The Instigator
Ron-Paul
Pro (for)
Winning
25 Points
The Contender
TheElderScroll
Con (against)
Losing
12 Points

Austerity Measures Are the Proper Response to a Debt Crisis

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Post Voting Period
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after 7 votes the winner is...
Ron-Paul
Voting Style: Open Point System: 7 Point
Started: 11/27/2012 Category: Politics
Updated: 3 years ago Status: Post Voting Period
Viewed: 3,419 times Debate No: 27553
Debate Rounds (4)
Comments (13)
Votes (7)

 

Ron-Paul

Pro

Before I lay out the structure of this debate, I would like to apologize to TheElderScroll for all the delay and confusion in trying to set up this debate. It's been a very busy week for me. Also, please read everything below before accepting.

Full Resolution:

Austerity Measures Are the Proper Response to a Debt Crisis.

I will be affirming the resolution, arguing that spending cuts are better than tax increases in solving debt crises, my opponent will be arguing the opposite. This debate is going to be specifically examining the ever approaching fiscal cliff that the United States has found itself in.

The BoP is shared.

Definitions:

Austerity Measures: "A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits."[1]

Proper: "Adapted or appropriate to the purpose or circumstances; fit; suitable."[2]

Response: "The act of responding; reply or reaction."[3]

Debt Crisis: "Events either when there is a default [or risk of one] or when secondary-market bond spreads are higher than a critical threshold."[4]

Rules:

1. The first round is for acceptance.
2. A forfeit or concession is not allowed.
3. No semantics, trolling, or lawyering.
4. Debate resolution, definitions, rules, and structure cannot be changed without asking in the comments before you post your round 1 argument. Debate resolution, definitions, rules, and structure cannot be changed from all moments after the debate has been formalized.

Voters, in the case of the breaking of any of these rules by either debater, all seven points in voting should be given to the other person.

Debate Structure:

Round 1: Acceptance
Round 2: Presentation all arguments (no rebuttals by con)
Round 3: Mainly refuations, but a few new arguments may be brought up
Round 4: Defense of your original arguments and conclusion (no new arguments)

Sources:

[1]: http://www.investopedia.com...
[2]: http://dictionary.reference.com...
[3]: http://dictionary.reference.com...
[4]: http://www.imf.org...
TheElderScroll

Con

Here we come. Let's begin.
Debate Round No. 1
Ron-Paul

Pro

I would like to thank TheElderScroll for accepting this debate.

I. Economic Effects

Consumers (who contribute ~70% of GDP) and investors (who contribute ~10-15% of GDP) feel more secure when both spending and taxes are low. When these groups feel more secure, they spend more, stimulating the economy.

"Writing in the Wall Street Journal, Alesina points to the reason for these findings: Spending cuts “signal that tax increases will not occur in the future, or that if they do they will be smaller. A credible plan to reduce government outlays significantly changes expectations of future tax liabilities. This, in turn, shifts people’s behavior. Consumers and especially investors are more willing to spend if they expect that spending and taxes will remain limited over a sustained period of time."[1]

Many economists agree with this:

"The majority of economists surveyed by the National Association for Business Economics believe that the federal deficit should be reduced only or primarily through spending cuts. The survey found that 56 percent of the NABE members surveyed felt
that way."[2]

Empricial evidence can cement this hypothesis:

"I’ve studied every 3-year peace-time period since the U.S. founding in 1790, and in cases when federal spending declined, real GDP over the same years grew by 11%, on average, not materially different from the average growth rate recorded in periods of rising spending. Government spending cuts have not been bearish for growth. From 1840 to 1843 U.S. federal spending was cut by 51% while real GDP grew by 11%; from 1866 to 1896 spending declined 38% as GDP grew by 9%; from 1874 to 1877 spending fell 20% as GDP advanced by 9%; from 1899 to 1902 spending dropped by 20%, but GDP rose by 13%; finally, between 1921 and 1924 spending decreased 43%, yet GDP climbed by 23%. No 3-year spending cut has occurred since 1949, and since then, GDP growth has slowed."[3]

International economies are also experiencing positive economic effects after switching from being a big spender to being a small spender:

"In the Guadian, Sheila Lawlor suggested:

The UK’s output figures, which show a quarterly drop of 0.7%, are not surprising. Economies with big public spending to GDP ratios have difficulty growing.

But there is a solution, to cut public spending and embark on structural reform, proven as the sure path to growth. The evidence from a variety of economies shows that cutting public spending and structural reforms brings growth: Brazil since 1990, Ireland in the 1990s, Sweden from the 1990s."[4][5]

To conclude:

"Stock prices fall with growing government involvement in the economy or with rising inflation. The sharp rise in the government's share of output in the last decade and the threat of greater inflation in the next one are important factors behind the 30 percent decline in the inflation-adjusted Dow Jones Industrial Average since 2000. Eye-popping deficits of the past year have lowered optimism about the future, kept stock prices depressed, and reduced key elements in new investment spending. These negative side effects of the stimulus spending are certainly slowing down the recuperative process that market forces are attempting to generate."[6]

II. Solving Debt Problems

When it comes down to it, the real question is whether or not tax increases can have the same effect as cutting spending. When analyzed in detail, it can be clearly seen that spending cuts are more direct and more immediate than tax increases.

