"Cut-Go"

The new Republican-controlled House of Representatives has apparently decided that the currently existing "Pay-as-you-go" rule (where any tax cut or spending increase has to be made up for by a tax hike or spending decrease) isn't good enough. Instead, they have created "Cut-as-you-go" where spending increases have to by made up for by spending cuts. That's it. You're not allowed to increase revenue to pay for something, and you don't have to pay for tax cuts.

Who on Earth thinks this could possibly be a good idea? I know we need to focus on reigning in the deficit, and that to an extent the lower taxes are the more vibrant the economy tends to be, but come on! The most obviously stupid bit is the part where tax cuts don't have to be paid for; you'd think they'd have learned from California doing a similar thing, but guess not.

Oh well. Anyone want to add to my rant, or try to make the case for the policy?

I'd argue that tax cuts aren't actually all that helpful when it comes to boosting economic activity, but, eh.

It depends on how much, for whom, and for what reasons. The cuts Republicans want, of course, are some of the least useful.

^^ Tax hikes are even less effective no matter who they target.

Considering how many loopholes and exemptions were made for Pay-Go before the '10 elections, the cynic in me suspects that before long a lot of similar shenanigans will take place.

Of course, given who's now in control, I expect to see a lot more ink about if/when that happens.

It simply means that the USA won't be able to spend more than a set amount of money on government-run projects. Whether that amount of money is sufficient is the question at hand.

It also means the rule has to be dropped before any more money can be raised for public services... and things like the military I'd imagine. Is this going into law or is it just an informal rule?

EDIT: Of course, if you then cut taxes, then that set amount of money has decreased, and you have no means of increasing the pot. Unless there was more money coming into the treasury than was needed for government services.

edited 17th Jan '11 6:56:06 AM by GameChainsaw

^ Historically tax cuts have yielded higher revenues. 2006 and 2007 were the highest revenue totals on record yet the rates were the lowest in decades.

Economy has a lot to do with it. Raising taxes in a bad economy is extremely likely to offset economic gains and/or a recovery. Conversely cutting taxes while encouraging job growth at the macroeconomic level may lead to government budget shortfalls.

Either way however, the Feds need to cut back on the spending. People didn't say "we want MORE spending!" in the biggest shift in House demographics in 72 years. So basically we're going to see cuts to services in the near future. It's politically inexcusable right now for the option of "let's just raise the debt ceiling again!" to be considered and a lot of indications (at least from the House) says that raising the ceiling won't happen.

What happens if we don't raise the ceiling and don't get to cutting of the budget especially on big ticket items like Medicare and welfare? Well when we hit the ceiling, effectively we default on the debt and the economy will take a hell of a crash. (Great Depression 2 anyone?)

Um, no, cutting taxes does not raise revenues. Tax rates have to be at a level much, much higher than they are now for that to happen. And yes, we certainly need to cut spending (although that too will have a depressive effect on the economy), but if tax cuts are off the table, than you pretty need to make cuts everywhere else (including the military).

Furthermore, right now we're seeing an upwards redistribution–the rich are getting richer at the expense of the poor and middle class. As a lot of government spending (particularly social security and Medicare, the two biggest culprits) have a progressive effect, removing these without asking the wealthy to take cuts of their own would only speed this process up.

I think from most data I've seen, you need to be lenient on how a government reacts to economic problems. Being strict in any manner hasn't shown to be helpful in the long run and it doesn't even rein in the incompetence of bad governments along the way. All it does is rein in the competence of good governments.

As for Tom... let's use the years where all the books were cooked to show that tax cuts magically raise revenue and ignore the 100 years of economic data that show it has zero relation whatsoever. Are you Captain Supply Side Economics?

In other words, unless I'm horribly mistaken, is the House currently basing its fiscal policy on the Laffer Curve? Because I was under the impression that this particular economic model didn't quite work out last time. Perhaps I'm missing something, though.

Yeah! Fuck police, and fire fighters, and teachers, and libraries, and road repair, and schools, and medicare!

edited 17th Jan '11 9:46:49 AM by Thorn14

Tax cuts are wonderful.

For billionaires.

Wars are wonderful.

For billionaires.

Deregulation is wonderful.

For billionaires.

That's all you need to know about the Republican Party.

[edit] Sorry, I meant the Money Party. Apart from the propaganda, there's no difference between the left and the right any more. Until we fix campaign financing, we won't see any progress on deficit reduction (or any other issues).

So the government is running a deficit. Where is that extra money going? Not welfare, not Social Security, not education. It's going to banks, defense contractors, and other corporate welfare. Cutting taxes now is like throwing gasoline on a fire to put it out.

edited 19th Jan '11 11:55:58 AM by RalphCrown

^ Two can play that game.

Tax hikes are wonderful.

For the dirt poor earning minimum wage.

Amnesty and poor border security are wonderful.

For illegal immigrants.

Overregulation is wonderful.

For the dirt poor earning minimum wage.

That's all you need to know about the Democratic Party.

Such misrepresentation is the reason why partisanship is so rampant. If you won't give one side the benefit of hearing what they have to say and the logic behind them, why should they extend the same to you?

So get back to the topic at hand about reining in the budget deficits.

The point is, the general concept that should be applied here are choosing the available sensible strategies:

a) Raise taxes to cover deficit

b) Cut Spending to cover deficit

c) Spend into the recession in the hopes the gains will outweigh the costs in the long term

d) Seeing as how you can't lower interest rates any further, print money.

