How to increase taxes without increasing taxes

It's April 15, and that's as good a day as any to make another attempt at undermining the scaremongers who keep warning us that...

"future taxes WILL increase, because of deficits we run today."

That's a mathematical certainty, so there's no way to disagree with that statement -- as far as it goes. But there's an important consideration our scaremongers never tell us about.

Below are two pictures depicting the two ways to increase the taxes flowing into the federal government; note that taxes increase dramatically, in both cases, across several generations. The first way of increasing taxes is the one we always think about. The second one takes just a little more brainpower — which is why I think the scaremongers avoid it. (They either don't understand it, or they don't want to try to explain it to us. In either case, we have a problem that needs to be solved.)

Increases in gross pay happen when we get promotions, when somebody starts up a new company that creates better, more productive jobs, and when existing companies replace crummy jobs with better, more productive ones.

Our politicians have a direct impact on that process. They can hinder it, for example, by "protecting" jobs that would soon become obsolete in a more competitive market environment. They can help it, for example, by making it easier and more attractive for entrepreneurs to try to get rich by creating new jobs that provide consumers with new products and services.

But you and I aren't forcing our politicians to explain in better detail how their policy proposals would help or hinder the growth process. I think it's because the word "growth" is too abstract, too easy to skip over in spite of its overwhelming importance. As a result, we're letting our politicians off the hook.

When ex-Comptroller General David Walker tells us our "taxes WILL increase" — thereby setting Glenn Beck's eyes rolling backward towards the ceiling — we shouldn't let the conversation stop there. Glenn Beck (...or at least somebody) should be asking what growth rate assumption is behind Walker's projections, what growth rate it would take to obviate tax-rate increases, why the Financial Report of the US Government ignores the present value of future tax receipts on the asset side of its balance sheet, what growth rate it would take to neutralize the present value of future liabilities, and other growth-related questions like those.

"Growth" means "higher take-home pay" resulting from higher productivity. Maybe if we started thinking of it that way, we'd be better-equipped to ask policymakers better, tougher questions than they've had to answer so far.

Or, maybe I'm being too optimistic. Maybe I'd better just start preparing for method #1 above: higher tax rates.

Comments

[clive999]

The two things that concern me are :-
1.Everything above depends on growth, failure to achieve this carries severe financial penalties
2.As the huge drag factor of unemployment,bailouts and national debt decrease the chances of sustained high growth (4 to 5% i guess is needed over 10 years)
Wouldn,t it be prudent to ease the situation by increasing debt over the next 10 years by only 500 billion a year instead of the projected 1 trillion a year and therefore only need growth at around 3% which is much more achieveable?
Thanks
clive

[woodchuck64]

"Wouldn,t it be prudent to ease the situation by increasing debt over the next 10 years by only 500 billion a year instead of the projected 1 trillion a year"

Not a fair question because the debt increase now is precisely intended to spur growth and/or prevent economic meltdown. Doing less than is deemed necessary means less growth, more recession by definition.

A fair question would be whether the debt increase is the best way to the save the economy. The counter argument I'm seeing from the GOP seems to be that we should effectively shut down the government and let things sort themselves out (i.e. cut taxes and spending to the bone).

[Bob]

Let me take a stab at something.

According to Pickens we are transferring roughly $700B annually to foreigners in the form of oil purchases. Now, I'm not on the wind farm bandwagon nor do I know if the $700B is accurate. Let's say it is.

Why in heavens name would we want to do that? Does anyone have a problem with creating our own energy? Why not keep the money here and create jobs here?

To hell with carbon, I say. We have lots of coal. Find a way to use it cleaner. Build nuke plants.

But, nooooooooo. While China gets a pass we have to go clean up all the air on the planet.

You know, we're all distracted with this financial mess. Friends, wait until cap and trade accelerates. Big problem.

[Dave95]

Bob I am fairly certain that would take a windfarm far too large to be feasible (as in... the size of the US). I base this on what I have read on ethanol. In order to reach energy independence through ethanol you would need an arable landmass the size of the entire US, *plus* half of Mexico. Think about that. Even if you planted corn on every square inch of the entire country it wouldn't be enough. Most people dont appreciate just how much energy we burn and what it would take to replace it. Its just not feasible.

