"I Am In Favor Of Cutting Taxes Under ANY Circumstances . . .

[Econ4every1]

The purpose of txes is now, and always has been to pay for the operations of Federal government.

I've always found this to be a curious claim.

If the government can only have money via taxation, but taxes can only be paid with dollars that the government creates and spends (yes, the Fed is part of the government) then how does the money supply increase?

The Fed does add and remove bank reserves from the banking system (of which the supply of reserves is a tiny fraction of the overall money in the economy), in order to control interest rates, but the the Fed does not spend, lend or gift money into the non-banking sector of the economy. It is the US government that directs payments via the Treasury and Fed.

So, please, explain how the money supply in the US increases if the only way for the government to have money is for people to buy bonds from the existing stock of money to give to the government.

See the problem?

If you start with $1000 and you spend it. Then everyone but you has $1000. Let's say you sell a bond for $250. Now everyone else is -$250 and now has $750 and you have $250 which you can spend. You spend $250 and your back to zero and everyone else is back to $1000. Now tell me how, from those beginnings you could get to $100,000 or $1,000,000 or a billion?

The government on the other hand can create and destroy money. The government repaid $140 trillion dollars in debt last year and sold $142 trillion more. That didn't cost you or I anything.

Inflation is caused by too many dollars chasing too few goods and services.

Or, inflation is cause when demand exceeds supply.

Is it too many dollars or not enough supply?

Historically when evaluating the cause of inflation, we need to go back to the most recent period of acceptable inflation (in the US it's about 2%) and figure out what precipitated inflation.

When Biden dumped $2 Trillion into the economy, this created a runaway inflation.

But the facts don't bear that out. We know global supply was shunted when COVID came on the scene. A lack of supply increases scarcity which causes prices to rise. We also see that about savings increased from almost nothing in the bottom 80% of the economy to over 20%, so 1 out of every $5 was sitting in a bank driving zero demand. Further if we look at outstanding debt by sector, we see the domestic household sector reduced it's debt over several quarters meaning that some of those dollars weren't driving demand, they were paying off debt.

And inflation didn't "runaway" it hit just over 8%. With more than 1/2 of that inflation driven by increases in corporate profits.

Congress spends too much money.

You cannot cut spending without cutting earnings. Since every dollar added to the economy is earned as income by someone and each dollars generates 2.5 dollars in economic spending thanks to velocity, when you cut spending your reduce income.

You cannot grow an economy though spending cuts, again, another logical impossibility. You might be able to argue that less spending means lower taxes, but taxes as a percentage of income are largely the same as they've been for the last 10 years, thus cutting spending adds nothing as taxes haven't been increased to pay for increases in spending (in fact increases in spending cost the US taxpayer nothing) and just results in lost income, earning, jobs ect....

 

[SkyChief]

. . . So, please, explain how the money supply in the US increases if the only way for the government to have money is for people to buy bonds from the existing stock of money to give to the government. . .

The $2.1 Trillion that Biden dumped into the economy didn't exist. It was invented (created) and distributed to everyone. It caused inflation - not ALL of the inflation, but a substantial portion of it.

See the problem?

If you start with $1000 and you spend it. Then everyone but you has $1000. Let's say you sell a bond for $250. Now everyone else is -$250 and now has $750 and you have $250 which you can spend. You spend $250 and your back to zero and everyone else is back to $1000. Now tell me how, from those beginnings you could get to $100,000 or $1,000,000 or a billion?

LOL. The premise of your hypothetical scenario is complete nonsense.

The government on the other hand can create and destroy money. The government repaid $140 trillion dollars in debt last year and sold $142 trillion more. That didn't cost you or I anything.

Yes, they can, and this is why we have a debt crisis today. In the past, money was created in the marketplace - we earned it, either by producing physical goods, or providing services. Government does not produce goods or services - they only spend OUR money that taxpayers actually earned. In the past, the government needed physical gold reserves before they could print Federal Reserve Notes. That changed in 1971 when Nixon unpinned the dollar from physical gold reserves. In 1971 Government could print as many dollars as they wanted. Which they DID.

And here we are.

Or, inflation is cause when demand exceeds supply.

