| Tax revenues surging, deficit shrinking, yet tax rates are l |
|
|
|
|
|
Jon
Preferred Member
Cash: $ 50.02
Posts: 193
Joined: 13 Apr 2005
|
| Tax revenues surging, deficit shrinking, yet tax rates are l |
 |
|
It was a farcical argument made back when there was a push for the current tax cuts, i.e. that tax cuts were just another form of government spending. Spending? Where did the money come from? Taxpayers. It is their money, not the government�s, yet that simple precept is glossed over daily in Washington DC. The Feds told us they needed a lot more money to pay for all of their spendthrift ways and hiked our taxes in the mid-1990�s. Turns out they got a lot more money than they intended because the boom that started in the 1980�s was not over. Yet when revenues surged past anyone�s expectations, instead of giving the excess back they kept it. They took more of our money than they said they would need and the refused to give it back. The rhetoric regarding the tax cuts was incredibly bitter (e.g., �welfare for the rich�) when you consider who paid the money in the first place. It is the same as a contractor saying he will charge you actual costs and gives you an estimated amount for the job; if it is less you will get the excess back. It costs less but he blows you off and pockets the extra to pay for his own lifestyle.
Beyond being downright absurd the argument was wrong. If it was spending we would simply be further in debt with a few more boondoggle programs to show for it. What has happened, however, is that the money that was given back to the consumers and entrepreneurs was invested in the US and fueled the economic recovery. Some still deny the economy has recovered even as GDP has come in well above what the Fed views as its potential; at a minimum the critics find several faults with the recovery.
Sure it is not perfect, but we have been saying all along that the recovery was demand led, and that has given us the less than perfect inflation picture right now. Even with that, however, the economic and fiscal posture is vastly improved. Tax revenues are up 29% over 2004. In that year the deficit was 3.6% of GDP. This year the deficit has dropped to a projected $395B down from $427B in 2004. That is down to 3.2% of GDP. The oft referred to �nonpartisan� Congressional Budget Office now projects the deficit will fall below 2% of GDP in 2007. That puts it below its 40 year average in relatively short order.
So much so that the April to June quarter is expected to turn an expected $12B deficit into a $42B surplus. That is on top of a $30B surplus for the first quarter. Lower tax rates = rising economic activity = higher tax revenues. The data shows that tax revenues related to the dividend tax reductions and cap gains tax reductions have leapfrogged tax receipts on those assets. Lower rates but more revenues. More dividends are being paid out because the rates are lower. The individual investor benefits in getting the dividend and at a lower tax rate. That money goes back into the economy as opposed to sitting in the corporate treasury. Lower capital gains taxes unlock money stashed away in investments hiding the money from being taxed. Lower rates pry open the wallets and get money circulating in the economy; that is the lifeblood for economic growth.
How this works: toss out the Phillps Curve and start �Laffing.�
Tax revenues don�t rise unless there is more money in the pockets of citizens and corporations. Moreover, a lot of the revenues are coming from dividend and capital gains taxes. But those were lowered along with income taxes. That can only mean that there is a lot more economic activity to generate more tax revenues than higher rates were able to do. That is the history of tax cuts.
The Laffer curve states that at lower tax rates economic activity expands to such an extent that tax revenues actually increase. Raise taxes too much and tax revenue falls because of lack of investment. You can also lower them too far and revenues will drop as well due to diminishing returns (you get less bang for each $1 taxes are lowered). Here in the US we have successfully shown what rates will lead to falling economic investment and lower tax revenues. We have yet to find how low they can go before tax revenues fall off. This last reduction has produced a surge in economic activity and jumped tax revenues, so it is clear we have not reached the equilibrium point where economic growth is maximized and tax rates are at the minimum levels. In other words, we can cut taxes further and still generate more economic growth.
Given that demand is still outpacing supply and thus causing the inflation we are seeing now, it would behoove our leaders to cut taxes more and thus generate more supply and fuel further economic growth. Tax revenues would rise further and go toward cutting the deficit. It is the best of both worlds, but in Washington political careers and indeed political parties are staked against this historical concept. Thus reality denial will continue.
We offer a FREE two week trial stock tradingnews letter . stock trading. Check out our online stock seminars. Financial Seminars.
|
Mon May 09, 2005 4:40 pm |
|
|
stockomni
Member
Cash: $ 4.20
Posts: 20
Joined: 20 Aug 2010
|
The truth is, the government can basically print money based upon the economy, increase or decrease and they affect everything in the economy by overflowing coffers or decreasing production. I think the government should basically print money when they need to build the economy and use the money to funnel to businesses who need it and small businesses in particular while taking care of every other expenditure. This would pace out perfectly for employees and businesses alike and would likely change the tides of the financial and employment crises.
|
|
Fri Aug 20, 2010 2:26 am |
|
|
Jammy
Full Member
Cash: $ 15.90
Posts: 72
Joined: 15 Sep 2010
|
| Direct relation |
|
|
Of course the tax revunuw rises only if corporations and people earn more. Both are directly related.
|
|
Fri Sep 17, 2010 9:00 am |
|
|
calbeach
Full Member
Cash: $ 16.20
Posts: 80
Joined: 12 May 2010
Location: USA
|
The US is hurting right now. too many people dont have jobs and the taxes are going up. This is looking bad.
|
|
Mon Sep 20, 2010 3:37 pm |
|
|
shanecurran
Preferred Member
Cash: $ 32.70
Posts: 161
Joined: 01 Apr 2011
Location: Chico
|
"that tax cuts were just another form of government spending. Spending? Where did the money come from? Taxpayers. It is their money, not the government�s"
-You are upset about the verbiage, but the effect is the same.
It seems as though Jon is a bit confused about the laffer curve. The laffer curve shows theoretically that at a sufficiently high tax rate, it is possible to lower taxes and increase tax revenue. Although conservatives like to use the laffer curve to support their policies, economist agree that we are nowhere near the point where raising taxes will reduce tax revenue. The fact that tax revenue increased can be explained by the business cycle.
Would you like to earn money from home?
Click here to find out how!
http://qitrck.com/b?p=316412&t=18108&c=&a=SW
|
|
Tue Apr 05, 2011 5:16 pm |
|
|
KeithSpringer
Member
Cash: $ 3.45
Posts: 15
Joined: 06 Apr 2011
Location: Sacramento, CA
|
| What Happens When The Party�s Over? |
|
|
-The end of QE2 creates a real dilemma
The Fed�s in a pickle. Keep up with QE2, QE3 or another stimulus by another name and risk runaway inflation. End it, and risk the collapse of the economy which very likely cannot stand on its own.
The good news is that there is no real inflation, that being asset inflation. Real estate is dead in the water and will continue to be for several more years, cars cost about the same as they did a few years ago, we�re paying the same for airline travel that we did 10 years ago (albeit with worsening service), computers are getting cheaper and the list goes on. However, it doesn�t feel like that as food and energy scream higher. The Fed likes to remove food and energy from the inflation index, but last I checked, most of us eat and drive.
|
|
Wed Apr 06, 2011 3:30 pm |
|
|
|
