Harper's Best Fiscal Stimulus Package: Cut Taxes

[blueblood]

Says who? You? Better we spend money on building for the future than giving it back to the people only to saddle the next generation with a large debt and nothing to show for it.

That however must be done responsibly and for the past 10 years has been done so. Throwing a 64 billion dollar deficit would saddle the next generation with a big bill that will be paid for in taxes. how long that gets paid off is to be determined.

As a small business owner, Harper's tax cuts have eased my input costs leaving me more of my money to either save in a bank or spend on machinery, vacations, electronics, etc.

How many more jobs will this create? How soon will these projects start? Will they start just as the economy picks up steam again?

[Smallc]

If ordinary Canadians receive the money and spend it (or save it), is that not good.

Excellent. Now tell me, where do the 100 000 people that have lost their jobs in the last two months (probably more by now) benefit from a tax cut? Where are they going to get money to spend with your plan?

[jdobbin]

Smallc, do you believe that only government spending results in anything good? If ordinary Canadians receive the money and spend it (or save it), is that not good?

If they save it, the evidence is that in a consumer economy that it will make the recession deeper.

[August1991]

Your thinking needs some evidence, no?

...

If most people save, it hurts the consumer economy.

I'll try again Dobbin, with another link.

John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is "taught only for its fallacies."

New York University economist Thomas Sargent agrees: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."

Nobel Laureate Gary Becker says any benefits will be modest at best.

For the government to finance infrastructure spending or tax cuts, it has to borrow money. The money is thus unavailable for private investment or consumption. Right now, companies and individuals are having trouble getting credit, which is a big reason for the downturn. But if the government borrows more, they will have an even harder time finding lenders. So the effort could be self-defeating.

Chicago Tribune

[Smallc]

How many more jobs will this create? How soon will these projects start? Will they start just as the economy picks up steam again?

Those numbers are available. Every billion in infrastructure creates between 10 000 and 12 000 jobs. The projects will start as soon as the snow melts in some cases, right away in others. They will help to employ people who don't have work because of the downturn.

There is really no danger of the economy picking up in any meaningful way until at least the end of the summer, so that's not a problem. If the economy does pick up by the end of this year, then you just don't spend more money on stimulus next year. That's the beauty of these types of projects. You don't have to do anything except finish them. If you don't need to spend more, then you don't start any new projects.

Tax cuts are nice, but we can't afford to create a structural deficit because of them.

[bush_cheney2004]

....But look, Obama is about to introduce tax changes that will reduce taxes for some 95% of Americans (assuming that he keeps his campaign promise). This discussion will spill over into English Canada.

How...and why just "English Canada" ? Did the Bush Tax Cut "spill over" as well?

Edited January 26, 2009 by bush_cheney2004

[blueblood]

Excellent. Now tell me, where do the 100 000 people that have lost their jobs in the last two months (probably more by now) benefit from a tax cut? Where are they going to get money to spend with your plan?

From business's bottom lines not being pillaged by the gov't, they have more money to hire employees/spend on things. It helps spur demand for employment.

Ireland was an economic basketcase in the late 80's early 90's. Should their government have went into severe deficits and spent money on projects employing everyone, or by slashing taxes making it a more friendly environment to do business in? Their gov't did one of these solutions and is successful because of it.

There has been more than enough money and opportunity for infrastructure. The fact is that people have not wanted it in the past in favor of say arts funding and things like that. The Quebec gov't has received 8 billion dollars this year, how much of that went to infrastructure? Spending on infrastructure is all right short term, but it is an expense, it is not an investment. You cannot sell infrastructure to anyone. There has been enough budgeted for infrastructure. Now should be a time to trim the fat of unnecessary gov't spending that doesn't make any money.

[Smallc]

From business's bottom lines not being pillaged by the gov't, they have more money to hire employees/spend on things. It helps spur demand for employment.

Only when companies are making money. Right now, most can't afford to hire and don't need to because demand is down.

