American Fiscal History, 2009-2011

July 20, 2011

Congressman Paul Ryan offers a very succinct review of the last two years, from Democrats’ bad policies (e.g., raising taxes during a recession) to their refusal to follow the rules (not passing a budget when required by law to do so, abusing the reconciliation process to pass Obamacare).  I recommend it, especially if you’re not already familiar with some of this recent history.  Even if you are, it’s important to keep the current debt-limit fight (including President Obama’s breathtaking attempts to paint himself as the responsible one) in perspective.

Hat tip to the Foxhole.

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14 Responses to “American Fiscal History, 2009-2011”

  1. Ben Hoffman Says:

    Congressman Paul Ryan offers a very succinct review of the last two years, from Democrats’ bad policies (e.g., raising taxes during a recession)

    That’s kind of a bizarre view, since Obama cut taxes. The Stimulus included $288 billion in tax cuts.


  2. Ah, but do you mean tax cuts, or tax credits? There’s a big difference. My memory is that President Obama’s stimulus etc. have included tax credits (i.e., manipulating our behavior by rewarding or punishing those who meet the qualifications with a limited increase or decrease in their tax liability), but that the Obama administration has never yet cut tax rates (unless you count his signing the limited renewal of the Bush tax cuts).

    Don’t take my word for it that the former are a bad thing—President Obama himself agrees that tax credits are bad, except when he believes the contrary.

    Cutting tax rates leaves people more freedom with more of their own money (which we should expect to help the economy as well). Making the tax code even more complex with more behavior-manipulating tax credits leaves us with, if anything, less freedom.


  3. That’s funny, I see that your own blog seems to blame Republicans for the same $288 billion that you’re here trying to give President Obama credit for.

    • Ben Hoffman Says:

      That’s funny, I see that your own blog seems to blame Republicans for the same $288 billion that you’re here trying to give President Obama credit for.

      Nope, that was bad for our country so nobody gets “credit” for it. There’s only blame.

  4. Snoodickle Says:

    Didn’t Clinton raise taxes and the economy boomed? And then George Bush cut them and the economy collapsed? Fill me in on what’s going on here.


  5. Snoodickle, Tevyeh has offered (more than once) to “fill you in”, but as he warned, “it’s going to be ‘abstract.’ If abstract reasoning isn’t your strong suit, we should probably just call it quits.” You accordingly declined his offer every time.

    Despite that, I’m going to take your question seriously for a moment and offer a serious, though brief, answer. After that, I’m probably not going to respond to whatever else you try to say here. I don’t have time to sit here all day and exchange thirty comments with you, wondering all the while whether you genuinely can’t understand what I’ve said or just aren’t trying very hard.

    As Tevyeh has said before, there are just too many confounding variables; you can’t say “Didn’t Clinton raise taxes and the economy boomed? And then George Bush cut them and the economy collapsed?” and assume causation. It could be that the economy boomed in the 1990s because Republicans took over the House and pulled off a historic reform of the welfare state. It could be that the economy crashed in the 2000s because President Bush tried to reform Fannie Mae and Freddie Mac multiple times but the Democrats successfully resisted, and those entities eventually precipitated a housing crisis. (Also note that the enactment of the Bush tax cuts was followed by half a decade or more of low unemployment—much lower than now—before the current recession, which “followed” far behind those cuts.) Who knows? Therefore, forget about empiricism for this question, and use abstract reasoning instead.

    Abstractly, liberals are perfectly willing to understand that if you tax something, you get less of it, when it suits their purposes. Some liberals talk about raising the tax on gasoline to discourage people from buying so much of it. “Cap and trade” would have taxed energy production to discourage people from burning so much coal, etc. Likewise, if you tax earning money itself (by raising the income tax rate), people will do less of it.

    Think about it with personal examples. Have you ever done a job that you didn’t like so well, but you did the work anyway, because it paid enough to be worth it? Suppose that the government had taken a further half of what you were getting paid at the time, or suppose that for whatever reason your wage was cut in half. Would the job still have been worth it to you? or would you have found some more pleasant (even if less remunerative) way to occupy your time?

    Probably President Clinton didn’t take away another half of most people’s paycheck, but some smaller fraction. That doesn’t matter. The principle we’re talking about here is a matter of degree: The more you tax something, the less of it there will be.

    Incidentally, again, you don’t have to take my word for it that raising taxes in a recession will make the economy even worse; President Obama himself has said as much.

  6. Snoodickle Says:

    I understand perfectly the theory that taxing something creates less incentive to do that thing. But there is an equally powerful theory that I have never heard you, Tevyeh, nor most any conservative ever mention, but has been advanced by many economists. That is the theory that taxing something creates an incentive to do more of that thing, to compensate for what is being taken away by the tax. Think about it this way. If my goal is to make ten million dollars a year, I can accomplish that goal under a government with no taxes by making ten million dollars a year. Thus, once I do the amount of work necessary to make ten million dollars a year, I will have little incentive to do any work beyond that, especially if I am already working 40 hours a week. Now let’s say the government imposes a 90% income tax, such that I am only making 1 million dollars a year for the same amount of work I have been doing. Under the conservative theory, I will respond to the increased tax rate by doing less work. Thus, even though i have become accustomed to making ten million dollars a year and the lifestyle that accompanies that figure, I will respond to the increased tax rate by actually doing less work, so now I will only be making, let’s say, $500,000 a year. When you think about it from an incentive standpoint, which I know conservatives love to do, this makes absolutely no sense. If my goal is to make $10,000 a year, I will respond to the increased tax rate by doing whatever it takes to reach that number, which would be to make 100 million dollars a year (before taxes). Thus, the increased tax rate actually increases productivity by 1000%! Think about it from your perspective. Let’s say you make $40,000 a year, $30,000 after taxes, and $30,000 is what you require to live whatever lifestyle you are accustomed to. If the government raises taxes, you will work more, not less, to compensate for the decrease in net income. Thus, an increase in taxes increases productivity!