What we need is investments in technology. The replacement for foreign oil, whatever it will be, probably isnt even discovered yet. Too bad no one wants to spend the money to do it :( With all the spending in this "stimulus" (er… spending) bill I was hoping there would be a lot more of this kind of investment.

Anyway, back to taxes, good points as always Steve, why cant this arguement get main stream air time? Why is it so hard? Do we have to fit it on a bumper sticker or something?

Grow the tax base not tax rates!

Most people probably wouldnt know what it meant, but at least it has "growth" in it. Whaddya think?

[Jim Glass]

"Or, maybe I'm being too optimistic. "

Yup. The impartial, non-political budget analysts are saying Obama's budgets have made what was formerly the "long run" arrive a decade in advance as the "short run", right now.

I.e.: he's set up trillion dollar deficits running for the next decade, when the BIG deficits will start arriving for SS and Medicare it all.

From *now* deficits will be growing far faster than GDP -- formerly that was slated to start several years from now.

While "economic growth equal to or faster than spending growth" is of course the ideal situaion ... it ain't gonna happen short of Divine Intervention on the order of the Rapture.

1) There is no known way to increase productivity growth per capita above the long-term 2% historic rate. That means that long-term GDP growth must be expected to drop from 3% to 2% when the growth of the working age population stops as the baby boomers retire out of the work force.

That was the long-term problem, starting around 2017, as there is no way the exploding cost of retirement promises to the baby boomers can be covered with 2% growth.

2) But now Obama has in the meantime blown up the average deficit to be incurred from now until 2017 to something like 6% or 7% of GDP -- assuming he can reduce it from >10% this year and next.

There's just no "productivity growth" answer to that.

And it is not an intergenerational, long-term thing, it is *now*.

Debt goes up like that, taxes to carry it have to go up. There is no other way.

(Of course the taxes themselves will act to reduce future economic growth, as will the govt deficits that crowd out private sector investment...)

[SkylightMT]

I have to agree with Jim that short of divine intervention, its not going to be possible to grow the GDP at the rates needed.

If the rest of the world wasn't in a worse situation, for the most part, than we are, we might be able to find markets there for our products. But with our GDP somewhat dependent on their GDP... we're in a pickle.

Not that I think what Obama is doing is the wrong thing. I think heavy intervention historically produces better results than letting things fall as they will - but I don't think its going to be painless.

[Bob]

Dave,

Back to taxes, I guess. My rant on energy was meant to support the idea of a growing economy and thus a lesser tax burden. Whatever it is that we must do on energy it would seem to me that job creation goes side by side with it. We won't be able to conserve our way out of this. Again, why would we keep buying a needed commodity from someone else when we should be focussed on producing it here?

If there is a bigger problem or opportunity than energy someone please let me know what that is.

[Optimist123]

Jim,

It's possible I'm too optimistic, but it's also possible I'm too pessimistic, if Ray Kurzweil turns out to be correct. Here's what I wrote on that a while back; note Arnold Kling's comment:
http://tinyurl.com/9jg2wz

If Obama's budget numbers turn out to be correct (4.2% growth starting in year 5), the numbers I ran say we should be in sustainable territory (see http://tinyurl.com/b89hc9 ). Yeah, I know, they probably used goal-seeking to figure out which growth they needed to "assume" -- but the numbers are out there now, and thousands of us will be tracking them closely.

[Optimist123]

All:

I'll be checking comments intermittently for two or three days, so don't be surprised if it takes a little longer for me to publish them. Just a temporary slowdown.

[Jim Glass]

"According to Pickens..."

First, Pickens is doing his hard-lobbying best to whip up massive govt subsidies for his "plan" -- and, coincidentally, the businesses he has major investments in intending to have them profit from the "plan" -- all of which now has cratered due to the price of oil falling by two-thirds.

So let us just say that he is not a "disinterested individual" when publicizing his opinions on such things.

"...we are transferring roughly $700B annually to foreigners in the form of oil purchases."

