State budget deficits (1 Viewer)

[Glenn Overholt]

I agree with most that has been said here, except for the mess with Enron. They are in trouble only because they got called on their high prices, and lost.

Not to get up on a soapbox and preach, but when they had the brownouts CBS was ratting on them and what they did. My replies here were laughed at. The state, as well as the people, paid through their noses for juice, and the whole thing was a setup. That is why Enron is broke now. Have the people and the state gotten their money back on the inflated prices yet, or did their CEO's have extra bank accounts?

That is just a part of it too. If you can't pay that back, everything else backs up, and you end up robbing Peter to pay Paul, as they say. As the clock ticks, the interest just gets higher and higher...

A deficit is also closely tied to the interest rate. If you changed the interest rate on your credit card retroactively from 18% to 6%, would you still owe anything?

I know that sounds really weird but I heard that was done back in '92, on a federal level, thus reducing the deficit to zero. Neat trick, but I won't add to that either.

It's a mess.

Glenn

 

[Patrick_S]

Eric obviously we can't go too deep into the subject but I will make the observation that the "blame Congress" view point is rife with political biased aimed more towards revising history then accurately relaying what took place.

Yes the Congress drafts the budget and the President SIGNS the checks. How many times did the Executive branch veto a spending bill during the 80s? You'll find it wasn't that frequent.

As already pointed out, the President does have influence over the budget. You may not know this but the Executive branch also produces a budget every year and submits it to the Congress. It's basically a wish list of what the Executive branch would like to have in the budget for the coming year. If I recall correctly during the Reagan administration the Executive branch never once submitted a balanced budget to the Congress.

As George Will once pointed out in an article that addressed the "blame Congress" revisionism, the reality is that the differences between the Congress and the Executive branch during this administration wasn't really a matter of how much to spend but how it would be spent. Will theorized that the Congress was probably only responsible for a very small percentage of increased spending during the administration. I think he put the over all number at something like 10% for the entire eight years, hardly a validation for the "blame Congress" crowd.

In truth there is plenty of blame for all concerned, not just those who we don't like.

 

[Eric_L]

No, you'd still have to cut because the state is spending as if it was 1997.

In spite of what you may believe tax revenues increase every year with very few - and very small exceptions. Californias budget is SUBSTANTIALLY greater now than it was in 97 - but so is their tax revenues! Notice the media focuses not on the increase of spending OVER revenues, but the gap BETWEEN spending and revenue. If the media reported that revenues grew over the last year then people would realize where deficits really come from - spending. I suspect the root is because the media assumes a 4th grade education for the reader to maximize their readership and figures complex accounting issues are beyond (and boring) most readers.

Try looking into the difference between baseline accounting and GAAP accounting or 'zero based budgeting'. As I said before, in government if you don't get an increase then they call it a 'cut'. If the state held their spending in check for just three years then tax revenues would grow naturally (inflation, business growth, population growth, etc.) to fill the gap and then exceed it.

 

[Todd Hochard]

Actually, there is a school of thought that says if you REDUCE taxes revenues will increase. Compare it to a 'sale' at a retail store. Their highest revenues days are on days when they have sales.

Recall that there is also a school of thought that shows that RAISING taxes will increase tax revenue, and grow the economy as well. Remember the big fat tax hike in 1993, and the resulting economic boom and increase in revenue that was generated. If we're willing to blame the tax breaks in the '80s for the economy, then we have to allow the same for the 90s, no?

So, the data can be slanted either way.

 

[SteveA]

Remember the big fat tax hike in 1993, and the resulting economic boom

I've never heard anyone claim that the 1990's boom/bubble was a direct result of Clinton's tax increase.

 

[Philip Hamm]

I thought Bush originally raised taxes post-Reagan. Remember "Read My Lips No New Taxes" then the raised taxes? Man, that was funny.

 

[Mark Schermerhorn]

Actually, there is a school of thought that says if you REDUCE taxes revenues will increase. Compare it to a 'sale' at a retail store. Their highest revenues days are on days when they have sales.

This theory was proved during the Reagan administration.

