Why do Democrats insist on raising taxes?

[Parkbandit]

History proves that lowering the tax burden actually stimulates free enterprise, creating new jobs and actually increasing the revenue for the Government to waste. So why is the Democratic Party the party of raising taxes?

New numbers out today on fiscal US 2007 show that we once again broke a record for tax revenues and decreased the Federal budget by 35%.

[Kembal]

History proves that lowering the tax burden actually stimulates free enterprise, creating new jobs and actually increasing the revenue for the Government to waste.

Cite please, with graphs. You appear to be parroting supply-side economics and using the Laffer Curve as your basis, but the problem with the Laffer Curve is that you don't know where you are on the damned curve to start. Amongst other things.

Or we could flip your question around: A Democratic President achieved a balanced budget in the late 1990s, making massive cuts in entitlement programs (welfare reform). A Republican President (with a Republican Congress) then presided over a massive increase in the Federal Budget (and resulting deficit) from 2000 til 2006 and the creation of the biggest entitlement program since Social Security. So why is the Republican Party the party of increased spending if they preach fiscal conservatism?

[Davenshire]

Laugh, is this where parkbandit bends over and grabs his ankles?

[Keller]

Laugh, is this where parkbandit bends over and grabs his ankles?

He hasn't been that flexible in over 40 years.

[Gan]

Or we could flip your question around: A Democratic President achieved a balanced budget in the late 1990s, making massive cuts in entitlement programs (welfare reform). A Republican President (with a Republican Congress) then presided over a massive increase in the Federal Budget (and resulting deficit) from 2000 til 2006 and the creation of the biggest entitlement program since Social Security. So why is the Republican Party the party of increased spending if they preach fiscal conservatism?

Please dont confuse the fact that the fiscal policy of Regan wasnt fully felt until well into Clinton's first term. And that the results of Clinton's fiscal policy wasnt felt until almost into the 2nd term of Bush2.

Thinking that fiscal policy immediately impacts and negates any efforts prior to is not understanding the effect and timeframe it has on the macro-economy of the US.

[Parkbandit]

Cite please, with graphs. You appear to be parroting supply-side economics and using the Laffer Curve as your basis, but the problem with the Laffer Curve is that you don't know where you are on the damned curve to start. Amongst other things.

Or we could flip your question around: A Democratic President achieved a balanced budget in the late 1990s, making massive cuts in entitlement programs (welfare reform). A Republican President (with a Republican Congress) then presided over a massive increase in the Federal Budget (and resulting deficit) from 2000 til 2006 and the creation of the biggest entitlement program since Social Security. So why is the Republican Party the party of increased spending if they preach fiscal conservatism?

You are confused with many things.. especially the one where Clinton had anything to do with the Welfare reform. He was forced into it by a Republican majority in Congress.

And I'm sorry that 9-11-01 caused one of the biggest increases to the Federal Budget... but the security of the country is worth it.. no?

But it's funny how you try and turn this around.. instead of answering the simple question: If lowering taxes actually increases the revenue to the Government... why do Democrats insist on raising taxes?

[Hulkein]

So they can tell poor people that they're taking money from the rich and giving it to them.

[Kembal]

While there is a time lag on fiscal policy effects vs. monetary policy effects, it's not 4 or 8 years. Generally its 18 months to 2 years, which would then imply Reagan's fiscal policy caused the recession that ended up being one of the major factors in Bush Sr. losing the election in 1992. (even a 4 year timeframe would imply that.)

Using the extended time lag argument, you would be stating that the prosperity enjoyed during the Clinton presidency was achieved by fiscal policy changes in 1990-1991. Of course, what did Bush Sr. and the Democratic Congress do then? Raise taxes.

[Bobmuhthol]

<<instead of answering the simple question: If lowering taxes actually increases the revenue to the Government... why do Democrats insist on raising taxes?>>

It's not a simple question, as obviously lower or higher taxes is not the absolute determinant of economic stability. If this were the case, we wouldn't need economists - anyone would be able to run the ideal government since the answers are so clearly spelled out. Asking an impossible question and calling it simple doesn't make it more valid.

[Kembal]

You are confused with many things.. especially the one where Clinton had anything to do with the Welfare reform. He was forced into it by a Republican majority in Congress.