    Alright, so let’s see where we’re at. I am the only who has cited any data suggesting that lower taxes do not create jobs, help the middle class, or increase productivity. Not only that, but I have advanced an “abstract’ theory that seems to make more sense than the one you have advanced. In fact, you haven’t really explained how lowering taxes increases productivity, besides merely stating that people will work harder if they know they are going to keep more of their money. But is this really true?

    Now that I have adequately engaged in your and Tevyeh’s favored mode of debate, would you care to respond?

    • lectorconstans Says:

      I admit to popping in from the outside here. Your argument – that if government taxes you heavily, you will work harder to make up the difference – is incredible (in all senses of the word).

      Sweden raised its top tax rate to over 100%; Ingmar Bergman left the country. Here in New Jersey, leftists imposed a “luxury tax” on yachts. Yacht-makers promptly left the state. Other examples abound.

      “…but has been advanced by many economists.”

      I would welcome reading what they have to say. I might even be convinced.

      “I am the only who has cited any data suggesting that lower taxes do not create jobs, help the middle class, or increase productivity.”

      Two words: Laffer Curve.

      “… besides merely stating that people will work harder if they know they are going to keep more of their money. But is this really true?”

      I think it is. Another two words: Human Nature. To take an example, do workers in Cuba, Soviet Russia, &c, work harder in the expectation of earning more? I’ve seen East and West Berlin – before the Wall went up. The dividing line between the East and West Sectors was unmistakable. On one side, a regular city. On the other, bleak, grey, unbuilt.

      You may say that these examples don’t count, but I say they do. People will work harder for their own gain. They will not work harder to (in our case) send more of their gains to a profligate government whose policy is to spend like a drunken sailor. But even there, a drunken sailor will stop when he runs out of money. The government will simply raise taxes and spend more.

  7. Snoodickle Says:

    P.S. Please don’t provide me a b.s. answer about people fleeing the country and leaving their families so that they can live in a tax haven on an island somewhere, where they don’t know anyone and can’t even speak the language. It’s not going to happen.

  8. Snoodickle Says:

    P.S.S. I will take your silence as a concession of my unassailable argument.

    Also, I used the “$10,000” instead of “10,000,000.” Correction please.


  9. That’s an interesting idea, and I would be interested to hear more from (and about) those “many economists” who hold it, but surely you don’t? You’ve agreed before that if the price of gasoline is higher, people will buy less of it. Or do you think money is somehow a special case?

    Money is like anything else, like strawberries, or gasoline—people will buy more of it if the price is lower, but less of it if the price is higher. In effect, we “buy” money with our labor. I’d love to have ten million dollars, but it probably costs more labor than I’m willing to pay.

    You said,
    “Think about it this way. If my goal is to make ten million dollars a year, I can accomplish that goal under a government with no taxes by making ten million dollars a year. Thus, once I do the amount of work necessary to make ten million dollars a year, I will have little incentive to do any work beyond that, especially if I am already working 40 hours a week. Now let’s say the government imposes a 90% income tax, such that I am only making 1 million dollars a year for the same amount of work I have been doing. Under the conservative theory, I will respond to the increased tax rate by doing less work. Thus, even though i have become accustomed to making ten million dollars a year and the lifestyle that accompanies that figure, I will respond to the increased tax rate by actually doing less work, so now I will only be making, let’s say, $500,000 a year. When you think about it from an incentive standpoint, which I know conservatives love to do, this makes absolutely no sense. If my goal is to make $10,000 a year, I will respond to the increased tax rate by doing whatever it takes to reach that number, which would be to make 100 million dollars a year (before taxes). Thus, the increased tax rate actually increases productivity by 1000%!”

    So you’re suggesting that a person already working forty hours a week would be willing to work something like ten times as much to maintain the same income? As you would put it, “this makes absolutely no sense.” (Incidentally, yes, conservatives “love” to think in terms of incentives, but again, liberals are perfectly happy to acknowledge those realities when it suits them—e.g., you and President Obama agree that higher taxes on fossil fuels will make people use less of them.)

    Think of it this way: Yes, people would love to maintain (at minimum) whatever lifestyle they’ve gotten used to, but working only 40 hours a week is part of this hypothetical person’s lifestyle just as much as making ten million dollars is. If the government suddenly taxes him at 90%, he can’t keep his old lifestyle no matter what he does; it’s just a question of how much he’ll cut of which parts.

    Based on all I know of all the people I know or have heard of, I can’t imagine that anyone would operate the way you describe in the situation you describe. You said, “I will have little incentive to do any work beyond that”, but I’m sure there’s no one who says, “I want ten million dollars—no more and no less!” You would have a very obvious incentive to do work beyond that: more money! You said, “I will respond to the increased tax rate by doing whatever it takes to reach that number”, but would you? Whatever it takes? I doubt it. You would make a cost-benefit analysis and do as much as seemed worth it to you—the same as any of us would, whether about money or about anything else we want.

    • Snoodickle Says:

      The gasoline analogy doesn’t work though, and I think you know it. What were talking about is maintaining bottom lines. If gas goes up, you have to use less of it to maintain your bottom line. Conversely, if the price of work goes up, you have to do more of it to maintain your bottom line. The analogy doesn’t even really make sense.

      As for working, 400 hours a week, who said anything about that? The way you would make more money is by innovation, not by working a ton more hours (although some may be necessary). Thus, higher taxes would spur innovation, and lead to a more productive economy.


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