Harper's Best Fiscal Stimulus Package: Cut Taxes

[Goat Boy©]

Hehe, this is getting silly. Harper is a brilliant strategist and an economist by trade. It's obvious he knows what he's doing.

I wouldn't be so sure.

[Goat Boy©]

Slander? That would somehow indicate I was not telling the truth that Harper promised in what he did in his policy platform. The Parliamentary Budget Officer has already laid the blame on spending and that is Harper's crutch to bear.

I know Harper supporters can't believe that a deficit can't be the result of something that Harper did in terms of policy but the fact remains that if Harper had better control of his finances, Canada might have gone through 2009 without a deficit.

I was referring to the post about Harper being responsible for Ireland's budgets.

[Goat Boy©]

Ask Jack Layton that's what he wants to do.

:lol:

[Goat Boy©]

Maybe he hid it in the Batcave under the rug where Paul Martin and Johnny Crouton put the $60 billion they stole redirected from the EI fund.

Just thinking outside the box.

:lol:

[msj]

The CTF estimates that the total cost of this tax change would be $28 billion which is the number now bandied about as an acceptable deficit. This is a big bang, all across the country.

Indeed, there are two sources of "leakage" in the Keynesian scheme of things - imports and savings. Since this is supposedly a global recession, different countries are coordinating stimulous packages so if Canadians spend money on imports, then we shouldn't perceive this as a "leakage".

As to savings, why would an auto worker be any less likely to save than me? (Make no mistake, a government bailout package to the auto sector ultimately puts money in the hands of auto workers - after a variety of other people have taken a cut.) Governments do not give money to "economic sectors". Governments give money to people - the only question is who that person is going to be and what they have to do to get the money. I think the least effort to get the money and the broadest base of recipients are not bad criteria.

1) Savings rates go up during recessions so a tax rebate (whether permanent or not) is just as likely to be saved which is good for future consumption but not so good for right now.

2) Yes, imports are another important source of leakage.

3) Sure, getting the most money into the most hands is good criteria. IMV, Canada does not need any stimulus package at this time (either tax cuts or spending).

msj, spare us the homespun homilies. Protestant morality may have its place but not here.

It is ironic to argue that debt got us into this crisis and then argue that the government should (follow a Keynesian approach and) go into debt to get us out of the crisis. I somehow suspect that you are no Keynesian at all, msj.

1) Not sure why you keep bringing up morality and debt (especially since I have not done so) - as Margaret Atwood discusses in her Massey Lecture series, the churches have not focused on debt as sin for a long time - so you are probably giving away your age and/or your religious upbringing.

I can give away my upbringing and age too - I have been brought up in an atheistic household (Richard Dawkins like) and only am aware of the Bible as literature (and poor literature at that) from study in University. My age is such that I am only aware of the religious zeal towards sexual/drug type sins (granted, this could make me anyway from about 16 to 46).

So no, when I bring up debt it is not in the context of morality, but in terms of how it impacts the economy.

Maybe debt as sin will make a comeback. Depends on how bad the recession gets....

2) Now, if you want to talk about balance and the fact that many Americans (and to a similar extent Canadians) are heavily in debt, then you can find many statistics showing how indebted Canadians/Americans have become over the past 30 or 40 years.

It is possible for too many people to go into too much debt which has an effect on the broader economy.

This has nothing to do with Protestantism, Buddhism, Atheism, Zoroastrianism, or even Pastafarianism so leave whatever religious prejudices you have out of the discussion. They are irrelevant.

3) As for being a Keynesian - I am not an ideologue.

I am whatever suits me when the situation arises. When the facts change, so does my opinion.

Now is not the time to dramatically cut taxes (especially permanently).

Nor is it a time for Canada to start huge deficit spending. At least not yet (which is not to say that it is not time to consider what infrastructure spending should be considered for such stimulus - get on it now so that if Canada does need the stimulus then the government can do so with a solid plan).

4) As to government going into debt - I find it interesting and convenient that you so quickly forget that you are the one who started this thread with the idea that the government should go into debt via a tax cut.

The fact that Canadians are heavily indebted and that Canada is going into recession is relevant to the fact that any tax cut is likely to be saved (or used to pay down debt) which, while is a good thing (paradox of thrift notwithstanding)

There are good reasons for government to go into debt to stimulate the economy (whether it is through tax cuts or Keynesian spending) and some of them have already been raised (by Jdobbin for example).

