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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: combjelly who wrote (295302)	7/17/2006 12:31:13 PM
From: TimF	Read Replies (1) \| Respond to of 1574050

Good point. So if GDP has recovered, yet tax receipts are just getting back... What was that again about tax cuts increasing tax receipts? We've talked about this before. Lower taxes tend to increase GDP which will increase tax revenue in the long run. But since the extra growth may not be huge and since the percentage of the larger economy that the government takes is lower it can be awhile before you get higher revenue, if the taxes cut where ordinary income taxes and if the rates where not exceptionally high to start. I think there is wide spread agreement about this basic premise, but disagreements about exactly how strongly it applies in different situations can lead you to support very different tax structures. If you think the additional economic growth from a tax cut is not just small, but tiny, perhaps even negligible, than if a tax cut causes short or medium term budget problems, or some other result you find problematic (perhaps allowing the rich to get richer therefore increasing economic disparity). If on the other hand you think the extra growth is robust, then you are likely to accept short term budget shortfalls, and believe there won't be medium to long term shortfalls. Tax revenue is now higher than before the tax cuts. It probably isn't higher than it would have been without the tax cuts. Even though tax cuts tend to have a positive effect on economic growth it isn't reasonable to consider it responsible for all the growth since the tax cuts. Even without tax cuts economies recover from down turns, so its likely that a lot of the growth was not due to the tax cut. Even if you could get consensus that the tax cut helped the recovery (and somehow I doubt we will have consensus either here or in the wider political debate), it makes a big difference whether that increase was a 1% increase in the growth rate (note: 1% of the growth rate, not 1% of the economy), or a quadrupling of the growth rate. The main problem with Bush's tax cuts isn't with the tax cuts themselves, but the fact that they occurred in the context of a large increase in spending. The spending tends to be a net negative for the economy. The money the government spent is taken out of the private sector whether it is taxed or borrowed.