AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (73 comments)

  1. PeakTrader

    Another illusion is taxing the rich without a real economic recovery will reduce budget deficits, substantially.

    A real recovery is needed to get the economy off government life-support, and into full employment, which will reduce budget deficits.

    Then, tax rates can be raised to slow the expansion to a sustainable rate.

    1. Over-simplifying an awesomely complex system like an economy to the mechanics of a car engine is a lot of fun because it really allows you cling to your delusion that you can not only understand it, but also to successfully manipulate it.

      It’s just amazing this central planning has never worked in the history of central planning since it’s so simple.

  2. I’ve noticed that the right-leaning economists tend to be infatuated in general with magic and illusions.

    hmmmm

    If you search this “bread from hands magic”.. all manner of right leaning sites from the daily caller to Anne Coulter pop up.

    perhaps this explains their beliefs about how to get rid of deficits without increased tax revenues.

    Romney certainly was proposing a “revenue-neutral” tax reform as a way of increasing revenues to balance the budget.

    over and over he claimed that revenue-neutral tax reform could generate increased revenues. Where would they come from if not tax revenues?

    MAGIC! You must believe!

    1. Seriously? The left doesn’t understand that we have income. we just can’t spend more than what we make.

      Did you know that if you spend less than you make and have debt, it eventually goes away?

      MAGIC! You must believe!

      1. When the GOP votes to double the DOD budget, fight two wars and gin up two new subsidized Medicare entitlements and you say the Dems can’t spend more than we take in?

        That’s pretty rich.

        so the GOP busts the budget, creates the deficit, but the Dems have to figure out what to cut to balance the budget – and they can’t choose the things the GOP increased spending on ?

        :-)

        1. Hey, I’m no fan of the GOP myself. Defense spending is absolutely stupid. You and I can agree there.

          I agree. no one wants to ACTUALLY cut spending, but at least the left wants to pay for it.

          1. And I want a pony. the difference is that I understand that if I try to steal from my neighbour to pay for it, my neighbour will make sure there’s nothing to steal.

            The Democrats lie that raising taxes will pay for all of their spending. Yet, while the top marginal tax rate has been remarkably volatile since the 1960’s, the tax revenue collected as a percentage of GDP and the median household income has been remarkably stable. Raising tax rates has never increased tax revenue. Whaddaya know? Turns out people respond to incentives.

            Besides, even if 100% of discretionary spending were cut, we’re still in the hole by $261 Billion per year on mandatory spending. It’s not possible to pay for the spending. The lie they tell is that it is.

          2. Check this out:

            Ratio of tax revenue per household to median household income since 1967 plotted against the top marginal statutory tax rate:
            http://politicalcalculations.blogspot.com/2011/09/why-hiking-top-income-tax-rate-wont-fix.html#.ULjMPoZYRqM

            also, what does drive tax revenue (it ain’t tax rate):
            http://politicalcalculations.blogspot.com/2011/09/why-hiking-top-income-tax-rate-wont-fix.html#.ULjMPoZYRqM

          3. morganovich

            mehtinks-

            that’s a good chart.

            that same trend played out in the early 90’s.

            clinton hiked top tax rates. tax revenue remained mired at decadal lows as a % of gdp. the tax hike had no effect. what it did do was keep the economy growing slowly and personal income dropping.

            the gains in tax revs as a % of gdp came after the tax cuts to cap gains. this drove an investment boom that spurred the economy which, unlike recession, drives taxes up both as a % of gdp and even more so nominally as the gdp is growing faster as well.

            this is what nearly “balanced the budget” (at least if you accept government accounting. on a gaap basis, it never even came close.

            the hike in cap gains from 15 to 24 is going to be brutal in terms of suppressing investment at the margin.

            contrary to the ludicrous statements of folks like buffet, people do consider taxes.

            ask anyone who has bought a home and took the interest deduction into account when comparing it to renting.