That's not a transfer, that's a purchase for best value.

Similarly, we NYCers "transfer" huge financial amounts to the farmers of the world each year -- yet we haven't gone broke yet, in fact we are rather better off for doing it.

"... Now, I'm not on the wind farm bandwagon nor do I know if the $700B is accurate. Let's say it is. Why in heavens name would we want to do that? Does anyone have a problem with creating our own energy?"

Of course not! We have absolutely no problem with creating our own energy. Let's use the grease from our kitchens and all our other domestic garbage to generate US-created energy, and replace imported oil!

It IS doable! All organic material can be converted into fuel oil ... for a price.

OK, yeah ... there is that one problem. We'd all be massively poorer by making energy cost 10x (100x?) as much -- but at least we'd keep all our money right here, as we impoverished ourselves.

Similarly, we Manhattan-ites could stop tranferring our money to farmers all over the world by growing all our own food. Yeah, we'd have to give up our NYC-type jobs, and the land here isn't very fertile -- but we'd be food independent and keep all our money right here. Whatever little we still had.

"Why not keep the money here and create jobs here?"

As Milton Friedman used to say to everyone who said they wanted to "create jobs" -- creating jobs is NOT the issue. The issue is creating *productive* jobs.

Friedman would tell them: Creating jobs for everyone is *easy*. Just, for instance, ban all machinery from farms and make all the food for 300 million people be grown by manual labor. Jobs for *everyone* right there!

Of course, those would be hugely less productive jobs than the ones they replaced, so we'd all be massively poorer -- but there'd sure be a job for everyone.

"To hell with carbon, I say. We have lots of coal. Find a way to use it cleaner. Build nuke plants."

Absolutely, I'm all for it -- as soon as those forms of energy show they'll be more productive than what they replace.

[Jim Glass]

Problem: There is nothing prudent about the government.

There was little enough prudent about Bush and the Repubs -- and as to Obama and the Dems, now they've pushed well into less-than nothing prudent about 'em territory.

As some non-partisan budget mavens tell me: Clinton at least had a *theory* about how increasing taxes would be good for the economy ... and Reagan had a theory about how increasing deficits would be good for the economy.

But Obama and the Dems are increasing both taxes and the deficit for at least 8 years running just to increase spending programs -- not even pretending it will improve the economy, except for the "stimulus" for this year's recession, most of which they predict will be spent after the recession is over.

Being "prudent" is no living politician's priority.

[Jim Glass]

Steve:

CBO projects Obama's budget as increasing the debt held by the public/GDP ratio from from 41% in 2008 to 57% in 2009 and 82% at the end of the 10-year projection in 2019. That's a full 100% increase.

Obama's own much more optimistic projection takes it to 67% ... a 63% increase.

Take your pick, they both are a heck of a lot more than the 0% increase that results from growth of the economy matching growth of spending.

What were the problems of "the future" have arrived today -- deficit growth only accelerates after 2019.

As to Ray Kurzweil and Kling's ...

"If output per person in 2025 is more than 5 times what it is today, then the economy will have won the race."

... like I say, the economic version of the Rapture, exactly. Much more of a prayer than a hope. (And certainly more optimistic than skeptical!)

GDP growth more than *tripling* as of tomorrow because of the Singularity is going to happen exactly for what detailed reason that every economist in the world is missing?

Is Kurzweil actually predicting this (the links I followed from the urls you provided had expired) and convincingly, by investing his own hard money on it being true (as opposed to just selling books with it)?

The "Kurzweil Predictions" Wikipedia page says only this:

"2019: Worldwide economic growth has continued. There has not been a global economic collapse."

That's something less than the happy end of all our problems.

BTW, *even if* the Singularity tripled GDP growth starting tomorrow, that would help the problem *only if* politicians didn't increase spending accordingly.

Remember Milton Friedman's dictum: Politicians *always* act to incur the the maximum politically sustainable deficit, because that's what it is in their self-interest to do.

If Friedman was right about that -- and I don't see any evidence to the contrary -- then increasing the GDP growth rate really doesn't matter because the govt spending growth rate will accelerate just as fast ... or quite possibly faster.

