Can Cutting Taxes Raise Tax Revenue?

Yes! - and if you want to know more click here. This is one of the better explanations for how cutting taxes can increase tax revenues, and lower deficits if we don't increase spending at the same time, I have seen in a while. If you are inclined to check up on it the economic principle at work here is the simple observation that people can think about logical consequences. The logic goes like this if I work very hard at running my own business and take some risks I might get rewarded with $1 million in personal income, but if I know that tax rates are increasing so I get to keep less of my $1 million then I don't have the incentive to invest the money needed to earn that million because I need to protect myself from higher taxes so I work less and put money into non-productive and non-taxable investments. The result is I earn less so the tax I pay declines in dollar terms even though the percentage is higher...multiply this effect across the economy at large (and corporations not just individuals do this too) and you get a decline in the economic activity supporting the tax base and the tax base shrinks, which means that despite higher tax rates - a higher percentage collected on a lower base still yields a lower tax revenue number!

Financial Reform and a Whole Lot More

Business Week recently ran an article about the financial reform bill that passed and it included a list of little known add-ons...

No Such Things as Secrets...

At least not if you are in the financial industry. The new financial reform bill that passed includes a new research office that is part of the Treasury. It is authorized to compel financial companies of all sorts to turn over data so it can look for "systemic risks." Data that was previously confidential such as counter-parties to credit default swaps and information on individual loans - such as interest rates. This is information that these companies place a high value on keeping confidential - in fact in come cases the value of a credit default swap may only exist if the purchaser is kept confidential.

The research office is required to keep confidential information protected, but it is also required to make it's data available for public use and is subject to the "Freedom of Information Act." One of the major bedrock principles of our economy is the ability of companies or individuals to create knowledge and information that gives them a competitive advantage and the ability to protect that information. This is an assault on the very basics of a knowledge based economic system.

Obama Calls for Infrastructure Spending

Obama is planning on calling for a multi-year effort to rebuild America's transportation infrastructure as part of series of proposals to breathe life into the economy. The administration plans for the spending, $50 billion initially, to be deficit neutral by closing tax loop-holes. It seems unlikely that spending money and then taking an equivalent amount from targeted industries will be net positive to the economy. I don't know where Obama learned math.

A Window into China's Currency Reserves

The make-up of China's foreign currency reserves has long been speculated at but recent information suggests they are overwhelmingly comprised of dollars.

Obama Takes on Mortgages

The Obama administration is going to take another wack at mortgage modification. Since the previous program had so many rules and restrictions it basically did nothing to aid the housing market or underwater home owners and was a waste of taxpayers' dollars. This time they are going after people that are not yet behind on payments, but are underwater. In order to entice banks to take the necessary hair cut the administration plans for the FHA to take ownership of the newly reduced mortgages.  This will shift the risk of default to the taxpayers! Hopefully the upcoming elections will change the tune out of Washington.

Jobless Rate Hits 9.6%

The August unemployment rate is up to 9.6% from 9.5% which has many people questioning the policies the Obama administration has put in place. The administration has pursued a policy of massive spending, coupled with small targeted tax breaks, and large new social programs and regulation as its general economic strategy.

This is exactly what the economy doesn't need! All the new social programs and regulation just stifle business by forcing business-owners to try to comprehend all the new costs and hurdles they have to deal with it.

Generally, spending has some stimulative effect, but the level of debt the US has incurred is dangerous to our future and so the stimulative effects of spending may be partly or entirely off-set by declines in private spending and investment caused by fear/uncertainty.

Tax reductions would probably help, but without cuts in spending they only worsen the debt problem of our government. Also - what our economy really needs is massive tax overhaul not just minor cuts/deductions.

Debt Clock

This is scary!