          4. Yup.

            Except Buffet’s statements aren’t ludicrous at all, they just fall on dumb ears.

            He demanded and got a bailout that guaranteed him a huge profit on his “investment” in Goldman during our “times of troubles”. The free money he got from that dwarfs any additional taxes he is now advocating. And you know, you have to keep your benefactors happy by toeing whatever line they want you to toe if you want them to continue to enrich you. Buffet doesn’t give a shit about anyone else.

          5. morganovich

            buffet is just talking his book.

            if you can jack up cap gains and inheritance taxes, it makes life insurance look more attractive as a wealth planning tool.

            did you see this:

            http://www.forbes.com/sites/realspin/2012/11/30/buffetts-billions-cant-buy-him-exemption-from-his-tax-averse-past/

            buffet is to higher taxes as elliot spitzer is to cracking down on hookers.

          6. here’s more on tax increases. Think “thuh rich” will bear the entire burden of higher dividend tax rates? Think again.

            http://politicalcalculations.blogspot.com/2012/11/racing-to-beat-clock-on-dividend-cliff.html#.ULjkp4ZYRqM

          7. morganovich

            methinks-

            yup. one of the reasons companies have largely shifted to retaining earnings as opposed to paying dividends was favorable tax treatment. that will intensify greatly.

            the hike in div tax will also deeply hurt retirees. my grandmother used to have much of her savings in utility stocks that paid dividends. she used that cash to live on after my grandfather died. that gets much less attractive next year.

            between that and zirp, it’s really tough for oldsters to generate much in the way of income from savings these days without taking major principal risk.

            my friend at greenlight claims this is a deliberate effort by the fed and treasury to drive everyone into risk assets as they figure that generates wealth and economic growth, but that seems like a bad rationale.

            his thought piece on that is interesting:

            http://www.huffingtonpost.com/david-einhorn/fed-interest-rates_b_1472509.html

          8. Cody,

            Larry doesn’t understand anything but black and white. If you don’t like big liberal spenders, you must be a GOP’er….if you don’t like huge government, that means you want no government. You say you want to increase tax revenue, he says raising taxes is the only way that’s done. You say that $2 trillion disappeared, leaving us with unfunded SS liabilities and now he says you must be the bad magician who caused it.

          9. It’s pretty clear that the Fed has been desperately trying to push people further out on the curve.

            The theft is egregious. By manipulating the interest rate downward, the Fed is literally stealing from creditors by reducing the reward for a given level of risk. The nominal rate remains positive even as the real rate is negative. To add insult to injury, the government then steals again by taxing the nominal income. The hope is that by manufacturing an negative interest rate, the Fed can reduce the income of less risky investors so that those people exacerbate their own problem by taking more risk to in order to just pay their bills. It’s a bloody crime. The Fed’s logic is deeply flawed, but then since when have criminals been known for their airtight logic?

            Political Calculations thinks people in lower income brackets will be hurt when dividends need to be cut because they’ve raided future dividends. But, I think you can get around that by simply using the special dividends paid this year to buy more stock. What I think will happen is the same influential investors who encouraged the companies to pay special dividends this year will also press the companies to reduce or not raise dividends in the future.

            Since the price of the stock includes the cash used to pay dividends, ceteris paribus, the stock price will be higher by the amount of additional retained earnings. The company can either pay out those retained earnings in the form of a highly taxed dividend or let the investors sell the stock and realize a much lower-taxed capital gain instead. As of next year, dividends will be taxed as regular income. Guess what the investors in low tax brackets would prefer vs. the much more influential investors in high tax brackets would prefer.

          10. I should say that what differs between what PC thinks and what I think is that the problem of raiding the cash earmarked for next quarters’ dividend can be fixed by skipping one dividend payment or lowering the dividend temporarily to catch up. What I think is there will be a permanent lowering of dividends from what they would otherwise be at the request of influential shareholders seeking to pay a LT cap gain rate on that cash instead of the 44% dividend tax rate.

