Taxes on the affluent should be increased.
Debate Rounds (5)
First, taxes are at historic lows as of now, and many wealthy individuals pay significantly lower than do middle-income and poor individuals. Take Mitt Romney, for instance: his income comes from investments, and thus he can pay a rate as low as 14% on millions of dollars in earnings. Is that fair when a family earning $50,000 is paying a rate of roughly 23%?
But this is fair, says Mitt and friends, because the low rate provides for them an "incentive to invest." Let me pose the obvious question to you, though: if we took the advice of Ronald Reagan and Art Laffer -- yes, I went there -- and taxed capital gains as regular income, would you hold your money? Would you funnel more of it to the Cayman Islands or Switzerland? Doubtful. As Warren Buffet pointed out, increases in the capital gains rate pose no deterrent to the willingness to invest. The chief factor is -- as business surveys even point out -- is demand. And right now, demand is struggling because the economy is struggling. The engine of the economy is the demand function -- consumers of modest incomes who spend roughly 100% of what they earn because they have to in order to survive, as opposed to their affluent counterparts who are more apt to save any increase in what they earn.
But, say conservatives, saving is a good thing: a dollar saved is a dollar invested, so goes Say's Law. This is also a fallacy, rooted in an assumption. Investment decisions, as I stressed, are rooted in the demand for the product. Without demand, it doesn't matter how many resources companies and investors have -- they're simply going to horde them until the economy improves (or invest them overseas). In fact, executives are sitting on roughly $2 trillion in capital that they're not investing. Tax rates are at all-time lows. Why aren't they investing that money? Because doing so will create a "glut" of capital. With zero-bound interest rates, it is actually a good investment now to simply hold cash.
Finally -- since I would like to leave a number of topics fairly open at this point in the discussion -- I would like to tackle the most commonplace arguments for tax cuts: the notion that they have created jobs. Here's the truth: rates were as high as 91% in the three decades following World War II, and yet we saw the most prosperous economy in American history. But wait, conservatives say: No one paid 91%! While they're partially correct, effective rates were as high as 56-58% -- significantly higher than they are now. Bill Clinton, again, raised taxes, and oversaw a booming economy. But as Ronald Reagan, George W. Bush, and even Barack Obama cut taxes, the U.S. economy stagnated; in the case of Reagan and Bush, deficits spiraled out of control, and Reagan even raised taxes 11 times. I thought the point of the Laffer curve was that, if taxes are cut, the federal government would take in more revenue. Why didn't that happen? Because the rate would need to be as high as 70-80% to find ourselves on the downward-sloping portion of the Laffer curve. Now, rates are nowhere close to that point.
So, let me make my position clear: I do not believe that marginal rates should be returned to what they were under Einsenhower. Simply, I'd like tax rates that allow the federal government enough revenue to invest in roads, bridges, highways, education, health care, job training, research, green energy, etc -- all the things that in which we collectively invest in order to create a better society -- in order to create jobs and prop up a deeply depressed economy. What the actual rate ought to be is not of much concern to me, and I can't say I have a figure offhand. The fact of the matter is, we know from the data and from history that the wealthy are not going to take their businesses elsewhere; that the economy will not shed jobs; that there will be no calamity.
With that said, I welcome any challengers, and eagerly await a vigorous discussion.
Taxes are a black hole that sucks potential capital from the economy and then wastes it on all forms of government "services." You can say that taxes are repaid in the form of services, but what use full services does the federal government provide? Most taxes are just generational theft that takes money from poor young people and gives to the elderly. Other tax dollars go to lovely "services" like corporate welfare that takes the money of small businesses and gives it to big ones. Or maybe your dollars will fund wars or even the lovely NSA. They could be used to build notoriously inefficient highways or throw billions of dollars at the failed government monopoly known as the education system that creates schools so bad they only continue the poverty cycle. How do any of these programs create jobs?
If business had more money and less regulation, they could produce goods cheaper goods. Maybe there would be demand for these cheaper goods. Think of all the innovation and production that could be achieved if tons of capital wasn't siphoned out of the economy. As for revenue, government revenue had been at 19.5% of GDP since the 50s. If can claim that low taxes doesn't create jobs, you need to check out the results of tax cuts in the 20s, 60s. In the 80s, tax cuts were implemented in the US, Britain, and Chile, all to great success. Even JFK, who liberals DROOL over, was a big supporter of tax cuts. He said this,
" The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system -- and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.
I'm not talking about a "quickie" or a temporary tax cut, which would be more appropriate if a recession were imminent. Nor am I talking about giving the economy a mere shot in the arm, to ease some temporary complaint. I am talking about the accumulated evidence of the last five years that our present tax system, developed as it was, in good part, during World War II to restrain growth, exerts too heavy a drag on growth in peace time; that it siphons out of the private economy too large a share of personal and business purchasing power; that it reduces the financial incenitives [sic] for personal effort, investment, and risk-taking. In short, to increase demand and lift the economy, the federal government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures." He also said this,
"This economy is capable of producing, without strain, 30 to 40 billion [dollars] more than we are producing today. Business earnings could be seven to eight billion higher than they are today. Utilization of existing plant and equipment could be much higher -- and, if it were, investment would rise. We need not accept an unemployment rate of five percent or more, such as we have had for 60 out of the last 61 months. There is no need for us to be satisfied with a rate of growth that keeps good men out of work and good capacity out of use." And this,
"Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget -- just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records."
