Monday, August 08, 2005

Building, Building Everywhere

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I'm currently sitting in Washington DC and looking out of the hotel I see a whole lot of building going on. It's the same in every city I visit it seems.

The economy is truly booming and the MSM can't bring themselves to give credit where credit is due. Bush has done a bit of understated crowing crediting the true reason that the economy is up...tax cuts. Some in the MSM choose not to accept this and have stated so without compunction.

This is the oldest argument in American politics, to reduce taxes, thus spurring economic growth and more jobs, or increasing taxes and expanding federal programs.

If history is any harbinger, the tax cut argument easily wins. Think tax cutters such as Kennedy, Reagan and Bush. Now think tax and spenders; Carter and LBJ. The evidence is pretty clear. Tax cuts are progressive to a great extent.

6 comments:

Dave Justus said...

I'm as big of a fan of tax cuts as anyone, but the record isn't quite as clear as you make it sound.

Kennedy certainly cut taxes, and caused a major boom. However the rates he cut were dramatically higher than the other tax cuts, and for that reason may not be applicable to lower tax levels.

Reagan's tax cuts have been mythologized, but I have seen compelling evidence that his tax reform, while streamling and improving the tax process, didn't actually cause cuts it just moved some things around. It was a good thing and needed to be done, but it can be argued that he didn't actually cut taxes, at least not signifigantly.

Bush of course has cut taxes, but he has also spent in ways that would make LBJ proud. I am of the opinion that Government spending is more of the problem than taxes (or deficits) and however you finance it, spending will mess with the economy.

I do think that their is merit to tax cuts promoting growth and the laffer curve theory, but it hasn't been proven quite as strongly as I would like. There are of course plenty of other reasons to support tax cuts though.

Anonymous said...

Welcome to DC!

Besides the building, you will see lots of for-sale signes on houses. On 16th st around where I live all of a suggen there are lots of empty-houses with signs out front. Now, I am in the mood for buying a house and there are two around by me that are really nice, however both are over $1.2 million, and from what I can see, way overpriced.

As for the tax breaks, their great, I would love more!

Scott said...

Dave,

This explains it pretty well with regard to Reagan:

http://www.cato.org/pubs/pas/pa-261.html

Reagans tax cuts were not "mythologized" as is evident here:

The changes to the federal tax code were much more substantial. The top marginal tax rate on individual income was reduced from 70 percent to 28 percent. The corporate income tax rate was reduced from 48 percent to 34 percent.

http://www.econlib.org/library/Enc/Reaganomics.html

The top rate was reduced from 70% to 28% without raising taxes on anyone. How is that moving things around? That's an astounding tax cut and of course revenues rose dramatically.

Scott said...

A slight correction, taxes were raised on SS but individual taxes were not raised.

Dave Justus said...

Scott,

Reagan also closed a number of loopholes and removed a number of ways to make deductions.

No one actually paid the 70% that they owed on paper, when it was all said and done, the tax cuts combined with the loophole closing worked out to be more a less a wash.

This doesn't mean that it wasn't a good thing, and didn't have positive effects on the economy, because it did.

However, it is difficult to argue that those positive effects were a result of tax cuts per se or that the increased government revenue after they took effect was a product of the laffer curve.

I am a huge fan of Reagan, but we can be honest about what he did and didn't do. Admittedly, I am a bigger fan of tax reform (flat tax is a huge dream of mine) than I am of reducing taxes (both are good, but if I had to pick...)

Scott said...

I agree on the flat tax. Niel Boortz new book is about that, but I've yet to read it.

The reduction of business taxes had a large effect under Reagan and set in place the boom that we saw in the mid to late part of the 80's.