          11. re: ” In other words, Larry, government spending has been increasing and increasing, but DOD spending has remained flat and even slightly declining, then the only conclusion to be drawn is that deficits are not the cause of the current ridiculously large deficits.”

            tell me WHAT government spending has been increasing and who approved it.

            DOD spending more than DOUBLED from 2000 to 2009.

            what else got approved for increased spending?

            see the “magic” hear is that you double the DOD spending, get into two wars you don’t want to pay for and add on massively subsidized Medicare Parts C&D
            and then the same folks who approved all of that – say we have a “spending” problem but it’s up to Obama to fix it – but he can’t cut what they voted to increase.

            well.. the time has come to recognize that little bit of “magic”.

            Let’s see the GOP create “bread” out of “dough” now.

          12. Methinks: “Raising tax rates has never increased tax revenue.”

            Wow. It’s hard to imagine how upset you would be about raising rates if it actually increased what you would have to pay.

          13. tax rates were HIGHER under Clinton AND Reagan AND so were revenues.

            you can cut taxes but when the revenues fall so low that you cannot pay your bills then you’ve screwed up.

          14. tax rates were HIGHER under Clinton AND Reagan AND so were revenues.

            Wrong.

            Average annual revenues under (in constant 2005 dollars):
            Reagan – $1257B (1983-1988)
            Clinton – $1689B (1993-2000)
            W – $2159B (2001-2008)
            Obama – $1941B (2009-2011)

            You can clearly see that average revenues under Clinton AND Reagan were LESS than the average revenues under W and Obama.

          15. re: tax rates vs tax revenues.

            gotta support you data guy ….

            also show – tax revenues for all of Reagan and Clintons terms… because both INCREASED rates toward the latter.

          16. gotta support you data guy

            Is looking at the Statistical Abstract so hard? I know you think it is since you simply refuse to look at it, much less take it seriously. Or is the Census Bureau another one of your non-credible sources, despite being the only agency in the world to collect the data you are interested in (the other agencies simply process much of the data collected).

            You said tax rates AND revenues were higher under Clinton and Reagan. This statement is false, backed up with the data I provdied above. Rates were higher under Clinton and Reagan. But for your statement to be true, revenues needed to be higher under Clinton and Reagan. They weren’t, hence, from the basic principles of logic, your statement is false.

            Reagan and Clintons terms… because both INCREASED rates toward the latter.

            Toward the latter of what? Are you trying to say that 1. tax rates increaed towards the latter end of their terms or 2. that tax rates under Clinton were higher than under Reagan? It doesn’t really matter, though, because both are false.

            The tax rates per bracket remained constant for ALL eight years of the Clinton presdiency.

            The tax rates per bracket under Reagan remained the same from 1984-1988, after being reduced in the early 1980’s.

            Additionally, the highest (marginal) tax rate under Clinton was 39.6% for all eight years. Under Reagan, the highest (marginal) tax rate was 50% from 1982-1988, but in 1981, the first year of Reagan’s presidency, the highest tax rate was 70%.

          17. ” Is looking at the Statistical Abstract so hard?”

            I did not see a link…

            re: both Clinton and REagan RAISED taxes later in their terms.

            right?

            Reagan did it to head off a deficit and Clinton did it and ended up with a slight surplus/balanced budget.

            the point here is that tax cuts, increased revenue ALONE is NOT SUFFICIENT if you end up with a structural deficit and do not deal with it.

            Both Reagan and Clinton took the steps necessary to head off deficit.

          18. LarryG,

            I did not see a link…

            Go here and type “statistical abstract”. You will see the Statistical Abstract of the United States.

            both Clinton and REagan RAISED taxes later in their terms.

            right?

            I don’t see a link….

            And all the sites I went to showed the same thing: highest tax rate under Reagan was higher than the highest tax rate under Clinton, which in turn was higher than the highest tax rate under both W and Obama.