This is why i believe that taxes and regulation should be cut by massive amounts to release the means of production of this nation.
The important point to not is that the reason that revenues are projected to climb "" to 18 percent of G.D.P. in the coming year "" is a function of the "fiscal cliff" tax increases and economic growth. Both of those claims undermine conservative ideology, though. Raising taxes should shrink revenue, they claim. Why then has the nonpartisan CBO estimated that it will continue to increase to 19.1 percent up to 2023?
The answer is: we haven"t met the downward-sloping portion of the Laffer curve. In fact, revenue would maximize at a top effective rate of 68.7%, significantly higher than even the top marginal rate now (39.6%), and certainly higher than the rates that the affluent actually pay. As I"m sure you now, many of them pay significantly less than middle- and lower- income individuals because they either earn their income through capital gains, are able to receive special loopholes, etc. The best example is oil subsidies -- roughly $40 billion "" which Republicans continue to defend. As I stated earlier, Mitt Romney paid roughly 14% on millions in income. Paradoxically, the "47 percent" whom he criticized pay higher percentages of their incomes than does he, for they pay sales taxes, payroll taxes, user fees, state and local taxes, property taxes, etc. In the wake of welfare reform of the 90s, pushed their by a Gingrich-led Congress, their lives have been even worse. Add to that the record levels of income inequality "" the fact that CEOs now earn about 380 times the wage of an average worker, relative to 42 times in 1980. And their pay has increased since the crash, while median incomes have decreased "" in fact 93% of the gains of the economic recovery went to the top 1%.
Which brings me to my next point: you mentioned corporate welfare. Why would you presume that I support corporate welfare? Do you oppose it? Excellent. You"ll agree, then, to cut oil subsidies. You"ll agree with Ronald Reagan, Art Laffer, and me that capital gains should be taxed as ordinary income. You"ll support eliminating farm subsidies to affluent corporate farmers "" which the Republicans voted to fund at the same time they slashed food stamps by $40 billion. Do we have an agreement?
If your answer is yes, you"ve just conceded the debate "" that"s raising taxes. If you cannot support those measures, you cannot rightfully say that you"re opposed to corporate welfare. If your argument is that we should take Mitt Romney"s idea and "broaden the base and lower the rate" then I have a few questions for you: what specific loopholes would you cut? Will it be revenue neutral, independent of dynamic scoring? Would you raise taxes on the middle class to pay for tax cuts for millionaires "" which, by the way, the CBO claims is the only plausible way for the plan to be revenue neutral? Also, explain to me how that will create jobs. Are you claiming that some people are able to pay virtually nothing, while others pay significantly higher rates? If that"s the case, wouldn"t raising taxes remove from these companies their incentive? To me, that sounds like a case for targeted tax hikes "" that some people will continue to produce even with higher rates, while others may be more recalcitrant. That"s the essence of my argument. But I agree with the economic research "" and with people like Paul Krugman, who look at the data and argue that the rate at which we would find ourselves in trouble is around 73-80%. Just as a slight increase in the minimum wage would not be cataclysmic "" and would not shed jobs "" slight tax increases to the tune that I"m advocating will not, either.
Your next factual inaccuracy was: "If business had more money and less regulation, they could produce cheaper goods." This claim hinges on the notion that companies are suffering from a lack of productive capacity, and that rates are on the downward sloping portion of the Laffer curve. That"s inaccurate, though: I pointed out that revenues as a percentage of G.D.P. are at historic lows, that C.E.O. pay and corporate profits are at all-time highs, that the stock market is doing great, and in my last post, that taxes for the affluent are at near all-time lows. Allow me now to prove to expand on that latter point, and prove it.
First, I"d like to credit the compilation of the following points to former U.S. Secretary of Labor, and Professor at UC Berkeley, Robert Reich.
He argues "" as I have "" that tax rates are at historic lows "" that the rich are paying a lower rate than they have at any time in the past half-century. Before the 1981 Reagan tax cuts, the top tax rate was 70% (and 91% under Eisenhower). Yet, in spite of credits, deductions, exemptions, and so forth, wealthy people paid about 52-56% of their income in taxes. Because many affluent individuals derive their income from capital gains, they end up paying even less.
The grandest point, though, is that the affluent can afford to pay more right now. You argue that tax cuts will hinder business profits, and thus lead to less employment, lower wages, higher prices, et al. These are assumptions "" which even a very rudimentary microeconomic model would dispel, for even they account for the fact that companies will absorb some of the tax. In a lot of cases, they"ll absorb all of the tax "" e.g., meta studies demonstrates that raising the minimum wage would create jobs because it would create more demand. But there is a point, yes, where it would hinder job growth, just as there is a tax rate "" around 73% -- where companies would lose their incentive to invest and to hire.