If there is any solution to *that* problem -- other than taxes finally having to go up a lot so that politicians finally feel pain associated with spending, finally giving them an incentive to curb it -- well, I don't see it.

Call me a "credulous pessimist" if you want ... I think I need to go out and get a drink.

[tttar]

At the link you gave

http://www.optimist123.com/optimist/2005/10/a_ray_of_hope.html

you said:

"How does a doubling of GDP per worker in five years sound to you? How about faster than that?"

That was posted in 10/2005, 3 1/2 years ago...

What went wrong? Was there a Kurzweil Miracle Plan (I haven't read the book) you believe in that wasn't implemented?

I really would prefer to be wrong on economics and live in a future paradise (and give you all the credit for your foresight you'd deserve), rather than saying I told you so while living in a socialistic hellhole, but I'm not sure if it's working out that way...

[beancounter]

"Friedman would tell them: Creating jobs for everyone is *easy*. Just, for instance, ban all machinery from farms and make all the food for 300 million people be grown by manual labor. Jobs for *everyone* right there!"

Except such a scheme would result in massive death and starvation a la North Korea, Cambodia, Russia and so on. I would wager Friedman was talking more about price fixing and price subsidies, agricultural ones from your "quote" than job creation which no economist in his right mind would oppose.

Who says what is productive or not? You? I suppose you would say a job is productive if it produces a consumer good. That janitor at the mall, is he not productive? The nanny, the babysitter, the factory worker, the pizza delivery guy, is he not productive? Most people do not have the luxury of working behind a desk. The issue is not production as deficit fear mongerers say. The issue is job satisfaction. Generally the higher paying jobs create more job satisfaction because everyone wants more money, but that doesn't mean completely unproductive jobs that generate no good but a service aren't needed. Ask a janitor paid 10 an hour if he's happy then ask one paid 20, 30, 40 an hour and the answer will be quite different. I cannot believe that in 2009, here and now there are still rational minded people talking about production as if it matters a whit. Back to the days of the hammer and the sickle.

In the end it matters how many jobs there are because a sophisticated economy is highly interrelated and you can bet if the number of janitors goes up the number of bankers, accountants and doctors goes up. Unemployment matters.

As for fearing a growth in government spending always "canceling out" the growth in GDP, if inflation (yes evil inflation, destroying the wealth of the non-working everywhere) destroys debt at a faster rate than spending growth then additional spending is meaningless. Don't you deficitphobes believe that will happen anyway?

[Harun]

beanie,

The concept of creating unproductive jobs is also told in a joke about an economist who was visiting a road building site in China. When he asked why they used shovels instead of bulldozers, the local manager said that it was to give more people jobs. The economist replied that if they really wanted to create jobs, then why not use spoons?

[Jim Glass]

" ' Friedman would tell them: Creating jobs for everyone is *easy*. Just, for instance, ban all machinery from farms and make all the food for 300 million people be grown by manual labor. Jobs for *everyone* right there! ' "

"Except such a scheme would result in massive death and starvation a la North Korea, Cambodia, Russia and so on."

Well, yeeaah... that was his point: the people who say we want "more jobs" are wrong, we want *more productive* jobs. If you just want "more jobs" you can get any amount of them by hiring people to dig ditches or do agricultural work by hand -- but since those aren't productive, everyone would wind up poorer.

Which is exactly what I wrote....
~~
"Of course, those would be hugely less productive jobs than the ones they replaced, so we'd all be massively poorer"
~~
... Get it?

"I would wager Friedman was talking more about price fixing and price subsidies..."

You'd lose your wager. I suggest you stay away from Atlantic City.

"Who says what is productive or not? You?"

Actually, it is called "productivity" for a reason. You measure the value of what is produced against the value of the inputs consumed to produce them.

If you get a nice big positive number you have US agriculture. If a rotten low or negative number, you get North Korean, Cambodian, Russian agriculture. Getting the idea?

"I suppose you would say a job is productive if it produces a consumer good. That janitor at the mall, is he not productive? The nanny..."

