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July 08, 2008

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What I want to know is how to solve this equation:

Bush:Cheney::McCain:??

I never though Bush did anything substantial by following his "gut", he followed his Dick. ... Cheney, of course. So who would be McCain's puppetmaster? and what does he/she want?

Obviously, it's

Bush:Cheney::McCain:Cheney

Just put Dick in charge of the VP search committee, and we'll have no-bid Halliburton contracts for the Iran war in no time.

Did y'all know that the year before the Income Tax was enacted the Federal government collected zero revenues from income taxes. Kinda revenue neutral.

The very first year of Income Tax collection -- you guessed it redstate math whizzes -- netted the Federal government minus 46 billion dollars. Yeah, minus.

Why? Because every dollar in tax revenue collection causes a 50 cent drop in revenue collection.

Did you know that unemployment reached 100% the first year of income tax collection? (betcha didn't learn that in charter schools) It's become worse since. Unemployment reached 4022% of the population as of yesterday, taxes being what they are.

So it has been ever since. The Federal Government has never actually collected any revenue at all.

Just in case they might collect revenue, the Republican Party finds sinkholes like Iraq to sequester funds.

Otherwise, the government might actually do something.

Unemployment reached 4022% of the population as of yesterday

I would ask for a cite, but I doubt that your barbershop has a news outlet. Possibly they may have a blog, but you know how unreliable those are.

This is beginning to sound like (a) an old guy who (b) has actually never had to campaign seriously before. Saying "I'm John McCain, war hero" probably got him a long way without needing much more--as it did Randy "Duke" Cunningham, who was not much of a representative even before he turned out to be a crook.

I do not want a Republican elected, but I'm not sure its a good thing for them to have this weak a candidate (though they were prepared to run George Allen, who makes Bush look clever).

It is impossible for someone to lie unless he thinks he knows the truth. Producing bullshit requires no such conviction. A person who lies is thereby responding to the truth, and he is to that extent respectful of it. When an honest man speaks, he says only what he believes to be true; and for the liar, it is correspondingly indispensable that he considers his statements to be false. For the bullshitter, however, all these bets are off: he is neither on the side of the true nor on the side of the false. His eye is not on the facts at all, as the eyes of the honest man and of the liar are, except insofar as they may be pertinent to his interest in getting away with what he says. He does not care whether the things he says describe reality correctly. He just picks them out, or makes them up, to suit his purpose.

Harry Frankfurt, "On Bullshit". Sorry for the long cite.

Every time we cut capital gains taxes, there has been an increase in revenue.

Whether it's true or not is not the point. To the audience he is courting, it's catnip.

Thanks -

Amazingly, is John McCain more of a dolt than George Bush, who at least had the good sense to limit his ramblings? That suggests Bush has more savvy than McCain, a scary thought.

Hmmm, he's starting to seem positively Reaganesque, once you put it like that. One hopes few will be motivated to "win one for the Gipper" this November...

He has a few ideas lodged in his head, without anything like the background he'd need in order to question or assess them, and without any discernible interest in learning more. He doesn't keep basic, basic facts straight, or know really elementary aspects of his own policies.
A disaster waiting to happen.

i just hope Obama's got his facts straight and is willing to use them, when it comes time to debate. McCain is just begging to be slapped silly over this stuff - i hope Obama's willing to oblige.

Oh Hil, you silly: Ronald Reagan proved that facts don't matter.

Hey, Charley, I see the administration has a new technique for trying to undermine the Gitmo detainees' defense.

I used to think the country would be better off if McCain had won the Republican nomination in 2000, but now I'm not so sure.

Supplementing Social Security with private accounts is one thing.
Agreed. Namely, it's the thing called "savings" (or "IRAs" or "401(k)s" depending on one's situation).
[McCain] Every time we cut capital gains taxes, there has been an increase in revenue. I'm glad to have this discussion with you, and obviously you disagree, but the facts are that when you keep taxes low, when you restrain spending, as we did in 1982 when Ronald Reagan came to office, then the economy grows. We've created 46 million new jobs since 1982, because of lower taxes, but the spending got out of control, and that obviously caused the deficit, which then caused us to have to borrow money from China, et cetera, et cetera. And that's our problem that we have today, is spending and not keeping taxes low and stimulating the economy."

