LATimes: Dismal jobs report shows unemployment rising to 9.2%

[twa]

another simple truth.....tax policies influence behaviors

understand the effect before ya go causing them.

[mardi gras skin]

MGS and Hubbs showing the real truth in economics.

I'm not showing anything! Hubbs had it right, I'm totally economics illiterate. Everything I pull on the issue is the result of a google search and I don't know enough on the topic to assess the credibility of the sources I'm posting. That's why I was asking Hubbs for clarification.

[Hubbs]

Got it. Well, with the housing bubble inflating revenue during that time, is there any way to know how much revenue was gained or lost directly related to Bush's tax cuts? I mean, much of the job loss and lower revenue we're facing now is a backlash resulting the housing meltdown right?

There's no way to truly know with 100% accuracy the exact effects of a tax cut. And yes, the housing meltdown, which is part of a larger debt meltdown, is the driving force behind current unemployment and lower revenue. The point was that it's incredibly intellectually dishonest to say that the Bush tax cuts "created" the employment and revenue gains.

[mardi gras skin]

The point was that it's incredibly intellectually dishonest to say that the Bush tax cuts "created" the employment and revenue gains.

I haven't heard many people say that. Mostly what I hear is that the Bush tax cuts evaporated the Clinton era surplus. But what I'm taking away from this exchange is that the "Bush tax cuts killed the surplus" mantra isn't true...or at least its unknowable.

[NoVaO]

Why?

You've spent most of the thread describing what happens when the government spends money. Nowhere have you said that those things only happen when the government spends $2 trillion, but if it spent $2.1 trillion, that last $100 billion will somehow be completely different. Isn't this about avoiding government layoffs? Why shouldn't the government go out and hire 10 million people tomorrow? Won't more hypothetical businesses avoid having to file for hypothetical business bankruptcy if 10 million people are hired tomorrow? What happened to all that talk about spending? If another trillion in spending is good, why is another five trillion bad? And another five on top of that? Where did this fear of "too much spending" suddenly come from? I really want to know. Why is it ridiculous to run a deficit of $10 trillion?

Well, for one, we won't need $10 trillion.

And too much debt will bring about inflation. I know deficit hawks have said too much stimulus would raise interest rates, which hasn't happened. Honestly, with interest rates so low, now would be the time to borrow.

Well, Jesus, if you want to get about a billion different answers....

I'm quite sure you can find some sort of consensus.

Do you consider the housing bubble to have been a "self-sustaining" recovery from the recession at the beginning of the decade?

I honestly didn't pay attention to this stuff back then. You are about a year behind me, so if you were paying attention then I'm impressed.

You didn't answer any of my questions. I'm not asking them sarcastically. I really want to know how you'd answer. Nothing you've said would suggest that a deficit should be a big concern, or, really, any concern at all. Let's say unemployment is at 7.5% two years from now. Do you start trimming the deficit then? You realize that will result in layoffs, right? Less government customers spending money at private businesses. What if you short-circuit the recovery? How can you tell if any recovery is self-sustaining while running a deficit of more than a trillion dollars? How can you get an accurate read on how the economy would work without a deficit if the deficit is 13% of our entire GDP?

The deficit is a long term problem. You don't need to be cutting things right this second in a weak economy. In fact, you could end up with higher deficits because of more people on unemployment, more people on food stamps, and more people on medicaid.

If the unemployment rate is at 7.5%? I think it would be OK to start easing off the gas. I wouldn't just yank all stimulative measures out from under the economy's feet. I'd do it slowly and make sure the economy doesn't slide. But that's just me. I have a basic understanding of economics, but I'm not an economist obviously. Your questions involving very specific scenarios would be much better answered if you were to ask economists who believe in more stimulus. In fact, I'd love to hear their answers, too.

By the way, I do think we can reduce the deficit right now -- just not in ways that hurt the middle class and the poorest people in this country. Start at the top -- the very rich -- and work your way down. Cut the budget at the Pentagon. Update the tax code to reflect the huge surge of millionaires in this country. Increase the capital gains tax on the very rich so they aren't paying just a 15% tax rate. Cut loopholes that actually encourage companies to ship jobs overseas. And seriously crack down on off-shore tax havens.

