle is being stopped, for a number of reasons I will not go into. Neither combatant is being disqualified, we are not going to the scorecards, there will be no Verdict.
A revised version of the Iron Blog Guide and Judges' Guide will be put up within the next 48 hours to address for future reference various things that arose this Battle. Beyond that, I am not going to be addressing any of what went on this week - we live, we learn. We move on.
I have granted Dan permission to post a special note to say a few things he has had to keep to himself throughout this Battle, so our readers can understand more about where he's coming from. I have read it previously and approved it. If Stirling wishes to do the same and submit a 'closing statement' of sorts, I will look it over and work with him on posting it, as well.
Jay Battles next, starting this weekend. He's stepping in for Dru, who is unable to Battle next week as she was scheduled to.
Wednesday, July 21, 2004
Battle Tax Cuts - Iron Blogger Republican - Second RebuttalWell, I’m done. Done playing the game bloggers seem to love called “fit definitions to my own purposes.” I’m calling Stirling out here, then I’m moving on and I’m not coming back.
I mentioned that Stirling is a liberal. Um, over at Daily Kos they use the word all the time, proudly, but mention the word here and it’s SUPER snarky. Here, being called a liberal seems to be an insult.
Of course, Stirling called me an “outright liar” and “foolish,” which are more clearly insults. You’ll forgive me if I don’t play the escalation game.
As nearly as I can tell, an “outright lie” is anything Stirling disagrees with. That’s fine with me – insult away! It’s the more insidious alterations of definitions that bother me.
Yes, Stirling knows a LOT about economics. He has a good head on his shoulders, too. That doesn’t mean he can sweet talk his way out of addressing tax cuts as an issue and it doesn’t mean he can adjust definitions to meet his whims. I’m not Alan Greenspan when it comes to economics, but I’m not Jessica Simpson, either (it’s true… my legs are much nicer). My opponent seems to think I’m too dumb or awed to respond to his reshaping of simple terms.
“Tax Cuts,” - specifically the tax cuts Bush passed recently – are just that. CUTS IN TAXES. Why is this hard to understand? I made a B in college economics and even I understand that. That somebody made up a fancy acronym, PAYGO, and Stirling can name it, doesn’t mean it applies here. In fact, it does not.
The Bush tax cuts reduce the amount of tax revenue the government collects in the short term only. This is not a loan, we aren’t borrowing the money. If government spending were to stay the same, I would go along with the PAYGO theory, but spending, as I thought I made crystal clear, will go down as the tax cuts are implemented. Money you don’t have to pay back is not a loan, is it?
Well, to be fair, we’ll have to wait for Stirling’s closing arguments to see how he defines “loan.”
No, PAYGO is a label used to put people in a box and dismiss them more than it ever was a description of spending policies. It demonizes as much as terms like “religious right,” “tax and spend liberal,” and “flip-flopper” do. Maybe these terms used to have real meaning but now they are just political tools. Helpfully, John Kerry brought this to my attention. Agreeing with John Kerry, I say let’s not vote for a slogan or a spin – even PAYGO – and instead, let’s talk about the issue at hand.
Stirling shows an excellent grasp on the deeper levels of economic theory that DO NOT APPLY (you could say they don’t have anything to do with the price of tea in China. Or the price of oil in America.) to the rather simplistic notion of whether the Bush tax cuts are a positive or negative force. His first chart looks very nice and professor-y, but only proves that deficits exist, a point I conceded long ago. It says NOTHING about the issue of tax cuts and their efficiency at overcoming deficits in the long run.
NOTE: from here on, when I say “tax cuts” I mean “cuts in taxes.” I hope the gentle reader can keep up with that sophisticated definition.
Still, Sterling refers to the “cost of tax cuts,” and is even nice enough to give us a figure, even though it has been made clear that it doesn’t cost anything to take less money from people. And still, we talk about energy supply and the war in Iraq.
“The Bush economic program as a whole has not done anything to address this supply side problem, other than invading Iraq and promising cheap oil,” Stirling said.
We aren’t talking about the Bush economic program as a whole, we’re talking about the Bush tax cuts. Not only that, but the same Bush tax cuts he chooses to ignore (I guess on Daily Kos, Iraq and oil are daily winners), I claim will FIX the supply side problem he’s concerned with.
Perhaps this will be more clear if we move on and talk about tax cuts for a change.
I claim tax cuts are the BEST option for the country, but not the only option. If my opponent had promoted a better option than tax cuts, I would surrender the “battle tax cuts” debate immediately.
In the absence of an alternative to tax cuts being presented by the challenger, I will turn my attention to the idea that tax cuts will help the economy in the long run. My contention all along has been that it is too soon to tell with certainty the actual long-term effect of these particular tax cuts, despite doom and gloom from the left and some admittedly optimistic hope from the White House.
We CAN, however, take a look at how tax cuts have done in the past as a guideline. Let’s take the two biggies.
I always like to pick on the liberals first, so let’s start with the Kennedy tax cuts, m’kay? Well, would you look at THAT link! It turns out Kennedy (yes, that Kennedy) discussed “a tax cut designed to boost the economy, increase tax revenues, and achieve - and I believe this can be done - a budget surplus.” Those happen to be his words describing his tax cut plan. I can’t WAIT to see the spin on that one.
Let’s look at the numbers on the results of Kennedy’s (yes, that Kennedy) tax cut.
Real income tax revenues did go up 67% from 1961 to 1969. The top marginal rate went down from 91 percent to 70 percent (Reagan later knocked it down to 28 percent with his tax cuts, but I get ahead of myself).
Wait just a second! Didn’t Stirling say the cost of “borrowing” (spin alert!) money would wipe us out? That’s not what Kennedy said. He said “The revenue gain in these proposals will offset the revenue cost of the investment credit” in his tax cut sales pitch to Congress.
And what of all the money Stirling says Uncle Sam will lose from tax cuts? Surely Kennedy would admit to that much as a result of his cuts, yes? Well let’s look and see.
“John F. Kennedy proposed major tax cuts in 1963, and in February 1964, after his assassination, the top tax rate was cut to 70 percent from 91 percent. Tax revenues nearly doubled in the next four years.”
Hmmm. Maybe Kennedy himself said something different? Uh oh… scroll down and it turns out he said, “An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget, just as it will never produce enough jobs or enough profits. In short, it is a paradoxical truth that tax rates are too high today, and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the tax rates now.”
Emphasis mine, words Kennedy’s. Yes, THAT Kennedy.
And then there’s this, spoken before the Congressional Subcommittee on Financial Services: “The 1964 Kennedy income tax rate reductions spurred a bull market expansion and budgets in near balance through the 1960s.”
Now, I’m not the super-genius that Stirling is, but even with my little brain I can conclude (pre-spin, of course) that the Kennedy tax cuts turned the country around for the positive.
That’s one of two major tax cuts in U.S. history before Bush. The other was implemented by President Ronald Reagan.
Wow! Look at how nicely income tax revenues grew as a response to those cuts! They grew, despite the fact that under Reagan tax rates themselves fell, astoundingly, from 70 percent to 28 percent!
From that same site:
“The predicted inflation never materialized from the ‘Reagan deficits’ because the deficits themselves were the direct consequence of the collapse of inflation. Treasury supply-siders predicted the disinflationary expansion. But their prediction was ignored, because it conflicted with the Keynesian interpretation of fiscal policy and the economic establishment’s belief in the ‘Phillips curve.’”