Lowering taxes makes zero sense. Voodoo economics should have been laughed out of America since Reagan but apparently you can keep on buying into the dream that lowering taxes for corporations and the rich somehow translate into improvements for the lower and middle classes. Those concepts haven't worked in the past 15 years, since anything lower than the rich have experienced stagnate real income growth, and they didnt work in the centuries before.

The problem was never and never is the lack of funds by corporations to take on higher production. It doesn't even make logical sense. If demand has been cut, what is there to produce for? On top of that, corporations don't hire based on available cash flow or profits. People don't hire more just because they make more money because it doesn't make any sense. They hire more when they expect demand to rise and they must produce a greater amount of product. Cutting taxes will do nothing.

^ Lowering tax rates spurred the 2003-2007 economic boom. It wasn't a government stimulus program, it wasn't a Works Progress Administration wannabe, it was simply lowering the oppressively high rates from the Clinton years.

Every rate and record set during Clinton's "dot com boom" from 1996-2000 was met or exceeded from 2003-2007.

There is no other logical reason for the boom than government getting the hell out of the way.

American economic exceptionalism needs to end. America doesn't hold an economic edge because it has the hardest working workers or the best schools. In fact, it lags in both, and most American reasons for their superiority are complete utter lies (such as "lol, stronger middle class omg").

America's economic edge comes how American regulation and taxation isn't seen as onerous enough yet to counteract superior American business organization. Americans need to understand that if they want to put business in indentured servitude, they'll take their business somewhere.

I can see what they're going with cut-go but restricting government like that isn't the right way to go. The problem was essentially incompetence and that is what needs to be solved. American government isn't going to handle the economy well until congress starts doing things intelligently, which means bashing lobbyists and corruption and cleaning up political rhetoric. Tea Party is just much too partisan to accomplish anything.

For Tom

Except that a trillion dollars basically got written off your GDP when the subprime mortgage crashed, showing how all those numbers were indeed nothing, just like the dot com boom. Notice how much harder the crash was once revealed it was silly. Stop posting up correlation fallacies of, A happened and then B happened, therefore A caused B. Why did lowering taxes never cause any such growth in preceding centuries? Fact of the matter is, you keep sprouting laffer curve as if it existed, when it has been completely written off by economists because the empirical data has shown it to be completely false.

Clinton's "oppressive taxes" also saw an era of prosperity and balanced budgets. All I can say is, his tax regime balanced the books, Bush did not. I'm not going to go into some crazy unprovable chain of logic thta says his tax hikes made America more prosperous because I basically have zero evidence of such a correlation. All I have is a chain of events, which means nothing. Correlation != causation damn it.

edited 17th Jan '11 11:16:58 AM by breadloaf

The housing meltdown really isn't a partisan issue. Pretty much every president encouraged the US housing bubble because those policies were bipartisanly popular. We're talking about the Community Reinvestment Act, the mortgage tax deduction, everything Andrew Cuomo did, easy secondary loan markets by Fannie and Freddie, etc.

All of these things are popular on both sides and all of them are still here with us today.

Lowering tax rates spurred the 2003-2007 economic boom. It wasn't a government stimulus program, it wasn't a Works Progress Administration wannabe, it was simply lowering the oppressively high rates from the Clinton years.

Every rate and record set during Clinton's "dot com boom" from 1996-2000 was met or exceeded from 2003-2007.

There is no other logical reason for the boom than government getting the hell out of the way.

Replace "boom" with "bubble" and you've got it about right. I'm not sure why you're bragging about creating the worst recession since WW 2 though.

The 90's boom was caused by new technology resulting in money flowing from the financial sector into prospective new businesses, putting people to work, spending money in B 2 B spending, etc. This is actually why a lot of people think that a Green Energy boom might be the way out of the current economic badness.

The 00's boom was caused by an overload of cheap credit and other financial services creating a large consumption boom, which in the end resulted in the financial meltdown.

Tax policy had less to do with either than technological policy in the first instance or deregulation in the second instance..although it could be argued (and I would make that argument) that the preferential treatment of capital gains results in a system that encourages short-term speculation over long-term stability.

edited 17th Jan '11 12:25:58 PM by Karmakin

Shitty government spending IS a problem. I'll be the first to admit it.

But taxes aren't the bad guy here. Sure no one likes them, but you live in a country, and you better do your best to support it.

Cutting taxes MAY cut stupid government spending, sure, but it also removes the NECESSARY spending.

This problem needs to be attacked at the source. Its like removing a fire by cutting out all the air around you and it. Sure, the fire goes out, but now you have no air too.

The ironic thing is that overall government spending seems to go against tax rates: when taxes are low, people think government is cheap and want it to do stuff. But when tax rates are raised to pay for all that stuff, people realize that government is expensive and want it to do less stuff.

And indeed, although 2003 to 2007 did show massive growth, virtually all of that growth went to the wealthiest 10% of the country–most people I know have had basically stagnant wages since 2000, and both my parents have an actual decrease in real wages: one from getting laid off from his job and being unable to find full-time work ever since, the other since her employer stopped giving pay raises.

The US has tiny, tiny tax rates compared to the rest of the world.

Calling Clinton's tax rates "oppressive" is thus laughable.

^^

Yeah the real problem is wages, due to the extended period without full employment. Things that result in cuts to public sector employment only make things much worse.

There are of course, several exemptions to "Cut-go" including, tax cuts, and healthcare reform.

Why does HCR need to be exempt? Because cutting it would result in a net loss in revenue.