What makes you think that will happen within five years? Within ten? You seem to know enough about economics to be familiar with the Japanese situation. We're doing the same things in response to the same problem. They've been in a state of economic suspended animation for more than 20 years. Would it be shocking if we got the same result?

These are very good questions, again better answered by somebody more qualified. Krugman is an expert on what happened in Japan, and given how much of a proponent he is of more stimulus, I suspect he's very confident we'd be able to avoid having a situation like Japan. I believe his concern is that we are headed into a loss decade ourselves if we don't step up and do more to help the economy.

But I'd also like to here from him, just what if he gets the exact stimulus he wants, and things still aren't better...then what?

And if we hadn't done the exact opposite for, you know, almost 30 years, then I'd sincerely hope that the government would open up its coffers and unleash the untold billions that it was sitting on.

Unfortunately, that's not the case.

And I have no doubt that the can would have been much more successfully kicked had the stimulus been $2 trillion.

I know the White House said they got as big a package as they could, but people warned them, you better go big because you probably won't be able to come back for more. And like many other times, they compromised with themselves looking for Republican votes when they were never going to get any. They started from a position of compromise. They should have asked for something huge and then come to a middle ground in the $1.5 trillion range. Don't know if they would have gotten that much, but they would have gotten a bigger package than what they ended up getting.

Oh, and they shouldn't have sold the package as something that would get us out of the hole we dug because it wasn't designed to do that. That made defending the package much more difficult.

[Hubbs]

I haven't heard many people say that. Mostly what I hear is that the Bush tax cuts evaporated the Clinton era surplus. But what I'm taking away from this exchange is that the "Bush tax cuts killed the surplus" mantra isn't true...or at least its unknowable.

I say a lot of things that many other people don't say.

I often think that economic discussions are similar to a trial, at least one in which the defendant hasn't been clearly videotaped by eight separate cameras in the act of committing the crime. In a murder trial without such overwhelming video evidence, for example, nobody will be able to absolutely prove, beyond all hypothetical scenarios, that the defendant murdered the victim, even if the only hypothetical scenarios are along the lines of aliens landing and killing the victim while the defendant was in the same room leaving all sorts of DNA evidence. That's why the goal is to prove beyond a reasonable doubt. In economics, we have an unfortunate lack of infinite parallel universes in which we can keep everything the same except for the factor in question. So, again, the best we can do is try to prove beyond a reasonable doubt.

In the case of the Bush tax cuts, there are a few primary factors that paint most of the picture. The first is that the projections of Clinton's surpluses more or less expected the tech boom to, at worst, level out, rather than crash. The crash lowered revenues. Now, this was eventually offset by the housing bubble going into overdrive, but the tax cuts were essentially timed right in between the tech bubble popping and the housing bubble's effects fully spreading through the rest of the economy. This is how you get the claim that the tax cuts resulted in more jobs and more revenue—they just happened to be enacted in between bubbles. In fact, just one statistic is enough to show just how profound the effect of the housing bubble was—the comparison of GDP growth with and without mortgage equity withdrawals:

As you can see, the so-called "recovery" from the tech crash was nothing but a giant mirage created by the inflation of an even bigger bubble with unprecedented characteristics.

On top of that, Bush spent more. A lot more, with a big chunk of it being the "off-budget" spending of the wars. So you've got more spending, combined with overly optimistic Clinton-era projections, combined with lower tax rates, combined with the final dagger several years later—the popping of that bigger bubble with its unprecedented characteristics. Put them all together, and you get large deficits that grew into huge deficits at the very end.

In other words, I think the best case to be made is one in which the tax cuts contributed to the elimination of the surplus/growth of the deficit, but, as with virtually all economic matters, the cuts weren't acting all by themselves.