Just keep on supposin' there. ;-)

"The issue is not production as deficit fear mongerers say."

People who focus on productivity are "deficit fear mongers"? On second thought, maybe you should cut back your supposin' and pay more attention to the real world. Do you count our host Steve as a deficit fear monger?

"The issue is job satisfaction."

Right -- and after you subtract our modern western productivity from the economy you can enjoy the satisfaction of your job in an economy like North Korea, Cambodia, Russia, or maybe Dark Ages Europe, digging roots out of the ground for your living,

Productivity is what *produces* your material welfare, health and life expectancy of 80 -- as opposed to the 25 it would have been if you were born before productivity explosion of the Industrial Revolution.

If you don't understand even that.... ;-(

[David L. Kendall]

I continue to be mystified by the idea that somehow politicians and their teaming, burgeoning bureaucracies can create economic growth.

60% of the federal budget goes purely for transfer payments. Who earns the income (i.e., creates the production) that allows those transfer payments? Certainly not government.

Fans of moving ever greater resources to the control of the 545 and its bureaucracies are a mystery to me.

[beancounter]

Mr. Glass,

What you don't understand is productivity will take care of itself in a free market. For someone who wants as little government interference as possible you sure talk about the wrong things. Government cannot pick what technology or companies are productive or not. It can only influence the economy in very broad strokes with unemployment benefits, bank bailouts, and stimulus packages. The only objective measure of success or failure of these initiatives is the unemployment rate, precisely because government *can't* discern what is productive and what is not, at least not with any accuracy. But it can sure count how many people pay taxes and how many people work. No doubt you are thrilled to have discovered someone who "opposes industrialisation" but my position is nothing of the sort. My position is it is *none of our business* when it comes to macroeconomics because of lassiez-faire.

Steve's three main concernes are low unemployment, low inflation, high GDP. He is unconcerned (or has very little concern) about manufacturing, light industry or trade deficit, all the markers of low productivity which you say marks the demise of the American Empire. You are free to talk about a return to the days of the industrial revolution if you wish with factories and coal mines dotting the landscape like China, but others realize America faces a very different problem than the 1800's -- that of a highly educated, demanding population who will yes vote in socialistic governments if unemployed. These people will not care for highly productive (or unproductive) jobs that do not pay well and do not have high job satisfaction. Spoons digging roads no, shuffling paper at a desk yes, as long as the free market decides such paper shuffling is necessary.

If this angers you think of how many friends and family (human resources, middle management, empty suits, low management, educators in soft fields like humanities and social science) whose living depends on unproductive jobs and you come to the same conclusion as I, that it doesn't matter how unproductive the job is as long as the free market decides. A stimulus and especially a bank bailout dulls the mechanism of capitalism but does not completely subvert it -- the private sector, a bank, still decides who to loan to. The elected representatives of the people as you so clearly point out do what is best to get reelected so attempt to please their constituents as much as possible. The same constituents which make up the free market.

[Nevadan]

Bean -

human resources - not decided by free market, decided by government requiring the free market to do stuff a certain way to avoid being gang-assaulted by government lawyers.

Educators in soft fields - mostly decided by government, which subsidizes - nay, controls - most of higher education in America.

Meanwhile...

The private sector, a bank, still decides who to loan to - didn't we get here, in significant part, via government requiring money be loaned to people who cannot pay it back?

Constituents = free market? Increasing, collective constituent demand is driven by getting free stuff from government, not at all free market.

[beancounter]

The government requires companies to hire HR departments now? HR rot is because of *social* demand for children to work in desk jobs (even those who are awful at a desk) and little to do with government legislation or regulation. What happened to personal responsibility? Teach your kids that it's not necessary to push paper to get a good living.

You think the private sector has no social science or humanities educators? More importantly, you think the private sector would do a better job with education? What kind of business model would wait 24 years (primary+secondary+college/tech school) for a possible return on investment? More likely most Americans would be illiterate if it were not for government. Conservative sources peg the cost of education at hundreds of thousands of dollars per illegal immigrant and it is the same for legal Americans.

