The Unforseen Future Fallout

[crb]

This is why it is important that governments maintain a broad tax base for funding. A narrow tax base is going to be more volatile.

See. Investment income and capital gains will be low across the board next year. States that derive a large sum of their tax revenue from stock options or financial services, New York, New Jersey, California. Will face massive budget deficits (even more so than already).

Relying on capital gains and taxes on investment income to fund government services works when assets appreciate, but in a year where they depreciate across the board, like this year, you'll going to be left without that tax revenue.

Additionally. The wealthy pay most of the federal tax burden. The top 5% pay for 80% of the federal budget, or something along those lines. I don't feel like looking it up right now.

Now, consider how the wealthy earn there incomes. Sure, there are same earners who make it on billable hours. Doctors, Lawyers, business executives. However, a very large amount do so through bonuses, commissions, and profit sharing from businesses. Most small businesses use pass through taxation where the business income passes through to Schedule C of the owner's personal 1040 tax return.

The point being, the income of the wealthy can tend to vary widely based on economic circumstances. Small business owners can see huge fluctuations yearly based on changing business opportunities and the general economy. Which makes overly progressive tax systems inherently volatile.

So there will also likely be serious shortfalls in general income tax receipts as well.

The point being, 2009 is going to be the year of budget deficits up the wazoo.

So, what do you do? Raise taxes. You won't find an economist to endorse raising taxes in a recession or downturn. Cut spending? Ya right, politicians hate tightening their belt. Print more money? Hello inflation.. virtual tax on everything and everyone.

[Keller]

News flash: As incomes decline, tax revenues decline.

I remember reading an interesting article about progressive tax schedules being helpful with regard to regulating national economies in good and bad times. I don't remember the article's arguments but when I get home tonight I'll review it. I remember that it was in my Tax Policy casebook.

What do you propose, crb? I'm not sure a less progressive schedule would help raise more revenue in the event that incomes were declining. Unless you're referring to the low-income individuals that escape income taxation, it wouldn't broaden the base. As I read it, your argument is that the permanence of government combined with the volatility of income (and therefore tax revenue) will lead to budget deficits. Anything else?

[Audriana]

There's already an almost $10 trillion deficit, is $700 billion really going to affect it that much?

The fact that you think the government needs to have money to spend it is pretty laughable.

The question, my narrow minded short sighted friend isn't how do you come up with $700 billion. It's how do you come up with $10 Trillion. How is it that the Federal Government can spend money when it doesn't have it to spend when nobody else can? How is it that a Democratic president lowered the national yearly deficit into positive numbers? Why is it that a Republican president raised the national debt from 6 trillion to 10 trillion in 8 short years and still thinks we should have gone to war and a tax cut was a good idea?

http://upload.wikimedia.org/wikipedia/en/thumb/e/e0/US_Federal_Debt%28gross%29.JPG/800px-US_Federal_Debt%28gross%29.JPG
It's precisely where politicians hate that one must strike.

[flame on]

[crb]

There's already an almost $10 trillion deficit, is $700 billion really going to affect it that much?

The fact that you think the government needs to have money to spend it is pretty laughable.

The question, my narrow minded short sighted friend isn't how do you come up with $700 billion. It's how do you come up with $10 Trillion. How is it that the Federal Government can spend money when it doesn't have it to spend when nobody else can? How is it that a Democratic president lowered the national yearly deficit into positive numbers? Why is it that a Republican president raised the national debt from 6 trillion to 10 trillion in 8 short years and still thinks we should have gone to war and a tax cut was a good idea?

http://upload.wikimedia.org/wikipedia/en/thumb/e/e0/US_Federal_Debt%28gross%29.JPG/800px-US_Federal_Debt%28gross%29.JPG
It's precisely where politicians hate that one must strike.

[flame on]
Who are you responding to Audriana? You've got some kneejerk attack me response every time I post or what?



There's already an almost $10 trillion deficit, is $700 billion really going to affect it that much?

You're confusing deficit and debt. There are not the same thing. I'm talking about budget deficits, not the national debt. And nothing in this thread was about the bailout until you posted it.



The fact that you think the government needs to have money to spend it is pretty laughable.

Perhaps you missed the part where I said "print more money" (ie, a Tbill auction).



The question, my narrow minded short sighted friend isn't how do you come up with $700 billion. It's how do you come up with $10 Trillion. How is it that the Federal Government can spend money when it doesn't have it to spend when nobody else can? How is it that a Democratic president lowered the national yearly deficit into positive numbers. Why is it that a Republican president raised the national debt from 6 trillion to 10 trillion in 8 short years and still thinks we should have gone to war and a tax cut was a good idea?

Which again, has nothing to do with the thread topic. Clinton, by the way, had a republican congress and was luckily enough to govern during a period of unprecedented economic boom thanks to the technology industry.

Furthermore, if you want to compare debt you have to do as a precentage of GDP. You're not doing that.

And no one would accuse bush of cutting spending like he should have. That doesn't change the fact that there is indisputable evidence (read: basic math) showing that his tax cuts both spurred economic growth and resulted in more tax receipts.

But again... none of that has anything to do with the budget deficit catastraphe that'll hit next year.

[crb]

News flash: As incomes decline, tax revenues decline.

I remember reading an interesting article about progressive tax schedules being helpful with regard to regulating national economies in good and bad times. I don't remember the article's arguments but when I get home tonight I'll review it. I remember that it was in my Tax Policy casebook.