But we"re nowhere near that point: the top 1% have amassed about 20% of total income. The 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined, while the top 10 percent of households take in half of national income, instead of the historical average of a third. At the same time, the average income for the bottom 20 percent of households has fallen by approximately 3 percent since 1979, says the Census Bureau. This is in spite of nearly doubled productivity over the past 30 years -- wages have flatlined, and in most cases declined. But during the three decades following WWII, wealth inequality was far less severe, and the economy boomed as a result. Why? Because it remains true that the rich would be better off with a smaller share of a rapidly growing economy than a larger share of a stagnant economy. And without a way to spur demand, without consumers to purchase their goods and services (and thus to employ executives, for without demand, they"d be out of business), they"d be out of luck.
I don"t think we agree on this very simple point: that government can work. Yes, it wastes money; yes, it does things we don"t like (wars, drones, etc). But how about defense services, public education, infrastructure, research, air traffic controllers, meat inspectors, and police and fire forces? Not only are these things critical to our survival, but many directly employ people, which sets off a multiplier effect (the famous Keynesian multiplier "" which we can discuss more later) which leads to more demand, higher wages, more employment, etc. That is the essence of a vibrant economy "" not wealthy people saving most of their money, or even spending it on luxury goods (buying a Tesla, for instance, is not going to employ millions of people who are out of work). They have more money, and therefore for each additional dollar they earn, their marginal propensity to save is much higher than their marginal propensity to consume. This is untrue for the workers I have delineated earlier, who spend nearly all of their incomes because they have to in order to survive. Surveys from business leaders are unanimous that the problems they"re facing are not overtaxation or overregulation "" but lack of sales.
Finally, I would dispute your claims "" and would ask you to provide specificity "" that tax cuts lead to job expansion. I"m almost out of space, so I can"t go through each separately, but consider this: a Congressional Research Service study, which Republicans tried to conceal, holds that tax cuts are not correlated with growth in savings, investment, and productivity, but are with increased income inequality. That"s true of the 80s "" where the bulk of the "growth" in the US came about amid 11 consecutive tax increases and an exploded Pentagon budget. Even Thatcher implemented a sales tax that was disastrous for working families. And following Kennedy"s tax cuts, top marginal income tax rates were at 70%, and corporate taxes at 48%. Do you support that?
Which brings me to my next point: I"ve proven to you that tax cuts don"t raise revenue, that you can not directly connect a tax cut to growth, and that income inequality is a threat. How do you justify them? How do you pay for them? Or do you support austerity measures, such as those in Europe, which are hindering any type of recovery? Your points about times that it has worked are quite vague and inconclusive, so I"d ask that you more thoroughly justify your points.
It is true that the Tea Party and the Libertarian Party are more likely (than establishment Republicans) to condemn corporate welfare, and to accept that Washington D.C. is beholden to special interests. That"s why many billionaires and defense contractors have been turned off by them. However, their ideology is largely predicated on corporate welfare.
Consider Ron Paul, whom I can glean from your profile that you support. He voted for every tax cut put before him, including oil subsidies. In a interview with Cenk Uygur (video displayed) he was questioned about oil subsidies, and why he casted a vote in favor of them. His response was: "Well, how do you define a subsidy? See, I don"t consider any tax break as a subsidy. That was not a spending bill, that was not a grant. So if they get benefits, I cut..I never vote to increase any taxes, I vote to always give tax credits, and I always cut spending."
He then endorsed an income tax rate of 0%. Obviously, income tax rates are progressive, designed so that the affluent pay more " though today the tax is fairly flat. Under this measure (provided that his position on the corporate tax is identical), he is supporting massive tax cuts for corporations as well as affluent individuals. Then, he justifies his support for corporate welfare by attempt to redefine the word "subsidy." Is your case that oil subsidies " to the most profitable companies in the world " do not qualify as corporate welfare? If oil subsidies don"t qualify as corporate welfare, then what is corporate welfare?
There are also a lot of problems with his consistency, though. First, the definition of "subsidy" from Investopedia is: "A benefit given by the government to groups of individuals in the form of a cash payment or tax reduction."
Here"s the problem though: not only is his position inconsistent with what he said back in 1988 when he spoke out against farm subsidies (video displayed), but there seems to be a double standard in the way he votes. He sponsored a bill that was introduced on April 12, 1984 " H.R.5484 (below) " calling for a ten percent flat income tax. The problems with the bill are as follows: "Disallows income tax credits for any taxpayer who is not a corporation" -- I don"t think it could be more explicit than this.
It goes on: "Repeals the income tax credits for: (1) the elderly; (2) contributions to candidates for public office; (3) earned income; (4) the purchase of a new principal residence; (5) dependent care services expenses; and (6) residential energy conservation expenditures."
He said in his interview with Cenk Uygur that he always votes for tax credits " so why did he support eliminating several? The answer is simple: these tax credits benefit the poor and the middle class, rather than the wealthy or large corporations. He wanted to eliminate with the Earned Income Tax Credit, the child care credit, elderly credit, etc " while, at the same time, repealing estate taxes and gift taxes and slashing income tax rates to 10%. This plan raised taxes on poor and working class Americans, while cutting taxes for the very rich. So, he at least lied in saying that he also votes to give tax credits. Is it peculiar that the Earned Income Tax credit is considered welfare, but oil subsidies are not? I think it is. But it"s quite similar to Mitt Romney"s "47 percent" comment, and to Paul Ryan"s "takers and makers" comment, and to Rubio"s, Bachman"s, and Perry"s support of tax hikes on the poor. Oddly enough, the Ryan Budget included huge tax cuts for the rich, too, and maintained oil subsidies, whilst gutting social programs. I"m mentioning Ryan, of course, because many people consider him a Libertarian " and because, as an article I linked below delineates, he and his family actually would benefit from the $45 billion in oil subsidies in his budget. Coincidence? I think not.