[mardi gras skin]

Thanks for taking the time to explain all that, Hubbs. That was clear and it helps a lot. I guess there's no real way to determine the amount of damage each of those factors you listed had in crippling the economy, is there? It seems like knowing how much burden each element added to the recession would go a long way in helping us figure out the right balance of reform to implement right now...tax hikes, spending cuts, how much of each, which kinds of cuts or taxes. If we know how we wound it up, we'd better know how to unwind it, right?

Also, I'm curious about your thoughts regarding the virtual elimination of capital gains taxes on homes starting in 1997. Did that shift investment heavily to housing and, if so, did that drain investment money from more economically beneficial types of investments? Would a repeal of the 1997 law help reinvigorate business investment and have a moderating effect on the housing-as-commodity mentality?

[AsburySkinsFan]

I guess what I get tired of is the "tax cuts create jobs" line...the companies still have the tax cuts...so where are the jobs...why aren't they hiring? Oh...that's right, they sent the jobs over-seas or they just decided not to fill the positions of those who were let go.

[SnyderShrugged]

I guess what I get tired of is the "tax cuts create jobs" line...the companies still have the tax cuts...so where are the jobs...why aren't they hiring? Oh...that's right, they sent the jobs over-seas or they just decided not to fill the positions of those who were let go.

I agree in principle, though the same can be said about federal spending, which went up while the jobs went dow

[mardi gras skin]

ASF and SnyderShrugged, I'd guess that the right kind of tax cuts and the right kind of federal spending could go a long way to creating jobs.

[AsburySkinsFan]

ASF and SnyderShrugged, I'd guess that the right kind of tax cuts and the right kind of federal spending could go a long way to creating jobs.

If the tax cuts were directly tied to new employees hired...yes. That would be the simplest assurance we could have built in, but truth be told I never heard it from either party.

Instead we were just to naively trust that the companies would hire people with those tax cuts.

[twa]

for the chart geeks

http://www.businessinsider.com/details-from-the-awful-june-june-jobs-report-2011-7?op=1

[mardi gras skin]

If the tax cuts were directly tied to new employees hired...yes.

More than that, right? Tax cuts for investment in infrastructure, technology, research...I don't know what else but I'm sure there any number of ways the government can incentivize job growth and creation through tax cuts.

[Thiebear]

Listening to Ric Edellman on the radio, his take was:

Unlike Greece if we default we do it voluntarily, we have the money to pay off our debt.

It would just be Congress saying they don't want to at the moment which has been so bad for the financial system. He predicts serious instability while this continues.

I just like to say: The Congress left for a 3 month recess in October of 2007. We were in imminent danger and they got back around the 5th of January. Why would you expect them to do better now? We asked the people that have screwed this up to stop doing what they are doing and fix their own mess. And the've put it off, again.

How many real budgets have they passed in the last 3 years?

That last budget deal was 100 Billion dollars, then 60, then 30, then something like 15million after the $$*(#&@))#& gimmicks were revealed.

The debt ceiling is really just another symptom of the real problem.

And that problem is the American people allow it. A vote for anything but "YOUR" party is a vote thrown away.

[Madison Redskin]

More than that, right? Tax cuts for investment in infrastructure, technology, research...I don't know what else but I'm sure there any number of ways the government can incentivize job growth and creation through tax cuts.

How is that substantively different than the government essentially giving cash away to companies to stimulate growth in targeted areas (e.g., infrastructure, clean tech, etc.)?

[mardi gras skin]

How is that substantively different than the government essentially giving cash away to companies to stimulate growth in targeted areas (e.g., infrastructure, clean tech, etc.)?

I don't know that it is different. If a company is given a tax break on infrastructure projects in Toledo, Ohio, does that not help create jobs in Toledo?

[Madison Redskin]

I don't know that it is different. If a company is given a tax break on infrastructure projects in Toledo, Ohio, does that not help create jobs in Toledo?

It depends on whether they were going to do it anyways. In any case, is spending more/cutting taxes the best thing to do now?

[DRSmith]

I agree in principle, though the same can be said about federal spending, which went up while the jobs went dow

If that federal spending on foriegn and was then no very oftenti will not produce jobs

---------- Post added July-10th-2011 at 10:27 AM ----------

It depends on whether they were going to do it anyways. In any case, is spending more/cutting taxes the best thing to do now?

