The Economy

[Tempest]

Originally Posted by Fredo

Military R&D is another sector of research that shouldn't have been farmed out to the private sector. I have personally seen repeatly the problems that have come from this.

Then what is the alternative? A government owned military research firm?

That doesn't sound dangerous at all.

Ultimately, the government will waste vast amounts of money the larger it gets. Both the Pentagon and Medicare have waste approaching 25% of their budget.

[Powerman]

Originally Posted by DMWyatt

You seem to be making 2 assumptions here. 1. That I would be looking to do this without raising the deficit immediately. I'm not. There are certain instances where an entity or an individual assume debt in order to accomplish certain things. I would suspend all interest payments within the 2 year window as well, probably with a separate agreement to pay interest on the interest accrued within that time period. The goal overall is to give the industrial base 2 years to expand without the government on its back. 2. You seem to be assuming that I'm completely against cutting the DOD. I'm not against cutting the military budget. There is a lot of money being wasted on redundancy and inefficient research and development. In fact, I'd be open to suspending all military spending over the same term that doesn't go directly to troop pay and benefits or maintaining current systems. Pulling out of Afghanistan and re-evaluating our foreign policy would go a long way.

2 years of unrestricted growth in the private sector, and a tax rate that actually invites foreign investment in the market would go a long way to solidify and expand tax revenues once the 2 year period is up. It may even have some unintended consequences that Etta might like. Japan is learning the pitfalls of labor unions as we speak. Inviting companies like Mitsubishi and others that are currently struggling over there under the weight of the unions with a reasonable tax rate and the freedom to operate without unions, and you might see a lot more of the "green" technologies that the Japanese are already playing with make their way into the U.S. market without government mandates that strangle economic growth.

Actually I was not assuming anything, I was just trying to show you how improbable your plan is. We would all change a lot if we could wave our magic wand, but none of us have one so why play in fantasy land. Your plan will never happen, nor do I agree it should. Sounds great to say suspend the Government for two years, now lets get back to reality and see what we can accomplish.

All the government does is play shell games, and you are playing them too. Corporate rate this, suspend that, cut some here, give these guys a break, don't pay these guys here, pay for it here.....where is the peanut?

We need a comprehensive, fundamental tax overhaul. America may disagree on how big the government should be, but no body agrees we can do without one. We just need to agree on a reasonable size. Then we need taxes to pay for it, period.

Corporate this, individual that, tax breaks, tax shelters, loop holes to exploit. Bottom line is the the "x" size of government need "x" amount of money to run. Than money is siphoned off the economy some way, smoe how, some where. Uncle Sam needs his cut. The consumer is ultimately the end of the line. The tax payer. So why not a sales tax? Everybody pays. Uncle Sam gets his cut of the economy. Foreign and domestic are equal. Rich and poor are equal.

The shell game needs to stop.

[DMWyatt]

Originally Posted by Powerman

Actually I was not assuming anything, I was just trying to show you how improbable your plan is. We would all change a lot if we could wave our magic wand, but none of us have one so why play in fantasy land. Your plan will never happen, nor do I agree it should. Sounds great to say suspend the Government for two years, now lets get back to reality and see what we can accomplish.

All the government does is play shell games, and you are playing them too. Corporate rate this, suspend that, cut some here, give these guys a break, don't pay these guys here, pay for it here.....where is the peanut?

We need a comprehensive, fundamental tax overhaul. America may disagree on how big the government should be, but no body agrees we can do without one. We just need to agree on a reasonable size. Then we need taxes to pay for it, period.

Corporate this, individual that, tax breaks, tax shelters, loop holes to exploit. Bottom line is the the "x" size of government need "x" amount of money to run. Than money is siphoned off the economy some way, smoe how, some where. Uncle Sam needs his cut. The consumer is ultimately the end of the line. The tax payer. So why not a sales tax? Everybody pays. Uncle Sam gets his cut of the economy. Foreign and domestic are equal. Rich and poor are equal.

The shell game needs to stop.

I agree 110%, but honest reform is even less likely than what I proposed. Nothing is going to change until people are going hungry and get desperate. So long as Washington is enamored with the loopholes for power grab in an overcomplicated tax system, nothing is going to change. If you're going to play the game, you might as well play a game that favors the consumer over the game that favors special interests.

[Powerman]

Originally Posted by DMWyatt

I agree 110%, but honest reform is even less likely than what I proposed. Nothing is going to change until people are going hungry and get desperate. So long as Washington is enamored with the loopholes for power grab in an overcomplicated tax system, nothing is going to change. If you're going to play the game, you might as well play a game that favors the consumer over the game that favors special interests.