Ah, revisionism at work. Sorry, Clinton triangulated on that and won that issue. No one gives the Republican Congress credit for achieving welfare reform, especially since Clinton's version of it became law.


And I'm sorry that 9-11-01 caused one of the biggest increases to the Federal Budget... but the security of the country is worth it.. no?

Ahahahahahahahaha. Nice try, but if it was only security-related programs developed as a result of 9/11 that caused increases in the federal budget, I wouldn't mention it. However, there is Medicare Part D, the Iraq War, etc. And, oh, the fact that Bush didn't veto any spending bill even after they increased past his initial budget while there was a Republican Congress undercuts your argument as well.


But it's funny how you try and turn this around.. instead of answering the simple question: If lowering taxes actually increases the revenue to the Government... why do Democrats insist on raising taxes?

You should read the first paragraph of my initial response. The premise of your question is based on supply-side economics and the Laffer Curve. I already stated that the major problem with the Laffer Curve is that you don't know where you are on the curve to begin with, which means trying to evaluate the effects of any fiscal policy changes via the Laffer Curve is just arbitrary positioning. If you're going to argue on the basis of that premise, I'd like to see graphs proving it.

[Gan]

While there is a time lag on fiscal policy effects vs. monetary policy effects, it's not 4 or 8 years. Generally its 18 months to 2 years,

Source please.

[Danical]

If you're going to argue on the basis of that premise, I'd like to see graphs proving it.

I'd rather see the actual data, citation of said data, and methodology of data collection before I care to look at a silly graph but I see your point.

[Kembal]

Source please.

First one I found...Federal Reserve of San Fransisco:


1 Changes in monetary policy normally take effect on the economy with a lag of between three quarters and two years. The lag between a change in fiscal policy and its effect on output tends to be shorter than the lag for monetary policy, especially for spending changes that affect the economy more directly than tax changes.

Link: http://www.frbsf.org/education/activities/drecon/2002/0203.html

There's simply no way that a fiscal policy change will only have its first effects felt four years or more out.

[Kembal]

I'd rather see the actual data, citation of said data, and methodology of data collection before I care to look at a silly graph but I see your point.

Yeah, that. :)

[Gan]

First one I found...Federal Reserve of San Fransisco:



Link: http://www.frbsf.org/education/activities/drecon/2002/0203.html

There's simply no way that a fiscal policy change will only have its first effects felt four years or more out.


LOL Please source the lag for FISCAL policy as initially quoted. NOT monetary policy as you just referenced. There is a difference you know...

[Warriorbird]

The same reason Republicans do. They find it convenient to pay for the things that they bribe constituents with.

[Danical]

LOL Please source the lag for FISCAL policy as initially quoted. NOT monetary policy as you just referenced. There is a difference you know...


1 Changes in monetary policy normally take effect on the economy with a lag of between three quarters and two years. The lag between a change in fiscal policy and its effect on output tends to be shorter than the lag for monetary policy, especially for spending changes that affect the economy more directly than tax changes.

So, generally it's shorter?

[Bobmuhthol]

Dude, Gan, can you fucking read?

[Kembal]

LOL Please source the lag for FISCAL policy as initially quoted. NOT monetary policy as you just referenced. There is a difference you know...

I think Bob and Vulvamancer have pointed out the reading comprehension error already, but I suggest reading the cited except again.

[Gan]

Evidentally I cant read.

I disagree with the shorter bit as well, and so would most of my econ professors at the time that I took Macro and Macro II.

This bears more investigation since its obvious that the effects of monetary policy are relatively fast felt since the Fed has direct controls on the FFR.

Fiscal policy according to my profs were more felt in a 4 to 6 year lag, sometimes 8 depending on the program and how far reaching it was.

I'll do some more research after I get back from softball.

[Kembal]

I wonder if your professors factored in time for decision-making. Obviously, the Fed can make a change within a month. The government making a change on tax policy or spending levels takes about a year, and sometimes it might take two years, especially on tax. This is why you'll see in literature that monetary policy works faster than fiscal policy.

The part I quoted dealt with only the lag timeframe after the policy change has been made. As far as I remember, spending increases / decreases worked pretty fast (it's a direct hit to GDP). Tax increases / decreases went slower though.

[Seran]

Sometimes I think it's better to simply let folks pretend that the Republican party hasn't lost their fiscally conservative base and let them blame the Democrats. Most are too stubborn to admit a point, and have made obsfucation an artform.