[Hilzoy:] No. When you raise taxes (within reason), revenue tends to go up. (See this helpful graph.) And when you cut capital gains taxes, revenues go down, save for short-term blips that reflect people wanting to cash in under the new rates. McCain also mentions that the CBO and others who have estimated the effects of cuts in capital gains taxes use "static scoring." According to Greg Mankiw, who was the chair of Bush's Council of Economic Advisors, even with dynamic scoring, cuts in the capital gains tax only recoup 50% of the revenue lost.

Once again, an exaggeration by McCain is met by an exaggerated criticism at ObWi. What McCain said was largely accurate: "Every time we cut capital gains taxes, there has been an increase in revenue." Although you wouldn't know it from Hilzoy's curt "no" in response, she actually concedes this point. For at least the last few cycles, a cut in the capital gains tax rate has led to an increase in capital gains revenues for the next several years. (What Hilzoy calls a "blip").

There is a serious argument among economists regarding the long term effects of a capital gains tax cut on capital gains revenues. This is because a capital gains tax cut is dynamic -- i.e., it "costs" less than one would expect -- because lower capital gains tax rates encourage more investments (which are then taxed). Manikow such "dynamic scoring" means that a capital gains tax cut actually reduces revenue by only 50% of what one would otherwise expect.

Manikow is, at best, oversimplifying, because different capital gains tax cuts from (and to) different rates will result in very different dynamic scoring. I doubt that Manikow really thinks than every capital gains tax cut will always recoup only 50% of its cost, regardless of circumstance. (If he does, perhaps he shouldn't be teaching Harvard (or any) students.) A different capital gains tax cut will generate different dynamic scoring: Some will recoup less than 50%, some more, and some will actually be revenue enhancing (another point that Hilzoy grudging concedes).

For instance, the best dynamic scoring estimates of the 80-100 million capital gains tax cut contemplated in 1990 resulted in long term projections of (either) an increase of 12 billion over five years or a loss of 11 billion over five years. (See http://www.cbo.gov/doc.cfm?index=3856&type=0, cited by Hilzoy.) In other words, the dynamic scoring range for this tax cut was roughly between 80% and 120%.

So:

1. McCain's statement is technically acurrate, but doesn't tell the story in the long term.

2. Rather than point this out, ObWi (and Manikow, who should know better) respond with an oversimplified attack that. Weirdly as well, the post contains caveats hat turn Hilzoy's blanket "No" into a "yes."

von: Oddly, I took this:

"And you restrain spending and also you can't get over the fact that historically when you raise people's taxes, guess what, revenue goes down. Every time we cut capital gains taxes, there has been an increase in revenue."

As constituting part of an answer to the question McCain was asked, namely: how are you going to bring the deficit down to zero? It is false that when you raise taxes, revenues go down. It is true that generally, when you cut capital gains taxes, revenues go up for a year or so before settling at a lower point (real, per capita -- of course they go up due to population increase and inflation, but then those things almost always make nominal revenue rise whatever you do to taxes.)

In order to take this as anything resembling an answer, you'd need to think not just that there was a one-time, short-term gain due to people timing the realization of capital gains, but that revenues went up over the long haul. In that case, Mankiw and, well, every serious source I could find say otherwise.

A pattern is developing here:

(1) McCain says something preposterous.

(2) Hilzoy points out No. (1)

(3) Along comes Von to nitpick Hilzoy and try to spin McCain's statement into something seemingly halfway rational.

Von's attempts so far haven't been very convincing, and this one is a good example. Does cutting the capital gains tax really lead to an increase in revenue? Hilzoy says that it doesn't in the long term, but acknowledges "short-term blips that reflect people wanting to cash in under the new rates."

Von seizes on Hilzoy's acknowledgment triumphantly--McCain is right after all, for some values of the word, "right." Von, however, never comes to grips with whether any sane person would cut taxes in order to obtain merely "short-term blips that reflect people wanting to cash in under the new rates."

The ultimate goal of some (not speaking of Von; I think his ultimate goal is to be reasonable and rational, which is a bane upon the Internet) is to eliminate the capital gains tax altogether.

Using McCain's math, this move will suck up 100% of the capital gains in the country into government coffers since something is inversely proportional to something else, whichever comes first and is easier to say.

Think of it this way: If all tax rates at the Federal level were set at a completely confiscatory 100%, no tax revenue whatsoever would be collected and we could abolish the IRS.

This would make Karl Marx AND the Republican Party happy. Until they find out they agree with other, and then let the whining resume.

