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11 11 2010

Why cutting government spending now would be disastrous.

Posted by: emperor in Business, Politics

There are two generally accepted tenets of the conservative’s view of government economic policy.

1) Lower taxes encourage private sector investment and economic growth.
2) Government spending are resources that are taking what would otherwise be left to the private economy.

First let me address the obvious; both of these beliefs definitely favor the rich over the poor. The rich benefit more from lower taxes and they rely less on government spending in general. Particularly when it comes to retirement and health care.

Taxes have been cut to the lowest level since 1950 which has failed to stimulate the economy for the last decade. In addition a plethora of tax incentives have been offered to encourage private investment, job creation and economic growth. As near as I can tell, that worked only to ship American jobs off shore.

So now we are told that tax cuts aren’t enough, we need to cut government spending too. That’s why the tax cuts didn’t work they say, because we didn’t cut spending at the same time. Perhaps I’m just too dense to grasp complicated math, but I don’t see how the government not spending a dollar makes that dollar suddenly and magically appear in the private sector where it will be spent better.

But we’ll leave that alone for now and tackle the task at hand, cutting government spending and it’s affect on the economy in general.

Government cuts in spending come in three areas, jobs, purchases and benefits. That’s it, now it’s just a decision about what jobs, purchases or benefits should be cut. For the purposes of this discussion it really doesn’t matter what is going to be cut as far as the budget is concerned.

When the government pays an employee, that employee takes the money and spends it in the private sector economy. They make house and car payments. They buy groceries, perhaps eat out, go to the movie or donate to the local little league. When that job is cut, we’ve added to the number of unemployed. Perhaps they lose their house in foreclosure, driving prices down further. Maybe they can’t afford their car anymore, so it goes back to the dealer or maybe sell it themselves if they can get what they owe on it. The little league and local restaurant will have to do without their support.

Maybe this is a job we could really do without, working in a department that shouldn’t even exist, getting paid more than they would in the private sector and with better benefits. There’s approximately 2.15 million federal employees, so to make any kind of significant spending cuts we’d have to get rid of 200,000 jobs to make any kind of serious impact on spending. What is the effect of losing 200,000 jobs on the economy? 200,000 more people competing for jobs where there are five applicants for every job opening. How many more foreclosures, bankruptcies, repossessions would there be? Not just those whose jobs got cut, but the small businesses they help support with their government payroll checks. But hey,they’re just government employees right. They don’t actually add anything to the economy, so they won’t be missed.

The government doesn’t actually build, produce or create anything. They do however buy a lot of things though. From paper clips to Aircraft Carriers. They pay for new roads, bridges, airports, ports and all kinds of other products and services. Billions of dollars paid to private companies and contractors, who employ hundreds of thousands of people. So how many private sector jobs will be loss when we cut government spending on any of these products and services? When a company like Boeing has to lay people off because a government contract was cut or cancelled, what are the down river consequences of that? How many small businesses are put at risk of closing, foreclosures, and bankruptcies. Then you have the impacts on the local, county and state governments who are also receiving less income because of the cutbacks and employee layoffs. They have to layoff public safety employees and teachers. Perhaps cut back on services like libraries and health clinics.

Then there is the target du jour – Entitlements. Yes, those horrible socialistic entitlements. As an aside, the reason they are called entitlements is because people have EARNED them. They worked for them, they contributed financially to them. These aren’t freebies given away to everyone. But I digress, what happens when we cut benefits and entitlements? Again, this is money that is put back into the economy purchasing goods and services, paying local taxes, supporting the community.

With the exception of foreign aid those are our choices for making government spending cuts. There are other factors to be considered with foreign aid other than the economic impact here at home. We may need to consider trade agreements that depend on providing aid.

At this point I’m sure there are many that think I’m just a big government liberal that never saw a government program I didn’t like. That’s not the case at all. I want the least amount of government we can have, with the lowest possible tax rates from top to bottom of the economic totem pole. I know people are concerned about the deficit, but I think it’s important to understand where these deficits came from. The largest amount is due to tax cuts, the next largest part are the waging of two wars. The Health Care Reform bill will help cut the deficit over time, but not nearly enough, fast enough. We can make additional progress by continuing to find and eliminate fraud, waste and abuse. But the best and surest way is by expanding our economy. Get more people back to work building things. Promote new industries, new technologies and new products. Do what America does best, innovate.