"Take the work of Harvard’s Alberto Alesina and Silvia Ardagna. They examined 107 efforts to reduce the debt in 21 OECD nations between 1970–2007... they found that spending cuts are a more effective way to reduce the debt-to-GDP ratio:

For fiscal adjustments we show that spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns. In fact, we uncover several episodes in which spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions."[7]

Again, the majority of economists tend to see spending cuts as more direct in cutting debt the tax increases.[2]

Raising revenue does not always mean that the money being raised would go to pay off the deficit; in other words, the money could go to making our debt situation even worse. Cutting spending would be more direct.

Sources:

[1]: http://blog.heritage.org...
[2]: http://www.cnbc.com...
[3]: http://www.forbes.com...
[4]: http://www.guardian.co.uk...
[5]: http://www.economicshelp.org...
[6]: http://www.cato.org...
[7]: http://reason.com...
TheElderScroll

Con

I would like to thank Mr. Ron-Paul for initiating this debate.

As Con, I will be arguing that tax increases are better than spending cut in solving debt crisis, a polar opposite position to the resolution.

Table of Content
Introduction
Tax Increases vs. Spending Cut
Long-term Growth Effects of Tax-Financed Deficit Reductions
Conclusion
References

1. Introduction
With the failure of the Joint Select Committee on Deficit Reduction to reach an agreement on a $1.2 trillion deficit reduction plan, current law provides that an across-the-board cut to some mandatory programs and to discretionary spending will occur on January 1, 2013, frequently referred to as the "sequester." In addition to the sequester, Bush tax cuts will expire on December 30, 2012, and tax will increase on all Americans unless Congress acts.

2. Tax Increases vs. Spending Cut - Tax increases must be part of the solution
Given that the existing tax system is manifestly indefensible, there has been a unanimous agreement on Tax reform across the political spectrum. Congressional Republicans are inclined to fix the loopholes but unwilling to raise tax revenues whereas Democrats are insisting on raising tax rates for any individual whose income is above $200,000 ($250,000 for couple) in order to restore fiscal strengthen and balance. There are at least two compelling reasons to consider tax increases as part of the fiscal solution:

First, the sheer magnitude of the fiscal gap emphatically suggests that a spending-only solution would impose a very substantial reduction on spending that might not be seen as equitable. Deep and unsustained reductions in federal spending are likely to disrupt the fragile economic recovery. [1] Moreover, under the spending-only solution, Social Security and Medicare, two of the key drivers of long-term spending, will inexorably bear the brunt of cuts, thereby disproportionally punishing middle class families and hard workers while leaving the wealthiest Americans untouched.[2] Since spending cuts typically do not have a large impact on high-income households, the only way that high-income households will share significantly in the burden of fixing the deficit is thus through tax increases.[2] As a matter of fact, some of the richest American pay extraordinarily low tax rates by exploiting loopholes and tax expenditures. For example, of millionaires in 2009, a full 22,000 households making more than $1 million annually paid less than 15 percent of their income in income taxes - and 1,470 managed to paid no federal income taxes on their million-plus-dollar incomes, according to IRS data.[3] Moreover, many high-income Americans are paying less than in taxes than middle class American in taxes. Specifically, nearly one-quarter (~25%) of all millionaires face a tax rate that is lower than more than millions of middle-income taxpayers.[3] Therefore It would be deemed to be unfair for middle class earners to bear the pain of the spending cuts while not asking high-income Americans to contribute more.

Second, it is more effective to control spending by requiring that it be paid for with current taxes than to allow deficits to grow.[2] Many argue that the most effective approach, which is often referred to as the "starve the beast" hypothesis, to shrink the size of government is to reduce the revenue that feeds it.[2] However, the hypothesis is not consistent with recent experience. Romer and Romer (2009), for instance, suggest that tax cuts designed to spur long-run growth do not lead to lower government spending; if anything, they find that cuts tend to lead to higher spending (1980s, President Reagan tax cut, and 2000s President Bush tax cut).[2] Therefore, their findings seem to suggest that it is better for government to raise taxes to address spending issue instead of lowering taxes.

P.S. As a matter of fact, in the 1990 budget deal, 49 percent of the reduction came from higher tax receipts, 34 percent from reduced defense spending, and 17 percent from other cuts in spending.

3. Long-term Growth Effects of Tax-Financed Deficit Reductions
Tax increases on the wealthiest Americans would raise a considerable amount of revenue that can be diverted into to deficit reduction. Opponents of high tax rates argue that higher rates would destroy jobs, discourage saving and investment, and slow down economy. A CRS report, however, suggests that an increase in taxes will not necessarily slow long-term economic growth. According to the report, throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capital GDP increased annually by 2.4% in the 1950s. In the 2000s, he average real GDP growth rate was 1.7% and real per capital GDP increased annually by less than 1%. A detailed analysis suggests that the reduction in the top tax rates have little association with saving, investment, or productivity growth. The top tax reductions, however, appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1946 to 12.3% by 2007. In the end, the CRS report concludes that the existing evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic growth, but there may be a relationship to how the economic pie is sliced.[4]

The CRS report implicitly suggests that tax increases (from current 35% to 39.6%) may have negligible impact on economy growth. FedEx Chairman and CEO Fred Smith, an adviser to Sen.John McCain"s presidential campaign, said that the notion that tax hikes on the richest Americans would kill jobs was simply "mythology." [6] In addition to Mr.Smith remark, research on Buffett rule also suggests that tax reforms by increasing tax rates on top earners are unlikely to affect many small business or to deter saving and investment.[3] Therefore, there is no valid reason to oppose tax increases on the wealthiest.