The GOP's strategy of nominating easily manipulated ignoramuses starting in 1980 has been highly successful. When they screw up and nominate someone who is generally intelligent and an independent thinker, he's doomed to a single term or lose outright. So, why stop now?

I'm still puzzling over von's comment. So to come at it another way:

One way to react to what I said is to get into the weeds about whether the short-term blip in capital gains, normally followed by a decline in revenue (real per capita) makes it true that when we cut capital gains taxes, revenue goes up. But to focus entirely on that issue, in abstraction from the question McCain was actually supposed to be answering, and whether his being right given a particular construction of what he said is relevant to his actual answer to that question, seems very odd to me. So an analogy that basically concedes (what I would not concede in the original case) that McCain was right:

Suppose McCain had been asked, as he was, how he plans to get the deficit down to zero, as he has promised. And suppose he said: well, you can make some money by running a lemonade stand!

This is true. You can make some money by running a lemonade stand. (I did!) Harder if your parents don't give you the lemons, but there we are.

Would the right way to approach this answer be to say: well, what he said was right! If you sell even one glass of lemonade, and your price is above the cost to you, you've made money!

Wouldn't you also want to say: does he honestly think that he can solve the problems of the deficit with a lemonade stand? Isn't it worth asking not just whether a lemonade stand will make some money, but whether it will make money in anything like the amounts required to eliminate the deficit?

(The point of analogy here is not supposed to be: a capital gains tax cut will raise some money, only maybe not enough. I don't concede that, at any rate for time periods greater than a year or two. It is supposed to be: why would you look at the lemonade stand claim in isolation from the question it was supposed to answer, and accept "yes! you will make all of three cents!" as showing that McCain was "right", even though identifying a three cent profit would not begin to address the deficit? Similarly, why would you accept "yes, revenues will rise during the first year, as an artifact of timing decisions!" as showing that McCain was right, without asking how this claim, if true, constitutes an answer to the question he was asked?)

I'm still puzzling over von's comment.

Of course you are, von's got a tough job trying to make lemonade out of horsesh!t.

Hilzoy:

It is false that when you raise taxes, revenues go down. It is true that generally, when you cut capital gains taxes, revenues go up for a year or so before settling at a lower point (real, per capita -- of course they go up due to population increase and inflation, but then those things almost always make nominal revenue rise whatever you do to taxes.)

Again, you're oversimplifying and exaggerating. A tax decrease can generate positive revenue over the long term. That's particularly true when we look at taxes on high-net worth individuals and entities, for which tax shelters are available. It's not true that every cut in the capital gains rate results in a lower "real" revenue level (even taking into account population growth, inflation, etc.). It's certainly not true that every cut in the capital gains rate results in a lower "real" revenue level of 50% the "cost" of the cut. The true (albeit more complicated) answer is: It depends.

Rea (and Hilzoy's post at 9:59 a.m.):

Von seizes on Hilzoy's acknowledgment triumphantly--McCain is right after all, for some values of the word, "right." Von, however, never comes to grips with whether any sane person would cut taxes in order to obtain merely "short-term blips that reflect people wanting to cash in under the new rates."

In fact, it is correct that "[e]very time we cut capital gains taxes, there has been an increase in revenue." The problem is that the long-term effets of such a cut are unclear. To the extent that McCain is arguing long term, he's exaggerating. Hilzoy is right to point that out. But Hilzoy's criticism is also an exaggeration: there are circumstances in which a cut in capital gains tax creates a long-term, positive result in tax revenues taking into account population growth, inflation, etc. That's because capital gains are a unique tax b/c companies have a significant say in whether, how, where (i.e., to which country), and when they pay it.

The default approach is to think of capital gains taxes as essentially akin to income taxes, such that you have to get to very high levels (40-50%) before you have the potential to see Laffer-style effects. But capital gain taxes are unusual for the reasons cited above and the same rules do not apply. Particularly given the fluidity of today's capital markets, there is a strong case that the number is much lower for capital gains taxes.

you can't get over the fact that historically when you raise people's taxes, guess what, revenue goes down.

Von,

This is not an "exaggeration." It's untrue. It may not be a lie when McCain says it, because he might believe it, but then it's pure unquestioning ignorance. But, McCain says he opposed the Bush tax cuts because there were no offsetting spending cuts. If he really thought the tax cuts would increase revenue then that's a pretty silly reason to oppose them, isn't it? So maybe he's now lying after all.

