Any economics majors here
 

Bush has submitted his budget and in it is another hugh tax cut. The government is running a 307 billion dollar deficit and yet Bush is proposing another tax cut.

Can anyone explain to me how adding to the national debt (paying the interest on the national debt is the governments third largest budget expense the last I heard) is a good thing?

Does anyone buy into the idea that tax cuts spur the economy thus the government actually increase their tax revenue?

Republicans point to Reagans tax cuts and how it spurred the ecomomy thus increasing the governments tax revenue. This appears to be BS. When Reagan entered office the national debt was actually less than 1 trillion dollars and when he left office it exceeded 4 trillion dollars. And Bush senior actually had to violate his "Read my lips. No new taxes." and raise taxes following Reagans tenure.

Can some of you economics majors enlighten me please?

Try these:

http://www.contraryinvestor.com/mo.htm
http://www.toptips.com/debtclock.html
http://www.bearmarketcentral.com/qtcinterviewp1.htm

Do your own homework.

It's proven that tax cuts spur the economy and lead to higher tax revenues, to a point. You obviously can't cut taxes to 0% and improve revenues.

Revenues under Reagan were at an all time high after his cuts. However...if I give you an extra $100 a week and you spend an extra $300, you're going to be in a hole.

Raising taxes improves revenues in the very short term. There is a sudden influx of tax monies.

Reducing taxes improves revenues over a longer term. More money circulating, more people spending money, more people opening businesses and hiring people who in turn buy more stuff and pay taxes on their own income...more money moving around being used to buy things or used to invest in businesses. A single dollar that changes hands dozens of times and is taxed a little on each transfer will bring in more taxes than a single dollar that is given to politicians.

No matter what, though, until politicians learn to "live within their means" so to speak, it won't matter what happens, because we'll always be in a hole.

Is it or is it not true that when the Federal Government lowers income tax that other taxes are increased to compensate. Such as taxes on gas, alcohol, cigs, imports etc. ?

Is it or is it not true that many, if not all states, increase various taxes within the state to compensate for the loss of revenue from Federal subsidies when Federal Income tax is decreased?

i'm not from the US but right of center politics is the same the world over, cut income tax and reeduce spending. he would have still made those cuts if your economy was storming along.

like you say you'll still get hit with the tax just from different places. and the only real winners of the income tax cuts are the very highest earners.

The best I've heard is,

"why worry about paying it back?"

It isn't like aliens are going to forclose on the planet.

there's some who will say during down years the government needs to pump money into the economy to get it going.

then, there's others who say that running a deficit will increase interest rates which cuts down on private spending. that offsets the good from the additional spending or tax cut.

The government's job is to provide security and instill global economic confidence.

Businesses are responsible for expanding/building/R&D/creating jobs.

Banks know that if they raise interest rates during a resession/downturn/slump they risk losing business. Additionally, the banks are learning this when forclosures on homes goes up.

....I'm a bit high but I can explain further if you'd like.

i'm just spitting out two different opinions on the subject. deficits cause upward pressure on interest rates that can cause the crowding out effect to occur. if there's an excess of loanable funds then the crowding out effect is less likely. since we're not in a recession its not likely that there is an excess.

Correct in theory, however, we've been experiencing different than what common economic theory suggests. For example, we aren't experiencing inflation which is uncommon in a resession/slump. Actually we've seen the reverse, prices on most consumer goods have gone down. At least, in what I've seen, prices are either frozen or going down, mostly the latter.

The economy has actually grown in the last year, you wouldn't know it from looking at the markets.

No there hasn't been inflation but there has been *HUGE* depreciation of the US dollar which essentially equals the same thing, a decrease in purchasing power. This is somewhat counteracted by decrease in prices, (but probably short lived, because now foreign goods cost more!, especially OIL :)).

Although the Government would never say so (because it would undermine, and destroy confidence) they are probably quite happy with the lower dollar as this improves the position of exporters, who are a great source of economic growth winning foreign currency and spending at home.

However this is all a bit of a gamble, and that is reflected by the rally in gold (when people are worried about geopolitical instability, or the value of the dollar, gold is a safe haven).

Bush has reduced tax revenues but not done the typcical conservative economic practice of being fiscally prudent. He has increased Government spending, essentially he's got out the printing press and made more money.

This could have several effects, it could lead to inflation, which is what a typical increase in the money supply does, which would probably spur greenspan to raise interest rates (and perhaps bring the economy back to a grinding halt)... Or it could just work, as much as I dislike US foreign policy, I hope this budget doesn't blow up on GWB, it could go either way imo