Anyway, it's nice seeing Gan get schooled.

[Warriorbird]

The Republican Party are nationalists these days. Maybe they'll admit it someday. Nationalists can be very popular.

[Jorddyn]

New numbers out today on fiscal US 2007 show that we once again broke a record for tax revenues and decreased the Federal budget by 35%.

And yet we still don't have a surplus, even when the budget ignores the war in Iraq? Maybe our spending levels were too high to begin with, and we're just now putting them in check?

Oh, and our revenues are going up largely thanks to everyone ignoring the AMT - both Democrats and Republicans are to blame for that.

[TheEschaton]

You've set up a straw man, PB. GWB raised the federal budget astronomically after 9/11, ridiculously, and has cut it every year since. So, he can say, "I protected America," and in the same sentence say "I CUT THE FEDERAL BUDGET" even though the federal budget is still much larger and more bloated than it was previously.

Again, people have explained the tax stuff, but it's simple voodoo economics, PB. Nothing but smoke and mirrors. Please, please, be open minded.

By the way, what's with the recent parroting of right wing talking points? Is Rush advocating a propogandization of the masses by hiring forum regulars to spew political hackery? It's old and tired.

-TheE-

Edit: P.S. I like the brave new world-esque avatar you have.

[Gan]

I wonder if your professors factored in time for decision-making. Obviously, the Fed can make a change within a month. The government making a change on tax policy or spending levels takes about a year, and sometimes it might take two years, especially on tax. This is why you'll see in literature that monetary policy works faster than fiscal policy.
I'm specifically referring to tax policy (fiscal policy) and the effects it has, which I feel (still feel) take longer than a year to two. The side note on the Fed site doesnt go into detail as to why the lag time (short term) is 18 mos to 2 years, it just states its so. Thats not good enough for me I'm afraid, especially when there's other economists who argue that the long term lag on tax policy (fiscal policy) extends well beyond the 2 year period. If you can go into detail why there would not be long term lag beyond the 2 year period, I'd definately love to hear it.



The part I quoted dealt with only the lag timeframe after the policy change has been made. As far as I remember, spending increases / decreases worked pretty fast (it's a direct hit to GDP). Tax increases / decreases went slower though.
Again, I'm referring specifically (as this thread is) to tax policy (fiscal policy), not G spending policy - which has a short lag time stimulus on GDP and the economy. So yes, if you include G spending then I agree the lag time would be considerably shorter. Much different IMO than tax policy (fiscal policy).

*To add:
Some examples of stimuli and term windows for tax policy.

Cutting taxes:

Business Model:
Less taxes paid means more capital to reinvest into (growth) land, labor, infrastructure equipment, etc.
Land: acquisition and buildout lead time for unimproved land for buildout of additional facilities.
Lead/lag time: 18 months minimum from acquisition to opening/start of production. Varies by industry and specialization level of facility being built.
Labor: hiring/retraining of expanded labor force.

Lead/lag time: 3 months to 12 months depending on level of specialization required for direct hire or training.
Spinoff effect: increased revenue earning from drop in unemployment means more personal spending (see below).
K(capital infrastructure): order/acquisition of production machinery required for increased levels of production.

Lead/lag time: 1 month to 3 years depending on the degree of specialization of equipment needed, availability of equipment in the market (in stock or has to be built/manufactured) etc.

Individual model:

Less taxes owed on Federal and state levels.
Federal taxes are cut on the individual level.
lag/lead time: short term - 1 to 3 months. Long term up to 12 - 18 months depending on the spending habits and consumer outlook on savings and taxes owed on April 15th.
State taxes (not really pertaining to this thread, but included anyway).

lag/lead time: same as above.
Granted, there are more individual consumers who's spending habits are naturally bias towards incurring debt in order to seek/gain utility rather than participate in savings then utility seeking behavior without debt incursion. Thus the effects measured can be skewed in the short term due to the sheer volume of the individual consumer represented.

However, the long term effects of the business model can not be ignored and play a larger and longer term factor in economic stimulus which is where I place greater weight on how it effects the economy, especially since its directly tied to employment/unemployment and thus has a strong influence on the spending habits and disposable income of the individual consumer.

