Sunday, July 29, 2007

Do tax cuts really put more money in your pocket?

The value of any money, whether it's the green toilet paper or not, rests solely in what people will give you in exchange for it. Remember, the basis of an economy is the amount of goods and services in circulation, not the amount of green toilet paper in circulation. The wealth of a nation is the amount of goods and services in circulation, not the amount of green toilet paper in circulation. You want the amount of green toilet paper in circulation to pretty much match up with the amount of goods and services in circulation, otherwise you get deflation (good for rich people, bad for working people) or inflation (good for working people with no savings, bad for everybody else), other than that the amount of green toilet paper in circulation is irrelevant.

Okay, so Bush "gives" you a tax cut (actually, just pushes a tax hike into the future, since the money for the "cut" was borrowed). Are you really better off now? Well, you have more green toilet paper in your wallet. So the next question is, are there more goods and services in the economy for you to buy? Are you actually any better off?

The answer to that last question is "no." The amount of money in your pocket will buy exactly the same share of that goods and services as it did previously. You are no better off than you were before the tax cut because the money in your pocket will buy you the same amount of "stuff" as before the tax cut. All that happened was that inflation happened -- more money chasing the same amount of goods available for purchase means that the goods get more expensive, and you're no better off.

Now, if the government was actually cutting its spending on destructive activities -- taking fewer goods and services out of circulation and literally blowing them up and shooting them out of the barrel of a gun -- then there would be more goods and services in circulation in the economy, and a tax cut would be warranted so that the amount of money in circulation would match the amount of goods and services in circulation. But as we all know now, the Bush Administration has been spending like a drunken sailor, and mostly doing that spending in none-productive ways that do not provide goods and services to our economy (i.e. that do not create roads, bridges, provide police services, etc.), and so the government is actually taking more goods and services out of the economy and using them to blow up some god-forsaken desert that nobody gives a shit about anymore (except the people who live in that god-forsaken desert, of course, who are somewhat pissed and doing their best to get us to spend ourselves to economic exhaustion so that we'll quit blowing up their god-forsaken desert and go do something more productive). More green toilet paper, fewer goods and services, is it any wonder that the prices of food, housing, and fuel have been going through the roof?

Now, the next question is, "do tax hikes really take money out of the economy?"

Well, it depends on two things: 1) the extent of the tax hike, and 2) whether the tax hike is being used for some purpose that adds to the economy. For example, right now 15% of the U.S. economy is going to medical care. By imposing a 7.5% Medicare tax upon all payrolls and extending Medicare to all Americans, that percentage of the economy could be reduced to 10%, and the remaining 5% no longer going to insurance companies for non-productive purposes would then be additional goods and services available to the economy. So you'd actually be able to buy more "stuff" with the amount of money remaining in your pocketbook.

If the tax hike was gigantic enough to reduce the incentive to work (but we're nowhere near that -- the amount of our GDP going to taxes is under 30%, and you have to get above 50% before people start losing incentive to work for a living), or if the taxes were going to non-productive purposes such as being shot out of a gun or blown up, on the other hand, you'd be out the money but there would be no more (or fewer) goods and services in the economy. So you'd be worse off. So the answer is "it depends". But as long as you keep your eye on the ball -- the goods and services circulating in the economy, not the green pieces of toilet paper -- you're well positioned to be able to judge for yourself whether a particular tax cut or tax hike actually puts buying power in your pocket. And in the case of extending Medicare to all Americans via a Medicare payroll tax, it most definitely does put money in your pocket, because you get more services for the money taken out as taxes for half the price of buying it on the open market (where you don't have the economies of scale that the government has).

-- Badtux the Tax Penguin

Labels: economy, taxes

Sunday, July 15, 2007

Those poor Scandinavians...

Errr... not so much. Turns out that one in 85 Norwegians is a millionaire, as vs. 1 in 125 Americans. *AND* they get free health care. *AND* they get free university tuition. *AND* they have the world's best infant mortality figures. *AND* they have the world's longest lifespan. And their cities are beautiful. And income inequality is relatively low -- with living wage laws and high taxes, the middle class actually control more of the national income than the upper class, and unlike here in the United States, the middle class is seeing their standard of living improve, not decline. Wow, imagine that, what a remarkable thing that must be!

Crap, if that's what socialized medicine and high taxes do for a people, gimme some of dat!

-- Badtux the neo-Scandinavian Penguin

Labels: health care, taxes

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