Cutting taxes doesn't stimulate the economy!

Backdating the Recession

Here's an odd thing. Snippet one says cutting taxes doesn't stimulate the economy, that's wrong right from the start. However, note that they are emphasizing that it doesn't stimulate and is therefore, for that reason, wrong. Then, in the very next paragraph, snippet two, they laud aspects of the democratic proposal, none of which are stimulative. You can't have it both ways. Either stimulus is good or it is bad, you can't say that the White House approach is wrong because it isn't stimulative and then not apply that standard to the Dems whereby you use "social justice" as the measure.

Snippet 1: The president's main proposal is instead to accelerate and lock in place the cuts in income tax rates that Congress passed but deferred last spring. Those would mainly go to upper-income households more likely to save than to spend the bulk of the money, and most of those cuts would not occur until after next year. That isn't stimulus; it is a reward to a favored constituency, masquerading as stimulus. The same is true of his proposal to repeal the minimum corporate income tax.

Snippet 2: The resisting Democrats would mainly use the legislation instead to sweeten unemployment benefits, help the unemployed maintain health insurance and help the states ride out the recession with fewer spending cuts. That's the right thing to do; they should stick to their guns.

The Lexus and the Olive Tree

I have just about finished 'The Lexus and the Olive Tree' and I have to give it sweeping approval. I knew that Freidman is a liberal, and this comes out at the very end of the book where he praises some existing bipartisan legislature from the Clinton era as well as pushes for a boost in microlending to poor Americans and also to poor foreigners like existing microlenders do (they're quite profitable). Globalization he argue is the vehicle behind the biggest long term gains in history, but also causes extreme short-term displacement. The market will therefor never achieve the full Reagan-Thatcher vision because the working man is not patient enough to ride out a short-term setback and he will act on this impatience politically. He advocates for a healthy trampoline under the trapeze of the free market- not a safety net, but programs designed to quickly bounce those temporarily left behind back on. These include: pilot programs for public temp employment, tax breaks on severance pay, free govt. resume assistance, extension of the Kassebaum-Kennedy Act (laid-off workers keep health insurance longer). He liked the Workforce Investment Act that boosts job-training thru educational grants and lifetime learning credit.

It's a good read

"A powerful volume that comes as close as anything we now have to definition of the real character of the new world order"
- Francis Fukuyama, The New Statesman

I'll let you borrow my copy.

Tax

A tax is an involuntary fee paid by individuals or businesses to a public administration, to support the operation of that government, or to otherwise achieve government goals (also called fiscal policy). Other purposes might include redistribution of income from the rich to the poor, or the support and maintenance of public works. Taxes are most often levied as a percentage, called the tax rate, of a certain value, the tax base (how much you have, earn, spend, inherit, etc.).

An important feature of tax systems is whether they are flat (the percentage does not depend on the base, hence the tax is proportional to how much you have), regressive (the more you have the lower the tax rate), or progressive (the more you have the higher the tax rate). In theory, progressive taxes get a smaller percentage of the income of poorer people, and require less record-keeping and complexity by people with simpler affairs. Progressive taxes reduce the tax burden of people with smaller incomes.

The most common tax is a direct tax. The best example of a direct tax is income tax, which is paid by individuals and corporations on their earnings. This is commonly a progressive tax because the tax rate increases with increasing income. Some critics characterize this tax as a form of punishment for economic productivity. Other critics charge that progressive income taxation is inherently socially intrusive because enforcement requires the government to collect large amounts of information about business and personal affairs, much of which could be considered proprietary.

The crucial invention permitting the high income tax rates was direct withholding of taxes from payrolls by employers. Employees have less visibility to the taxes they are paying because they never handle the money. Direct withholding also discourages cheating because there are fewer employers than employees and the government can focus enforcement.

The classic way of cheating on income tax is to lie about one's affairs. Either one fails to declare income, or declares nonexistent expenses. The government fights this by looking at individual ratios using computer programs. For example, if a person spends too much on cars, they might be examined.