What we can’t do is anything that will increase unemployment, foreclosures, bankruptcies or business closures, which is exactly what cutting government spending would do. It would be disastrous.

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This entry was posted on Thursday, November 11th, 2010 at 5:00 am and is filed under Business, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

  • Anonymous

    If we stopped taxing income in the first place, there wouldn’t be as much need for ‘entitlements.’ How does a poor man get out of poverty? Sit around and wait for the government to make him rich? Or work? If he works, he makes income which the INCOME tax takes hindering everyone’s ‘upward mobility.’

    Any income tax takes money from the economy and sends it to Washington where politicians and lobbyists will have their turn deciding who is ‘worthy’ and who isn’t and who ‘deserves’ keeping the money they earned and who doesn’t, according to the politicians and lobbyists. Rather than continue with the same system that has the most benefits for those pols and lobbyists, why not get the govt. out of the business of taxing anyone’s income and switch to sales taxes giving every American the choice in the total amount of taxes they pay instead of 536 people in Washington.

    All an income tax does is give lobbyists and politicians more power over the amount of taxes everyone else will pay, more absolute control over how much everyone in America makes (or is ‘allowed’ to make) and, therefore, more control over the financial and economic decisions of every working American than the people who actually work to earn that money.

    As it is, more than half of the population pays no taxes/doesn’t work and feels entitled to up to 94% of everyone’s income because, why worry about it if you’re not working and, with the willing help of socialists and the left and their politicians and lobbyists who will make millions anyway. If you’re not working, why should you give a d-mn about someone having to work and turn over their money so you can sit on your a$$ all day and do nothing but vote yourself more money.

    An income tax is like a starving man trying to eat his own body to survive. His ‘successes’ only mean he has hindered his own ability to survive and feed himself. An income tax does the economy, workers and employers the same way.

    Under the Fair Tax, we can eliminate a bunch of this mess by not giving govt. our money straight from our income meaning they won’t have ‘money in hand’ to treat the rest of us like trained dogs responding to ‘vote for us your SAVIOURS, we’ll [your choice: give you more money, give you tax break, start a new, expensive entitlement program after raising your taxes so we can then give your tax money back to you...etc.] Instead of playing ‘hide the taxes’ while lowering taxes here, raising some over there, hiding more ‘under the rug’, etc. Everyone has ONE rate to keep their mind on and a vested personal interest in keeping that one rate low instead of ‘who makes more than I do and who can I screw with taxes.’ Everyone will be responsible for their own taxes instead of nonpaying, nonworking assigning the rates they think others should pay.

  • http://twitter.com/Emperor_Bob Bob

    @MaxStreet1 Income taxes don’t cause “entitlements”. Low wages, disability, old age and unemployment are why we need those programs you call “entitlements”. Social Security and Unemployment benefits only go to those that pay into the system, and they only receive benefits in direct proportion to what they pay in.

    About 47% will pay no federal income taxes for 2009. http://usat.ly/gFhaFt . Eliminating the income tax for those families isn’t going to help them. Adding a 23% sales tax will lower their standard of living even more because it will increase the cost of everything. Also, the higher the sales tax, the less of a product is sold. Tobacco taxes are a perfect example. If less of a product is sold, that hurts businesses and cost jobs.

  • Anonymous

    BTW, since the poor need income to get out of poverty, the middle class needs income to pay bills, the rich need income in order to hire, pay bills, etc., how does taking money from everyone’s income help them pay their bills when there are other ways to raise revenue; long tried and proven before 1913 and the enactment of the income tax. Our founders weren’t ignorant men and knew that an income tax is the tool of tyrants and never adopted one as a means to raise revenue.

  • Anonymous

    All those who are relying on Social Security, etc. today have spent their entire lives having their income taxed thereby hindering their own ability to provide for themselves and their families and are now forced to live ONLY on what the govt. decides what it thinks they ‘deserve.’

