Tax Cuts and Deficits

[seer]

So this came across my news feed this morning. When the tax cut was passed, the promise was "so much growth that federal receipts would actually climb and the cut would pay for itself." (I'm paraphrasing, of course) Instead what we have is a soaring deficit - at a time of comparative fiscal health - and it is due to a combination of reduced receipts and increased spending. I was particularly interested in the table just below the "Tax Cuts and Spending" table. The picture is not a good one.

We hear so much about "taxing the rich is just stealing," but we apparently have no problem with stealing from our children and grandchildren. After all - that is what the national debt represents: money we have taken from the future to pay the costs of the present. When we do that and keep the debt to what we can pay in our lifetimes - no problem. When we continue to spend to a degree that the debt will have to be paid by the next two or three generations - we are stealing from those future generations. There is simply no other way to see it.

We need a balanced budget law or amendment - and we need it badly. Political leadership needs to be forced to live within its means - across the board.

Of course the hope is as the economy grows more revenue will come in, but unless you are willing to cut deeply into social programs there is little hope of even balancing the budget.

https://www.usatoday.com/story/opini...umn/914488002/

[carpedm9587]

Of course the hope is as the economy grows more revenue will come in, but unless you are willing to cut deeply into social programs there is little hope of even balancing the budget.

https://www.usatoday.com/story/opini...umn/914488002/

So, first, the problem is not "we have to cut social programs." The problem is "we have to tax at a level consistent with our expenditures." Cutting costs is half the equation. Increasing revenue is the other half. Some combination of the two needs to be done.

The social programs you identified were (and are) badly structured - and the article is misleading. The reason the government will continue to pay out of the general fund for these programs is because it borrowed the money from these programs to begin with. The surplus (during the boomer years" was "invested" in government bonds. That translates to "the government borrowed the money." Now that outlay exceeds the incoming revenue stream, the tide is reversing.

But both of these were badly structured from the outset. Social security is a 70-year old, government-sanctioned, ponzi scheme. Medicare/Medicaid is inefficiently structured because it contains all of the compromises insisted on by the healthcare lobby. Restructure both, strip out the fat, and you CAN have viable programs. You can even make Medicare/Medicaid better by including the entire population base in its reach. The problem today is that it is those with the highest medical costs that are benefiting from the program. Pool all of the U.S. population and you have the worlds largest "self-insurance" scheme. If it is financially beneficial for a company as small as 100 people, imagine the benefits when you pool together 335M+ people!

[Cow Poke]

So, first, the problem is not "we have to cut social programs." The problem is "we have to tax at a level consistent with our expenditures." Cutting costs is half the equation. Increasing revenue is the other half. Some combination of the two needs to be done.

You kinda address what I'm gonna say in the rest of your post, but you don't seem to attach its significance to... This part (above) is just way too simplistic.

The FIRST part of the problem relative to social programs should be "if they were structured properly and run efficiently, how much should they cost".... I think you're trying to get there (with the rest of your post) but that you're burying the lead.

[seer]

So, first, the problem is not "we have to cut social programs." The problem is "we have to tax at a level consistent with our expenditures." Cutting costs is half the equation. Increasing revenue is the other half. Some combination of the two needs to be done.

Raise taxes where? To meet what is coming you would need confiscatory tax rates that would cripple economic growth.

The social programs you identified were (and are) badly structured - and the article is misleading. The reason the government will continue to pay out of the general fund for these programs is because it borrowed the money from these programs to begin with. The surplus (during the boomer years" was "invested" in government bonds. That translates to "the government borrowed the money." Now that outlay exceeds the incoming revenue stream, the tide is reversing.

I agree and you can thank the Democrats of the 1960s for that.

But both of these were badly structured from the outset. Social security is a 70-year old, government-sanctioned, ponzi scheme. Medicare/Medicaid is inefficiently structured because it contains all of the compromises insisted on by the healthcare lobby. Restructure both, strip out the fat, and you CAN have viable programs. You can even make Medicare/Medicaid better by including the entire population base in its reach. The problem today is that it is those with the highest medical costs that are benefiting from the program. Pool all of the U.S. population and you have the worlds largest "self-insurance" scheme. If it is financially beneficial for a company as small as 100 people, imagine the benefits when you pool together 335M+ people!

Don't hold your breath.

