Is raising taxes good for the economy, neutral, or bad?

[Nym90]

Depends on what you do with the taxes.

Exactly. Often times the money is spent by government on services that would be impractical or not cost-effective for the private sector to provide, and thus often the money spent can help the economy more than it would be helped by cutting taxes by the equivalent amount as is spent on the services.

Obviously the Department of Defense and the police fit this. We could have a huge tax cut if we were willing to eliminate the Department of Defense, as it's very expensive. But would the economy be better off if we did this? Clearly not, as getting invaded by a foreign country with no way of stopping it would cause a lot more harm to the economy than the benefit that would be gained by the huge tax cut that we could afford. Same thing with the police, their presence makes society more efficient and productive by cutting down on crime, as crime is clearly bad for the economy.

In the same way, social services can often provide more economic benefit than the amount of money they cost. Reducing poverty and increasing the overall level of education of society is in our nation's best interest, as it results in less crime and more quality workers available to fill jobs, both of which are very good for the economy.

Obviously a tax cut is better for the economy than spending money on useless and wasteful things. If we build a new highway in an area that doesn't need one, that's not going to help the economy as much as giving that money back to the taxpayers would have. But if a new highway is built in an area that has massive traffic congestion, it saves everyone who uses that road time (and of course, time=money, it's silly to pretend that our time is free, since we only have a finite amount of it), money in terms of previously wasted fuel from sitting in traffic jams, and enables businesses to ship their goods faster and more efficiently. So in this case, the economy is benefitted more by building the new road, as long as it's needed and isn't a wasteful, boondoggle project.

[Nym90]

Bad. However, a national sales tax and the abolishment of the income tax would be good for the government and the taxpayers.

It would be great for those who earn a large income and spend very little (i.e., the wealthy, while they may spend a lot, it's a lot less as a percentage of their income than the poor).

It would be very bad for those who don't make much money, but spend almost all of what they do make (i.e., the poor and, to a lesser extent, the middle class), usually out of necessity.

So it would encourage people to save all of their money, and spend very little. That's not good for the economy.

[Nym90]

QUIT REPEATING THAT NONSENSE.

People keep their ENTIRE PAYCHECK. They spend MORE buying stuff, but they have MORE money in the first place. It is neither good nor bad for the economy.

If you make $2 trillion and only use $200 of it, you're living like a poor guy, and should pay the same taxes.

I actually didn't say anything about the economy, only that it would clearly be good for the rich, who would pay a lot less taxes, and bad for the poor, who would pay a lot more.

[Nym90]

The sales tax plan includes a rebate, and is about as progressive as the current system. Here's where you mentioned the economy:

So it would encourage people to save all of their money, and spend very little. That's not good for the economy.

Ah, right, I forgot about that.

I still contend that raising prices by 20% or so nationwide wouldn't be good for the economy. Yes, people would have more money to spend, but they would be discouraged froms pending due to the higher prices. People would realize that if they save and don't spend, they won't pay as much tax. If people spend less, the economy gets worse.

I see what you are saying, that the total amount of money available would be the same, so the higher prices should be matched by higher incomes, but for the vast majority of people, the price increase from the sales tax wouldn't be matched by the income increase they would get from the elimination of the income tax. The rich aren't going to spend enough to compensate for this.

Now if you include an exemption for the poor, that helps, but then there is going to be a lot less money available to the government, which means less government spending, and most government spending disproportionately benefits the poor as opposed to the rich. So you still end up getting the same effect.

[Nym90]

Considering that the federal government currently sucks nearly $2 trillion out of the economy any increase would be bad. We need tax reductions, not increases.

And NONE of that goes into helping the economy at all? The most optimal thing for the economy would be to have no government?

I realize that you probably don't think that's true, but if you are saying that all money that is spent by the government is sucked out of the economy, the implication is that there is no benefit from it whatsoever (it gets taken out, but then put back in, in ways that should at least theoretically make the economy more productive...the increased efficiency to the economy that many services bring about increases the amount of money that people make in the first place, so much of the money being taken was, in a sense,  put in by the government at first to begin with). You are saying that no government spending is beneficial to the economy at all.

What I'm saying might be a little esoteric, so here's a concerte example. If the government builds a road to relieve traffic congestion, and as a result all users of the road save a total of, let's say, $1,000,000/year in reduced fuel costs (just making up a number here for simplicity's sake), then the taxes on that increased income aren't being taken out of the economy; government spending enabled people to save money that they otherwise would have wasted on excess gas that wasn't needed.

Or, if the police force, as a result of its existence, saves people $1,000,000/year in money that they otherwise would not have had, due to the increase in crime that would have resulted if the police didn't exist. Obviously crime is horribly inefficient and hurts the economy, just as congested roads do. These are both examples of problems that are too wide-scale and expensive for private businesses to be likely to try to tackle on their own. It's just not going to be in any one business's best interest economically to make a concerted effort to reduce crime or traffic congestion.

[Nym90]

Well said, John. That was basically what I was trying to say, but I tend to be verbose.

The military is another good example, where the economy is often better off; the benefit of having a secure nation and removing threats more than outweighing the expense in taxes, in most though certainly not all cases.

One must take a holistic view of taxes; consider ALL benefits and expenses that directly or indirectly result, both qualitative and quantitative.

[Nym90]

Regarding repealing Social Security--the fact of the matter is that poverty will go up, especially among senior citizens. I realize it makes sense to say "let everyone take care of their own retirement, we shouldn't have to pay for anyone else's retirement", but you are going to end up paying for those people anyway when they make stupid decisions and squander all of their retirement money. People don't just go away and die, you have to pay for them somehow. More poverty=more crime, which costs everyone more money.

I agree fundamentally with a lot of what Libertarians say, but the biggest problem with the ideology is that we don't all live in a vacuum. Everything that everyone does affects everyone else. You can't just compartmentalize everything and expect it to work out.

I agree that government needs more competition, and should be forced to compete on an even keel with the private sector for the providing of many services, but in many cases there are no private businesses willing to provide a service that will make society run more efficiently and effectively. The advantage of the federal government being so big is that it can afford to do things that would not be cost effective or feasible for any private business. In that sense, the government is a corporation, providing a service in return for a fee, it's just an extremely large corporation that has 200 million shareholders (every registered voter in the USA owns a share of stock, and we vote regularly for CEO, board of directors, etc.). It also doesn't earn a profit, which does provide it with a competitive advantage vs. private business, though private industry has the motivation of profits to counterbalance this.

Government does have an incentive to streamline and improve; democracy. If government officials are wasting your tax dollars, vote them out and vote in folks who won't. Democracy forces accountability on government, just as the free market forces it on the private sector.

[Nym90]

Everyone benefits from public schools; their existence results in a more educated populace, which results in lower crime rates and more productive workers who will do better quality work in their jobs, and better selection for corporations to choose from in hiring.

That's what I was referring to earlier, you can't just compartmentalize it like that. Everyone benefits from things like education and social security, even if the benefit is indirect enough that most people don't realize that it's there.