Levin and the New Isolationism
Aug 11th, 2009 by David Anderson
Some in the administration and the Senate would put America behind a wall of taxation is the new isolationism. The excuse is trying to prevent people from being able to hide income off shore. The truth is the largest forms of tax evasion are local. What this is doing is locking American investors out of the hottest economies in the world. The Levin bill has the backing of the administration which is hungry for new revenue streams.
While it is advertised as punishing countries that use banking laws to shield anonymous investors. Its sweeping language would punish countries that don’t tax dividends and capital gains like Hong Kong and Singapore. It would be a form of economic imperialism. They are responding by threatening to ban U. S. investment. The damage done to their economic system by losing investment of Americans would be far smaller than the damage of hurting both local and global investment by adopting Democratic tax policy.
If other nations follow suit this could be as damaging as Smoot Harwley Act. If we are to ever have a sustained economic recovery, it has to be based upon sound policy not failed ones.
America needs fundamental tax reform designed by clear thinking, real world, economists. We need policies which encourage American production not flight of production. Levin is right that it starts with the tax code. He couldn’t be more wrong about the solution. Maybe would should take a page from the growing economies instead of closing the book on learning.
This is the supply side of the supply side vs demand side debate. David, you support supply side economics. I question it!
Supply side, or trickle-down, economics has its implementation roots in first term Reagan, so called Reaganomics, which called for very low taxes on the wealthy. Since Reagan also did not cut spending, rather increased it and shifted it more toward the DoD, massive deficts accrued even before his first term was up, causing him to raise taxes three times before his second term was up, to counter the exploding deficit and debt. His successor, George Herbert Walker Bush, referred to it as “voodoo” economics when he had to go back on his word of: “Read my lips, no new taxes!” He raised taxes to counter the still mushrooming deficit and debt.
This is the history, folks!
Many of todays Repubs either don’t know this history, or conveniently ignore it.
Clinton restored sanity in tax policy, raised taxes on the wealthy (“The greatest tax increase in history.” was their propaganda at the time.), which was certainly a major factor in producing the surplus passed on to his son, President George W Bush, who lowered the taxes on the wealthy twice and simultaneously expanded spending, just like Reagan did, only worse, producing almost a doubling of the debt by the end of his second term.
Reaganomics, folks, is an abject failure! Face it!!!
Now David A. wants us to return again to voodoo economics! I am in strong opposition to this, for reasons just given.
Right now we require a new tax policy which shifts the tax burden from the middle to the top. This will stimulate the demand for goods and services at the consumer level, the middle. That done, you can be sure that the American entrepreneurs and corporatists and investors will step up to meet the demand, and profit from it.
This happened during Clinton, it can happen again now.
That said, American consumers, the middle, have to stop their bad habits which reached a peak during Bush-43 with his easy credit environment that he and the Fed (Greenspan) created. Greenspan himself admits this now. We must no longer max out multiple credit cards, equity loans and second mortgages, rather consume only what we can reasonably afford.
Moreover, it will help our economy greatly once we get healthcare costs under control, as health insurance reform is a step in this direction, in my view.
Won’t you agree that demand side economics must be restored, David, folks?
Perry, you already identified what you feel was a major problem with Reaganomics. He cut taxes but not government spending. So lets do it better this time, and cut both.
Actually, nobody has ever tried harder to cut spending than Reagan, and probably nobody ever will again. And the end result was, Reagan proved that it is not possible to cut spending enough to match the large tax cuts for the rich.
The economy did not begin to recover until Reagan signed the largest tax increase in history, taking back a lot of the tax cuts.
Typically GOP though – although the initial tax cuts were tilted to the rich, Reagan’s tax increases were tilted to the working and middle class.
Tim, Reagan did not cut “taxes” per se. He lowered tax “rates”, but made up for it by closed huge glaring loopholes that permitted high income earners to avoid taxes altogether. Those were the days when an affluent doctor could buy an apartment building, use crazy depreciation schemes as if the building was losing value, then wind up paying little or no income tax.An unintended consequence, and part of that history was the collapse of the S & L sector of the banking industry. Once the phony commercial construction deals stopped because the loopholes closed commercial loans went south. I know I was there. That required the first $150 billion dollar taxpayer bank bailout around 1990.
