Okay, JP . . I'm putting you down as answering the original thread question (What Did Kerry think to himself when promising no new taxes) as;

-- I won't have to raise taxes . . ..I'll just print-up boat-loads of more cash, causing Carter-esq inflation, until EVERY working stiff has creeped into the $200k+ tax bracket.

edit ---there's your hint, jyl.

So you say the US government's solution for the >$7 trillion national debt is to print more money and drive up inflation?

Just to be clear, by "print money" we're talking about creating new money from nothing, not the routine printing of new currency to replace worn-out currency, or the periodic Treasury Dept sales of bills and notes to finance the deficit.

It would not be easy for the government to simply print new money and use that to pay down the national debt. I know we all cynically say "well, they can just print more money". But actually, as I understand it, only the Federal Reserve is authorized to print money (hence the dollar bill in your pocket says "Federal Reserve Note"), and the Federal Reserve doesn't take orders from the President (it is an independent entity, technically a private entity, whose board is appointed for lengthy terms). It is all rather arcane and I suppose the President and the Congress in cahoots could eventually find some way around these safeguards, but certainly neither Kerry nor any other President could cause the Fed to simply "print money" to repay the national debt without a huge, long, and extremely public battle. So I don't think this solution is realistically possible, no matter how evil or irresponsible the President, for structural reasons.

Just for fun, suppose the government actually could force the Fed to simply "print money" to pay the $7TR debt, and think about the consequences of such an effort. When the scheme became known, the global financial markets would react savagely. The value of the US dollar would plunge, interest rates would soar, and inflation would also soar. Bond investors would treat the scheme as a default. Trading partners would decline to accept US dollars; oil would have to be bought in euros. Whatever Treasury bills/notes were still being issued would be unsalable at any but extremely high interest rates. The US would be thrown into a very severe recession. Something on the order of 1929 would be possible. The President and his co-conspirators would be thrown out. So the solution is again not realistically possible, for economic reasons.

Nope. "Just printing money" is not a realistic way to address the national debt. Might as well just default.

P.S. If you think my description of financial market reaction is exaggerated, consider that the total value of all stocks in all the world's stock markets is roughly $30TR (trillion), with the US about 1/2 of that. So if investors realize that a President will try to "print money" to the tune of $7TR, it's hard to underestimate the reaction!

[sigh] No . . . I was making a JOKE at Kerry's expense . . .like kerry is scheming ways to make his "Promise not to raise taxes" not matter. . . .by doing something really really stupid (baby .. bathwater). . . because THAT is what Kerry has a history of doing. AND, I wanted to hint to you why a countrys' finaces are NOT like a personal savings account.

So, NO; I don't think your description of financial market reaction is exaggerated. :) I agree . . .and the point was; Simply "printing" more money would be STUPID . . .yet Kerry could think that may be a way for him to "not lie" but still stick-it to the working class tax payer. (among others)

I believe Reagan set the policy for conservatives. He is alleged to have said something to the effect that deficits aren't important because 'people don't understand deficits.'

There are many myths the conservatives have created around RR.

He lowered taxes and revenues increased. Wrong. He lowered taxes and the deficit increased dramatically. He then riased taxes sharply and revenues came back up. % of GDP paid in taxes was greater at the end of Regan's term than in the beginning.

Reagan tried to bring down spending but Congress made him spend more. Wrong. The executive branch proposes the budget, the legislative branch approves and consents. Out of 8 years, the budget proposal from Reagan was larger than the final approved budget in 5 of those years.

Reagan's national debt increase was temporary. No one has ever made progress in reducing the national debt. When Clinton was finally able to reign in deficit spending, it was just the year-to-year borrowing. Some people have calculated the total debt: federal and state now stands at $7.5 trillion. Several economists think that amount of debt could cause an economic crisis for the US in the next 5 years. So debt isn't "free" or 'irrelevant.'

Reagan was a short-term thinker when it came to the financial stuff. But even he admitted the stupidity of the "voodoo economics" he quickly abandoned in his first term.

Anyway, back to the question of how to increase Federal revenue and/or decrease Federal spending, in order to reduce the Federal deficit.