4. Conclusion
Although it would be preferable to have both revenue and spending cut on the table, in the absence of such an option, it would be advisable to pursue tax increases, at least on the wealthiest Americans, rather than making unsustainable cuts, which would be deemed to be unfair and unaffordable to many middle class family. The fiscal cliff is imminent, and past experiences have shown that tax and entitlement reform and entitlement reform is a lengthy process. Estimate vary, but most economic analysts believe that if Congress fails to act on the fiscal cliff, about 1 million jobs will disappear from the economy just from the action of 2013 sequester alone, and it seems likely that the nation would fall again into a recession. The problem is real, and the solution will be painful. A sensible, realistic plan requires shared sacrifice and it is time for the Wealthiest Americans to pay their fair shares. Congress must act, and it must act quickly.

Thank you

5. References
[1]. http://www.fiscalcommission.gov...
[2]. http://www.taxpolicycenter.org...
[3]. http://www.whitehouse.gov...
[4]. http://www.theatlantic.com...
[5]. http://www.huffingtonpost.com...
Debate Round No. 2
Ron-Paul

Pro

I would like to thank TheElderScroll for presenting his arguments.

I. Tax Increases vs. Spending Cuts - Tax Increases Must Be Part of the Solution

I'm going to save the arguments against spending cuts to Round 4, where it is more appropriate (check the debate structure). In this point, I will mainly be attacking the premise that tax increases are more direct than spending cuts at reducing debt.

First, take a look at how people respond to higher tax rates: "Noted supply-side economist Arthur Laffer postulated that tax receipts and tax rates do not have a linear relationship. Instead of higher taxes always leading to more revenues, higher taxes act as a disincentive for utilized labor and can actually result in lower tax receipts.

As tax rates increase, disposable income falls. This causes some workers to experience a phenomenon in which they see their total disposable income being worth less to them than the required effort needed to generate that income. In other words, workers prefer leisure -- or simply not working -- versus putting in the effort to make the lower disposable income level."[1]

So, as tax rates rise, tax bases drop, negating the effect of the tax raise. Empirical evidence supports this claim.

"Since World War II, the top marginal tax rate has been greater than 90 percent and as low as 28 percent, yet total tax revenues have remained relatively stable around 18 percent of GDP. From 1950 to 1963 when the top marginal tax rate was above 90 percent, federal tax revenues averaged 17.4 percent of GDP, compared to average revenues of 18.2 percent of GDP from 1988 to 1990 when the top marginal tax rate was 28 percent."[2][3]

There is not strong correlation between higher top marginal tax rates (these are pretty much the same among the wealthy) and higher tax revenues in relation to GDP:



[3]

"According to the Congressional Budget Office, letting the rich go over the cliff would generate less than $950 billion over 10 years. The cumulative deficit over that period will be more than $6 trillion. An additional tax on the rich, such as Warren Buffett's millionaire tax, would raise $47 billion (at best) over 10 years. Even if you are in favor of higher taxes on the rich, you have to admit that this won't go far toward solving any problems."[4]

Tax increases don't really go that far into reducing the deficit by any significant amount.

Finally, all claims my opponent made about how raising taxes on the rich would help the middle class, I will counter in my second point.

II. Long-Term Growth Effects of Tax-Financed Deficit Reductions

I will start with how tax increases will harm the lower classes.

"In pure dollar terms, Americans will see their incomes fall by more than $720 billion over the next 10 years. That works out to an income reduc­tion of $6,000 per household due to the tax increase that was only intended to hurt the rich. As a result of this decrease in incomes, Americans will see their wealth decline by a staggering $11 trillion over that same span. Such a massive reduction in wealth will seriously hamper Americans’ standard of living not only in the short term, but for succeeding genera­tions as well."[5][6]

Raising taxes on the rich decreases the amount of spendable income available for people in lower classes to spend; however, that is not all:

"In fact, if Congress passes the President’s tax hike plan, businesses will create an average of almost 800,000 fewer jobs per year between 2013 and 2019 than they would if tax rates remain where they are now. That is, 800,000 additional Americans per year will not have a job because of a misguided tax increase—roughly equivalent to the total loss of jobs during the recent recession. In terms of job loss, the Obama tax hike is effectively equivalent to a deep recession, except this one would be intentional."[6][3][7]

Now, on to how tax increases harm the economy. Obviously, with the two above things mentioned, tax increases are very harmful to the economy both from the perspective of consumer spending and from jobs. But there is more evidence that points to this same conclusion.

