Romney vs Gingrich

[CraigStern]

Anything the president does (not just Obama--I mean any president) that increases consumers' discretionary income is going to boost demand.

That means that Republicans would be better for the economy, because they believe in tax cuts, while Democrats want higher taxes, so they spend more on big government.

Tax cuts are one way to boost discretionary income; benefits programs like welfare, social security and medicare are another. Republicans tend to prefer the first approach; Democrats tend to prefer the second. Both can be used to increase discretionary income. Neither party has a monopoly on that.

Here is where it gets problematic, though. It matters what demographic you target with these techniques. It's important to target them at people who need discretionary income, or they won't do much to help demand. This is why it's maddening to see Republicans refusing to extend the payroll tax cuts (which make a huge difference to lower-income people), but fight tooth and nail to keep the Bush tax cuts (an expensive boondoggle overwhelmingly targeted toward the wealthy).

[SmartyPants]

Tax cuts are one way to boost discretionary income; benefits programs like welfare, social security and medicare are another. Republicans tend to prefer the first approach; Democrats tend to prefer the second. Both can be used to increase discretionary income. Neither party has a monopoly on that.

How is medicare and welfare considered "discretionary" income?  Tax cuts boost discrtionary income because it allows people to keep more of their money, while social programs take income from someone and gives it to another.

This is why it's maddening to see Republicans refusing to extend the payroll tax cuts (which make a huge difference to lower-income people), but fight tooth and nail to keep the Bush tax cuts (an expensive boondoggle overwhelmingly targeted toward the wealthy).

Since what you said is completely incorrect, I going to assume that you have not been following the payroll tax cut debate.  First, Obama proposed the payroll tax without any way to pay for it.  The payroll tax is primary source of funding for social security and medicare.  Both of these progressive programs are already underfunded, so Republicans refused to cut their source of funding.  Republicans proposed spending cuts alongside the payroll tax cut to make sure social security and medicare are paid for.  Obama refused spending cuts because it is against his "bigger government" ideology.  The Democrats' counterproposal is to have a temporary payroll tax cut and a permanent tax increase on high income earners.  The Republicans refused because a temporary tax cut has little effect on consumer behavior, while a permanent tax increase will harm the economy.

[CraigStern]

How is medicare and welfare considered "discretionary" income?  Tax cuts boost discrtionary income because it allows people to keep more of their money, while social programs take income from someone and gives it to another.

If you have money and you keep more of it, that boosts discretionary income. If you get more money, that also boosts discretionary income. This is pretty straightforward stuff.

As for the notion that a tax increase on the wealthy would harm the economy, please refer to the post above explaining why we're mostly concerned about the discretionary income of low-income people. We don't need to worry about the discretionary income of people who already have more discretionary income than they know what to do with (i.e. the wealthy).

[SmartyPants]

I want to say more discretionary income is best in the hands of the rich, but that isn't true.  The middle class is the country's biggest source of consumption, while the wealthy tend to use their discretionary income on investment.  Low income earners have very little effect on consumtion and investment.  A temporary tax cut won't help the economy, because it won't change spending behaviors when they their taxes going to go back up.  If anything, it will slightly help people pay off their debt.  Permanent tax increase on the other hand make people feel poorer and less willing to spend on consumtion or investments.

Also, it seems hypocritical to say someone else should pay more, while asking for a tax cut for oneself.

[Gath]

I want to say more discretionary income is best in the hands of the rich, but that isn't true.  The middle class is the country's biggest source of consumption, while the wealthy tend to use their discretionary income on investment.  Low income earners have very little effect on consumtion and investment.  A temporary tax cut won't help the economy, because it won't change spending behaviors when they their taxes going to go back up.  If anything, it will slightly help people pay off their debt.  Permanent tax increase on the other hand make people feel poorer and less willing to spend on consumtion or investments.

Also, it seems hypocritical to say someone else should pay more, while asking for a tax cut for oneself.

That's true-but who says the governments job is to make the economy as efficient as possible? Sure, an efficient economy is good, but isn't it worth sacrificing efficiency in order to provide necessities for others?

Also, Craig, it's a common misconception that the Bush tax cuts were made for the rich, in reality they shifted the tax burden towards the rich. (Data comes from the CBO)

[CraigStern]

Low income earners have very little effect on consumtion and investment.

Again, that is because they have very little discretionary income. If you give them discretionary income, they actually have a huge effect. This is because, numerically speaking, low income earners are roughly half of all people in the country: there is basically no bigger demographic of consumers you could pick to give discretionary income to. Dollar for dollar, giving low income people more money is the most efficient way to spur demand.