          19. Walt Greenway

            Methinks and morganovich,

            That was a super informative exchange between you two. Thanks! Figuring out the most advantageous way to invest with the uncertain tax situation is especially important to me now as I transition from being a full-time wage earner to a pension, portfolio, and part-time work earner.

        2. buffet is to higher taxes as elliot spitzer is to cracking down on hookers.

          Uh-huh. Or Nobel Peace Prize recipient, Dear Leader, is to peace.’

          Hypocrisy is the new black.

        3. LarryG,

          Translation: I don’t understand statistics.

          DOD spending as a percentage of a GDP is very low historically. However, total government spending as a percentage of GDP is at an all time high, higher even than during WWII.

          In other words, Larry, government spending has been increasing and increasing, but DOD spending has remained flat and even slightly declining, then the only conclusion to be drawn is that deficits are not the cause of the current ridiculously large deficits.

          1. Edit: then the only conclusion to be drawn is that DOD spending is not the cause of the current ridiculously large deficits.

    2. The ever dependable larry g claims: “I’ve noticed that the right-leaning economists tend to be infatuated in general with magic and illusions“…

      Gee! I wonder how many of this ‘right leaning‘ economists voted for your ‘man-crush‘ speaking of being deluded?

    3. I’ve noticed that the right-leaning economists tend to be infatuated in general with magic and illusions.

      I’ve noticed that left-leaning economists tend to be crazy cynical and think they have an incredible understanding of everything to the point that they think they know what’s best for everyone else. The complete lack of humility is astonishing.

      The fascination with magic and illusions is that they are a constant reminder that people are awesome and act in surprising and puzzling ways. It reminds conservatives that our senses and sense of logic can be fooled rather easily. It is a reminder to oneself that you don’t know half as much as you think you do and to humble yourself.

    4. Michael Gibson

      It is just the opposite, right wing economists understand reality and don’t think you can get something from nothing.

      For instance, thinking increasing tax rates will magically increase revenue because they will have no effect on the economy.

      1. so when the payroll taxes reduction expires and goes back up in January, we won’t see an increase in FICA tax revenues?

  3. jimzinsocal

    LOL. I love hearing from Democrats attempting to explain the lack of math in Romney’s thinking. For some reason they have managed to ignore that 10% of 120 is actually higher than 10% of 100 without raising the 10%.
    Perhaps they missed the chapter in fractional relationships back in grade school.

    1. Yep. They also have no idea what an “incentive” is. Probably why they’re so fond of brute force.

  4. I love the way the right and left bitch-slap each other as we continue to circle the drain – mimicing our politicians perfectly – Rich Little would be proud. All over a magic trick video – good stuff!

    1. morganovich

      i’m with moe.

      it’s like the whole world is a rorschach test for the sound bite brainwashed.

      if every single blot looks like the same thing to you, that’s a sign of a serious mental issue.

      guys, it’s a magic trick. it was pretty cool.

      it was not some subliminal trigger to parrot the party line.

      or was it? perhaps that was the real magic trick…

      sigh.

      1. “I love the way the right and left bitch-slap each other as we continue to circle the drain….”

        Amen, Moe.

  5. Citizen B.

    I look for Yif Magic to start a chain of boulangeries, because it takes him so little dough and capital equipment to make the baguettes

    1. lol!
      “Yif for Bread in a Jiff!”

  6. Jon Murphy

    Yay magic!

    I figured somebody here might as well comment on the video.

    1. geeze.. what a “buzz killer”…

      :-)

      1. Jon Murphy

        That is why they call me Buzz Killington!

    2. I watched too many of those shows that illustrate how those magic tricks are done to be impressed. Also probably why I’m not impressed by Congressional Magic Math.

      1. Jon Murphy

        No child-like sense of wonder, Methinks? I will have to take you to a show in Las Vegas! It’s an amazing thing: I give them my money, they give me bits of plastic. I put the plastic on random numbers, then the plastic disappears.

  7. first thing I thought of when viewing the video is that it had somehow been photo-shopped or equivalent.