Spending on infrastructure is all right short term, but it is an expense, it is not an investment.

It's both. Better infrastructure increases productivity and efficiency. Building it also creates jobs. Not to mention, we have a huge infrastructure deficit in Canada.

Edited January 26, 2009 by Smallc

[msj]

As a small business owner, Harper's tax cuts have eased my input costs leaving me more of my money to either save in a bank or spend on machinery, vacations, electronics, etc.

Which tax cuts?

You mean EI coming down like it was already scheduled to do anyway? Tell me you don't see a pattern here.

You mean GST tax cuts? Are you in a tax exempt business so you actually pay GST? Most businesses don't pay GST so the GST cut was irrelevant (well, they pay GST it is just that they get to deduct it against any GST they collect, pay the balance or get a refund etc).

Corporate tax cuts? You mean the ones already scheduled to take place and for which the CPC changed a little because of reneging on the income trust promise?

Well, I suppose the Liberals did end up reversing the corporate tax cuts to large corporations in their 2005 budget - oh, right, that's because the CPC wanted to force an election so they decided to not support the budget thereby forcing the Liberals to seek support from the NDP with the result leading to deferring the tax cuts to large corporations.

[August1991]

Excellent. Now tell me, where do the 100 000 people that have lost their jobs in the last two months (probably more by now) benefit from a tax cut? Where are they going to get money to spend with your plan?

People who receive EI must pay income tax and 100,000 people is about one-half of 1% of the labour force. But I think that you'll agree that a better goal would be to get these people back to work in good, useful jobs - and not makework schemes of no benefit to society.

Here's a very good article that simplifies alot accurately:

Back in the 1980s, many commentators ridiculed as voodoo economics the extreme supply-side view that across-the-board cuts in income-tax rates might raise overall tax revenues. Now we have the extreme demand-side view that the so-called "multiplier" effect of government spending on economic output is greater than one -- Team Obama is reportedly using a number around 1.5.

...

What's the flaw? The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out.

Robert Barro WSJ

You mean GST tax cuts? Are you in a tax exempt business so you actually pay GST? Most businesses don't pay GST so the GST cut was irrelevant (well, they pay GST it is just that they get to deduct it against any GST they collect, pay the balance or get a refund etc).

Businesses benefitted from the GST cut because their customers didn't have to pay it.

Better infrastructure increases productivity and efficiency.

True, assuming that the government spending meets a cost-benefit analysis. But that's not the logic of a Keynesian fiscal stimulus based on government spending. Edited January 26, 2009 by August1991

[Smallc]

But I think that you'll agree that a better goal would be to get these people back to work in good, useful jobs - and not makework schemes of no benefit to society.

Nobody has proposed that. Just because you don't see the benefit infrastructure spending doesn't mean its non existent.

[blueblood]

Only when companies are making money. Right now, most can't afford to hire and don't need to because demand is down.

It's both. Better infrastructure increases productivity and efficiency. As they say, you have to spend money to make money.

What about the ones making money right now? A tax cut would help them hire more people. A tax cut might improve bottom lines to profitable, a tax cut would put that little bit more into people's pockets for spending or saving in a bank.

Better tax increase productivity and efficiency. Your beef is with gov'ts misappropriating funds. Aug. is right, gov't spending tends to create waste. My beef isn't with infrastructure spending, it's the nasty bill that comes with it at the end, that will have to be paid. It might take 200 years, but it is a burden that will eventually be felt, and paid for in taxes that could have instead been spent in the economy. Sure the worker might get a year of work for 40K, but that is 40K of everyone's money going to him which gets deducted and taxed itself. The the worker will get a job elsewhere. A tax cut could save me 40K over 4 years, but the money I don't pay in taxes goes directly into the economy. In short it's 40K I will lose or its 40K I will keep. There are far more taxpayers than there are infrastructure workers.

[msj]

What about the ones making money right now? A tax cut would help them hire more people. A tax cut might improve bottom lines to profitable, a tax cut would put that little bit more into people's pockets for spending or saving in a bank.

