January 17, 2008

Tax cuts economic stimulus? Not so much

Here's something I promised a devout believer that tax cuts solve everything. (one of the 2 minus 2 equals 5 crowd who devoutly want to drag the country back to the pre-New Deal era.)

It's from a small post on Princeton economist Paul Krugman's blog in which he writes:
If this Times report is at all right, Republicans will hold any attempt to help the economy now hostage to yet another try at making the Bush tax cuts permanent — thereby, among other things, crippling future possibilities for health care reform. I suspected that’s what would happen, but thought that maybe, just maybe, the GOP would be sufficiently scared by the prospect of a nasty recession in an election year that it would back off. Guess not.
Just a reminder: here’s the evidence on which Republicans base their faith that making the Bush tax cuts permanent is absatively, posolutely, essential to prosperity:

Update: Rereading this, I think I could have been clearer. The only way anything useful will get done by way of stimulus in the next few months is if both parties agree not to demand anything that would tie the hands of the next president and Congress — that means no long-term spending plans from the Dems, no long-term tax cuts from the GOP. And it seems that the Republicans are already making it clear that they won’t play it that way; they’re trying to hold any help for the economy hostage to their agenda, which is exactly what happened 7 years ago.


At 1/17/2008 7:10 AM, Anonymous Anonymous said...

This is the most unbelievably 'apples-oranges, one thing has nothing to do with the other' post I have ever seen.

Dope, please be careful, as your simplistic-thinking is really showing.

During the Clinton years, we had an enormous tech-boom in the stock market. Everyone was making money - things were great. This had nothing to do with Clinton economic policy (because he did not have one) and it certainly had nothing to do with tax increases.

Remember a little thing called the NASDAQ bubble? It burst in 2000 - amazingly, at the same time that your wonderful chart starts going south.

Then you might remember a little thing that we refer to as 9-11. As a reminder to you, this occured in 2001 - as your cute little chart goes further south.

Bush had to fight off two (2) major negative issues - and your chart shows you exactly that tax cuts HELP employment - as those tax cuts allowed businesses and individuals to make money so that employment finally rebounded from those two factors in late 2003.

Please tell me, you economic guru, the dynamics behind your supposed increse in taxes equals greater employment?

What, people have less money, consequently, they feel like hiring more people and spending MORE money???

Come on - this is simple - as business has more profit, they hire more workers. If you owned a business and had a break-even P & L (that is a profit and loss statement), you are going to cut expenses everywhere possible. If that same business is doing well and has a profit of $200,0000, it has an ability to hire (and pay) more employees.

I'd suggest that you just delete this entire post, because you just proved a great Republican point. Or, like normal, maybe you'll just censor this comment!

At 1/17/2008 7:00 PM, Anonymous ROE said...

Macro-economics aside, I've always been a little leery about the "trickle down" theory. Business owners have a choice about what to do with the windfall, and I'll bet many simply line their pockets further rather than re-invest in employees. Put the money in the hands of consumers, and as history has shown over and over, they will spend it.

At 1/17/2008 8:10 PM, Blogger nicodemus said...

The fallacy is that this is based on the premise that it is not my money in the first place and that my money just automatically inherently belongs to the government and that they are doing me some favor by allowing me to have some of my own money back.
I have not watched all of the debates, but has anybody heard any of the Democratic presidential candidates talk about cutting federal spending, earmarks, and so forth? I haven't, but like I say, I might have missed it in one of the many debates. The only candidate whom I have heard..who is really strident about vetoing the pork barrel spending is McCain. or Ron Paul I guess. The rest of them pay lip service. I guess if I have one pet peeve about Bush and the GOP is that they have not been fiscally responsible. Back in the old days the GOP was about minimal government, keeping spending down and keeping taxes nice and low. Not anymore.
We really need to get serious about the structural debt. 80% of the federal budget is locked into entitlements. No more new spending. I wish the Democrats would pick up on this but I suspect that it would be politically unpopular with their constituency.

At 1/18/2008 4:31 AM, Blogger The Inside Dope said...

You can come up with any number of things to try to explain away what the chart shows.

