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Politics : Formerly About Advanced Micro Devices

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To: Scumbria who wrote (129845)	12/19/2000 4:10:37 PM
From: TimF	Read Replies (1) of 1570268

AG was concerned that the economy was growing too quickly, so he raised interest rates. Bush wants to make the economy grow faster by lowering taxes. Bush does not take office for about a month. The tax cut would not probably not be retroactive so it would not effect taxes for the year 2000. Considering the fact that it will be a fight to get in inacted it might not effect taxes until 2002 (if it passes at all). The first year tax cut is not massive. The amount of stimulus it will cause in 2001 will be limited. It might be better if it was not so limited as the economy is slowing down now. In addition to the short term stimulus that a tax cut has it also has the long term effect of incourageing investment by increaseing the after tax return on that investment. That long term effect can in the short and medium term be swamped by a possible increase of interest rates if the short term stimulus comes at a time when the economy is overheating but I think there is fairly strong evidence out there that the economy is cooling down. A tax cut a year ago would arguably have been a bad thing but I don't think the timeing is so bad now. Also in the long term I think a tax cut is a good enough thing that I would be willing to put up with some short term bad timeing as long as the rates stayed low for the long term. The problem with this trade off is that there is nothing to stop the next administration in 2005 or 2009 (or even the current incoming administration see Bush senior for an example) from raising rates again, thus ruing the long term advantage of lower rates. So if you are correct about the economy being close to overheating and the tax cuts provide too much of astimulus and we get inflation, higher interest rates and then a very hard landing, and then with deficits rising we then get a tax increase then we will have all of the short and medium term pain with none of the long term benfit. I however do not think the economy is that close to overheating now (even if it was earlier in the year), and I am optomistic about a tax cut having some staying power. I admit that I might be incorrect about either of both of these assumptions. If I could be convinced that I was incorrect on both of these assumptions I might argue for spending cuts followed by a delayed tax cut sometime in the next couple of years. The one problem with that is that I think if the government has the money it is going to spend it rather then pay down the debt or cut taxes. Surpluses are big bags of goodies that the politicians just cant resist. Also there will always be arguments raised for delaying tax cuts. If I was convinced that the timing was bad and that we could have a big and persistant tax cut in two years I could see the argument for waiting but then two years later there would be more arguments that "we must wait". When times are good its "the economy will overheat if you pass a tax cut", when times are bad its "we can't afford a tax cut now look at the deficit". Its been a long time since the last signifigant across the board tax cut. I would kindof like it to happen while I'm still alive. Tim

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