Benefit of Tax Cuts in General

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Postby Chuck » 05 Jan 2009 16:55

saylavbda wrote:
Dennis wrote:This was my fear when I started the thread. So far, nobody has showed me any convincing evidence that general tax cuts stimulate the economy better than government spending.


The flip side is also true, that nobody has shown that government spending is any better, so if neither is superior to the other, then lets pick the one that give the most non-monetary benefit to the taxpayer.

Since with a tax cut all taxpayers get to benefit, while with government spending the amount of benefit and who gets it is questionable.

Amen. If I should choose to commit the unpardonable sin of saving my money rather than "stimulating" other peoples profit statements, so be it. But then, I feel my money is mine to direct, and socialists feel it is theirs, and hence our disagreement.
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Postby brucecohen » 05 Jan 2009 19:14

saylavbda wrote:Since with a tax cut all taxpayers get to benefit

But all taxpayers don't get to benefit. If tax cuts are matched by reduced spending, someone loses service. If tax cuts aren't matched by reduced spending, everyone eventually suffers from inflation. Depending on how the tax cuts are structured, some parties may get enormous benefit while other parties get little or none.

Chuck wrote:But then, I feel my money is mine to direct, and socialists feel it is theirs, and hence our disagreement.

That's the first time I've heard those who run Wall Street, the big banks and major corporations described as "socialists." :wink:
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Postby parvus » 05 Jan 2009 19:52

One might usefully consult Don Drummond's budget recommendations:
4. There is a great debate going on about how much fiscal stimulus to apply. It many respects the debate is misplaced. As a small, open economy, it would take massive amounts of fiscal stimulus to substantially change the fate of the Canadian economy. As will be argued below, it is very difficult to craft temporary stimulus. So almost any package large enough to make a real difference to the economy in the near term will almost inevitably cause a longer-term fiscal headache. It may be more profitable to think of fiscal policy in a different context. Can advantage be taken of the softening economy, including labour markets, to increase the concentration into 2009 and 2010 of public projects that are in Canada’s long-term economic and social interest? When markets were very tight prior to 2008 such a concentration of projects would have met with resource shortages and caused delays and inflated costs. This is much less likely to be the case over the next few years. So there is an opportunity to accelerate initiatives with ensuring benefit.

5. Canada’s economic fate will largely be determined by worldwide economic developments. The surest way for the Canadian economy to revive is for the U.S. and world economies to recover. That would raise demand for our exports and cause commodity prices to rise. As a small open economy there are significant leakages to fiscal stimulus in Canada. At the same time, Canada must avoid reentering a structural deficit problem. The larger the fiscal stimulus, even if it is billed as temporary, the more likely we will run into that problem. Stimulus of less than 0.5 per cent of Canada’s GDP, or $8 billion a year, would not be sufficiently large to make a substantial difference to economic prospects. But stimulus exceeding 1 per cent of GDP would very substantially raise the risk of triggering a persistent, structural deficit.


6. Temporary initiatives should be avoided. First, they have very limited economic benefits. A temporary GST rate cut, for example, would simply shift purchases into the period of the cut and away from the succeeding period. A six-month cut to the rate might dampen the output declines in the first half of 2009 but would kill recovery momentum in the second half of the year. One-time lump sum payments, whether dressed up as a tax rebate or an increase in a benefit, are largely saved and hence provide very little economic stimulus relative to the fiscal hit. The one-time payments from the U.S. Administration this spring demonstrate this once again. TD Economics estimates that only 20 cents on the dollar was spent and half of that likely went to imports. So the domestic stimulus was only 10 cents per each dollar of fiscal hit.

