The Right's Shameless Lies On Tax Cuts

[ulTRAX]

Right wing tax cut psychos love to claim there's some direct correlation between tax cuts and economic growth. They give a few examples such the 20's, and the JFK and Reagan tax cuts. Bush is now claiming the same. What absolute nonsense.

For there to be a correlation between tax cuts and economic growth, these tax cut nuts have to be able to prove that growth is unlikely without tax cuts... and that tax increases will stifle growth.

According to http://www.nber.org/cycles.html the organization that has the most credibility in determining when a recession starts or stops.... there have been some 21 recessions in the last century. Somehow it seems in the vast majority of the cases... there have been recoveries WITHOUT any tax cuts. The JFK tax cuts were passed when the economy was already out of a recession for some three years. NBER considers the expansion of the 60's to be a wartime expansion. Reagan passed his irresponsible ERTA tax cuts in August 81 yet economy did not seem to care these tax cuts were on the way and had sunk into recession the month before. The economy did not come out of the Reagan Recession until Nov 82.... but what's this? Just 2 months before Reagan signed into law one of the biggest tax INCREASES (constant dollars) since WWII. So too with Clintons 93 tax hikes. There's no evidence the economy sunk into recession as the GOP claimed it would. Yet the lie is back and repeated ad nauseum.

So now the economy has shown some growth... at least for a few quarters. No doubt the tax cuts had some minor demand-side effects. While Bush is congratulating himself the simple truth is that the economy pulled itself out of recession for reasons having little to do with Bush's tax cuts. I'm sure Bush even knows the business cycle was on his side and his tax cuts were designed to send home the bacon to his rich constituents, NOT to have much effect on growth. But he'll take credit anyway simply because it's ONLY way to sell tax cuts to the wealthy is to pretend they benefit us all.

So when we hear our Rightist friends crowing about how Bush's tax cuts saved the economy... just remember it's just the Big Lie the Right can't live without.

[TahitiNut]

1. The insanity of 'supply-side' propaganda

The Reich 'argues' (fallaciously) that reducing taxes on the investment-class encourages more investment. This is both simplistic and fallacious. The argument rests on the notion that those 'last dollars' (otherwise paid in taxes) would otherwise be invested in a manner that causes (domestic) employment. If we examine that argument we find no substantiation whatsoever. Instead, it can be argued, those dollars (those not shifted off-shore) are 'invested' in the stock market, resulting in equity inflation (too many dollars chasing too few growth stocks - greater fool theory). When equities are inflated (P/E ratios above 25), pressure is placed on those businesses to either increase revenues (nearly impossible when customers have no more money) or reduce costs -- usually labor costs. By depressing labor costs (reduced compensation and workforce sizes), growth opportunities are inhibited even more.

To better see the fallacy of 'supply-side tax reductions' we only need ask: "Then why not reduce taxes on working people?" After all, if the taxes on working people were reduced, those marginal dollars would be spent on domestic products and services -- resulting in an expanded (in terms of disposable income) market for those businesses undergoing the pressures of equity inflation. Indeed, reducing the tax burden on working people would also result in an effective increase in labor compensation (more take-home dollars) and relieve the pressure on business to increase worker compensation. Not so strangely, however, we never see this parallel argument posed by the plantation plutocrats who engage in rationalization rather than reasoning -- rationalizing a predetermined bias toward benefiting the wealthy and blaming the victims (i.e. labor).

[wicket]

2. Clinton RAISED taxes on the rich...

And then the economy BOOMED. Right-wingers just hope people who buy their tripe don't learn the real truth before the election.

[TahitiNut]

3. To the degree there's any validity to the Laffer Curve ...

... it's that this representation of the law of diminishing returns is on the flip-side. When the GINI Index is above 30-32 (currently at 41 or more), the argument favors increasing the progressiveness of the overall tax structure (i.e. higher rates on the wealthy and lower rates on working class).

[leftyandproud]

4. The Laffer curve is correct I'm afraid..

even the most hardcore lefty must admit that a tax rate of 99.9% will cause virtually 100% unemployment. Nobody will work with such a high burden. When you tax something (behavior/products,etc), you get less of it...and when you subsidize something, you get more of it. Costs and tradeoffs do exist in the tax system. We can't raise or cut taxes forever...There is an equilibrium point somewhere between 0 and 100% that results in maximum revenue for the government. This is the point where work and/or investment become unattractive to people, causing them to devote their time elsewhere. The dispute today is not over whether or not this is true...just over WHERE exactly this point of taxation is.