The collection of tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres, is called hypothecation. The practice is often disliked by finance ministers, since it reduces their freedom of action. Some economic theorists consider the concept to be intellectually dishonest since money is fungible.

Another idea is to arrange the taxation so that it causes minimal economic disruption, with the hope of maximizing the total efficiency of the economy, thereby making everyone wealthier. The classic economically neutral tax is a tax on land. A government's primary duty is to maintain and defend title to land, and therefore (so the theory goes) it should collect most of its revenues for this unique service. Since governments also resolve commercial disputes, especially in countries with common law, this doctrine is often used to justify a sales tax or VAT (value-added tax).

Types of Taxes

A poll tax is a tax paid directly by an individual to a government. The earliest tax mentioned in the Bible of a half-shekel per annum from each adult Jew (Ex. 30:11-16) was a form of poll tax. Poll taxes are infamous for causing hardship for individuals who handle their affairs poorly. In fact, they were forbidden by the U.S. constitution as a historic abuse to be prevented. (This protection had to be changed in order to enable income taxes.) Poll taxes are difficult to cheat. A poll tax may also be called a per capita tax or a capitation.

Indirect taxes are hidden taxes. Value Added Taxes, when they do not appear on the sales receipt are a form of indirect tax. Taxes are not always paid in cash. For example, the labor and expense of complying with tax laws and rules are also examples of hidden taxes.

An "Ad Valorem" tax is a governmental exaction in an amount determined with reference to the value of a good, service, or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value added taxes are different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). Ad valorem taxes, income taxes, and per capita taxes are the major categories of taxes, although the first two are the most common.

An "Excise Tax" is a type of ad valorem tax that is imposed at the time of a purchase or sale transaction (sales tax or value added tax (VAT)) or in connection with importation across a political border (tariffs). The tax base is the purchase price or the declared value, however, there are many variations to this basic rule. For example, the sales tax on used automobile purchases in the United States is determined with reference to a published list of prices. The purchase price may be disregarded.

Sales taxes on retail transactions may be applied as either direct or indirect taxes. Sales taxes discourage retail sales. The question of whether sales taxes are generally progressive or regressive is a subject of much current debate. It is common to exempt food, heating and lighting costs from sales tax to avoid regressive taxation on the poor. Sales tax directly discourages formation of efficient production because it taxes the purchase of factory equipment. The classic way of cheating on sales tax is to ask a merchant for a cash discount. The merchant pockets the cash and writes off the merchandise to shrinkage and the state fails to get the tax.

An import or export tariff is a charge for the movement of goods through a political border.

Excise taxes discourage trade. Excises pay government to maintain a navy or border police, and also protect domestic industry to some extent. The classic cheat is smuggling, or a war to interfere with competing countries' merchants.

A value added tax (also called a goods and services tax) applies the equivalent of a sales tax to every operation that creates value. A VAT was historically used when a sales tax or excise tax was uncollectable. For example, a 30% sales tax is so often cheated that most of the retail economy will go off the books. VAT distributes such a tax in small enough increments that it becomes more trouble to cheat than to pay the tax. However, a VAT punishes production, which is considered a bad effect.

An inheritance tax is imposed in many countries on the estates of the deceased. Some believe that inheritance taxes do not have any harmful effect on the economy and may even be beneficial as they encourage consumer spending by the elderly. However, they are also believed to discourage productivity and to disrupt the continuity of many family-owned businesses.

A fuel excise is often used to pay for public transportation, especially roads and bridges and for the protection of the environment.

An alcohol excise is used to discourage alcohol consumption and to pay for the costs of treating illness caused by alcohol abuse.

A carbon tax is a tax on the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel, jet fuels and natural gas. The object is to reduce the release of carbon into the atmosphere.

A blank media tax is a tax on recordable media such as CD-Rs. The proceeds are typically allocated to copyright holders.