But why is Ron Paul doing these things? After all, when Michelle Bachmann " who founded the Tea Party caucus in the House of Representatives -- argued in 2012 that "half the country who pays no taxes" needs to pay "at least a dollar" (and, by the way, I linked to an article below showing that Bachmann received $250,000 in federal farm subsidies " so she and Paul Ryan have both benefitted from "corporate welfare" that they should oppose), Ron Paul argued that this was a step in the right direction. But when he was questioned about how he would fund the government without an income tax, his answered "Non-punitive tariffs." Who pays those? Well, they"re regressive taxes, so of course the middle-class and the poor pay them. Why is he supporting the rich at the expense of the middle-class? And I haven"t even addressed the massive spending cuts he has proposed (e.g., eliminating the Department of Education).
The case is not much different for 2012 Libertarian nominee Gary Johnson, who wants to abolish all income and corporate taxes and replace them with the Fair Tax " a consumption tax, purpoetedly 23%, which is supposed to be revenue neutral. But not only is the rate much higher than it is often promoted as (a panel under George W. Bush held that the rate must be 34 percent, rather than 23 percent, for the plan to be revenue-neutral), but it also poses a huge burden on middle- and lower- income individuals. The panel found that the plan raises taxes on people earning between $15,000 and $200,000; they even called the prebate "a new entitlement program " by far the largest in American history." Again, Mr. Johnson is protecting the wealthy at the expense of the middle class, which his huge, 43% across-the-board spending cuts also attest to.
I want to step back, though, and explain why this type of thinking is so popular. Perhaps you"ve heard of Peter Schiff, C.E.O. of Euro Pacific Capital and former advisor to Ron Paul. Here"s a quote from him (video displayed) regarding his views on taxes:
"If you raise taxes on the upper-income earners, all you do is you diminish their ability to invest and grow the economy. So if we"re going to raise taxes at all " if we really want to reduce the deficit with tax increases " we have to raise taxes on the middle class, because those are the people who are spending money, and we have to reduce consumption, not investment if we want economic growth."
So Peter Schiff agrees that the middle class are the consumers in this economy, and that the wealthy are likely to spend some of their money, but invest the rest " without any genuine savings. Again, he"s falling victim to Say"s Law. I pointed out earlier that corporations are sitting on literally trillions in capital that they"re not investing, and taxes are at all-time lows. Not to mention, consumption is 70% of G.D.P. " to say that the investment component of G.D.P. is more important than the consumption function is simply wrong. And what"s his solution? Raise taxes on the middle class, who are struggling " not because they"re not working, but because many of them are earning low wages, declining incomes, or can"t find work (there are three unemployed people for each job vacancy, for instance) " and give more tax cuts to the rich, who are doing better than ever. I sense a case of social Darwinism, and not only do I find his ideas destructively economically, but also morally. His case is essentially that the wealthy will work harder if they have more money, but if you give poor and middle class people more money, they won"t work as hard. Do you see the fallacy in his logic?
So, the Tea Party and the Libertarian Party support corporate welfare. Tax cuts " especially for the very rich " are part and parcel of their ideology: their claim that the rich are the "job creators." Obviously I completely disagree, as does the business community, who say that lack of sales is the reason they"re not investing; Bruce Bartlett, Ben Bernanke, the NBER, and small business surveys (link with quotes and data below) agree that the drop in aggregate demand is responsible for the current economic woes.
Here"s my final point (video displayed) and I think it"s quite relevant given Schiff"s comments: in 2008, the federal government was funded by regressive payroll taxes (36% of total) and individual income taxes (45%), while corporate taxes only accounted for 12%. Compare that to 1950: the corporate income tax accounted for 26% of total revenue, the individual income tax accounted for 40%, and payroll taxes were only 11%. To say that the poor and the middle class are not paying enough in taxes is simply wrong " factually and morally " and I would submit that it"s bad economics.
-- Ron Paul with Cenk Uygur
-- Ron Paul on farm subsidies
-- Peter Schiff
-- sources of tax revenue
http://www.slate.com... -- Perry, Bachmann, Rubio
http://www.businessdictionary.com... -- what is a subsidy
http://www.factcheck.org... -- fact checking Fair Tax
http://thomas.loc.gov...; -- H.R.5484
http://thinkprogress.org... -- Paul Ryan and oil subsidies
http://www.politico.com... -- Bachmann and farm subsidies
http://mediamatters.org... -- aggregate demand
You can say that it's the consumer who buys the product so he needs the money. But if you favor demand side economics, then the products cost more even the the people have more money so it leads to the same point. The arguments against says law attack it's early form which only dealt with bartering. They ignore any of it's implications in a modern economy. They also grossly oversimplify it. Says used the example of a farmer. The more crop he grows the more he sells, the more he spends. In says law, the business cycle is caused by errors supply to meet demand. This is why production always falters first before ressecion. When the economy picks up, production always picks up first.