Speaking of which: investment isn't directly related to demand. "Demand" means demand for goods and services, not money pumped into Wall Street investment instruments. Demand spurs hiring; investments generally do not. Here is why. Let's say the government gives $10,000 per year to Uncle Moneybags, and Uncle M. decides to spend that on buying 1,000 shares of Sinister Design stock (let's assume that I've already created a publicly traded corporation). So I get $10,000 in money up-front from that investment. That's good, right? However, as a business owner, that isn't going to convince me to hire people. The most basic rule of accounting is that if your expenses exceed your income, you are eventually going to go broke. Wages are an ongoing expense, while an investment is just a one-time lump sum. I don't want to pay a new worker's salary month after month off of a limited, diminishing pile of money. It doesn't make sense to hire unless there is sufficient demand, meaning that I am getting a continual stream of revenue from customers sufficient to make my new hire sustainable over the long haul. Does that make sense?

Gath: I don't doubt that the raw numbers in that table are correct. The problem with that table, however, is that it only establishes a correlation, not causation. The table might as well be comparing pirates with global temperatures; it shows a trend, but doesn't really give us the reasons for it. Other things happened between 2000 and 2004 that could account for the higher share of taxes paid by the wealthy. Most notably: the highest 20% of income earners had their incomes grow dramatically faster than the bottom 80% during this period. If you continue to rake in millions more dollars year after year while everyone else's income stagnates, you are naturally going to end up paying a larger share of the nation's taxes, tax cuts or no.

If you're interested in learning more about the structure of the Bush tax cuts, here is a report on them from CNN.

[SmartyPants]

If the payroll tax cut was permanent tax cut, then I would agree that it would help the economy.  Since the payroll tax cut is temporary, it will not change spending habits a.k.a. consumption.  Also, the bottom half of the country has accumulated so much debt that most discretionary incomes are going towards the debt that has been gathered during the Clinton and Bush eras. 

Lets say Craig wants to expand his business.  He currently doesn't have the money to do so himself.  Lucky for Craig, Uncle Moneybags gets to keep $10,000 more of his money because of a tax cut.  Because of America's low capital gains tax, Uncle M. is willing to make a risky investment in Craig's company.  Using the extra $10,000 of discretionary income, Uncle M buys 1,000 shares of Sinister Design stock.  Using the extra $10,000, Craig is able to rent office space, buy more computers, and hire some employees.  Using the resources acquired by Uncle M's investment, Craig and his employess bring in a steady stream of profit (or they go out of business).  Uncle M is rewarded for his risky investment by selling his stocks at a higher value or by receiving dividends (or his stocks become worthless if the business goes under).  Companies don't issue more stock and investors don't buy stock unless they believe that the company can become more profitable by expanding.  As you can see from my theoretical example, investment is an important part of economy.  Because of the investment, Craig was able to employ more workers then he could on his own.

I think you forgot that the Bush tax cuts effected everyone.  Some people who had to pay taxes under Clinton, didn't have to pay under Bush.  With a smaller tax base, the people who were still paying ended up paying a greater percentage of the total taxes. 

[CraigStern]

I can't help but think that you're missing the key point in my last post. If there isn't demand, then all the investments in the world aren't going to make hiring viable (unless, I suppose, you can keeping getting people to invest in your business ad infinitum without any real source of sustainable revenue--but that's really more of a confidence game than a business model). A business needs an ongoing source of revenue in order to sustainably expand; otherwise, all of those new hires are going to end up unemployed again sooner rather than later. Hence, why demand matters much more than investment. It's also worth pointing out that most small businesses (which do the bulk of the nation's hiring) are not publicly-traded corporations, and so aren't even really in the running for receiving most of that investment money in the first place.

I do agree with you that a permanent payroll tax cut would be preferable to a temporary one. The most effective way to boost demand is to increase discretionary income for low-income people on a long-term basis. (If you want a source outside of myself, check out pages 5-7 (14-16 of the pdf) in this CBO report on the effects of federal stimulus: http://www.cbo.gov/ftpdocs/121xx/doc12185/05-25-ARRA.pdf ) Among different approaches to cutting taxes for a short time, the CBO determined back in 2002 that cutting payroll taxes yielded the greatest "bang for the buck." (Check out page xiii of this report.)

