No. of Recommendations: 9
Are Budget Cuts Or Tax Hikes Better For The Economy?

"The deficit debate is often misleading, however, because it tends to ignore a huge difference between the two kinds of deficit reduction. The evidence speaks loud and clear: When governments reduce deficits by raising taxes, they are indeed likely to witness deep, prolonged recessions. But when governments attack deficits by cutting spending, the results are very different.

In 2011, the International Monetary Fund identified episodes from 1980 to 2005 in which 17 developed countries had aggressively reduced deficits. The IMF classified each episode as either "expenditure-based" or "tax-based," depending on whether the government had mainly cut spending or hiked taxes.

When Carlo Favero, Francesco Giavazzi and I studied the results, it turned out that the two kinds of deficit reduction had starkly different effects: cutting spending resulted in very small, short-lived — if any — recessions, and raising taxes resulted in prolonged recessions.

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The obvious economic challenge to our contention is: What keeps an economy from slumping when government spending, a major component of aggregate demand, goes down? That is, if the economy doesn't enter recession, some other component of aggregate demand must necessarily be rising to make up for the reduced government spending — and what is it? The answer: private investment.

Our research found that private-sector capital accumulation rose after the spending-cut deficit reductions, with firms investing more in productive activities — for example, buying machinery and opening new plants. After the tax-hike deficit reductions, capital accumulation dropped.


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Let's be clear: This body of evidence doesn't mean that cutting government spending always leads to economic booms. Rather, it shows that spending cuts are much less costly for the economy than tax hikes and that a carefully designed deficit-reduction plan, based on spending cuts and pro-growth policies, may completely eliminate the output loss that you'd expect from such cuts. Tax-based deficit reduction, by contrast, is always recessionary.

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A deficit-reduction program of carefully designed spending cuts can reduce debt without killing growth, so there's no need to be so protective even of today's weak economies."

http://news.investors.com/ibd-editorials-viewpoint/112012-63...

I recommend reading the whole thing. Alesina also discusses *why* he thinks investment increases after spending is cut.
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We need much higher taxes and we need to increase spending by at least a 100 to 1 ratio of spending increases to increases in taxes. In short, we need total government, no private society, and no private property or private assets of any kind. Long live King ObamaOne.
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"We need much higher taxes "

If we need to raise tax rates right now, how often in the future will we have to raise tax rates? What is the maximun tax rate we should accept?

Sully
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msullyo wrote: If we need to raise tax rates right now, how often in the future will we have to raise tax rates? What is the maximun tax rate we should accept?


Oh, I say 100%. If we take everything the rich have and tax them 100% on their earnings, the revenue would take us to oh say 365 days at the current rate of spending.

Eat the Rich!

http://www.youtube.com/watch?v=661pi6K-8WQ
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Eat the Rich!

I think we should go back to the 91% rate. Then rich liberals in California can pay 91% federal income tax plus 13.3% state income tax plus 2.35% Medicare tax (when the Dems hike that) for a total of 106.65%. They'll have to dig into their savings to avoid going to jail, and think of all the jobs it'll create.

--fleg
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Sounds like a plan, fleg.
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I think we should go back to the 91% rate. Then rich liberals in California can pay 91% federal income tax plus 13.3% state income tax plus 2.35% Medicare tax (when the Dems hike that) for a total of 106.65%. They'll have to dig into their savings to avoid going to jail, and think of all the jobs it'll create.

--fleg


You seem to forget that while democrats are eager to pass increased taxation. They never seem to pay those taxes because they are tax cheats. Daschule, Geitner, Kerry & Rangel are a few names that come to mind.
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