[AP]

6. I've never seen laffer curvers break it down into (1) what kind of income

you're talking about, and (2) progressivity, and (3) what you might do with the revenue from taxation.

Of course the laffer curve is right on some level. If there were one flat rate on all sources of income, you would discourage people from being productive by increasing tax rates (and, especially if you don't use that money to invest in wealth-producing infrastructure).

However, we have hundreds of different taxes on dozens of different kinds of income, and some of those rates increase as your gross income increases.

(1) Clearly, taxing labor at high rates devalues labor, and there's a lot that can be said about allocating tax burdens on different kinds of income in order to encourage productive forms of wealth accumulation (labor) versus unproductive forms of wealth accumulation (inheritiance, and, on occassion, dividend income and LTCG in poorly regulated equities markets).

(2) Furthermore, obvioulsy income tax rates have to correspond to marginal valuations of additional dollars. You can't tax poor and rich people at rates that don't account for this, or your inequitably distributing the tax burden which discourages call mobility and rewards great wealth rather than rewards great efforts to create more wealth.

(3) Perhaps most imortantly, people would be insand not to voluntarily pay more taxes in order to make more money. Bush may have lowered taxes dramatically on the top, say, 25% of American, but he's dramatically lowered income and wealth of everone except maybe the top 1% or less. If you're not in that top %, you were crazy to vote for someone who lowered your wealth more than they lowered your taxes (and there's probably a very direct correlation between lost tax revenue (and investment in infratstructure) and decreasing wealth, so this is a legitimate set of principles to crticize).

[TahitiNut]

7. Fallacious nonsense.

The Laffer Curve is nothing but the Law of Diminishing Returns dressed up in a Halloween costume.

Remember: There is, in reality, no such thing as an "average person". It's a statistical myth.

The fallacy in the "reasoning" is treating "taxpayers" as some mythical average Everyman. The fact of the matter is that various classes of 'taxpayer' fall on differing points on the Laffer Curve. At the same time, there has been very little empirical work done to determine the "optimum" points: (1) At what point on the curve is income-producing activity optimally motivated? (2) At what point on the curve is tax revenue optimal? There are some low-profile papers that suggest that tax revenues are optimized at an overall tax rate of 42-43% and income-producing activities are optimized at 36-38%. (The bottom 20% are taxed at the highest rates!) Unfortunately, those papers don't assess the differing levels of income (vs. needs) at which such taxation rates result in such optimization.

Currently, the lower 80% (in terms of AGI) of people in this nation are taxed overall (federal, state, and local) at a rate of about 42% while the top 1% are taxed at a rate of 38%. (The top 0.1% are taxed at an even lower rate!) This then raises the question of whether the burden of "optimizing" tax revenues should fall on those least able to bear it and the benefit of "optimizing" income should go to those who're in the least need for that income.

This rate of taxation also ignores the labor drains of equity inflation. Currently in the S&P 500, labor is compensated for only about 35% of the value of that labor. (In effect, companies are 'taxing' their workforces at a rate of 65%.) The remainder of that value is either distributed to owners and middlemen or consumed in the economic "friction" (often through M&A's) of the equities markets.

[jmowreader]

8. The Laffer curve's principal hypothesis is incorrect

And that's the idea that people will stop working if tax rates rise too high. That's crap, brothers.

There are two economies in any culture, an "aboveground" and an "underground." The underground economy pays no taxes. A large part of it is illegal, naturally--the entire dope trade is in the underground economy--but quite a bit is a mix of aboveground and underground.

Let's say HawkerHurricane gets his boat and cannon. He's certainly not going to put "pirate" on his income tax forms. He'll pay no income tax on the money he makes from piracy, but he will pay tax on the food for his crew, the diesel for his boat, the parts for his engines, the powder and ball for his cannon...there are a great many things a pirate needs to be successful, and all are taxed.

If the tax rate was one hundred percent, there would be an underground economy but the aboveground economy would die. If drugs were legalized and the tax rate was zero, there would still be an underground economy--gambling would be illegal, maybe; murder-for-hire and child pornography would definitely remain so. The Laffer curve is an effort to figure out the optimal tax rate to encourage more income to remain in the aboveground economy vice the underground economy.

So long as people still need to pay for food, people will always work. The question is, are they going to work in occupations that pay taxes, or ones that don't?