    You argue that taxing people on sales is bad for them and will hurt them and have yet to explain how taking a minimum of 23% from everyone’s paycheck, THUS LEAVING THEM 23% short, helps them pay those same bills. A ‘logic’ all it’s own that I find common among those who think an income tax is the only way to raise revenue.
    As it is, those same people are going to work, having 23% taken before they even get a paycheck, then, when they do get their paycheck, it is for less than what they worked for and still have to pay bills. According to your logic, that somehow helps them pay their bills.

    Under the Fair Tax, they get 23% more in their paychecks, + a prebate equal to 23% X poverty rate by household, and the choice to buy used items (cars, houses, furniture, stereos, etc.) and not pay any taxes. You offer to have them pay less, still have to go to work and turn over their money to Washington for more than a year and still buy those same items with less money in their pay and, somehow, that’s supposed to help? Under Fair Tax, we who are poor have a choice in how much we pay in taxes. Under the income tax, we have no choice. That choice is made by 536 people in Washington and their attending lobbyists over 95% of whom are there thanks to the income tax.

    And in your ‘taxing more brings less’ vein, income taxes tax working, saving and investing. What does it reward? Sitting at home, not working, demanding higher tax rates be paid by those who do work for a living so that more of it can be voted out of the public dole, wasting money, and drawing all the government assistance you can get.

  • http://twitter.com/Emperor_Bob Bob

    As I pointed out below, nearly half of American households pay no federal income taxes, so this isn’t about the poor. We’ve cut taxes for the rich and they haven’t created any jobs (in the US).

    We aren’t living in the same world as our founders lived in or even a century ago. In those days a man and his family could find a plot of land and live off it, farming, ranching, hunting, fishing, gathering. We were primarily an agricultural country. Our infrastructure needs were much simpler. People could just ban together and build a road or bridge with their own effort for common benefit (kind of communism). There were plenty of jobs for those that wanted to work. There were family businesses and farms that were the rule rather than the exception. We had a trade surplus because we were wealthy in land, natural resources and technology that gave us a competitive advantage.

    Does that sound to you like the world we are living in today?

  • Anonymous

    That half is the half that doesn’t pay is the very same half used to tax the h-ll out of the rest of the population who DO work and DO pay taxes. If I don’t work and you do and I want a new car and I have a tax law that lets me vote myself all the money I want with the willing help of politicians and lobbyists in Washington, guess what kind of rate YOU could be paying while going to work while I drive in my new car. That is how our present system works. No one is worrying about THEIR tax rate as much as they want whoever makes more money to be taxed at higher rates so they don’t have to pay, or at least they think. Instead, it shows up in higher prices, lower wages, fewer jobs. Trying to take more from those with more money through an income tax only makes them do what any sane individual does when someone else is trying to take their earned money; hide it, protect it and move it out of danger.

  • Anonymous

    small correction: last sentence ‘trying to take more money through higher taxes from those with money only makes them …’

  • Anonymous

    BTW, How much do you think we poor spend on new houses, cars, etc. or new anything for that matter. Ever heard of Goodwill and Salvation Army thrift stores? Under the Fair Tax, we get all our money we worked for, a prebate available to all, a choice not to pay taxes and control over how much we do pay instead of those jokers in Washington who have already proven they aren’t good with money. Don’t use we poor as an excuse. I don’t buy it.

  • Anonymous

    How does taking a minimum of 23% from everyone’s paychecks help them pay their bills? How does keeping business having to track, record, store, manage, plan and file an income tax every year with the added expenses of hiring tax attorneys, CPAs, etc. and paying 40% corporate rates, 40% self employed rates, 15% self employment tax, + 7.65% of your employees payroll tax + tracking, recording, storing, employees W-2s, etc. & complying with a tax code so complex that even Charles Rangel, who writes the laws and Tim Geitner, who enforces the laws can’t seem to follow, help businesses to keep their expenses (costs) low and their product/service prices low and high pay for employees?

  • http://twitter.com/Emperor_Bob Bob

    Many of those 47% do work, and pay other taxes just not Federal income tax. Some of them don’t pay any federal income taxes because they have deductions like mortgage interest and medical bills that lower their tax obligation.

    In general I disagree with your view on three points:

    1) People receiving assistance aren’t buying new cars or living high on the hog. If you know somebody that is receiving public assistance (not disability, retirement or unemployment) that is living an extravagant lifestyle they are probably committing fraud. The benefit amounts just aren’t much more than poverty level. There are also incentives to work while receiving assistance. They can keep medicaid and only lose one dollar in benefits for every two dollars they earn up to the point where they are no longer receiving benefits. These were changes that were made back in the Carter Administration.

