Please explain this:

aristide1 · Post by **aristide1** » Sun Mar 29, 2009 3:44 pm

With record deficits we're seeing tax cuts. How does this work? What other country in the entire world cuts their income when they expenditure is greatest? When in history was this successfully accomplished?

Have we not heard of this before in ancient times? How people can vote themselves tax cuts (which we do somewhat literally and somewhat figuratively) until the whole thing flops on it's face? Is that suppose to be a good thing?

Now some will try to slap a pro-socialist label on me and the reply to that will be "Zzzzzzzzz." Seriously, government, like anything else needs a certain amount of money to function. Where it goes is not the current question, the current question is that deficit clock, which looks like it's going to need it's own power plant to keep spinning so fast. Can politicians eager to get elected continue this tax cut reverse Ponzi scheme? When will the debt be looked at seriously? And aren't tax cuts promised at voting time not really any different than a bribe?

andyb · Post by **andyb** » Sun Mar 29, 2009 4:03 pm

The UK cut VAT by 2.5% for 13 months on 01-12-2008 so that people spend more money in the shops.

There is a far bigger issue of tax cuts VS government running costs, and that is taxpayers and a long term plan to mop up the mess of a worldwide recession.

The less money people spend, the less money businesses have, the less money businesses have, the less employees they need, therefore there are more people who are unemployed and paying far less tax, whilst being "paid" unemployment benefit from the government coffers.

Its actually worth the government keeping businesses afloat simply by breaking even with the amount they are spending to keep business afloat compared to how much tax they would loose from all of those people who would suddenly be unemployed (but only if the business will stay afloat under its own steam when the recession is over - thats a far more difficult question to answer).

Japan about a decade ago had an interesting idea, they gave everyone (litterally) vouchers that can only be spent in shops to help boost the economy, with the theory being what they pay in = what they receive out.

So in a roundabout way I come to your tax cuts, if people have more money via lower taxes, people have more money to spend. This is a nice theory, but the reality is far more complex than how I have put it.

But overall result is a short term loss (for a faster exit out of recession), followed by a tax increase when the economy can take the hit, (to balance the governments books for the earlier loss), and then back to normal (relative normal).

Andy

aristide1 · Post by **aristide1** » Sun Mar 29, 2009 4:10 pm

But overall result is a short term loss (for a faster exit out of recession), followed by a tax increase when the economy can take the hit, (to balance the governments books for the earlier loss), and then back to normal (relative normal).

The emphasis on getting out of a particular dilemma is clear, but we're doing this as a general trend, and at some point, will go from an expectation to a personal mandate. We do this in good times and bad times.

And while the idea of spending more seems to have many upsides, one downside is overwhelming; unemployment. Lots of credit and an extra $25/month is not going to alter much of anything for those people, to which we added what? Another 697,000 more in February alone?

Scary stuff.

andyb · Post by **andyb** » Sun Mar 29, 2009 4:19 pm

And while the idea of spending more seems to have many upsides, one downside is overwhelming; unemployment.

But thats a governments worst nightmare, and what they are trying to avoid.

The reason why the US government is pumping billions into the car industry is to keep hundreds of thousands (millions.?) of people employed, and the businesses running. Its far cheaper to keep the employeeys who know how to do the job than re-train, its cheaper to keep the factories intact than break them apart for a fraction of their worth, and then when people start buying new cars again buying new machinery. Yes the companies are junk, and yes the do need to be downsized but I am sure thats in the pipeline and we will hear about it soon, but I feel that right now is all about "damage limitation" for the future.

Andy

maf718 · Post by **maf718** » Sun Mar 29, 2009 4:40 pm

If things continue as they are, maybe in a few years China could call in the debts owed to it and find that they actually own the USA?

Eyedolon · Post by **Eyedolon** » Sun Mar 29, 2009 8:51 pm

They already do maf, they are just being quiet about it. Doesn't hurt that we're junk bond status right now.

judge56988 · Post by **judge56988** » Mon Mar 30, 2009 12:25 am

I remember the phrase "short term pain for long term gain" - it seems that the opposite is true now.

Politicians these days can't see past the next election.

Those still in work are able to pick up some bargains because of the heavy discounting going on so I don't think we need tax cuts to encourage those that do still have money to spare to go out and spend it.

