[753] in libertarians
Re: [scottcar@MIT.EDU: Re: Ok, YOU Balance the Budget!]
daemon@ATHENA.MIT.EDU (Vernon Imrich)
Fri Feb 24 15:02:18 1995
To: libertarians@MIT.EDU
Date: Fri, 24 Feb 1995 14:59:56 EST
From: Vernon Imrich <vimrich@MIT.EDU>
|> >scottcar:
|> >Does your program account for the beneficial effect of tax cuts on the
|> >economy, which affects the tax revenue for the next year? After all,
|> >the federal budget is something like 20% of the economy. I think
|> >Libertarians would find it even easier to balance the budget if you
|> >took this into account, and also the effect of eliminating regulation.
|> >Of course, I'm probably asking for too much.
First to answer Scott:
The answer is no. The whole sheet is static. In fact, without the
diagnostics I added, you wouldn't even know how much you raised the
tax rates at all. You're job is to increase "revenue" from one
of the sources (income levels, corportate, etc.). Even with the diagnostics
I added, you still can't tell how much you might have raised the tax
rates themselves. This is because the income tax revenue categories
are not the same as the tax brackets (as far as I know). They are
(times thousands of $) 0-25, 25-50, 50-100, 100-200 and 200 and up.
My diagnostics will only tell you how much more/less the folks of any one
of those groups will pay, as a percentage of what they're currently
slated to pay. You might be able to back calculate changes in rates
but then you'd be back to the arguments over how those new rates would
affect the projected economic growth. Republicans have argued that
net revenues can actually go up with tax cuts, because the lower rates
will stimulate more growth (which is then taxed) yielding more money
than higher tax rates on incomes which grow more slowly. The problem
with this "growing out of the deficit" picture is that, as a percentage
of the economy, the budget also grows. Most budgetary outlays grow if
not by law, by the desire to maintain the same level of service (i.e.
meddling) as a percentage of everything else going up.
Furthermore, the whole spreadsheet is BASELINE budgeted. That means that
revenues are ALREADY slated to increase, even though the tax rates
will stay the same, becasue of CBO projections of overall economic growth.
Similarly, budget figures are already slated to increase based on
both discretionary projections (i.e. crime bill spends 30 billion
over 5 years into the future), or on mandatory entitlement laws coupled
with projected costs to provide those entitlements.
Thus, when you cut programs, you get to say you made big cuts when
in fact all you did was decrease the rate of growth. I based the diagnotstics
this way for two reasons. First, that's how it's reported now. There's
no sense in operating in a semantic dreamland. If you really tried to
enact these cuts, they'd be reported on a baseline comparison. Second,
it's not IMHO wrong to use this comparison because of the way spending
increases are enacted. When congress passes a law to spend 30 billion
over five years, its legally already "spent," that is, added to the budgets
of the programs who will use it. They've made plans based on that law
and so forth. So, for everyone involved, taking it away operates like a cut.
This does have the effect of hiding the growth of government, but that can
still be dealt with in other contexts.
|> The problem with this is that :
|>
|> GOVERNMENT_INCOME = TAXES + GOVERNMENT_BORROWING
Actually, its revenue not taxes. Revenues can go up with fixed tax
rates if the economy grows. The reverse is also true of the economy
hits the skids.
|> If you cut taxes but don't cut spending, you aren't providing
|> any extra money for productive investment because it is all spent
|> buying government bonds. Changing your income stream from taxes to
|> borrowing may provide psychological incentives which might make people
|> work harder, but I don't see any way to measure/predict it.
Agreed.
Finally, as someone else said, if there are increased revenues
because of dynamic effects then those could go back to the taxpayers
or to a debt buy-down account.
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| Vernon Imrich | market failure, n. The inabilty of the |
| MIT, Dept. OE | market to recover from a blow by |
| Cambridge, MA 02139 | intervention. (The Exchange) |
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| MIT LP: http://www.mit.edu:8001/activities/libertarians/home.html |
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