In “If, When, How: A Primer on Fiscal Stimulus” (2008), two Brookings Institution economists Douglas W. Elmendorf and Jason Furman argue stimulus should be timely, targeted and temporary. The call for timeliness is not controversial. Measures should be implemented quickly and they should deliver stimulus with the least possible delay. Targeted and temporary are more tenuous. For one thing, these recommendations don’t address a situation where in addition to the need for timely stimulus, there are serious structural imbalances in a country’s fiscal situation. Second, as in any challenge, one should look at possibilities to not only address the immediate need, but to see how far along one can get in addressing longer-term problems that impinge upon growth. Third, the calls don’t give due respect to the historical record. Many initiatives that were announced as being temporary got repeatedly extended. People perceive that their taxes are being increased when temporary tax cuts end. The political pressure translates into extensions. Witness the so-called temporary tax measures from Bush’s first administration. Many are still going on and Obama now says he will extend them further.

In the hypothetical case cited above of a cut in the GST rate for the first half of 2009, Canadians would perceive that taxes were being raised July 1, 2009 and there would be enormous pressure to extend the rate cut. Third, just because the stimulus needs to be temporary does not mean that all measures must be temporary. For example, a permanent tax cut implemented immediately with a budget could be coupled with spending cuts to begin 2 years later. The benefits of the tax cut would endure but there would be no lingering fiscal hit. Of course promised spending cuts in the future have a real credibility challenge given the practice of delaying the day of reckoning. But, as argued above, so do temporary tax cuts. John B. Taylor, an economist at Stanford University, rejects the Elmendorf-Furman arguments and instead recommends stimulus be permanent, pervasive and predictable. To a considerable extent the argument between the two camps comes down to Elmendorf-Furman’s preference for temporary (even one-time) tax relief whereas Taylor prefers permanent tax cuts. In this case the recommendations presented here side with Taylor. However, the case for timeliness and targeted, in the rather narrow sense of ensuring a good bang for the fiscal buck, are respected.


By the way, Drummond thinks it is the poor who are overtaxed, given steep marginal rates they face on small increments of labour income.
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Postby adrian2 » 05 Jan 2009 21:29

brucecohen wrote:But all taxpayers don't get to benefit. If tax cuts are matched by reduced spending, someone loses service. If tax cuts aren't matched by reduced spending, everyone eventually suffers from inflation. Depending on how the tax cuts are structured, some parties may get enormous benefit while other parties get little or none.

Many people, myself included, have complained about how complicated our tax system is. But guess what, the vast majority of those wrinkles were introduced with good intentions, and not with the goal of enriching Intuit (Quicktax calculations) or our own Steve Salter (RRIFmetic).

If we drastically reduce the complexity, some taxpayers will lose and some will gain. Sure it's all nice to write your entire tax return on a postcard, but are you sure it's a more fair way of collecting the taxes? A common response is: it's fair to eliminate all the tax credits and deductions that I personally don't benefit from. Is it the correct one?
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Postby ghariton » 06 Jan 2009 01:06

brucecohen wrote:That's the first time I've heard those who run Wall Street, the big banks and major corporations described as "socialists." :wink:


I believe the more usual expression is crony capitalism.

As regards all taxpayers benefiting from tax cuts, that of course depends on how the tax cuts are designed. But generally, increasing the personal tax credit or the decreasing the tax rate on the lowest bracket will benefit the vast majority of taxpayers.

As to the burden of reduced spending to make up for the tax cut, again it depends on how the change in spending is structured. Some spending affec ts all Canadians to a degree independent of their income , e.g. foreign aid, military spending, machinery of government. Other spending may have very peculiar incidences, e.g. funding of the arts, and even health care. The latter is really a random impact -- we rarely know ahead of time who will be the biggest consumers of health services, and so who will most be affected by the level of government spending. In such circumstances, I think it is fair to assume that the vast majority of Canandians will be affected roughly equally, ex ante.

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Postby Chuck » 06 Jan 2009 12:49

brucecohen wrote:That's the first time I've heard those who run Wall Street, the big banks and major corporations described as "socialists." :wink:

For the record, I am vehemently opposed to all corporate bailouts. Let'em fail is my motto. We'll just have to deal with the consequences (which I doubt are as bad as those with vested interests in getting a bailout claim they are).

