How do you reconcile decreased taxes and increased deficit?

Question

In other words, if raising taxes will eventually increase the deficit, it is a bad thing. But what if you lower taxes AND increase the deficit? Does stimulating the economy really do anything, except pay off your out of control spending? Bush, I'm looking in your direction...

Answer 1

Or decreasing taxes during a war? It's never been done, you know.

Lower taxes lead to lower revenues. Don't let them fool you with their voodoo economics supply side theories. Reagan gave up his tax cut theory after a couple of years. But he was more honest than these neo con guys.

Answer 2

Well, they planned on a 1 trillion dollar deficit for this fiscal year that just ended. But the tax revenues because of investments in the markey, made possible by those tax decreases, actually drove down the deficit by producing 700 million dollars in unexpected taxes.

Stimulating the economy can work if it is permanent increase. Temporary increases, such as the dotcom balloon is bad because it decreases market value and tax revenues. Meaning some people make a quick buck and everyone else gets stuck paying the bill. But a short term correction, such as the occurred following the S&L scandals, can be weathered well because investments will increase once confidence returns.

The government has a duty to protect the economy of the country, but the way it is doing so, a wartime economy coupled with deficit spending is a dangerous game. When the war ends the economy will slow naturally, but the infalted economy based on the deficit spending also has a natural life cycle. If the two ends of the cycles happen simultaneously no amount of magic by the Feds will keep the country out of a recession.

Witness the recession during Bush Sr's administration. It is commonly believed that was caused by tax increases which lowered the revenues, combined with people pulling out of the market. But that is only part of the reason, the other part was the cooling of the economy after Reagan era deficit spending.

So the short answer is no, the stimulation of the economy is being used to pay off the deficit spending and nothing more. If the economy is able to soft land after the two main factors affecting its success are over then the US will be in a very good position. But if consumer confidence wains, or something like a tax increase causes people to withdraw from the market the economy will hit the ground at terminal velocity.

Answer 3

Again, to a certain degree, lowering taxes DOES stimulate the economy. Even JFK proposed a tax cut to stimulate growth.

Here's an analogy which may seem trivial but it illustrates the point. If you owe someone an acorn and you have one, you could give it to them right away. Or you could plant it and get a tree that produces many acorns. Even if you owe three acorns by the time you pay them because of interest, you can pay them more easily and still have some left over. Again, lots of issues with the analogy but that's the idea.

I would like to see spending decreased a great deal. I also would like some cap on the highest percentage of income taxed. I'd say a third should be the highest bracket. I think right now we're at 35% or 39% - so we're failry close.

I know we're sort of talking past each other - basically it might just be a difference of opinion on where we are on the curve. You're not proposing an 80% tax, and I am not proposing a 5% tax. Forgive me for repeating myself. You'll get no argument from me on the basic fiscal irresponsibility of our government, though. I feel like I have to choose between bad and worse.

I think Crusader has it right. No matter how many dollars come into the government, the Congress always spends more than it receives. Some would say that even assuming increased revenues from increased taxes (again, a dodgy proposition), it would NOT go to deficit reduction, just to increased wasted spending.

Some states, like Massachusettes I believe, actually have line entries on tax returns so that citizens can voluntarily pay more tax than is required. Hope springs eternal.

Answer 4

Well, you have to look at taxes and spending both.

It's no secret that the benefits of lowered tax rates has a longer term net benefit. If all else stays the same, there is necessarily an increase in the current, short term, budget deficit, because you are reducing current revenues.

However, because the benefits of lower marginal tax rates have the effect of stimulating economic activity, after a few years, this economic activity comes back as increased income tax receipts, as we are seeing now.

The budget deficit, however, is also affected by spending. And there were significant spending increases. The War on Terror, No Child Left Behind, the Medicare Prescription coverage, etc. all increased spending. Add to this the automatic annual increase in federal budget items, an increase well over inflation, and you have outlays also increasing beyond revenue.

Add these 2 together, plus the decreased revenues from the economic hits of the 2000 dot.com bubble burst and the 9/11 attacks, and you have huge deficits occurring because of the double whammy of increased spending and decreased revenues.

Now, if there hadn't been a tax rate reduction, we may hypothesize that the economy would not have been stimulated, and would not have recovered as quickly. Even if we did not respond to 9/11, our economy would have gone down and our deficits would have been a little smaller at first, but would they have been cut as quickly as they are now?

Tax policies have effects on the economic growth in the long term.

Answer 5

The HuffPost article assumes that if the Bush tax cuts are allowed to run out, the gross sales getting into the Treasury will boost by way of the quantity by which those sales could boost as a results of the restoration of pre-Bush tax costs. that's a handy yet unrealistic assumption. Many economists have anticipated that our funds deficits will balloon to a minimum of $a million trillion a twelve months if Obama's proposals are applied. The sales will pass down via fact traders might have much less incentive to take investment adverse aspects and the government would be taking extra money out of the interior maximum, effective sector of the economic gadget to spend on social welfare classes. that's a minimum of fresh to make certain the HuffPost even pointing out that Obama's plans ought to push the deficits as much as checklist ranges.

Answer 6

Everywhere that taxes has been reduced, tax revenues has always increasd ex Kennedy, Reagan , Bush, the problem is not tax cuts but spending , because so much more money start pouring in, the government goes on spending sprees. If increase taxes created more revenue then Macy's would be the largest retailer in the country instead of Walmart.

Answer 7

I can not speak for Bush. He is a carbon copy of Reagan on taxes. Even Reagan's own economist told him he was wrong to assume growth would off set cutting taxes for the wealthy. They cited "uncertainty" in the growth as a factor that could not be predicted years down the road. Clinton has a surplus all 8 years. Clinton even paid down the debt. twice. Clinton was a conservative. He always paid for his new programs with cuts in other programs. The Republicans cut taxes, Just like under Reagan. Cutting taxes for the wealthy in America. This decreased federal income. The Republicans also made Government bigger not smaller. With no cuts a deficit is now projected out 10 years of $9 trillion. The interest on that debt will eat tax payers alive. Republicans wanted to wait til after elections to tell the Americans what they would cut. After elections Republicans will try again to end Social Security as a way to fix the mistakes of the past. Republicans call ending S.S. "privatization". It's the same as end.

Answer 8

The problem isn't decreased taxes but increased spending. 2005 was a record revenue year for the IRS BECAUSE of the tax cuts rather than in spite of them. Unfortunately, every time the IRS gets more money in it's coffers Congress goes on spending sprees to make sure they fill the pockets of those who will keep them in power.

Answer 9

revenues are down when compared to the gnp of the nation so I must say the new math bush uses is terrific for selling people things they can not afford to buy into .Like the national debt growing larger under bush then at any time in history .When you discount the revenue generated from military spending which is a debt for all americans then you have extrem debts and lower revenues then at anytime in history since 1936 .
Get a grip america and tell me some more lies about how well things are doing .

Answer 10

Quite a thought provoking question. Common sense would dictate that if we can afford to give tax breaks (mostly to those making well over six figures), that our deficit was was steadily declining.
Small scale example: When your monthly budget falls into the negative, do your kids still get their allowance? Maybe I miss understood the question, but you've certainly given me something to think about. Jon, exactly who the heck does the Dow really effect?!