I urge you to take a look at this post at The Big Picture on the ongoing credit crisis affecting both the United States and the EU. It’s lengthy and contains both solid analysis and some points on which I’m skeptical. However, this point particularly caught my eye:
The more money and credit manufactured in an economy, the higher its nominal output. Curiously, most economic and market observers still do not seem to recognize this connection as the most fundamentally reliable leading indicator of nominal asset performance. Instead most observers still equate rising output solely with increasing demand for goods and services. In a fractionally-reserved, baseless monetary system, nominal GDP can increase even if production and demand for goods and services decline. All it takes is higher nominal prices, which are directly linked to the quantity of money and credit – the higher money and credit growth, the more money and credit chase goods and services, the higher prices rise, the higher nominal output growth.
Thus, money and credit growth equal nominal output growth, all things equal, even if unit growth stagnates or declines (e.g. US economy thus far in 2011). But money and credit growth do not equal real growth. The US economy has experienced unreserved credit growth over the last thirty years that finally overwhelmed the system. As we are seeing, this has now actually led to contractionary pressures. The demands to deleverage the economy brought about by overwhelming unreserved credit growth has made production fall and unemployment rise.
Consider that in conjunction with the graph and table from this post from over the weekend.
This commenter has been pounding a similar drum, albeit in a different context, for some time now. Yes, GDP has been goosed through time financing. Its artificial, and perhaps unsustainable.
My point has been these pathetic citations of the “tax to GDP ratio” being at an “all time low.” Balls. The denominator has been goosed to give a false statistic. A person, or a small business owner can’t spend GDP, they can only spend income. And taxes to various measures of income are decidedly NOT at all time lows.
One indication of this is the famous “tax independence day” calculation, currently somewhere around 100 days. They calculated that if the deficit were tax financed that day would be around 150 days right now. Care to take a stab at GDP performance if the tax burdon increased by 50%?
Drew,
And several of us, on several occasions, in several venues have pointed out to you tax figures that are not based on GDP. You have yet to respond to actual data from the CBO which I’ve posted for you many times.
Andy –
Perhaps because you are being transparently dishonest. This entire meme started with a professor who compared taxes as a percent of GDP in 1950 to today and declared “taxes at an all time low.” I became aware of this in a blog post that had a graph (BEA data) showing taxes to household income doubling in the same time frame. That’s right, doubling.
I suspect there are technical problems with “household” income. As probably per capita. I would prefer more comprehensive measures, like total income. So I looked it up. Yep. NOT at an all time low. In fact up by 25% in the relevant time frame.
You, of course, decided to pick a convenient 1979 time frame, exhibiting your dishonesty. And yet even with that pick, the case is not particularly compelling.
As an aside, I’m surprised the professor picked 1950. Taxes were at a low point. Perhaps he was trying to compare recessionary figures with recessionary figures. Let’s give him the benefit of the doubt. But still, had he picked a couple years before, or a couple years after – when receipts were higher – the conclusion is the same. In the post war period when all of the great social engineering projects have come to the fore the American tax burden has increased. It is NOT at an “all time low.”
Get back to me when you want to have an honest debate over the data.
Drew,
I didn’t pick 1979, the CBO did. In fact, one of the projects I’m working on is trying to find relevant comparable data for earlier dates to actually check to see how effective rates in the 1950’s and 1960’s compare to later periods and especially to today. There’s been some research done on this (notably Piketty and Saez), but their figures do not match the CBO’s where there is cross-over in the dates. The reason, as far as I can tell, is that the CBO and Piketty/Saez are not defining income and other factors the same way, but that’s a guess – I’m pretty much at a dead end since I don’t want to turn this into a doctoral dissertation, but suffice it to say that the differences in methodologies and data are substantial enough to prevent one from simply appending the new CBO figures to the earlier Piketty/Saez figures (ie. one says the overall effective tax rate in 1980 was 22.2%, the other says it was 26.6%. Similar differences exist in the various quintile breakdowns).
So, as far as I know from my own research, it’s still a very open question regarding comparative tax rates between now and the 1950’s – anyone who makes claims otherwise (one way or another) had better show their data and their work. That includes you and from what I remember, you have yet to show any data at all and instead focus on calling people who disagree with you dishonest. So, Drew, here’s the opportunity for you to put up or shut up. The CBO data since 1979 is consistent and pretty solid. If you have something to refute what that data show (ie. that effective rates are down for almost everyone since the Carter era), or if you have something that compares 1950’s effective rates with today’s in a consistent way, then let’s see it.
“I didn’t pick 1979, the CBO did.”
No, you did. Its in plain black and white on this thread.
Nice try.
State your metric Drew. Average tax rates have dropped.
http://www.taxfoundation.org/news/show/250.html#Data
Steve
Drew,
Don’t be obtuse. The CBO analysis doesn’t go back any further than 1979. If it did I would not have spent so much time searching for information from earlier periods to try marry up the data into a continuous series.
Where’s your data? We’re still waiting.