Small businesses, a vital sector of the economy, will be hit hard by Obama's new tax proposals:

"Those who will be hit hard by the tax hikes are the small businesses that employ workers and create the most new jobs. According to the same data from the Treasury Department, those 8 percent of small businesses that earn enough to pay at the top two income tax rates earn 72 percent of all small business income. They also pay 82 per­cent of all small-business income taxes. This means that the small businesses that will pay higher taxes under the Obama plan are the largest small busi­nesses, which employ the most workers. Targeting them for higher taxes will have the largest possible negative impact on job creation."[6][8]

Finally, and very importantly, "Under the President’s proposal, individuals earning $37,000 would see no increase in their taxes. But, the combined income/payroll tax rate on their customer would rise to 43.4% (39.6+3.8). That means, their customers would now have to earn $65,371 to net the $37,000, an increase of $5790, or 10%."[9]

Tax increases would severely harm GDP. In fact, when one plots tax rates among different countries versus each's corresponding annual GDP growth, it is clear that there is an inverse correlation between high tax rates and economic growth:



[3]

Also, finally, as one last note on GDP: "Tax changes that are made to promote long-run growth, or to reduce an inherited budget deficit, in contrast, are undertaken for reasons essentially unrelated to other factors influencing output. Thus, examining the behavior of output following these relatively exogenous tax changes is likely to provide more reliable estimates of the output effects of tax changes. The results of this more reliable test indicate that tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent."[10]

Sources:

[1]: http://seekingalpha.com...
[2]: http://www.demint.senate.gov...
[3]: ibid
[4]: http://washingtonexaminer.com...
[5]: William W. Beach, Rea S. Hederman, Jr., John L. Ligon, Guinevere Nell, and Karen A. Campbell, “Obama Tax Hikes: The Economic and Fiscal Effects,” Heritage Foundation Center for Data Analysis Report No. 10-07, September 20, 2010
[6]: http://www.heritage.org...
[7]: ibid
[8]: U.S. Department of Treasury, “Treasury Conference on Business Taxation and Global Competitiveness,” July 26, 2007, p. 15
[9]: http://www.forbes.com...
[10]: http://www.nber.org...


TheElderScroll

Con

I would like to thank my opponent for presenting his argument.

Table of Content
1. Rationale Behind Austerity and Why is Austerity Wrong
2. Economic Effects
3. Consensus Among Economists
4. Empirical Evidence
4. International Economies
6. Solving Debt Problems

1. Rationale Behind Austerity and Why is Austerity Wrong
In his opening statement, Pro laid out the rationale behind austerity. In summary since government"s effort to reduce its budget deficit may revise down their expectations about future government borrowing and hence the future taxes may not be as high as they had been expecting, their belief in a lower tax burden would therefore make them be willing to spend more, thereby driving the growth.[1]In essential, there are two players in Pro"s austerity argument: consumers and investors.

As for the consumers side of the argument, Nobel prize-winning economist Paul Krugman suggests that it is preposterous to assume that individual would necessarily make rationale and far-sighted decisions in the case of tax cut. In a mockery tone, Dr.Paul Krugman asked: "As for the effects via expected further taxes, how many people do you know who decide how much they can afford to spend this year by trying to estimate what current fiscal decisions will mean for their taxes five or 10 years in the future?"[1] Indeed, lack of self-control and limit of human intellectual capabilities may lead to the conclusion consumers are inclined to squander their extra-income rather than saving it, thereby causing economic hardship later on.[2]

With respect to the investors side of the argument, the question was answered in my opening argument, under Section 3. I will be defending my arguments in last round.

When one attempts to relate the issue specifically to the U.S. economic, it becomes more obvious that austerity is a unsustainable approach to the "Fiscal Cliff." The best known proposal that resembles the scale of austerity would be Budget Proposal, drafted by Paul Ryan the current Chairman of the House Budget Committee. Ryan"s budget would spend $5.3 trillion less over the next decade than President Obama"s budget. Ryan would trim Medicare and Medicaid for a portion of his saving, and he would also spend $2.2 trillion less on everything else to make up for the number.[3] Be more specific, over the next decade, Ryan plans to spend about 16 percent less than the "income security" programs for the pool - everything from food stamps to housing assistance to the earning-income tax credit. Compared with President Obama, Ryan would spend 25 percent less on transportation and 13 percent less on veterans. He will also spend 6 percent less on "General science, space, and basic technology." In addition, compared with the White House proposal, he would spend 33 percent less for "Education, training, employment, and social services."[3] Essentially, Ryan"s budget would slash all federal spending -- outside of Medicare, Medicaid and Social Security -- by about 70% by 2050 while somewhat managing to maintain national defense spending about hose levels.[4] Ryan"s budget will disrupt the fragile economic recovery due to its massive spending cuts; cut into the investment such as education, infrastructure, and high-value research, which would promote economic growth and keep America competitive in the future; leave many low income families unprotected, and unreasonable benefits the wealthiest Americans. Ryan"s budget prompts Dr.Paul Krugamn to conclude: "This is just a fantasy, not a serious policy proposal."[4]

Rebuttal
2. Economic Effects
Please refer to Section 1 for more details

3. Consensus Among Economists
The NABE survey, cited by pro, is out-dated. The NABE survey is conducted semiannually and this particular one was taken between July 19 and August 2, 2011.[5] According to the latest NABE survey, published on September 24, 2012, there is overwhelming support among NABE members for a balanced approach to eventual fiscal tightening.[6] A plurality of NABE panelists - about 45% - favors equal parts of spending cuts and tax increase. About 15% think Congress should reduce the deficit only or mostly through tax increase while only 40% of respondents think Congress should reduce the deficit only or mostly through spending cuts.[6] Thus, a majority of the respondents (~ 60%) favors tax increase, either equally with spending cuts or mostly with tax increase.

