09-02-2003 09:55									#31
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Never mind the fact that grauated taxation levels are right out the window with that idea, unless you're willing to apply some sort of enormously complicated luxury tax scheme...

There are ways of changing that. Everybody could get a flat subsidy against consumption taxes from the gov't.

Can't say as I'm enamored with the approach. But if the studies tell us that our tax system is killing growth, we are obliged to consider alternatives. Bush's economists are telling him that removing capital taxes may increase economic growth by up to .5% per year. Even if the poor take a slightly higher burden under this system, they will also share in that compound growth.

Last edited by DanS on 09-02-2003 at 10:03

	09-02-2003 10:02									#32
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I don't think our tax system is killing growth. There is plenty of money in the economy already. We don't need to give rich people more money. I think the economy would grow much more if we did more to keep wages high. This would stimulate more investment.

	09-02-2003 10:04									#33
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I think we should remove all taxes on bananas.

-=Vel=-

	09-02-2003 10:07									#34
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I don't think our tax system is killing growth

What is your backup for that?

	09-02-2003 10:10									#35
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Dan, wouldn't that do more to harm growth?

One of the major problems of modern economies is not overspending by consumers but rather underspending, leading to lowered employment (i.e. if everybody spent more then there'd be more all around since more unemployed would be working). And a consumption tax goes completely against that.

IMO, all sales taxes should be completely dumped and the only source of taxes should be income-based (I'm including corporate income taxes here).

This is especially true in recessionary environments, and Bush's plan is therefore completely illogical when applied as a short-term remedy. So when he tries to sell it as one, it annoys me.

	09-02-2003 10:15									#36
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There are, of course, brief periods of overspending (the booms), but these seem to require extreme amounts of government stimulus (either public works or almost free credit). Which would suggest to me that the default mode of operation is undercapacity.

	09-02-2003 10:17									#37
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Well you know my favorite is a wealth tax. Well actually I'm against capitalism altogether.

Anyway, I admit that income tax does a negative effect on the economy. However, I have to say that a flat tax would destroy the economy it you didn't have some way to get lower income people to spend money. If you had some rebate in addition to increase peoples income than fine.

Just a straight flat tax will kill spending. You just wont get any growth in the economy with decreasing profits. Businessess wont invest when profits are decreasing.

	09-02-2003 10:20									#38
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Dan, wouldn't that do more to harm growth?

Two items: (1) consumption taxes; and (2) Bush's cuts in capital taxation.

#1 -- I don't know enough about it.

#2 -- Bush's economists (Hubbard) are telling him that reducing capital taxation could result in up to 0.5% increased economic growth per annum. That's why Bush is proposing it.

	09-02-2003 10:23									#39
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I don't know.

Remember how high price/earnings ratios are right now?

That suggests to me that increased capital spending will provide marginal benefits, while the decreased consumer spending that accompanies it (there's only a finite amount of money out there at any instant) will do more harm.

	09-02-2003 10:24									#40
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quote: IMO, all sales taxes should be completely dumped and the only source of taxes should be income-based (I'm including corporate income taxes here).

Then the states would have no revenues (that is where they get a lot of their money). They ain't giving that up.

	09-02-2003 10:26									#41
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Remember how high price/earnings ratios are right now?

Yep. They're becoming reasonable.

	09-02-2003 10:27									#42
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Yeah, but what this does is encourage them in the opposite direction. Which might be good for 401k portfolios and politicians who want to point to high indexes as proof of their success, but which has less concrete meaning.

	09-02-2003 10:31									#43
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And even if you assume that this is not an unavoidable situation given the amount of money invested, the population and our level of tech. advance, you have to see that in the intermediate future (20 years) it's going to remain a substantial problem given the demographics (IIRC the "average" boomer would be in their mid-40s now...which is crunch time)

	09-02-2003 10:38									#44
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First off, let's let the market take care of itself. Secondly, Bush has been pretty uncynical about this. He is leading with the exceptionally unsexy argument that it will increase economic growth, when the infitely more popular 9% expected equities price increase is what gets everybody's rocks off.

	09-02-2003 10:41									#45
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The more cynical among us would claim that Bush doesn't have to preach to the converted (stockholders) but rather to the ones who are rightfully wary of this (Joe Sixpack).

	09-02-2003 10:43									#46
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And looking for high stock prices as an easier means to political points than a healthily functioning economy isn't a fault I'm ascribing solely to Republicans...

	09-02-2003 10:44									#47
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Haven't you heard? Joe sixpack is a shareholder now.

	09-02-2003 10:46									#48
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Not yet, Dan.

And the fact that he's closer to being one than 10 years ago was part of what I was thinking about when discussing overcapitalization...