[carpedm9587]

You kinda address what I'm gonna say in the rest of your post, but you don't seem to attach its significance to... This part (above) is just way too simplistic.

The FIRST part of the problem relative to social programs should be "if they were structured properly and run efficiently, how much should they cost".... I think you're trying to get there (with the rest of your post) but that you're burying the lead.

I disagree. The question is not "what would they cost." the question has to be "what is the cost/benefit if they were correctly structured?" Right now, I am paying an astronomical cost for health insurance ($1500/month) with an $11K deductible. So basically, I pay $18K per year to protect myself against a medical cost that is greater than $18K. So every year, I pay all those premiums, plus all of my actual medical costs, out of my own pocket - to the tune of about $25K per year (family of four). The only two benefits I derive from the $18K is 1) protection against catastrophic loss, and 2) lower "negotiated rate" for medical services (which is still pretty high).

If someone told me that by going to a single payer system my taxes would climb as much as $15K per year - I'd be jumping for joy - because I would be net ahead of the game. I want the most cost-effective system with the best possible care for those funds. I care about the whole picture - not just the "hey dude - you're going to pay more taxes. Government bad!" mantra.

As for the above being too simplistic - every model is a simplified form of a more complex reality. Is it too simple? It is too simple to make an actual plan against - but the fundamental is spot on: when an entity is in the territory of deficit spending - you resolve the problem by reducing the spending, increasing the revenue, or some combination of the two. That's accounting 101. It applies to individuals, families, businesses, and governments. It applies to anything that has income and expenses.

[Mountain Man]

Of course they aren't. Seven of the 11 were considered fairly minor increases. Four of them, however, were major tax increases - including 1982, 1983, 1984, and 1987.

Creating a causal line between the 1981 tax cut and the subsequent shift in the economy and tax revenues is, at the very best, a significant stretch.

Note that does not mean I think you stimulate the economy by hiking taxes However, the Fed has more impact on the economy with its adjustment of interest rates than can be attributed to pretty much any tax cut. Tax cuts generally have a short-term positive impact - and a long term negative one. We have example after example of this in operation - at the loca, state, and federal levels.

Ok, so you didn't read the article.

[carpedm9587]

Ok, so you didn't read the article.

I actually did. But the author's attempt to dismiss any tax increase that wasn't specifically an income tax increase, or wasn't an increase to the tax rate (e.g., elimination of deductions) I find to be nothing more than a form of obfuscation. If my taxes increase, I don't care if it's when I pay for gas, or when I get my paycheck, or because I lost a deduction at tax time; the net effect is that my taxes increased. It is specifically not an "income tax rate increase." But it is accurately called a tax hike.

It is accurate to say that Reagan did this 11 times (12th is arguable) during his administration - and that the claim that Reagan's tax cut "stimulated the economy" is a dubious claim that lacks direct cause/effect correlation. I am not even sure I have ever seen anyone run the numbers to determine if there was a net tax increase or decrease from the start to the end of his term.

[rogue06]

Of course the hope is as the economy grows more revenue will come in, but unless you are willing to cut deeply into social programs there is little hope of even balancing the budget.

https://www.usatoday.com/story/opini...umn/914488002/

If you just keep spending at current levels and the economy grows at a normal rate the deficit will shrink pretty quickly. The problem is that government is always finding new ways to spend money. For instance back in the Reagan years in spite of revenue increasing after the tax cuts, Congress increased spending by about $2 for every extra dollar brought in.

[carpedm9587]

If you just keep spending at current levels and the economy grows at a normal rate the deficit will shrink pretty quickly. The problem is that government is always finding new ways to spend money. For instance back in the Reagan years in spite of revenue increasing after the tax cuts, Congress increased spending by about $2 for every extra dollar brought in.

So - if you do not increase spending to align with COL, then you have to continually cut government programs and agencies (ALL of them) to achieve what you are suggesting. If you continue existing programs with only COL increases, you will not see the deficit decrease that quickly. And the deficit is only one part of the equation: the debt is the other. At $21.6T and climbing, your suggestion doesn't even begin to pay off what we have already incurred for at least three generations - essentially saddling the next generations with this generation's profligate spending. Projections are for 108% debt/GDP ratio for the next 2-3 years. There is only one time in our country's history when it was that high, and that was explained by WWII. Today - we have no such reason, but the debt continues to spiral out of control.

