Taxing Question

[Chezzie]

Would a low tax policy have prevented this recession?

[Accountable]

High taxes didn't create the problem, so no, low taxes probably wouldn't have prevented it.



A culture that rewards living within one's means might have, though.

[el guapo]

Accountable;1040183 wrote: High taxes didn't create the problem, so no, low taxes probably wouldn't have prevented it.



A culture that rewards living within one's means might have, though.


the boy know his stuff

[Galbally]

I agree with accountable, in boom times you should try and restrain peoples lax spending and borrowing behaviour not encourage it, people should be encouraged in booms to save money by having reasonably high interest rates, instead the interest rates have been kept way too low, and people were encouraged to get involved in a very, very suspect housing boom. In the US this was exacerbated by the madness of sub-prime mortgages, ninja loans, and predatory lending. It seems that this was encouraged by the legislature and purseued with great enthusiam by the entire banking system.

Now all of that has collapsed, and its a recession, in a recession you should give working people more tax breaks so they will start speding something again and stop despairing, of course unfortunately millions of people are now going to have no jobs and tax breaks are of no use to them, so the state has an interest economically and politically in trying and also help people who are unemployed get back on their feet and probably most importantly to avoid losing their houses, which many people will now face, and not just people who have borrowed stupidly, but people in what were good jobs with good prospects.

Also as a staunch believer in the ability of the State to actually be of some use in hard time (I am a European of course) the state can help to stimulate the economy by spending on capital projects, R&D, transport, stuff like that. It gives people jobs, helps to lay the foundation for future development, and keeps social welfare spending down, if nothing else, its also better socially.

Unfortunately many Western countries have been running huge deficits while there were boom times, and not saving any money, instead allowing a lot of national wealth to get gobbled up in stupid consumer spending and in an insane property bubble, so they are unable to afford to put a lot of money into the economy as they don't have any. The current answer seems to be to borrow more money from the Chinese and the Arabs to pay for all of these promised bank bailouts, economic stimulus packages, tax breaks for whoever, and keynesian spending on infrastructure.

I am not sure what the Chinese and the Arabs think of this, though I am sure they have an opinion. Its not viable in the long term as it will simply make a bad bugetary situation ever worse, hocking debts into 30 and 40 years time. Also, if they go down the road of just printing more money (they have already been at this a bit) then its over, and our economies will end up like Zimbabwe, with similar political and social consequences.

I noticed that in the States, where the deficit is about a 700 million a year, (or in other words the government spent so much money last year, it had to borrow $700,000,000,000,000 just for the fiscal year 2007 to keep the country running) and overall government borrowing is a frightening 10 billion dollars); both candidates are taking about cutting taxes and stimulating the economy, this is obviously going to mean more borrowing I presume, or massive cut-backs in government budgets, with the military being the single biggest cost item its not hard to see what's going to happen there.

But in the longer term taxes will have to be increased and the deficit lowered if the US is ever going to be able to get back to a position of fiscal rectitude, you can't run a massive military machine, bailout banks for hundreds of billions, cut taxes across the board, spend on lots of government programs, and somehow expect that this can continue indefinitely. No politicians in either America or Britain seem willing yet to break the bad news to people that they will at some stage have to start paying this money back somehow, or in other words, more taxes.

[Accountable]

Galbally;1040227 wrote: No politicians in either America or Britain seem willing yet to break the bad news to people that they will at some stage have to start paying this money back somehow, or in other words, more taxes.Yup. "Cut spending" seems to be too difficult a tongue-twister for politicians to handle. :yh_frustr

[QUINNSCOMMENTARY]

Accountable;1040183 wrote: High taxes didn't create the problem, so no, low taxes probably wouldn't have prevented it.



A culture that rewards living within one's means might have, though.


Good point!

[CARLA]

Well said ACC I agree.

[spot]

Accountable's answer would do for me as well.

What we live in is a consumer economy. We don't manufacture. Back around 1948, just by contrast, about 40% of the entire manufacturing output in the world came from US factories. Long before then the UK had been in that position.

In a consumer economy people spend primarily income. Beyond that they spend whatever they can borrow. When they can't borrow they panic and save their income which hits spending twice over.

In a manufacturing economy companies grow when they can borrow - the growth is increased spending - and restrict their spending when they can't borrow.

Both types of economy are engines that seize up instantly with no lubricant. This year's been the year when the banks stopped slapping handfuls of lubricating loans to every hand that reached for one. The economy is grinding round more and more slowly with sand in the bearings until the lubrication can be put back.

No consumer is going to back away from panic saving and return to gung-ho spending on consumer rubbish again just at the drop of a hat. Even when the loans flow they'll not reach the shops for a lot of months. If shopping picked up again things would go back to boom-time but my opinion is that it's never going to happen. I think the machine's broken and it can't be mended. What you saw this year was the death of Margaret Thatcher's loads-a-money generation.

[wildhorses]

Galbally;1040227 wrote: I agree with accountable, in boom times you should try and restrain peoples lax spending and borrowing behaviour not encourage it, people should be encouraged in booms to save money by having reasonably high interest rates, instead the interest rates have been kept way too low, and people were encouraged to get involved in a very, very suspect housing boom. In the US this was exacerbated by the madness of sub-prime mortgages, ninja loans, and predatory lending. It seems that this was encouraged by the legislature and purseued with great enthusiam by the entire banking system.

