For the economic buffs

[Neil D]

Senate OKs bill cutting $70 billion in taxes

The largely partisan 54-44 vote produces an isolated victory for President Bush.

Jill Zuckman | Chicago Tribune

Posted May 12, 2006

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WASHINGTON -- The Senate voted Thursday to extend $70 billion in tax cuts but heatedly clashed over whether the plan would continue to boost the economy and create jobs or would penalize middle-income families in favor of the wealthy and Big Oil conglomerates.

The 54-44 vote, which fell largely along party lines, clears the measure for President Bush's signature. Both Florida senators, Republican Mel Martinez and Democrat Bill Nelson, voted to approve the bill.

The measure would extend dividend and capital-gains cuts for another two years to 2010, and it would protect about 15 million taxpayers from paying the onerous alternative minimum tax for one more year.

It was a rare political victory for Bush, who has staked his presidency on instituting tax cuts to spur economic activity. And it was a relief for Republicans in Congress who have been stymied this year by internal divisions over how to address immigration, the annual budget and rising gasoline prices, among other issues.

In a preview of the political battles to come this fall, one Republican after another ticked off statistics showing increased home-ownership rates, low unemployment, rising income and a bump in government revenue. And they chalked it up to tax cuts begun in 2001 under Bush's leadership.

"We have an economy that is producing rivers of cash into the Treasury," said Sen. Robert Bennett, R-Utah. "Why in the world would anybody want to interrupt all this?"

However, Democrats argued just as ardently that Republicans were making a grave political mistake by favoring the well-to-do over the middle class.

Sen. Barbara Boxer, D-Calif., noted that a person who earns more than $1 million a year would get a tax break worth $41,977.

"Well, you might say, 'What does someone who earns $41,000 get back?' $46. Not even enough to fill up your gas tank in some cases," she said. "Whose side is the Senate on?"

Although the legislation is less than Bush had hoped for -- he wanted to make the tax cuts permanent, rather than just extending them -- it was nonetheless a notable success.

The tax cuts will now expire in the middle of his successor's term, and the political pressure will likely be great to extend them again.

The vote also gives Republicans something to brag about with six months to go in an election season that has provided precious little good news.

Nevertheless, Democrats promised to wield the issue against Republicans in midterm-election campaigns. Sen. Charles Schumer, D-N.Y., the chairman of the Democratic Senatorial Campaign Committee, noted that Republicans decided to drop a provision allowing Americans to deduct up to $4,000 in college-tuition costs worth $4.5 billion.

Instead, Schumer pointed out, Republicans included a tax break for oil companies worth $4.3 billion despite the industry's record profits.

"The choice is stark and clear -- Big Oil or middle-class families," Schumer said. "The Republican Congress chose Big Oil, and that's why voters want change."

The rest of the economic story

[Dr. Shane]

The tax cuts will help maintain the current economic growth, which is good for everyone. This is especially needed due to increased fuel costs.

I wouldn't be opposed to tax increases, even though it would mean a sacrifice for everyone, as long as they were matched with budget cuts. I am opposed to taxing more and spending more.

[Gregory Matthews]

This bill is a mixed bag.

It clearly contains some tax cuts that are needed, and good for us.

But, it also contains some that, in my opinion, are counter-productive, and should not be passed.

On the whole, to save the good, we need the bill passed which has happened.

[Bravus]

Spurring economic growth is exactly the wrong thing to do right now, because with the oil prices the big risk is inflation. Inflation will mean the Fed raises interest rates, contributing to the already very visible slowing of the housing market, and potentially leading to a lot of foreclosures and a potential recession. Literally (take it from an economics buff) the last thing the US economy needs right now is stimulation.

[Dr. Shane]

I am not that familiar with the bill just passed so someone will need to fill me in. Did it actually cut taxes or extend the tax cuts already in place? I thought we were just extending the tax cuts already in place.

I think we have pretty low taxes now.

[Dr. Shane]

</font><blockquote><font class="small">Quote:</font><hr />

Well, you might say, 'What does someone who earns $41,000 get back?' $46.

<hr /></blockquote><font class="post">

I earn a little more than that so let me say what I get. A JOB! If these tax cuts keep the economy moving I stay employed. If construction slows down my $41,000 disappears as soon as I am laid off.

[there buster]

</font><blockquote><font class="small">Quote:</font><hr />

Spurring economic growth is exactly the wrong thing to do

<hr /></blockquote><font class="post">

You heard it here, first, and from a self-avowed "economics buff."

(singing) "Still Keynesian, after all these years."

[Bravus]

<img src="/adventist/images/graemlins/wink.gif" alt="" /> Not always, I should emphasise, just now. ...and it's useful to note that the arguments in favour of tax cuts, both here and from the admin, have been based on their stimulatory effect, not on the fiscal conservative notion that tax cuts are a good in themselves. So the charge of Keynesianism may apply better to the President than to me...

