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----Original Message-----
From: Richard C. Fredette <sail4@xxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>This has been an extremely interesting discussion. Bruce, I tend to side
>with you on the issues. However, the comment you made on Bush's tax
>increase has me wondering how that tax on the upper 1% of the population
>negatively effected the economy.
Keep in mind that this tax increase included a 10% surcharge on "luxury"
goods. After the tax was enacted, there were about 3,000 newly unemployed
blue collar workers from boat building companies here in New England, whom
I'm sure would beg to differ with you on your belief that this tax only
affected the rich. The good news is most of them got their jobs back once
the luxury tax was repealed.
>We had an extremely high national
>deficit at the time that was tending to drive up interest rates. That
>tax increase and the subsequent one that Clinton pushed through on the
>upper 2% of the population had the positive effect of helping to bring
>government borrowing down and thereby reduce interest rates.
>It's hard
>to refute the point that since both those tax increases the economy has
>been booming, much to the stern warnings of many at the time. If those
>tax increases were detrimental to the economy, where is the evidence?
This is an issue where the devil is in the details. First and foremost is
that long term interest rates have been falling for some time, but the big
move began virtually the day the Republicans took majority control of
congress in 1994 (keep in mind a drop from 7% to 6% is much more impressive
than a drop from 10% to 9%). That's not a coincidence. History has clearly
shown that under the Democrats, congress spent 1.2 dollars for every dollar
they took in. This is why raising tax rates in the name of deficit
reduction was useless. The government has certainly grown under
Republicans, but the RATE OF GROWTH has slowed significantly.
As for the evidence you requested, it does exist. Soon after the Bush tax
increase the US economy experienced a mild recession, which slowed the
inflow of tax receipts and made the deficit even worse, not better. The
Clinton tax increase did not cause a recession, but here's something to
consider. Believe it or not the GDP grew at a faster rate in the two fiscal
quarters BEFORE that tax increase than in ANY quarter since! What you
really should be asking yourself Richard is how much faster would the
economy be growing right now if that tax increase had never been
implemented. You describe the economy as booming, but it could be booming a
lot more (and the surplus would be even larger...).
The biggest difference between the Bush tax and the Clinton tax was one of
timing. Bush increased tax rates at a time when the economy was already
suffering from the S&L disaster. The tax increase just pushed us over the
edge. Clinton at least had the good fortune (or luck...) to implement his
tax increase at a time when the economy was bouncing back from the S&L drag,
and was entering a very bullish phase of the demographic cycle.
We're bordering on a debate over supply-side economics here, which is one of
my favorite topics. We can discuss it privately if you'd like, but we've
already abused the off-topic rule enough here...
> In
>my mind, to the extent they contributed to debt / deficit reduction, they
>were exactly what was needed. Yes, spending could have been reduced, but
>try doing that in the real world! And if we are going to spend, we
>should at least bring in the revenue to pay for it. To continue spending
>our way into debt as we were doing is not a viable prescription for a
>healthy economy in the long run.
Let me just point out that in purely economic terms, many would disagree
with you. Milton Friedman has said time and again that it is the total
amount of government spending that is important, not whether they get the
money from tax receipts or from issuing debt. He explains this by saying
"we'd all be much better off if the government only spent 1.8 trillion and
borrowed 300 billion to do it than if they spent 2 trillion with a balanced
budget."
>From a philosophical standpoint, however, I PERSONALLY agree with you. My
agreement has more to do with the fact that I find it immoral to issue debt
that future generations will have to pay off when they have no real say in
how the proceeds from that debt are spent.
>
>Otherwise, I thought your case was eloquent.
Thank you.
Bruce
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