Scrappy Jack

iTrader: (2)

As tax savvy as I like to consider myself, I have never seen that data and found it very interesting.

It's also worth noting that the figures in those charts should be taxable income (not AGI or gross). That should represent the income after most deductions and exemptions.

Braineack

iTrader: (62)

I'm sorry guys, I completely forgot that as tax rates change, people do not shift their level of economic production to account for the change in the tax rate structure. They do not do this so they can benefit the common good, which does not maintain an overall level of equilibrium.

My bad, I'm so silly.

With that said, I'm going to leave this discussion with these final farewells:

Scrappy Jack

iTrader: (2)

Interesting point.

Look at the nominal GDP chart you posted earlier. Notice that ever increasing slope? Here's the same graph in real terms, using chained 2005 dollars:



I would be curious about the slope along diffferent points. For example, 1954-1963 vs 1987 - 1992.


Thinking out loud... Obama and Democrats in Congress wants to raise is raising taxes on households making over $250k MAGI which is about $230k taxable, assuming no itemization (I think a poor assumption, but the easiest to work with).

$230k real taxable income in 2012 gets you a 33% marginal rate.

In 2000 - prior to the Bush tax cuts - it got you a 36% marginal rate.

In 1992, a 31% marginal rate. This was a more regressive tax structure as the top bracket of 31% affected everyone making over about $138k real taxable income.

In 1987, you would have a 38.5% marginal rate. Prior to the Reagan tax cuts of 1986, it would have been 45%.

1975, 53%.

1950, around 43%.

triple88a

iTrader: (2)

bbundy

How about comparing growth rate of GDP to the Growth rate of Deficite spending. Note we took on a whole new trajectory for growth of deficits under Reagan. Bush doubled it with his republican congress.

Scrappy Jack

iTrader: (2)

Argh! All that debt (accumulation of past deficits) really killed economic output! Look at those big surges during the Reagan and Bush years!




Oh. Wait. GDP seems to surge along with the debt.

bbundy

Debt seems to surge with Republican administrations. Could it be that GDP growth is paid for with government Deficit spending? No republican would ever admit that but it is what they do when given the chance totally the opposite of what they have all there Republican ditto head voters believing. Seems to be one of the main tenants of Reagonomics, “Deficits don’t matter” as long as you use them to inflate GDP.

Odd how modest tax increases to the upper income brackets under Clinton still produced booming growth on par with any other time in history and the debt growth almost flat lined. Republicans in the house will have none of that however. Got to cater to the so called “Job Creators”.

Scrappy Jack

iTrader: (2)

Nah; that's an oversimplification. However, both Reagan and Bush used fiscal deficit spending (via tax cuts for everyone) to pull the economy out of recession.

Clinton and the Congressional Republicans of the '90s were on a nice path of reducing fiscal deficit spending during boom times (the right time to do so) and then got carried away in their Quixotic quest for balanced budgets and surpluses which drove the private sector in to net deficit spending, one of the main factors leading to the bust that Bush's fiscal deficit spending tried to compensate for.

bbundy

Please explain this. We still have the Reagan and Bush Tax cuts in effect. We still have recessions with them in effect. Where does it end when every response to anybody whining about how the economy is not doing so well is more tax cuts? And why is it that many times in history the economy has recovered and seen steady growth when tax rates were much higher particularly on the wealthy?

Scrappy Jack

iTrader: (2)

We've lost each other somewhere along the way. If I implied that cutting taxes during recession leads to the end of all future recessions, that was poor communication on my part.

First, some definitions as I use them:

• Aggregate demand: The combined demand for goods and services (stuff) in the economy
• Business cycle recession: A relatively normal occurence where the economy slows down after having "gone up"
• "The Great Recession": The most recent economic slowdown that was a fairly rare combination of a global financial liquidity crisis combined with a household balance sheet recession like we are currently recovering from
• Global financial liquidity crisis: bank lending is the oil that the engine of global economies runs on. When that "dries up," the engine starts to seize
• Household balance sheet recession: After the balanced budget/fiscal surplus of the late '90s, the private sector moved in to a rare position of spending more than they saved, on a total basis (aka private sector deficit). During the Great Recession, corporations quickly cleaned up their balance sheets or went out of business. It's a lot harder for a family of four to lay off the non-income earning spouse and kids and much of their leverage is tied up with their home. It takes households much longer to de-lever (i.e. pay down debt).
• Monetary policy: This is what the Federal Reserve handles, setting interest rates on short-term Treasury and bank lending, which influences interest rates all throughout the economy.
• Fiscal policy: This is what the Congress and President handle. It encompasses primarily taxation and governmental spending.

During a recession, to help speed along recovery as the private sector reduces their spending (taking money out of the economy), there are a few options available:

1. Do nothing and let YHWH, the Flying Spaghetti Monster and Allah sort it out
2. Increase government spending to make up for the reduction in private sector spending
3. Cut taxes, allowing the private sector to keep more of the money it is generating and thus have more available to spend in to the economy
4. Some combination of all of the above

This is to speed along the end of a recession, not to eliminate future recessions from ever occurring again.

From a mathematical perspective, government spending and taxation are equal: cutting spending = raising taxes; increasing spending = lowering taxes. From a practical perspective, I would argue that's not always true as government spending tends to be less efficient than private spending in many (but not all) contexts.


Theoretically, you would want to decrease taxes on everyone (like a full FICA holiday) during recessions and increase taxes on everyone during the boom times. Note that Clinton's tax increases came during a period of reasonably strong positive economic growth (1993) and low capacity slack.

Raising taxes or cutting government spending during slow growth like we have now would be like taking away the crutches from a guy who just had ACL surgery. That is what Japan has been doing with their "start-stop-start" policies. This is what Bernanke's Fed has argued strongly against over the past few years, but the Federal Reserve's monetary policy is less influential at this level than Congressional fiscal policy which is all kinds of dysfunctional.