I love Ronald Reagan as an inspirational leader. Voted twice for him. But if you go to the treasury department facts you find he increased spending, raked up huge deficits, and for the first time took national debt over $1 trillion. It’s tough trying to run the United States. Don’t get to hung up on economic ideology or myths.
Unless we do something about this healthcare inflation, the economy is really going to crater.
If you will look at this simple chart, you will see how ineffective supply side Reaganomics has been under Reagan and Bush-43, and how effective demand side was under Clinton:
http://upload.wikimedia.org/wikipedia/en/9/90/Revenue_and_Expense_to_GDP_Chart_1993_-_2008.png
Let’s see, where did I ever advocate increasing government spending except to fight recessionary counter cyclical demand? I would abolish the entire system of hundreds of agencies to aid the needy and replace it with two. One for health care, one for education and training, and the income would be done through a negative income tax with the IRS or through a pre-bate with the FAIR tax. Cut out 70 billion to 130 billion dollars. Block grant the rest to community organizations and state and local government to do the one on one counseling and programs.
Clinton did not abandon basic supply side principles. He continued them with some modifications. When he raised income taxes, he did not raise Capital gains for instance.
Clinton raised taxes (on the wealthy) and cut spending (much of it the DoD). Call it what you will, it worked.
Bush-43 did the exact opposite. Call it what you will, it did not work.
Now we have Obama doing his best to clean up the mess, in addition to tackling problems that Bush ignored (health insurance reform, energy policy, and education)!
From a pure economic standpoint it, I think the Bush tax strategy worked well on the economic growth side. Most economists will put the current economic problems on monetary and credit regulation policies not tax policy. I do fault the spending side. They should have increased the medicare tax about a half of a percentage point total to ensure the prescription drug plan was revenue neutral. Unlike the Social Security tax which stops at about 93K, it would not be regressive because everyone pays it. Any extra revenue should have been invested in agency and more importantly decent municipal bonds. Investing in Muni’s would help fund infrastructure improvements in America while being safe and diversified.
We could have started putting medicare on sound financial footing.
Once again, we get trapped in personalities and everyone has their favorite statistic.
Tax policy should be guided by three things-savings, growth and investment. If you do these things, you get revenue, lots of revenue.
If you design taxes as a punitive or static measure you will always lose.
Our current tax policy is corrupt, broken and wasteful. It should be simple to understand, easy to enforce and fair to all.
Moms and Dads should spend time with their families not with IRS forms and businesses should be out keeping and attracting new customers not satisfying the vagaries of the IRS.
Mike Protack
The first income tax cutter in my lifetime was JFK. It made a positive difference.
GHW Bush got suckered by the Dems into raising taxes. There was a stupid ‘luxury tax’ on boats that raised little revenue but killed a lot of American jobs.
Reagan did the best that could be done. He lacked an ideological majority in Congress so non-military spending was not cut the way it should have been.
Too many of the post ‘Contract for America’ Republican Congressional newcomers became porksters (and even crooks) as they emulated their Democrat colleagues.
We need a return to basics.
The porksters need to be identified and put out to pasture.
“Since Reagan also did not cut spending,..”
Reagan couldn’t ‘cut spending,’ since the budget is completely controlled by the U.S. Congress. Surely you know that.
Reagan policies did end the pathetic Jimmy Carter’s ‘stagflation,’ and did restore American confidence.
When the Obama-Marxists put enough pressure on the investor class, they will flee. The Middle East, Russia, SE Asia, India and China will be happy to provide an investment venue; it’s already happening- see Obama’s dwindling tax revenue.
Reagan cut nondefense spending almost 10% in his first term, and it still wasn’t enough to keep up with his tax cuts for the rich.
Also Gramm Rudmanan Hollings proved the point that when spending is controlled, you can get deficit reduction and tax reform. The top tax rate was slashed starting in 1987 and the deficit went down.
Obama Marxist Reagan Nazis Bush Fascists Carter Communist
Rick Ku Klux Klan. Anybody have some spray paint? Rick the anti-American needs to express himself.