I wonder if we shouldn't be taking a hard look at US corporate income taxes. Here's some research I've been doing - maybe it will be interesting:

In theory the Federal corporate tax rate is 35%. In practice, most large companies (whose stock is publicly-traded, and file 10Ks with the SEC) report a substantially lower effective tax rate. For example, in FY03: General Electric 22% Hewlett-Packard 12% Johnson & Johnson 30% Caterpillar 27% Alcoa 32% General Motors 25% etc. Source: Yahoo!Finance, from company 10K filings And the actual tax liability reported to the IRS is usually lower than the tax expense reported in the 10Ks. For example, in 1996-2000 when the economy was booming, 60% of US controlled corporations reported zero tax liability to the IRS, and among the largest (revenues >$50M/yr) nearly 40% reported zero tax liability. Source: GAO report 2/04 "Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1996-2000" www.gao.gov

As a result, US corporations have been paying a decreasing share of total Federal tax revenue over the past few decades.
- In 2003 corporate income tax has fallen to <1.5% of GDP, compared to 4% in the early 1960s (the Kennedy Administration). Source: Center For Tax Justice report, 9/04 "Corporate Income Tax In The Bush Years" www.ctj.org/corpfed04an.pdf .(By the way, the CTJ was critical of corporate tax policy in the Clinton years too.)
- Corporate income tax as a share of profits has fallen to 20%, compared to 40% in the early 1960s. Source: Economic Policy Institute, http://www.epinet.org/content.cfm/webfeatures_snapshots_07142004 based on US Bureau of Economic Analysis data
- Corporate income tax as a share of total Federal tax revenues has fallen to 7%, from >20% in the early 1960s. Source: Center On Budget And Policy Priorities, "The Decline Of Corporate Income Tax Revenues", http://www.cbpp.org/10-16-03tax.htm .

Basically, individuals (and, I think, small businesses) are contributing more of the Federal tax revenue, via the combined effect of income tax and payroll taxes, while corporations (in particular the large ones) are contributing less. This has been going on for decades - it is not a specifically Bush thing.

Corporations have managed to lower their tax payments partly because they have much better lobbyists in government and they understand the issues much better, compared with the average individual voter.

Corporations have also managed to lower their tax payments by sophisticated tax shelters and shifting production to low-tax jurisdictions in other countries. For example, one way a certain tech company gets its low effective tax rate is by manufacturing most of its printers and printer cartridges in Asian factories, located in countries which used tax holidays to attract such factories. Internal transfer pricing then allocates most of the value creation to the factory manufacturing, to benefit from the tax holiday. As long as the profits from the overseas operations are kept overseas, the company doesn't have to pay full US corporate tax on it. This company, and others, has built up a huge hoard of cash overseas (some estimate at $500BN). Now Congress is considering a bill to encourage the companies to bring this cash "back home" by taxing it at a special low (proposed is 10%) rate.

Here's a BusinessWeek article on this: http://www.businessweek.com/magazine/content/03_13/b3826058.htm

I believe (but haven't found precise numbers) that big corporations are more successful than small ones at minimizing their tax payments. Your average small business can't afford a department of tax lawyers, move factories from one Asian country to another, negotiate tax holidays with foreign jurisdictions, etc.

The reason I got interested in this is Kerry's proposal to "cut corporate taxes by 5 percent and eliminate tax loopholes that push jobs overseas" http://www.johnkerry.com/pressroom/news/news_2004_0326.html . I was wondering if this made sense. My feeling now is that if you lower the statutory tax rate while closing tax loopholes and shelters, you could end up modestly reducing the tax payments for small businesses and medium businesses, while increasing tax payments for the largest corporations. That starts to make some sense to me.

P.S. Sorry for all the links that made this post so long. Don't want to be accused of lying ;)

Just to further add to the Reagan wasn't all it was cracked up to be fire, don't forget:

- high inflation (which had the effect of quite quickly lifting nominal tax receipts --> real tax receipts took years and years); and
- that the extremely high (and unsustainable) military spending has economic growth implications (as govt spending is a component of GDP), but by their very nature they are not enduring (as it is wasteful and not "investment").

I read a very, very interesting article last week - I've been saving it up for this discussion ;).

Joseph Stiglitz writes about how he considers Bush to have squandered a huge opportunity to avoid a recession because he spent on tax cuts rather than on other (more effective) methods to grow the economy.

http://www.guardian.co.uk/uselections2004/comment/story/0,14259,1320804,00.html

He also note that real median income has gone down by $1500 ---> people are a lot worse off...

Don't argue with Stiglitz - he is the man. The number of times his work cropped up at University (doing Finance) is unbelievable.

Finally, I believe that while Kerry has proposed $2.2 trillion in new spending, Bush has proposed over $3 trillion, so who is worse?

What that article says makes sense.

The tax cuts weren't well designed to help recovery from a recession.

They weren't well designed to stimulate consumer spending, because much of the benefit went to higher-income families who tend to save a good part of a tax windfall, unlike lower-income families who tend to spend almost all their windfall.

They weren't well-designed to stimulate hiring, because the benefit went to those higher-income families whether they were small business owners (who might then hire an extra person) or highly-paid investment bankers and corporate executives (who'd simply get wealthier).