Modern government bureaucracies cannot, I repeat, cannot do anything quickly, or only once. Bureaucracies are like the procreation of elephants: there's a huge commotion in the jungle, palm trees fall down and then nothing happens for 22 months. Within a few months, the elephants start the whole process again.

Maybe government bureaucrats can manage a tax cut in short and simple fashion.

And this is why you want a tax cut - to permanently reduce government revenue to force down government spending.

I don't mind this. I just don't think it should be done when people are panicking about needing to stimulate the economy.

I wonder whatever happened to the claim "Recession, what recession?"

This is a constant refrain of the Noubini crowd - 1990s Japan redux. Sorry, Japan and North America are very different. Japan's population is aging and its population is declining. Japan has a current account surplus (and capital account deficit) because Japanese understandably prefer to invest abroad where projects have better prospects.

Would you stop pretending that you know anything about Roubinin (especially since you cannot even spell his name properly).

Sure, there are differences between the US and Japan. Strange though that they are both staring down ZIRP though (zero interest rate policy).

The initial monetary stimulus was designed to overcome the overnight credit freeze. This worked. The current monetary policy has yet to work through the system. (We unfortunately live in a world where people expect instant results.)

This is nonsense. We are seeing the spill over effect of the credit crisis from Wall Street to Main Street.

I have already pointed out to you in another thread a good link on how recessions that start under financial crises are worse, on average, than business cycle recessions (though I know this doesn't mean that you have read it - this much is obvious about you).

The US has seen fit to throw in $8.5 trillion of monetary stimulus or loan guarantees. The benefit to the credit freeze has been good but we are still not even close to normalcy (as measured by TED spreads etc - these, too, I have already linked for you in the past so I will not provide a link now).

The fact that such measures have remained elevated for so long is of great concern to those of us who know how to read them (or where to find them, for that matter...).

I don't care about deficits. I care about government spending. The last thing I want to see is government bureaucrats and lobbyists sitting down to figure out how to spend my money.

Well, that's what they get paid to do so maybe you should get used to it.

Many intelligent economists (including apparently you msj) disagree with this whole Keynesian approach. But if we are going to go with this Keynesian idea, then I would prefer a way that makes the (government) beast no bigger than it already is.

Economist agree and disagree with many things at different times. I can find a recent Nobel prize winner who provides excellent arguments on why the US needs Keynesian policies right now.

I'm sure I could find other Nobel winning economists who have argued against Keynes in the past.

BFD.

Canada's unemployment rate, the last time I checked, was around 6.5% give or take a decimal point, and it was up or down a decimal point from the previous month.

Sure, but people are wondering what the rate will be a year from now when Chrysler is broke and GM/Ford are fractions of themselves.

I prefer the local mall windows as a measure of "unemployment". Here in Montreal, many shops on Ste-Catherine Street have signs in their windows. Nous embauchons.

Sorry, this is not the Dirty Thirties.

I haven't noticed anyone here say it was the dirty thirties so I don't see why you need to fall back onto that strawman argument (or is it a crutch given how often you use it?)

As for local shops - I see the books for many small and medium sized businesses so I know how things are going based on numbers (and no, I'm not telling).

I have a simple point in this thread.

When corporations line up to get taxpayer cash in the name of some theoretical stimulative package, there's another stimulative package that according to the same theory is just as viable (and according to recent evidence even better): cut taxes.

Can you provide the evidence of where tax cuts are "even better?"

So far you have not provided one shred of evidence.

[jdobbin]

I was referring to the post about Harper being responsible for Ireland's budgets.

And I was referring to Harper trying to follow Ireland's example including loosening mortgage rules in their first budget.

[kuzadd]

actually August , government and central banks make bubbles,

but they do, because it is good for business.

Particularly enriching for the wealthy business class and banks!!!

(It's self-serving too, on the part of the banks that is)

thinking of the profit hey days as of recently and of course the dipping from taxpayers to pay bonus salaries to executives.

Tax cuts are good for big business and the very wealthy in particular, and we have done them to death..

and they have got us nowhere!

ya know what the defintion of insanity is doncha?

Doing the same thing over and over and actually expecting different results.