Tax cuts do not really create job, tax cuts when spent on products can create demand which leads to more jobs, so cutting corporate taxes is not the answer

[HailGreen28]

Unemployment benefits have a bigger economic impact than tax cuts. Money saved right now is actually not a good thing right now, though we also don't want people going into debt, which they've been doing for the last 10 years. Investing is good.

Disagree with you there. This recession was credit driven. People saving would be a good trend. Tax cuts have the dual effect of putting more money in the system, like unemployment benefits or Fun Bucks; and encouraging growth in businesses. Maybe we need more small business tax cuts.

You will have no argument from me that we need to start producing things here in America, or that we need to re-build America's infrastructure. There are things that Government can do to help, but nothing is going to pass Congress right now. One thing we need to do is at least close the loopholes that encourage business to move jobs/money overseas.

Agreed. We've gone full tilt to getting cheap goods, but need to balance jobs here. I hate tariffs or any protectionism, but we need to restructure our economy. I look at agribusiness, where we can produce more than even we can eat. How could we encourage farms to go less cheap-labor intensive and get rid of subsidies, without causing a massive loss of employment and family bankruptcy there?

I think the stimulus has to part of it. Combine with a long-term plan to reduce the deficit.

As Hubbs said, I think the stimulus just kicks the can down the road a little while, like real deficit reduction gets postponed.

Are you saying you are for providing tax incentives to business for them to invest? I'm not opposed at all to that. There has to be a condition that they not hoard it, send it overseas, or turn it into dividends for share holders, and not invest the money back into their company.

Maybe a tax deduction for re-investment?

Are you adjusting on a per capita basis and for population growth? Taxes are at an all time low in this country.

I was thinking of total revenue. But looking it up, I was wrong about us having the highest revenues ever.

http://www.usgovernmentrevenue.com/downchart_gr.php?year=1980_2011&view=1&expand=&units=b&log=linear&fy=fy12&chart=F1-fed&bar=0&stack=1&size=m&title=&state=US&color=c&local=s

We've had an ever growing increase since 1990, but hit a peak in 2007. Still historically, we're taking in much more money than in past years before 2003.

http://money.usnews.com/money/careers/articles/2011/07/08/public-sector-job-cuts-threaten-recovery

http://thinkprogress.org/yglesias/2011/07/08/263588/the-conservative-recovery-continues-2/

Thanks for the update. I was still going off memory of charts like this a year ago.

[Larry]

Disagree with you there. This recession was credit driven. People saving would be a good trend. Tax cuts have the dual effect of putting more money in the system, like unemployment benefits or Fun Bucks; and encouraging growth in businesses.

People keep making that claim. But 30 years of trying it seems to say otherwise.

Further I've heard an argument that seems to make sense to me. (Granted, it's a simplistic argument. But that's the only kind I can follow, on this subject.)

Assume that it's approaching the end of the year. And some business has made a profit of some amount. Let's say $1M. you're the owner of the company, and you're sitting there wondering what to do with the money.

You could simply declare a profit. But if you do that, then the government is going to take, I think it's 35% of it. From what I;ve heard, most businesses try really, really hard never to show a profit on paper.

You could have the company "spend it on itself": Re-invest it. Buy another truck or replace some machinery in the factory or expand the store or whatever. If you do that, then your personal bank account won't be any bigger. But you'll be the owner of a business that's bigger than it used to be. If you chose wisely about what to spend it on, then maybe next year your company will make a million and a half profit.

Or you could just pay it to yourself.

Under the old rules, though, if you paid it to yourself, then all of it after the first $100K (and you were already making more than $100K, weren't you) is going to get taxed at 70%. The company will be $1M poorer, and your personal bank account will only be $300K bigger. Yeah, you can hire some fancy accountants to try to find you some tax dodges. But you're already paying some fancy accountants to do that, anyway. What's the odds that they'll find

more

loopholes?