So again, if it was me and not the government deciding where my money goes, it would not be going to corporate welfare. But I don't get to make that call.
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Postby saylavbda » 06 Jan 2009 13:09

brucecohen wrote:
saylavbda wrote:Since with a tax cut all taxpayers get to benefit

But all taxpayers don't get to benefit. If tax cuts are matched by reduced spending, someone loses service. If tax cuts aren't matched by reduced spending, everyone eventually suffers from inflation. Depending on how the tax cuts are structured, some parties may get enormous benefit while other parties get little or none.


If you add a lot of ifs to the equation just about anything is possible.

But a reduction in tax rates will mean all taxpayers will be less tax, hence a benefit.

Question is with both a tax cut or an increase in spending the goal is for the govt to get more funds into the economy. Since it seems unclear that one method is superior to the other in getting the money into the economy, I would argue that at least with tax cuts all (or more) taxpayers will benefit by the amount of the cuts have for that person. With govt spending the benefit to the taxpayer is unknown and the ability of govt to proper allocate funds and manage projects is already well known.

Hence my vote for broadbased tax cuts over gov't guided spending (or misspending as the case may be).
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Postby brucecohen » 06 Jan 2009 14:54

saylavbda wrote:But a reduction in tax rates will mean all taxpayers will be less tax, hence a benefit.

Not necessarily. A week or so ago I was driving on a stretch of highway -- don't remember where -- and was amazed by the number of deep potholes. If govt cuts back on road maintenance in order to fund a tax cut, damage caused by potholes such as these will more than offset the benefit of the tax cut for x number of unlucky drivers. OTOH if govt spends enough to keep roads in good shape, everyone -- or almost everyone -- benefits from increased mobility of people and goods.

In the current recessionary environment, appropriate govt spending offers way more benefit than widespread tax cuts whose economic benefit is greatly dissipated. What is the benefit to Canada and one's province/locality if this person spends his tax cut in Florida?

The rub is in defining "appropriate" govt spending. Though I'm a big fan of toll roads, I accept that there's widespread agreement that highway construction and maintenance is an appropriate and even desirable govt function. The potholes that I encountered will be fixed at some point. If govt accelerates its maintenance schedule to fix those potholes and others sooner rather than later, it can get the work done when labour and raw materials cost less than during the higher points of the economic cycle -- and virtually all of that spending will produce local economic benefit.

I often ponder the question of whether we should shut down public libraries. They compete -- unfairly -- with book and magazine sellers. Much of the reference info they stock is now available on the internet. They're not an essential service. Indeed, the bare bones public library in Newport, RI is horrible and many middle-class readers pay to belong to a private library. As a big library user, I benefit handsomely at the expense of the taxpayers who never go there, probably a majority. Closing the library would knock a buck or two off my property tax. I would be a big loser because that savings would be consumed by the first book I bought. Would my neighbors be better or worse off? Better off to the extent that they now have an additional $1 or $2 to spend. Worse off if we ascribe value to having an abundant supply of free books and periodicals available, whether or not you use it.
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Postby Bylo Selhi » 06 Jan 2009 16:00

adrian2 wrote:Many people, myself included, have complained about how complicated our tax system is. But guess what, the vast majority of those wrinkles were introduced with good intentions... If we drastically reduce the complexity, some taxpayers will lose and some will gain.

My primary concern is that the cost of creating, implementing and enforcing that complexity [think of the vast numbers of tax lawyers, accountants, bureaucrats, printers, software developers, etc.] may more than offset the purported economic benefits.

My secondary concern is that if we replaced all of that with a simplified, one-page tax return we'd throw such a horde of people out of work that our economy would be in even worse shape than it's in right now.
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Postby brucecohen » 06 Jan 2009 17:28

Bylo Selhi wrote:
adrian2 wrote:Many people, myself included, have complained about how complicated our tax system is. But guess what, the vast majority of those wrinkles were introduced with good intentions... If we drastically reduce the complexity, some taxpayers will lose and some will gain.