[SmartyPants]

I think you are missing my point.  Smart investors are only going to invest in things that are going to grow in value.  While demand for some stuff goes down, demand for other stuff goes up.  Investments are the tool for businesses to keep up with demand.  For example, demand for cars is down, while demand for natural gas is increasing.  The car industry isn't selling more stock because they don't plan on expanding, yet the oil industry is asking for investments so they can purchase equipment for fracking.  Even though jobs are loss in the car industry, the oil industry is able to create more jobs due to investments.  Of course, people who have jobs have more consumer confidence, then those who don't.  If one reduces investment because of tax increases, then one will slow down the growth of growing industries.

Like Republicans and Democrats, we both agree that a tax cut would help.  Also like the parties, we tend to disagree with how it should be paid for.  Right?

Social security will already run out before I am old enough to retire, so it must be a requirment to pay for the payroll tax cut.  Since tax cuts are more beneficial for economic growth then government spending, it would be best to pay for the payroll tax cut with spending cuts.  I am against paying for a temporary payroll tax cut with a permanent income tax increase, because it will be harmful to the economy. 

[ArtDrake]

Umm... may I interject for a second?

It looks like what SmartyPants is saying is that lump sums of money encourage growth, which increases revenue;
whereas, what Craig is saying is that increased revenue leads to lump sums of money lying around, which encourages growth.

If I may take the liberty of assuming your arguments reflect those commonly held by members of the political parties you seem to affiliate yourselves with, it would seem that the Republican approach focuses more on promoting bold, risky enterprise that not everyone can pull off, but which may blossom into great success;

on the other hand, the Democratic approach would seem to be more about giving the masses sufficient income that a prospective entrepreneur might not risk all in his or her attempt to rise to success, and have a good shot at some measure of achievement whether or not he or she can ever become truly great.

I would even venture that it's not necessarily a matter of what's right or wrong, but what you peronally believe. Although, perhaps one could be better for the country at a given time, bringing us back to the old dilemma: which?

[CraigStern]

whereas, what Craig is saying is that increased revenue leads to lump sums of money lying around, which encourages growth.

No: there is a qualitiative difference between having sums of money lying around, and having a constant flow of income. Growth and investment do not necessarily lead to greater income--in fact, the only thing that growth reliably increases are recurring expenses. Growth only results in higher income if there is demand to match.

[ArtDrake]

I guess I implied too much there; having increased revenue allows the saving of money for significant single expenditures promoting growth for the company or business in addition to the ability to hire new employees sustainably. Is this closer your idea?

Plus, I did forget to mention that in the case of lump investments, the demand isn't necessarily present for growth to be sustainable, given increased costs.

I was trying to highlight basic differences in your arguments, and I guess I was sorely tempted to rewrite and move words around to demonstrate symmetry of ideas; in doing so, I left some stuff out.

[SmartyPants]

It looks like what SmartyPants is saying is that lump sums of money encourage growth, which increases revenue;

No, that is not what I am saying. Like Craig said, investments do not change demand.  Investments do however help businesses increase supply.  Despite the recession, demand for some goods and services has increased.  Investments help businesses grow, but growing a business only works if there is more demand then the current supply.  So investing in a shrinking industry will not create jobs, but investing in a growing industry will.  For example, demand for solar panels has decreased in recent years, so investing in a solar panel factory will not create jobs.  On the other hand, demand for oil is still higher the current supply, so investing in a pipeline that increase oil production will create jobs.  If you want to look at an anti-investment approach, look at Venezuela.  After Chavez scared off foreign investors, his country has not been able to raise the money to increase oil production, so the Venezuela economy is stagnating instead of growing.

If I may take the liberty of assuming your arguments reflect those commonly held by members of the political parties you seem to affiliate yourselves with, it would seem that the Republican approach focuses more on promoting bold, risky enterprise that not everyone can pull off, but which may blossom into great success;  on the other hand, the Democratic approach would seem to be more about giving the masses sufficient income that a prospective entrepreneur might not risk all in his or her attempt to rise to success, and have a good shot at some measure of achievement whether or not he or she can ever become truly great.

You basicly described Republicans as capitalist and democratics as socialist.  You are correct that Republicans believe in a free market where the best earn more money.  The way you describe Democrats seem incorrect.  There are socialist in the Democratic party like there are libertarians in the Republicans party, but most Democratics also believe in free market.  The major difference between the two parites is that Republicans prefer to increase economic prosperity and growth, while Democrats prefer to increase economic equality.

[ArtDrake]

Okay, so basically I oversimplified and got everything wrong.

But at least you guys have some insight into what point you sound like you're arguing, right?

[CraigStern]

This is a bit off-topic, but according to the Financial Times, demand for solar power is actually increasing as prices drop, even though the solar panel industry is consolidating. A lot of the industry's struggles seem to have more to do with supply issues and unfair trade practices moreso than slack demand.