How will raising taxes improve our economy?

A batch of economy-wide stats was released Friday morning, covering retail sales, industrial production, import prices, and consumer confidence.

The verdict? It’s a 2 percent economy. Call it Goldilocks 2.0.

Might the current financial turmoil throttle back growth a little more in the next six months? Yes, perhaps. Will there be some negative earnings surprises, especially from financial companies? Sure.

But the bears would have us believe the sub-prime credit virus heralds the end of the world. They are wrong. Remember this: Our free-market capitalist economy is resilient and durable. It has proven time and again that it can take a punch.

Sure, recession probabilities have increased. But so what? We’ve had virtually uninterrupted prosperity for twenty-five years, going back to the supply-side economy and technological boom launched by President Ronald Reagan. Since then, we’ve experienced 93 positive GDP quarters and only 5 negative ones. That makes for a truly phenomenal batting average.

Consider this: Marginal tax rates are low. Inflation is low. Interest rates are low. And the world economy remains strong. The stock market — which I still believe is the best barometer of the health of business and the economic future — has behaved surprisingly well during this difficult stretch of turbulence. In fact, the sum total of the so-called “bear assault” is only a 4.5 percent correction from Dow 14,000 and other index peaks registered two months ago.

Yes, profits are getting sloppy. And yes, there are some credit shocks out there yet to be revealed. However, the Federal Reserve will reduce the cost of money by bringing down its basic target rate on Tuesday. President Bush will veto any Democratic tax hikes. And at the margin, the Iraq War story is taking a turn for the better. Meanwhile, American entrepreneurs are still working hard.

Speaking of next Tuesday, the best thing the Fed can do is deliver a big-bang, shock-and-awe rate cut that would bring the basic fed funds target 50 basis points lower to 4.75 percent. At the same time, it should lob a full percentage point off the discount lending rate, cutting it from 5.75 to 4.75 percent. This would be a confidence-inspiring move for all concerned: borrowers, lenders, businesses, consumers, and mortgage holders. Not only will slashing the cost of money add significant new liquidity to the economy, it will raise asset values across the board.

The Fed also might think about setting up a special facility for non-bank lending institutions that are experiencing a liquidity squeeze. Perhaps also a temporary liquidity facility for commercial paper lenders. The asset-backed commercial paper market is vital to funding many of the daily operations of businesses across the country, and it’s this market that has been hardest hit.

Such monetary front-loading would be very powerful, indeed. However, if the Fed goes small with only quarter-point reductions for fed funds and the discount rate, many investors will have an incentive to withhold money while they wait for interest rates to finally bottom at much lower levels later this year or next. In other words, a timid Fed action might actually prolong and deepen the economic slowdown.

This is not a time for small-ball. It’s time for Bernanke and Company to go big.

And let’s not forget that taxes are just as important as money. President Bush and Treasury man Henry Paulson should absolutely squash all the Washington rumors of tax hikes, in particular a cap-gains tax increase. If investors expect a hike in the cap-gains tax, they will have every incentive to launch a massive wave of stock market selling. Needless to say, this would be utterly calamitous for the whole economic picture.

The animal spirits may have had their wings clipped a bit by the credit crunch, but with the right tax and money policies there is still plenty of sizzle and juice in this story. It’s very easy to be totally pessimistic and bearish right now, but that’s precisely why I will avoid falling into that trap.

Optimists are winners. Pessimists are losers

How will raising taxes improve our economy?child tax credit

Bill Clinton raised taxes (especially on the rich) when he inherited George Sr%26#039;s. mess, and the economy rebounded beautifully, and he was the first president in decades to submit a BALANCED BUDGET !

How will raising taxes improve our economy? loan

Raising taxes usually does just the opposite.|||A taxpayer who votes for a democrat is like a chicken voting for colonel Sanders.|||I%26#039;m with you, though I think you are too verbose by half.

We need to lower the taxes for working people and poor people, and we need to make sure the wealthy, who benefit more than all of us from the current laws, really do pay their fair share.

But like Leona Helmsley reminded us, taxes are for little people.

If I say that, I%26#039;m a commie, you know.

But Leona said that, and she should know.

So yes, lower taxes, and make sure the ones we do pay, go to benefit society rather than line the pockets of the corporations and politcal crooks.|||Raising taxes always hurts the economy. The taxpayer has less disposable income to spend on goods and services, and less money to save. Thus his/her dependence on government handouts (e.g. welfare) goes up.

