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Thread: The US Recovery

  1. #661
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by JAD_333 View Post
    Dor

    I've been wondering how we can cut corporate income tax rates nearly in half and give the middle class a tax cut, and still continue to reduce deficit spending. Somewhere I read that increased oil output would bring in lots of revenue. That doesn't seem like an adequate offset.


    Edit: Speaking of a corporate tax cut, I also read that it could boost GDP to over 4%. If true, tax revenues would get a boost, but whether great enough, who knows.

    JAD_333
    ,

    Once upon a time, a very charismatic president from Southern California convinced people that cutting corporate tax rates would result in so much new investment that tax revenues would go up so much that personal tax rates could also be cut. This fairy tale is called “Voodoo Economics.”

    Lo, and behold, when the corporate honchos got their tax breaks, they plowed the money into financial engineering, off-shore investing and bigger paychecks for themselves. With the economy starved for investment and high unemployment, government tax revenues stalled. But, nevertheless, Our Hero poured billions into national defense against a collapsing Evil Empire.

    Over eight years, the budget deficit (and, as a result the national debt) was three times as large as in the previous 16 years.

    When the adults got home, they said “enough of this shit,” and put the economy back on an even keel. At least, until the next time small boys with even smaller electoral margins get their tiny hands on the economy.

  2. #662
    Senior Contributor Doktor's Avatar
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    Interesting observation. Both charismatic leaders increased debts by 20 percentage points.

    Barack Obama: Added $7.917 trillion to the debt and didn't beat anyone, let alone an empire (of course it's eveil, why else would one fight it?), but killed OBL. (Yay! Also, he just doubled the debt)

    Ronald Reagan: Added $1.86 trillion, 186 percent increase.

    But, what do we have here?
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    No such thing as a good tax - Churchill

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  3. #663
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by Doktor View Post
    Interesting observation. Both charismatic leaders increased debts by 20 percentage points.

    Barack Obama: Added $7.917 trillion to the debt and didn't beat anyone, let alone an empire (of course it's eveil, why else would one fight it?), but killed OBL. (Yay! Also, he just doubled the debt)

    Ronald Reagan: Added $1.86 trillion, 186 percent increase.
    In the first two years of Reagan’s Administration (1981-82), revenues averaged 18.6% of GDP and spending 21.7%. In the last two years (1987-88), 17.4% and 20.4%. That’s a 44.9% nominal rise in revenue, and a 45.3% rise in spending. Real GDP rose 0.3% p.a. in the first two years, and 3.8% p.a. in the last two.

    In the first two years of Obama’s Administration, revenues averaged 14.5% of GDP and spending 23.7%. In the last two years, 17.9% and 20.7%. That’s a 52.7% nominal rise in revenue, and a 8.1% rise in spending. Real GDP fell 0.1% p.a. in the first two years, and rose 2.1% p.a. in the last two.

    Economic growth dictates revenues; policy has only a small role to play and takes a long time to kick in. Spending is also a lagging policy indicator, since money isn’t dumped into the economy (out of the Treasury’s coffers) on the day a new approach comes into play.

  4. #664
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    and hate to say this over and over...but also need to account for mandatory spending vs discretionary spending.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

  5. #665
    Senior Contributor Doktor's Avatar
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    Quote Originally Posted by DOR View Post
    In the first two years of Reagan’s Administration (1981-82), revenues averaged 18.6% of GDP and spending 21.7%. In the last two years (1987-88), 17.4% and 20.4%. That’s a 44.9% nominal rise in revenue, and a 45.3% rise in spending. Real GDP rose 0.3% p.a. in the first two years, and 3.8% p.a. in the last two.

    In the first two years of Obama’s Administration, revenues averaged 14.5% of GDP and spending 23.7%. In the last two years, 17.9% and 20.7%. That’s a 52.7% nominal rise in revenue, and a 8.1% rise in spending. Real GDP fell 0.1% p.a. in the first two years, and rose 2.1% p.a. in the last two.

    Economic growth dictates revenues; policy has only a small role to play and takes a long time to kick in. Spending is also a lagging policy indicator, since money isn’t dumped into the economy (out of the Treasury’s coffers) on the day a new approach comes into play.
    Nothing to say for the average GDP growth? I thought both had 8 years in office, why cherry-picking?
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  6. #666
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    Doktor,

    if you like, here's a fairly even comparison that goes into some detail.

    https://www.bloomberg.com/view/artic...cord-stacks-up

    i still don't think this gives Obama enough credit, because it factors in an one-year lag time between administrations. this makes sense for regular transitions, such as from HW Bush to Clinton or Clinton to Bush, but given the economic situation of january 2009 and the tremendous amount of work that was done in the first year of the Obama administration, it's very clear that the Obama administration deserves a significant portion of the credit (with Bush getting some as well) for preventing a full on global depression vice a severe recession.

