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| Tax Hikes Cost Economy Far More Than They Add In Spending | |
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| Tweet Topic Started: Oct 24 2012, 08:44 PM (230 Views) | |
| Berton | Oct 24 2012, 08:44 PM Post #1 |
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Tax Hikes Cost Economy Far More Than They Add In Spending There is a good reason why Republicans and Reagan Democrats oppose tax increases and favor spending restraints: A dollar of tax increase to pay for an additional dollar of government spending costs the economy much more than a dollar — and that price is payable in the form of fewer private-sector jobs and lesser living standards for low- and middle-income families. Unless President Obama relents or is defeated at the polls, the government will in January begin bettering its own finances by doing large amounts of damage to everyone else's. The economy will over the period 2013-22 be hit by gigantic tax increases that do at least $2 of extra damage to jobs and incomes for every $1 of added tax revenue. In 2013 alone, in addition to bigger payroll taxes, increased income taxes will provide Washington an additional $270 billion. But as a result, the public will suffer an economic loss of twice that amount — a $540 billion deadweight loss on top of the tax hike itself. The extra economic cost of tax increases (over and above the tax itself) is a well-known phenomenon endemic to taxation. Economists aptly call this fundamental flaw in federal finance a "deadweight loss." That's because, counting both the economic loss and the bigger tax bite, the public suffers more dollars of harm than the government gains in tax revenue with which potentially to assuage the damage it caused. Studies by distinguished economists identify the ratio of deadweight loss to revenue raised for different types of tax increases. For example, if income tax rates are increased in January as planned, each additional $1 of tax revenue from higher rates will cost the public about $2.50 (the $1 of tax that someone pays to the IRS plus the $1.50 of economic damage the rest of us pay in the form of fewer jobs and lower incomes). Doubling the tax on dividends and increasing the tax on capital gains starting in January will impede the new investment that is essential to job creation. For that reason, the deadweight loss from this tax increase will be extra-large, about $3 for every $1 of tax revenue, for a total cost of $4. For the same reason, a large part of the "economic incidence" of the tax increase will fall on low- and middle-income families. The existence of deadweight losses so damaging and large compared to the amount of tax collected is a financial flaw so fundamental that it calls into question the whole idea of a high-tax, big-spending government. If voters understood that each additional $1 of tax increase makes them $2 to $3 worse off, they would ask the fateful question, "Does each additional $1 that Washington spends make us $2 to $3 better off?" A generous guesstimate is that 30% of the budget goes directly to vital governmental functions — including defense. Interest on debt is 9%. Another 15% is waste or is spent on underperforming government programs of low value or on overzealous regulatory bodies that do economic harm. The remaining 46% (including additional waste) is for entitlement spending, transfer payments and other subsidies. All recipients are happy to receive these benefits. Some actually need the help. But too often, the benefit can be less than the recipient's share of the damage done to the economy by taxes. Social Security checks often do not fully compensate retirees whose earnings were held down during their working lifetimes because taxes damaged the economy. Welfare and unemployment checks are sorry substitutes for job opportunities destroyed by tax increases. Bidding up the price that everyone else pays for medical care, education and housing is an expensive way of helping people who do need help. Destroying jobs and lowering incomes with tax increases, and then purporting to make up for the damage with more spending financed by more taxes and more debt, is a fiscal absurdity. And when something can't continue, it won't. With gross debt at 100% of GDP and the deadweight losses from existing taxes restraining GDP growth, big government is in fiscal gridlock: It can't tax or borrow more without devastating the economy and, without more money, it can't spend more. What Washington can do is cut and reform taxes — and spend less more efficiently. Tax reformers can reduce the high levels of deadweight loss by fixing those parts of the tax code that do the most damage. Presidents Kennedy, Johnson and Reagan lowered tax rates and also reduced the penalty the tax code's slow depreciation schedules imposed on job-creating capital equipment. Tax rates again need to be cut and the remaining penalties on job-producing personal savings and business investment should be eliminated. With deadweight losses cut to the minimum, the economy will grow faster. Debt will be a smaller percentage of a larger GDP, job opportunities and incomes will increase and, with fewer financial demands on expensive "safety nets," there will be more money to help the truly needy. With overall lower levels of taxing and spending, Washington will no longer be quite so "rich and important," but everyone else will be hugely better off — and that is how it should be. LINK |
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| Berton | Oct 24 2012, 10:48 PM Post #2 |
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| Pat | Oct 24 2012, 11:11 PM Post #3 |
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Fire & Ice Senior Diplomat
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I would clarify that and meld it with reducing trade impediments. Here is my take and it follows Romney's idea. He copied me. It has been reported that the business community is sitting on $400 billion in cash and this money is not being put to use. In fact, this is one of Obama's selling points for raising taxes on the wealthy business community. But like most of his ideas, they are half baked. How many here are aware of the fact, that GM, the company we bailed out, produces seven out of every ten cars they sell overseas? Why do you suppose that GM is engaged heavily in building car plants in China? Or Boeing is building airplane parts there and other developing countries? No cliff hanger here, it's because in order to sell products made here over there, our federal government in all of it's wisdom, has allowed these countries, China in particular, to enforce trade restrictions on imports, unless the foreign company builds most of the pieces for the product in their country. And in China's case, exports the technology there. OK, a business lesson here. If you Berton had a company here, and wanted to expand operations and grow your product's exposure, and China or India, or Korea, Or Brazil told you that your product was not welcome there unless you built a factory, and invested in training their citizens to work there, what would you do? Now when Romney mentioned this as one of his plans for getting America back to work, our illustrious president, who has never held a real job that I'm aware of in the business community, shot back with this, "Romney wants to start a trade war with China right out of the starting gate" I fell over when I heard this stupid remark, Attention Obama, THE TRADE WAR IS RAGING AND HAS BEEN ALL FOUR YEARS YOU HAVE BEEN IN OFFICE" Anyway, Romney is on the right track if he follows through. Combine lower taxes with strong and I mean strong trade policy. In fact, tell the Chinese the same thing they tell us. If they want to sell a product here, then build it here in American factories with American workers. And then watch American wealth flood into investment sin America. |
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| Berton | Oct 24 2012, 11:24 PM Post #4 |
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