We got here because there was no requirement for a 20k downpayment for mortgage loans. Arguable whether or not government regulation would have helped, but certainly that is the reason even if you disagree with the solution (a solution not involving regulation is more information and education for bankers and consumers). The government can't even force banks to lend more after giving them the bailout money and you think that the government "forcing" banks to lend money before this crisis started it? What happened to personal responsibility?

Bush was elected because he promised more free stuff? Reagan? Eisenhower? Nevermind the essence of a free market is competition and there's plenty of competition in politics. Also nevermind that a politician can promise to cut personal income taxes which will always be more effective than promising benefits. Of course this will require going into deep deficit, but you can't have it both ways and that's what certain people don't understand.

[Jerry McInvale]

Steve,

You seem to be making the error of thinking that Politicians and Bureaucrats are interested in, knowledgeable about, or motivated by economic growth. I see no evidence that that is true. Politicians and Bureaucrats who depend on their support, appointments, etc. are interested in achieving and increasing their power. If the economy is healthy and growing, the public may not see a need for increased government action. Conversely, if the economy is lagging, the public may feel a need for "big brother" to come and help them.

Your math is impeccable. Of course if there was substantial and sustained growth in income, then tax revenues would rise without increased tax rates. However, the policies and actions that enhance politicians power and influence are bound up in convincing the public that they are entitled to more and more benefits at no cost - the proverbial free lunch. Of course this is ridiculous, but the strategy works. Do you really think that the President, the powerful members of Congress and the appointed bureaucrats are interested in answering questions about the impact of their actions on economic growth? Can you imagine that the Speaker, the Senate Majority Leader and the Committee Chairs would even know what you are talking about? The only thing that they will respond to is the prospect of losing positions and power. Therefore, the only approach that might have reasonable impact is to convince enough of the public to demand that the governments actions do not impede progress. The current action of the Administration through the E.P.A. to declare Carbon Dioxide a pollutant as the first step to massive cost increases for energy is a perfect case in point. There is no convincing scientific basis for this action, and the result will be disastrous for the economy. It will only be deterred if there is massive public resistance.

My point is that the only actions I see that may have impact are those that put facts before the public. The "so called" mainstream media will not do it, and the government certainly will not. The internet blogs/columns are the only source of factual information that I can find. So, if you really want to advocate policies that at least do not inhibit growth, it seems to me that it is necessary to publish facts whenever they can be discerned.

There is absolutely no reason to believe that the plans outlined by the Administration will support growth creation, and every reason to believe that they are an optimistic portrayal to support the social objectives that the President has outlined. I can only conclude that the spending will be done, the supposed benefits will not be achieved and the resulting debt service will require massive tax revenue increases without the benefit of income growth. Since the over $250K income group will not have enough funds even at a 100% tax rate, the tax rates will have to increase further down the ladder thereby suppressing growth even further. The only prospect that I can see of avoiding this disaster is if the public's awareness of the issues increase to the point that Congress feels threatened, and fails to support the Administration's initiatives. Facts presented in a clear way to the broadest possible audience might help.

Jerry McInvale

[beancounter]

Mr. McInvale,

I'll let you talk to Steve about growth on GDP, but I will answer your point about the Internet being the only source of factual information. Firstly, the Internet is full of independently wealthy or unemployed or retired or otherwise unable to work individuals with the free time to even care (usually they care because they do not want to pay any tax for any reason) -- and that is the good, ignoring children, trolls and generally people who cannot get their views heard and/or verified elsewhere elsewhere because they'd be laughed out of the room. The point is these people just like politicians have a strong personal interest in their view for whatever reason. It is full of academically unsound and sometimes unsourced information. Secondly, the mainstream media is interested not in deception or malice, but profit. Thirdly, if you want facts, you'll have to accept the most accurate facts are those with more education, training and experience. These are often economists, academia, professors, industry experts, all of which have either vested interests or liberal interests. The point is I get wary of anyone who appears to attack the sources so easily -- a joke among liberals is whenever a new study comes out verifying a liberal sacred cow, a conservative walks by and accuses it of "bias" then walks away without addressing the facts but when a study comes out verifying a conservative sacred cow they cite it even out of context (note I am not a liberal I am simply making you aware, certainly liberals do not attack the source as much as conservatives do.)

