Friday, February 18, 2011
Spending cuts are the fiscal equivalent of tax increases
When discussing fiscal matters it's all about revenue and spending.
Most people are against tax increases. Why? Simple, because tax increases take money away from you.
Spending cuts, on the other hand, are generally viewed in a more constructive light. Yet the funny thing is, spending cuts do exactly the same thing as tax increases: they take money away from people. So why do people love spending cuts? The same people who are opposed to taxes increases cry out for spending cuts even though both things are fiscally equivalent.
Here'a another thing that's the fiscal equivalent of a tax hike: taking away someone's benefits. When you take away someone's benefits (Social Security, Medicare, Medicaid, tuition subsidies, collective bargaining rights, annual wage increases, etc.), it's the exact same thing as levying a tax on them. It's a tax increase, pure and simple.
That's why it's so disturbing to watch the protests going on in Wisconsin and see the reaction to them. The public employees (teachers, firemen, police, etc) in Wisconsin are simply protesting against a tax increase that is about to be levied on them. This tax increase comes even as the wealthy in that state got another tax cut!
And while these protests are occurring you have this bizarre sight of private sector workers disparaging public sector workers and screaming about how they are ripping off the states and taxpayers, when in fact all workers are being hit with tax increases in thinly disguised form while the wealthy get tax cuts!
This is playing out throughout the land at both the state and Federal level. We see policies being implemented to reduce pay, benefits and services (which is the equivalent of a tax increase) while the wealthy get more money funneled their way! Even Obama's so-called tax compromise back in December did just that--it cut taxes for the wealthy while imposing a wage freeze (otherwise known as a tax hike) on Federal workers.
The really frightenting thing about this is how this whole argument is being framed in such a clever and deceptive way as to make ordinary workers look like the fat, lazy, greedy, bad guys.
This argument needs to be re-framed. People all across America need to realize that what we're seeing now on pretty much a wholesale level is that middle class workers are being taxed while the rich continue to get more and more tax breaks. All happening under a presidnet who was purportedly for the workers.
Taxation without representation!
Our forefathers started a revolution over this.
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34 comments:
While tax increases (decreases) are functionally equivalent to spending decreases (increases), there is a world of difference in their effect. With progressive taxation, the tax burden falls on the wealthy, while spending cuts disproportionately affect the middle class and poor.
Tax cuts, which increase the deficit, and spending cuts, which decrease the deficit, are effectively canceling each other or else actually increasing the deficit since tax cuts are greater than spending cuts so far.
This is resulting in a vast transfer of wealth to the top of the town through public policy. Same old trickle down theory that worked so well in the past.
Cutting spending is not the same thing as a tax hike. Where did that stolen loot come from for the financing of bloated public sectors and socialist programs to begin with? It had to be taken by force from an indiviudal who created that wealth for himself. One individual does not have claim on the fruits of someone else's labor by right. That is a demand, not a right.
It is true that cutting spending does stop the wealth transfer from an individual who created the welath to an individual who benefits from the theft, but it isn't the favored interest faction that has the moral high ground. People's moral compasses go astray when the government is the instrument for the theft.
What you are saying, Mike, is that some people should be payed for simply existing. At whose expense?
This is exactly what our Founders warned of us if we ever lost the republic that they bestowed on us. If one reads through the Constitution and Declaration of Independence, he will not find the term democracy. The Founders were well read on history and understood that unlimited democracy is the worst kind of despotism. In an unlimited democracy the mythical people don't have the power. It is the most organized interest factions that get some of what they want by colluding with other interest factions by way of parties. It's organized theft.
What is going on in Wisconsin is a preview of what is to come. Organized government unions have long extract every last dime out of the tax payers pocket by colluding with politicians seeking votes, money, and power. Many of these people are nothing more than parasties on unearded wealth. The private, voluntary economy is the hsot in this parasitc relationship. The parasites had better be careful or they may just kill the host.
State governments have to balance their budgets. Until the Fed. Gov't bails out the states, what choice does the Governor have?
Chewitup:
Raise taxes on the rich, not on the middle class and working poor.
