Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (47710)	12/19/2005 2:17:36 PM
From: gpowell	Read Replies (1) \| Respond to of 110194

The equivalence comes from the assertion that there's no net change to wealth over time from different combinations of government borrowing and taxes. True. Specifically, government borrowing doesn't change the level of demand. No. Only that a shift from taxes to borrowing result in no net change in the distribution of resources. This pseudo classical tenet doesn't hold because it overtly assumes future output returns on varying tax rates will be the same. No. It only asserts that the same varying tax rates are in place. That's true only up to equal tax rates between past and future. And that is the assumption in Ricardian Equivalence. Tax cutting delivers an accelerated response of wealth creation where borrowing can only subtract wealth linearly. The intrinsic reason behind this is borrowing comes from individuals but tax cutting encourages individuals to enter into synergistic groups which multiply wealth growth. And here it is. You are asserting a change in marginal behavior. Given that both borrowing and taxes come from private wealth you must be asserting that shifts in the tax/borrowing mix result in shifts of private resources into more productive uses. What is the basis for this belief? Debt finance is a fixed (linear) commitment. Tax finance subtracts non-linearly from wealth creation. Who creates the wealth? Not government. So how could taxing those who create wealth provide more taxes to government? And that is borne out in direct evidence. See Message 21964033 I agree that a change in the marginal tax rate must surely lead to a change in marginal behavior.