Dumping trillions of dollars into the economy encourages people to buy goods and services that they otherwise would not have bought. So yes, your statement is correct. But it was Biden's idiotic money-dump which triggered the demand.

And inflation didn't "runaway" it hit just over 8%.

False. Inflation hit 9.1% in June 2022. It was out of control before the Fed stepped in.

You cannot cut spending without cutting earnings.

LOL.

Since every dollar added to the economy is earned as income by someone and each dollars generates 2.5 dollars in economic spending thanks to velocity, when you cut spending your reduce income.

False. NOT every dollar added to the economy is earned by someone. Biden dumped $2.1 Trillion into the economy. Not ONE of those dollars was earned. The money was created out of thin air.

You cannot grow an economy though spending cuts, again, another logical impossibility.

False. If Congress cut spending, then they could cut taxes. If Taxes were cut, then taxpayers would have more discretionary income, and they would buy more goods and services. Businesses would see immediate growth opportuninties, and they would need ti hire more employees to fill the demand. More people would be going to work and erning more money.

The economy would grow tremendously.

 

[Real blank]

I think there is something to be said for motivating people through very low taxes

 

[Nemiroff]

That is false. The reason the Federal government imposes income Tax on us is not to "maintain the proper level of scarcity of the dollar". The purpose of taxes is now, and always has been, to provide funding for the operations of Federal government, the military forces, and essential national infrastructure.

Really? The original purpose of taxes is to fund spending? Are you supposing that money comes from the private sector? That individuals and companies control the mint?
I think you're cause and effect is busted. That is like saying that the lightbulb turning on is what flips the light switch.

If you accept that money is printed and created by the government (which it is), then obviously spending comes before taxation, and taxation does not fuel spending.
Just ask yourself this simple question: where does the money, any money, come from?

The scarcity of the dollar has nothing to do with the reason(s) for taxation.

It's been said that Inflation is caused by too many dollars chasing too few goods and services. When Biden dumped $2 Trillion into the economy, this created a runaway inflation. The Federal Reserve had to step in and incrementally increase interest rates to curb the excess of money which Biden dumped into the economy. It worked. Our 9% inflation went down to 3% - - still a bit higher that we'd like, but it got under control.

Or we can just tax the 2 trillion dollars back out of the economy...
If adding money in creates inflation, taking money out will stop inflation... right?
The interest rates solution sounds like useless beating around the bush instead of addressing the actual cause of inflation: over supply, under demand.

 

[SkyChief]

The purpose of taxes is now, and always has been, to provide funding for the operations of Federal government, the military forces, and essential national infrastructure.

Really?

Yes, really.

The original purpose of taxes is to fund spending?

I never said that the purpose of taxes is to fund spending. I said the purpose of taxes is now, and always has been, to provide funding for the operations of Federal government, the military forces, and essential national infrastructure.

Federal income taxes officially began in 1913 with passage of the 16th Amendment, which gave Congress the "power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

In late 1911 and early 1912, there were serious troubles in the Balkan Region, and a major War was inevitable. President Woodrow Wilson needed to hastily build a War Chest in the event the U.S. was called to enter WW I. The Federal Income Tax was intended to provide funding for the War (and it did.)

Are you supposing that money comes from the private sector?

All Federal Tax revenues come from the private sector - yes.

That individuals and companies control the mint?

LOL. Good Lord.

If adding money in creates inflation, taking money out will stop inflation... right?

No. Limiting the money supply will stop inflation. And that's precisely what the Federal Reserve did - - they limited the money supply by raising the interest rates. The interest rate hikes made it more expensive to borrow money, so many folks (wisely) decided to wait for rates to come down before borrowing. The rate hikes are what ultimately brought inflation under control.

The interest rates solution sounds like useless beating around the bush instead of addressing the actual cause of inflation: over supply, under demand.

The interest rate solution worked. Had the Fed not hiked rates, we would still have unchecked inflation. They are talking about dropping rates, and we should expect inflation to go up proportionally.

 

[Nemiroff]

I never said that the purpose of taxes is to fund spending. I said the purpose of taxes is now, and always has been, to provide funding for the operations of Federal government, the military forces, and essential national infrastructure.

specific types of spending are still spending...