Replace “Reagan” with “Bush” and “economic establishment” with “Stirling” and you might have a read on the complaints about the 2003 cuts. I’m sure the economic establishment knew lots about economics, too.
Even better, the Bush tax cut is currently smaller than either Kennedy’s or Reagan’s, and “is less than 29 percent of the projected surplus, less then 6 percent of projected revenues, and less than 1.2 percent of national economic output over the 10-year time period.” This leaves us some nice room to grow once we see how well it works.
Demand, to use Stirling’s words, does appear to create its own supply. Look again at the numbers on increased investment potential, too.
The only two other tax cuts in our history worked swimmingly. So why the grim faces over this one? Oh, yes… the election slipped my mind there for a second. Gotta be pessimistic if we’re gonna beat Bush!
How interesting that Stirling should mention the election right near the beginning and at the very end of his final rebuttal. I can’t tell anymore – were we debating oil, Iraq, or the November election?
The pessimism is clear near the end of Stirling’s final rebuttal where he calls a program which was JUST implemented a “failed policy.” I guess now all economic policies should work within a week or be counted as failures.
In any case, we can see above that it is likely Bush’s tax cuts will save the lagging economy in the long run, but what about today? Are the tax cuts helping anyone right now?
Well, in my opening I listed the actual wording from the most recent tax cut law. That wording clearly spelled out all of the income groups that are immediately helped by keeping more of their own money.
National numbers aren’t how we judge the economy, though. We judge it by our own lives, by whether the man on the street is being helped. With that thought in mind, I went out into my actual street. I talked to six of my neighbors over about two hours on my morning walk and asked them what they did with their last tax refund.
Surprisingly, 4-of-6 couldn’t remember exactly how they spent the money, but they all remembered exactly how much it was.
One man added his $600 check to his retirement IRA, which has earned 9.4 percent since. If I wasn’t such a pup in the world of economics I could probably do the math here. As it is, we’ll have to rely on Stirling’s superior ability.
The other neighbor who remembered, a woman, was a real find for me. She said she held her check for nearly a month but was finally forced to cash it when she needed help paying an unusually high winter heating bill. And, as I mentioned, I used my $600 check to pay an electric bill, take the wife out to eat and catch up on my tithe.
What do you think they all said when I asked if the checks helped them survive (and I was careful to use the word “survive”)? Yes, they all said that the six hundred bucks made their lives easier.
“Indeed the entire ‘600 dollars will make survival easier’ is worse than nonsense, it is an outright lie.”
That’s from the challenger’s first rebuttal. Stirling, if you like, I can post their house numbers in my closing. You know, in case you’d like to call them outright liars in person.
Clearly, the immediate tax cuts give a boost to the economy by giving a boost to the real, live people who make up the economy. That, coupled with the long-term gains, sells the tax cuts pretty nicely in my book, even if it is, as Stirling fans would say, a remedial text.
Dan Champion, Iron Blogger Republican
Battle Tax Cuts - Challenger - Second RebuttalShorter Dan:
"The Great Pumpkin will come down and pay off the deficit. And the people who don't believe in the Great Pumpkin are just desparate liberals! Like those Republicans in Congress who projected deficits for the next 10 years, just liberals I tell you!"
Some on the right might be inclined to agree with Dan on that point. That CATO institute points out:
The new estimates show that, under Bush, total outlays will have risen $408 billion in just three years to $2.272 trillion: an enormous increase in federal spending of 22 percent. Administration officials privately admit that spending is too high. Yet they argue that deficits are appropriate in times of war and recession. So, is it true that the war on terrorism has resulted in an increase in defense spending? Yes. And, is it also true that a slow economy has meant a decreased stream of tax revenues to pay for government? Yes again.
But the real truth is that national defense is far from being responsible for all of the spending increases. According to the new numbers, defense spending will have risen by about 34 percent since Bush came into office. But, at the same time, non-defense discretionary spending will have skyrocketed by almost 28 percent. Government agencies that Republicans were calling to be abolished less than 10 years ago, such as education and labor, have enjoyed jaw-dropping spending increases under Bush of 70 percent and 65 percent respectively.
My case against the tax cuts has been that first, they were not stimulative, second they have driven investment demand without investment supply, and third they were coupled with a supply-side fiscal policy, namely the war on Iraq, whose outcome has failed to produce the expected gains. Therefore, the tax package, rather than being extended, as is now being planned in Washington DC, should be abandoned, and a different policy regime put in place. Whether the American people chose different leadership to make this change is a question that can only be answered on election day, and will be based on the positions of the candidates themselves.
Dan's repetition of "give people more of their own money" is, an argument that "demand creates its own supply". This was the argument of classical Keynesian economics, that up to full employment, the government could stimulate the economy without adverse effect. The public knows the unravelling of this doctrine by two words: Jimmy Carter. What is happening now is that the same problem Carter had with the Keynesian consumer program: namely that more money was pushing on a string. This means that more demand, in the form of upper bracket tax cuts is not finding new supply. Even Microsoft is admitting this, as it starts a multi-billion dollar pay out. They don't have any place to put the money.
To see why reducing marginal tax rates on capital gains worked in 1982, and does not work today, it is useful to look at the following chart:
In 1982 the market was willing to pay around 9 dollars for a dollar of future earnings. The investment sector was badly deflated, and therefore reflating it - with marginal tax rate reductions - worked. Now look at the right hand side of the graph: the story is completely different. Earnings are historically expensive. To get economic growth from the investment sector would require that the 1990's boom starts again. Yesterday. That is not happening.
What this means is that pushing money to the upper income brackets, favoring dividend payouts, sheltering estates from taxation, all generate investment demand. But this investment demand is not creating new businesses. No matter how many times Dan repeats "giving people their money back", demand still does not create its own supply when supply is saturated. Right now, the supply of new chances to make money is saturated.
Some of asked whether any "stimulative" deficit would have had the same result. If pure stimulus had been the objective, then Congress could have simply passed something along the lines of:
- Max Sawicky's Simplified Family Credit. Which in its most generous form would cost $80B according to the plans author.
- Extended Unemployment Insurance to 12 months. Which would have been $20, extrapolating from these Republican figures.
- Slashed the 10% rate down to 0%. Which, extrapolating from the Senate Joint Committee on taxation would be $200 Billion.
- Increased the per child tax credit, while maintaining eligibilty for the full credit, which was removed from the 2003 tax act. Net cost is estimated at $35 Billion based on the Grassley Bill.
Total cost including interest? $400B, which is to say, almost $2Trillion less than the total of the tax package that was passed. This would have meant that all taxpayers would have had their Federal Income Tax payments reduced by $715, and taxpayers with children, all of them, an additional $400 per child. The Republican's own sweet spot family, their best case, would receive, not $1132, but $1515. The benefit of this is that it would have gone directly to economic stimulus, rather than merely going to primp up corporate profits. I'm not endorsing this particular tax plan, merely outlining what a standard stimulus side package would look like. In outline this bears some similarities to the separate tax plans put forward by General Wesley Clark in his campaign, and outlined by Franco Modigliani.
This would have meant that almost every US taxpayer would have gotten $715 dollars back, and another $400 dollars per child. It would have had a considerably smaller impact on the deficit.