Now all of that has collapsed, and its a recession, in a recession you should give working people more tax breaks so they will start speding something again and stop despairing, of course unfortunately millions of people are now going to have no jobs and tax breaks are of no use to them, so the state has an interest economically and politically in trying and also help people who are unemployed get back on their feet and probably most importantly to avoid losing their houses, which many people will now face, and not just people who have borrowed stupidly, but people in what were good jobs with good prospects.

Also as a staunch believer in the ability of the State to actually be of some use in hard time (I am a European of course) the state can help to stimulate the economy by spending on capital projects, R&D, transport, stuff like that. It gives people jobs, helps to lay the foundation for future development, and keeps social welfare spending down, if nothing else, its also better socially.

Unfortunately many Western countries have been running huge deficits while there were boom times, and not saving any money, instead allowing a lot of national wealth to get gobbled up in stupid consumer spending and in an insane property bubble, so they are unable to afford to put a lot of money into the economy as they don't have any. The current answer seems to be to borrow more money from the Chinese and the Arabs to pay for all of these promised bank bailouts, economic stimulus packages, tax breaks for whoever, and keynesian spending on infrastructure.

I am not sure what the Chinese and the Arabs think of this, though I am sure they have an opinion. Its not viable in the long term as it will simply make a bad bugetary situation ever worse, hocking debts into 30 and 40 years time. Also, if they go down the road of just printing more money (they have already been at this a bit) then its over, and our economies will end up like Zimbabwe, with similar political and social consequences.

I noticed that in the States, where the deficit is about a 700 million a year, (or in other words the government spent so much money last year, it had to borrow $700,000,000,000,000 just for the fiscal year 2007 to keep the country running) and overall government borrowing is a frightening 10 billion dollars); both candidates are taking about cutting taxes and stimulating the economy, this is obviously going to mean more borrowing I presume, or massive cut-backs in government budgets, with the military being the single biggest cost item its not hard to see what's going to happen there.

But in the longer term taxes will have to be increased and the deficit lowered if the US is ever going to be able to get back to a position of fiscal rectitude, you can't run a massive military machine, bailout banks for hundreds of billions, cut taxes across the board, spend on lots of government programs, and somehow expect that this can continue indefinitely. No politicians in either America or Britain seem willing yet to break the bad news to people that they will at some stage have to start paying this money back somehow, or in other words, more taxes.


You are absolutely right on this one. Instead of having unemployed people collect benefits...they could be working. They would also be paying tax and they would hopefully have some disposable income to spend into the economy. And somehow our economy has become one that depends too much on consumerism. All real jobs are outsourced or watered down by letting in way too many visa workers. And wages have been depressed due to these things. With infrastructure projects the money could be spent creating jobs instead of on benefits. And those jobs would stimulate new growth. The problem is that they are going to have to borrow for this. But we are so broke now that they will have to borrow to pay benefits anyway. So as long as we are forced to borrow, it could be for new growth.

[Galbally]

Accountable;1040240 wrote: Yup. "Cut spending" seems to be too difficult a tongue-twister for politicians to handle. :yh_frustr


We have that problem here, the government are trying to cut spending, unfortunately the very first targets have been medical cover for over 70s, primary school class sizes, and imposing an income levy on the lower paid, while giving tax breaks to people to continue the property boom (as this is what the property developers wanted), I am afraid the people are having none of it, they don't seem to understand that when the good times end, the bill isn't spread equally between rich and poor, and that people on low incomes have to cough up as some of the poor buggers are down to their last Ferraris.

Seriously though, if Western government are going to get themselves out of this hole they are in, they will have to massively cut government spending, and also raise taxes and start repaying some money. Its just at the moment that's not viable as the economy of the West is on the floor, so yes, people are going to have to accept that a lot of the services they expect the government to provide won't be there in a few years time.

[wildhorses]

spot;1040357 wrote: Accountable's answer would do for me as well.

What we live in is a consumer economy. We don't manufacture. Back around 1948, just by contrast, about 40% of the entire manufacturing output in the world came from US factories. Long before then the UK had been in that position.

In a consumer economy people spend primarily income. Beyond that they spend whatever they can borrow. When they can't borrow they panic and save their income which hits spending twice over.

In a manufacturing economy companies grow when they can borrow - the growth is increased spending - and restrict their spending when they can't borrow.

Both types of economy are engines that seize up instantly with no lubricant. This year's been the year when the banks stopped slapping handfuls of lubricating loans to every hand that reached for one. The economy is grinding round more and more slowly with sand in the bearings until the lubrication can be put back.

No consumer is going to back away from panic saving and return to gung-ho spending on consumer rubbish again just at the drop of a hat. Even when the loans flow they'll not reach the shops for a lot of months. If shopping picked up again things would go back to boom-time but my opinion is that it's never going to happen. I think the machine's broken and it can't be mended. What you saw this year was the death of Margaret Thatcher's loads-a-money generation.


I completely agree with you on this one. Consumers don't really have disposable income to spend. Wages are too depressed. They were using credit to make ends meet....but that has come to a halt. In fact many wont be able to pay for the necessities of life without credit. Somewhere in the 90's consumers began to use credit just for basic living expenses. This delayed a would be recession for later. Now we have hit a brick wall. Consumers can't hold up the whole economy. I dont know what einstein thought they could....especially when expenses rise faster than wages. It only makes sense that we would end up the creek with no paddle.

[Accountable]

People wouldn't need credit to make ends meet if they lived within their means, and I believe it would be truly rare to find someone who can't. Of course, if that happened then consumerism would decline and the economy would be hurt, but the country would be better for it.