I'll ignore the analogy here and say that the assumption here is, I think, that by reducing taxes, people/companies have more money to invest in their businesses. In turn this should fuel growth, and thus higher revenues, and thus higher tax revenues. While this theory sounds workable (as does the opposite theory, heh), it is nearly impossible to prove. Certainly no one has done it yet, although plenty of people have tried to, and claimed to have found proof.

Governement policy is only one factor in economic health (relates to GPD and thus total tax revenues), and dare I say, it isn't even a majority. This is the problem when you're trying to study which tax policy works better. There are too many other human and non-human factors that can't be controlled for. Consumer spending habits, banking industry policies, good/bad years for agriculture, the list is endless. There are studies out there that give decent evidence for both types of tax policy, but certainly no proof. To state that one of these policies gives the desired outcome as fact is ridiculous.

 

[Malcolm R]

It might fuel extended growth, if the economy is already zooming along, but when the economy is already in the toilet, most people and businesses just squirrel the money away because of the uncertainty of maintaining their sales levels (for businesses) and keeping their jobs (for workers).

 

[Todd Hochard]

 

[Seth--L]

Whether taxes or high or low, people will only spend money and fuel the economy if they feel they can spend safely. The argument against lower taxes during a recession is that since the economy is doing so poorly and it does not look like things will improve soon, people will sit on their money despite having more of it from tax cuts. By raising taxes though, the Government can pump money into the system on their own and use their extra revenue to encourage spending.

 

[Paul_Medenwaldt]

the Government can pump money into the system on their own and use their extra revenue to encourage spending.

I see the point you make, but Its the belief that as a society you would rather have a private company supply wages to employees then the government creating jobs within itself to supply those jobs.

I would rather see the guy who runs the company I work for get a tax break, which means then his cost of business goes down, which then we don't have to raise the prices on our product. If the government were to raise his business taxes, the first thing to do then is to pay for those taxes raised by increasing the price of our product, which then makes our customer base unhappy because they have to pay more. Or the alternative then is to lay someone off to save money that way.

Paul

 

[Eric_L]

I'll ignore the analogy here and say that the assumption here is, I think, that by reducing taxes, people/companies have more money to invest in their businesses

actually no, you are wrong, but it is a very good and respectable try.

Lowering taxes is done much in the same spirit as lowering interest rates. So I will explain it like this:

Think of interest rates as being like the throttle of a train. When the train (economy) goes too slow the engineer (Greenspan and the reserve) will press DOWN on the throttle - interest rates. The train will not go from 20mph to 60 mph right away, it takes time to build the momentum.

Likewise, you really don't want the train going too fast. If that happens then Greenspan lets UP on the throttle. This will eventually slow the train, but not very quickly.

Why do lower rates help speed up the economy and higher rates slow it down? Lower rates mean that less money is spend on interest by businesses and consumers (us). Car payments, house payments and consumer loans become more affordable. People and business find borrowing to be cheaper and debt service (payments of existing loans) to be more manageable leaving more left over income. This lead to more economic activity (buying stuff). More buying stuff means more demand for products and services. That means more jobs and results in a better economy.

Tax cuts can operate in similar fashion. Less tax taken from your paycheck means more money to spend on stuff. More demand for stuff=more economic activity.

Some would argue that in bad times people use additional money to reduce their debts and save rather than buy stuff. That is expected and still ok. As they save and reduce debt, they are raising and or protecting their eventual disposable income. They also relieve the over extended banks with fresh deposits and principal payments. This is a good economic activity. In fact if it were the ONLY thing people did it would be adequate justification.

However, not everyone will save or reduce debt. Most will spend as well. More spending = good.

The resulting economic activity results in a better economy - more commerce and more jobs resulting in more taxable events aka higher tax revenues.

Raising taxes does temporarily increase revenues as well. However, no society has ever taxed themselves into prosperity and any argument otherwise would be silly. The 90s were a very fruitful time and there were substantial tax increases then. The economy was not in trouble during those tax increases and was able to absorb them. Today it is unlikely that a tax cut could be absorbed any easier than a interest rate increase. Just remember, in bad times adding money to the economy (more money for you) makes things better. Be it from lower taxes, lower interest rates, lower fuel costs, or dollar beers...