4. Empirical Evidence
There are at least two potential problems with Pro"s arguments
First, the purported causal relation may just be coincidental or revered. Be more specific, Pro insinuates that a deep spending cut would lead to the growth of GDP, but one can equally conclude that the growth of GDP (stronger economy) would lead to massive spending cut. Dr.Paul Krugman"s remarks on Britain's austerity efforts somewhat echo this explanation: "Give me a stronger economy and I"ll turn into a fiscal hawk. But not now."[7]

Second, it is notable that the author completely ignores the economic dataset since 1949. Following the defeat of Germany, U.S. economic system has experienced a fundamental change. The commencement of Marshall Plan in 1948, the looming Cold War starting from 1945, the enactment of Medicare and Medicaid since 1965, and mostly notably, the adoption of broad-based income tax system - less than 15% of families filed tax return in 1939; 85% filed a return in 1945; all suggest that Pro"s analysis may not be applicable under the current economic climate, let alone an appropriate approach to the "Fiscal Cliff"

5. International Economies
In the latest World Economic Outlook, a report combing short-term prediction with insightful economic analysis, International Monetary Fund (IMF) suggests that fiscal austerity has been more damaging than the pre-crisis consensus in the economics would have suggested: "Activity over the past few years has disappointed more in economies with more aggressive fiscal consolidation plans," and the "IMF is urging that countries have room to maneuver such as the UK, France and the Netherlands, should smooth their planned adjustment over 2013 and beyond." [8][9] Therefore, according to IMF, it seems that austerity measures may actually worsen the already damaged economy.

6. Solving Debt Problems
Dr.Alesina & Ardagna"s paper is flawed, according to IMF. In particular the fund criticizes the way Dr.Alesina identified periods of deficit-cutting. "Dr.Alesina defined major fiscal adjustments as episodes during which the cyclically adjusted primary fiscal balance (CAPB) improved by at least 1.5% of GDP. The IMF argues that movements in CAPB can be misleading. Be more specific, Ireland, for example, implemented sharp spending cuts and tax hikes amounting to 4.5% of GDP in 2009. But a collapse in house prices meant that its primary deficit actually worsened. The method used in Dr.Alesina"s report would not count this as a case of fiscal tightening. By the same token, in Japan in 1998 the government made a one-time capital transfer amounting to 4.8% of GDP to the railways, worsening its budget balance for that year alone. The CAPB improved sharply in 1999 without the government needing to implement any austerity measures, yet Dr.Alesina"s report would count this as a fiscal adjustment." In essence, the fund argues that omitting cases like the Irish one and mistakenly counting instances like Japan"s would inexorably reduce the study"s ability to pick up the growth-retarding effects of actual fiscal contractions.[10]

Thank you.

7. References
[1]. http://www.thedailybeast.com...
[2]. http://www.fas.org...
[3]. http://www.washingtonpost.com...
[4]. http://www.huffingtonpost.com...
[5]. http://nabe-web.com...
[6]. http://nabe.com...
[7]. http://www.guardian.co.uk...
[8]. https://www.commondreams.org...
[9]. http://www.slate.com...
[10]. http://www.economist.com...
Debate Round No. 3
Ron-Paul

Pro

I would like to thank TheElderScroll for this great debate.

I. Rationale Behind Austerity and Why Is Austerity Wrong

The rationale behind austerity is justified: "The authors of the study, Alberto Alesina and Francesco Giavazzi, write that 'spending-based consolidations [spending cuts] accompanied by the right polices tend to be less recessionary or even have a positive impact on growth.'

Alesina and Giavazzi also add that 'only spending-based adjustments have eventually led to a permanent consolidation of the budget, as measured by the stabilization"if not the reduction"of debt-to-GDP ratios.'"[1]

In fact, "[A] small reduction in current government purchases could signal large future reductions, and therefore cause consumption to rise by more than the fall in government purchases.

Surprisingly, these possibilities are more than just theoretical curiosities. Giavazzi and Pagano (1990) show that fiscal reform packages in Denmark and Ireland in the 1980s caused consumption booms, and they argue that effects operating through expectations were the reason. Similarly, Alesina and Perotti (1997) show that deficit reductions coming from cuts in government employment and transfers are much more likely to be maintained than reductions coming from tax increases, and that, consistent with the importance of expectations, the first type of deficit reduction is often expansionary while the second type usually is not."[2]

Even so, Dr. Krugman does detract from this. However, his advice hasn't really been that sound - "In the 1990s it was Krugman who most loudly championed Japan"s innumerable and reckless "stimulus" schemes, together with dozens of rounds of "quantitative easing". Japan followed his advice and ever since then has suffered a secular stagnation. Since 1990 Japan"s public debt has ballooned from 68% to 233% of GDP; its money supply is up 286%, while its industrial output is lower by 3.4% and its equity index is down by 73%."[3] - so it should, at the very least, be taken with a fine tooth comb if not just trashed.

II. Economic Effects

My opponent didn't really make a convincing argument in his first argument, and he really doesn't make one now. I will repeat this: "From 1840 to 1843 U.S. federal spending was cut by 51% while real GDP grew by 11%; from 1866 to 1869 spending declined 38% as GDP grew by 9%; from 1874 to 1877 spending fell 20% as GDP advanced by 9%; from 1899 to 1902 spending dropped by 20%, but GDP rose by 13%; finally, between 1921 and 1924 spending decreased 43%, yet GDP climbed by 23%. No 3-year spending cut has occurred since 1949, and since then, GDP growth has slowed."[3]

III. Consensus Among Economists

"The National Association for Business Economics (NABE), and its 236 members, said the government should extend payroll tax cuts, current income tax rates, current tax rates for investment, and other tax cuts passed under George W. Bush, which are set to expire by the end of this year."[4] Most economists still want taxes to be kept relatively low, and even so,

"Economists of the Center for Data Analysis (CDA) issued a report in 2010 addressing the Bush tax cut extensions and surmised that the 10-year economic impact of the Democrats" and President Obama"s ploy to inflate taxes on the nation"s "wealthy" would be devastating.:

Slower economic growth: Inflation-adjusted gross domestic product (GDP) would fall by a total of $1.1 trillion between FY 2011 and FY 2020. GDP in 2018 would fall by $145 billion alone. The growth rate of the economy would be slower for the entire 10-year period.

