Balanced Budget Amendment

[Revolverman]

http://en.wikipedia.org/wiki/John_Galt#Cultural_significance

(I had to look it up, too.)

Ohhhh Atlas Shrugged. Bleh.

[Asuras]

Every depiction of the curve that I have seen shows this nicely symmetrical, roughly parabolic curve.  To someone who looks at the graph and doesn't read further into the theory, it's very suggestive of a maximum at or near 50%.

The first statement is true - the Laffer curve is definitely parabolic. That would be the point of the thing.

I can see how someone could look at the Laffer curve and conclude that the 50% tax rate maximizes revenue, but they would (as you say correctly) be wrong. But I have never seen anyone say that.

Typically the Laffer curve is invoked in saying that by reducing taxes we can increase revenue (typically the Republicans invoke the Laffer curve when they want to cut taxes).

I'm betting that most people you have discussed the Laffer curve with are more versed in economic theory than the general public.

That's generous, but thank you.

It still doesn't follow that we are necessarily on the lower part of the curve and not at the apex.  In fact, since the apex is reflective of what the 'taxed' will put up with, the apex itself has a certain mobility, yes?

The point I'm trying to make is that we have consistently reduced taxes over the last thirty years, and yet revenues have also fallen over the last thirty years. Longer than I've been alive.

We are therefore at the lower part of the curve. We reduce taxes, and we get less in revenue. That is the lower part of the Laffer curve.

This is an empirical fact - banks and corporations are sitting on a combined three trillion dollar - and growing - cash stockpile. That money could be used to put thirty million Americans to work, indefinitely. It isn't.

And...what? They're just sitting on that cash, letting it rot in a bank? Presumably companies that have money would like to invest it in something. Where do those numbers come from anyway?

[Oniya]

The first statement is true - the Laffer curve is definitely parabolic. That would be the point of the thing.

If it were symmetrical (which is a requirement for being parabolic), then the maximum would have to occur at 50%.  A more realistic depiction would have the curve distinctly skewed, with the maximum tax rate somewhere definitively below 50%, like this:

[Vekseid]

And...what? They're just sitting on that cash, letting it rot in a bank? Presumably companies that have money would like to invest it in something. Where do those numbers come from anyway?

Presumably. They aren't.

Corporate cash reserves at 1.6 trillion in April.
If Bloomberg is anything to go by, it's rising by ~40 billion per month.

Aggregate reserves of depository institutions.

[Asuras]

If it were symmetrical (which is a requirement for being parabolic), then the maximum would have to occur at 50%.  A more realistic depiction would have the curve distinctly skewed, with the maximum tax rate somewhere definitively below 50%, like this

True, parabolic is the wrong word.

Presumably. They aren't.

Okay, they're putting a lot more money than they used to in treasuries (or deposits, which eventually becomes treasuries). Not that investing in the government is a waste of money, either - after all that becomes social security and you know, highways and stuff. Although it is a fair point that investing in treasuries isn't going to contribute much to economic growth if you cram into them.

On the other hand you have to understand why they would do that. After a catastrophic financial catastrophe they're "deleveraging" and shoring up capital. Because A) they should B) they want to and C) we made new rules that forced them to do that.

I mean, I can assure you that nobody, least of all bankers and CEOs, enjoys sitting on a pile of assets that returns less than the rate of inflation. The question is why would they do that, and there's your answer.

[Vekseid]

Social security is a separate fund /nit

And, as long as Austrian and Chicago economists are directing things, it's not becoming much of anything.

[MasterMischief]

I think the proposal that everyone, including government, must 'live within their means' is flawed.  And that is essentially what the balanced budget amendment is, right?

Sure, it seems to make sense on the surface.  You should only spend what you have.  But let's face it, our country simply does not work that way.  How many people pay cash for their house?  Also, there is the old adage that you need money to make money.  College loans, small business loans...hell, isn't investment a form of debt?