But to return to the central point. More money creates more demand, but it does not necessarily create more supply. Government can only push stimulus when there is "slack capacity". If there is high unemployment, the government can borrow money, and employ people until private employment demand picks up. If there is slack capital, then the government can pursue projects until the capital is absorbed. But what it cannot do is with demand side policies, and tax policy is a demand side policy, is create supply where there is no spare supply. This a lesson that lawmakers, left and right, consistenly want to avoid learning: demand side policies from the government can only bring the economy up to its best level of economic performance. It cannot make the economy perform better than it is capable of performing.
To create real growth requires supply side policies, policies which are not in any way enshrined in this particular tax package. The government can do its part to create new supply: education, research, infrastructure, trade agreements and promoting spin offs of technology - such as the internet - are all supply side. Government can force, in the short term, conservation policies which allow the economy to get past a short term squeeze in supply, but this, like fiscal stimulus, cannot be maintained without distorting the market for goods. Ultimately, the government can provide the playing field, but the free market must provide the game, and the spectators. And this is one of the reasons why many conservatives are critical of this Executive's spending binge.
This is why it is important, when creating demand side policies to understand what the supply side problems in an economy are, before crafting the tax legislation. The Bush tax plan, and its defenders, have made no effort to show how the almost 2 Trillion dollars of cost in this package will produce new investment supply. They have merely asserted that investment demand will produce its own supply automatically. This has clearly not been the case, instead, what has happened is that investment demand has been profitized, which has meant stagnant family income. Government tax rate reductions cannot change this picture long term, they can only borrow from future production to pay for the present. If done correctly, the government borrows, and runs a deficit, during times when labor is inexpensive, and then pays the money back later by taxing asset inflation. This was the Truman, Eisenhower and Clinton policy, and it was Carter's intent, however badly he mismanaged the execution. This is the real "growth" win, spend into deflation, tax into inflation. But to do this requires that the period of borrowing be, as the graphy in my previous post shows, of short duration and targetted to slack capacity in the economy.
In my first post, I argued that there are two import bottlenecks to growth which have to be addressed on the supply side, one is energy, and the other is investment opportunity. The two are related. Energy inflation has reignited. This means that more demand side policy will simply mean a weaker dollar and higher oil prices, which is exactly what has happened. The other side of the equation is that real wages are stagnant, with increases in oil, health insurance leading the way.
Without addressing the supply side problems, more demand will simply produce more asset inflation. This is already being met with higher interest rates from the Federal Reserve, which is going to increase the cost of all borrowing in general. According to the CBOT bond yield curve, the fed funds rate is expected to reach 2.75% by early next year, adding 1.5% to the cost of borrowing on mortgages, credit cards and car loans. The fiscal policy of rate reductions is now fighting the monetary policy. Advise to lawmakers: don't fight the fed.
The Bush economic program as a whole has not done anything to address this supply side problem, other than invading Iraq and promising cheap oil. And no, drilling in ANWR will not be the "solution", it has a mean estimate of 5.24 billion bbls. To give you an idea of the scale, there are some 112 bbl known to exist in Iraq, and some 200 bbl which might exist with further exploration. Some 60 times ANWR. Iraq was the only supply side policy of any scale that has been pursued by the current executive. It was, essentially, a trillion dollar gamble that military force could be converted into oil supply. This is not the first time this gamble has been made. In the 1920's the British made it, and won, they occupied the Middle East and drew the boundaries for present day nations, including Iraq. In late 1941, facing an oil embargo from the US, the Japanese made it, and lost. In 1991, the US made the gamble that it could prevent supplies from falling into Saddam's hands, and won.
The logic, that Iraq was the only easy source of more oil supply, but that Saddam could not be trusted with unlimited oil revenues, which would total tens of billions of dollars a year, was compelling to many across the political spectrum. Containment had not failed to contain Saddam, but it had failed to make him an individual with which the US and other nations could safely do business. This is why there is such emphasis now in rhetoric about the "possibility" of Iraq pursuing WMD later. The real power equation, and this is said not as an attack but as a fact of realpolitick, was that for the US to slake its energy thirst, and go back to easy growth, Iraq had to be opened. Iraq could not be opened with Saddam in charge. That the excuses for launching the war have turned out to be fabrications, and the cost of the war grossly misestimated, are not germane to what the gamble was based on. They are important for asking the question of whether, given honest information, the US would have chosen this particular course. But practically, that is a matter for PhD's in history to argue when we are dead.
However, having made this gamble and lost, the US is now in the position of having borrowed against success, and having found failure. Perhaps more than a few legislators rue not listening to Greenspan's warning that tax reductions should be made contingent on surpluses materializing. That is, that the tax reductions be true PAYGO tax cuts.
That there is no connection between the tax policy demand side and the supply side problem is now a widdening flaw in the tax package. Since the tax package was dependent on the success of "another Saudi Arabia" coming on line, it does not stand by itself. Unlike the Reagan capital gains marginal rate reductions, which connected to the supply-side by reflating the investment sector, and the Kennedy marginal rate reductions, which connected to the supply side by reducing the incentives to shelter income - there is no road in the massive Bush tax rate reductions to reach the supply side. No new supply means localized inflation. Since, as everyone admits, the tax package benefits those with a "marginal propensity to invest" rather than spend, this means continued asset inflation. Asset inflation, or a stock market bubble, means that capital will be inefficiently distributed, primarily being disbursed as dividends without producing any improvment in capital. In short money goes from the Treasury, to corporate profits, to dividends, without making any productivity improvments. This has lead to real wages falling to a two year low.
In summary: demand side policies must either be coupled with supply side policies to remove bottlenecks to growth, or be focused on areas where there is already surplus supply. The tax package does not, by itself, target areas of the economy needing more demand, and the supply side project of invading Iraq has not produced the expected oil windfall. Hence the tax package is merely inflating the deficit, pressuring up long term interest rates, and creating short term asset inflation, which hinders business formation and job growth. As a failed policy, it should be abandoned. If current leadership cannot admit that it is a failed policy, as some seem inclined to attempt, then the Constitution provides a remedy at the ballot box.
Tuesday, July 20, 2004
Battle Tax Cuts - Iron Blogger Republican - First RebuttalI can’t say that I was surprised to see my opponent prophesying doom. After all, that’s what a political party does when it’s not in power and wants to be.
I WAS shocked, however, when I realized about one-quarter of the way into the challenger’s lengthy opening statement that he wasn’t debating the same topic I was.
You see, in what I thought was a potentially winning debate strategy, I decided to argue in favor of Bush’s tax cuts in Battle: Tax Cuts. My opponent thought it would be better to argue whether Bush should be re-elected in November.
And so we see arguments like these from his opening statements: the dollar doesn’t stack up to the Euro, so tax cuts are bad; trade numbers are off, so tax cuts are bad; oil prices are high, so tax cuts are bad; we didn’t find WMD in Iraq, so tax cuts are bad. Telling blows in Battle: Iraq, I have no doubt.
Still and all, it really is as easy as Will Rogers made it sound, so liberals, to win the White House, have to spin, spin, spin.
What do I mean? Well, since you can’t just come out and SAY that letting people have more of their own money is bad, in order to attack you have to re-define terms. A tax cut is no longer a cut in taxes, but is now “a reduction in planned government revenue.” More of your income in your own pocket is now “reduced federal income.” Battle: Tax Cuts is now Battle: Investment Supply. Reagan’s booming economy based on tax cuts is now based on “pressuring oil prices down.” Good, presumably, is now evil.