In any case, I think you should put this in context as well. Ever since Reagan this whole business of self-financing tax cuts has been Republican orthodoxy. Yet it's utter BS, as even Republican economists like Mankiw and Glenn Hubbard admit. Frankly, it's more than a bit tiresome, and the inevitable outraged defenses when someone points it out are just annoying.

It's economic creationism - one more piece of ignorance the Republican Party pushes, regardless of the consequences to the country.

Of course you are, von's got a tough job trying to make lemonade out of horsesh!t.

The trick is to add lots and lots of vodka to the mixture.

But, McCain says he opposed the Bush tax cuts because there were no offsetting spending cuts. If he really thought the tax cuts would increase revenue then that's a pretty silly reason to oppose them, isn't it? So maybe he's now lying after all.

Bernard, you're conflating opposition to tax cuts on income to a capital gains cut. I'm not here to defend Bush's income tax cuts -- I opposed them at the time, and continue to think that they are a bad idea. As I explained above, however, you could have opposed Bush's income tax cuts because they are revenue-negative while favored a capital gains cut as revenue neutral (or even revenue positive).

The revenue from the lemonade stand doesn't count, Hilzoy, because your parents FORCED you to sell the stuff.

Slave to citrus.

Surely you remember Stalin and the Ukraine?

No? Neither do I.

Here's a conundrum:

A lady keels over in a hospital and dies, sprawled for all to see in a waiting area. America is aghast, though I suspect America would have stepped over her had America been on hand at the moment.

There's a $25 million lawsuit.

This morning I open up the AARP newspaper (when did they start sending that to 31 year-olds?) and there's a picture of a guy not yet keeled over who can't get cancer treatment because he can't pay the hospital's advance fees.

I think it was nice of the hospital in the prior case to let the old lady kick her last in the waiting room for free. Her hospital, I understand now, will avoid incidents like this in future by upping the advance payment for croaking on the premises so that Americans (sensing a bargain when they see it) on the sidewalk outside can step over her carcass, thus reducing the overhead costs associated with straightening up the waiting rooms after hours.

Three hundred economists say this makes perfect sense.

They are jammed into a private room upstairs having their collective head examined while trying to devise a way to reduce the number of stripes alloted to candy-stripers, who ought to get along on tips as a far as I'm concerned.

Ever since Reagan this whole business of self-financing tax cuts has been Republican orthodoxy.

IIRC Lindsey's comprehensive study, Reagan's cuts to the highest marginal income tax rates were self-financing (and then some). The other cuts were not.

The trick is to add lots and lots of vodka to the mixture.

Hmmm...now that I think about it, I don't think I've ever had vodka in lemonade. May have to try it this weekend.

Bernard, you're conflating opposition to tax cuts on income to a capital gains cut.

I think McCain is conflating the two. The sentence I quoted was categorical, not restricted to capital gains.

I looked at the link you cited. I don't think it's as clear as you make it out to be. They talk about a five year period and the fact that cuts increase realizations in the short term. Longer term effects are not discussed. It's not nearly as strong as you make it out to be, nor do I see why these two estimates ought to be regarded as the best available.

I might add that the whole "dynamic scoring" issue is a bit of a red herring. Tax studies have long included soem attempt to measure dynamic effects. The problem comes when the manic cutters use "dynamic scoring" as a sort of "magic asterisk' to cover all sins, without much in the way of analysis.

I'm not familiar with Lindsey's study, but even if it's accurate it's a long way from digging up one tax cut that financed itself to the actual orthodoxy I referred to, which is that they all do.

I was looking at a picture of the woman (malingering methinks with exquisite pulse control; did she just move?) from the surveillance camera in the waiting room.

There's a guy standing maybe nine feet away looking at a picture or a mirror on the wall.

Obviously, the guy is an economist, having calculated the inputs, outputs, returns, and incentives involved in checking into the holocaust unfolding nine feet to his right.

He is a sentimentalist, however, not having rifled through the woman's purse while she was faking being asleep.

Hmmm...now that I think about it, I don't think I've ever had vodka in lemonade. May have to try it this weekend.

If you want to kick it up a few levels, try making Crystal Clear. It's a drink made out of Crystal Light and Everclear.

Same taste, bigger kick.

In fact, it is correct that "[e]very time we cut capital gains taxes, there has been an increase in revenue." The problem is that the long-term effets of such a cut are unclear.

Unclear to whom?

To the Congressional Budget Office and the Joint Committee on Taxation?