Democrats had both houses and the Executive and did nothing. They, at least had the Great Recession as a reason. Then Republicans had both houses and the Executive - and did nothing (with no corresponding excuse). Since the dawn of the debt (1929), it has continued a general upwards trajectory in terms of both total amount and % to GDP. Dems own a lot of that, having dominant control of the Federal government from 2033 through 1995 (with only a few years of Republican control), but the Republicans talked a good game as long as they were out of power - and then did nothing when they were. Same with the Dems.

There is enough blame to go around. It's time to stop focusing on who is to blame - and focus on practical solutions.

[Starlight]

Yes it does. When Democrats are in power - expenditures tend to climb, and taxes with them. When Republicans are in power, taxes tend to drop, but expenditures tend to continue to climb. It appears that the only party that actually cares about the deficit is whichever party is not currently in power.

Of the two sets of behaviors you describe, the Democratic one is consistent with deficit neutral policy, while the Republican one is clearly not. Yet in your final sentence you bash both parties equally?!

As a general rule federal solutions tend to be cookie cutter or one size fits all in nature whereas when it is more at the local level they have a far better understand just what their problems are and likely know better how to handle them.

The more local the solution, the less consistent the quality. You will inevitably get areas that are run atrociously and areas that are run well. If you could cite any evidence for the general idea that local solutions do better on average, that would be interesting to look at, I am skeptical.

Often tax cuts have still led to revenue growth since the money is frequently used to expand businesses and the like causing the economy to grow.

No, that's delusional Republican propaganda. That doesn't actually occur in reality, and I've previously pointed you to Nobel Laureate Paul Krugman's recent column on the subject to that effect. Tax cuts don't lead to economic growth and they don't pay for themselves either.

For instance after the 1981 tax cuts tax revenue was higher than in previous years.

Fact check: False

Paul falls into the trap of suggesting the Reagan tax cuts paid for themselves—and then some. Reagan never claimed that would be the case—and the Treasury Department in 2006 confirmed that tax cuts reduced revenue. Moreover, Reagan repeatedly boosted taxes during his term as president, in part to make up for lost revenue from his original tax cut.

And after the Trump tax cut this year for the first half of 2018 tax revenue had increased by something like 1% over 2017.

You're failing to account for inflation. Nominal revenue is up by ~1% but inflation is greater than 1% so actual revenue in constant dollars is down.

[Starlight]

Since the dawn of the debt (1929), it has continued a general upwards trajectory in terms of both total amount and % to GDP. Dems own a lot of that, having dominant control of the Federal government from 2033 through 1995 (with only a few years of Republican control),

2033

But, um, your general point strikes me as wrong.



There was WWII which spiked the debt. And following WWII, when Dems usually had control of congress and usually of the presidency there was a very clear trend: Pretty much every president from 1945 to 1980 left office with the debt lower than when they entered office. (Exception was Republican president Gerald Ford who only had a 2 year term and whose increase to the debt was tiny)

By 1980 US federal debt had trended down to 30% of GDP, a level both low and safe by any international comparison.

However, there was a clear change of trend from 1980: The debt greatly increased under 5 of 6 presidents post-1980. 4 of the 5 debt-increasers were Republican Presidents. And the President who didn't increase the debt was a Democrat. To put it another way: Every single post-1980 Republican President has massively increased the debt, while post-1980 Democratic presidents have been 50/50 with regard to increasing or decreasing the debt (and the one who did increase the debt had the best excuse since WWII for doing so, i.e. combating the Great Recession).

Analyzing the data shows that since 1945, shows both Democratic presidents and Democratic congresses have correlated with lower debt than both Republican Presidents and Republican congresses.

It's time to stop focusing on who is to blame - and focus on practical solutions.

One party clearly has practical solutions and the other party clearly doesn't, as is demonstrated by the above data. By blaming both sides as you seem to be doing rather than placing blame according to the data, you inherently blind yourself to learning from the mistakes and the successes.

[Terraceth]

There's a number of problems with your argument based on that graph.