What I don't understand is that while we are being told that reckless borrowing/lending got us into this mess, governments are hellbent on borrowing their way out of it; whilst also urging the banks to start lending again so the public can continue on their reckless spending spree.

At the risk of being labelled a socialist, personally, I think that taxes should be increased and the money used on improving infrastructure which would increase employment (thereby reducing the bill for benefits and increase the demand for consumer goods) and also benefit the country in the long term.

It's an old adage, but the philosophy of "living within ones means" should perhaps be heeded by people and governments alike.

If things continue as they are, maybe in a few years China could call in the debts owed to it and find that they actually own the USA?

There is a substantial difference between owning something and possessing it! Suppose the US told China to whistle for it....

andyb · Post by **andyb** » Mon Mar 30, 2009 10:52 am

I think that taxes should be increased and the money used on improving infrastructure which would increase employment

I agree, governments around the world should do things like this whenever they have lots of people unemployed.

The US seems to be very concerned right now with Mexico (quite rightly), people have suggested in the past to build a huge wall. Great idea for a massive government project that will include giving many thousands of people jobs.

http://en.wikipedia.org/wiki/United_Sta ... ico_border

Its not going to be a small task either, but instead of it taking many years, simply throw tens of thousands of people at it and aim to get it done in 2 years.

1,969 miles / 440 working days / 44 wall starting places = 0.1 Mile per day per starting place. Thats 176 yards per day per wall segment, it's realistic and solves 2 problems in one go, what to do with huge quantities of unemployed people, and what to do with the security/immigration problem between the US and Mexico.

Andy

floffe · Post by **floffe** » Tue Mar 31, 2009 2:59 am

andyb wrote:The US seems to be very concerned right now with Mexico (quite rightly), people have suggested in the past to build a huge wall. Great idea for a massive government project that will include giving many thousands of people jobs.

http://en.wikipedia.org/wiki/United_Sta ... ico_border

Its not going to be a small task either, but instead of it taking many years, simply throw tens of thousands of people at it and aim to get it done in 2 years.

1,969 miles / 440 working days / 44 wall starting places = 0.1 Mile per day per starting place. Thats 176 yards per day per wall segment, it's realistic and solves 2 problems in one go, what to do with huge quantities of unemployed people, and what to do with the security/immigration problem between the US and Mexico.

And in two years and one month, Mexican drug cartels will have dug 2000 tunnels (roughly one every mile), and will be in sole control of these, allowing <i>them</i> (as opposed to to profit from any Latin Americans trying to get into the US and hence strengthening their position in northern Mexico even more.

Tobias · Post by **Tobias** » Tue Mar 31, 2009 3:35 am

andyb wrote: I agree, governments around the world should do things like this whenever they have lots of people unemployed.

The US seems to be very concerned right now with Mexico (quite rightly), people have suggested in the past to build a huge wall. Great idea for a massive government project that will include giving many thousands of people jobs.

The biggest problem, from an economic point of view, is that it would not lead to any economic gains except putting all that labour at work for a short while. And not only is the economy of such a wall in question, but that scheme would also demand a great length of investments along the wall (roads etc) for the workforce to get to work and diners and stuff to feed all that workforce which will also be bad investments as the need of them will decrease sharply after two years.

It is a whole lot better to spend the money to alleviate congestion in the larger cities which will repay itself many fold or to increase the quality of the national road networks or other infrastructure...

Sure, finding work to a large amount of people does have positive effects in itself, but not all of the effects are desirable and there are other projects with a higher yield to look at first.

aristide1 · Post by **aristide1** » Tue Mar 31, 2009 7:13 am

floffe wrote:And in two years and one month, Mexican drug cartels will have dug 2000 tunnels (roughly one every mile), and will be in sole control of these, allowing <i>them</i> (as opposed to to profit from any Latin Americans trying to get into the US and hence strengthening their position in northern Mexico even more.

And we also have drug cartels with their own submarines doing their business. Of course a torpedo will resolve them and leave the courts out of it.

andyb · Post by **andyb** » Tue Mar 31, 2009 3:01 pm

I'm not the best person in thew world to suggest how the US manages its unemployment problem, I'm not even the best person to suggest how the UK should mage its unemployment problems, any suggestions are welcome.

Regardless of exactly what to get the unemployed to do (workwise) its worth spending public money on paying those people to do public work now rather than later when there will be fewer people employed.

Andy