    Obama came into office with a far worse economic picture than Reagan did. far harder to recover with tens of trillions of dollars of wealth evaporating overnight.
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

  7. #667
    Global Moderator Defense Professional JAD_333's Avatar
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    Quote Originally Posted by DOR View Post

    JAD_333
    ,

    Once upon a time, a very charismatic president from Southern California convinced people that cutting corporate tax rates would result in so much new investment that tax revenues would go up so much that personal tax rates could also be cut. This fairy tale is called “Voodoo Economics.”

    Lo, and behold, when the corporate honchos got their tax breaks, they plowed the money into financial engineering, off-shore investing and bigger paychecks for themselves. With the economy starved for investment and high unemployment, government tax revenues stalled.

    Dor:

    I think it's misleading to argue that repatriation of corporate profits held "overseas" at less than the corporate income tax rate is wrong. Granted much of the money will go to dividends and stock repurchases, and yes, investors will be the initial beneficiaries. But it's not like the money goes down a rat-hole never to be seen again--and with no economic impact. It will eventually be spent purchasing goods and services, show up as capital to finance new and expanding companies, and go toward federal and state taxes on capital gains.

    But more to the point, repatriation has nothing to do with Voodoo or trickle-down economics, because the money is brought here voluntarily. In fact, repatriation is the wrong word for it. The companies do not have to bring the money to the US ever. Consequently, the US has lost nothing; it just hasn't shared in those overseas profits. Nevertheless most US companies see advantages in bringing the money to the US, but won't at the current corporate tax rate of 35%. A repatriation tax remedies that by acting as an incentive for corporations to bring those profits here. If one happens this year as expected, upward of $2.1 trillion will return to the US, yielding tax revenues of more than $100 billion, assuming most of the $2.1 trillion in profits held overseas are brought home.

    You would be right about Voodoo (trickle-down) economics only if 2 conditions were met, 1) Congress were to enact a permanent reduction in the corporate tax rate simultaneously with 2) a major increase in Federal spending. Repatriation doesn't meet that standard.

    The Brookings Institute and any number of other think tanks oppose repatriation. Their argument boils down to 1) it's unfair, which is no argument IMO, and 2) it lets corporations avoid paying income taxes on part of their earning. The latter makes no sense, as corporations that earn money abroad are not obligated to bring any of it home. They could invest it overseas, like Apple did when it bought a $1B share of a Chinese ride-sharing company.


    But, nevertheless, Our Hero poured billions into national defense against a collapsing Evil Empire.
    I disagree. The USSR (or Evil Empire, as you put it) had not collapsed at the time, and while it had economic problems, it had survived worse before. Much of the Reagan build-up was to repair the neglect the military suffered following the end of Vietnam war. In fact, Carter also campaigned on increasing the defense budget. A large portion was earmarked to counter nearly two decades of effort by the USSR to overtake the US in strategic weaponry. But the real significance of the build-up was to demonstrate to the USSR that it did not have the economic resources to overtake the US in an arms race. In the end it was Gorbachev's reforms that caused the USSR to collapse and it didn't happen until 1991, 3 years after Reagan left office.

    Over eight years, the budget deficit (and, as a result the national debt) was three times as large as in the previous 16 years.

    When the adults got home, they said “enough of this shit,” and put the economy back on an even keel. At least, until the next time small boys with even smaller electoral margins get their tiny hands on the economy.
    It sounds like a fairy tale, and it is. In your telling, we should have allowed neglect of defense to continue rather than run deficits to repair it. The problem of deficits is not defense spending and never has been. The problem is the web of social programs and Federal regulations that progressives have created and that soak up a disproportionate share of federal spending. The main task of the central government, as required by the Constitution is national defense. To that end, if necessary we should cut back on mandatory entitlements or, if there isn't a will to do that, then borrow the money to get the job done.
    Last edited by JAD_333; 28 Jan 17, at 03:57.
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  8. #668
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    Quote Originally Posted by Doktor View Post
    Nothing to say for the average GDP growth? I thought both had 8 years in office, why cherry-picking?
    When one uses percent of GDP, the real growth rate is already accounted for. But, if you want more background, Reagan had 4.7% average inflation and 7.5% average unemployment in 1981-88; Obama had 1.4% and 7.5%. In other words, Reagan’s favorite measure, the Misery Index, was 12.2 in the 1980s and 8.8 more recently.

  9. #669
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    JAD_333,

    Can’t say I’ve ever held an opinion on repatriating profits from overseas at less than the corporate income tax rate. And, the difference between dividends and stock repurchases, as you probably know, is tax avoidance. Nothing more, and nothing less.