So yea, I think (IMO)the long term effects of tax (fiscal) policy are felt and seen in terms longer than as stated in the referenced Fed article above.

**Adding a caveat.
Fiscal tax policy must always be accompanied by responsible G spending. Financing the cold war and cutting taxes proved counter productive for Regan much the same as financing the Iraq war and handing out tax cuts/refunds have proved counter productive for W.

Bottom line, even a rosy long term outlook on the proposed increased tax revenues from a growth stimulated economy based on present day tax cuts can not and should not allow for egregous G spending in the present day in hopes of having more revenue in the future to foot the bill with. Our economy, now more than ever with other global players, is not that predictable even without considering the variable of an independant monetary policy animal (The Fed) also tweaking the spinning economic wheel.

[Gan]

Anyway, it's nice seeing Gan get schooled.
Nobody is getting schooled in this thread shit for brains, we're having a discussion - not an e-peen contest. In fact, if there's anyone on these boards that I enjoy debating politics/econmics with as alternate/opposing view - its Kembal.

If you feel like jumping in to the deep end then I welcome any input you have on the lag time effects (short term and long term) as relating to tax (fiscal) policy. In your own words mind you, dont google shit up and repuke it without some of your own enlightened economic opinons tacked onto the end...

Otherwise, stay on the fucking porch. ;)

[Rathain]

Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output"

John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy"
-------------------------------------------------------------------------

Wrote a paper on this my junior year. If you're looking for a few sources, here they are. If you don't have an alumni or active school account though, they might run you up a few $.

Empirical work mainly, but the change of fiscal policy on real GDP peaks several quarters afterwards, but lasts for some years afterwards. As for the lag period, it’s as predictable as a consumer, which is not really. It takes several quarters, as outlook, and short term possibilities are analyzed within each respective bracket. It shouldn’t be surprising that it lasts several years. Financial situations fluctuate, and people adapt. It just happens most adapt within a few quarters. The reason you won’t find anyone saying that it lasts strongly for years, is that tax shockwaves are an area of ongoing research, so no one is going to tag a static multiplier on it.

As for why raising taxes can be good for the economy ? Lowering taxes for too long has negative effects. You need to understand the difference between policy that effects economics growth rates and business cycles. The table below outlines times when significant income tax cuts were implemented and their effect on economic growth. As you can see, the effect is not well correlated. Economic growth has two factors: number of folks working, and their productivity. So why if income taxes are low and more people are working, are each worker on average being less productive ? If you get more back for less, why work more ? Most people are target workers, and non laborious. Go figure. Anyhow, tax cuts are subject to diminishing returns in the long run, with respect to economic growth. That’s why tax shockwaves produce a smaller effect in later years. Lower and higher taxes are situational, based upon which trough of the cycle we think we’re on.

Economic Indicators, Past and Present
Economic Growth
Business Cycle -- Peak to Peak Potential Actual Trend Productivity Private Saving Total Hours Worked U.S. Population Age 20-64
1960 to 1969 4.2% 4.3% 3.0% 8.4% 1.2% 1.3%
1969 to 1973 3.4 3.5 2.1 8.2 1.9 1.7
1973 to 1980 3.4 2.8 1.4 7.8 2.2 1.9
1980 to 1990 2.7 2.8 1.0 6.4 1.7 1.3
Current estimates 2.1 na 1.1 na 1.0 0.8

Budget and Economic Analysis, Volume 1, #3, House Committee on the Budget, U.S., House of Representatives.

[Gan]

So why if income taxes are low and more people are working, are each worker on average being less productive ? If you get more back for less, why work more ? Most people are target workers, and non laborious. Go figure.

This is something that I had not added to the edit above, thanks for bringing it up.

We covered this in my labor econ class and I found it interesting that there is a trade off to labor worked as a time value as the utility factor of non-labor worked time becomes more valuable due to an increase in disposable income. In a nutshell, if the utility factor of time off is less than time worked due to low disposable income then laborers will spend more time working in order to earn more income. As income increases then the utility of time off increases so as to enjoy the fruits of the labor (opportunity to spend). Ergo less time is spent working.

Unfortunately for most middle income labor representation this is cyclic since labor is hourly paid instead of salaried.

Factors that mitigate this are education level, experience level, degree of specialization, and demand for the skill represented by that labor sector.