This is where I have a severe disagreement with my fellow MMTers on the left side of the spectrum. As Chewitup said, the states are not like the fed govt. States cant issue their own currency. Continuing to push the burden on the "rich" to fund a bloated and corrupt teacher's union is bullshit. Why don't these union bosses take a pay cut and use their dues to further education rather than mount negative PR campaigns to scare people into supporting them? These teacher's who took a "sick" day to protest ought to be fired for denying their kids a day of education. Mike is touting the same old class-warfare arguments to justify funding broken and corrupt system.
Same thing is happening to Texas schools. Houston has a new superintendent who came from a 2 year stint sintering san diego.
he took all the credit for all negotiations with the union.
i am glad there is a union, they keep money flowing to those who spend it and not hoard it.
mmt?
You make some good points here Mike.
I add that these idiots wanting spending cuts now as the deficit increases may face higher taxes later, as even Republicans aren't talking about cutting military spending, Social Security, or Medicare much.
Sure, at least some of these greedy, selfish Republicans might like to drastically cut if not eliminate even Social Security and Medicare, but they are content to whittle away at them over time while taking every opportunity to push tax cuts for the wealthy.
But, they want to bleed the Obama healthcare plan, which may be our best hope of reigning in healthcare costs and avoiding future budget shortfalls.
To have every working person paying taxes specifically for Social Security and Medicare and yet have their benefits cut while those at the top continue to get tax cuts is nothing short of theft.
welfarewarfare state,
Your comments are ludicrous, as usual.
Morality is subjective and I don't give a damn about yours. Your "right" to keep what you earn is irrelevant.
What no one should have a "right" to do is to collect far more wealth than needed while some go without even the basic necessities. Even worse is when some of the wealthiest people on earth actually have lower tax rates than the rest.
You live in a dreamland for the selfish. The idiocy of your extremist libertarianism will become evident in proportion to its success, as eventually the downtrodden rise up and take what they think is theirs, and then some.
It's human nature to want something for nothing, so unless that changes, there will always be a tendency toward socialism. There's a reason Robin Hood's considered a hero and the Sheriff of Nottingham, a disgusting villain.
Give me the name of even one developed country that isn't socialistic. In fact, how many countries can you name without any elements of socialism?
While you're at it, if you're one of those idiot anti-fiat currency people, how many non-fiat currencies exist now? Nearly every, if not every non-fiat currency has failed.
Your ideas are so anachronistic that it'd be less preposterous for you to ride a horse to do your grocery shopping, or light your home(trailer?) with kerosene lamps.
Run along now and leave economic discussions to the adults.
Agreed Joe. The democratic party serves the interest of wall street, trial lawyers, and big labor. The republican's serve wall street, big business, and the military industrial complex. But who is looking out for the middle class private sector worker which constitutes the majority in this country? What is happening in Wisconsin is for the people of Wisconsin to decide. If they want to pay more taxes and support the salaries and benefits given to public sector employees, that is their prerogative. If they don't and they want to cut salaries, benefits, and services, well that is up to them. They can vote on it. Its their money. Why is he national media interfering? In south florida, where I live, we are voting to recall the mayor on march 15 because he raised taxes in order to fund raises to municiple employee's. I am voting to throw his sorry ass out. His staff gets paid more than their counterparts in the white house. He drives a 80K bmw paid by tax payers via his car allowance. These people are just as corrupt as wall-street. On this issue I'm with the tea party.
There is another taxation effect that doesn't get much press - and that's the hoarding of financial assets by corporations.
Since the government deficit is a direct result of this saving behaviour, you can easily show that cuts in spending is simply moving money from the poor directly into the vaults of corporations.
And to add insult to injury the government soaks up those savings with bonds and pays a higher interest rate on them.
You couldn't make it up.
Anti,
One of the problems of the blogosphere is anonymous commentary. It allows too much name calling and vitriol, where honest discussion, debate and disagreement is warranted. The reason there are differences of opinion is because we all don't see from the same lens. For, example, I'm a dentist with zero schooling in economics. I have had my own business for twenty one years. I just recently learned about MMT and am trying to absorb it.
Try to keep it civil while we can appreciate varying points of view.
Thanks
I like Anti's comments!
WWS
By a large margin, the wealthy in this country are the rentiers. They live off the "rents" that are paid to them by people who produce. This has never been more true than now. Their gains ARE stolen because they have influenced the political system to direct the wealth in their direction without having created or built much of it at all. Their earnings are a tax on everyone else and the whole scam is becoming more egregious by the day. Time to take it back.