    While Prof. Perry found it enthralling.. I found it fakey.

  8. Wow, that’s almost as magical/illusory as what Krugman and company do with statistics.

    1. *like*

        1. Thanks for that link to Charting Fun with Krugman

          Good stuff!

  9. PeakTrader

    Methinks, economics isn’t simple. Yet, our understanding improved substantially, including at the macro level, in the 20th century.

    Also, the Fed has been attempting to spur spending and borrowing with low interest rates. We learned from the Great Depression (and mathematical models) that tightening the money supply (e.g. to maintain a gold standard) causes people to save (see Paradox of Thrift). Moreover, higher interest rates will dampen “animal spirits” (of households and firms) resulting in both slower nominal and real growth.

    1. The only thing that has improved is your capacity to delude yourself.

  10. PeakTrader

    I see the blame Bush mentality is still strong.

    Yes, defense budgets as a percentage of GDP were relatively low under Bush, who won two of the most decisive wars in history (defense budgets hit a low under Clinton, after Reagan won the Cold War).

    Also, budget deficits normally increase in recessions, e.g. 2001, and by 2007, the budget deficit shrunk to $161 billion.

    Moreover, entitlement spending helped Bush win a close election in 2004.

    1. the question never answered is how much, what percent of our tax revenues should be spent on DOD?

      this is a simple question.

      it does not involve GDP or the historical machinations.

      It’s simple. It’s to the point in terms of what we can afford.

      and no answer is forth coming.

      We current take in about 1.5 trillion total in taxes.

      how much of that should go to DOD/National Defense?

      1. PeakTrader

        Larry, if U.S. real GDP was $1 trillion higher in 2012, how much of that, if any, should go to defense spending?

        1. @peak

          no GDP. It’s bogus.

          what is REAL is how much we actually take-in in revenues.

          that’s the real bottom line.

          playing with GDP is just evading the reality of the real numbers.

        2. no GDP. It’s bogus.

          what is REAL is how much we actually take-in in revenues.

          that’s the real bottom line.

          playing with GDP is just evading the reality of the real numbers.

          You are confused as usual. The question you want to ask is:

          “How much of my income should I spend on defense?”

          not:

          “How much of the money I spend on government services should be spent on defense?”

          1. no.. as usual you want to make this about ideology.

            my point is a simple one.

            you have to recognize how much money you actually have to spend – and you have to decide of that amount how much you can afford for different things.

            this is independent of ideology.

          2. no.. as usual you want to make this about ideology.

            There is absolutely no ideology in my last comment unless you think mentioning “government services” is somehow ideological.

            Do you enjoy disagreeing with statements that aren’t even in dispute?

            you have to recognize how much money you actually have to spend – and you have to decide of that amount how much you can afford for different things.

            The amount of money you have to spend is directly related to your income, Larry.

            this is independent of ideology.

            It certainly is.

      2. “We current take in about 1.5 trillion total in taxes.”

        Who is we, Larry, are you involved in taking in taxes?

        1. “we” Ron as in “we” the country.

          the more important point is how much the govt actually receives in tax revenues – a necessary starting point when subsequently discussing spending.

          no “illusions” or “magic” …necessary or needed.

          :-)

          1. ““we” Ron as in “we” the country.”

            Typical collectivist nonsense. Do you mean “How much do we take in from ourselves?

          2. re: ” Do you mean “How much do we take in from ourselves?”

            how much “we” have agreed “collectively” to be taxed for paying for the things we want.

          3. how much “we” have agreed “collectively” to be taxed for paying for the things we want.

            We have not agreed and we haven’t indicated what we want. You must mean some group of people who think they speak for we.

            In any case, asking how much we want to spend on defense based on our income isn’t the same as asking how much of the amount we are taxed we want to spend on defense.

            I don’t really expect you to understand the difference, as you are confused by the whole concept of we.