Fewer jobs: Slower economic growth would result in less job creation. Employment would fall by an average of 693,000 per year over this period " in one year alone, 2016, job losses top 876,000.

More unemployed Americans: Slower growth in employment translates to a higher unemployment rate, which would rise more each year during the 10-year period than it would without the Obama tax hikes."[4]

Obama's tax hikes clearly aren't part of the solution.

IV. Empirical Evidence

One, my opponent doesn't make a convincing argument on the correlation between spending cuts and economic growth. Why? Because he's trying to reverse the correlation, and this simply won't work.[3] Notice no massive spending cut has been taken since 1949, and there are no spurts in growth. As Charles Kadlec explains, "The path to more robust growth is first to stop doing what demonstrably has not worked for the past two years. As I wrote in "Toward a New Economic Consensus," studies by professors from Harvard to the London School of Economics are providing a growing body of empirical evidence that shows the combination of spending restraint and reductions in tax rates are the best ways to stimulate economic growth and employment."[5]

On higher tax rates stimulating growth, this is just a fallacy:

"At best, tax increases would slow the already stalled recovery, and at worst, would reverse it altogether. A slowed recovery or double-dip recession would further reduce the chances that the more than 14 million Americans currently looking for work would find a job in the near future."[6][7]

"The results of this more reliable test indicate that tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent."[8]

Therefore, my plan does work.

V. International Economies

"But Europe has gone beyond cutting spending; it"s also hiked tax rates, which everyone agrees is contractionary. Alesina and Giavazzi"s study cautions that one must disentangle whether spending reductions, tax hikes, both, or neither cause hardship. Indeed, drawing conclusions like Krugman does"without discerning between spending cuts and tax hikes"is like observing an individual who consumes pizzas, sodas, burgers, and broccoli and concluding that broccoli is unhealthy and making him overweight. It"s careless analysis."[1]

Also, notice Ireland has implemented spending cuts for a longer time, along with few tax increases, and they are surging along ahead of Europe.

VI. Solving Debt Problems

As I explained earlier, squeezing the rich doesn't really work, and higher marginal tax rates don't mean more tax revenues as a percentage of GDP.

"As you can see in this chart, in cases of successful fiscal adjustments"defined by the cumulative reduction in debt-to-GDP ratio three years after fiscal adjustment greater than 4.5 percentage points"spending as a share of GDP fell by about 2 percentage points while revenue also fell by half a percentage point (left bars). On the other hand, unsuccessful fiscal adjustment packages"cumulative increases in debt-to-GDP ratio"were made of smaller spending reductions (only 0.8 percentage-point reduction) and large revenue increases (right bars)."[9] Chart is easily seen in that source.

And, Ireland has been improving more than other countries because of their duration.

Thanks again for the debate Elder.

Sources:

[1]: http://blog.heritage.org...
[2]: http://www.nationalreview.com...
[3]: http://www.forbes.com...
[4]: http://www.thenewamerican.com...
[5]: http://www.forbes.com...
[6]: http://www.heritage.org...
[7]: http://blog.heritage.org...
[8]: http://washingtonexaminer.com...
[9]: http://reason.com...
TheElderScroll

Con

I would like to thank Ron-Paul for inviting me to participate in this interesting debate.

Final Rebuttal
Higher Taxes On The Wealthy
Pro suggests that Obama"s plan will hurt Americans at every income level, because
1. Higher marginal rates will discourage individuals from working harder and saving larger portions of what they earn. [Private Saving]
2. Higher marginal rates will decrease the incentives for small businesses to invest and take on new economic risk. [Investment]
3. The tax hike will raise the cost of capital and if the cost of capital increases, businesses will demand less of it, thereby leading to fewer jobs available for those searching for work and lower wages for those employed. [Productive Growth]
4. Tax increases would severely harm GDP. [Real Per Capital GDP growth]
To the extent that these mechanisms are valid, it is expected that there would be an inverse relationship between the top tax rates and savings, investment, productive growth, and real per capital GDP growth.[1] The above arguments will be examined in sequence.