Federal income taxes officially began in 1913 with passage of the 16th Amendment, which gave Congress the "power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

In late 1911 and early 1912, there were serious troubles in the Balkan Region, and a major War was inevitable. President Woodrow Wilson needed to hastily build a War Chest in the event the U.S. was called to enter WW I. The Federal Income Tax was intended to provide funding for the War (and it did.)


All Federal Tax revenues come from the private sector - yes.

I asked where money came from, not tax revenue.
Obviously tax revenue came from taxes. But it was first spent into the economy by the government. Because, again, individuals have NEVER operated any form of mint. From USD, to ancient empires. Except for may some short lived disaster of an experiment.
Letting currency users control the mint has always been (I'm sure you will agree) idiotic.
So this tangent about the origins of a specific tax was irrelevant. The fact remains, you can't tax something that doesn't exist.
The cycle of taxing and spending was not eternal. And the fact that old bills are destroyed reinforces the idea that taxes are just sent to the shredder (delete key) and new money is spent from the printer. Just as the first money was.
The lightbulb turning on does not cause the light switch to flip my friend.

LOL. Good Lord.

No. Limiting the money supply will stop inflation. And that's precisely what the Federal Reserve did - - they limited the money supply by raising the interest rates. The interest rate hikes made it more expensive to borrow money, so many folks (wisely) decided to wait for rates to come down before borrowing. The rate hikes are what ultimately brought inflation under control.


The interest rate solution worked. Had the Fed not hiked rates, we would still have unchecked inflation. They are talking about dropping rates, and we should expect inflation to go up proportionally.

Yes, limiting the supply of money will stop inflation. That is correct. So how are you arguing against limiting supply by removing supply? You do understand what I am saying here right?
Raising interest rates is a way to control inflation, but it is indirect, and also is a sledgehammer destroying employment and the economy, limiting the production of goods, which also affects inflation in a bad way. Its certainly an option, its just a really dumb one.
Again, if you want to reduce supply, then you should probably reduce the supply...
OR increase investment in more goods/population to increase demand.

I want you to remember that unrestricted spending on corporate bailouts and foreign wars are bipartisan with only far libertarians and far progressives being the few dissenting voices.

 

[uptower]

Tell ya what hayseeds. Y'all let elon and Bezos and whoever pay **** all and the rest of you chip in for a stealth fighter or two. Might just afford that many too. Oh wait that's what you're already doing while they get to play space cowboy for laughs.

 

[SkyChief]

. . . Yes, limiting the supply of money will stop inflation. That is correct. So how are you arguing against limiting supply by removing supply?

I'm not. I said that limiting the supply of money will stop (and bring down) inflation. YOU are the one saying that removing the supply of money will stop inflation.

You do understand what I am saying here right?

I do not, and I don't think that you do either.

Raising interest rates is a way to control inflation, but it is indirect, and also is a sledgehammer destroying employment and the economy, limiting the production of goods, which also affects inflation in a bad way. Its certainly an option, its just a really dumb one.

Interest rate hikes do not limit production of goods, and they do not destroy employment. NOBODY ever got fired or laid off because of interest rate hikes by the Federal Reserve. Your statement is patently false, and absurd.

I want you to remember that unrestricted spending on corporate bailouts and foreign wars are bipartisan with only far libertarians and far progressives being the few dissenting voices.

"I am in favor of cutting taxes under any circumstances, and for any excuse, for any reason, whenever it's possible." - Milton Friedman

I agree with Friedman except when Tax Cuts are limited to only some taxpayers. I believe that Tax Cuts should be offered to each and every taxpayer.

 

[Econ4every1]

The $2.1 Trillion that Biden dumped into the economy didn't exist. It was invented (created) and distributed to everyone. It caused inflation - not ALL of the inflation, but a substantial portion of it.To the bolded part, quite right, ALL deficit spending is money that didn't exist.

All defict spending is money created BTW...

As far as inflation, if we're talking about increases in prices, then inflation was caused by the difference between demand and supply. What the $2.1 trillion in spending did was ensure that America had adequate pent up demand to put all the shuttered supply back to work. In other words, all that shopping and buying did indeed cause inflation pressure, but it was that pressure that caused businesses to rehire, the immediate shortage of workers cause wages to increase, especially those at the bottom. Which is why the post 2008 period looked like this:

Notice the big trough and the line post 2009 does not return to it's pre-2008 path.