          4. re:

            ” We have not agreed and we haven’t indicated what we want. You must mean some group of people who think they speak for we.”

            Oh but “we” have because “we” have followed in chapter and verse how our Constitution specifies how we are to decide such issues.

            :In any case, asking how much we want to spend on defense based on our income isn’t the same as asking how much of the amount we are taxed we want to spend on defense.”

            so? the point is that we agree to be taxed to pay for the things we want but we have not prioritized or allocated based on how much revenue we have actually generated – and instead play this silly and bogus percent of GDP game.

            If you did that kind of thing in your home budget – you’d go broke.

            We have to be looking at how much revenue we have available AND we have to decide what percent we want to go to different things and when total revenue varies, it get’s divvied up according to those percentages not some bogus GDP metric that has nothing to do with how much you actually have available to spend.

            “I don’t really expect you to understand the difference, as you are confused by the whole concept of we”

            I well understand – so well in fact, that it’s downright bizarre that we have folks who bill themselves as free market wizards who do not accept simple things like how much you have available to actually spend and go off on these wild-assed theories that are about as disconnected from reality as you can get.

            you “theory” guys are a menace to the real world.

        2. Oh but “we” have because “we” have followed in chapter and verse how our Constitution specifies how we are to decide such issues.

          Chapter and verse? Even you must understand that isn’t true, but it’s OK, Larry. as I wrote, I don’t expect you to understand this stuff. You have never shown so much as a glimmer of awareness of a world beyond what you think you already know.

          Th

          :In any case, asking how much we want to spend on defense based on our income isn’t the same as asking how much of the amount we are taxed we want to spend on defense.”

          so? the point is that we agree to be taxed to pay for the things we want but we have not prioritized or allocated based on how much revenue we have actually generated – and instead play this silly and bogus percent of GDP game.

          If you did that kind of thing in your home budget – you’d go broke.

          We have to be looking at how much revenue we have available AND we have to decide what percent we want to go to different things and when total revenue varies, it get’s divvied up according to those percentages not some bogus GDP metric that has nothing to do with how much you actually have available to spend.

          “I don’t really expect you to understand the difference, as you are confused by the whole concept of we”

          I well understand – so well in fact, that it’s downright bizarre that we have folks who bill themselves as free market wizards who do not accept simple things like how much you have available to actually spend and go off on these wild-assed theories that are about as disconnected from reality as you can get.

          you “theory” guys are a menace to the real world.

          1. Please ignore everything in the comment above beginning with:

            Th

          2. you “theory” guys are a menace to the real world“…

            LMAO!

            Excellent ron h!

    2. Peak

      Yes, defense budgets as a percentage of GDP were relatively low under Bush, who won two of the most decisive wars in history (defense budgets hit a low
      under Clinton, after Reagan won the Cold War).

      After those executive military actions were won so decisively, why did Bush keep fighting? Why is the US still involved 8 and 10 years later?

      1. Make that 9 and 11 years later.

        1. PeakTrader

          Ron, the U.S. toppled the Iraq government in a few days (or was it a few hours), and sent Saddam, and his two sons, to Allah. Also, the Taliban was toppled quickly and fled to Pakistan.

          Basically, other countries got involved to create civil wars in both countries. So, we decided to defend the new governments.

          1. Basically, other countries got involved to create civil wars in both countries. So, we decided to defend the new governments.

            Who is “we”? I wasn’t consulted, were you?

            It must be comforting to rely on a simple story like that, but the reality is much more complicated.

      2. Bush got Congressional approval for both wars. Unlike Obama v Libya, there was no unilateral Executive action. Don’t mistake my pointing this out as approval for our attempt at nation-building after the wars. I am only pointing out that Bush didn’t act unilaterally.

        1. Nor did he get a declaration of war from Congress as required by law. Congressional approval is meaningless. the Congress alone has the power to initiate military action against other countries, not the President, and Congress has no authority to give up that power in favor of the President.

          Congress can’t just say: “Do what you think is necessary.”

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