    2) We are paying the lowest tax rates since 1950. The only tax rate change that the Democrats are proposing is to allow the Bush tax cuts for the top 2% of earners expire. That only affects the amount over $250,000 for a family who probably have many ways to shelter income from income tax anyway. The median family income for Americans is only $50,000 per year. So we are talking about a slight increase to those that have a net income five times the median income. That top rate would still be lower than it was during the Reagan years.

    3) We’ve been lowering taxes on the rich under the misguided assumption that they would take that money and invest in new businesses, expanding business, hiring more people, paying people more, offering more benefits for 10 years. It hasn’t happened. All it did was balloon the deficit and make the rich richer. How much longer are we supposed to support their lavish lifestyles while the middle class disappears, foreclosures rise, small businesses close, bankruptcies rise and more people are turning to government assistance. Local and State governments are also suffering, having to cut critical positions like police, firefighters and teachers because of the economy and less federal assistance. These are all caused by taxes too low on the richest of the rich, not because they’re too high on 98% of the families.

    Effective tax rate much lower than top statutory rate. http://bit.ly/hMCVNp Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent. And we’ve lowered rates since then.

    How Exxon paid zero taxes in 2009 http://bit.ly/hc852k

  • http://twitter.com/Emperor_Bob Bob

    Which argument are you going to use? Is it that everyone pays 23% or is it because nearly have pay no federal taxes at all? You can’t have both.

    Businesses are going to have to collect the sales tax and send it the feds right? So they are going to have to account for the sales and remit it to the feds how often? That 23% is gross, it comes off the top, no deductions. If they also have to pay local and state sales taxes, is that 23% on top of the other taxes or excluding them? What about businesses outside of the US? How are you going to collect taxes from them when they sell to Americans via mail order or the Internet? For those that live on the borders why not just go across the border and save themselves 23% off the top? You’ll create a whole new class of black market with every good and service imaginable with an automatic 23% advantage over law abiding businesses.

    I’m all for simplifying the tax code. 10% on all income, of any kind, from any source. No deductions, no exemptions, no exceptions. Try to get that one past the billionaires.

  • http://twitter.com/Emperor_Bob Bob

    You’re the one using the poor as an excuse. Nearly half don’t pay any federal taxes. Your sales tax would tax all those that don’t pay federal income taxes. That’s the poor.

  • http://twitter.com/Emperor_Bob Bob

    Nobody is forced to “ONLY” live on what the Government what it thinks they deserve. Where do you get that idea from?

    Again with the 23%. If they know they aren’t going to have to pay taxes at the end of the year they can raise their exemptions on their W-9 so that they get the minimum withheld. I’ve never said paying income taxes helps pay the bills. You’re the one that keeps bringing it up as if it has something to do the conversation. How does raising the price of everything 23% make it easier to pay your bills?

    So you’re suggesting that we get rid of Social Security, Medicare and Unemployment Insurance? Go back to the days before the Great Depression? Have you ever talked to anyone that lived through that era? If you have, and you still think we should get rid of those programs then I just don’t know what kind of human being are.

    Many people invested while they worked for years to build up savings only to have those savings stolen by banks that were allowed to gamble with other peoples money because of deregulation. Just like 1929 all over again, and now you want to remove the rest of the safety net.

  • http://www.redcounty.com/steve-beren Steve Beren

    Bob, thanks for your candor and sincerity in admitting you oppose spending cuts. Despite dishonest rhetoric to the contrary, President Obama and the congressional Democrats agree with you.

    The 2010 elections (“shellacking”) showed that the American people want to reduce the cost of government, eliminate the annual federal budget deficit, and begin paying off the national debt. The voters’ will was clearly expressed – repeal Obamacare, sharply cut federal spending, lower taxes, fiscal responsibility, free market solutions, limited government. Victorious candidates were those who opposed Obamacare and advocated spending cuts and tax reform; “shellacked” candidates were those who bitterly clung to Obamacare and who bitterly clung to higher taxes and massive growth of government.