In any other debate format, I wouldn’t even respond to this misdirection.
My talented challenger does rise above most Bush-bashing types with his sheer knowledge and ability to communicate. His economic principles are sound and sharp, even if they don’t really come to address whether tax cuts are good or bad. A very clear, very literate analysis of rising oil prices educates exquisitely, but fails to convince me that this has anything to do with the efficacy of tax cuts at all.
Of course, oil (which the challenger somehow bases his entire anti-tax cuts argument on) is not the indicator it was for Reagan. Oil is at more of a premium and crisis looms no matter how strong our economy. Rising oil prices are accurately used to show that the economy is suffering, but that’s a fact that I freely acknowledge. I live in Youngstown. I don’t need any other indicators that the economy is currently suffering. Besides, even if more, cheaper oil was able to fix the problem, liberals don’t want us looking for it.
Liberals HAVE TO concentrate on the short-term and this is the root of our disagreement. The election is, after all, just 4 months away. So what we get from a tax cut battle on the liberal side is “Bush put in his tax cuts yesterday and today roses aren’t falling from the sky. Anyone but Bush!”
The real issue with any change in economic policy is that it takes time to reveal its long-term effects, either positive or negative. Since they need votes now, liberals are willing to trade long-term gain for short-term loss. As I said in my opening, these things are best judged in years, not days.
Nevertheless, let us look at the two most critical points at which my opponent narrows his sight to mere months and shine the light on them.
The first such claim my opponent makes is that “Creating 1.5 million jobs in 6 months is a pathetic performance for an economy in economic rebound.” This is misleading on a few levels. For instance, the fact that we are gaining jobs at all (let alone a whopping 1.5 million) in our horrid economy (yes, we’ll talk about the causes of the current deficit in a moment) is a sign that SOMETHING Bush did must be working. It takes a long time to dig out of a hole like the one we’re in, and the fact that momentum has turned positive is, or should be, an encouraging sign. Unless, of course, you have a President to unseat in four short months.
The other misleading bit about this is the short-term deficit projection. Yay! Time to talk about deficits!
The idea that you should let folks keep more of their own money is an obviously good one. In a campaign year, however, even obviously good ideas need to be defended against spin, so here we go.
First of all, my opponent seems troubled, in his words, “that federal revenues as a share of GDP have been slashed” thanks to the tax cuts.
I see now that I’m going to have to talk more clearly to ensure comprehension. Ready?
Tax cuts take money away from the government and return it to the people, who can find better ways to spend it than the government can. By definition, a tax cut reduces federal revenues across the board.
This dip in government income is to be expected and returns us to the battle of short-term loss versus long-term gain.
(The challenger also makes an interesting and wordy claim that these weren’t “real tax cuts.” This is a claim I would, again, prefer to ignore on the face of it, but can refute easily enough by showing the cancelled check I got back from the government for six hundred very real dollars. No amount of pessimism or spin can refute that I got a real tax cut and, yes, it helped me survive, a fact that earned me the label “outright liar” in Stirling’s rebuttal.)
I believe that deficits DO matter, despite the argument the challenger put in my mouth to the contrary. This is why deficits have to be done with careful planning and at least some spending cuts – say, the end of a costly war. (Although not everyone even agrees that spending cuts are necessary - “Tax cuts don’t need to be paid for [with offsets] — they pay for themselves.” -House Budget Committee Chairman Jim Nussle quoted in BNA Daily Tax Report, March 17, 2004)
My opponent accurately points out that the 2003 tax cuts didn’t come with spending cuts attached.
That wasn’t the purpose of the bill. The bill was a hurried effort to get the tax cuts across because people are hurting from the tax burden TODAY. The proposed spending cuts that accompany are separate, but just as real.
Somehow trying to spin the actual wording of the bill itself, Stirling goes on to say “The amounts that the Iron Blogger throws around of what families are ‘getting back’ are equally worthless” (quotes his). Funny, I was just quoting the legislation that passed. Stirling acts like that is somehow a matter for interpretation.
I wouldn’t have expected confusion on the issue, but since it seems to be there, I feel the need to clear the air about the way tax cuts work. Again, this is really simple stuff.
It is hard to find links for this bit of rhetoric, since it isn’t even to the level of Economics 101, but rather, common sense. Here it is, then, nevertheless:
Tax cuts allow people to hold on to more of their money, admittedly reducing the amount the government has in the short-term. People use that additional money in the marketplace, creating a need for new consumable products and services. The need for new consumable products and services creates jobs (everyone keeping up so far? I know we just lost a few liberals who cannot let go of the mistaken idea that job creation is the government’s responsibility and can’t be left to the citizens). These new jobs put more people to work, so income tax revenues are higher, more people have more money and we are at the top of the paragraph again. Easy, yes?
Focused as they are on the short-term, the money “lost” to the government really and truly scares liberals, who are convinced the government can find better uses for your money than you can. Interestingly, I haven’t read any news stories about liberals who sent their refund checks back in to the government, but I’m sure it’ll happen soon.
Nevertheless, Stirling still calls it a “loan” that we are “borrowing” despite the fact that cutting taxes doesn’t increase government spending, but only reduces the amount of tax revenue that comes in. Still, his rebuttal resonates with borrowing, borrowing, borrowing, hoping beyond hope that we will believe it based solely on repetition.
So the Left cries “deficit!” and we are expected to join the hysteria. Honestly, the mere mention of the word makes the Left sweat like Paris Hilton on Jeopardy.
Let me make this clear right now. Bush’s tax cuts, just put in place recently, did not cause the current malaise in our economy. The current deficit is there because of 9/11, the accompanying stock market decline (which was declining as Bush entered office, by the way – before 9/11) and to a lesser extent, cases of corporate malfeasance. Also, of course, the astoundingly high costs of war, which I, unlike John Kerry, never supported.
“Other things being equal, a tax cut, by stimulating consumption and investment, can help the economy.”
In this case, the other things are NOT equal, they are in fact horrible, and yet some job growth STILL exists thanks to the tax cuts. Remind me how this is bad news? I think it’s remarkable.
Stirling presents his beloved Congressional deficit projections, based on our current economy. In the short term, given our current financial situation, yes, tax cuts will give the government another blow, adding to the deficit.
What liberals prefer us NOT to think about, however, is that those projections are based on our current economy, not the expanded and growing economy that will exist in the slightly-longer run thanks to the tax cuts.
If negativity to unseat Bush is all you’re after, you can certainly find it in today’s deficit projections.
It is the long term I’m thinking about, though. In the long term, as we saw above, more money means more jobs and then yet more money, reducing the self-imposed deficit, ultimately eliminating it and growing the economy.
The list of benefits from the $350 billion Jobs & Growth Tax Relief Reconciliation Act of 2003 are real, solid helps to the poor AND the rich right now, at this moment. Projected ancillary benefits, like the salvation of the ailing Social Security system, are just gravy.
We have real financial help, measured in real dollars, for hurting taxpayers today, and projected gain for tomorrow on the supply side. This versus the short-term deficit increase my opponent is losing sleep over in his haste to win an election.
“When you tax something, you get less of it. Indeed, this is why governments tax tobacco and alcohol—to discourage smoking and drinking. But it is foolish to impose high tax rates on productive behavior. We don't want to penalize people for inventing new products, building new factories, and employing more people. We don't want to punish people for working harder. This is why the President's tax-rate reductions on income, dividends (profits distributed to shareholders), and capital gains (profits from the sale of assets like stocks and real estate) have helped boost growth.”