Now if a corporate executive rakes in 200 million on stock options, and bonuses that%26#039;s an entirely different situation. This guy should pay a lot of taxes.|||Bubba...I%26#039;m not here to read your treatises...trim it down.|||it dont america is going in the shitter every thing is going up in price and the pay wages are not going up to keep up with inflation|||People have no money so raising taxes will just cause a collapse, but SPENDING needs to go down and soon because then the pessimists will be right.|||No need to wright this much, but in general, it is a good idea to have tax $ and revenue in the economy for social programs, or just to keep the government in working order.

It would depend on how much taxes are raised, on whom, and what the money is spent on.

We shouldn%26#039;t want any government waist.|||income taxes do indeed do serious harm.

a carbon tax, however, would help them in the long run. by using a carbon tax to alleviate the costs of new capital, they become more efficient.

some taxes are much better than others.|||AMEN AMEN AMEN

BRAVO

From a fellow economist and Capitalist Pig.|||Raising the taxes on the rich to spend in expanding government services that would generate jobs and buying goods for more prosperity. And entrepreneurs can get in on the action securing government contracts, for a win-win situation for most. Government can buy goods and services on an economy of scale, eliminating the waste of the the small individual transactions( ie healthcare), redundaant paperwork and private business bureaucracies, savin \g far more than what was spent.

But conservatives seem bent on a mindless mantra of all taxes are bad. There was a time people understood the principles outlined above and accepted taxes as a cost as well as a benefit in being in a society.|||Something I rarely see mentioned is that with the federal tax cuts, the states apparently have lost the share they once received. I don%26#039;t know what is happening in other states, but where I live the taxes are going way, way up. The property taxes are being protested, the sales tax may go up 2 cents more, cigarette taxes have gone up 46 cents, there are other taxes I%26#039;m not familiar with that are being considered. I live in the Midwest where you don%26#039;t see a lot of protests. They are also considering raising the county tax or tacking a nickel more on the state gasoline tax. There are many ramifications to everything the federal government does. Sorry if that makes me sound like a pessimist. Its just the reality of it.|||In a word it won%26#039;t. No country has ever taxed its self to prosperity.|||Cutting taxes always strengthens the economy. I%26#039;m not sure about lowering interest rates, as there seems to be enough liquidity already. Because of the tax cuts pushed through a few years ago, our national debt has been cut essentially in half. It fell by more than 10% last year alone.

As for the rich not paying their fair share, that is a joke. Remember, the idea of progressive taxes was first effectively put into words around 1850 in a book co-written by that lover of freedom Karl Marx. The top 10% of income earners in this country pay 50% of the income taxes taken in by the federal government.

Where in our constituition does it say that all men are created equal, except if they are productive. Under our tax system, the more productive you are the less fairly you are treated. I would like to point out that I%26#039;m not part of that top 10%, or even in the top 40% for that matter, but I am trying to get there.

Edit

Social programs are not helpful to anyone. The war on poverty is a good example. The U.S. has spent more than 11 trillion dollars on this war, that should actualy be named the war on freedom. Before the war on poverty, the percentage of the poeple considered poor was falling each and every year. This drop stopped as soon as we started %26quot;helping%26quot;(sic) the poor. Government hand outs have never lifted anyone out of poverty. The people that have risen out of poverty, did it on their own. As for the states that have lost tax dollars, that is wrong as well. I live in one of the poorest states, and yet, our state legislators are argueing on how to spend the additional money that has filled their coffers since 2002.

Poverty in the U.S. is a behavioral problem, not a societal, or economic issue.....Little off topic, but those two topics put a burr under my blanket.|||you%26#039;re mainly talking capital gains tax here...

and it was just as %26quot;high%26quot; in the 90s as they want to raise it now?

it wasn%26#039;t all doom and gloom then?

this article, whoever wrote it, is talking out of both sides of it%26#039;s mouth and clearly has a bias... mainly %26quot;don%26#039;t take my money%26quot;...

in their words: %26quot;Remember this: Our free-market capitalist economy is resilient and durable. It has proven time and again that it can take a punch.%26quot;...

and the tax increase they are talking about would be nothing more than a %26quot;small jab%26quot; as punches go...

talk about a lot of words not saying much...

EDIT: and crying about how a tax increase would doom the market is being a pessimist/loser