AEIdeas

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Discussion: (7 comments)

  1. Bob Zimmerman

    Tom Sowell had a column on Republicans that can talk. The lone example was Chris Christie. Getting by the liberal gatekeepers is not easy, but I have not read or heard any discussion of economic growth and the implications from any candidate. We need to get this conversation started, or we will always be confronted with the false choice of higher taxes or less service.

  2. “d) the late 1990s saw a big cut in the capital gains tax rate to 20% from 28%”

    It seems to me you are implying cut capital gains tax to more investment to more jobs. If so, could this be an example of that not working?

    http://phx.corporate-ir.net/phoenix.zhtml?c=124138&p=RssLanding&cat=news&id=1736060

    Energizer Holdings, Inc. Announces Preliminary Results Of Comprehensive Review Of Cost Structure And Operating Model

    •Reduction of the global workforce; (plus other things)

    Capital gain ENR up $7.30 to $75.22 from $67.92

    Capital gain and less employment.

  3. Larry Duncan

    The average annual growth rate in real GDP, from 1792 – 1922, was 4% when Government Revenue averaged 2.8% of GDP.

    The average annual growth rate in real GDP, from 1952 – 2002, was 3.4% when Government Revenue averaged 18% of GDP.

    A 542% increase in the tax rate resulted in a 15% reduction in economic growth.

    It seems to me that this data indicates that tax rates have no appreciable long term effect on economic growth.

  4. TexasMom2012

    Can we at least try cutting spending, please! Somehow the one time stimulus of $700+ Billion has been added to our base line budget… WTH! This explains our Trillion+ deficits. As a consumer, my family is squeezed from every direction. We are not in the top tax bracket but hubby makes too much for any assistance for my college attending autistic son. Fortunately, we found a degree at a UH satellite that he can earn while living and working at home. Gas prices have not merely doubled for us, they quadrupled because we have double drivers as well. Auto insurance has gone up at least 8 times what it was. Although, hubby gets reliable raises they have not kept up with the rise in food and energy prices. And all those illegal aliens here who do not have to carry insurance because the police and ICE give them a free pass just keep increasing the cost of insurance for the law abiding legal citizen. Not to mention their children get free lunches and free education paid for by my property taxes among other taxes. Budget continues to be squeezed… Can’t fix the hot tub or make unnecessary purchases because we are so restricted by high energy costs and rising food prices. And then the health care boondoggle will gobsmack us in the new year, along with Taxmegedon. Sigh, thankfully we have back up savings but I do not think they will last another for years of Obama.

  5. Greg McIsaac

    I agree with the point that the 1950s and ’60s are not comparable to the current period that were included in the CRS study. But Leonhardt’s analysis focused on the 1990s and 2000s. In explaining the growth in the Clinton years, you invoke

    “b) the ’90s saw a big drop in oil prices, from $23 a barrel in 1991 to $12 in 1998, boosting real disposable incomes;”

    The years you’ve selected don’t correspond to the Clinton years. Using data from the Energy Information Administration, the average oil price when Clinton took office was $27 (in 2012 dollars), peaked in late 1996 at $33, then fell to $13 in late 1998, but then increased to $40 in late 2000. For the most part these prices were low and stable compared to the 1980s and 2000s.

    The oil price declines were far larger during Reagan’s term. Oil prices peaked at $101 in February 1981, and declined to $22 in July 1986 and then fluctuated around $30 per barrel till Jan 1989.

    Because of lower energy prices and efficiency gains, total expenditures on energy in the US declined 5.7% of GDP during Reagan’s term. Tax cuts reduced federal revenues only 2.3% at best. Thus, cheaper energy and more efficient use provided greater increase in disposable income than Reagan’s tax cuts.

    I haven’t seen any serious discussion about this so I wrote about it here:
    http://www.washingtonmonthly.com/ten-miles-square/2012/05/like_president_reagan_obama_or037617.php

    I also note that Feldstein and Elmandorf concluded that the Reagan Recovery of 1983-84 was largely due to monetary expansion and corporate tax changes that favored investment, but not the general income tax cut. http://www.businessweek.com/articles/2012-09-20/do-personal-income-tax-cuts-grow-the-economy-again-no-dot

    Finally, you said nothing about why the Bush tax cuts resulted in relatively anemic growth. You could invoke rising energy prices, in addition to the factors mentioned in Leonhardt’s article or by Bruce Bartlett: http://www.thefiscaltimes.com/Columns/2010/09/17/Bush-Tax-Cuts-No-Economic-Help.aspx

  6. During WWII, post depression, the folks back home made a decent income woring on munitions and other items for the war effort. Unfortunately, there was little they could buy. New cars were not available and even buying new tires for your existing car was difficult at best. Record numbers of families paid off their homes and saved their money. When the war ended they could finally spend. The excessive tax on their income was irrelivent because they were spending savings more than income. During the Clinton years you had the new dot come rich, Dellionares and the like. People who had for years been broke. Now they had more money than they had ever imagined because they worked at Apple, Microsoft, Dell… Whether they had 5 million to spend or 6 million to spend was irrelevant. They never imagined they would have had 1 million to spend. So the fact the Government took and additional 250K didn’t matter. This is why the comparisons to these time periods of high taxes is deceptive.

  7. From the referenced Romer & Romer paper:
    “We also find suggestive evidence that tax increases to reduce an inherited budget deficit do not have the large output costs associated with other exogenous tax increases.”

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