Again, I give you two sides of a debate: Short-term loss versus long-term gain. “Time to shutter the failure factory” before the tax cuts are even out of infancy or opening the window to future prosperity at the expense of election year rhetoric. Fear as a tool to win elections or optimism as a tool to fix the economy. More of your own money staying in your own pocket and working for you directly or more of your money going to Uncle Sam.
Take your pick.
Dan Champion, Iron Blogger Republican
Battle Tax Cuts - Challenger - First RebuttalMy, my, my. What. A. Mess.
Dan Champion calls Democrats Pessimistic, nun murdering, flat-earthers without common sense. To which I can only say, Dan, you forgot terrorist. I'm sure you'll make up for this omission, I've got every confidence in you. For the rest, I can only hope the judges feel, as I do, that vinegar is often a condiment, but that piss is in bad taste.
As for the collection of RNC blast fax points, it is deeply saddening to have to wade through such timid rhetoric. Kerry voted 350 times to raise taxes? Even Bush has backpedaled off of that one, once caught counting procedural votes, non binding resolutions, amendments which lowered tax rates, just not in the ways that the Republicans wanted. In short, it's a lie. If the Iron Blogger is just going to mislead, why not go all out, count the number of key strokes that he has typed, the number of footsteps back and forth to the Senate chamber, and proclaim "Kerry acted 300,000 times to raise taxes!" it's no less dishonest, and it at least has the over the top quality. But it is strange that people who can't count votes should demand to be trusted with the economy.
The post continues its encyclopediac survey of logical fallacies with a post ergo hoc: "the economy is in better shape that it was before the tax cuts." That doesn't mean that the tax package caused this, nor does it mean that the economy would not be in better shape if the tax package were not in place. And taking credit for the worst recovery since the Great Depression is hardly an accomplishment.
Since the Iron blogger has not given us any filling to this dumpling, there is nothing to respond to. I will remind people that employment is still not back to its March 2001 peak, that Bush's best month of job creation as a percentage of pay rolls ranks 132nd out of months since statistics were kept in 1939, and that his best six month period of job creation as a percentage of payrolls ranks in the bottom third of all six month periods. Clinton averaged over two full terms more jobs per month than Bush has since the economy finally bottomed out in July of 2003. People who want to verify these numbers can check at http://www.bls.gov - the Bureau of Labor Statistics.
The amounts that the iron blogger throws around of what families are "getting back" are equally worthless. The question isn't how much the loan is for - and since this is all borrowed money, that is what it is, a loan - but instead, how much debt is being taken on. Let's take one of the "sweet spot" families that is getting full mileage out of the tax breaks that were passed, the kind thrown around in Dan's RNC memos that he has regurgitated for us. A long list of how much money is being given away does not answer the question of how that money is going to be paid for. Either taxes can be raised someplace else, or Social Security can be cut, or the government can print money and inflate or devalue the dollar. In any case, someone is going to pay, with interest for the tax package.
A family of four earning 40,000 dollars, near the median household income in many states. According to this Money magazine calculator, that means they are seeing their federal tax income tax go down by $1,132 . Times 10 years, that is $11,320. But what about the cost? The real cost is the amount of national debt that is being added, times four, because there are four people. The original number used was 1.3 Trillion, which rapidly ballooned to 1.6 Trillion. The raw cost according to the CBO is 1.7 Trillion dollars, where as the non-partisan Institute on Taxation and Economic Policy scores it higher at 1.86 Trillion. Interest on this borrowed money comes to between 400 billion and 450 billion depending on the assumptions. Let's be as nice as possible, since we are taking a cherry picked sweet spot family, and score it at 2.1 Trillion dollars. This is with sunseting of the provisions, that is by 2010, the tax rates will snap back up to what they were before. In other words, this is the rosiest scenario out there, for the most benefitted middle class tax payer. And this leaves aside some of the inconsistent assumptions in the CBO projections.
According to the Census bureau, there are roughly 294 million people in the US. So our sweet spot family is incurring roughly 28,000 dollars of obligations, for $11,320 dollars of money. If the were to put the money in the stock market, returning its historical rate of 11%, the would have $21,000 at the end. In other words, instead of this being low cost borrowing for stimulus, as Dan keeps implying, it is, in fact, worse than going out and going short the S&P 500 today. You'll go broke on deals like that. The tax policy center did the numbers out on paying for all of this, and they found that which ever scenario you use, the average taxpayer comes out behind. And that, I remind the reader, is the best case scenario from the partisans of the tax package.
Indeed the entire "600 dollars will make survival easier" is worse than nonsense, it is an outright lie. As anyone who has made it through first semester economics knows, what is important is real buying power. By Dan Champion's nominal dollar argument, Jimmy Carter was the best President in US history, because nominal incomes went up by so much. But given that the average person used 461.1 gallons of gasoline in 2002, and the average price of gasoline has gone up by 57 cents from 2001, this means that the family of four mentioned above is paying 1051 dollars more for gasoline every year, or all but 82 dollars of the money gained from income tax rate reductions. Don't spend it all in one place.
But at the bottom of his opening argument, Dan commits a Bushism. That is, he inadvertently tells the truth. He says that it is "our" money. He obviously meant to say "your money" or "my money". But the truth is that it is our money. It is our money in the sense that a dollar only has value because the rest of the world trusts the US to make the right decisions, and trusts it to pay its debts. When Nixon decided not to pay American obligations, because other nations had lost confidence in US strategic judgment, it touched off a decade of economic instability. Larry Kudlow calls Nixon "the worst economic President, of either party, in the last 30 years." I'm inclined to agree with him, because of his irresponsibility.
The dollar has value because we agree to play by certain rules, rules such as honesty in our public debate, rules such as honoring our promises. In return, the US enjoys a small, but significant, advantage on the cost of borrowing. But if you need to see the Danger of fiscal irresponsibility, look at the meltdown of the dollar against the Euro. In 2000 80 pennies bought a Euro, now it takes $1.24 to do so – a swoon which has almost wiped out the gains in the US stock market in real buying power, and is creating enough inflation so that the average tax payer is getting a small break on income taxes, that they then spend almost entirely on gasoline.
One of the reasons for the PAYGO rules is to force voters and politicians to make complete choices, and have all of the information. Everyone will be able to determine who the winners and losers of a particular budget decision are. The current tax package does not do that, and more over the Republican House Leadership, for example Rep. Roy Blunt, is trying to argue that "tax cuts aren't spending" and therefore should not have the PAYGO rules.
And that is where real policy debate lives: on real effects. That is real employment, real production and real purchasing power. Real employment, as measured by the labor force participation rate, is still well below the 2001 peak. Real production, ex-defense and autos, wallowed in a long slump and has still not fully recovered. Real purchasing power in global terms has been slipping since 2002, and in domestic terms for the last 6 months. These are the real facts which people can sense, which is why, 60% of Americans feel that the country is "on the wrong track" according to Gallup.