That is what you are proposing, the same thing, that didn't work.

Ya know, I follow this think tank out of Europe, very interesting stuff,

anyway, they feel we as a society are desperate for new thinking and new ideas.

and we will need it to get out of this very big, very deep ,very systemic financial crisis.

That means old thinking , out the window, and your ideas my friend, are just more of the same old same old, that have got us right where we are at now.

[Jerry J. Fortin]

I would like to see this nation step way from its current path. Lets look at the bottom line, the people. What can a government do to help people? Cut taxes sure, but that only impacts the government revenue stream without actually adding jobs. From the view at the bottom of the food chain, people want jobs to earn money to buy themselves things. Taxes cut into their ability to do that. So how do you reduce taxes and add jobs to the economy. The answer to that is to make home purchases tax deductible. Do the math. how many people can get employed with one home purchase.

Now look at another side of the equation. Tax revenues received from all those folks working on that house verses the tax savings of the person that bought the house. The government earns more money from the employment than it does from the tax deduction. At the bottom line the citizen realizes a net worth increase, which also improves their financial position, the employees building the house benefit from a little job security, there is no down side. Money is made, or wealth created at each step of the development process. Considering the entire application of an economic stimulus package is to spur economic activity this fits the bill on a grand scale.

The auto industry bailout will cost billions to the tax paying citizens, but not all citizens will benefit or even have the opportunity to benefit from the program. Even so, it is political suicide not to head down that path. Economic suicide if we do, and political suicide if we don't.

[kuzadd]

Jerry I am not so sure that making home purchases tax deductible is the way to go.

That was yet another factor in this most recent housing bubble (US)

and may have been one reason that the Canadian market did not get so overheated and house prices so astronomically inflated.

[Jerry J. Fortin]

Jerry I am not so sure that making home purchases tax deductible is the way to go.

That was yet another factor in this most recent housing bubble (US)

and may have been one reason that the Canadian market did not get so overheated and house prices so astronomically inflated.

It was and it wasn't. It was the mortgage issues that caused that problems, and even then it was the banks trying to profit from these mortgages by selling them as one thing when there were really another that caused their own problems. Had you or I did that, we would have been charged with fraud and been put in jail. Not them, the fat cats walked away with huge dollars, the little investor who was lied to got burned badly. The buyout goes to the banks not the investors and there is little help for the folks losing their houses to the banks.

To address your specific issue, the governments and the financial industry are focusing on dollars and cents. The people need homes to live in and jobs to work, so what is the real need here ? Bailing out failed business with tax dollars, or looking after the best interests of citizens. Those politicians are folks we hired, they work for us. That means we can and will fire them at our leisure.

The thing to remember is that we are supposed to be living in a capitalistic society, not a communistic one. Business is supposed to pay its own way, and reap the rewards of their efforts. Now what is going on is the citizens money is being used to corporate advantage with no net benefit to the tax payer. That is simply wrong. There is however a political reality to consider, so what we are about to get is a radical compromise that displaces principles for situational ethics and political considerations. We are in fact selling our souls for pieces of silver here.

Having said all that, there is yet hope. We can still change our ways and depart from a path that leads toward the rise of corporatism. We can hold our politicians accountable, they can face losing their jobs if they act against the wishes of citizens. It is too late to stop the bailouts, these things are a done deal. Business gets a walk from the government and the citizens are getting ripped off. That page has been written in tax payers blood. The money is gone, and it isn't going to come back. Everyone that believes that this was an end to the bailout packages is delusional. That total required will require more than 150 billion dollars for the North American industry. Canadian tax payers were just committed to 25% of that total. Once this is all said and done, the citizens will start showing up with their hands out, with just cause since its our own money being spent. That is why there is still hope, the government will have a hard time denying something to citizens that it grants to corporations.

Citizens would fare well from having a five digit deduction from their tax load.

[ToadBrother]

To address your specific issue, the governments and the financial industry are focusing on dollars and cents. The people need homes to live in and jobs to work, so what is the real need here ? Bailing out failed business with tax dollars, or looking after the best interests of citizens. Those politicians are folks we hired, they work for us. That means we can and will fire them at our leisure.