But under the new rules, you can pay that money to yourself, and the government will only take about25% of it. (And if you use a dodge or two, you might be able to call it a capital gain, and only pay 15%.) Now, the company can lose $1M, and your bank account will go up by $750-850K. And, that money will now be "safe". If something happens to the company a year or two from now, then that money you paid yourself will be protected by the corporate firewall. The

company

might go bankrupt or something, but the money you've paid yourself can't be touched.

In short, I think is makes at least a little bit of sense to argue that a higher tax rate on corporate profits and/or very high paychecks, encourages companies to re-invest their profits, whereas low taxes encourage people to "cash out" their profits as soon as they're made.

[mardi gras skin]

It depends on whether they were going to do it anyways. In any case, is spending more/cutting taxes the best thing to do now?

I have no idea.

[AsburySkinsFan]

More than that, right? Tax cuts for investment in infrastructure, technology, research...I don't know what else but I'm sure there any number of ways the government can incentivize job growth and creation through tax cuts.

In order for me to go for that, they would have to show how those improvements would create jobs, not just the hope of creating jobs, but present an actual number of new jobs created, and which would be reviewed annually, and if they created more jobs then more tax breaks, but if they eliminate jobs in that time then they have to pay more in taxes. As such it wouldn't be so much a tax cut, as it would be a job creation tax break. But, it would have to be directly tied to actual new job creation. For far too long businesses have been promising job creation with tax cuts and every time they learn to do more with less or they out source, and then they pocket the difference.

[HailGreen28]

People keep making that claim. But 30 years of trying it seems to say otherwise.

I don't think people have been saying we've had a credit problem for 30 years. But if you're referring to some of your other posts, where you say 30 years of Reaganomics has been a failure......

Wow, can we have more failures like this?

Further I've heard an argument that seems to make sense to me. (Granted, it's a simplistic argument. But that's the only kind I can follow, on this subject.)

Me too, I'm still trying to catch up to current events.

Assume that it's approaching the end of the year. And some business has made a profit of some amount. Let's say $1M. you're the owner of the company, and you're sitting there wondering what to do with the money.

You could simply declare a profit. But if you do that, then the government is going to take, I think it's 35% of it. From what I;ve heard, most businesses try really, really hard never to show a profit on paper.

You could have the company "spend it on itself": Re-invest it. Buy another truck or replace some machinery in the factory or expand the store or whatever. If you do that, then your personal bank account won't be any bigger. But you'll be the owner of a business that's bigger than it used to be. If you chose wisely about what to spend it on, then maybe next year your company will make a million and a half profit.

Or you could just pay it to yourself.

Under the old rules, though, if you paid it to yourself, then all of it after the first $100K (and you were already making more than $100K, weren't you) is going to get taxed at 70%. The company will be $1M poorer, and your personal bank account will only be $300K bigger. Yeah, you can hire some fancy accountants to try to find you some tax dodges. But you're already paying some fancy accountants to do that, anyway. What's the odds that they'll find

more

loopholes?

But under the new rules, you can pay that money to yourself, and the government will only take about25% of it. (And if you use a dodge or two, you might be able to call it a capital gain, and only pay 15%.) Now, the company can lose $1M, and your bank account will go up by $750-850K. And, that money will now be "safe". If something happens to the company a year or two from now, then that money you paid yourself will be protected by the corporate firewall. The

company

might go bankrupt or something, but the money you've paid yourself can't be touched.

In short, I think is makes at least a little bit of sense to argue that a higher tax rate on corporate profits and/or very high paychecks, encourages companies to re-invest their profits, whereas low taxes encourage people to "cash out" their profits as soon as they're made.

Some structural changes here would be wonderful. One of probably many problems is, the people who benefit from this have powerful influence, and lots of "free speech". By "free speech" I mean money for campaign donations.

[techboy]

I don't think people have been saying we've had a credit problem for 30 years. But if you're referring to some of your other posts, where you say 30 years of Reaganomics has been a failure......

I doubt that chart is adjusted for inflation.

[HailGreen28]

I doubt that chart is adjusted for inflation.

Is this better?

http://www.multpl.com/us-gdp-inflation-adjusted/