    Give a rich person a tax break and yes, the money does go down a rat-hole never to be seen again, at least that’s what happens to something like 85-90% of the money. Give a tax break or negative tax to a poor person, and you’ll see something like 120% of the amount spent on goods and services. That’s a real multiplier effect, whereas the Rich Guy tax break has a negative economic effect: his tax break is a huge net loss to the economy. The actual spending may come as part of his children’s retirement.

    But, as I said, I don’t have a view on repatriation. Wasn’t a topic of interest in the Reagan years, so I’m not sure why it’s part of the discussion of Voodoo economics.

    I will agree, however, that the USSR had not yet collapsed in 1981. Hence, my use of the term “collapsing.” Remember Chernenko? And, Andropov? The system was killing itself, quite literally (old men standing in freezing weather for the predecessor’s funeral).

    .

    The year Reagan took office, Defense spending grew 12.7%, or 2.3% in real terms. It shot up to 6.1% (real) and 3.8% in the subsequent two years, then fell to nothing and was negative until 1998. If you want to duplicate my work, take the “Data Underlying Figures” spreadsheet, work out the growth rates for Exhibit 1 and subtract CPI-U inflation.


    DOD budget data are here: https://www.cbo.gov/publication/52156

  10. #670
    Senior Contributor GVChamp's Avatar
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    Tax cuts for the rich for supply-side reasons need to be separated from tax cuts for the rich for demand-side reasons. Economists on the right and the left will agree that tax cuts on high income earners are not going to stimulate demand much in a recession, but economists on the right will still argue that it gives better incentives for investment. Most would NOT agree that cutting taxes will actually increase revenue (that's almost always been a political argument).
    "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

  11. #671
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    Quote Originally Posted by GVChamp View Post
    Tax cuts for the rich for supply-side reasons need to be separated from tax cuts for the rich for demand-side reasons. Economists on the right and the left will agree that tax cuts on high income earners are not going to stimulate demand much in a recession, but economists on the right will still argue that it gives better incentives for investment. Most would NOT agree that cutting taxes will actually increase revenue (that's almost always been a political argument).
    Regardless of the purpose of tax cuts for the rich – supply or demand – the effect is exactly the same: a large net economic loss. In order for a fiscal policy measure to affect the supply side, it needs to be highly focused. Shotgun style tax cuts that shave a few points off the top are worse than useless: the recipient just pockets the windfall and asks for more.

    This is decidedly not the case for fiscal measures aimed at spurring real consumption. And that, my friend, is why Keynesian economics has worked so extremely well for so many decades, and VooDoo economics never has.

  12. #672
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    Economic Update

    Both year-on-year and quarter-to-quarter annualized real GDP rose 1.9% in the final quarter of 2016. The former was the fastest increase since Q-3 2015 (by a mere two one-hundredths of a percent) while the latter was down from 3.5% growth in the third quarter of last year. Domestic demand, in which imports are a contributor and exports a drag on growth, rose 2.1% from a year earlier.

    Inflation, as per the private consumption deflator (said to be the Fedís favorite inflation measure), rose 1.5%, the fastest pace in nine quarters but still substantially below the benchmark 2% rate. Durable goods prices fell 2.1% during the year, about the same as in 2015. Nondurables fell by 1% in price, after a 3.3% drop in 2015. Households paid 10.9% less for gasoline and other energy products in 2016, after a 26.4% drop the previous year. Healthcare cost 1.2% more last year,

    Year-on-year, capital investment (CAP) broke its three-quarter slump to rise 0.4% as all the major subcomponents except investment in equipment and machinery turned positive. Private consumption (PCE) rose 2.8%, the best performance in five quarters. Goods purchases contributed nearly 53% of the rise, with durables accounting for more than 70%.

    For the full year, GDP in this first full-year estimate totaled $18,567 billion, or $52,293 for each of the 324.1 million people. Real growth was 1.6%. PCE rose 2.7%, but capital investment fell 1.5%. Exports crawled up 0.4%, despite a 0.02% drop in services sales abroad. Imports rose 1.1% and as a result, domestic demand increased 1.4%.
    ---DOR

  13. #673
    Senior Contributor Doktor's Avatar
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    Quote Originally Posted by DOR View Post
    When one uses percent of GDP, the real growth rate is already accounted for. But, if you want more background, Reagan had 4.7% average inflation and 7.5% average unemployment in 1981-88; Obama had 1.4% and 7.5%. In other words, Reagan’s favorite measure, the Misery Index, was 12.2 in the 1980s and 8.8 more recently.
    Were they using the same method?
    No such thing as a good tax - Churchill

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  14. #674
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    I do my own calculations, since that's what I do.
    Your results may vary.
    Be sure to show your work.

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    Loan Delinquency Rates

    An interesting look at what's happened to US bank loan delinquency rates, both overall (blue) and consumer (red).
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