I can agree with that line of thinking..... We are both in fantasy land

I want to go in a different direction so I'm starting a different thread

[Fredo]

In my wandering through the web, I stumbled upon an interesting research paper that I thought was applicable for this discussion. I have only skimmed it so far, so I am not going to make any judgments on accuracy, logic of arguments, etc.

http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf

THE MACROECONOMIC EFFECTS OF TAX CHANGES:
ESTIMATES BASED ON A NEW MEASURE OF FISCAL SHOCKS

VI. CONCLUSIONS
This paper investigates the causes and consequences of changes in the level of taxation in the postwar United States. In terms of causes, there are two main conclusions. First, despite the complexity of the legislative process, most significant tax changes have a dominant motivation that fits fairly clearly into one of four categories: counteracting other influences on the economy, paying for increases in government spending (or lowering taxes in conjunction with reductions in spending), addressing an inherited budget deficit, and promoting long-run growth. The last two motivations are essentially unrelated to other factors influencing output, and so policy actions taken because of them can be used to estimate the effects of tax changes on output.

Second, the motivations for tax changes have changed substantially over time. Countercyclical changes were frequent from the mid-1960s to the mid-1970s, but were unheard of before that time and from the mid-1970s until 2001. Tax changes motivated by spending changes were commonplace in the 1950s, 1960s, and 1970s, but have virtually disappeared since then. Tax increases to address inherited deficits were common from the late 1970s to the early 1990s, but rare before and after this period. Only tax changes motivated by long-run considerations have been a constant feature of the fiscal landscape since World War II.

In terms of consequences, there are six main findings. First, tax changes have very large effects on output. Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still well over two percent.

Second, these estimated effects are substantially larger than those obtained using broader measures of tax changes, such as the change in cyclically adjusted revenues or all legislated tax changes. This suggests that failing to account for the reasons for tax changes can lead to substantially biased estimates of the macroeconomic effects of fiscal actions.

Third, investment falls sharply in response to exogenous tax increases. Indeed, the strong response of investment helps to explain why the output consequences of tax changes are so large.

Fourth,the output effects of tax changes are highly persistent. The behavior of inflation and unemployment suggests that this persistence reflects long-lasting departures of output from its flexible-price level, not large effects of tax changes on the flexible-price level of output.

The last two findings concern the effects of particular types of tax changes. The behavior of output following countercyclical tax changes is only moderately different from that following exogenous actions. This suggests that policymakers’ efforts to adjust taxes to offset anticipated changes in private economic activity have been largely unsuccessful. The most likely explanation for this finding is that countercyclical actions are rarely taken before output growth has already returned to normal.

Finally, we find suggestive evidence that tax increases to reduce an inherited budget deficit do not have the large output costs associated with other exogenous tax increases. This is consistent with the idea that deficit-driven tax increases may have important expansionary effects through expectations and long-term interest rates, or through confidence.

In considering the implications of these findings, it is important to note that our estimates are not highly precise. The overall estimates of the effects on output are overwhelmingly significant, but the confidence interval is substantial. And when we ask narrower questions – such as how a volatile component of output, such as investment, responds to tax changes, or how output behaves following a narrowly defined type of tax change, such as a deficit-driven change – the confidence interval is generally quite wide.

Although we place great emphasis on identifying tax changes that occur for reasons largely unrelated to other influences on output, there is an important sense in which this study is not in the “natural experiment” tradition. Rather than considering only a small fraction of tax changes, we examine all major postwar tax changes that resulted from policy actions, and we conclude that a substantial fraction of them can be used to estimate the effects of tax changes on output. Thus, the scope for increasing the precision of the estimates of the short-run and medium-run macroeconomic effects of tax changes appears limited. One could imagine improving the revenue estimates or finding better control variables, but the potential improvement through these channels is likely to be small.

A more promising route for extending the analysis is to use our new series to investigate the importance of the characteristics of tax changes for their macroeconomic effects. There are strong reasons to expect the effects of a tax change on output to depend on such features of the change as its perceived permanence, its impact on marginal tax rates, and how it affects the tax treatment of investment. Thus it is natural to ask whether the output consequences of tax changes depend not only on their size, but also on their other characteristics.

[Fredo]

Originally Posted by Tempest

Then what is the alternative? A government owned military research firm?

That doesn't sound dangerous at all.

Ultimately, the government will waste vast amounts of money the larger it gets. Both the Pentagon and Medicare have waste approaching 25% of their budget.

Government funded military research bases, like Naval Surface Warfare Center Dahlgren Division, which I happen to work at when I'm not in Afghanistan.

Over the last decade, military research and development was cut significantly and farmed out to the private sector. During the same time, the rate of cost overruns on military programs increased significantly.

I know for a fact that my part of the military R&D establishment works more efficiently than most military programs farmed out to the private sector. We do the same research for millions that Lockhead Martin or any of the other Big Five (Lockhead, Boeing, Ratheon, can't remember the other two) military contractors would do for 10s to 100s of millions.

Private sector does work efficiently - when free market forces are active. In military contracting, there are very few companies doing most of the work, limiting the effectiveness of competition. And that is assuming that they aren't price fixing behind the scenes, which is quite possible, considering the corrupt nature of so much of business management over the last decade+. And by increasing military research, you provide competition for the private sector which encourages them to become more efficient.

The government and pentagon do waste huge amounts of money. But remember, a huge chunk of that is in contracts to private businesses, whether KBR or one of the Big Five. And over here in theater, much of the money being wasted is in contracts with civilian companies. Particularly early in the Iraq war, there were far too government workers trying to watch far too many contractors - so the contractors got away with alot.