How can the Government the cut taxes and expand the Government?

Thats like a person thats deep in debt reducing there salary while increasing spending.

 

Government has the unique power of managing the country's currency. It can create new money through the monetization of debt. By monetizing it's debt, the government can artificially expand the economy and continue spending beyond it's tax base.

If you would like an example of how government debt expands the money supply and creates inflation, let me know. I would be happy to break it down into an easy to follow process for you.

Be aware, that this knowledge is like taking the red pill in the Matrix. It will likely change your worldview significantly.

 

I like how you put that.

 

I added it after.

But as you can see, a lot of people are not even curious about the red pill.

 

Does it make sense to reduce income while increasing debt? Will this stimulate the economy or just hurt it?

 

Of course it doesn't. Increasing debt creates inflation. Inflation creates pressure on the government to spend more for welfare, entitlements and social services. Which leads to more debt. Which leads to more inflation. And so on and so forth.

But we're not going to tax our way out of the current predicament. It is going to require massive spending cuts, perhaps to the tune of 30%+. Which means, it won't happen. Until we're broke.

So you want the blue pill?

 

Increasing debt is profitable to the financiers of an artificial economy.

 

I mean, we are borrowing billions a day from countries like China...

 

I believe that foreign credit sources may be drying up. We are just continuing to devalue our currency now. US dollars are in low demand internationally.

 

Well,

Deficit spending.

Inflation(which is a tax)

Reaganomics - Supply side economics. This is what is typically aimed for. Reduce taxes, economy booms and generates more tax revenue.

 

Unfortunately, it makes perfect sense if you're trying to get elected or re-elected.

It provides a short-term boost to the economy but in the long run it can only be financed by taking a claim of future income and tax receipts.

Unfortunately again, and perhaps most critical, is that this has been going on for nearly 70 years without stopping once to take a breath. (Even the surplus we heard about during Clinton's years were based on manipulations of the economic data and government consumption statistics).

This means basically that America has enjoyed a lifetime of increased consumption - by passing the bill on to the next lifetime.

When you see the dollar going down and oil going up, this means the bill is coming due.

Now, we could try to reign in spending or increase taxes (which might collapse our industry since we're already a pretty high-tax country for "legit" companies to do business in and the working class can't really afford anything right now)

This might not be feasible, and it definitely won't be popular with the voters.

This creates a temptation for politicians to engage in more spending, more tax cuts to foster an environment of hyperinflation - wiping out our debt by destroying our purchasing power. States typically recover from the crushing poverty this creates through a police state and decades of rationing (See Brazil 1970s, Germany 1930s, Zimbabwe today for examples of this from the last 100 years)

 

We should reduce government (federal & state), reduce taxes and reduce fees at the local level.

 

I'm not sure, but I am somewhat convinced that this is also a fallacy.

Because otherwise the optimum marginal tax rate would be 1% or less. Maybe 0.0001%, because the lower taxes are the more revenue they generate through increased economic activity, or so the story goes.

It seems counterintuitive. And I did actually buy into it at one time.

The only fair tax, is no tax. I believe that an untaxed economy would also be the most efficient.

 

Agreed

Well when you get empirical evidence, than you'll be able to talk.

Well, unfortunately we live in the real world where there is more than an economy.

 

Here you go!

Even going by "official real dollars" (in quotes because it requires faith in "official inflation" data) the actual value of tax revenue declines after any of the recent tax cuts.

Nominal tax revenue increases, because our recent tax cuts are financed with debt - causing immediate inflation / dollar devaluation. This isn't shown in the chart




What is true is that the Laffer curve predicts optimal tax rates and there are some occasions in which lower taxes can produce higher revenues. Here's a good example that shows why America should cut corporate taxes as soon as possible:



The problem is that tax cuts that aren't offset by spending cuts or other tax increases are fundamentally debt-based and will always cause inflationary distortions.

 

This is what I mean. We're talking about supply side economics and you're talking about debt. That has nothing to do with anything.

Cut taxes, economy grows, more wealth created, more tax revenue.

Debt is irrelevant.

 

I just demonstrated that this statement is false when considering debt financing. Your insistence on ignoring the debt variable strikes of extreme cognitive dissonance: on the one hand are facts, on the other is a partisan loyalty.

 

This ^^^ shows a fundamental lack of understanding of how fiscal and monetary policy are intertwined.

I gave Mia a tutorial on how lowering taxes but deficit spending can raise tax receipts, creating the illusion that lowering taxes increases revenue.

But again, I'm quite sure it is a fallacy, because if lower taxes gets more returns, then we should be taxing at the lowest possible level above zero to stimulate the largest tax base.

You confuse money with wealth. They are not the same thing.

 

Yeah. ofcourse. But debt financing (when it is printed off out of nothign) is only when it happens. It's completely irrelevant when "real" debt is used or there is no debt at all. Correct?

Ronald Reagan had a lot of debt during his turn, but he was able to curb inflation and other things like that due to the fact that he used government bonds finance his debt, which doesn't cause the inflationary effect you're alluding too.

You're picking a non ideal scenario to make your theory. Reaganomics works, it just doesn't work if you do it wrong. And when you do it wrong, it isn't Reaganomics.

 

I know more about fiscal policy than you think. I became a libertarian after I read "Creature at Jekyll Island".

The thing you seem to miss is debt is irrelevant to Reaganomics. You can apply it when you have a government deficit or a surplus. It's irrelevant to debt, but you're dense and can't get past that point.