    Even with a majority in both the House and Senate, and with a Democratic president, the Democrats deliberately avoided passing a 2011 budget during 2010. They knew they were already headed for a crushing defeat primarily due to the issue of Obamacare, and they were afraid that passing a typical Democratic budget would make the shellacking even worse. So Obama, Pelosi, and Reid punted.

    Obama and Reid agree with you, Bob, in their opposition to spending cuts. As you openly and honestly admit, you (despite the expressed will of the American voters) believe “cutting spending now would be disastrous.” Obama and Reid agree with you, but the American people believe otherwise. Nevertheless, you are to be commended for your courage in favoring continued growth of government in the face of the desire of the citizens to reduce the cost of government.

    Obama and the progressives pretend to be for spending cuts, but like you they favor spending increases. They’ve racked up record deficits and a record national debt, and they want to continue along that path. Likewise, in order to feed the growth of government, Obama and the congressional Democrats want to increase taxes (again, despite dishonest campaign rhetoric to the contrary – remember “I’ll cut taxes for 95% of the people”?).

    More spending, higher taxes, continued record deficits, unsustainable debt – that’s the program of Obama and the Democratic Party. I can see November 2012 (Shellacking 2.0) from my house.

    But go ahead, Bob, and keep arguing along those lines. The American people favor fiscal responsibility, limited government, and free markets; that’s how they voted in 2010, and that’s how they’ll vote in 2012. Why should it be surprising that in America, birthplace of liberty, the people really believe in the Declaration of Independence, the U.S. Constitution, freedom, individual responsibility, and capitalism? Obama, Reid, and other opponents of spending cuts ignore the voters at their own risk.

  • http://emperorbob.com Emperor_Bob

    Steve, thanks for the response.

    First let me point to the operative word “now”, I didn’t say never cut
    spending. Also we need to have the conversation about what needs to be
    cut.

    Second, there was no nationwide referendum. In fact since the election
    the popularity of Obama and Health Care Reform have swung more in
    favor than against. The radical right won a few races due to the
    massive amounts of money poured into campaigns by Koch Industries,
    Chamber of Commerce, News Corp, Wall Street and other Right Wing
    elitists. Also aided by massive disinformation campaigns from Fox News
    and right wing radio pundits. The results in 2010 aren’t dissimilar to
    results of many mid-term elections. The results will be significantly
    different in 2012 with a rout of right wing extremists.

    I explained exactly why I think cutting spending NOW would be
    disastrous. No one on the right can rationally explain how cutting
    spending will improve the economy or create jobs. In fact they can’t
    demonstrate how cutting spending or taxes will make anything better.
    Federal taxes are the lowest since 1950, lower than the Reagan years.
    We’ve been cutting taxes for the past decade, even Obama has cut
    taxes, all have failed to improve the economy. The only thing they did
    was make the rich richer. It’s unconscionable that GE and Exxon paid
    zero federal taxes. Do you deny that Government spending cuts would
    cause, in the private and public sector, more unemployed,
    foreclosures, bankruptcies, and small business closures?

    “Trickle Down” is a failure. “De-regulation” has been a disaster in
    the banking and finance sector. Lack of enforcement in the coal and
    oil industries have ended up environmental catastrophes and deaths.
    Anyone paying attention and not listening to the right wing talking
    heads know that those old canards of right wing philosophy only serve
    the purposes of the ruling class. The decline of Unions corresponds
    directly to the decline in earnings of the middle class (graph)
    http://ow.ly/i/atMM

    If there was a serious commitment to cutting spending the place to
    start would be ending all corporate welfare, subsidies, and credits.
    We’d slash the defense budget by bringing all our troops home, closing
    all overseas bases.

    I invite you to look at The People’s Budget http://bit.ly/hF9V8l and
    my own modest contribution of ideas to address our fiscal challenges.
    “Nobody asked me, but here’s my solutions”. http://bit.ly/g6AJ1I

    I reject and resent the implication that those of us that disagree
    with the right don’t believe in our founding documents. I encourage
    you to read “The United States of Inequality” http://slate.me/bV0dMw
    and “Whatever Happened to Truth in Advertising? The Continued False
    Campaign Against the Constitution by the Tea Party and Its Allies”
    http://bit.ly/gmqD0l

    Again, thanks for response. I appreciate the conversation.

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