But let's take the deep myth that Dan hurls around head on, namely that Democrats are fiscally irresponsible and that liberalism is fiscally irresponsible, and look at the record of fiscal responsibility: the graph shows that during the "liberal" era, deficits were reigned in, and that even major wars did not cause fiscal profligacy, but since the supposedly conservative era, began, we have had record topping deficits year after year. I do have to admit, Bush did manage to heroically wipe out 8 years of fiscal discipline by heroically borrowing us back into hoc, whether he meant to or not. It is interesting to note, however, that Greenspan was fretting about the possibility of surpluses in 2000. Well, he need not fret about that any longer.
I'd like to point out the scale of the 2003 total budget deficit. It is larger than the Korean War. It is larger than any year of the Vietnam War. It within a hair as large as the worst deficit that Ford ran. It is in the same league as the S&L bailout.
As the Congressional Budget Office's own numbers show, this tax package was not a short term stimulus to get past the Recession. If it were, it would have resembled the short term stimulative deficits on the graph above, for example the FY 1960 deficit, or the larger deficit run in FY 1976-1978.Or the FY 1994 deficit. However, the CBO numbers do not show a rapid return to balance, but a 10 year long exodus through deficits. There is no reasonable way to construe this tax package as merely a one time pump priming.
Which brings me back to the basic point. The reason for government action in the economy is to reduce risks, so that citizens are willing to take risks. Over the long term, taking risks is what grows the economy. When the government takes risks, individuals hedge. Individuals hedging, for example putting their money in first national mattress, reduces economic efficiency and creates economic instability. The entire tax package is part of an economic plan has been a failure. It has not produced employment, it has not reduced inflation on the supply side, it has not re-ignited the tech boom, and it has not produced gains in real wages. Results matter, and the result here has been the longest jobs drought in modern American economic history, and the most substantial sustained fall in employment participation since demobilization from World War II.
It's time to shutter the failure factory, admit that deficit without end budget busting revenue reductions are not the most effective form of stimulus, that persistent budget deficits do more economic harm than good, and that a sustained fiscal policy based on the PAYGO rules with the objective to returning to general fiscal surpluses with occasional deficits to deal with exigent circumstances is the correct economic policy. It is also time to stop listening to shell games about how much money a particular tax act moves from one place to another. Just as the total budget is what is important, the real question is producing the lowest total tax burden necessary to meet obligations, and tax in the most efficient manner possible, rather than favoring hidden taxes over visible ones.
It has taken some doing to sandbag the American economy during a rebound. During a rebound, the American economy is capable of adding 1% to payrolls a month for months on end. During a rebound wages outpace inflation. That there has been no rebound in 3 long years of dreary economic meandering, should, alone, be enough to tell people that current policies are severely misguided in their effects.
Borrow and Squander hasn't worked, and we knew that in our hearts all along.
No Nuns were harmed in filing this blog post.
Monday, July 19, 2004
Battle Tax Cuts - Iron Blogger Republican - Opening StatementsBattle Tax Cuts!
Sounds mighty impressive.
Of course, a few decades ago, this would be the last thing anyone would ever debate. A few decades ago, proposing a Battle: Tax Cuts would be akin to a Battle: Earth is Round or Battle: Killing Nuns is Bad.
Back before liberals became more enamored with winning back the White House than using common sense, anyone in the country, if offered a tax break, would cheer and vote yes immediately.
When I was a kid, it was the taxes that were killing us. “The governor do take his share, don’t he?” was my dad’s favorite quote from Dickens, and the man knew his Dickens. Both sides of the political world agreed that it was pretty much political suicide to try to sell the idea of a tax hike.
Taxes are a necessary evil. I’m down with taxes. It costs a lot to run a country like this. There is a limit, though, and raising taxes isn’t the answer whenever you want to try on some new programs.
Will Rogers said things like “If you make any money, the government shoves you in the creek once a year with it in your pockets, and all that don't get wet you can keep” and Vanya Cohen said “When there's a single thief, it's robbery. When there are a thousand thieves, it's taxation.” We laughed because it was true. It made sense.
Then, one day, Republicans got control of the White House and the Congress. That was the day that anything the President proposed, sensible or not, even something so obviously sensible as returning to the American public that which they themselves earned, became necessarily evil in the eyes of Democrats.
The question my beloved chairman is asking, I believe, is not whether the economy is recovering or not, which of course it is. That would be Battle: Recovering Economy.
Heavens, other than on perennially biased blogs, the issue isn’t whether we’ve recovered but rather who is responsible for the recovery.
No, the question for us is whether or not the Bush tax cuts in particular are a positive force in our recovering economy.
And so we come to consider HOW we go about judging objectively whether or not tax cuts are a positive or negative force. By “we,” I don’t mean Democrats, of course.
Democrats are blinded by love for raising taxes. Mondale (sorry to bring Walter “I won Minnesota!” Mondale back into your mind) based his whole wildly unsuccessful campaign on raising taxes. When we were at peace, Democrats wanted to raise taxes. Now that we’re at war, they want to raise taxes. John Kerry has voted over 350 times for higher taxes in his years as a senator and is chomping at the bit to do so again, this time with a more powerful vote.
Oh, how the Democrats love raising taxes! We have a surplus? Raise taxes. We have a deficit? Raise taxes. Your nose itches? Raise taxes. We just raised taxes? Raise taxes.
Of course, the real reason Democrats are against the Bush tax cuts is the word at the beginning of the phrase: “Bush.” The Democrats these days are reduced to mere contrariness. Their plan to win the White House? Vote for “anyone but Bush.”
When you’re that contrary, any good news leads to pessimism by definition. So a Republican can no longer win the White House; he can only steal the election. We can’t defend our friends anymore; we can only become occupying forces. And you can’t give everyone a tax break; you can only take all the poor man’s money and give it to the rich man.
Last year, after paying my taxes (no, I’m not a multimillionaire or a huge corporation – I’m a church pastor of the lower middle class persuasion), I was pleasantly surprised to receive an additional check for $600 in return. Liberals are shocked and appalled by this. They would have me believe that in handing over a check for $600, the Republicans were trying to destroy me and destroy America. That idiot Bush let me pay my overdue electric bill, take my wife out to eat and catch up on my tithe. Evil incarnate, that!
So we have to discount Democrats from rational discussion of how to judge whether a tax cut is a positive or negative thing. After all, following the “anyone but Bush” rationale, George W. could announce sweeping tax increases, usually an orgasmic concept to Democrats, and the Left would bleat “Cut taxes! Anyone but Bush! Cut taxes! Baaaa!”
How DO we judge then?
The easiest way to judge is to ask whether the cuts are helping. Do the tax cuts help the poor, or (as my liberal friends love to chant) are the tax cuts merely subterfuge to help the rich get richer?
You can hear the liberal drums calling for yet more class warfare. Liberals don’t get the idea that you can take action that helps everybody, not just a favored few. It has to be hard being a liberal multi-millionaire and basing your entire run for power on hating it when good things happen for the rich.
So, do the tax cuts help the lower and middle classes?
First of all, and most obviously, there’s the whole getting-more-money thing. I personally was poor, and then I got $600 back. It didn’t bump me up any tax brackets but it made survival a lot easier for a while. Sounds simple, yes?
Of course, to the contrarians, simple and sensible are little more than opportunities to attack, so let us be more clear.
How do the Bush tax cuts impact the poor?
Under the Jobs and Growth Act of 2003, 91 million taxpayers will receive, on average, a tax cut of $1,126 this year.
*68 million women will see their taxes decline, on average, by $1,338.
*45 million married couples will receive average tax cuts of $1,786.
*34 million families with children will benefit from an average tax cut of $1,549.