I only hire more staff people if I believe that hiring them will help me make more money in the first place.

If there is not enough demand for the services that I provide then I don't hire more people. Period.

Why would I hire more people if the government gave me an income tax cut when demand is slowing (or, for many businesses, negative)?

Sure, if they gave me a cut big enough to pay for another full time senior position so I could reduce my time by, say, 300 hours per year then I would do it.

Of course, that tax cut would be so big as to put Canada into a 3 digit deficit so let's face reality and admit that tax cuts don't create jobs entering a recession or during a recession.

[jdobbin]

I'll try again Dobbin, with another link.

You'll realize that the link also discredits tax cuts.

The economists you quote don't seem to have a plan for what is happening now. No tax cuts, no stimulus. It is Hoover all over again.

[August1991]

My beef isn't with infrastructure spending, it's the nasty bill that comes with it at the end, that will have to be paid. It might take 200 years, but it is a burden that will eventually be felt, and paid for in taxes that could have instead been spent in the economy.

Blueblood, something to consider is that if the "nasty future bill" is due to a tax cut, well you'll have the money now and if you want, you can save it and leave it to your children so they'll have the means to pay the "nasty bill".

Now then, if the "nasty future bill" is due to infrastructure, then it will be a question of whether the infrastructure is worthwhile or not. Smallc seems to think that all infrastructure is good. I question that.

In any case, few if any economists believe now the old Keynesian idea that in a recession, any and all government spending is good because it will lead to a multiplier effect and the economy will grow even faster.

Edited January 26, 2009 by August1991

[blueblood]

Which tax cuts?

You mean EI coming down like it was already scheduled to do anyway? Tell me you don't see a pattern here.

You mean GST tax cuts? Are you in a tax exempt business so you actually pay GST? Most businesses don't pay GST so the GST cut was irrelevant (well, they pay GST it is just that they get to deduct it against any GST they collect, pay the balance or get a refund etc).

Corporate tax cuts? You mean the ones already scheduled to take place and for which the CPC changed a little because of reneging on the income trust promise?

Well, I suppose the Liberals did end up reversing the corporate tax cuts to large corporations in their 2005 budget - oh, right, that's because the CPC wanted to force an election so they decided to not support the budget thereby forcing the Liberals to seek support from the NDP with the result leading to deferring the tax cuts to large corporations.

TFSA's will be very very good.

GST, some stuff ends up being taxed anyway.

Income tax was another.

The little cuts here and there helped out a lot.

[msj]

TFSA's will be very very good.

GST, some stuff ends up being taxed anyway.

Income tax was another.

The little cuts here and there helped out a lot.

Sure, those affect us at the personal level.

But you were talking about making your business inputs cheaper etc...

Clearly not the case.

Oh, and I don't believe you when you say you are a business owner. Or, at least, I doubt you will be for too long....

[August1991]

You'll realize that the link also discredits tax cuts.

The economists you quote don't seem to have a plan for what is happening now. No tax cuts, no stimulus. It is Hoover all over again.

They favour primarily monetary policy designed first to loosen credit markets. This has been done and will probably kick in around mid-2009. (This explains in part Mark Carney's optimistic projection. In teh case of Canada, we have had the added benefit of a fall in the Canadian dollar.) Note that in the 1930s under both Hoover and FDR, the US Fed did exactly the opposite and created what became the Great Depression.

Then, these economists favour (to various degrees) different tax cuts if fiscal policy is necessary.

I think the point is that few economists accept now the pure Keynesian idea that, in a recession, government spending is good regardless of what the government buys.

For myself, I sense that the public wants the government to do something and so a tax cut is far more benign (and won't hurt politically) than spending on stuff nobody wants or needs.

Edited January 26, 2009 by August1991

[Smallc]

nobody wants or needs.