You have said that cutting subsidies is raising taxes. This is incorrect. Libertarians don't oppose tax credits because they go to corporations like you do. It's because they cause the misallacation of capital. It also gives some industries huge advantages over others. The reason Ron Paul votes for tax credits is because he hates taxes more then he hates subsidies. You also call Bachmann and Ryan libertarians. I have no idea were you got that from. Right now justin amash is the most libertarian member of congress. You claim to be a kenesian but you decry subsidies. Subsidies are improtant for a goverment controlled economy. This is why the left advocates all kinds of subsidies, including the ones you hate. You say you support green energy subsidies, but that's corporate welfare to. You might say it's a good corporation, but it's still a corporation.
You call the idea of lower priced products and better wages just an assumption, but this has been shown in history to be right. The massive surge in capitalsim in the late 1800s is evidence of this. During this period, wages increased by around 1.3% a year. And this is during major deflation to. Wages went from $1 to $1.50 in less the 40 years. The goods they bought were also significantly cheaper to. Oil was extremely cheap. By the turn of the century, the american worker was far better off the his european counterpart who was more unionized and regulated then he ways. Little to no regulation and taxation had led to one of the greatest rises in living in human history. You talk about about income inequality but really it's not a problem to worry about. Countries with high levels of income inequality also have low amounts of poor people and better paid workers. Places with little income inequality have tons of poor people. Who cares how the rich live when the middle class is doing well to?
You say it is simply unfair that the rich are paying such low rates and the poor pay so much. Instead of going out for revenge of the rich, maybe we should cut the middle class and poor taxes by a lot to. Why do we need to pursue a quest of vengence against the rich. You say that we need the revenue to stimulate the economy and provide services. All the services you listed can be done better privately. Private schools out preform public schools by a long shot. Private roads are more efficient then public roads. I am not saying these should not be public services, but that they can be provided better privately. School vouchers is a good example of this. Private companies can provide public water better then the government can. I await your next argument, thank you for not re arguing everything on that last post.
Raising interest rates is not a solution, especially with the economy as fragile as it is. It would shrink demand even further, and decimate the government's ability to deficit spend, thus forcing austerity (a good example of this is Greece, since it can't borrow in its own currency or print money). I didn't assert that zero-bound interest rates were the sole cause of hoarding, but rather a contributing factor (the most pertinent factor is lack of demand, coupled with the fact that investing in a bond when interest rates may soon rise is quite risky). Also, purchasing an asset--say, a security--is not the equivalent of purchasing a good (directly contributing to aggregate demand) because, as Paul Krugman points out, "the seller might put the cash in his mattress, or put it in a bank that adds to its reserves." That was actually the result of QE; there is so little demand that it is simply adding to excess reserves on bank balance sheets, hence why inflation right now is under two percent. Eliminating the Federal Reserve, though, is a radical idea: yes, it has made flaws (miscalculating economic growth, missing the housing bubble, lack of financial regulation under Greenspan and Bernanke, preemptive mini-taper, etc), but monetary policy will simply not set itself. Eliminating the Fed threatens the stability of the entire financial system.
I never asserted that saving don't help the economy. I believe in the paradox of thrift: if everyone cuts back at the same time, the economy will collapse, so someone has to spend. That player has to be the government right now since demand is so low, and interest rates can't be lowered any further. Deleveraging may be good for a single family or a business, but the government cannot act as a family would. Krugman summarized this as "my spending is your income, your spending is my income." For a dollar to be earned, producing an incentive to work, it must be spent. But with less spending comes fewer jobs, and that leads to a vicious cycle of further layoffs, even less demand, et al. To say that the economy won't get perpetually worse is to say that it will self-correct. Keynes would respond, "in the long run, we are all dead--that is, we should do something now, rather than assuming that the economy will magically fix itself, that markets are perfect and efficient, that people are rational, etc.: the fact that lack of demand in the short-run can undermine the long-run position.
Are you arguing that demand-side economics is inflationary? That"s simply inaccurate. There was mild inflation in the decades following WWII, which is what I support. If the economy were to pick up to the point that we were experiencing an inflationary gap, I"d support spending cuts and interest rate hikes to avoid runaway inflation.
The example that's commonly used in reference to Say's Law is Ricardo"s Corn model: the notion of a closed circuit economy where workers are paid in corn"and literally eat the product of their labor"is the only place where Say"s Law is applicable. There are no possibilities of leakages or injections into the economy. The problem is this: the real economy is not closed-circuit, and the model excludes key institutions (finance, trade, government, and even the underground economy). It presupposes, again, that workers will contribute right back to the system (consuming what they created), but this is not the case. There is no reasonable expectation, in the face of a stagnating economy, that there will be demand for the products. Moreover, there is no explanation that there won't be an inefficiency in the short run--say, an embargo (such as the one that imposed by OPEC after US interference in the Yom Kippur War)--that undermines the long run position. Moreover, I noted in an earlier argument that executives are sitting on literally trillions in capital that they aren"t investing--in spite of the fact that taxes are so low--and that businesses, as well as Bernanke, the NBER, Bartlett, etc, agree that the problem today is lack of demand.