What do you propose, crb? I'm not sure a less progressive schedule would help raise more revenue in the event that incomes were declining. Unless you're referring to the low-income individuals that escape income taxation, it wouldn't broaden the base. As I read it, your argument is that the permanence of government combined with the volatility of income (and therefore tax revenue) will lead to budget deficits. Anything else?
The problem is that in economic boom times the government spends too much and then in bad times they get far less in the way of tax income and have to drastically tighten belts.

If we had a broader tax base it wouldn't be so much of an issue. A broader base is a more stable base.

A small business owner can make $300k one year and $150k the next year. Which is a huge difference in tax liability. Relying too much for your tax revenue on such people will result in your budget to have the same degree of volatility, which is a problem.

And keller, you're wrong, a less progressive schedule WOULD broaden the base, even if you didn't add in the people who make less than $40k (or whatever it is) that pay no income tax.

See, you can't just count each taxpayer as 1 unit when considering how broad the base is. You have to count them based on what share of the federal government they fund. 5% paying for 80% of things is pretty narrow. If you made it so say the top 5% just paid for 40% of things and the next 10% paid for 40%, and the remaining paid the other 20%, you would in fact be broadening the base without adding a single tax payer because you are now drawing federal funding in a more diverse (and stable) way.

[Daniel]

However, if we believed your stupid trickle down economic theory, it would logically follow that anything that hurt businesses hurt workers and thus our tax base.

Good thing that's a load of bullshit anyway.

[Keller]

And keller, you're wrong, a less progressive schedule WOULD broaden the base, even if you didn't add in the people who make less than $40k (or whatever it is) that pay no income tax.

See, you can't just count each taxpayer as 1 unit when considering how broad the base is. You have to count them based on what share of the federal government they fund. 5% paying for 80% of things is pretty narrow. If you made it so say the top 5% just paid for 40% of things and the next 10% paid for 40%, and the remaining paid the other 20%, you would in fact be broadening the base without adding a single tax payer because you are now drawing federal funding in a more diverse (and stable) way.

Are you arguing that if the federal revenues were lower that the federal government wouldn't have the budget capacity to get itself into a budget deficit to the extent that we will in the coming years?

Or are you proposing that we lower the higher rates and increase the lower rates?

Does the middle class not pay enough tax?

[Ignot]

middle class

What's that?

[crb]

Are you arguing that if the federal revenues were lower that the federal government wouldn't have the budget capacity to get itself into a budget deficit to the extent that we will in the coming years?

Or are you proposing that we lower the higher rates and increase the lower rates?

Does the middle class not pay enough tax?


Or are you proposing that we lower the higher rates and increase the lower rates?

Yes. Or rather, move all rates lower, but move them closer together.

Yes a lower rate on paper would result in less tax revenues, but it hasn't worked out that way historically. Reduce taxes on production and you tend to get more of it.

I didn't start this thread to discuss tax policy though, really. I was hoping rather to discuss the coming inflation.

We'll have huge deficits next year. Obama will try raising taxes on the top 5% (which would be people earning more than 140k) or those making more than 250k (which is less than the top 5 percent) it won't be enough. We'll get inflation as the government goes deeper into debt to fund his spending.

McCain will try to cut spending. He'll go after earmarks like crazy, and work hard for leaner budgets in most areas. But it won't be enough. He to will need to get more debt to cover the deficit.

The way I see it, no matter who wins, we're all going to get screwed with the inflation tax next year.

[Keller]

I didn't start this thread to discuss tax policy though, really. I was hoping rather to discuss the coming inflation.


Then don't say stupid shit and I wont have to call it stupid.

:thanx:

[crb]

Pointing out a narrow base is more volatile than a broad base isn't stupid. It is rather accurate.

[Keller]

Pointing out a narrow base is more volatile than a broad base isn't stupid. It is rather accurate.

You're advocating an even smaller base. That's why it was stupid.

[Tsa`ah]

Nope ... saw the future fallout ... it wasn't all that unforeseen.

Futurama ... Bender gets shot into deep space and becomes home/god to a miniature culture. Eventually they separate into believers and non-believers and a nuclear war ensues.

Funny stuff.

[crb]

You're advocating an even smaller base. That's why it was stupid.
Ummm... no I'm not. I'm advocating the tax burden be more spread out. Ie, broader.

[Keller]

Ummm... no I'm not. I'm advocating the tax burden be more spread out. Ie, broader.

You're advocating a smaller tax base; you're just deluded that reducing the rate on the high end of the schedule as well as every other rate will "broaden" the base. I understand your argument. It's wrong.

Do some modeling using the current schedule with both last years GDP and .8GDP. Then do it with what you think would be the appropriate less progressive schedule and see what happens.

[crb]

I'm not wrong, perhaps you merely do not understand my argument.

Lets pretend you run a lemonade stand, and you squeeze your own.

You have 5 suppliers of lemons. One supplier gives you 80% of your lemons. Three suppliers give you 6% each, and the last gives you 2%.

If supplier #1 has a blight hit his crop, you're out 80% of your lemons, and you're fucked.

However, if you had balanced your suppliers so that each supplied 20%, you'd only be out 20% of your supply, and could probably make do.

Understand now?

[Daniel]

Stop being fucking stupid.

Seriously. This is taxes, not logistics.