And how you feel that jobs are unrelated to tax cuts as a stimulus measure.... how do you figure?

Jobs are a major indicator of economic growth.

Perhaps you're comparing apples and oranges when you try to tie job growth with a speculative Nasdaq bubble? I fail to see how that affects jobs in a major way. A housing bubble? Yeah, I can see that. A dot com bubble? Not so much.

And 9-11 was a net boon to the economy when you figure in the literally billions upon billions of dollars injected into corporate coffers in the name of "homeland security" and the invasion of Iraq, etc.

I readily admit that I don't have a degree in economics. But I choose to take the word of someone who's earned a PhD from MIT, taught at Yale, MIT, and UC Berkeley, the London School of Economics, Stanford, and now Princeton, and was a staff member of Reagan's Council of Economic Advisors, over yours.


At 1/18/2008 4:41 AM, Blogger The Inside Dope said...

There's a reason George Bush Sr. called trickle-down "Voodoo economics". Even it's "inventor" and prime proponent, David Stockman, later famously admitted it was a sham and unworkable.

It isn't rocket science to realize that if money is injected into the hands of middle class or lower class families, that money is going to be in someone else's cash register probably by 6 that night.

Give millionaires millions more, and they're going to immediately wire it to the Caymans, then go by a yacht and write it off on their taxes.

The sales of luxury items such as private jets, yachts, jewelry, etc. went through the roof after Bush's tax cuts, and stores like Neiman Marcus and Bloomingdales did big business, while K-mart and Target suffered.

Only a willing dupe would believe for a second that the wealthy plow back all their largess into the economy by creating jobs, etc.

I ask you, if you were worth say, $80 million dollars plus and sitting on stock options worth a hundred million more or so, and you got an extra half a million in tax breaks from Bush, what would you do with it?

That's right. Us it as part of the cost of buying that house in Martineque that the wife has been wanting to get because so-and-so bought one there.

SOME of the tax cuts may be used to invest in business and therefore create jobs, but again, only a willful dunce would have you believe that it comes back into the economy in any meaningful way, unless your concerned about the well-being of the local Ferrari or Rolls dealer.

This isn't class warfare, and it sure the hell isn't class envy. It's just that tax cuts for the rich simply don't have the desired effect, other than the REAL desired effect, which is simply to help out the rich get richer at the expense of the middle class.

At 1/18/2008 4:56 AM, Blogger The Inside Dope said...

I simply feel there's something inherantly dangerous and illogical about the idea that government should not EVER spend more money on anything, while at the same time never introducing any measures to pay for anything, and reducing the revenue of the government by cutting taxes, particularly those of the very wealthiest citizens.

I'd go on too long to explain this, but to try to make it short, I simply believe that it's too easy to appeal to everyone's natural desire to hang onto every dime they can.

It's also an easy sell to pitch the idea, as you mentioned, that it's YOUR money and the government is just taking it from you, etc.

Perhaps it's like getting cable TV. You get used to it after many years, and then suddenly you simply insist that not only do they never change their lineup or add any more channels, but you refuses to pay a dime more for the service, and furthermore, demand that they cut the rates, but only for people who could most easily afford it and already get every premium service they offer.

(I know this isn't the best analogy, but bear with me.)

You get government services literally every minute of every day. I won't waste space listing even a few here, but the list is extremely long and includes things that you'd howl long and loud about if they ever even hinted at taking it away, such as food safety, fire protection, regulation of professionals, and on and on.

But suddenly, during the Reagan/Bush era, they started pitching this idea that you don't have to pay a freaking dime for any of this, that the government is somehow stealing this money, which is righfully yours, from you, and that they have no right whatsoever to determine what to do with your tax dollars, etc. etc.

There's something extreme and very wrong about that ideology in my opinion.

It encourages people to destroy their very government. It encourages what the true goal of the movement is to begin with, namely, cutting funding from social programs, repealing all regulation on corporations, banking, communications, etc. and essentially destroying the entire government, with the exception of contniuing to greatly expand the already massive spending on defense, and of course, corporate welfare and record setting pork barrel spending.

