It’s time to bury supply-side economics

Market Watch ^ | 6/8/2012 | Howard Gold

[muir_redwoods]

I’m still waiting for these leftards to explain how trickle-down doesn’t work but stimulus spending does.

[supercat]

Mr. Gold says that cutting marginal tax rates on the wealthy does not cause them to work “harder.”

Even if one ignores the psychological effects of tax rates, one should consider what rich people do with their money. Generally, they want to use it to make more money, which means that they invest it in things which will generate wealth. Any dollar the government steals from a rich person's pocket is a dollar the rich person won't have to invest in a wealth-generation enterprise.

While it's true that rich people don't feed all of their marginal income into investments and wealth generation, so stealing $1 from someone won't reduce the investment in wealth generation by a full dollar, the percentage of a rich person's marginal income which gets fed into wealth generation is apt to be much higher than the percentage of government money that funds wealth creation.

Taking money from people who would use it to generate more wealth, and giving it to people who will regard it as an encouragement to become more dependent upon government, could not possibly be a recipe for prosperity, even if it had no effect on wealth generators' work ethic. Can anyone offer a plausible explanation of how wealth is supposed to be created if capital is taken from those who would effectively use it to create wealth?

[depressed in 06]

Shouldn’t we put a silver bullet through the heart of Keynesian economics first? It sucks the blood out of the economy.

[driftless2]

If the libs want to give Clinton credit for the job boom in the nineties, they’ll also have to credit him for the Nasdaq fiasco which lost about 75% of its valuation. They don’t ever bring that up. Sure, Clinton raised taxes early on, but he apologized for it and under pressure from Republicans in control of Congress, cut cap gains taxes...which cut the deficit. So Clinton acted like a Republican at times, and the economy boomed. If raising taxes was the presciption for a booming economy, then raising tax rates by fifty percent would insure everyone would be a millionaire. Bogus theory.

[Dave Wright]

Mjp is on the right track but its a bit more complicated. The amount of revenue realized from income is primarily determined by the total number of workers paying taxes. The tax rate on income contributes to a workers perception of what their labor is worth. If they can’t take home enough money after taxes based on this perception they won’t accept the job and no tax revenue is generated. This is why we accept the Marxist notion of progressive tax rates. If you can make $250,000 a year you accept a higher rate as long as what you take home for your effort still meets your expectation of worth. At some point the work is “just not worth it” an you either find a way to avoid taxes (cash, barter, tax shelters, deferral) or you don’t do the work. Either way the tax revenue is lost to the government.
The governments main focus should be to create the optimum environment that results in the greatest number of people working for the highest wages based on their productivity. This is best done by minimizing regulation, red tape, and bureaucratic obstacles to business formation. Growing the pie is a win for everybody including the government. Tinkering with tax rates beyond the extremes just contributes to class warfare and envy.

[woofie]

I really like this guys stuff:

http://keithhennessey.com/2010/11/18/president-george-w-bushs-spending-record/

He makes a lot of sense

Its easy to spin economics anyway one wants to

[Mase]

One of the best videos found on You Tube. It should be required viewing (Part One and Part Two) for every high school senior and college freshman - along with a class in basic economics.

[winner3000]

You mean the dot-com bubble. It created a huge unexpected revenue stream to the US government, and when the bubble burst, accumulated losses reduced revenue streams to the US government for years after Bill Clinton was long gone.

[winner3000]

You mean the dot-com bubble. It created a huge unexpected revenue stream to the US government, and when the bubble burst, accumulated losses reduced revenue streams to the US government for years after Bill Clinton was long gone.

[Theoria]

You have left out several things.

Debt. In the overall view. Our prosperity has been in large part due to borrowing to pay later. But, later is here and we don't have the money.

So Reagan, grew the economy. He also grew Gov't. We haven't had a President or congress cut debt or spending in our lifetime. Gingrich and crew, did not cut Gov't.

So we have piled up over 15 Trillion in public debt. And this all we have to show for it. That does not even include social security and the other scams. Student loans, housing, the list goes on.

Cutting taxes if fine. But pay for it! One cannot cut taxes and then not cut Gov't! By not cutting Gov't certain individuals now end up with a better private gain, but the load of debt is now put on the backs of the citizen.

[Huskrrrr]

I was being sarcastic.