This is strictly a matter of semantics. If a tax cut is a subsidy--and by the definition of a subsidy, a tax cut qualifies--then removing that break is raising taxes. Ron clearly doesn"t hate subsidies if he voted for oil breaks, so much so that he redefined the term subsidy to justify his vote. Is that not a vote for the misallocation of capital"giving an advantage to companies which are doing just fine? I challenged you to tell me what corporate welfare is, if oil breaks don"t qualify. You haven't done that. Tell me, also, why Ron Paul supports oil breaks, but sponsored a bill to eliminate several tax credits that benefit poor and middle class people. Also, I never called Bachmann or Ryan Libertarians. I said that Bachmann is a Tea Partier, and Ryan has been considered a Libertarian by many. You mentioned Tea Party and Libertarians, so I commented on both.
You have the wrong idea of a "government-controlled" economy. I believe that markets should be as free as they can be, but that they are inherently flawed and can run amok if unregulated--it happened in the 1920s, in 2008, in the 1800s etc.--so the government needs to step in. I challenge you to point to a time in history (with sources) that a genuine laissez-faire economy prospered, and where wealth was shared to the extent that middle- and lower- income people weren"t dying on the streets. As for subsidies: I hardly think investing in research, or leveling the playing field through subsidies in renewable energy (which, by the way, have been cut recently) is the equivalent of supporting corporate welfare. It"s correcting a market failure: the fact that the private sector produces too much pollution, which contributions to climate change and threatens both the planet and the economy. Another market failure, of course, is that charities alone can't fix the problem of poverty.
I support leveling the playing field--in equality of opportunity. Big oil companies are literally the most profitable in the world. Why do they need billions in tax breaks? Again, do you oppose them?
As I said, none of this is sourced, so I"m only going to respond to this paragraph from "You talk about income inequality...[..]" down--though I will mention a few things: first, massive deflation didn"t begin until about the 1870s; second, tariffs were much more prominent during this period; third, your analysis has disregarded the five major economic panics of the 1800s, which we can discuss in the next round.
As for income inequality, I don't think you could be more wrong. The US has worse income inequality than Western Europe and Canada, and just over the past 6 years, it has spiraled out of control. Moreover, 93% of the gains of the recovery went to the top 1 percent. Median wages stagnated for about three decades, despite massive productivity gains, and fallen since 2000. That's why food stamp expenditures have increased so heavily. You said that "countries with high levels of income inequality also have low amounts of poor people and better paid workers," but not only have you not backed this up, but you're ignoring the case study of the US.
This is not sourced, and is rooted almost entirely in ideology. Provide proof that private roads can work. Provide proof that private schools outperform public schools--as the data (including an article I linked to) shows otherwise. Vouchers are inherently unfair, as they literally involved taking public dollars"defunding public schools--and subsidizing private, often parochial, schools.
As for the "fairness" argument, let me say this: I don"t think it"s unfair to say to people who have never seen better stock portfolios, or better profits, to pay back into the system which enabled them to reach this level of success. What I do have a problem with is admitting, as you just have, that the rich are paying such low rates, and still asserting that they deserve more tax breaks, while, at the same time, attacking government, based on an ideology that you have not proven is the least bit pragmatic, and supporting a candidate (Ron Paul) who claims to believe that the government is flawed, yet votes to raise taxes on the middle- and lower- class. To do so, you have even redefined the word subsidy. And that is a fundamental difference between us. I don"t base my views on my ideology, or on the "size" of government. I look at facts, cite my sources, and look to ways to make the system more efficient. We've been trying trickle-down economics, and the U.S. case study proves that it is inherently flawed. You can't simply cut rates further and expect everyone to rise: the money has to come from somewhere; someone else has to pay for it. If you simply cut rates, we"ll have to implement austerity, and therefore poor and middle class people will pay for it. That's what Ron Paul wants. That's a view of government that, morally, I cannot accept, and it represents a model that has never worked.
As for demand and says law, I say this. Demand does not drive a economy. It only helps set prices. In a free market, if demand is really low, it's because people want something else. So a business can produce something in higher demand or just lower prices. Any good will be in demand if the price is low enough. So no matter how much a business produces, it can sell the product at the right price. If no one has money to buy TVs, then people will charge less to sell their tvs and people will accept the price. This is the deal with markets. Any good can be marketed at the proper price. The only way this system does not work is if people have no want for any product whatsoever. What about all that thrift, and HOARDING. Well, money is saves for future use. I look at the market and I say, "This market really just sucks." I save or even hoard my cash. Producers start to lower prices and a surplus occurs. I take my cash hoard and spend it for these goods. This goes for producers to. They are waiting for lower prices on goods to make products. When goverment restrains producers, it is much harder for surpluses to occer and prices tend to stay high.
But what if the price is to low to make a profit? The workers have to be paid. Consider this, there is a car surplus of unparalleled proportions. People sell cars at below normal prices. You can argue that it takes more money to produce it then to sell it at the market level. The problem is that a goods value is decided on how it can be used as a comodity. I need metal to make cheap cars. Metal might have been valuable at one point but because cars are a cheap comodity, the metal becomes. Metal sellers would charge less becuase no one would pay for metal that would put the car above market price. While labour cost theory says that selling is only about profit, it is more about consumers demand for that product.