[Asuras]

Sometimes I think it might be better if we made business/economics/finance a core subject for American students...the value for the country of knowing about the battle of Saratoga is a bit vague to me (even as a history major) versus knowing what the consequences of tax cuts and spending cuts are. If people don't understand what happens when you cut spending you'll get stupid shit from voters.

Let alone things that hit people's pocketbooks like the difference between an adjustable rate mortgage versus fixed rate or the time value of money. Or what stocks, corporate bonds, treasuries, mortgages, money markets, and munis are. Maybe even mention derivatives to the seniors. Maybe we wouldn't have had a subprime mortgage crisis if we'd told them about that stuff.

[OldSchoolGamer]

I think the proposal that everyone, including government, must 'live within their means' is flawed.  And that is essentially what the balanced budget amendment is, right?

Sure, it seems to make sense on the surface.  You should only spend what you have.  But let's face it, our country simply does not work that way.  How many people pay cash for their house?  Also, there is the old adage that you need money to make money.  College loans, small business loans...hell, isn't investment a form of debt?

Um...yes and no.

What bothers me more than the level of debt per se is that we have this sizable (not catastrophic, but substantial) pile of debt and nothing to show for it.

It would be one thing if we had racked up that debt putting men on Mars and finding cures for cancer and AIDS and developing cheap water desalination and thermonuclear fusion for power.   Those would be investments, as you describe, with payouts for decades to come.  But what have we gotten for our $14T of debt?  Nothing that I can see.  If anything, we've incurred long-term liabilities (like Iraq's wounded veterans, a bloated health care system, and a burgeoning financial sector that really produces little of actual value.)  I remember reading that the primary employment in the United States now for mathematicians is not in research, science, or teaching, but rather in the service of Big Finance creating ever more complex swindles and three-card montes financial instruments.

[Oniya]

Another thing that really gets overlooked is the 'debt to GDP ratio'.  Right now, everyone is tossing around this godawful number of how much the US owes (and that's actually the pre-existing debts, not any new spending), when a more common indicator of economic health is the amount of debt as a percentage of the Gross Domestic Product. 

Now, yes, that's been increasing over the last several years (since 2000, and more rapidly over the last 4 years, to be fair), but there are two ways of making it slow and/or turn around.  One is cutting the amount of debt, but the other is - wait for it - increasing the GDP.  How do we do that?  Get America producing.

[OldSchoolGamer]

Another thing that really gets overlooked is the 'debt to GDP ratio'.  Right now, everyone is tossing around this godawful number of how much the US owes (and that's actually the pre-existing debts, not any new spending), when a more common indicator of economic health is the amount of debt as a percentage of the Gross Domestic Product. 

Now, yes, that's been increasing over the last several years (since 2000, and more rapidly over the last 4 years, to be fair), but there are two ways of making it slow and/or turn around.  One is cutting the amount of debt, but the other is - wait for it - increasing the GDP.  How do we do that?  Get America producing.

+1

That's what irritates me the most about the GOP.  They're absolutely anally fixated on the spending side of the federal ledger, but utterly ignoring (even openly scorning) anything on the income side.

It would be like me having my hours cut to 25 a week...then someone approaches me with a $1000 gig and I tell them, "Don't bother me, I'm too busy figuring out which meals I'm going to skip over the next week because I'm BROKE!!!1!"

[AndyZ]

+1

That's what irritates me the most about the GOP.  They're absolutely anally fixated on the spending side of the federal ledger, but utterly ignoring (even openly scorning) anything on the income side.

It would be like me having my hours cut to 25 a week...then someone approaches me with a $1000 gig and I tell them, "Don't bother me, I'm too busy figuring out which meals I'm going to skip over the next week because I'm BROKE!!!1!"

Are you familiar with the Laffer curve?  From my understanding, the idea is that when you cut taxes, you actually increase the revenue because it spurs the economy by allowing more money to circulate, although this may be an oversimplification.

I do agree with Obama that we don't want to raise taxes.  I expect that a lot of the businesses that are hoarding money right now are doing so because they expect taxes to suddenly jump.