I'm sorry, did you conduct a poll on the matter? You do not equal everyone. The people want tax cuts and spending, but they don't want either to be too much for us to handle. Small tax cuts and reasonable short term spending. I certainly hope that's what we get.

[blueblood]

Blueblood, something to consider is that if the "nasty future bill" is due to a tax cut, well you'll have the money now and if you want, you can save it and leave it to your children so they'll have the means to pay the "nasty bill".

Now then, if the "nasty future bill" is due to infrastructure, then it will be a question of whether the infrastructure is worthwhile or not. Smallc seems to think that all infrastructure is good. I question that.

In any case, few if any economists believe now the old Keynesian idea that in a recession, any and all government spending is good because it will lead to a multiplier effect and the economy will grow even faster.

The point of the matter is I'll have more money than before, and if the tax cuts are permanent and when the economy picks up, there will be more money floating around, not to mention "trimming the fat" instead of cranking up taxes in order to pay for the cut.

I think the budgeting has been askew as far as infrastructure spending goes. In Quebec there was outrage over arts funding cuts. How much infrastructure could have been built with the money Harper was proposing saving?

This should be a time of trimming the fat. I think building a bridge is more worthwhile than building a museum in Winnipeg. I'll take my tax cut vs. popping a museum in Winnipeg.

[blueblood]

Sure, those affect us at the personal level.

But you were talking about making your business inputs cheaper etc...

Clearly not the case.

Oh, and I don't believe you when you say you are a business owner. Or, at least, I doubt you will be for too long....

The TFSA's will allow me to save money to pay for down payments on machinery/land far more easily than having them subject to income tax. It does take time to save for downpayments, and having them subjected to tax hinders things.

Some things do get nailed by the GST, and I have been appreciative of the tax cut.

As for tax cuts not creating jobs entering a recession or during a recession, that would depend on the size of your business your in. If a person wants to hire with their extra little bit of money to boost productivity and shoot out more volume, then have at it. Also remember that the tax cuts need about as much time as clearing gov't red tape to take effect. The GST tax cut might have cost 12 billion dollars, but that was 12 billion dollars either going into the economy or being saved in the banks. That is 12 billion dollars that will not be scattered the four winds by government, that is 12 billion dollars going directly into the economy that wasn't before.

[jdobbin]

They favour primarily monetary policy designed first to loosen credit markets. This has been done and will probably kick in around mid-2009. (This explains in part Mark Carney's optimistic projection. In teh case of Canada, we have had the added benefit of a fall in the Canadian dollar.) Note that in the 1930s under both Hoover and FDR, the US Fed did exactly the opposite and created what became the Great Depression.

The monetarist policy is in effect and has been for some time. It isn't budging economic results and the banks are still reeling in credit.

Then, these economists favour (to various degrees) different tax cuts if fiscal policy is necessary.

While others are saying that in an economy where no spending is taking place, a stimulus package should include spending.

I think the point is that few economists accept now the pure Keynesian idea that, in a recession, government spending is good regardless of what the government buys.

For myself, I sense that the public wants the government to do something and so a tax cut is far more benign (and won't hurt politically) than spending on stuff nobody wants or needs.

You keep saying that but I have seen no evidence that the projects being considered is not wanted or needed.

[msj]

The TFSA's will allow me to save money to pay for down payments on machinery/land far more easily than having them subject to income tax. It does take time to save for downpayments, and having them subjected to tax hinders things.

Are you incorporated?

If so, it makes sense to pull money out of your corporation, pay income tax at personal tax rates, and then invest it in a TFSA to then put back in the business to make a payment on machinery or land?

Huh?

My personal marginal tax rate is 43.7%. So I would need to pull out about $8,880 from my corporation and pay personal income tax of about $3,880 to get the $5,000 to put in a TFSA. Granted my corporation would have tax savings of $1,200 on that wage (dividends would be an option but they would cost me more - ~31% personally and no corporate deduction so I would pay 13.5% of corporate tax so that is looking at a combined rate of 44.5%).