Government would then spend only on things which benefit big business, and the rest of us are on our own.

No college grants, no food stamps, no aid to seniors no nothing. They'd even love nothing more than to end social security, medicare, and medicade, and have actively sought to economically starve the programs to death.

The idea that government is the enemy is extremely insidious and has lead to a very unhealthy state of affairs, in my opinion.

Until that very notion changes, this country will continue to sink.

We simply can't expect benefits and results without being willing to pay for them. It's that simple.

At 1/18/2008 7:44 AM, Anonymous Anonymous said...

Please Dope, you are really not this stupid, are you?

Why is the government, all economists and most Democrats on board with a 'Stimulus Package' presently...

Answer -

As there is more money in the economy, the economy grows.

As the economy grows, businesses PROFIT.

As businesses profit, they hire workers.

It is so unbelievably simple to understand these economic principals.

These principals tell why a tax-cut grows the economy - and consequently employment. Please watch the news today as they talk about a stimulus-package - all experts agree that it takes "6-9 months" for the results to kick in.

I guess that there is little use in trying to educate you in economic principals - your statement of

"9-11 being a boon to the economy because of the security needs" -

might have been the dumbest thing that has ever been posted on a blog.

I'd go back to asking you the simple question of how employment happens - doesn't a company employ more people as their business and profits grow? Take money out of the pocket of businesses (through taxes or any other means (9-11)) and a business cannot hire as many people.

In the future, stay away from economics, cause you just don't understand economics.

At 1/18/2008 6:48 PM, Blogger The Inside Dope said...

Listen asshat, 7:44 a.m.

Your rightous tone and foolish certitude reveal who you are, and all I can say is, thank the lucky stars you didn't get past Zinga.

Secondly, just where the hell do you think all the billions shoveled into "homeland security" has gone, Skippy? Down some deep hole?

No, it went into the hands of many corporations and companies that are profiting handsomely from it, everything from airport screeners to high-tech gizmos that are sold to local first responders.

You're simply too stupid to argue with, as you no sooner say it's stupid to recognize the economic boost that resulted from post 9-11 government spending than you maintain that just that is what creates economic growth.

You don't think that pouring hundreds and thousands of MILLIONS of dollars into the economy might give it a boost? What a bonehead.

The fact remains that I could write that water runs downhill and the moon orbits the earth and you'd call me stupid for it.

You constantly argue right past what I've said, never bothering to stop and actually fathom what my arguments are.

I think injecting money into the economy helps when that money is in turn SPENT.

But you think handing it to the wealthiest 1% is the way to go, and that's a damn joke.

They don't turn around and spend any more than they normally would at Wal-mart and Target. They take the tens and sometimes hundreds of thousands of dollars that they've been left off the hook from paying and spend it to continue their already lavish lifestyle.

You think an owner of a huge company is going to take his personal tax cut and plow it back into the business and actually create jobs?

Nothing could be more ridiculous than actually believing that absurd notion.

So keep fighting for those poor powerless top 1% of the most wealthiest people in the country.

Keep arguing and battling to give a few more thousand to those making often several million dollars a year.

Keep grubbing away for your few hundred bucks you might get from Bush's tax cut and let the country go down the tubes.

I'm sure future generations will thank you for your astoundingly short-sighted selfishness.

At 1/18/2008 7:04 PM, Anonymous Anonymous said...

But there in lies your ignorance, you are so dumbstruck that you think that every tax cut is 'for the richest 1%.'

Again - educate yourself!

As for your claims of 'homeland security' dollars - thank you for finally agreeing that 'trickle-down economics' works!

Have a great day!

At 1/19/2008 12:21 PM, Anonymous sueshedap:puhleeze said...

Dear Dope; can't really add much to what you've said...but must take slight issue with anonymous 1/17/2008 7:10 AM "Remember a little thing called the NASDAQ bubble? It burst in 2000 - amazingly, at the same time that your wonderful chart starts going south."
Gee...why did that bubble burst rather than slowly deflating???

Hint hint...

I remember seeing little W. walking around that "bubble" with a little pin....during the 2000 campaign........