Very good points, Mike!
they keep money flowing to those who spend it and not hoard it. mmt?
Keynes
WWS rejects MMT. I don't think his economic views have changed one iota since he began posting. You can lead a horse to water...
Neil,
"The govt. deficit is a result of this saving behavior?" The govt. deficit is a result of a federal govt. that spends far more than it takes in and a central bank that acquieses to the politician's political spending.
Mike,
You can't tax the wealthy enough to pay for this debt. They will hide their money or flee the country. What happens when we run out of rich people to steal from? Why do we have to tax at all though given MMT? We can just credit the govt.'s account at the Fed with new funny money, right?
Welfare,
No public investment can be made (ie roads/airports/etc..) without the govt sector establishing liabilities in excess of its tax deposits. Do the accounting.
If things went your way, you might become "wealthier" by sitting on your pile of money yes, but instead of typing on the internet, you'd still be penning your missives here with a bird feather... think about it....
Resp,
Anti,
No need to be uncivil. I'll try to extend a courtesy to you that you couldn't muster for me.
"Morality is aubjective." Translation: theft is subjective.
"Collect far more wealth than needed..." For a person to attain wealth in a truly free market they must offer some value in return. There is no force involved. A person who combines land, capital, and labor to produce a product that others exchange for a value (what their paper money represents) has committed no fraud. That individual has in fact created NEW wealth. He has grown the pie. He isn't rich at your expense. You need people like Bill Gates and Steve Jobs far more than they need you.
If you want to admonish political capitalists then I am with you. Those that get mandates, subsidies, public-private partnerhsips, and regulations that serve as barriers to entry are committing a kind of fraud. Those in the financial services sector alwyas advocating artificially low interest rates (are you reading Mr. Norman?) are also getting a direct subsidy that is nothing more than a transfer of wealth. These political capitalists are not growing the pie.
I AM selfish much of the time just as you are. But human beings are also reciprocal animals that have compassion. I think the difference between you and me is that your default position is government force whereas mine is human liberty. I am very much in favor of private charities, food banks, soup kitchens, mutual aid scocieties, assistance from families, etc. The difference between those things and the force of the welfare state is that no force is initiated against the individual. I have a high opinion of my fellow man, and I think he will do the right thing most of the time. Perhaps you have a low opinion of your fellow man which is why you advocate the initiation of force against your fellows.
If you find the time, get a copy of de Tocqueville's "Democracy in America." He describes the various voluntary collectivist organizations that sprung up naturally out of civil society during that period. There is real world proof that my moral code is workable. Force does not have to used. My one quibble with the book is that it should have been entitled "Republicanism in America" (small 'r' republicanism).
Chewitup,
You seem like a nice fellow even though I have a morbid fear of dentists :) There are other schools of thought out there that I have found to be far more persuasive than MMT or neo-liberal thought. If you find the time, go to Ludwig von Mises Institute and peruse the videos and articles there. Everything's free!
Matt,
There have been many years in our country's history where deficits weren't run, but government spending took place. It is just drawn form tax revenue in that case.
Also, I don't view roads, bridges, etc. as investments. They are expenditures. They are not capital equipment.
Laura,
It is true that you can lead a horse to water, but you can't make him drink. It's just that you haven't led me to water; you have led me to kool-aid.
How is the capital equipment going to get delivered? Is Scotty going to beam them over?
Matt,
Where else would that capital be deployed if not for government directing it for oftentimes political reasons? Government's use necessarily crowds out others. It is true that a certain amount of infrastucture spending must take place, but it should be noted that that is an expense. It is a secondary factor in wealth creation behind real capital investment.
So the truck owned by the transpotation Co. is ok but the road that the truck must drive on (btw the roads without which the truck would have a value of $ZERO) is not ok?
Welfare,
I have seen mises.org. Loved listening to Rothbard. Read Hayak. I've read Friedman, Hazlitt, von Mises. Read Mosler's 7 Innocent Frauds and Soft Currency Economics. Read some of Randy Wray's articles. Read Thomas Sowell's Basic Economics and Mark Skousen's The Making of Modern Economics. Having my own business makes me more libertarian. When I first started out, I was exposed to the welfare system and became extremely jaded against the disincentives of welfare and Medicaid. Once established, no dentist would ever participate in that program. You'd be better off selling shoes. So I agree that government is inefficient, but on a macro level, we should agree that solvency is not an issue. Our politicians are arguing with underlying invalid premise. (as Ayn Rand mentioned countless times- Atlas Shrugged was written before 1971).