Obama: "The LAST THING We Want to Do Is Raise Taxes During a Recession"

Full clip at Obama Says Don't raise Taxes In A Recession 2009

[OldSchoolGamer]

Are you familiar with the Laffer curve?  From my understanding, the idea is that when you cut taxes, you actually increase the revenue because it spurs the economy by allowing more money to circulate, although this may be an oversimplification.

It is a vast oversimplification.  The Laffer curve had some validity in 1980 when marginal rates were as high as 70% and demand was good.  Here in 2011, with demand rather slack and businesses flush with cash?  Giving more cash to people who already have it and aren't creating jobs with it now isn't going to fix anything.

I do agree with Obama that we don't want to raise taxes.  I expect that a lot of the businesses that are hoarding money right now are doing so because they expect taxes to suddenly jump.

Then they need to get over themselves.  Either that, or they should  move to Somalia and stop worrying about paying taxes altogether.

Seriously.  I'm tired of hearing businesspeople whine about uncertainty.  Life is uncertain.  When I was growing up we had to worry about global thermonuclear war with an actual superpower.  Now rich people are in mortal fear they may end up sitting next to a mere pleb at their doctor's office.  Buck up, little campers.

(Disclaimer: I'm not saying there's no opportunity for improvement in the way government taxes and regulates.  I'm just tired of all the whining, fear and loathing from the Right and the Randroids.)

[Oniya]

Seriously.  I'm tired of hearing businesspeople whine about uncertainty.  Life is uncertain.  When I was growing up we had to worry about global thermonuclear war with an actual superpower.  Now rich people are in mortal fear they may end up sitting next to a mere pleb at their doctor's office.  Buck up, little campers.

(Disclaimer: I'm not saying there's no opportunity for improvement in the way government taxes and regulates.  I'm just tired of all the whining, fear and loathing from the Right and the Randroids.)

Right with you, OSG.

Four minutes to midnight on a sunny day
Maybe if we smile the clock will fade away
Maybe we can force the hands to just reverse
"Maybe" is a word, maybe "Maybe"'s a curse.
[noembed]http://www.youtube.com/watch?v=2jFCUp-d9Xk[/noembed]

[Vekseid]

Are you familiar with the Laffer curve?  From my understanding, the idea is that when you cut taxes, you actually increase the revenue because it spurs the economy by allowing more money to circulate, although this may be an oversimplification.

Revenue only increases if that money continues to cycle through the economy. That is, if someone who earns a dollar spends it on a good instead, and this chain continues, about thirty times for the poorest sectors of the economy. That is to say, tax cuts for the poor can be immensely beneficial.

Tax cuts for the rich, on the other hand, are not the same. The rich spend less of their money, investing it instead. The richest 5% earn ~25% of the income and spend ~15% of the money. Which means 10% of this nation's income or roughly 1% of our wealth gets siphoned into their pockets each year. In the current case, roughly 3.4 trillion dollars in cash is being left to rot between banks and corporations alone. Typically, this money would either be taxed, loaned to the government, or loaned to individuals.

Obviously, taxation and loans to the government are out of the question in the current political environment. And loans to individuals are going to be sluggish with such an uncertain economy. And the economy will be uncertain until one of those three events take place. Something needs to spur an immense amount of investment.

That $3.4 trillion could be tapped - through taxes and loans - to instantly solve our job crisis through a new WPA. But that is not currently politically feasible, so the nation will suffer until a good chunk of people like you get educated as to the real reasons our economy is in shambles rather than believing the lies spewed by the right wing.

I expect that a lot of the businesses that are hoarding money right now are doing so because they expect taxes to suddenly jump.

Then you do not understand how businesses operate. If they invest the money, they are not taxed on it - it's an expense. Right now, they are earning less on the cash they are hoarding than the inflation rate. If you think the millionaires and billionaires want that, I have no idea what to say to you. What sort of lies have you been told to make you believe that businesses want to be losing money?

It's rather simple.

To avoid the taxes, they can simply re-invest the money. The money they re-invest even returns at a higher rate. This has the added benefit of spurring growth in the country, meaning that the real value of their income rises still more. This is true whether the tax rate is 5% or 50%.