Now let's look at the post COVID period....

We could draw a nice upwardly sloping line from mid-2019 to 2023 and we'd see that unlike the post 2008 recovery which was anemic and lost productivity never recovered, the post COVID period was like BAM! Why? Because after 2008 the government bailed out the banks and left Main St high and dry. So while the economy did recover, it took longer. Under Biden what we got was like an adrenaline shot in the form of dollars sitting in bank accounts, pent-up demand.

If inflation happens when demand exceeds supply (and that's what it is), then inflation is a signal the economy needs more supply. Supply requires businesses to meet it, workers to fill them and all the ancillary business to make it happen. Hence the quick recovery.
The cost of getting back so quickly? A short and painful period of inflation which, for all extents is over. If people are hurting it's because businesses that, for the most part are making record profits are holding wages down for the middle and lower classes that have very little bargaining power.

LOL. The premise of your hypothetical scenario is complete nonsense.

LOL, that's not a refutation of my point, it sounds more like admitting you don't understand the problem. Care to try again?

In the past, money was created in the marketplace - we earned it, either by producing physical goods, or providing services.

Do tell, when was the magic period?

In the past, the government needed physical gold reserves before they could print Federal Reserve Notes.

Pre-1933? Is this your magic period?

Let's look at inflation/ deflation pre-1933....

Wow, during you magical period we see common swings in inflation/ deflation of 20-30%, post 1970 we have 1 tiny period of mild deflation and post 1990 though COVID inflation averages just 2%.

Yeah, I'll take a hard pass on the gold redemption era.

In 1971 Government could print as many dollars as they wanted. Which they DID.

Thank god, the economy has grown into a global juggernaut that it is and funded, among other things a military that spends more than the 13 nations combined and we're seeing what that paid for in Ukraine as US systems dominating the Russians on the battlefield. Imagine what it would look like if the same assets were in the hands of US trained warfighters.

Now, don't misunderstand, this is not an endorsement of war, just pointing out what that spending has bought. China will learn the same hard lesson if they invade Taiwan.

 

[Econ4every1]

Dumping trillions of dollars into the economy encourages people to buy goods and services that they otherwise would not have bought. So yes, your statement is correct. But it was Biden's idiotic money-dump which triggered the demand.

You nailed it! I couldn't have said it better. That triggering of demand is what caused the economy to bounce back so quickly. Remember, this wasn't a case of an economy lumbering along at a steady pace dropping trillions of dollars in additional spending at the drop of a hat, this was an economy that had trillions of dollars of unused corporate and private capital resources that already sitting idle. Capital that in many cases used private debt to purchase and was no longer paying for itself in productivity being created and sold. If we did things your way, most of the existing capital would have been destroyed, unable to come back online for a lack of demand. We'd have repeated the same mistake made in the post 2008 period.

False. Inflation hit 9.1% in June 2022. It was out of control before the Fed stepped in.

Yes, it peaked for 1 month at 9.1%, whatever.... The Fed "steps in" every month.

False. NOT every dollar added to the economy is earned by someone. Biden dumped $2.1 Trillion into the economy. Not ONE of those dollars was earned. The money was created out of thin air.

Take care to pay attention to what I said. I said, every dollar spent into an economy is money earned as income.

Now if we look at the money gifted into the economy the same idea applies, every dollar not given is a dollar not received and ultimately spent. What kinds of things was it spend on.....

Here's a good breakdown. Now let's imagine that none of that money was spent and no one got it, you can see who would have gone without.

A dollar spent, or gifted into the economy, is a dollar driving economic demand, increasing GDP, providing jobs and creating real wealth.

The economy would grow tremendously.

And yet we have evidence that it doesn't

https://www.cbpp.org/research/kansas-provides-compelling-evidence-of-failure-of-supply-side-tax-cuts

The problem with tax cuts as you are proposing is that most people believe that it's good to give more dollars to the "job creators". Supply side economics is a dismal failure.