It's arguable whether government can do any of these things. The model being used here, at least in part, is the New Deal, which essentially was a massive nationalization and work program. I see economists and historians on both sides as to whether the New Deal helped, because along came WWII and Lend and Lease which basically saw every ounce of gold the British Empire had earned and stolen since Elizabeth I end up in American banks.

The bailouts, so far as I can tell, may not be so much an attempt to keep things afloat as to cushion the fall. I think the general consensus seems to be that the North American auto industry is doomed in its present form, and that at least one, if not two of the Big Three will end up out of business or bought out. The latter, I think is Ottawa and Washington's big hope, though Toyota's announcement that it's posting a loss for the first time in half a century bodes very ill. Still, even the hard-up Asian automakers may still have enough reserve cash to grab things up.

There are no easy answers. Tax cuts will seriously dig into government revenues, making current and forecasted debt a dangerous thing. Personal tax cuts may or may not stimulate the economy. If we truly enter a state where the people with money, even small amounts of disposable income, choose to keep those tax cuts (which, let's face it, per person are minimal as a percentage of real income regardless of income level) in their pockets, then the plan has failed.

The hard fact is that I don't think there are easy answers. Very big financial collapses have ultimately had to work themselves out. The bottom falls out, everyone suffers in one or another until confidence is regained.

[Barts]

It's arguable whether government can do any of these things. The model being used here, at least in part, is the New Deal, which essentially was a massive nationalization and work program. I see economists and historians on both sides as to whether the New Deal helped, because along came WWII and Lend and Lease which basically saw every ounce of gold the British Empire had earned and stolen since Elizabeth I end up in American banks.

Let me suggest that WWII appears to have helped end the Great Depression (which the world was already emerging from at the beginning of WWII) because it was, in fact, a massive public works program. Governments of the day raised and spent monies at a rate that would not have been politically tolerable in peace time. Perhaps the level of spending in WWII demonstrated the scale of public spending necessary to end a depression. If that's the case, perhaps now's the time for a massive government spending program on infrastructure. I suggest infrastructure because it's one area of public spending that directly benefits a society by creating jobs and leaving lasting assets in the form of new sewers, roads, transit systems, schools, parks, recreation centres, etc. Merely cutting taxes, as so many suggest, simply insures that much of the money for jobs and investment goes to create benefits not in Canada but in countries exporting to Canada.

[ToadBrother]

Let me suggest that WWII appears to have helped end the Great Depression (which the world was already emerging from at the beginning of WWII) because it was, in fact, a massive public works program.

But it wasn't, really. It was being funded by foreign coin. Both the Soviets and the British sent large amounts of money into the US economy which was used to fund the building of armaments.

Governments of the day raised and spent monies at a rate that would not have been politically tolerable in peace time. Perhaps the level of spending in WWII demonstrated the scale of public spending necessary to end a depression. If that's the case, perhaps now's the time for a massive government spending program on infrastructure. I suggest infrastructure because it's one area of public spending that directly benefits a society by creating jobs and leaving lasting assets in the form of new sewers, roads, transit systems, schools, parks, recreation centres, etc. Merely cutting taxes, as so many suggest, simply insures that much of the money for jobs and investment goes to create benefits not in Canada but in countries exporting to Canada.

You're missing the point. It ended the Depression in the US, but the massive expenditures in Great Britain basically bankrupted it. The economic situation at the end of the war for Britain was severe. It had spent four hundred years worth of wealth in five years.

[Barts]

You're missing the point. It ended the Depression in the US, but the massive expenditures in Great Britain basically bankrupted it. The economic situation at the end of the war for Britain was severe. It had spent four hundred years worth of wealth in five years.

I don't think I am. The massive expenditure in the US created jobs and infrastructure locally. The expenditure in the UK was accompanied by a massive destruction of infrastructure and economic capacity. Also, after WWII, it was massive public spending in the form of the Marshall Plan that made it possible for Germany to rebuild. It was the failure to implement such a plan after WWI that lead to Hitler and WWII.

[ToadBrother]

I don't think I am. The massive expenditure in the US created jobs and infrastructure locally. The expenditure in the UK was accompanied by a massive destruction of infrastructure and economic capacity. Also, after WWII, it was massive public spending in the form of the Marshall Plan that made it possible for Germany to rebuild. It was the failure to implement such a plan after WWI that lead to Hitler and WWII.