My primary concern is that the cost of creating, implementing and enforcing that complexity [think of the vast numbers of tax lawyers, accountants, bureaucrats, printers, software developers, etc.] may more than offset the purported economic benefits.

My secondary concern is that if we replaced all of that with a simplified, one-page tax return we'd throw such a horde of people out of work that our economy would be in even worse shape than it's in right now.

1. Long ago the Carter Royal Commission recommended a very simple system in which all earnings -- wages, salary, interest, capital gains and dividends -- would be taxed at the same rate and there'd be hardly any deductions or credits. The catch phrase was "a buck is a buck." Kenneth Carter, a member of Canada's business elite, was subsequently declared a traitor to his class and his report was tossed on the scrap heap.

2. More recently, though still over a decade ago, then-MP Dennis Mills proposed instituting a flat tax with no deductions or credits. And he designed a T1 annual return that was indeed a postcard. I discussed this idea with Satya Poddar, one of Canada's top tax policy experts. Satya had recently retired from Finance where he was the chief of tax policy analysis and joined Ernst & Young, where he was their top tax policy guru. His view: Given the influence of lobbyists and the DNA of politicians, Mills' remarkably straightforward flat tax would not survive one session of parliament without getting festooned. (Satya provided an example of the intricacies of tax legislation by citing his last official act at Finance. He signed off on a GST amendment which made it clear that the tax applied to all candy without regard to shape. The original legislation referred to candy "bars" and lawyers for one manufacturer subsequently argued that a particular product was GST-free because bars are rectangular and this candy was square.)
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Postby xerxes » 06 Jan 2009 18:11

Seems to me with the tax cut the individual taxpayers will decide where the money is spent. Infrastructure and auto bailout the construction companies and auto companies and their suppliers and unions will benefit.
I would imagine that the latter have more effective lobbyists with the government. I'm not sure what clout small business has with government.
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Postby saylavbda » 06 Jan 2009 18:19

brucecohen wrote:
saylavbda wrote:But a reduction in tax rates will mean all taxpayers will be less tax, hence a benefit.

Not necessarily. A week or so ago I was driving on a stretch of highway -- don't remember where -- and was amazed by the number of deep potholes. If govt cuts back on road maintenance in order to fund a tax cut, damage caused by potholes such as these will more than offset the benefit of the tax cut for x number of unlucky drivers. OTOH if govt spends enough to keep roads in good shape, everyone -- or almost everyone -- benefits from increased mobility of people and goods.

In the current recessionary environment, appropriate govt spending offers way more benefit than widespread tax cuts whose economic benefit is greatly dissipated. What is the benefit to Canada and one's province/locality if this person spends his tax cut in Florida?


You do love your ifs (bolded ifs added above).

Well if govt could spend the money properly and if any tax cut was spend in Florida and if a tax cut meant govt cutting back on aforementioned proper spending, then an increase in gov't spending would make more sense.

But if the tax cut was spent predominately in Canada and if the cut did not reduce current gov't spending on required projects and if the majority of addition govt spend was to be spent on 'bridges to nowhere', then wouldn't a broadbased tax cut make more sense.

But enough with the ifs.

As for the library, they are open to the public, so all can benefit if they choice, the fact that some choice to do so more then others doesn't change the benefit to any individual. It is there for them. With additional Gov't spending, on extra projects that will be undertaken to get money into the economy, there may not be any benefit to be had by a large segment of the population.
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Postby blonde » 06 Jan 2009 18:32

Some of us know 'how' the govt-make-work thingies work...call it whatever ya'll want...subsidy...stimulus...bail-out...grant...loan...whatever, the bottom line is it will be Total Pure-Waste. Why is the tax-payer so dumb to allow the politicians stick-it-to-ems?

The most efficient and effective method is REDUCE TAX. Put the money back into the pockets of the people and they will always make the rite decision how much or how little they do with it.