For example, you put considerable stress on the party of the president but very little on the party of the senate/congress, which is the part of government I would consider more responsible for spending (not to say the president doesn't play a part, but I'd say the congress bears more responsibility). Consider Clinton and Bush (the second). Clinton's debt is fairly stable when he had a Democratic congress, but it went down after the Republicans took congress. And while the debt went up a little under Bush initially, the big spike took place after Democrats took the congress, only stabilizing after the Democrats lost congress under Obama. Indeed, starting with Clinton, the correlation appears to be that the debt increases more under Democratic-controlled congresses than Republican-controlled congresses.

But honestly, I question the utility of debt/GDP in trying to determine culpability. While this number (debt/GDP) can be useful in terms of evaluating the economy, it's not very good at trying to examine culpability because while the amount of spending is strongly under the government's control, the GDP is not. Governments can enact policies that may aid or hinder the GDP indirectly, but it's harder to evaluate (at least based on a simple timeline) which policies accomplished that because GDPs can be affected by policies enacted in the past, thereby putting credit (or blame) on the party that happened to be in power rather than the one that necessarily enacted the policies in question. And again, said policies have an indirect effect on the GDP, with all sorts of variables out of the government's control.

In other words, only one of the figures (the debt) is more or less fully under the government's control and therefore decided by the party/parties that were in charge. The other of the two figures, the GDP, is not. Given that the percentages in the graph are based on those two figures, it seems erroneous to try to do any sort of examination of which party was in power during increases/decreases of those percentages.

A more valid attempt at determining party culpability would be an examination of the raw amount of the debt (adjusted for inflation, of course) compared to the party/parties in power, keeping the data points limited to what the government directly controlled.

[Starlight]

For example, you put considerable stress on the party of the president but very little on the party of the senate/congress

Overall the same trends emerge on average: A democratic congress does better on average with regard to keeping debt down than a republican congress.

But honestly, I question the utility of debt/GDP in trying to determine culpability. While this number (debt/GDP) can be useful in terms of evaluating the economy, it's not very good at trying to examine culpability because while the amount of spending is strongly under the government's control, the GDP is not.

GDP doesn't change much over short time scales so over the short term the scale effectively just shows debt. Over the long term, GDP accounts for both inflation and economic growth, so it usefully provides an apples-to-apples comparison of different time periods. Those features make it an excellent scale and that's why the debt/GDP scale is internationally used with regard to measuring government debts.

A more valid attempt at determining party culpability would be an examination of the raw amount of the debt (adjusted for inflation, of course) compared to the party/parties in power, keeping the data points limited to what the government directly controlled.

That would be slightly less valid IMO, but it doesn't actually change the empirical outcome significantly precisely because GDP is a stable and slow-changing variable, so you get the same conclusion with regard to Democrats being better than Republicans.

[carpedm9587]

2033

But, um, your general point strikes me as wrong.



There was WWII which spiked the debt. And following WWII, when Dems usually had control of congress and usually of the presidency there was a very clear trend: Pretty much every president from 1945 to 1980 left office with the debt lower than when they entered office. (Exception was Republican president Gerald Ford who only had a 2 year term and whose increase to the debt was tiny)

By 1980 US federal debt had trended down to 30% of GDP, a level both low and safe by any international comparison.

However, there was a clear change of trend from 1980: The debt greatly increased under 5 of 6 presidents post-1980. 4 of the 5 debt-increasers were Republican Presidents. And the President who didn't increase the debt was a Democrat. To put it another way: Every single post-1980 Republican President has massively increased the debt, while post-1980 Democratic presidents have been 50/50 with regard to increasing or decreasing the debt (and the one who did increase the debt had the best excuse since WWII for doing so, i.e. combating the Great Recession).

Analyzing the data shows that since 1945, shows both Democratic presidents and Democratic congresses have correlated with lower debt than both Republican Presidents and Republican congresses.

One party clearly has practical solutions and the other party clearly doesn't, as is demonstrated by the above data. By blaming both sides as you seem to be doing rather than placing blame according to the data, you inherently blind yourself to learning from the mistakes and the successes.

You're right. I over-simplified my comment by scanning this table. Your graphical depiction paints a much clearer picture. It's also nice to see how it stacks up against party control of Congress.

[Cow Poke]

You're right. I over-simplified my comment by scanning this table. Your graphical depiction paints a much clearer picture. It's also nice to see how it stacks up against party control of Congress.

I think a lot of these comparisons to the past can, to a great degree, be taken with a grain of salt, as there is a whole new divisive / extremely partisan atmosphere that wasn't there in this "history".