A quick search turned out this Forbes article from Richard Epstein,

http://tinyurl.com/ckh6qc

which states three things: the EPA action was due to court mandated action not government direction (certainly not the new administration), the "science isn't what's troubling with the recent EPA decision" but the rush to grandfather in older cars because newer cars have better pollution controls, and that lack of enforcement is the main argument against the EPA. If you have a more credible source I will listen, but if you are about to brand him a "liberal" and rebuttal to Forbes with some blog post from god knows who, little wonder why your message is not being heard. Epstein is from your camp, a libertarian.

One final word to you Mr. McInvale, I believe attacking politicians as self-serving and self-centered and uncaring is doomed to fail, precisely it resonates little with individuals who see those aspects in themselves and are loathe to attack on that angle (it is why McCain's campaign on earmarks failed -- everyone loves earmarks as long as they're for their own district and hates them otherwise.) It is common knowledge that the government does not have the tax to fund entitlement programs, but nobody truly cares because they believe these services necessary. You will *not* change their minds on this. If GM cannot make retirees give up their health insurance with $140k, information alone certainly won't change public desires. If I were you I would seek out new ways to deliver the same services or slightly reduced services at a far cheaper cost rather than declare the public stupid or greedy for wanting entitlement programs. I believe it was you who said that everything you've seen of foreign national healthcare programs is flawed -- is the fact that they spend less per capita on their citizens on healthcare by half or more also flawed? Even if service suffers, people desire these programs and you will not meet success by marking politicians as greedy and self-serving, precisely because when any citizen meets one they will be impressed by their charisma (it is why they are politicians and not you.) To sum you will never succeed changing people's desires with information and if I were you I would focus on giving people what they want in a different way. You seem to want to tell people what they want, doomed to fail.

[Harun]

"Politicians and Bureaucrats.....are interested in achieving and increasing their power."

BINGO. While businessmen want to maximize profits, politicians are only interested in staying in power.

Sometimes it may be in their interest to promote economic growth, but just like you can make money shorting stocks, it can sometimes be in their interest to extend an economic crisis, or to prey off the public's fears, or to promote uneconomic policies to reward specific groups, etc.

Now, the great thing about democracy is that power changes due to elections, so even if a politician decides to go against growth and use economic controls for their power base, eventually opposition will form that by its nature, should be pro-economic growth.

A good example is tax reform. Its done every 20 years or so, as the tax system gets complicated after so many years of political jiggering, and has to be renewed.

I am even hopeful that if Obama blows this big time, we may be able to get an opposition that actually promotes very healthy policies like a flat tax, etc. rather than just minor tinkering.

[Optimist123]

Hi Jerry:

"You seem to be making the error of thinking that Politicians and Bureaucrats are interested in, knowledgeable about, or motivated by economic growth."

Wow. I'll admit that I get a lot of things wrong, but that is the very first time I have ever been accused of misjudging politicians' motivations. I strongly suspect you've missed a few of the hundreds of posts here that might have cleared things up regarding my opinion of politicians. Here are two of them from the past...

The Curse of the Free Lunch Bunch:
http://tinyurl.com/2tfn4p

Deficits for Dummies:
http://tinyurl.com/2dljs9

This blog is approaching its fifth birthday (...just about ready for kindergarten?), and I cannot remember attributing any motivations to politicians *besides* getting elected next time, deflecting blame, bending the truth if not completely sidestepping it, etc, etc, etc. The only way to get to them, in my judgment, has been through better-informed voters armed with tougher questions based on facts. That's the reason I started this blog: to get the facts (and arguments based on those facts) out there, so that our politicians on both sides would be less able to ignore them.

But getting those facts more airtime has been far more difficult than I had imagined. Let's just take the subject of this post as one example: the *fact* that tax receipts have been right around 18-20% of GDP for decade after decade, even after tax rates were reduced, is indisputable. Another fact: during the same timeframe, tax receipts grew and grew -- almost without interruption. Two important facts that lead to some very interesting follow-up questions.