The govt shud buzz-off... Kcuf-ffo. The less govt...the better. SK is an example of 'what not-to-do'. Tinkering with a Govt-Mess will result with a Mega MESS.

The Bull-Shit taking place in mecca now is enough to make a person want to either barf or spit.
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Postby blonde » 06 Jan 2009 19:08

That's the first time I've heard those who run Wall Street, the big banks and major corporations described as "socialists."


er, ah...10%er-Speak re: wannabees.

as an aside...most of ya'lls will not 'understand'...
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Postby Dennis » 06 Jan 2009 19:12

If anybody is critical of Flim Flam Flaherty's tax cut stimulus, he can always point to the "half blood prince' (love that worthy) intending to do the same.

I'm guessing that Obama backed himself into a corner by campaigning on tax cuts to one up McCain and now he must pay the piper.

Targeted infrastructure spending makes much more sense as a stimulus. Either way, both USA and Canada are going to add to their national debt.

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Postby brucecohen » 06 Jan 2009 20:50

saylavbda wrote:
You do love your ifs (bolded ifs added above).

Any hypothetical involves ifs.

As for the library, they are open to the public, so all can benefit if they choice, the fact that some choice to do so more then others doesn't change the benefit to any individual.

Once the "bridge to nowhere" is built, it too would be open to everyone. So, does everyone benefit? Only to the extent that there's availability, and availability ain't worth much without utility. A public library offers enormous utility to those who choose to use it. But many/most choose not to. And those who do would no doubt be willing to pay membership fees to maintain a private library, just as people pay membership fees for private fitness clubs. So, the tax money spent to maintain the public library is largely wasted, at least in terms of value realized by many/most of the taxpayers who fund it. If the point of exercise is to manage taxation and spending so as to maximize everyone's individual benefit, public libraries make no sense and should be shut down.

With additional Gov't spending, on extra projects that will be undertaken to get money into the economy, there may not be any benefit to be had by a large segment of the population.

But there would be, even if those people don't use the project that's built. The engineering, environmental assessment, survey and other preparatory work will be done by local contractors who support the local economy as residents/commuters/shoppers. It normally doesn't make sense to ship raw materials over long distances, so fill, concrete and asphalt would be obtained from local suppliers and transported by local truckers. Steel might be obtained from domestic or foreign producers. If foreign, there will still be business generated for the domestic stevedores who unload it and the domestic railway and trucking companies that transport it. Actual construction obviously requires skilled and unskilled workers who live in the region.Factor in the ripple effect as all of these people spend their earnings on goods and services and you find that this project -- even though it's a bridge to nowhere -- does in fact benefit a large segment of the population, both in direct business revenue and in taxes paid to govt. And if it's a bridge to somewhere, the benefits will continue well into the future.

Since any stimulus program -- whether direct spending or tax cut -- will require govt to borrow money, it's important to optimize the stimulative benefits. We know that infrastructure spending and its ripple effects will be concentrated in the national/provincial/local economy. We don't know that for broad based tax cuts.
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Postby parvus » 06 Jan 2009 21:50

saylavbda wrote:Question is with both a tax cut or an increase in spending the goal is for the govt to get more funds into the economy. Since it seems unclear that one method is superior to the other in getting the money into the economy, I would argue that at least with tax cuts all (or more) taxpayers will benefit by the amount of the cuts have for that person. With govt spending the benefit to the taxpayer is unknown and the ability of govt to proper allocate funds and manage projects is already well known.

Hence my vote for broadbased tax cuts over gov't guided spending (or misspending as the case may be).

Ah, but I think you're making two simplifying assumptions. The first is that the vast majority of taxpayers would see much of a tax reduction ($500 on labour income sounds about right.) From StatsCan, 90% of Canadians make less $72,000 and 50% less than $29,000. After tax, the figures are $60,000 and $30,000 (taking transfers into account). (This is from a 2007 study using 2004 figures; the figures are approximate, I scanned them off the charts, but they're in the same ballpark as other things I have cited elsewhere.)