No obtuseness here, asshole. Enjoy:
http://media.hotair.com/wp/wp-content/uploads/2011/04/bea-income.jpg
Here’s the deal. You say: Taxes at an all time low. I say: no.
The prof who precipitated this whole argument probably was looking for a post WWII time period because WWII was an extraordinary event, and he was looking for something that preceded The Great Society. In fact, his choice preceded JFK’s lament that we were overtaxed. Heh. Can’t have that in the debate, now can we? But he chose a false ratio. Simple enough.
As I noted, and as you will see in the graphic he chose a minimum in taxation – a counter to his argument – probably because, in an attempt to be intellectually honest – unlike you – he was searching for a recessionary to recessionary comparison. (For what other reason I can’t imagine). In any event, we see that the notion that taxes are at “an all time low” is preposterous. A notion that anyone with an IQ over 90 already knew.
Taxes at an all time low – By definition, this is impossible; at one point we had no taxes. Moving to the practical. It is certainly convenient to look at the post WWII experience and put some room between winning it and “normal times.” You tell me what time you want to pick: 1950 – 1955 – 1960-1965?? Any way you measure it the tax burden is way, way more than then.
You chose 1979 out of convenience. You lie when you say “the CBO made me do it.” You lie when you say you can’t get the data. You just lie. Because you have an ideological point of view. You are not a steely eyed analyst.
I’m afraid I have to put you in the pen with some others on this site: dishonest losers.
Drew,
First of all, you don’t know anything about me or my motivations so your attempted aspersions end up saying a lot more about your character than mine.
Secondly, that chart is interesting and something I hadn’t seen before so I went looking for the source at the BEA and found table 2.1 which goes back to 1929. I used the data there to try to recreate the chart. Here’s what I came up with. There are some pretty substantial differences there.
Now, maybe if you can control yourself and stop being a dbag for half a minute, then we might both learn something. I don’t know how your chart got created. It’s labeled as “households” but the household data on the BEA site only goes back to 1992, whereas “personal” data goes back to 1929, but the personal data doesn’t match your chart. If you’ve got the actual data source for your chart then please post it.
Finally, I don’t know who this professor is you keep talking about, but whatever, I don’t really care.
Aha! Here it is. I missed the line for social security because it was in the income section. As an FYI this chart includes all social insurance payments to the government to include those paid by employers.
Just for kicks I added in the FICA tax rate changes over time (the complete rate including both employer and employee portions) and came up with this.
Anyway it’s late and I’m tired, make of them what you will.
As I see it Andy’s chart supports everybody’s perceptions. 1) It is true that taxes as a percent of income has fallen from its highs. 2) It is also true that taxes are not at an all-time (or even post-war) low.
I note that all of the valleys in taxes as a percent of personal income are associated with recessions and the last two peaks are associated with bubbles. That’s an artifact of the reliance on the income of those in the highest decile. And there’s your rising income inequality, too. Earners in the top percentiles get more from assets and inflated assets prices are what make bubbles.
Perhaps I’m misinterpreting them but as I see it Dr. Krugman and those who agree with him argue that all that are necessary to resolve our fiscal dilemma are to a) raise taxes on the top earners and sometimes b) reduce defense spending. I think that a) is based on a cherry-picking of the evidence and is unlikely to yield as much revenue as they think it will. I think that b) is correct but needs to be combined with a revised strategic and grand strategic plan.
Among Republicans in Congress there appears to be a group (a dominant group) that believes that if we lower tax rates additional revenue will be realized. I think that is, as P. G. Wodehouse might have said, far from hinged.
My view:
1) We need to reduce defense spending (see above for caveats).
2) We need healthcare reform.
3) Social Security needs a few tweaks, e.g. raising the retirement age or some version of means testing (it already has some means testing cf. the sliding scale of payments), but no major corrections.
4) A properly constructed revision to the personal income tax could yield additional revenues
5) Foreseeable minor revisions to the personal income tax are unlikely to be properly constructed.
6) More attention should be focused on the deduction side than on the rate side, e.g. caps on mortgage interest deduction.
I largely agree with your points, Dave, but we know that
1) Ain’t gonna happen, because too many Republicans are against ANY Defense cuts, and Dems are afraid of being called wusses if they favor them (or rather, the leaders of the party and those in contestable districts are afraid).
2) Didn’t you know that healthcare has been perfected in this country under the noble auspices of that superior individual, Harry Reid? There isn’t going to be any more healthcare reform until after the system collapses.
3) Actually, this is the only one of the positive points that might actually happen. Partly because most of the solution have already been done at some point in the past – we’re in the “repeat” stage of “lather, rinse, repeat”.
4) is absolutely true, and absolutely irrelevant because
5) is also true.
6) is the noly area where I disagree, because I am probably more extreme on this issue than you are. Deductions should be almost entirely eliminated. If we insist on keeping the income tax, limit deductions solely to those for individuals in the household. Everything else is BS that either distorts the economy or confuses taxpayers, or both.