Economic justice is not socialism.
WWS
John D. Rockefeller must be laughing in his grave at your comments. "Gov't necessarily crowds out others..."
Ummm...I think that was achieved pretty brilliantly by Rockefeller's Standard Oil.
Morever, since the big wave of deregulation that started in the 70s and accelerated under Reagan, the concentrion of wealth and the phenomenon of "crowding out" has never been greater.
WWS,
What was the poverty rate in America during that era of "voluntary collectivist organizations?"
As Mike has said in the past,
You need the Federal govt to step in for certain things. The states are trying to outsource toll roads, and sell off assets to get their budgets under control. What are the implications of this? States will not fix interstate transportation items,the electrical grids. Witnss what black outs do to productivity. How much productivity would the closing of the Veranzano Bridge cause? The States say let the other guy do it. Private enterprise says not me, I am not going to spend for this, let the Federal Govt do it. To allow these items to fall into non function is a is a huge mistake. Policies and spending are controlled by the lobbyists, and they care only for short term profits, not long term prosperity. Reminds me of the OTC Credit Default Swap market. The Banks just pass the risk on to someone else and keep specutalting, and rob and steal eventually privatizing profits and socializing losses. Someone has to pay to fix this stuff. Example of a failed system,is the Missouri River, and Miss. River locks.
Construction of these structures occurred mostly the 1930s and 1940s and resulted in a total of 27 locks and dams. This system created what is commonly called a “Stairway of Water” as the Mississippi falls 420 feet from the Falls of St. Anthony in Minnesota to Lock and Dam #27 in Granite City, Illinois. Slackwater pools are created behind the dams allowing towboats and other river vessels to be raised and lowered as they proceed from one pool to the next.
The private equity group Cargill, has the Bushes on the board, and you wonder why Ethanol is a mandate. Takes 25 gallons of fresh water to get one gallon of ethanol. Less BTU in ethanol than to produce it. IMO the world needs food not ethanol. But who am I to tell private enterprise how to spend their capitol. I am when they profit from publicly funded canals, and public funded defense. The system is broke with the rich having too much power. If Cargill wants to use the locks let them fix it, good luck with that happening.
My apologies for my lousy spelling skills, and I have a correction,
not Cargill private equity but should have said Carlyle group.
See below a list of some of the board members. No wonder there are food riots due to misallocation of precious capitol which in my opinion is to increase the position of the privileged few at the expense of world misery.
Taken from Wilkepedia:
G. Allen Andreas - Chairman of the Archer Daniels Midland Company, Carlyle European Advisory Board
Daniel Akerson -Board member at 7 companies, Managing director at Carlyle
Joaquin Avila - former managing director at Lehman Brothers, Managing director at Carlyle
Laurent Beaudoin - CEO of Bombardier (1979-), former member of Carlyle’s Canadian Advisory board
Peter Cornelius - Managing Director of Nielsen Australia.
Paul Desmarais - Chairman of the Power Corporation of Canada, former member of Carlyle’s Canadian Advisory board
David M. Moffett - CEO of Freddie Mac, Former Senior advisor to the Carlyle
Karl Otto Pöhl - former President of the Bundesbank, Former Senior advisor to the Carlyle Group
Olivier Sarkozy (half-brother of Nicolas Sarkozy, President of France) - co-head and managing director of its recently launched global financial services division, since March 2008.[36]
welfarewarfare state,
One reason, among others, I have no respect for you is that you're nothing but a cult member of the religious fanaticism exemplified by people like Peter Schiff, Jim Rogers, and other Austrian "economists". There's no number of logical inconsistencies in your views, or amount of contravening evidence that can ever shake your blind, ignorant faith. You regularly make a fool of yourself, I guess emulating your cult leaders, but are too ignorant to realize it.
Be honest. Did you ever even think about monetary stimulus or Austrian "economics" before watching people like Schiff get laughed at by nearly every commentator, show host, and actual economist he ever appeared with?