The second is that such taxpayers would not misspend — I'm not thinking of their tax refunds, or even their incomes: rather that most households are leveraged (even purportedly wealthy ones) and hence a major source of systemic instability, waiting, perhaps, for a government to bail them out. :wink:

Oh yes, sources. StatsCan indicates the average debt-to-income ratio in 2005 was 110%, compared to 75% in 1990 and 50% in 1985. Credit cards account for 33% of debt, up from 26% in 1993.

Three points readily emerge: most Canadians make far less than people think they do, and consequently pay far less tax than the widely disseminated (and highly dismissable) Fraser Institute Tax Freedom day; most Canadians have eye-popping debt loads compared to their income, a trend hastened in the late 1990s and 2000s: a $500 refund is not going to bleed much out of average debts of $28,000; three ... there must be some blondism here, something along the lines of 90%ers are fooked. :shock:

Beyond that, when it comes to public spending, the Public Accounts indicate that, of $232 billion in expenditures in fiscal 2007-2008, half went to transfers to people and provinces ($131 billion) and payment of public debt ($33 billion). That leaves $68 billion in programme spending — more than what the government of Québec spends, but less than what Ontario does. Strip out National Defence ($17.3 billion), Public Safety ($7.9 billion), CRA ($7.4 billion) and Crown Corporations ($7.3 billion, but they brought in $6.5 billion in revenue), and we're down to $28 billion — about what Alberta spends on programme costs.

Now, I don't intend (unless someone pays me) to break out how much of that programme spending not only supports civil servants who often constitute the upper bourgeoisie of their community, given their incomes (remember that reference to the median wage of $30,000) and its multiplier effect, nor how much government money is wasted on private sector consultants and goods (well, government does not produce the goods itself), but theoretically one could model a smaller government. The point behind the figures I cited above is where do you start with a smaller government? Cut all the small-spending departments, well that's a 12% saving, yielding perhaps a $1400 tax refund for the $72,000 earner — basically a week's wages — but essentially nothing for the $30,000 earner. But I'm just playing with figures here. I'm sure there are six ways to Sunday to play this discussion (Just remember, I won't do 10%er math ... ems has the means.) :lol:

I am of two (or perhaps three) minds. There are municipal infrasctructure projects that could be speeded up (including bus-manufacturing, as more leveraged Canadians are forced to choose between the mortgage and the car lease.) There is a case to be made for social infrasctructure, nurses for example, particularly in view of the aging population. In addition, there is a case for post-secondary education/vocational training (but not, I think, for elementary teachers, given a declining enrolment). There is also a case for tax cuts — just not for people. Corporate and payroll tax cuts are far more promising to boost employment. (Unfortunately, many unions — and populists, even right-wing ones — lately seem to be wedded to the concept of a small closed economy, an autarchy where all money is merely recycled, with no productivity improvements, and hence no net gain, only economic disruptions brought about by greedy corporations that boss around the labourer and the mom-and-pop shoppe alike. I believe Marx referred to this as fetishism, the process whereby organizations and products of human beings somehow acquire superhuman characteristics, to become reified objects that somehow interact with each other outside of all human agency. :wink: )

But I'll leave the last word to Krugman:
How much do tax cuts and spending raise GDP? The widely cited estimates of Mark Zandi of Economy.com indicate a multiplier of around 1.5 for spending, with widely varying estimates for tax cuts. Payroll tax cuts, which make up about half the Obama proposal, are pretty good, with a multiplier of 1.29; business tax cuts, which make up the rest, are much less effective.

In particular, letting businesses get refunds on past taxes based on current losses, which is reportedly a key feature of the plan, looks an awful lot like a lump-sum transfer with no incentive effects.

Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been.
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Postby DenisD » 06 Jan 2009 23:50

Tax cuts: the fruitful multipliers

By contrast, recent research by Christina Romer and David Romer (of University of California, Berkeley) looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. (Ms. Romer is president-elect Barack Obama's choice as chairwoman of the Council of Economic Advisers.)