*6 million single women with children will receive an average tax cut of $558.
*12 million elderly taxpayers will receive an average tax cut of $1,401.
*23 million small business owners will receive tax cuts averaging $2,209.
*3 million individuals and families will have their income tax liability completely eliminated by the Act.
“The largest percentage cuts go to those making less: the average American family earning $50,000 would receive at least a $1,600 cut - at least a 50% reduction. And a family of four making $35,000 would get a 100% tax cut. One in five taxpaying families with children would no longer pay any taxes at all. Clearly low-income Americans are the biggest winners under the President's plan.”
The tax rate on low-income families with two children will fall by over 40%. The tax rate for low-income families with one child will fall by nearly 50%. A family of four making $35,000 would get a 100% tax cut. We’re not talking about Donald Trump, Bill Gates and John Kerry, here.
Let’s see. Single women, the elderly, poor families and small business owners. Hardly the super-rich.
Don’t get me wrong, the rich will save more money than the poor thanks to the tax cuts. This is called “arithmetic,” and it’s a topic my liberal friends like to avoid, or at least obscure.
If you make $100 and I make $10 and we both get a 10 percent bonus, you get $10 more and I get $1 more. You gain a larger bonus by $9 because you’re richer than I. This is not unfair. This is not biased. This is math.
The rich will save more money because they PAY MORE TAXES. According to the IRS, the top 1% of wage earners, who bring in 21% of all income, pay 37% of the federal tax burden. (Under a truly "fair" system, they would pay 21%.)
And, from the same source:“If you think I'm exaggerating, read what Senate Minority Leader Tom Dascle had to say in a radio address on January 4. In trying to bait the American people, Dascle claims that such a tax cut would be ‘the wrong idea at the wrong time to help the wrong people,’ and that ‘those who make more than $1 million a year would get a tax break of $24,000, while those who make between $40,000 and $50,000 a year would get a break of $76.’
What Mr. Dascle didn't say was that the top 1% (those who earn at least $313,000) also pay an average tax rate of 27.45%. This means that those who make more than $1 million a year are also paying at least $274,500 in taxes. That's a whopping sum of money to have taxed out of your paycheck.”
Not to mention that Bush’s tax cuts help folks across the board.
If everyone who pays taxes gets a break, then the people the liberals seem to be defending are those who don’t pay their taxes. Curious, that.
The drought of common sense among liberals has gotten so bad that even John Kerry has been forced to promote tax cuts, although he hides his cuts in “New Jobs Tax Credit” and “Tax Holiday” rhetoric, because fellow liberals would flay him alive if they figured it out. Somehow, when Kerry cuts taxes for a few people, 10 million jobs magically appear, but when Bush cuts taxes across the board, the economy steers toward apocalypse.
Let me ask it this way: would you be better off today if I gave you another several hundred dollars for free? Or, more accurately, if I didn’t take away several hundred of your dollars? The liberals have to think this one over.
Another way to judge whether the tax cuts are beneficial is to ask: will the economy grow more quickly with the tax cuts in place? Well, more liberal pessimism aside, the economy is in better shape now than it was before the cuts were up and running.
However, and this I say by way of concession, it IS too soon to tell. Despite what Bush-lovers would have you think, it’s too early in the game to see if we’re headed for an economic boom. On the other hand, despite what the Bush-bashers would have you think, the inklings of growth in the economy aren’t some sort of harbingers of doom, either. We need to know if the cuts will speed up the economy, but economies on this scale are best judged in years, even decades - not weeks or months.
The good news is that tax cuts are a fine idea “independent of the current growth of the economy.” Putting money that belongs to the people, that they EARNED, back in their hands is always a good idea.
See, what it comes down to is that taxes are like abortion. And no, not just because they’re both grotesque procedures supported by Democrats. They are alike because you’re either for them or against them.
You either want people to keep more of their own money or you want to take it from them for your own purposes.
Listen to the liberal rhetoric. We can’t “afford” tax cuts, they say, as if cutting taxes were something we were spending money on. It’s not, of course, it’s just reducing the amount of money the government has to play with.
Certainly the liberals don’t want you to have your own money. They need it for government programs designed to elect the most liberal man on Capital Hill and bailing out the DNC Convention in Boston. Liberals have the moral authority to do this, of course, because taking our money from us is “for our own good.”
God only knows what we’d do with our money if we ever got our hands on it.
Submitted with the deepest respect,
Dan Champion, IB Republican
Battle Tax Cuts - Challenger - Opening ArgumentsUnsustainable Path
These long-run budget projections show clearly that the budget is on an unsustainable path, although the rise in the deficit unfolds gradually. As the babyboomers reach retirement age in large numbers, the deficit is projected to rise steadily as a share of GDP. Under most scenarios, well before the end of the projection period for this chapter rising deficits would drive debt to levels several times the size of GDP.
Office of Management and Budget, Analytical PerspectivesFebruary 2004
I would love to talk about George Bush's tax cuts, but the reality is that for all practical purposes, there haven't been any. A tax cut is a reduction in planned government revenue coupled with either reducing the size of a surplus, or by reductions in planned spending. This is the essence of the Pay as you go or PAYGO system. But the two major tax bills Economic Growth and Tax Relief Reconciliation Act" of 2001 and the Jobs & Growth Tax Relief Reconciliation Act of 2003 do not have any spending reductions, and there was only a very small surplus to distribute. In otherwords, the tax bills offered revenue reductions, but not true tax cuts.
What we are really talking about then is whether it is good economic policy to have a large shot of investment demand stimulus, and a large program of borrowing money at the Federal level. What we are really faced with is whether reducing federal revenues alone will produce a better economic performance than some other economic policy.
That federal revenues as a share of GDP have been slashed is something everyone agrees on, the numbers are very clear on this. What is also clear is that the budget deficit, as a percentage of GDP is back to early 1990's levels, to the point where even Greenspan is warning on the dangers of deficits.
That the bill is demand side was stated by Bush himself:
"The principle of the bill is pretty simple," Bush told reporters as he took a victory lap around Capitol Hill Thursday morning. "We believe the more money people have in their pockets, the more likely it will be that somebody can find a job in America."
Tax policy, no matter how it is phrased, is always about the demand side. More money = more demand. It's crude Keynsianism by Bush's own admission. That means that the design of the tax bills should be visible by who the money was given to and for what purposes. To make it to the supply side, the tax bills needed to address deficiencies in the economy.
Which means that if you loved Ronald Reagan, you should hate George W Bush. Let me explain, Bush has broken the series of compromises in the economy that Reagan helped engineer.
Back in the 1970's we had consumer inflation. The problem? We had reached the limits of Consumer Keynesianism. Whenever money was pushed into the consumer economy, energy prices, specifically oil, went up. There was inflation endemic in the economic system. There were two parts to this. One is that interest rates were too low, and therefore it was too easy for people to borrow their way around problems. Carter realized this, too late to save himself, and appointed Paul Volker, and inflation hawk, to run the Fed. Volker raised interest rates and cut down on liquidity, and began squeezing prices down.
But there was a second part, and this is where Ronald Reagan came in. After a 12 year long bear market, no one wanted to invest in stocks. Stocks are where capital comes from, and so the other part of the equation was to increase investment demand. Reagan was far from as radical as people thought at the time. The major change was to move from pushing consumer demand up, to pushing investment demand up. Up until then, the theory was that consumer demand would produce supply: lower the risks of spending, and give people money, and someone will produce things for them to spend it on. After the oil shocks it was realized that the limit to consumer growth wasn't full employment, it was full energy usage. More consumer demand produced more dollars chasing the same number of barrels of oil.
