Agreed to the "lower tax==greater growth" argument. That is subjective, and can be endlessly debated. I brought it up only to counter the claims in the OP that the Reps were being inconsistent about their claims versus what they were actually doing. Bush's economic plan is consistent with modern Republican economic strategy. Whether you think that's the best plan or not obviously can be debated. But the OP was trying to claim that Bush was claiming one thing while doing another, and I think I've adequately proved that that's not the case.
yossarian wrote:
According to this chart of tax rate history:
http://www.clev.frb.org/research/Et2002/0102/briefhist.pdf
we can see the maximum marginal personal income tax rate has fallen from the huge values (78%) in the 50's and early 60's to 60% from about 1963-1983 and down again to current levels.
We should be reaping the benefits of 50 years of reductions in rates. Are we? You can look at the defecit graph below it.
Ok. But let's look at the CBO chart for "Total Revenues: 1900-2004 (percent of GDP)" (I provided a link to this earlier I think. I can link it again if I can find it). You will see that over the last century, the government revenue has increased as a percentage of GDP overall. The low point (chart is in 10 year increments up until 2000) is 1910 at 1.9% and the high is 2000 at 20.8%. In 1950, it was 14.4%, and has pretty much floated in the 17-19% range ever since.
So... If personal income tax was 78% in the 50s, and 60% in the 60s (and now below 50% max I believe currently), yet the total revenue of the government in percentage of GDP has remained relatively constant (within a few percentage points, with no discernable relation between variations in that figure and personal income tax changes), then where did the remainder come from? How did we reduce income tax by 20% accross the board while retaining the same percentage of GDP as revenue for the government to use?
The obvious conclusion is that we applied more tariffs (which would just shift the income tax in a different direction since it would increase relative costs for tariffed goods), *or* we increased tax structures on businesses and corporations. Most likely a combination of the above was responsible.
Um... So the quick and dirty answer is that we haven't reduced the amount of money we tax out of the economy over that time period. We've just shuffled around where we take it from. Thus, we wouldn't expect a huge reaping of rewards. Only minor ones as the rate itself dips and rises.
It is interesting to note that this data would seem to dispute the Dem claims that corporate taxes have been decreasing over time, eating into the profits of the "common, working" man. It would seem that the reverse is actually true. Again though, we're looking at this data from an eagle's eye view, so it's hard to make any sort of blanket claim about it. However, the money had to be made up from somewhere. If it didn't come from income taxes, then it had to come from business in some way. After all, average people don't import much stuff, or generally fall under any other sorts of taxes other then income tax. Those "other" sources of tax revenue had to be from sources other then the average working citizen...
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Also, about the 153 billion in interest figure. I don't believe my original statement is misleading: when you have debt such that you are paying 153 billion dollars per year in interest, paying off the principle is not a bad idea.
I actually agree with you here. However, people do take loans out from banks. They do it for a number of reasons. One way to look at this is that the government is taking a loan out and giving us the money to use. While I agree that running continual, high deficits is a bad thing, the basic prinicple of borrowing money with the assumption that you'll make more money with it in the end is pretty much the cornerstone of economic principle. If that didn't happen, no one would ever take out a business loan, or borrow money to buy a house. We do those things because we hope (assume?) that the increase in value of what we do with the money will be greater then the interest on the principle.
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Further, interest rates are *really* low now. Sadly, that 153 billion figure will probably go back up. In 1997, we paid 244 billion in interest (source: www.cbo.gov) on a smaller debt. If we are going to pay off anything, it is when interest rates are low.
Actually, I'd argue that the exact opposite is true. You want to borrow money when interest rates are low, and then pay off the principle when the interest rates are high. While the parallels between government tax/spend cycles are not exact matches to business models, this basic idea would still apply. Right now is the *perfect* time to run up a deficit. And the tax->GDP-growth idea ties into it. Reduce taxes now, so you leave as much money as possible in the economy. This hopefully stimulates the economy and grows GDP at a faster rate then otherwise. You borrow money (deficit) to make up for the taxes you didn't collect. Then, when interest rates rise again, you increase taxes back up, but now you've got a higher GDP, so you'll get more each year then if you'd left it at that higher rate all along. This allows you to pay off the debt you accumulated several years earlier. If all stays the same at that point, you can maintain the tax rate at the beginning level, and eventually you will pay off the principle you borrowed, and the interest, and start to have more left over. You keep getting that GDP gain forever (more or less).
Heh. Nothing is that perfect, but that's the idea. Certainly, if you're going to run a deficit, the best time to do so is when interest rates are low.
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And I have not even begun to talk about the capital gains tax rates. They have also been cut dramatically and they are why the ultrarich - who make most of their income from capital gains not traditional income - are paying a lower rate than I was as a graduate student qualifying for food stamps.
Eh? I believe 29% is still the lowest rate you can get for long term capital gains (18 months or longer - someone correct me if I'm wrong). I'm pretty sure the government did not tax your income at anywhere near that rate if you were collecting food stamps.
And capital gains hardly applies to just the ultra-rich. Lots of employees get stock options as part of their payment, as well as participation in stock purchase plans. We get to pay the same rates as the so-called "ultrarich". Those capital gains tax breaks make it that much easier for us to buy homes with our investment money.
Even joe average person *can* buy stocks if he wants. Go to a stock broker and start placing orders. If you want to invest, you can. There's nothing stopping you. You get the same return rate whether you're a working joe investing a couple grand, or the "ultrarich" investing a couple million. It's all relative to what you risk and how long you risk it. Sure, the ultrarich invest more then they get in income, but what income they get is already taxed at the highest allowable level, right? And capital gains *starts* at the highest level for them. What capital gains does is encourage investors to make longer term investments instead of quick speculative investments. That's it. Personally, I think that's a good thing...