...

My advice to Team Obama: Do not be intellectually bound by the textbook Keynesian model. Be prepared to recognize that the world is vastly more complicated than the one we describe in Harvard's "Principles of Economics" course. In particular, empirical studies that do not impose the restrictions of Keynesian theory suggest that you might get more bang for the buck with tax cuts than spending hikes.
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Postby ghariton » 07 Jan 2009 00:56

brucecohen wrote: A public library offers enormous utility to those who choose to use it. But many/most choose not to


In the old days, the main clients of a public library were (a) schoolchildren, consulting the reference works for school projects and, for the minority of voracious readers, wolfing down volume after volume of books that were otherweise to expensive (b) old men, retirees who would read the newspaper for free and snooze. With the spread of the Internet and video games, for those who have access, all that is left is the snoozing. But somewhere between a quarter and a third of Canadians still don't have Internet acccess. Is it worth while keeping public libraqries open for them? Or should we subsidize broadband instead? Or neither?

The engineering, environmental assessment, survey and other preparatory work will be done by local contractors who support the local economy as residents/commuters/shoppers.


Again, it depends on the project. For example, when we were looking at double-tracking the railway through the Fraser Canyon, there weren't too many railway engineers and geologists available locally. Indeed, we had to get experts on railway bridges from the U.S.

It normally doesn't make sense to ship raw materials over long distances


Back when the Seaway was still important, we had pretty long hauls of bulk commodities, including stone and gravel. I don't know what's happening these days. But anyway, the big spending is not on concrete and sand. It is on labour. This may not be all that visible, as it gets capitalized and often is not recorded as labour. And remember that it can take some time to develop local labour. For example, as I recall, in the early days of Hibernia, pretty well all ther labour was Come From Away.

stevedores


:lol: I thought there were no more stevedores left, what with containerization and self-unloading ships.

Actual construction obviously requires skilled and unskilled workers who live in the region.


You mean like in Fort MacMurray?

this project -- even though it's a bridge to nowhere -- does in fact benefit a large segment of the population, both in direct business revenue and in taxes paid to govt.


If the project will not lead to benefits, other than the salaries and wages paid, why not just pay the salaries and wages, and let the workers do something useful -- like retraining?

And if it's a bridge to somewhere, the benefits will continue well into the future.


Yes. The problem is that building this bridge means that resources will not be available for other projects. Now if the resources would otherwise be idle, the opportunity cost is close to zero. But if work on the bridge continues after the recession is over, then the cost might be quite high.

So the secret is, as many commentators have remarked, to accelerate small infrastructure projects that are already "shovel-ready", and perhaps to initiate others where the need is unequivocal. Repairing and upgrading existing infrastructure sounds promising. Large new projects, or any project that requires some sophistication, are probably unwise. Unfortunately, it is the latter that make for good photo-ops.

So despite the teeny weeny disagreements with you above :wink:, I generally agree that this is an excellent opportunity to get some infrastructure repaired and upgraded. Problems remain, of course
-- political pressures to undertake projects that favour certain interests
-- waste, in the rush to spend quickly
-- bias, toward projects that have high visibility
-- shortage of skilled human resources domestically

Still, this beats corporate bailouts hands down.

George
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Postby ghariton » 07 Jan 2009 01:58

Another analysis of the efficacy of tax cuts versus increased spending:

We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. ..... Our key finding is that the best fiscal policy to stimulate the economy is a deficit-financed tax cut and that the long term costs of fiscal expansion through government spending are probably greater than the short term gains.


(This is the penultimate version, from 2005. NBER wants $5 for the final version. But I understand that the conclusion as to the efficacy of tax cuts doesn't change.)

If you have any trouble reading the paper, Dennis, let me know and we can work on it together. :wink:

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Postby Dennis » 07 Jan 2009 08:19

Yes, I have trouble reading the paper. The conclusions are there, but the methodology is beyond my comprehension.