And they weren't well-designed to provide quick stimulus during a recession, because the tax cuts were set up to last for 10 years, thus spreading their stimulative effect rather thinly (and throwing the budget into long-term structural deficit), rather than concentrating the fiscal stimulus into an immediate 1 year boost when the economy needed it most.

Why was this? Well, because the Bush tax cuts were not originally intended to be a recession-recovery tool at all.

Bush started pushing for his tax cuts when the economy was still strong, there was no recession, and the budget was still in surplus and projected to remain in surplus for many years. He justified them as cutting taxes to return the budget surplus to the people.

Then the economy fell into recession, the budget surplus disappeared, and Bush didn't acknowledge the new situation in his tax cut plans. He pushed through largely the same tax cut that he'd already been pushing. He simply changed the justification. Now it was cutting taxes to pull us out of recession.

Stands to reason that a tax cut designed for one situation and purpose isn't going to be well suited to a very different situation and purpose.

So, this is a long way of saying that I agree with the article.

Good analysis, John, and you're right. There has been a fair amount of historical revisionism on the tax cut story. Thanks for reminding us.

Kerry said he would be taking a page out of Bush dad's book.........................get our allies to pay for the dang war. Pay attention, there will be a quiz after the lesson.:)

Bush's tax cut equaled almost to the dollar the Clinton social security surplus.....................he was spending the surplus, when there was no surplus because of 9/11, the plan went through anyway.

There is no plan, like no plan.:p

I know. Kerry writes and publishes friggin' book detailing what he plans to do and Americans are all freaked out over what his plan is? I don't get it. Bush has run the most secretive government in the history of America and talks to people with annoyed contempt when they ask him how things are going! How can anybody trust this guy!?@# Do Americans like suspense? God we are a backwards people.

Talk about historical revisionism!

the economy may have been up there when Bush took office, but it was CLEARLY headed for a "large correction" . . . "looks like this bubble is bursting".

This was common-knowlege to ANYONE who paid attention to markets.

When every last baby-bommer has parked their money in the market, spending half their working day purusing E-Trade, those markets stop growing. . . .they just run out of new money. . .and no one has been working too hard at their job.

Then on one clear blue morning. ..

Not really, there was a great debate in Washington on how to "spend" the social security surplus.

The social security bubble is the real problem, and Bush has killed it for all future generations it seems. The surplus was the only way top fix it, that chance is gone forever. Eat the old people?

Check it out:
http://www.cse.org/informed/issues_template.php?issue_id=572
http://www.cse.org/images/cse/481_1.gif

http://www.bushisms.com/BushSurplusOurs.JPG

The mother of all chart sources.............your bloated government.:D

http://budget.senate.gov/democratic/charts_taxcuts.html

From the link above: top row 3rd one over is the chart I was thinking of. It's a small pdf, quick to view and download.

From the 2000 Republican platform:

"It takes both candor and courage to say, as George W. Bush has said, that, even in times of large surpluses, the economy is far from perfect and we should not be satisfied with the status quo. Budget surpluses are the result of over-taxation of the American people."

http://www.cnn.com/ELECTION/2000/conventions/republican/features/platform.00/#5

From Bush's acceptance speech at the 2000 Republican convention:

"Another test of leadership is tax relief.

The last time taxes were this high as a percentage of our economy, there was a good reason; we were fighting World War II. Today our high taxes fund a surplus. Some say that growing federal surplus means Washington has more money to spend.

But they've got it backwards. The surplus is not the government's money; the surplus is the people's money"

http://www.cnn.com/ELECTION/2000/conventions/republican/transcripts/bush.html

I don't see "cut taxes to pull our country out of the recession that everyone and ANYONE knows is CLEARLY coming".

What I see - and I think you'll be hard-pressed to read otherwise in Bush's own words during 2000 - is "give the large and growing budget surplus back to the people".

And today we don't have that large and growing budget surplus anymore . . . but we're still giving it back, as if we did still have it.

"economy" and "budget surplus" are two different, but related topics.

I was speaking more to the economy. . .the bubble-burst; which everyone knew was coming. Velosity of money slows. ...

kach points out the SS component, and that relates to budget surplus. SS has been having way more $'s payed in (boomers) than being taken out. SO much so that our govt has been enjoying spending this surplus. .. .writing IOU's to SS.