Pretty much, the only people as a block who are against tax increases are the 30k-70k block - people who are relatively poor. This makes sense - especially with what they pay in regressive taxes like Payroll and Sales taxes, their taxes are too high. Those taxes have been on the rise since the Reagan era, even though it gets presented as a tax cut because the rich got the break.

[MasterMischief]

Is it me or is a large portion of this country still buying into 'Trickle Down Economics'?

[Oniya]

I suspect those that are buying into it are the ones at the top end of the 'trickle'.

[MasterMischief]

I wish it were that simple.  I can honestly see how big business and the wealthy are Republicans.  I have a harder time understanding how lower income Americans can be against eliminating tax loopholes and oil subsidies.

[AndyZ]

Then you do not understand how businesses operate.

I really don't.  Thanks for explaining ^_^

I wish it were that simple.  I can honestly see how big business and the wealthy are Republicans.  I have a harder time understanding how lower income Americans can be against eliminating tax loopholes and oil subsidies.

We absolutely have to eliminate the tax loopholes.  However, I'm curious about the oil subsidies.  I also don't agree with treating oil businesses any different than other companies.  If oil gets special subsidies that other companies don't, they should be dropped.

Please don't insult me.  I know I don't know a lot about this stuff.  That's why I keep asking questions.  If that's not welcome, then just say that.

[RubySlippers]

Pretty much, the only people as a block who are against tax increases are the 30k-70k block - people who are relatively poor. This makes sense - especially with what they pay in regressive taxes like Payroll and Sales taxes, their taxes are too high. Those taxes have been on the rise since the Reagan era, even though it gets presented as a tax cut because the rich got the break.

You mean the Middle Class they of course are getting hit hard, but they are not poor. I'm working poor, others are poorer than me these folks are pretty well off by my standards they can afford a decent basic home or better, have a car, luxuries, money to invest and can meet lots of other needs and wants.

As for taxes I think we could tax more I would have a new 5% tax bracket and add tax brackets up to 50% for the very rich then shut down all possible loopholes and deductions have them have that tax, minus a few basic deductions say medical, charity and dependent child deductions (three examples) keeping this all one basic form. And I mean simple this is your income from all sources, you knock off say 2% for deductions if very wealthy and if your income in 2012 is $10 million you owe the government 48% of that. If your going to give investment deductions make it only on US based investments say if you made so many investments in US company stock you get some thing extra in a simple deduction and make it appealing to do that with maybe 10% of your money a year. This way any rich person who contributes meaningfully in the nations wealth and therebye promoting companies interests gets rewarded right now there is no such incentives in the system. I don't mind the rich having money but unless they help the US as a citizen should in their capacity as an investment source what is the point save to hoard more money or invest it or hide it overseas?

[MasterMischief]

However, I'm curious about the oil subsidies.

It really depends on which side you ask.
American Thinker
New York Times

Republicans say that government is inefficient, corrupt and intrusive.  I agree, but if I distrust the government, I distrust big business even more.  At least in theory, the government is supposed to be looking out for the people.  Big Business 's primary objective is profit.  It may be more efficient, but is that a good thing when it is crushing you under its heel?

Republicans keep saying that taxing businesses will damage the recovery.  I do not think businesses are going to hire more people until it is profitable for them to do so which has absolutely nothing to do with how much taxes they pay.  Now if those taxes were crushing, sure, maybe they would fold up and move overseas, but I do not think we are talking extremes here unless everyone is just flinging hyperbole around (which is likely actually).

[Vekseid]

You mean the Middle Class they of course are getting hit hard, but they are not poor. I'm working poor, others are poorer than me these folks are pretty well off by my standards they can afford a decent basic home or better, have a car, luxuries, money to invest and can meet lots of other needs and wants.