But getting from those two simple, easily-verifiable facts to the conclusion that, gee whiz, I guess GDP growth is another way to "increase taxes", requires the surmounting of a huge obstacle. Standing in the way are: (1) politicians motivated by keeping their jobs, and (2) journalists motivated by the need to attract a larger audience.

In the public policy arena, public enemy number one is ignorance of the facts. Politicians are experts at exploiting ignorance, if their constituents let them get away with it. Changing that setting just a little has been a goal of mine for the fifteen years I've been paying close attention to this topic. Pursuing that goal has been giving my imperfect writing skills a formidable challenge, but the goalpost seems to be getting farther away rather than closer. (Reason: When I started this blog, I severely underestimated the proportion of people who already have their minds made up, and their preferred ideologies chosen -- with no hope of turning back. So be it; I still like the steady writing practice I get out of this.)

[Jim]

To get more tax dollars w/o raising tax rates, governments (unlike business)can print more money. In most cases that can create inflation. USA is unique in the world in that it can export its inflation (deflation in those countries) because many other countries have fixed exchange rate policies. This is one of the reasons it is stupid for politicians to ask China to allow their currency to float. American easy money policy makes almost everyone else poorer. In a related American benefit, virtually all illegal activity (that's a lot)in the world is done in US dollars. Printing more money deflates that money also. So printing more money in the US affects domestic inflation less than if other countries do it, albeit significantly harming the world's poor and criminal classes.

The other way to increase tax revenue is to give workers raises as a result of increased productivity. The components for those increases are already in place; technology, new management practices and hierarchies, and improved infrastructure. I believe productivity can be doubled with today's wherewithal. Where can government help? Utilizing technology and management structure is a function of education. Good luck asking the government to revamp education. Technology Infrastructure improvements require government to STOP meddling instead of protecting large players like ATT. Good luck with that. Government improvement of roads and bridges is the least intrusive and arguably the least worst way of using stimulus package dollars. How is that working out?

As with any expenditure or investment, all improvements of government spending rely on changes as a result of program measurement feedback according to stated goals. Measurable feedback has never happened as stated in earlier posts since effectiveness is not a goal. This is one of largest reasons governments keep getting bigger w/o getting more productive. Can the people and the internet force it? It's a story yet to be written but perhaps the most important.

Last, balance of payments is irrelevant in 'growth;' the nationality of your Accounts Payable has no affect on how rich you are. Therefore it matters not at all who we pay petro dollars to. It matters more that we are wasting precious tax dollars subsidizing ethanol which is an energy catalyst, not a product. Worse, it is regressive to the extent that it drives up corn prices for the world's poor.

[Optimist123]

Jim,

The government can't print money, only the Fed can. (The Fed can also make previously-printed money disappear, but that never gets any fanfare.) Yes, the Fed's board members are appointed by politicians; yes, the Fed can and frequently is subjected to political pressure; but no, the politicians are not in direct control of the money supply, the independent Fed is.

The Treasury can only print Treasury bonds, bills, and notes out of thin air; it cannot print new money. Moreover, it is illegal for the Treasury to sell new bonds to the Fed, thereby (in effect) printing money itself. All the overhyped videos of money being printed, sheet after sheet after sheet -- usually as a backdrop to Glenn Beck's sarcastic, uninformed, hysterical economic report of the week -- are not sheets of inflation money, the are one of two things: replacements for worn-out currency already in the system, or currency the Fed needs to satisfy the public's preference for more currency (which will be swapped dollar-for-dollar for deposits, for a net change of zero).

Other governments in the past have resorted to printing money to avoid increasing taxes. That's inflationary, and it never works. But today in the USA, the power to print money rests with the "independent" Fed, not the politicians -- just as Alexander Hamilton warned it should. Therefore, if Congress or the White House quietly decide to inflate instead of tax, they have to go through the Fed board of governors to make it happen. That's not an absolute guarantee that inflation won't happen, but it's an extremely important buffer.

In short, with the Fed standing in their way, our politicians *cannot* count on inflation as a way to create the illusion that they've made ends meet.