[Huskrrrr]

I was being sarcastic. It was like a joke (although, I guess not much like one). :0)

[Kellis91789]

They also ignore the fact that Clinton benefited from the dotcom boom while GW got hit with the one-two punch of the bubble bursting and then 9/11. Nobody would have been surprised if GW’s entire first term was a depression, but his tax cuts created a booming recovery from those early economic setbacks.

[Kellis91789]

Great post.

I was an IT manager and my company was one of those spending millions to migrate to a new Y2K ERP package. We doubled staff internally and doubled again with consultants.

People, travel, and equipment budgets went through the roof. All of those industries benefited from our spending.

[PieterCasparzen]

Cutting taxes if fine. But pay for it! One cannot cut taxes and then not cut Gov't! By not cutting Gov't certain individuals now end up with a better private gain, but the load of debt is now put on the backs of the citizen.

Excellent post.

A word to the wise for all Americans...

If you'll notice, even on the most so-called conservative shows, that routinely immediately switch gears and refer to "those entitlements" when talking of cutting spending.

They'll say something like "discretionary spending cuts can't be large enough to make that much of a difference in the deficit", or, "the real problem is those entitlements".

By constantly repeating this on TV they hope to deceive taxpayers.

Of course, this is all aimed at protecting Federal borrowing and then spending that borrowed money on Federal employees and businesses that contract with the Federal government.

The Social Security/Medicare deductions on everyone's paychecks was to fund those programs. All along there were excess withholdings - Congress forced the trust funds to buy Treasury debt as their only investment - THEN SPENT THE CASH THEY RECEIVED. Everyone knew that the baby-boom generation would make too few workers to pay for the retirees starting about now. So at this point the trust funds should be able to get their Treasury bonds redeemed for cash by the Treasury - but since Congress spends 50% to 100% more than it takes in and issues more debt to pay for the difference, they want to weasel out on redeeming the trust fund Treasury bond "investments" and only a) keep paying interest on the trust funds bonds and b) pay any shortfall out of the general account. This completely intermixes the trust funds and general spending, of course.

Buyers for Treasury debt will become much more scarce very soon (they already are), as they realize the government is only rolling over the debt, which will one day (sooner than we think) result in a Ponzi-style collapse when there is no longer enough tax revenue to pay the interest on outstanding Treasury bonds.

This is where so-called conservative media has it's difficulty: they are in bed with their customers (advertisers), the primary dealers (banks) of Treasury debt who profit from and facilitate the sale of the debt, and publicly-held and very large corporations and large investment funds, including pensions. The coming collapse will primarily hit those institutions and be a very nasty situation, so all of them are all hoping to reduce the Federal annual deficit any way they politically can, and limp through until the economy starts to improve somehow on it's own and then inflation catches up with the size of the Federal debt so it is relatively smaller as a percent of GDP. This is what they've always done in the past, however there are some very fundamental differences today which make that scenario extremely unlikely this time around.

And this is why the Federal Reserve must cooperate and keep interest rates ridiculously low. No matter how much blabbering they do about what the Fed is doing and why, ultimately, the $16 trillion Federal debt would explode out of control if interest rates are not kept close to zero.

[Toddsterpatriot]

Reagans “Tax Simplification Act” in 1986 was the biggest tax increase in our history!!!

No it wasn't.

Tax rates don't mean anything when you wipe out all the hundreds of ways not to pay taxes, and that is what the 86 bill did!!!!

It's true, lots of loopholes were eliminated.

It effectually shut down.....

Yup, sucked to be you.

[BfloGuy]

Cutting taxes if fine. But pay for it!

I don't disagree with the point of your statement, but I don't like saying that we should "pay for" tax cuts. Yes, spending cuts should accompany the tax reductions, but paying for tax cuts implies that the revenue belongs to the government and not us.

Just picking a nit.

[BfloGuy]

I really like this guys stuff:

Yes, Hennessey's good. I'm glad you mentioned him -- he'd fallen off my favorites list.

[BfloGuy]

Shouldn’t we put a silver bullet through the heart of Keynesian economics first?

Yes, of course. The article's title is tongue-in-cheek.

[BfloGuy]

You forgot the barf alert....

You're right. I thought the title was so ridiculous that the "barf alert" was implied. But I should have included it.