Nobel winners attack Bush economics

[DanS]

Never mind the fact that grauated taxation levels are right out the window with that idea, unless you're willing to apply some sort of enormously complicated luxury tax scheme...

There are ways of changing that. Everybody could get a flat subsidy against consumption taxes from the gov't.

Can't say as I'm enamored with the approach. But if the studies tell us that our tax system is killing growth, we are obliged to consider alternatives. Bush's economists are telling him that removing capital taxes may increase economic growth by up to .5% per year. Even if the poor take a slightly higher burden under this system, they will also share in that compound growth.

[DuncanK]

I don't think our tax system is killing growth. There is plenty of money in the economy already. We don't need to give rich people more money. I think the economy would grow much more if we did more to keep wages high. This would stimulate more investment.

[Velociryx]

I think we should remove all taxes on bananas.

-=Vel=-

[DanS]

I don't think our tax system is killing growth

What is your backup for that?

[KrazyHorse]

Dan, wouldn't that do more to harm growth?

One of the major problems of modern economies is not overspending by consumers but rather underspending, leading to lowered employment (i.e. if everybody spent more then there'd be more all around since more unemployed would be working). And a consumption tax goes completely against that.

IMO, all sales taxes should be completely dumped and the only source of taxes should be income-based (I'm including corporate income taxes here).

This is especially true in recessionary environments, and Bush's plan is therefore completely illogical when applied as a short-term remedy. So when he tries to sell it as one, it annoys me.

[KrazyHorse]

There are, of course, brief periods of overspending (the booms), but these seem to require extreme amounts of government stimulus (either public works or almost free credit). Which would suggest to me that the default mode of operation is undercapacity.

[DuncanK]

Well you know my favorite is a wealth tax. Well actually I'm against capitalism altogether.

Anyway, I admit that income tax does a negative effect on the economy. However, I have to say that a flat tax would destroy the economy it you didn't have some way to get lower income people to spend money. If you had some rebate in addition to increase peoples income than fine.

Just a straight flat tax will kill spending. You just wont get any growth in the economy with decreasing profits. Businessess wont invest when profits are decreasing.

[DanS]

Dan, wouldn't that do more to harm growth?

Two items: (1) consumption taxes; and (2) Bush's cuts in capital taxation.

#1 -- I don't know enough about it.

#2 -- Bush's economists (Hubbard) are telling him that reducing capital taxation could result in up to 0.5% increased economic growth per annum. That's why Bush is proposing it.

[KrazyHorse]

I don't know.

Remember how high price/earnings ratios are right now?

That suggests to me that increased capital spending will provide marginal benefits, while the decreased consumer spending that accompanies it (there's only a finite amount of money out there at any instant) will do more harm.

[Imran Siddiqui]

IMO, all sales taxes should be completely dumped and the only source of taxes should be income-based (I'm including corporate income taxes here).

Then the states would have no revenues (that is where they get a lot of their money). They ain't giving that up.

[DanS]

Remember how high price/earnings ratios are right now?

Yep. They're becoming reasonable.

[KrazyHorse]

Yeah, but what this does is encourage them in the opposite direction. Which might be good for 401k portfolios and politicians who want to point to high indexes as proof of their success, but which has less concrete meaning.

[KrazyHorse]

And even if you assume that this is not an unavoidable situation given the amount of money invested, the population and our level of tech. advance, you have to see that in the intermediate future (20 years) it's going to remain a substantial problem given the demographics (IIRC the "average" boomer would be in their mid-40s now...which is crunch time)

[DanS]

First off, let's let the market take care of itself. Secondly, Bush has been pretty uncynical about this. He is leading with the exceptionally unsexy argument that it will increase economic growth, when the infitely more popular 9% expected equities price increase is what gets everybody's rocks off.

[KrazyHorse]

The more cynical among us would claim that Bush doesn't have to preach to the converted (stockholders) but rather to the ones who are rightfully wary of this (Joe Sixpack).