[HawkerHurricane]

16. But HawkerHurricane does know his history...

Just because my income doesn't legally exist does not mean I don't have to pay taxes on it... See Al Capone.

I would 'claim' an income, probably something like 'Tour Boat Operator'... And then just enough to keep the IRS off my tail (while concealing the rest).

I favor Demand Side Economics: Cut taxes to the workers, and they will buy more things... Thereby encouraging the upper classes to build factories to produce those things. Call it "Trickle Up Economics".

[ulTRAX]

9. laffer curve is a joke

leftyandproud wrote: "The dispute today is not over whether or not this is true...just over WHERE exactly this point of taxation is.

The Laffer theory maybe be true in the generalized sense... but those decisions no doubt vary by individual... not in a collective sense. We must not forget that taxation is but one of many variables that motivate someone to work harder. I always saw Reagan's leap to accept this simplistic theory as trying to put lipstick on a pig... trying to make his irresponsible tax cuts seem scientific. Of course Reagan was no Einstein. If a dumb theory fit his ideological predisposition.... then he'd believe it.

The JFK tax levels brought the top level down to 70%. While today that level seems punitive... it didn't seem to slow the economy... and the Right sings the praises of the JFK tax cuts. Yet the Right later claimed that essentially those same rates were stifling growth in the late 70's. Missing from their one variable theory was the high cost of oil. Not satisfied with Reagan bringing the top rate down to 50%... it eventually went down to 28% in 86. Was the growth that much better than the 60s? How much growth was due to other variables such as the struggle to become energy efficient after the oil shocks of 73, 79 and 81? How much of the growth was pure gravy as the price of oil plummeted in the mid 80s? The Tax Cut Psychos prefer their lies. I say because economists who work at Heritage or Cato... HAVE to know they're putting out pure bullshit. I'll dig out my favorite examples if I can find them.

[TahitiNut]

10. Two graphs shed some light on this ...

Here they are ...

[ulTRAX]

11. indexing minimum wage

The erosion of the minimum wage is scandalous. Why have Democrats not advocated indexing the minimum wage to inflation?

[AP]

12. because it would probably compound inflation, unfortunately.

[TahitiNut]

13. General inflation isn't driven by the lowest on the economic ladder ...

... it's driven by a devaluation of disposable (so-called "discretionary" spending) dollars. Fear of inflation is mostly what tightens the economic noose around the neck of the middle class. The classic definition of inflation is "too many dollars chasing too few goods and services." It can also exacerbated by a proportional reduction in available goods and services. Industries, particularly those having oligopolistic control, play a competing "inflation game," hoping that carefully-orchestrated scarcities will drive prices up narrowly and fuel the conversion of fungible capital from the inflated sector into other sectors -- this is the financial industry's base dynamic. For some time we've had inflation in the equities markets -- which is what inflated the 'bubble' of the late 1990's. We've been seeing inflation in the health care sector, too. Sadly, both have "trickle-down" impacts on the least able to bear the distributed costs.

As a demand for goods or services is driven by the lowest (strongest) on Maslow's Hierarchy of Needs (the physiological or survival 'need'), it translates into the production of food, shelter, clothing, water, utilities, and other basic goods and services. When the production of those goods and services keeps apace with the demand, inflation is kept under control.

[ulTRAX]

14. or the democrats cynically....

Or the Democrats cynically use the issue to beat up on the GOP. Once indexed... the issue is gone.

[Zinfandel]

5. Do you really expect anything less than complete and repeated lies

pounding away with the same old lies until every cable network is referring to the lies as truth and talking points...they have nothing to run on but lies so they'll keep repeating them until enough voters believe them as truth.

Who's to stop them? They have the money for ads, and the republican owned corporate media...to keep the lies going forever.

[ulTRAX]

15. possible approaches

Granted the GOP has the money... but the Democrats are not broke.... and it's time that liberal think tanks joined the fray.

There also has to be way to inoculate the public and make them MORE suspicious when they see too many ads... or ads from groups pretending to be citizen based.

In another thread I posted on some visual aids that I think are devastating to Bush. Check it out... http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=104x1203839 I think the Bush is very vulnerable on his irresponsible fiscal policies. But the Democrats have to make these abstract numbers real. Those images do so. Best yet... local groups could easily stuff such simple handouts in mailboxes.

Speaking of images being worth a 1000 words... check this out: http://www.lcurve.org/