As for taxes I think we could tax more I would have a new 5% tax bracket and add tax brackets up to 50% for the very rich then shut down all possible loopholes and deductions have them have that tax, minus a few basic deductions say medical, charity and dependent child deductions (three examples) keeping this all one basic form. And I mean simple this is your income from all sources, you knock off say 2% for deductions if very wealthy and if your income in 2012 is $10 million you owe the government 48% of that. If your going to give investment deductions make it only on US based investments say if you made so many investments in US company stock you get some thing extra in a simple deduction and make it appealing to do that with maybe 10% of your money a year. This way any rich person who contributes meaningfully in the nations wealth and therebye promoting companies interests gets rewarded right now there is no such incentives in the system. I don't mind the rich having money but unless they help the US as a citizen should in their capacity as an investment source what is the point save to hoard more money or invest it or hide it overseas?

Most laborers making under 70k per year in this country experience some financial stress. Compared to the mean (over 100k per year), they are slightly poor. Compared to the people making over five million per year (who is worth that?) they are impoverished.

[Zakharra]

I don't mind the rich having money but unless they help the US as a citizen should in their capacity as an investment source what is the point save to hoard more money or invest it or hide it overseas?

To make more money. The US market is large, but it isn't the only one anymore and companies can make more money of spread out over several nations/regional areas. There are major companies that have holdings outside the US and people who own companies outside the US as well, sop for them, the money those companies make can hardly be spent in the US on US businesses and infrastructure.


  I tentatively agree with most of what you say. Some of what Veskied says makes sense too. Investing in the US, and making it so it is good sense to do so is good. I think I could tolerate up to a 50% total income tax (state, local and federal), minus deductions for  investing in US companies and such. More than 50% and I think the taxes are just being vindictive and very unfair.

Most laborers making under 70k per year in this country experience some financial stress. Compared to the mean (over 100k per year), they are slightly poor. Compared to the people making over five million per year (who is worth that?) they are impoverished.

And someone making 30K and under, 70k is fairly wealthy. 100k is rich. It's a matter of perspective.

[AndyZ]

It really depends on which side you ask.
American Thinker
New York Times

Ok, that talks about tax breaks.  Subsidies, from my understanding, are quite different.

A subsidized product comes from a company, or industry that has received a subsidy--a type of economic assistance. Governments use subsidies to decrease the prices of goods lower than the price determined by the free market. Subsidies can benefit industries and consumers, but they can also be controversial.

Read more: What Is the Meaning of Subsidized? | eHow.com http://www.ehow.com/facts_6737849_meaning-subsidized_.html#ixzz1TyY9QxAQ

My understanding is that they do this with food, giving subsidies to farmers in order to keep the price of food low and affordable.  If oil companies are getting this, then there's obviously a problem because the price of gasoline keeps rising.

Republicans say that government is inefficient, corrupt and intrusive.  I agree, but if I distrust the government, I distrust big business even more.  At least in theory, the government is supposed to be looking out for the people.  Big Business 's primary objective is profit.  It may be more efficient, but is that a good thing when it is crushing you under its heel?

This is something that confuses me a lot as well.  I agree that government is inefficient, corrupt and intrusive.  However, if we keep government small enough that it can't corroborate with big business, how can it damage us?  Without a huge government, business doesn't have any power beyond selling a product.

Let's throw out the example that a particular food company puts broken glass in its food that it sells to people.  When even McDonalds gets sued because their coffee is too hot, and the press makes sure that everyone hears about it, would this really be in the best interest of profit?  I would expect the police to come in with criminal negligence charges at the very least.

I know I tend to be pretty Socratic.  Thanks for indulging me.

Compared to the mean (over 100k per year),

What are the median and mode?  $100, a year seems seriously high to be the average salary in the USA.

[MasterMischief]

Tobacco companies have no problem killing their customers.  Sure, in a perfect world, we would like to think that Big Business would seek to be sustainable, benefit the world and make a profit.  I do not think that actually plays out in the real world.

Without a huge government, business doesn't have any power beyond selling a product.

I think that is rather naïve thinking.  First of all, I would agree that big government, corporations can wield a great deal of power.  Where does that power come from?  Money.  Without big government, corporations can still acquire (and possibly more easily) money.  Small government does not impede their power.  With a small government, there is just one less person to buy off.