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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: The Fiscal Cliff-Solving the wrong problem||Date: 11/14/2012 11:09 AM|
|Author: PosFCF||Number: 408456 of 505897|
Other things equal, taxes reduce economic growth, and different types of taxes have different impacts on economic growth.
Again, if one chooses to spend their time by finding studies to support their own viewpoint, then academia abounds.
I remember back when "crowding out" was the popular theory. For those who don't remember it, this theory suggests that the more money that government borrows, the less is available for business and private individuals. I would say that, at $16 trillion, there might be some of that going on now.
Now if the US is to pay down its debt and reduce the impact of "crowding out" then the next question becomes: "Where do we get the money? From those who have it or those who don't?" After that we consider the cutting of expenditures, and again the same sort of questions: "Where do we cut? From corporations who don't need the tax shelters or from the hungry people and seniors?"
Nobody wants their ox gored, yet goring the ox is how all suggestions for cutting are presented. Twelve years ago the CBO projected that if no changes to tax code or spending were made, that within 10 years we would have a $6 trillion surplus. At the time the total US debt was about $5.5 trillion. That was with the tax rates exactly where they would revert to if nothing is done to avoid the "fiscal cliff". So, if one thinks about it, maybe we could engage in some sensible strategies to get back onto a track of fiscal responsibility with everyone participating in the process.
You present the case for rising tax rates being a drag on an economy without presenting the case for how to pay off the $16 trillion (and rising) debt. If you propose to raise the taxes on the middle and lower income brackets, you reduce their spending ability in an economy which is 70% consumer driven.
The problem we have today is not going to be fixed by addressing the supply side of the equation. Corporations aren't curtailing capital spending because they think the tax rates will be going up. They are curtailing their expansion because they can't employ the facilities already in place to their fullest because people are broke and the demand is just not there.
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