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Will 'Dubya' be a good president.
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[QUOTE]Originally posted by JeffKardde: [QB] It may be back to the future for econmics. Once upon a time, tax cuts commanded almost universal support among economists as the preferred tool for preventing recessions. When Congress passed the Kennedy-Johnson tax cuts in 1964, the enthusiasm was at its zenith. Ever since, fiscal policy (changes in taxes and spending) has gradually lost favor to monetary policy (changes in interest rates by the Federal Reserve). Now George W. Bush is assaulting the convential wisdom. When he unveiled his tax cut, the biggest selling point was the weakening economy. "We need tax relief now - in fact, we need tax relief yesterday," he said. "The federal government is simply pulling too much money out of the private economy, and this is a drag on our growth." No doubt about it, the economic slowdown has improved Bush's prospects for merchandising his large tax cut. But Bush's approach also creates new risks, and even if he succeeds in changing conventional wisdom, economics may make it harder for him to get the tax cut he wants. The obvious risk is this: if the slowdown fades, so would the argument for a tax cut. Bush's plan might fall prey to falso promotion. Even now, the proposal has to overcome economist's bias against tax cuts as an anti-recessionary weapon. Thier skepticism mainly reflects the "clunky" nature of the political process, says Harvard economist Gregory Mankiw. By the time Congress acts, the recession may be over. In contrast, the Fed moves quickly. Most economists still don't anticipate a recession. They think the Fed's interest-rate cuts will revive confidence and growth. (This year, the Fed funds rate has dropped a full percentage point to 5.5 percent; economists expect more cuts.) In the latest Blue Chip Economic Indicators newsletter - which follows 51 forecasts - the average prediction for economic growth in 2001 is 2.1 percent, down from 5 percent last year. Growth would recover to 3.5 percent in 2002. Of course, forecasts can be wrong - and these may be. By and large, the sharp slowdown has surprised economists. In October, the Blue Chip economists predicted growth of 3.5 percent for this year. Economists' continued optimism presumes that the slowdown is a temporary inventory correction. Businesses overordered, and once surplus goods are sold, production and employment growth will increase. The harsher possibility - which strengthens the case for a tax cut - is that the economy is suffered the afterstock of an unsustainable boom. Emboldened by high stock prices, consumers overborrowed and overspent, the argument goes. Businesses overinvested because venture capitalists and new stock offering provided so much cheap capital. Together, consumer spending (68% of the GDP) constitute four fifths of the economy. If all this spending slows or drops, the economy is in trouble. "If you argue that the consumption and investment booms are over," says economist Bill Dudley of Goldman Sachs, "Then the time for a contractionary fiscal policy is over." This was Bush's line last week. Expanding budget surpluses are sucking purchasing power from the economy. Lower interest rates alone may not spur recovery, if consumers think they're overindebted and businesses face idle production capacity. Monetary policy must be aided by fiscal policy, which puts money in people's pockets. In effect, the theory is: it's necessary to cut budget surpluses in order to save budget surplusses. After all, the surplues - now estimated at 5.6 trillion from fiscal 2002 through 2011 by the Congressional Budget Office - are just paper projections. The projections assume healthy economic growth, and without it, the surpluses won't materialize. To get growth requires sacrificing some surpluses. Ironically, the worse the economy looks now, the better the case for a tax cut. But not automatically Bush's tax cut. The plan sent to Congress was his campaign proposal. It aimed mainly to fulfill a political agenda - not serve as an economic stimulus. It promised to discipline government spending by depriving government of oney to spend. It would cut "marginal" (i.e., top) rates - a step that conservatives believe, promotes work and investment. It would help families by doubling the child tax credit to $1,000. It would help small business owners by eliminating the estate tax. But a political statement now promoted as an economic stimulus invites criticism. Some provisions (the estate tax, new charitable deductions) would hardly affect the economy. Similarly, the timing is bad. Most tax cuts are phased in so slowly that they wouldn't much help the economy for a few years. For example, the full rate cuts and child-credit expansion wouldn't become effective until 2006. In 2002, the tax cut would total only $21 billion, estimates the Congressional Joint Committee on Taxation. That's not much in a $10 trillion economy. Bush now favors making tax cuts "retro-active" but hasn't said what he means. === What is fair? According to Omega, it's the same as Just. What Omega seems to not understand, is that Just is defined (in my dictionary) as being [i]legal[/i]. The tax on the rich 1% are legal, thus, not only just but fair. Now, if Omega wants to make the argument that "fair" and "just" are subjective, he's more than welcome to. Otherwise, I strongly suggest he pull his head out of his ass. [/QB][/QUOTE]
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