That you can't see the difference between someone like Mike Norman, who actually, you know, took more than 2 economics courses and didn't reject the well-supported, basic tenets, and someone like Schiff, a lowly stockbroker, speaks volumes.
Mike actually earned a PhD, was a college professor, and has been giving excellent public commentary for more years than I know. Real economists get real jobs at or near the top of organizations.
Stockbrokers are on the lowest rung of the financial services industry. It doesn't even require a degree of any kind to become a stockbroker. One just has to pass the inane series 7.
Stockbrokers are just salespeople and nothing more. They know as much about securities investing as real estate agents know about real estate investing. But, real estate agents don't pretend to be financial advisors.
Worse, full-service brokers have a big conflict of interest, given their compensation. They earn their commissions based on trading volume, not returns for clients, and the vast majority of them can't even beat major indexes. Full-service brokerage should really be illegal.
As for your stupid comments directed toward me, no businessperson would be anywhere without customers and a government to facilitate trade with the development of legal structures, enforcement, and some infrastructure. Warrent Buffett and Bill Gates say this, and do you think Jobs is an ignorant ass extremist libertarian like you?
Did the legal system fall from heaven? Did the private markets develop the interstate highway system?
Some inventions the governments are responsible for:
the internet, satellites and GPS, nuclear power, computers, jet engines, rocket technology, various medical treatments, numerous physics breakthroughs via funding of particle accelerators(do private companies build things like the LHC?), and most importantly, Tang, among many other technologies. The private sector may have eventually developed some of these things, but large research/infrastructure projects? And would you go back and make us all wait for the above technologies?
Look kook, the US government, for example, can borrow at the lowest rates on earth and take advantage of the largest economies of scale. Even with inefficient spending compared to the private sector, are you going to tell me there aren't some things the government can't do more efficiently overall?
You're just the sort of selfish ninny who stays up late at night masturbating to the idea of depriving grannies of their meager Social Security checks and their Medicare, to save a lousy 3.3% or so of GDP. That certainly speaks to your character.
And you're in no position to recommend any reading to me, you ignoramus. Even Adam Smith advocated some form of welfare for those left behind by the free markets. Try reading Wealth of Nations.
Finally, as for your civil liberties and right not to be coerced into paying taxes, I hope the very next action the government takes is to send ATF and IRS agents to break your doors in and shake every cent you have out of you. I hope you resist arrest and get clubbed or tazed a few good times. That is, if you have the guts to stick to your stated principles and refuse to pay taxes.
So this sums up your value to me, troglodyte.
By the way, for any interested, here's my latest anti-Schiff youtube vid, on my new channel:
http://www.youtube.com/watch?v=jGeeiiRehiw
One individual does not have claim on the fruits of someone else's labor by right.
That's true, its also true that no individual has a right to own nuclear weapons. The United States Government has a right to own both. Article I gives Congress the right to raise and support armies and the 16th Amendment gives it the right to levy taxes on "income, from whatever source derived".
You may not like it but it is a Congress's constitutional right, not demand. Taxes are the price we pay for civilization.
You're free to stick it to the The Man at any time and legally avoid taxes by simply moving up to Alaska and taking a long walk into the woods. If you're lucky, moose hunters will find your body before its completely eaten so your family can have a proper funeral (hope they don't claim your Social Security death benefits, but they probably will).
http://en.wikipedia.org/wiki/Into_the_Wild
Current inflation is not due to spending or stimulus.
Current inflation is a function of bank hoarding of USD, China hoarding of US treasuries, OPEC hoarding of USD, USA hoarding of oil in safety reserves, China hoarding metals, etc.
Hoarding is back in style just like a few years ago.
This is equivalen to a spending cut, a tax increase, and a general bad hair day.
Anti,
Stopped readin your posts when you said you had no respect for me. Why would I read the rest. If you can mature a bit, feel free to address me in the future.
Someone else ask me what the poverty rate was during that period of voluntary collectivism. Who knows. There was no political arithmetic (what they used to call govt. statistics) at the time.
Poverty is a relative concept anyway. One could hardly judge a country in its infantcy that was capital starved at the time. It is the rate of growth that matters. Americans went from a subsistence level to the richest citizens of the world in a period that wasn't ideal from my perspective, but was fairly close to true liberalism.
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