CHARTS
· Personal Income Tax rate
· GDP
· Employment, Employment Rate
· Government Expenditures, Government Expenditures Percent of GDP
Employment
Employment / Jobs / Unemployed / Not participating / Population age trends and impact on health care expense
Economic Cycles
Q. What causes economic cycles?
· Peak occurs when capital investment slows because replacement/rebuilding from trough is complete (high growth periods during initial recovery stages slows as investment catches up).
Q: How does this recovery compare to other recoveries?
· Good news: similar to the pace of the past two recoveries
· Not so good: needs to pick up pace in near future
· Bad news: past two recoveries were the slowest post-war recoveries
· Worse news: this recession was far deeper than the past two, so recovery will take much longer
Q. Are there long-term trends that may make this recovery different than previous recoveries?
· Population aging
· Developing nations
· Tax cuts
· Increased spending (entitlements/Medicare/Medicaid/Medicare Part D, wars)
· Decline of unions (real average hourly pay is down)
Fiscal Policy
Spending
Q: Is private spending "more effective" than government spending?
Deficits
Q: Are higher public employee salaries/benefits the/a cause of higher government spending?
Q: Do we have a revenue problem or a spending problem?
Debt
Debt issue as a financing question
· Would the money need to be spent anyway (by another sector)? E.g. health care
· Is the issue who spends the money (government, persons, private enterprise) or how it is paid for (directly, via debt, inflation)
Taxes
Taxes to analyze
· Payroll
· Sales
· Property
· Estate
· Capital gains
· income
[Income taxes include federal, state, and local tax. Does not include e.g. SSI, Medicare, sales tax, property tax. Old]
Q: What is the average personal income tax rate?
· Commonly quotes tax rates are (a) applied to income after deductions, and (b) apply to only to (the last) part of taxable income.
· Discussion of the tax rates typically involves marginal rates that are applied to adjusted income. Effective tax rates include all income earned and all income taxes paid.
Q: What Tax Cut? –How the effective income tax rate changes during economic cycles (What effect did the Bush tax cuts have on the average income tax rate?)
· The Bush tax cuts, or at least the effects of them, had almost completely disappeared by the time the recession hit in 2008. The effective personal income tax rate fell from 14.8% in April, 2001 to 10.4% in April, 2004. By March, 2008 it had climbed back to 12.5%.
· The change in the effective tax rate accounted for most of the narrowing of the budget deficit during this period. rate vs. volume analysis.
· This follows a pattern related to the business cycle. Typical for every cycle since the late 1940s.
· Don't know the cause and effect relationship. Does the tax rate cause the change in the cycle, or does the cycle cause the change in the tax rate?
· Why does this pattern occur? Deductions? real income growth? Inflation/poor indexing?
· Business rate does not follow this pattern.
Q: Why does the average personal income tax rate increase and the average corporate income tax rate decrease?
· Poor indexing of the tax rates (inflation effect on income – indexing avoids this?)
· Lack of indexing of the alternative minimum tax
· More productive workers (earn higher wages for the same amount of time worked)
Q: What is the "right" / "acceptable" / "optimal" tax rate?
Q: Do reductions in the personal income tax rates for higher-income people result in more investment and thus more jobs?
Q: What is the average corporate income tax rate?
Q: Do reductions in personal income tax rates pay for themselves?
· What percent change in income is required to make up for a given tax rate cut?
Q: Do lower personal income tax rates produce greater GDP growth rates?
Q: Who reduced the personal income tax rate the most: Reagan, G. W. Bush, or Obama?
Monetary Policy
Inflation
Inflation as a redistributor of wealth (spreads burden over all purchasers; government debt spreads burden over all tax payers; alternative is for one sector to bear all the burden)
Interest rates
Money supply
Saving and Investment
Lending
· Consumer debt / saving
· Subprime loans
Wealth and Income Distribution
Distribution of income, “Corporations are people.”
Consumption
For a sector to increase spending on something, either
· spend less on something else (saving, other consumption)
· get more income
· borrow
International
Exchange rates
Foreign trade: Imports/exports
World economy
General
GDP analysis
· Expenditures
· Income
· Value added
Stock prices
“Productivity growth is much slower in the public sector.”
Balance Sheets
Leakages (saving, taxes, imports) vs. injections (investment, government expenditures, exports)
Scenarios
Conservative argument:
1. Cut taxes
2. What spending will be cut?
3. None. Tax cuts will result in more tax revenue due to stronger economy.
4. But three decades of tax cuts have resulted in large deficits and growing debt.
5. Government spending grew too much.
Personal income tax was cut by $1,432.4
Government tax receipts also fell
1. cut social transfers to persons
1.1. personal income drops
1.2. no change in personal consumption or GDP
2. cut government consumption
2.1. GDP drops
2.2. Wages and salary drop
2.3. Personal income drops
2.4. Would private enterprise take over whatever government was producing? Persons would have to buy from private enterprises instead of getting from government.
3. Cut government investment
3.1. Fixed investment drops, GDP drops
3.2. Net lending drops
3.2.1. Balance on current account drops
3.2.2. Exports drop
3.2.3. GDP drops