No

The non-partisan Congressional Budget Office (CBO) and the Joint Committee on Taxation have estimated that extending the capital gains tax cut enacted in 2003 would cost $100 billion over the next decade. The Administration’s Office of Management and Budget included a similar estimate in the President’s budget.

To the Bush Administration Treasury Department?

The Bush Administration Treasury Department examined the economic effects of extending the capital gains and dividend tax cuts. Even under the Treasury’s most optimistic scenario about the economic effects of these tax cuts, the tax cuts would not generate anywhere close to enough added economic growth to pay for themselves — and would thus lose money.

No

To 300 unnamed economists?

von, I'm willing to engage on this issue. Which capital gains tax cuts do you believe are long-term revenue positive?

You know, deep down in places I don't talk about at parties I kinda hope McCain gets elected just to have a chance to watch the circus.

The trick is to add lots and lots of vodka to the mixture.

Maybe, but you're still drinking liquid horsesh*t.

We should back up and ask von the Big Picture Question:

What overall principle should we use to allocate the federal tax burden among 300 million Americans?

No matter how small a fraction of GDP you want the IRS to collect, you still have to decide the allocation question. Should we tax Americans by income? by wealth? by weight?

Arguing about whether you collect more or less revenue if you raise or lower a particular tax rate is a third-order question. The first-order question is: do you want to increase revenue or do you want to decrease it? The second-order question is: which Americans should end up paying the extra tax or getting the tax savings? The answers to those questions may be implicit in your position on the third-order question, but it would benefit us all to lay them out explicitly.

-- TP

Actually, von keeps missing the real Big Picture Questions in relation to the topic at hand:

How will cutting capital gains taxes help reduce the deficit?

Given increases in military spending, ongoing wars in two countries, etc., how, precisely, will cutting capital gains taxes -- along with keeping Bush's cuts and cutting corporate rates more -- eliminate the deficit?

I have yet to see a good answer from anyone.

Adding: It's wonderful to read such a respectful, even-tempered and, IMHO, really great and informative discussion. It happens so infrequently in the blogosphere that I feel I must highlight it when I read it. So props to von and everyone else for teaching me a few things and keeping it kind. Truly wonderful.)

Am I the only person desperately hoping that "1982" is a typo in the transcript? Does anyone else remember why starting job-creation numbers for the Reagan administration in 1982 is a really dishonest thing to do?

“…the facts are that when you keep taxes low, when you restrain spending, as we did in 1982 when Ronald Reagan came to office, then the economy grows.”

(Right, he came into office in 1980.)

McCain is spouting the old Voodoo Reaganomic line, offering "Trickle down" benefits to lower income brackets by giving tax cuts to the wealthy. The ever-widening income gap that this has created is destabilizing out economy to the breaking point. Our worst economic problems today are directly connected to the lowered living standards for all but those who were given the tax breaks.

The problem is the Cool Aid. Perhaps McCain's new scriptwriter’s aim is to equate him with a well-liked older politician; it doesn’t matter if what he says is true. McCain can say anything he pleases, anything to make an uninformed voter think, “My that sounds good. Why not vote for him, he knows what I want. Lower taxes and a government that balances its budget by ending a war that I didn’t like anyway.” The media, in their attempt to make this sound like an equally matched race, won’t challenge anything he says.

Many people vote based on gut feelings, associations, and innuendo. Chicken-in-every-pot offers influence people unprepared to ask questions. They will never doubt what McCain says because they will not read the logical Democratic response; nor would they follow the logic. They will not hear McCain’s proposals refuted by responsible economists, nor would they understand the argument.

If you think I am underestimating the public, go to a rural community and ask a few questions about issues you think are common knowledge. The attack on public education is bearing fruit.

"Again, you're oversimplifying and exaggerating."

Von, why is it you repeatedly apply this criticism to Hilzoy, and not to, oh, I don't know, John McCain?

Is it your position that McCain speaks and puts forth positions more rigorously, and accurately, and with more nuance, than Hilzoy does and has here?

Because your response is seems indistinguishable from one in which that is your belief, and seems difficult to explain if that is not your belief, without going to yet other explanations as to this disparity in what you choose to claim is "again...oversimplifying and exaggerating."

I don't mean to be offensive at all, but you're kinda, well, in the neighborhood of perhaps coming across as quite the shill for McCain, willing to supply apologetics for practically everything he says, rather than as the fair-minded independent critic we'd all prefer to see you as.

I think you're capable of doing better than this.

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Whatnot


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