	09-02-2003 10:47									#49
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You can't deny that the poorer segments of society derive more income through labour and the richer segments derive more income through capital investment, right?

	09-02-2003 10:47									#50
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Not yet? I think it's something like 55% now. At least in the US.

	09-02-2003 10:48									#51
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See above post.

	09-02-2003 10:50									#52
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How many of those 55% would benefit more from the wage increases deriving from, say, a half-point drop in unemployment than they would from a 9% increase in the value of their portfolio?

	09-02-2003 10:51									#53
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and the richer segments derive more income through capital investment, right?

Actually, in the US it's not quite so marked. Definitely different than in Europe.

	09-02-2003 10:54									#54
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Really don't know about the differences across the seas, Dan. Just know how things work here.

Now, remember that in terms of this discussion stock options &c. are covered more appropriately by capital investment than by labour...

	09-02-2003 11:00									#55
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How many of those 55% would benefit more from the wage increases deriving from, say, a half-point drop in unemployment than they would from a 9% increase in the value of their portfolio?

The drop in unemployment is a short-term phenomenon. The 9% increase is a long-term effect discounted to the present. So you're talking apples and oranges.

Edit: to see how the 9% price increase is derived, keep in mind that corporate earnings growth tracks economic growth. So plop in a .5% increase in your earnings into your discounted cash flow model et voila, the value is 9% more.

	09-02-2003 11:16									#56
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quote: Originally posted by DanS How many of those 55% would benefit more from the wage increases deriving from, say, a half-point drop in unemployment than they would from a 9% increase in the value of their portfolio? The drop in unemployment is a short-term phenomenon. The 9% increase is a long-term effect discounted to the present. So you're talking apples and oranges. Edit: to see how the 9% price increase is derived, keep in mind that corporate earnings growth tracks economic growth. So plop in a .5% increase in your earnings into your discounted cash flow model et voila, the value is 9% more.

But the government and the Fed haven't done much to stimulate wage growth in the long run. Wage growth doesn't have to be a short run goal. The thing is when you keep upward presure on wages you get good benefits.

	09-02-2003 12:03									#57
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Look, I don't give a flying **** if cutting/eliminating capital gains taxes, inheritence taxes, and things of like help the economy or hurt it. The point is, those taxes are inherently unfair, because they are double taxation. Granted, all taxation is unherently unfair, but double taxation is even worse. Couldn't care less what economists say about it, I only care what's right - and getting rid of these taxes is one thing I applaud Bush for.

	09-02-2003 12:24									#58
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Well sorry to be contrarian but I think that the US is desperately in need of more saving and less consumption.

Long-term GDP growth is very closely related to the growth in the capital stock, and the growth of the capital stock is closely related to net investment (that's total investment less depreciation).

On average the trend rate of growth in GDP has been 0.5% higher than the growth in the capital stock (for the period 1986-2001, and the gap fluctuated very little with a high of 0.9% in 1991 and a low of 0.3% in 1989).

The capital stock (which grew at 2.9% between 1995 and 2000) rose by 2.5% in 2001 and by only 1.9% last year.
Even if investment were to boom (rising at 7.5% a year as it did during 1996-2000) then the growth in the capital stock would only stabilize at around 2.5% (equating to a potential GDP growth rate of 3%)
If investment follows the path most forecastes expect it to (2% rise this year followed by 5%-6% thereafter) then capital stock growth with gradually fall to 1.5% (equating to potential growth in GDP of only 2% a year)

But another trouble is that the US is not saving anything like enough to finance this much needed investment, indeed it isn't even saving enough to meet the low investments it's currently making.
The difference between what a country saves and what it invests is equivalent to the current account balance, last year that was nearly half a trillion dollars.
If the US only invested what it was saving then the capital stock would only be rising at around 0.5% a year (equivalent to a potential growth rate of only 1% a year!, which would mean no growth at all in average incomes).
As such it can be stated that the US depends upon foreign financing to deliver all of the rise in it's living standards!

With the dollar falling (partly as a result of the world investment community realizing that the returns to be made in the US are not as great as was previously thought) sustaining that near half trillion dollars of imported capital will be difficult so US savings have to rise substantially or the US will see the same collapse in it's sustainable growth rate that Japan has done over the last decade.


Yes, this might mean some pain, and yes it may fall disporportionately on the backs of the poor - but the alternative to some pain now is stagnation.

	09-02-2003 12:52									#59
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quote: Originally posted by David Floyd Granted, all taxation is unherently unfair,

BullSHIT and you know it.

	09-02-2003 12:55									#60
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You know, the motto was "no taxation without representation", but I get the feeling Floyd thinks you should be able to opt out of the representation part in order to get the no taxation bit.