By comparison, I could leave that $8,880 in the company. Pay the $1,200 in corporate tax and invest the net amount ($7,680) in my business.

Can you see which one is better for the cash flow of the company.

This is exactly why I can't believe you're a business person - business people know this and operate this way. You don't.

Some things do get nailed by the GST, and I have been appreciative of the tax cut.

If you are a GST registrant then you would claim the GST paid on your GST return so you are not getting nailed by it. Sure, if you're a bank or an insurance agent then you're paying the GST (tax exempt so they don't collect and don't get to claim any GST paid).

Once again, more proof that if you are a business person you obviously don't know how things work.

As for tax cuts not creating jobs entering a recession or during a recession, that would depend on the size of your business your in. If a person wants to hire with their extra little bit of money to boost productivity and shoot out more volume, then have at it. Also remember that the tax cuts need about as much time as clearing gov't red tape to take effect. The GST tax cut might have cost 12 billion dollars, but that was 12 billion dollars either going into the economy or being saved in the banks. That is 12 billion dollars that will not be scattered the four winds by government, that is 12 billion dollars going directly into the economy that wasn't before.

The GST cut is effective to the extent that people spend money on GST taxable items.

As people scale back spending due to the recession they are not spending money on GST taxable items and, therefore, the so-called tax savings are reduced.

An example of "saving" money (taxes) by spending money that my wife jokingly tells me whenever she buys something on sale.

An income tax cut would have been more effective than a GST cut but Harper preferred to play politics rather than economics.

[blueblood]

Are you incorporated?

If so, it makes sense to pull money out of your corporation, pay income tax at personal tax rates, and then invest it in a TFSA to then put back in the business to make a payment on machinery or land?

Huh?

My personal marginal tax rate is 43.7%. So I would need to pull out about $8,880 from my corporation and pay personal income tax of about $3,880 to get the $5,000 to put in a TFSA. Granted my corporation would have tax savings of $1,200 on that wage (dividends would be an option but they would cost me more - ~31% personally and no corporate deduction so I would pay 13.5% of corporate tax so that is looking at a combined rate of 44.5%).

By comparison, I could leave that $8,880 in the company. Pay the $1,200 in corporate tax and invest the net amount ($7,680) in my business.

Can you see which one is better for the cash flow of the company.

This is exactly why I can't believe you're a business person - business people know this and operate this way. You don't.

If you are a GST registrant then you would claim the GST paid on your GST return so you are not getting nailed by it. Sure, if you're a bank or an insurance agent then you're paying the GST (tax exempt so they don't collect and don't get to claim any GST paid).

Once again, more proof that if you are a business person you obviously don't know how things work.

The GST cut is effective to the extent that people spend money on GST taxable items.

As people scale back spending due to the recession they are not spending money on GST taxable items and, therefore, the so-called tax savings are reduced.

An example of "saving" money (taxes) by spending money that my wife jokingly tells me whenever she buys something on sale.

An income tax cut would have been more effective than a GST cut but Harper preferred to play politics rather than economics.

I am nowhere near as big as your business per se, and I don't have to worry about too much shareholders.

Basically its family. In that regard it makes sense to juggle my finances like that. So 5K of my "wage" goes into the TFSA.

In spite of the recession, it was still a good christmas shopping season. It took a major dropping in prices to get people to spend. If everything is cheaper, than the GST don't look like much, but the saved money goes farther than it did say a year ago.

[msj]

I am nowhere near as big as your business per se, and I don't have to worry about too much shareholders.

Basically its family. In that regard it makes sense to juggle my finances like that. So 5K of my "wage" goes into the TFSA.

In spite of the recession, it was still a good christmas shopping season. It took a major dropping in prices to get people to spend. If everything is cheaper, than the GST don't look like much, but the saved money goes farther than it did say a year ago.

There are only two shareholders for my company - the wife and me. But, the number of shareholders is not relevant to the discussion at hand.

You really should get financial advice -- you need it if you believe the nonsense that you have put in this thread.