Now to be clear, if you aren't asking for tax cuts at the highest level then we are in agreement. Most taxes on the middle and lower classes are highly regressive and lowering or eliminating taxes on this group will, as you said, increase spending and drive more economic output because most of what a lower and middle class households spending almost everything they make. Taxing this group just reduces overall spending and limits potential productivity

However, if you try to cut spending at the same time (spending is income) and you cut taxes, at best what you get is a wash, at worst it's still a net negative because government can push dollars into places where its most productive, e.g. infrastructure, or where it's most needed, developing vaccines to fight COVID, where as the private sector tend to focus on financial gains which, these days, are rarely connected to productivity on Main St.

Ironically, committing to not spending and not taxing (especially the "job creators" - eww gawd, I just threw up a little in my mouth), generally embraced by the political right, is no better than higher taxes (across the board) and high levels of spending generally embraced by the left.

I say set your level of taxation and spending on whatever it needs to be in order to reach full employment without significant (over 2%) inflation. If that is greater spending and lower taxes, as long as the economy doesn't experience sharply higher prices driven by demand that cannot be quelled by increases in supply (because there is an quenchable shortage), then increases in spending can be useful. However, government's spending should be counter-cyclical. More spending when the economy is doing poorly and less spending when its doing well. Taxes overall should be low, but they can also be increased to quell threats of higher inflation.

 

[Parker_Chess]

Cutting taxes without a reduction in spending will only drive up the defecit. And that's what Trump did and will continue to do.

 

[SkyChief]

However, if you try to cut spending at the same time (spending is income) and you cut taxes, at best what you get is a wash, at worst it's still a net negative because government can push dollars into places where its most productive, e.g. infrastructure, or where it's most needed, developing vaccines to fight COVID, where as the private sector tend to focus on financial gains which, these days, are rarely connected to productivity on Main St.

I disagree. Spending is Income?? No it isn't.

Spending is the exact OPPOSITE of income. Income is money coming IN. Spending is money going OUT.

Spending cuts must always go hand-in-hand with Tax cuts.

Cutting taxes without a reduction in spending will only drive up the defecit.

Exactly.

And that's what Trump did and will continue to do.

You're probably right about this.

 

[Econ4every1]

Spending is the exact OPPOSITE of income.

Money cannot be spent unless there is another party earing revenue.

Not spending (saving) results in revenue not earned.

Spending cuts must always go hand-in-hand with Tax cuts.

So, if the population increases another 100 million in 40 years and, thanks to AI and automation the amount of productivity per person increases by 3x and spending and income over that period are equal, the result will be an economy that can output 2 times as many goods, but still have the same amount of money in the economy as it did 40 years earlier?

100 million more people, people who are more productive, competing for the same pile of money, you can't see the problem here?

 

[AConcernedCitizen]

Raising interest rates is a way to control inflation, but it is indirect, and also is a sledgehammer destroying employment and the economy, limiting the production of goods, which also affects inflation in a bad way. Its certainly an option, its just a really dumb one.

I wouldn't say that it is a dumb one. Sometimes a sledgehammer is the right tool for the job.

Locking interest rates at 0.0% would be problematic for obvious reasons, so the optimal interest rate is going to be some non-zero number. If interest rates are below whatever that number is, then they need to be raised.

I think that instead of looking at excessive inflation as the problem and raising interest rates or taxes as possible solutions, we ought to look at excessive inflation as a symptom, and ask ourselves whether it is a symptom of suboptimal interest rates, or a symptom of suboptimal tax rates.

 

[Peter]

The billionaire class in the US already has more money than they can possibly ever spend so why are you so eager to give them even more in the form of tax cuts?

You have a few people who can afford to fund entire space programs which used to be the preserve of nations just for fun.
Billainaires won't all run away in abject terror if you raise their taxation, they can and should afford to pay.

US infrastructure is crumbling away while you have people with loot hordes that would shame a Dragon, it's so far beyond rediculous it isn't even funny.

Who exactly need more than $1B
When is enough, enough? ?

 

[AConcernedCitizen]

Tax Cuts are great, but they should be offered to ALL taxpayers. Everyone should benefit from Tax Cuts - not just a few people.

That is like saying "Hammers are great, but they should be used on EVERY surface of the house. The entire house should benefit from being hammered - not just the nails."

Tax cuts are a tool. They should be used where they are useful, and should not be used where they are not useful. They should be used with enough force to drive the nail in, but not so much force that they damage the wood.