Fast forward to 2008 ...now how's he going to explain this recession looming since he's been in office for almost 8 years comanderin' and decidin' an' all? By "cheer-leading" that the economy is robust? HHMMMM ....Lets not look at specifics such as.... for instance....Merrill Lynch and Citibank in the "red" while their fired CEO's get to slogg through life with their 90 million (give or take a few million...dollars that is)Golden Parachutes? POOR guys!

Meanwhile ...where exactly are all those jobs? You mean the ones that these business' are eliminating? or sending over-seas????

At 1/19/2008 6:57 PM, Blogger The Inside Dope said...

Since you simply can NOT comment without making sweeping assumptions about my views which aren't in evidence, I find no reason to continue pointless arguments with you.

I'll respond to the above this way.

A. I've NEVER said that every tax cut is for the richest 1%. So why do you simply lie and say I do?

In terms of money, the vast majority of the tax revenue lost to the government is that which the richest 1% are not required to pay. It's estimated that were the reckless Bush cuts to the very wealthiest in the country be simply repealed, it would provide nearly a trillion dollars in additional income.

And when you're worth hundreds of millions, how much pain is it to pay a few hundred thousand more in taxes? It's negligable.

The tax cuts that went to average wage earners amounted to an average of a couple hundred bucks. That's something, but not much.

Boost that amount, and cut the amount that the richest tax cheats currently enjoy thanks to Bush. Why in the WORLD should a tax system overwhelmingly favor the very wealthiest citizens?

Plow more money into middle class hands and watch it work. Continue to allow the super rich to get even richer, and it goes offshore and into yachts and fourth homes in the south of France.

This country is already a de facto plutocracy. It doesn't need to be worsened.

For a rank peon such as yourself, (and I don't care if you're pulling in a three or four hundred thousand a year, compared to Bush's favored class, you're a peon, a speck.) I fail to understand why you think further increasing the already vast gulf between the very richest and the rest of society is something to strenuously support and argue in favor of. Just bizarre, but typical, to listen to righties argue against their own interests.

And how you figure that enormous waste and spending on unworkable and ineffective security measures, dumping countless millions into the coffers of everything from companies making nigh vision goggles and stun guns to universities hoping to cash in on various studies is an example of "trickle down" is beyond me.

Do you even know what trickle down is? It's the theory that the rich should get all the breaks because they'll in turn invest and spend and it will improve the lot of average workers.

It's pure bullshit as has been proven in practice and theory ever since it was concocted.

But the government spending, and often squandering billions on their political connected corporations under the guise of keeping us secure isn't "trickle-down" in any way shape or form.

At 1/21/2008 9:51 PM, Anonymous Anonymous said...

Wow, so now the NASDAQ implosion is also Bush' fault!

Now that is a new one...you libs are such fools! Who are you going to blame everything on after GW is gone?

Oh, of course, nothing will go wrong after he is gone, right!

At 1/21/2008 10:34 PM, Blogger The Inside Dope said...

Of course, no one said it was Bush's fault. But unless you make shit up, you have nothing to argue against.

And this from a clod who's party spent 6 freaking years blaming EVERYTHING on a former president.

You make me laugh.

At 1/22/2008 6:53 AM, Anonymous Anonymous said...

Sorry Dope, 'sueshedap:puhleeze' suggested that the bubble burst of the NASDAQ was Bush's fault ("that he walked around in 2000 with a pin").

I have blamed nothing on 'a former president'

In fact, I believe that other than being far more concerned with getting laid, than doing his job (and be more than willing to lie to the federal grand jury about it - the same offense that has numerous athletes going to jail), that he was, overall, a pretty good President.

Sorry, nice try.

At 1/22/2008 9:59 PM, Blogger The Inside Dope said...

Sorry for the misunderstanding. But Clinton was certainly not that concerned with getting laid. It seemed like he was just not concerned enough with NOT getting laid. And I think your suggestion that he wasn't that concerned with the country's welfare isn't shared by the vast majority of your fellow citizens among whom he continues to be emmensely popular.


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