Reagan shifted to investment demand, but not investment supply. Investment demand is money, investment supply comes from the new businesses that come into being that return enough to pay for the cost of money. Real supply side means addressing business formation. In the 1970's we learned that there was a limit to consumer demand: namely the point where energy demand rises. The Reagan solution was to push up investment demand, and hope that demand would create its own supply in investment.
Most people will talk about deficits at this point, and Republicans are forced to talk about how "deficits don't matter". This is nonsense, of course it matters if government is borrowing more money and crowding out private investment. However, a deficit is as much a symptom as a cause. Just as hiring numbers, or lack there of, are a symptom, and not a cause. There will be plenty of time in rebuttals to go over hiring data, and how the Executive has been consistently wrong on the number of jobs that will be created, and on deficits, and how the budget predictions show deficits as far as the eye can see, even assuming that the entire tax program is allowed to sunset in 2010. But the real case is the root cause, the fundamental numbers to keep ones attention focused on.
The strategy of Reaganomics was to pressure oil prices down by keeping a lid on wages, and by pumping money into investment. However, if investment demand ran ahead of investment supply, the result was a flat stock market – as we saw in the wake of the crash of 1987, which meandered slowly upward until in the early 1990's the deficits were being pared down, and the internet provided a whole new kind of investment supply.
The real fundamental of the economy is simpler: there are very few goods that the US must import, chief among these is energy, either directly, or indirectly in the form of goods that we import that cost energy to make. In order to grow we have to either sell investments overseas, or we have to sell goods abroad, or we have to find a way to make more GDP with the same amount of energy. The real supply side then, is either making new investment supply that others want to buy, or by creating investment supply that will make new goods to sell, or by creating investment supply that will reduce the energy cost of GDP. Bush's tax policy, isn't doing any of these for us.
Instead, energy inflation has been reignited, the stock market in global terms is flat, and there is a lack of quality investment supply presently in the US. The first is easy enough to show, the "refiner acquisition cost of oil", a good rule of thumb measurement for the cost of energy, the numbers show how starting in 1998 the cost began marching back up. The "bubble" in stocks was not creating economic improvement. But what is symptomatic of bad policy after this is that the recession of 2001 barely put a dent in the march upward in price. Prices of gasoline, electricity and other forms of energy, of course, mirror this same graph. So the energy supply side has not been helped, on the contrary it has gotten worse.
Some people will point to the rising stock market as proof that there has been real recovery in supply side - but that's not growth, that is devaluation. Measured in world buying power, gold, oil or the Euro the stock market has been essentially flat after the relief rally from Iraq. This means that the US is not producing more investment that people want, but instead investment is being propped up by tax cuts and borrowing.
Finally there is exporting, and here too, we have a singularly deficient policy. Instead of making goods that no one else can, and selling them at a premium, the current policy has been to allow devaluation, and the reduced selling price in other currencies that come with it. This hasn't worked, because, as pointed out above, all it does is increase the price of the commodities we have to have, namely energy, which soaks up any advantage that we gain from a cheaper dollar. The trade deficit has widened to record levels.
In otherwords, in all three of the supply side areas, the current tax policy creates demand, but does not encourage the formation of new investment supply, If you want to know who is killing supply-side economics, look no further than the White House.
This means that the fundamentals of the American economy are very simple: consumer supply can only grow, sustainably, at the rate of energy supply. This is what Paul Volker and Alan Greenspan understood: as long as wages grew less than productivity, and energy prices fell, the interest rates could be lowered, if not, they had to be raised to choke off consumer inflation. But what is the limit to investment demand? At what point is it merely touching off inflation? The answer is also simple: capital improves the efficiency of the use of resources. As long as capital is finding a way to get more real GDP out of the same amount of basic materials, then it is working. That's Greenspan's "virtuous cycle": more investment demand, leads to more investment supply, which means that the same amount of input labor and material can go farther, which means more to split between wages and dividends.
This means that the usual numbers thrown around, GDP, job creation, inflation and so on, are symptoms, and not causes. And the kind of touting of mediocre performance that Bush's apologists have been doing is next to useless. Creating 1.5 million jobs in 6 months is a pathetic performance for an economy in economic rebound. March 1946 saw 944,000 jobs created - and September 1983 saw 1.1 million jobs created. Those are both in a single month totals. The best single month of job creation under Bush, as a percentage of total payrolls ranks at 132 of months since records were kept. The US economy has often created more than 2 million jobs in six months - and in the Reagan Rebound from the 1981-1982 recession and the Truman Rebound from the 1949 recession, the American economy added more than three million jobs, in much smaller economies. In the Clinton rebound in 1994, 2.136 million jobs were added in 6 months. That's as good as the best month Bush has had laid end to end for 6 months.
For there to be real progress then, the government has to address the real problems of supply. To do this means that the first step is to stop spinning our fiscal wheels on investment demand solutions that are not getting any traction, because there aren't enough investment opportunities.
It also means addressing the failure of Iraq head on. Iraq, in economic terms, was meant to do two things. One was to reduce geo-political risk of terrorism, and the other was to put a large supply of cheap oil on line, and under US control The failure to find WMD in Iraq, at the same time that North Korea, Pakistan and now Iran are reaching for full fledged atomic deterents, is a failure to reduce that risk, and as with Carter's failure to deal with Iran, a sign that Bush does not have the judgment to be President. But as bad as going to Iraq and no getting WMD, is going to Iraq, and not finding cheap oil.
The result is that the investment demand side continues to pressure upwards the price of oil – now over 40 dollars a barrel on the spot market, without a supply shock. It also means that until the equities market reignites, there is the danger we will have the repeat of the late 1970's, when speculative money poured into commodities. Based on a purely demand model for oil, I calculate that crude should be at 33.00 a barrel. This is slightly on the high side of consensus estimates, but not by much. The other 7 to 10 dollars a barrel of cost comes from "risk premium". Which is investor speak for speculative money looking to make a killing. While solving Iraq will reduce this premium, reducing the amount of excess demand in the investment sector will be required.
In short, we need to go back to a government which prevents risks, rather than takes them, and which focuses on finding ways of overcoming long term bottlenecks in the economy, so that the free market can exploit opportunities without friction. The current revenue reduction program coupled with massive borrowing does neither of these two fundamental goals of government, and, therefore, should be abandoned at the first possible opportunity.
Congress sees deficits as far as the eye can see, while revenues as a percentage of GDP are predicted to shoot up from 15.8% to 20%. That's what the friends of this economic package are predicting: that current spending plans are going to be in deficit forever, even assuming that the entire series of revenue reductions passed by Bush and his Congress are rolled back.
However, if, as planned, the current tax packages are maintained and the very popular changes to the Alternative Minimum Tax are made – to fix this generation's version of "bracket creep", where people of relatively middle class incomes lose their deductions - then the projected deficit, according to Concord Coalition Budget Projections balloons from 1.7 Trillion dollars of accumulated deficit to over 5 trillion. This is on top of the 7.2 trillion that has already been accumulated. This cannot go on, because, as the CBO itself admits, the budget is "unsustainable".
And that which can't go on, won't.