When demand side stimulation occurs, the producer keeps the price the same, but the consumer buys it with new found money. Thus market prices remain the same and cannot fall. So demand stimulation is never ending. The prices will stay high thus needing for stimulation to buy high prices. So no productions is really gained. These policies rack up pointless debts and lead to huge deficiets. How can you say we need to deficiet spend. Eventually the debt msut be paid back. This is unescapable. We can not debt spend are way to prosperity and hope that the debt will vanish. I think we will likely default sometime in the future. It is possible that we can began to reduce the debt, but when you look at it. That will take incredibly long. It would take consecutive Congresses spending cutters to deal with the issue. If we are to perpetually barrow, we at least have to cut it quite a bit to get it to a safe level. Considering how every president doubles or triples his predecessors spending, it seems we are headed to default. We could print more money but that risks inflation.
You keep pressuring me so I will inform you that the tax breaks oil gets are available to almost every other bussiness. They give the government far more then they take in. Please don't say i'm supporting corporate wellfare because i oppose ethonol, farm and sugar subsidies, all of wich are corporate wellfare. As is your beloved green energy.
As for free markets. The 1800s panics where just that. Short panics. They only lasted a few years. As for growth in a free market. The 2000 where not a free market area, i have addressed this already. The first year of the 1920 deppresion was worse then the first year of the great deppresion. How ever Harding didn't intervene and the economy surged back. The great depression lasted for around 15 years. In fact hoover started the depresson.
This debate was intended address taxation, but went on to address the the role of government. You claim that the government is inefficient, but cannot source your claims to prove this, or that this theory has ever worked (I asked twice for attributions, but you didn't didn't provide them). In fact, the only source you provided was an unattributed right-wing webpage, while I've been citing academic studies, a Nobel-prize winning economist, and a former cabinet member. Moreover, I pointed to a time where my view has worked--the three decades following WWII, where taxes ranged from 65-91% (including under JFK, whom my opponent discussed; of course, 54% of his cuts targeted middle and lower income Americans, contrary to the Bush cuts, so they were demand-side tax cuts), where the market was heavily regulated, where the government made investments in education, infrastructure, et al, and where there was mild inflation. That's what I support because it worked. But it's the opposite of what the government has been doing recently. You distanced yourself from the impact of trickle-down by saying, "that wasn't a free market." Tax cuts are tax cuts, and you have not provided a case for them.
Again, I'll address your arguments by paragraph.
1. Depressions are not short. The Great Depression lasted from 1929 to 1941 (and ended as a result as a military buildup prior to WWII since the New Deal was inadequate, which John Maynard Keynes pointed out in a letter to FDR in much the same way that Paul Krugman condemned Obama's Stimulus Package before it passed because it was three times smaller than it needed to be). They are certainly painful. Median wages have been stagnating, and most of the gains of the sluggish recovery went to the top 1 percent. It's called the Great Recession (considered by many to be a depression, the worst downturn since the Great Depression, for a reason. Your view appears to be that depressions are a regular thing, and are acceptable for the market to restructure. The problem is, they are preventable, and they were prevented by heavy regulation in the decades following WWII.
You're also misunderstanding the cause of depressions. I'll use the housing bubble as an example: The 2008 downturn, much like the 1929 downturn, was a market economy run amok. As a result of Bill Clinton repealing Glassed-Steaggall (even Ron opposed its repeal), which separated commercial and investment banks so that they could not become de facto casinos (a law which, by the way, prevented financial crises for 50 years), and of further deregulation under George W. Bush, banks were allowed to overleverage into subprime mortgages--backed by virtually nothing--and become "too big to fail." As a result, people lost their houses, their jobs, and their livelihoods, and the lack of demand spilled over into other sectors of the economy, all while these institutions were bailed out. The bailout, while repugnant, prevented an even worse collapse. I wanted to attach to it restrictions, regulations, and rules that would have prevented it from happening again, and prosecute those involved. Your laissez-faire view of government, though, would preclude this type of intervention.
2. You aren't responding to my critique of Say's Law, or the wide-ranging endorsement of the view that lack of aggregate demand is the problem now. Show me evidence that these people are wrong.
Most of your paragraph is anecdotal, but you said that "if demand is really low, it's because people want something else." First, this is wrong because it assumes that people have perfect information of the market, and are constantly, without question, acting rationally and looking to the future--and, to some effect, capable of predicting it. That notion, of course is incorrect, unless you are psychic. Second, the reason demand is so low right now is that the economy is so bad, and many people are becoming long-term unemployed. The libertarian stance is that they should, in essence, "pick themselves up by their bootstraps." The problem is, there are three unemployed people for every job vacancy. Income inequality, and the relationship between the top 1% and middle- and lower- income Americans, has not been as bad as it was since 1929, and we both know what followed that. If you don't have a job, or you're underemployed, it's simply a fact that you cannot spend as much because you can't. You're not earning what you would otherwise, and what you have access to you're more likely to save, because you fear that you won't be able to survive in the months ahead.