Which really says nothing to what happened. The US's economy was bolstered by vast amounts of foreign coin. The Soviets and Brits were dumping tons of money into the US during Lend Lease. The US government wasn't dumping its own money into building military capacity, it was dumping their's. Britain was a bankrupt country by 1945. I'm not necessarily saying any of this was bad, but the US hardly pulled itself up by its britches, when Lend Lease was dumping hard cash on it.

[August1991]

Despite the tax-cut boasts of governments, Canadian families paid six per cent more on average in personal income taxes last year, which remained the single largest expense for families, even ahead of keeping a roof over their heads.

In total, households spent an average of $69,943 in 2007, up 3.3 per cent from 2006, Statistics Canada said yesterday in its report on family expenditures, noting that the increase was also more than a full percentage point above the 2.2-per-cent increase in the cost of living last year.

Among major expenditures, however, it was personal taxes that posted the steepest increase, rising by six per cent to an average of $14,447. As a result, taxes ate up 20.6 per cent of the average family budget, up from 20.1 per cent in 2006, and reversing a generally downward trend from an all-time high of 21.9 per cent in 1996.

Ottawa Citizen

This is insane. Now is the time to cut taxes.

[Smallc]

Ottawa Citizen

This is insane. Now is the time to cut taxes.

We paid $10 000 more in taxes last year than the year before. I thought it was just us.

[punked]

Ottawa Citizen

This is insane. Now is the time to cut taxes.

Cooperations got 50 billion in tax cuts how many did the Canadian family get?

Edited December 23, 2008 by punked

[August1991]

Cooperations got 50 billion in tax cuts how many did the Canadian family get?

Who are these "cooperations" and how do I become one?

The government can only tax people.

[Smallc]

The government can only tax people.

The government taxes business entities all of the time.

[Barts]

Which really says nothing to what happened. The US's economy was bolstered by vast amounts of foreign coin. The Soviets and Brits were dumping tons of money into the US during Lend Lease. The US government wasn't dumping its own money into building military capacity, it was dumping their's. Britain was a bankrupt country by 1945. I'm not necessarily saying any of this was bad, but the US hardly pulled itself up by its britches, when Lend Lease was dumping hard cash on it.

After a little research on Lend-Lease, for the record, it appears that the British did rather well, given the 2% interest they were charged on the £1,075 million. As Lord McIntosh of Haringer is reported in Hansard, "My Lords, the loan originally was £1,075 million, of which £244 million is outstanding. The basis of the loan is that interest is paid at 2 per cent. Therefore, we are currently receiving a greater return on our dollar assets than we are paying in interest to pay off the loan. It is a very advantageous loan for us."

Also, the Lend Lease program was financed by the US not the Soviets nor the Brits. The Wikipedia entry on Lend Lease is interesting, and is at odds with the assertions you're making in key areas.

[August1991]

The government taxes business entities all of the time.

IOW, it taxes people who own the business, people who work for the business or people who buy products or services from the business.

[August1991]

If that's the case, perhaps now's the time for a massive government spending program on infrastructure.

Please, let's not.

But if it really has to, the government could bury money in the ground and then businesses cooperations could hire people to go looking for it.

Edited December 23, 2008 by August1991

[punked]

Please, let's not.

But if it really has to, the government could bury money in the ground and then businesses cooperations could hire people to go looking for it.

How about expanding High speed Internet? This will help business stay competitive, if this is now the time to spend then let us do it on Canadians.

[msj]

You will get no argument from me with respect to cutting income taxes.

This is exactly why I refuse to vote for Harper (a man who raised income taxes in his 2006 budget because he preferred to cut the GST).

However, to cut them at a time of panic is irresponsible.

Tax cuts are, hopefully, going to be permanent. It is better to dish them up under normal economic conditions rather than when entering into a recession.

Anyway, for those who do believe in Keynesian stimulus I found this article in the G&M yesterday which is of interest:

Stimulus will serve the loudest, not the smartest

I agree with some of the ideas presented - if Canada must follow the rest of the world into Keynesianism then I prefer infrastructure that are closer to "I" rather than "G" in the GDP model (where GDP = C+I+G+(X-M)).

Take up projects that the private sector would not do, that would provide a lasting benefit to all Canadians, and do not lead to ongoing liabilities (i.e. would seriously reduce any net present value calculation from a positive to a negative).