Private Saving
Unlike what Pro has suggested, the effect of taxes on private saving is far from clear. To a certain extent, higher taxes would lead individuals to save more.[1] The rationale is that the tax hike changes the relative price of consuming now (saving less) and future consumption (saving more) in favor of future consumption.[1] Taking an analogy: when an individual has lower after-tax income, he or she may actually save more in order to maintain a target level of wealth (house purchase for example). This particular saving behavior would result in higher saving even if the after-tax income is lower. Reduced after-tax return may result in both lower saving and higher saving and the actual of a tax reduction depends on the relative magnitudes of these two different responses.[1]

Indeed, the latest CRS report on tax rates concludes that private saving is relatively insensitive to tax rates: "Results of the regression analysis...suggest[ing] the top statutory tax rates are not associated with private saving."[1]

Investment
Pro suggests that, in general, higher taxes would discourage risk-taking behavior. However, for many risk-averse investors, the capital gain tax could act as insurance for risky investments by reducing the losses as well as gains - it could decrease the variability of investment returns thereby encouraging investment.[1] Therefore, a rise in the capital gains top rate could increase investment because of reduced risk. The CRS report concludes that "but regression analysis does not find the correlations to be statistically significant suggesting that the top statutory tax rates do not necessarily have a demonstrably significant relationship with investment."[1]

In additional to the above analysis, the insignificant correlation between tax rates and investment can be also explained by the fact that most venture capital is supplied by pension funds, college endowments, foundations, and insurance companies - sources not associated with the capital gains tax. In 2003, only about 10% of investors in venture capital funds were individuals and families.[2]

In summary, in accordance with the CRS findings, it is not unreasonable to conclude that past changes in tax rates have had no large clear effect on private saving and investment.

Productive Growth
Pro"s arguments suggest that higher taxes lead to lower productivity growth and lower tax rates enhance productivity growth. However, the CRS report suggests that there is no discernible relation between tax rates and productivity growth: "The regression analysis, however, does not find either relationship to be statistically significant, suggesting the top tax rates are not necessarily associated with productivity growth."[1]

Real Per Capital GDP Growth
The top marginal tax rate in the 1950s was over 90% and the real GDP growth rate averaged 4.2% and real per capital GDP increased annually by 2.4% in the 1950s. In the 2000s, the top marginal tax rate was 35% while the average real GDP growth rate was 1.7% and real per capital GDP increased annually by less than 1%.[1] The statistical analysis using multivariate regression does not find that either top tax rate has a statistically significant association with the real GDP growth rate.[1]

In conclusion, a tax rate change limited to a small group of taxpayers at the top of the income distribution would unlikely to have any discernible effect on private saving, investment, productive growth and economic growth.[1]

Tax Increases vs. Spending Cuts
Although tax increases alone may not immediately solve all the problems facing this country today, it should be acknowledged that the government is not collecting enough revenues. Today, when many millionaires and billionaires are doing exceptionally well, many ordinary Americans are suffering. According to data retrieved from Tax Policy Center, the tax revenue per GDP has declined since since 2001, from 19.5% in 2001 to 15.4% in 2011.[3] Even by taking the "Great Recession" into consideration, the 2003 and 2004 tax revenues are still considered historically low with 16.2% and 16.1% respectively.[3] The last time that the federal government balance its budget (FY2000), top marginal rate is 39.6%. Capital gains rate is 20%, and dividends tax rate is 20%. Compared to today"s rate (top marginal rate is 35%, Capital gains rate is 15%, and dividends rate is 15%), it is beyond doubt that the U.S. tax system is broken.[4] In fact, average tax rates for the highest income Americans have plummeted even as their incomes have skyrocketed. Of millionaires in 2009, a full 22,000 households making more $1 million annually pid less than 15 percent of their income in income taxes - and 1,470 managed to paid no federal income taxes on their million-plus-dollar incomes.[5]

$950 billion increase in revenue is not an inconsiderable amount. In fact, the amount of tax revenue is exceptionally close to what President Obama has called for. In his latest offer, President Obama seeks to $1.2 trillion in fresh revenue over the next decades and limits the hike in tax rates to households earning more than $400,000 a year. [6] The number is also very closed to what House Speaker John Boehner has in mind: Boehner"s latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.[6] Therefore, in solving the "fiscal cliff," the tax increases on the wealthy is not only necessary, but also will help the country.

Conclusions
Unsustainable austerity measures will plunge the country back into recession by cutting into the investment such as education and high-value research, and leaving many low income families unprotected.[4] On the other hand, higher taxes on the wealthy are not only necessary, but also desirable. It is necessary because in a time when all Americans are being asked to come together to make the sort of shared sacrifices, continuing to allow some of the wealthiest Americans to use special tax breaks to avoid paying their fair share simply cannot be justified. It is desirable because the additional revenue will help the country avoid the ominous "fiscal cliff" and will allow the country to continue making the crucial investments that are necessary to grow the economy. The choice is yours.

Thank you.

References
[1]. http://democrats.waysandmeans.house.gov...
[2]. http://www.fas.org...
[3]. http://www.taxpolicycenter.org...
[4]. http://www.fiscalcommission.gov...
[5]. http://www.whitehouse.gov...
[6]. http://www.reuters.com...
Debate Round No. 4
13 comments have been posted on this debate. Showing 1 through 10 records.
Posted by TheElderScroll 3 years ago
TheElderScroll
Two beloved political parties, both alike in dignity,
In fair Washington D.C., where we lay our scene,
From ancient grudge break to new mutiny,
Where civil blood makes civil hands unclean.
From forth the fatal loins of these two foes,
A pair of star-cross'd lovers take their "life";
Whose misadventur'd piteous overthrows
Doth with their reelection loss bury their parties' strife.