[Neil D]

</font><blockquote><font class="small">Quote:</font><hr />

I earn a little more than that so let me say what I get. A JOB! If these tax cuts keep the economy moving I stay employed. If construction slows down my $41,000 disappears as soon as I am laid off.

<hr /></blockquote><font class="post">

Ooooh....I "get a job"...IOWs, I should be grateful to barely make a living, so keep my mouth shut and don't make waves....

Ooookay....So much for the land of the free...I am now reduced from worker to slave, eh?

In beekeeping, there was a trend around the turn of the 1900s to make bees larger then their native state. They did this by making wax foundation larger than their native wax foundation. The thought behind this was a larger bee, brings home more nectar, reducing trips and conserving energy of the hive. The result of this philosophy went on for decades, to even today. The result has been the devestation of the bee thru suceptability of a mite which infects the hive with other diseases, ie foulbrood et al.

There is now a movement within the beekeeping industry using smaller foundation, resulting in smaller bees, but more of them such that the results are about the same in quanity of honey,...with less susceptability to mites and other bee diseases.

What does this have to do with jobs and the economy? If my economic foundation is wrong, I will be susceptable to all sorts of problems, regardless of what I do.

And just because I cater to the big-wigs [aka drones], doesn't mean that they make up the whole ecomony. If I don't take care of the workers, the whole hive is gonna collapse...

[there buster]

</font><blockquote><font class="small">Quote:</font><hr />

Not always, I should emphasise, just now.

<hr /></blockquote><font class="post">

Sorry, it's still wrong.

Increased economic growth provides us with more actual value (goods and services) to trade for increasingly valuable (because of scarcity) oil. That does not result in inflation.

Actual economic growth can only be bad in some Malthusian vision of the world.

Simply increasing the money supply without corresponding economic growth would result in inflation. But real economic growth, while it may increase demand on some commodities and thus increase their price, does not increase inflation.

The other ridiculous notion hiding in the growth=bad idea is that allowing people to keep what they produce represents some sort of governmental expenditure.

What do you suppose will happen to the money if government confiscates it in taxation? Will any congress, of any party, just sit on it? No. They'll spend it.

Taxation doesn't reduce the total supply of capital, it just changes who spends it. And because government spending is necessarily inefficient and wasteful, the money is spent in ways which do not produce optimum growth.

So--contra Keynes--when government spends money, it doesn't produce as much economic growth as when private individuals spend it.

Using taxation to restrain real economic growth and keep the economy from "overheating" is the economic equivalent of bleeding a patient to reduce a fever.

The notion that tax cuts represent some form of government expenditure and thus a "stimulus" is very Keynesian.

Both eating healthy food and taking drugs will "stimulate" the body. That doesn't mean the effect is identical, nor that both are equally beneficial.

[Bravus]

</font><blockquote><font class="small">Quote:</font><hr />

The notion that tax cuts represent some form of government expenditure and thus a "stimulus" is very Keynesian.

<hr /></blockquote><font class="post">

Nope, tax cuts are not government expenditure, they are an increase in private expenditure, and you just laid out the case quite elegantly that that will lead to more growth than if it were spent by the government. It's not my position at all that growth is bad, but it must be real growth (as you described and assumed). Much of what has been driving the US economy is fake growth - in property prices due to a speculative bubble and massive personal debt levels and in fuel prices (with all their knock-on effects for the whole economy) for a number of reasons including the hurricanes. Those pressures are tending toward inflation, which is why it's a good time for caution in providing further pressures.

Let's simply recognise that both of us are bringing quite a bit of ideology to the table as well as our economic buffery, yeah? <img src="/adventist/images/graemlins/wink.gif" alt="" />

[Dr. Shane]

</font><blockquote><font class="small">Quote:</font><hr />

Using taxation to restrain real economic growth and keep the economy from "overheating" is the economic equivalent of bleeding a patient to reduce a fever.

<hr /></blockquote><font class="post">

If taxes were raised to pay down the debt, much of which is held by forgien nations, than it would impact the GDP unless those forgien nations reinvested the money into the US economy. So if tax increases were used to pay down the debt they may actually slow the economy down.

If taxes increase and spending also increases than it is simply a matter of the capital being spent by the government and not the private sector which will normally benifit one sector of the economy at the expense of another sector of the economy.

[Dr. Shane]

</font><blockquote><font class="small">Quote:</font><hr />

Much of what has been driving the US economy is fake growth - in property prices due to a speculative bubble and massive personal debt levels and in fuel prices

<hr /></blockquote><font class="post">

I don't see the growth as much different than at other times in the nation's history when the government ran deficits to stimulate the economy.

Personal debt certainly is a driving force. I doubt most people aquire more than 2% of their annual income in credit card debt each year. That would mean someone making $30K/year would add $600 in unpaid credit card debt each year. If their income doesn't keep increasing at a greater rate they will find themselves unable to stay on top of the building debt.

I am also not sure the housing bubble is driven by speculation? Although speculation is what drove the high-tech sector in the 1990s and the market eventually corrected itself which sent us into a recession.