Here is the kind of stuff being written back in 1987:
“Economists, including Lester Thurow of Massachusetts Institute of Technology, warn of a “black hole” of debt swallowing up U.S. economic growth for decades to come. And to Jerry J. Jasinowski of the National Assn. of Manufacturers, the bill for today’s excessive buying from abroad in money borrowed from abroad must be future austerity: a reduced standard of living expressed in less consumption, enforced saving and dwindling investment.
Parallel Numbers
Underlying these fears is the common belief that the ominous trade deficit is a direct consequence of the huge pileup of budget debt incurred during President Reagan’s Administration.
Indeed, the huge numbers seem to parallel one another, with the $221-billion budget deficit of fiscal 1986 nearly matched by a merchandise trade deficit for the calendar year that is on course toward more than $170 billion.”
Hey, don’t be all defensive. It’s just the way it is.
Also Gramm Rudmanan Hollings proved the point that when spending is controlled, you can get deficit reduction and tax reform. The top tax rate was slashed starting in 1987 and the deficit went down.
David – what kind of weird history books are you reading? Everything you said in that comment was factually wrong.
In my little hobby of truth-squadding conservative blogs, I am spending more and more of my time and getting worn down refuting out-and-out lies.
I am starting to think it is a strategy.
First I accept your apologies in advance. May be you need to look at the deficit figures for those years. You will notice that it fell. Numbers don’t lie. Revenue went up. There is nothing controversial about it. This from the GAO measure the deficit a percentage of GDP.
Fiscal year: 1986; Percentage of GDP: -5%.
Fiscal year: 1987; Percentage of GDP: -3.2%.
Fiscal year: 1988; Percentage of GDP: -3.1%.
Fiscal year: 1989; Percentage of GDP: -2.8%.
and these are the numbers in dollars…
Group: 19;
Fiscal year: 1986;
Federal Funds: -$238.108;
Trust funds: $61.893;
Unified budget deficit or surplus: -$221.215.
Group: 20;
Fiscal year: 1987;
Federal Funds: -$222.346;
Trust funds: $72.628;
Unified budget deficit or surplus: -$149.728.
Group: 21;
Fiscal year: 1988;
Federal Funds: -$252.876;
Trust funds: $97.724;
Unified budget deficit or surplus: -$155.152.
Group: 22;
Fiscal year: 1989;
Federal Funds: -$275.939;
Trust funds: $123.483;
Unified budget deficit or surplus: -$152.456.
Well, you got me on the 1987 cut on the top rate – I was thinking of something else and slipped up. Serves me right for posting from memory.
But why did you stop with the deficit numbers in 1989? Don’t you remember Ross Perot’s charts?
Now I have more work to do to look up the deficit numbers post 1989.
But why did you stop with the deficit numbers in 1989?
Oh I see – Because the deficit shot up after 1989.
Now I have more work to do to look up the deficit numbers post 1989.
This graph will do. It clearly shows that your 1986-1989 slice, which you are touting as evidence that the 1986 tax cuts reduce the deficit, are nothing more than statistical noise. The delta in the deficit for 86-89 is insignificant, compared to what happened after 1993.
And I have presented solid data previously on this blog that the 1990s decline in the deficit was due to revenue growth and not spending cuts.
As far as “spending control” – where on this graph do you see any significant drop in spending?
The answer is, you don’t. The modest flattening of the spending slope in the 1990s was all it took, together with revenue growth, to put us into surplus.
Yes, I had good reasons for stopping at 1989 the recession which caused the repeal of Gramm Rudman Hollings and the fact that Reagan was no longer in office. Am I suppose to hold him responsible for two years after he left? 1990 was around the tax increase time. Can I show that cutting rates do not equate with raising the deficit if you control spending with a time in which GRH was repealed, spending increased, and taxes were increased?
I don’t argue that running a deficit in bad times is a problem so I would have no problem with the 1990 deficit. I had a problem with policies which perpetuate deficits which were in the budget reconciliation.
I do agree with you that we grow our way out of deficits. We don’t even have to cut spending that much. In the 90′s we just cut the rate of growth to a sustainable one. I have to say that it proves the point. Runaway spending produces deficits.
“Obama Marxist Reagan Nazis Bush Fascists Carter Communist
Rick Ku Klux Klan. Anybody have some spray paint? Rick the anti-American needs to express himself.”…don
Brilliant post. Now, can you sing “four legs good, two legs bad,” like the rest of your fellow sheeple?