3. I'll address your claim in your last paragraph about producers lowering prices--which, again, was ancedotal. You're effectively echoing my argument that demand is important: that, without demand, prices will eventually drop (and, frankly, that takes a long time due to Keynes's concept of "sticky wages," which is why wages don't immediately fall in a recession), and companies cannot profit. That's actually counter to the Ron-Paul-libertarian case that deflation can be a good thing, and that inflation is the main problem. Of course, falling prices is a problem, because it leads to lower profits and wages, layoffs, and an endless cycle of lower demand, breeding more unemployment. You've effectively endorsed my position in this paragraph, though your argument that "people sell cars at below normal prices" implicates that you believe that prices are proxies for value. Of course, that is simply not the case. Not only do prices fluctuate--as you pointed out, with fluctuating demand, a force independent of value--but value itself is subjective. Objective value is nearly impossible to glean, and even microeconomic models judge valued based on subjective experience of each additional unit of a good or service (marginal utility).
4. You say that "the producer keeps the price the same." That's actually untrue, and counter to demand-pull inflation, where prices will gradually rise. That's why the Fed keeps interest rates so low: because, if they were allowed to increase, we'd experience deflation that would threaten wages. Demand stimulation can, in fact, end. As I pointed out, as soon as we hit full employment--around, say, 5%--I'll support spending cuts and interest rate hikes to avoid runaway inflation. Where Ron Paul gets it wrong is in assuming that the US will become Zimbabwe or the Weimar Republic in terms of hyperinflation. The fact is, that is virtually impossible with the ease at which the Fed can raise interest rates.
Oddly enough, arguing that the debt is a problem is an argument against your position of tax cuts (unless you want to argue that tax cuts raise revenue, which has never happened). But it is simply inaccurate that the principle of the national debt must be paid back; nearly every single capitalist nation has a debt burden. It's literally the lifeblood of capitalism. With time, and with economic growth, the debt: GDP ratio will shrink to a more manageable figure (e.g., Britain had a debt:GDP ratio of 200% when Keynes wrote). In fact, the CBO figures, and even Ben Bernanke, hold that the debt outlook for the US is solid over the next ten years. In fact, the US can borrow at negative real interest rates--historic lows. Again, amid a booming economy, I'll support paying down debt. The economy in the early Bush years was good, and he should have paid down debt. Instead, he cut taxes for the rich. This view that debt is a problem actually undermines your position. If you believe that taxes should be cut, and the deficit should be cut, you must support spending cuts--which I presume you do. But you need only look to Europe. Greece slashed massive amounts of spending as conditions for IMF/European Commission bailouts, and its debt: GDP ratio grew because austerity shrank its economy.
Your claim about "doubling or tripling" predecessor's spending is unsourced and inaccurate. Congress is practicing record levels of austerity, and has already cut l trillions in spending (e.g., sequestration). Moreover, I pointed out earlier that inflation is below two percent, and that the Fed can preempt runaway inflation.
5. Tax breaks are not available to "almost every other business" to the same tune as Big Oil; they're available for the politically connected, and are largely enabled by the mentality that the government can't do anything right. As for green energy subsidies, I've already made my case: they correct the market failure of pollution. The second green energy companies become even remotely as profitable as Big Oil, I'll be the first one clamoring to abolish them. GE paid a 0% tax rate, and I think that's a travesty.
6. As for the 1800s: "short" is a subjective term, but admitting that there were panics undermines your case that the free market is ideal, especially when downturns are preventable. Under the system I support, there were no financial crses.
Finally, I'll address 1920-1921 (which, by all accounts, was not on par with the Great Depression). Following Krugman"s account, Harding's policies were virtually irrelevant. The recession today was brought on by excessive private sector debt, while-debt in 1921 were eroded as a percentage of GDP due to post-WWI inflation. Because inflation was high, the Fed tightened monetary policy--leading to a recession--and then loosened them, and the economy recovered. This was possible because interest rates were not in the zero-lower bound, as they are today.
Depressions are bad
They can be prevented
Deficiet spending helps this
We need taxes for this
I have explained that depressions are nessesary. You say they are totally preventable and use post ww2 as a example. Actually while taxes were high spending was super low. America Was the only nation not harmed by the war so we had a huge advantage. Assuming government delays the depression people keep making bad investments. Stimules spending is especially worthless. Why pay people to do projects that are so worthless that no private enterprise will do it. You say that private enterprise made two many risk in 2008 . True but it was because the government was putting to much money in housing. Also because they new they were to big to fail. Let's look at history.
You say that a few years is relative. Think about it. Martin burdens presidency was ruined by deppresion. By the year after his departure the marker corrected itself. As for the 1920s it is the fact that his policies were irevelent is the important part. He did nothing and the depression ended. Why is this when now we have huge depressions with huge spending. As for private vs public Bryant park in NY city was a horrible public park until it came under private management. And says law? I argued against your points for a whole argument. All you say is why is it right.
No votes have been placed for this debate.
You are not eligible to vote on this debate
This debate has been configured to only allow voters who meet the requirements set by the debaters. This debate either has an Elo score requirement or is to be voted on by a select panel of judges.