I am more interested in the reasons for tax cuts being a better alternative than spending.

I would appreciate it George, if you could give us a paragraph or two explaining the reasons the study gives for it's (hard to believe) conclusion. :wink:
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Postby saylavbda » 07 Jan 2009 13:13

brucecohen wrote:Once the "bridge to nowhere" is built, it too would be open to everyone. So, does everyone benefit? Only to the extent that there's availability, and availability ain't worth much without utility. A public library offers enormous utility to those who choose to use it. But many/most choose not to. And those who do would no doubt be willing to pay membership fees to maintain a private library, just as people pay membership fees for private fitness clubs. So, the tax money spent to maintain the public library is largely wasted, at least in terms of value realized by many/most of the taxpayers who fund it. If the point of exercise is to manage taxation and spending so as to maximize everyone's individual benefit, public libraries make no sense and should be shut down.


A bridge to nowhere and a public library differ greatly. A bridge to a remote island only benefits the few who would use it, but few others (other than those directly employed to built). But a public library benefits those that use it, but also indirectly those who don't use it but do benefit from the knowledge/skills learned by those who do. The benefits of public education go beyond those who directly participate, so it is in everyone's interest to support these type of public institutions. One day we may be saved by a discover from a scientist on the otherside of the country who started out using the public library in their studies.

Fitness is an good example, would the costs of making community fitness programs free be offset in cost reduction in healthcare by a healthier population?

These are examples of programs that are not only for the benefit of the people directly participating but also for the betterment of society as a whole. I wouldn't consider a bridge to nowhere, that is built just to pump money into the economy, to fall into this category.
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Postby c emptor » 07 Jan 2009 13:42

Not a tax cut but money ends up in the same place: enhanced EIhas been floated by the Liberals.

The opposition Liberals say the federal budget must expand employment insurance to put more money into the hands of workers left jobless by the recession - but they have not made specific demands.

"There's got to be something in the budget to address this need," Liberal human-resources critic Mike Savage said in a telephone interview yesterday.

Mr. Savage pointed to a proposal in an alternative budget released yesterday by the Canadian Centre for Policy Alternatives, a left-wing think tank, for $3.4-billion to be injected into employment insurance.

He said his party is developing ideas for enhancing the EI program. But he wouldn't say whether Liberal suggestions will be submitted to the Conservative government before Finance Minister Jim Flaherty delivers his economic blueprint on Jan. 27.


Somehow one feels that those who opposed tax cuts for individuals will be in favour of this proposal and those in favour of individual tax cuts will oppose it.

A tax cut is given to everyone, those who are needy and those who are not but enhancing EI will go to the needy alone and this is music to the ears of the socialistically inclined and an unpleasant noise to the conservatives who do not want to encourage dependency.
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Postby Jo Anne » 07 Jan 2009 15:23

c emptor wrote:A tax cut is given to everyone, those who are needy and those who are not but enhancing EI will go to the needy alone and this is music to the ears of the socialistically inclined and an unpleasant noise to the conservatives who do not want to encourage dependency.


And yet it's OK to fork out $4B so the $40/hour auto workers can keep their jobs for a while longer.
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Postby brucecohen » 07 Jan 2009 16:38

c emptor wrote:Not a tax cut but money ends up in the same place: enhanced EIhas been floated by the Liberals.

The opposition Liberals say the federal budget must expand employment insurance to put more money into the hands of workers left jobless by the recession - but they have not made specific demands.


Somehow one feels that those who opposed tax cuts for individuals will be in favour of this proposal and those in favour of individual tax cuts will oppose it.

Quite likely. But enhanced EI is likely to be more stimulative than tax cuts because people with low or no income are more likely to spend each new dollar.

IIRC, EI is self-funding through premiums paid by employers and employees. I also recall that the EI fund has a surplus. If so, I see no reason not to tap it for enhanced benefits but without more info I wouldn't be particularly willing to raid the treasury.
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