Oh...dear...who would play Romeo/Juliet this time?
Posted by TheElderScroll 3 years ago
TheElderScroll
I agree. The fight would be fraught with blood. And let's not forget the debt ceiling, it is coming back.
Posted by wrichcirw 3 years ago
wrichcirw
The lame duck will take the blame for jumping off the cliff, and the new Congress will take all the credit for "Lowering taxes" and "Saving Social Security" and "Preserving the Integrity of our Great Military" and whatever other spin you can possibly imagine.
Posted by wrichcirw 3 years ago
wrichcirw
We'll get there with the new Congress, and not the lame duck one. I had a feeling it would end like this after the elections.
Posted by TheElderScroll 3 years ago
TheElderScroll
Fiscal Cliff is approaching, for real. It is highly unlikely that the Congress would reach any deal before the New Year. How we get there, God only knows.
Posted by DeFool 3 years ago
DeFool
I suppose my commentary is more appropriate in the forums section. (Shaking head, and smiling...)
Posted by wrichcirw 3 years ago
wrichcirw
@DeFool

O.o
Posted by DeFool 3 years ago
DeFool
I am relieved, if surprised, to learn the the impending fiscal cliff will bring prosperity to all - as indicated in this debate. I had thought that it was a 'crisis' that might have caused a long-term economic depression. So had almost the entirety of our government - rendering me blameless for my ignorance.

Now our nations elderly may spend their tax-savings on buying their cat-food, secure in the knowledge that their government is frugal, and their millionaire masters are firmly in power. Thoughts which, I am sure, will make the cat food taste much better.

Who needs Social Security and Medicare? Nobody important.
Posted by RoyLatham 3 years ago
RoyLatham
The data is clear that the tax rates imposed on the rich have very little effect on tax revenue obtained from the rich. The graph showing the data is a complete rebuttal of the notion that the rich do not alter their spending habits. The reason that higher rates do not produce revenue is that there are 3500 "loopholes" ("tax preferences" if you prefer) in the tax code, and such outs have always been there. The purpose of the preferences is to make economically inefficient investments more attractive so they will receive more money. Tax-free municipal bonds are an example: increase taxes on profit-making growth industry and more money will go instead to near-zero-economic-return municipalities. Last year Britain raised taxes on millionaires to 50%, and two-thirds of the millionaires disappeared.

The harm is that the economy as a whole then becomes less productive, because money comes out of high tech and other growth, and goes into tax dodges. Now it's much easier than before to move money out of the country entirely, and that's increasing.

The Obama proposal makes no sense from an economic viewpoint. If any the taxes were collected, it would pay down $0.085 trillion of the approximately $1.2 trillion debt. Obama is currently offering $0.0275 trillion in spending cuts.

Reducing the loopholes per the flat tax or the Ryan plan therefore has the best chance of increasing revenues. Even then the increase is limited, because money is able to flee the country entirely.
Posted by DeFool 3 years ago
DeFool
I saw this argument as being absolutely conclusive:

"The very wealthy will not alter their spending habits due to tax increases, because these increases will not be burdensome to them. However, we must buttress the poor and middle class in order for these demographics to continue their productive roles as consumers and patrons of investment expansion. Further, the sheer magnitude of our budget deficit requires a multifaceted solution."

This argument was fielded in the first round of Con's arguments, and was never rebutted. Pro did attempt to do so, arguing for example, that higher taxes decreases disposable income. These statements were not supported, however. Data fielded by Con (IMF studies in particular) supported the idea that institutionalized, state mandated poverty is bad for economies.

I give arguments and sourcing to Con, for these reasons.

Ron Paul, one of my favorite debaters, relied too heavily on Party-specific arguments rather than field data here. A rare example of passion obscuring logic from a talented competitor.
7 votes have been placed for this debate. Showing 1 through 7 records.
Vote Placed by Chicken 3 years ago
Chicken
Ron-PaulTheElderScrollTied
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Reasons for voting decision: CVB Hewhoknowsall.
Vote Placed by HeWhoKnowsAll 3 years ago
HeWhoKnowsAll
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Reasons for voting decision: I think con makes better sense of it!
Vote Placed by Chuz-Life 3 years ago
Chuz-Life
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Reasons for voting decision: Pro makes a convincing argument that a tax on the rich will only be passed down to and felt by the poor. Con does not seem to appreciate that we can't tax our way into prosperity.
Vote Placed by RoyLatham 3 years ago
RoyLatham
Ron-PaulTheElderScrollTied
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Reasons for voting decision: Con's second round rebuttal was devoted mainly to the fairness of taxing the rich, but provided no data showing that increasing tax rates would actually produce significant revenue. Pro's third round data was compelling, showing that the revenue produced was not significantly correlated to the tax rates. Subsequent Con rebuttals were in the category of "not necessarily so" rather than compelling reasons why the revenue would be significant. (More in comments.) The Japan example of tax increases and endless stimulus failing is important. This was a good debate that reflects the national dialogue on the issues, at least for people who are willing to consider the possibility of spending cuts.
Vote Placed by DeFool 3 years ago
DeFool
Ron-PaulTheElderScrollTied
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Reasons for voting decision: I've placed my justifications in the comments section. Powerful sourcing, and solid research won arguments and sourcing for Con.
Vote Placed by 1Historygenius 3 years ago
1Historygenius
Ron-PaulTheElderScrollTied
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Reasons for voting decision: Pro was very detailed in this debate which helped him a lot. In addition, Pro won the taxes on the rich argument. Con was not as detailed and was unable to counter Pro's arguments.
Vote Placed by Microsuck 3 years ago
Microsuck
Ron-PaulTheElderScrollTied
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Reasons for voting decision: see comments (full RFD in about an hour)