So when Bush says we were being over taxed, all one has to do is look to SS to see evidence of this. (SS NEVER was considered a savings accnt. SS was set up at a rate needed to augment retiries needs. . .the rate needed then. That rate did NOT get adjusted downward, as the boomer generated dollars far out-paced the need. ---THAT *is* "over-taxation of the American people")

The unbiased democrats view.;)

http://www.democrats.org/ssm/bushrecord_ss.html

The Bush Record: Robbing Social Security to Pay for Risky Tax Schemes

Bush broke his promise to protect the Social Security surplus and is looting the Social Security Trust Fund, spending every dime on tax cuts for the wealthy. His proposals to privatize Social Security would cost trillions, cut benefits and raise the retirement age.
Bush Looted the Social Security Trust Fund

Bush's promise: "My plan will keep all Social Security money in the Social Security System, where it belongs."1

Bush broke his promise in record time. To cover the cost of his tax cuts, Bush will have to spend the entire projected Social Security surplus of $2.4 trillion from 2005 through 2014.2

In fact, Bush was already planning on looting the Social Security trust fund when he made that promise. In August 2001, USA Today reported, "The White House is backing away from its pledge to protect every cent of Social Security reserves in the face of a report today that the government is tapping Social Security taxes for other programs."3

Note: Social Security surplus was the result of payroll taxes, back when more people were working at higher wages. The surplus of S.S. was directly linked to taxes being paid to the government. They had/have our money is just another way of looking at it.

Agreed, Social Security is a mess in the making.

As I understand it - not having done a ton of research - Social Security is not an individual retirement "savings account". Today's workers' SS withholdings are not being individually set aside to pay for those same workers' SS benefits in the future, instead they are going to pay benefits to today's retirees. However, the withholdings being collected today do exceed the benefits being paid today, so the excess goes into the Social Security Trust Fund, and that excess is in fact supposed to be "saved up" for future benefits.

The problem is basically a demographic one. Looking down the road, in ten or twenty years (I don't know the exact numbers) workers' withholdings will no longer exceed retirees' benefits, they will fall seriously short. This is a demographic issue - demographers take the age distribution in the US population, the rate of immigration, the birthrate, and project that the future ratio of workers to retirees will be significantly worse (lower) than it is today.

So arguably it might in fact make sense to "save up" today's workers' withholdings in order to build up a surplus for that future shortage. But I don't think the Social Security system is effectively doing that, or not doing it enough, hence the looming insolvency expected for the Social Security system.

The US is not the only country with this demographic problem. Much of Europe, and Japan, has it too. These are aging societies, and there's not much that we can do about it, unless we can somehow change the birth rate, death rate, or immigration rate. That is why I made the analogy, in another thread, between the US budget and the budget of a middle-aged person.

That's what little I know about the Social Security issue, anyway.

Still, I don't see that the problems with Social Security can be used as justification for cutting income taxes and increasing the Federal budget deficit and the national debt. Saying that we are overtaxed because of excess Social Security payroll taxes doesn't, in my mind, justify cutting individual income taxes.

Especially not for the highest-income families. Remember that a high-wage worker is much less affected by Social Security withholding than a low-wage worker, because the withholding is capped at a certain amount per year regardless of wage (some of us see this every autumn, when our withholding reaches the maximum and our monthly take-home thus grows). And the withholding doesn't apply to investment income, capital gains, and other kinds of income that high-income families tend to have and low-income families tend not to have. So, if anyone has a good argument for being "over-taxed" due to Social Security withholding, it is not the high-income families who got such a nice tax break under Bush.

By the way, on the subject of corporate taxes:

Congress today passed a big corporate tax cut bill. It reduces the corporate tax rate from 35% to 32% for "US producers". It isn't clear to me what "US producers" are, but it apparently includes "traditional manufacturers, Hollywood studios, architectural and engineering firms, home builders and oil and gas drillers, among others" and this is supposed to cut corporate taxes by $77BN over 10 years (Washington Post). The bill also permits corporations who built up untaxed hoards of overseas profits to bring that money back to the US at a special 5.25% tax rate, and other tax cuts for overseas profits, supposedly totalling another $43BN of corporate tax cuts over 10 years.

In total, corporate taxes are supposedly being cut by $143BN over 10 years. This is supposedly offset by closing loopholes and tax shelters, so that the end effect is to leave corporate tax revenue unchanged. I guess that assumes the corporate tax departments don't find new loopholes and shelters.

I keep saying "supposedly" because we haven't seen the details of the bill yet. But Senator McCain calls it "a disgrace" and even Treasury Secretary Snow criticized all the special interest provisions. Bush will sign the bill shortly.

"The problem is basically a demographic one" yep, totally agree.

The thing is "money" (its value) is always subject to where in time you are. This is why "lock-boxes" don't work.

"locking-up" a bunch of money is just like taking it out of circulation and burning it. (deflation) Then, when you "take it back out" it becomes just like printing-up a bunch of money. (inflation)

this is why I said, wayback, "No, it(comparing indiviual debt/savings to Fed debt/savings) is NOT the same. Most people will use the same (individule)model as you just did, but that does NOT make it correct."