Damn, now I'm going to have to go pull my labor econ book off the shelf. That was one of my favorite classes and I had a way cool PhD who taught it.

[Daniel]

Evidentally I cant read.

I disagree with the shorter bit as well, and so would most of my econ professors at the time that I took Macro and Macro II.

This bears more investigation since its obvious that the effects of monetary policy are relatively fast felt since the Fed has direct controls on the FFR.

Fiscal policy according to my profs were more felt in a 4 to 6 year lag, sometimes 8 depending on the program and how far reaching it was.

I'll do some more research after I get back from softball.

Amazing.

[Gan]

Amazing.

Stellar input.

[Clove]

I wonder if your professors factored in time for decision-making. Obviously, the Fed can make a change within a month. The government making a change on tax policy or spending levels takes about a year, and sometimes it might take two years, especially on tax. This is why you'll see in literature that monetary policy works faster than fiscal policy.

The part I quoted dealt with only the lag timeframe after the policy change has been made. As far as I remember, spending increases / decreases worked pretty fast (it's a direct hit to GDP). Tax increases / decreases went slower though.

Opinion: This is why I think it's difficult to accurately generalize how long it takes policy changes to effect the US economy. It depends on the nature of the policy. Additionally there's a difference between noticeable effects and full effects. Effects may be noticeable immediately (as in a budget changes) but the full effect (or impact) may take quite some time. The New Deal programs did not turn the Depression around in 6 months to 2 years although effects from some programs were quickly noticeable.

[Clove]

...a trade off to labor worked as a time value as the utility factor of non-labor worked time becomes more valuable due to an increase in disposable income....

Dead on. Utility varies.

[Kembal]

I'm specifically referring to tax policy (fiscal policy) and the effects it has, which I feel (still feel) take longer than a year to two. The side note on the Fed site doesnt go into detail as to why the lag time (short term) is 18 mos to 2 years, it just states its so. Thats not good enough for me I'm afraid, especially when there's other economists who argue that the long term lag on tax policy (fiscal policy) extends well beyond the 2 year period. If you can go into detail why there would not be long term lag beyond the 2 year period, I'd definately love to hear it.

Actually, looking at it, I think you and Rathain have provided the model and data that show the first effects to happen within a 2 year period. I guess we're narrowing down to how long the full effects of a tax policy change take, and it appears by Rathain's post that it's an open area of research.

The problem with extrapolating out to 6 to 8 years is that you have spending policy changes and monetary policy changes in the intervening timeframe, which makes correlation to a specific tax policy change that happened 6 to 8 years ago very hard, I'd imagine.

I'll do some more looking into this later, but it's a fairly busy morning here. (Good writeup though, and nice point on the caveats)

[Tsa`ah]

Reagan is dead. Giving him credit for successes that happened 4-12 years after he left office puts him up there with Jesus.

This topic, again, is political bias.

This is simple math.

Bush entered office with a perceived surplus on the horizon and did what any good republican would do ... give it to rich people with the intent ::wink wink :: that the people below a certain income level would benefit as well.

He then continued that line of logic ::wink wink :: and continued to cut taxes at the upper end of the spectrum because everyone knows a rich man will look out for those that make him rich.

While cutting taxes to the rich and increasing federal spending ... oh noes, Bush never had to balance a check book. We have over draft protection right?

Sorry, war aside, taxation is a necessary evil.

Do you go to the two income, two child family that has a scant hope of actually saving the cash to send their children to college while paying the current taxes and all things life throws at them? Or do you go to the people who build their fortune on that family's back?

Rich people in this nation have it so damn hard ... let's start up a charity.

[Gan]

There's no arguing (from my perspective) that taxation is a necesary evil. Even though I dont like it, its still a part of the social contract as we have it here in America.

I guess the bone of contention is exactly how much taxation is necessary.

[Clove]

The problem with extrapolating out to 6 to 8 years is that you have spending policy changes and monetary policy changes in the intervening timeframe, which makes correlation to a specific tax policy change that happened 6 to 8 years ago very hard, I'd imagine.

Or even impossible which makes economics a lot like meteorology.

[Gan]

Or even impossible which makes economics a lot like meteorology.

:lol:

There are so many jokes on that very topic. And yes, its much like trying to predict the weather.

[Clove]

"I just want a one-armed economist"