Tax Cut 11: US Tax Cuts, Retain Them

The size and weight of a government (Expenses) is directly proportional to the taxes and fees (T&F) to be paid by the citizens to sustain a particular government plus borrowings (New Debt) if the fiscal gap is unsolved. Or put simply,

      Expenses = T&F + New Debt.

If the economy has matured and its economic managers have realized the ugliness of endless borrowings and endless fiscal irresponsibility, public debt will slowly decline. That is,

      Expenses = T&F - Debt payment.

In the US, Mr. Bush Junior's certain tax cut legislations will expire this year and the next. So legislators there discuss whether to extend the tax cut or not. This is the projected picure of US' fiscal situation under certain scenarios. Graph from The Economist, Seotember 16, 2010 issue.

The main issue here, at least for me, is why (federal) spending will keep increasing -- up to 24 percent of GDP by 2020 -- even if tax revenues will decline. The immediate result is of course more borrowings to keep up with ever-rising spending. And more borrowings mean more debt payment in the future, both for the principal and interests.

A tax cut coupled with some spending cut, is tbe most appropriate policy measure to encourage private households and corporations' additional spending. Someone's spending is somebody else' income. And this will have a positive spiral effect on the economy. If a government will keep punching a hole in the citizens' pockets, there will be less spending that the citizens can do, unless they also borrow their government's attitude of living beyond one's means. Which will worsen the situation, dragging the economy into bigger fiscal and personal debts. The bigger the debts as a share of income, the bigger the risk of debt default in the future.

I think the US government has lots of assets to dispose and privatize to help reduce the public debt stock. This will have dual positive impact of reducing the debt while keeping the tax cut. But I think this option is still not in the minds of many policy makers there, even among the public.

This policy measure should apply to many other economies, rich and poor, like the Philippines.
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See also:

Tax Cut 6: Retreat of High Income Tax Philosophy, September 19, 2007

Tax Cut 7: Reduce Business Taxes, December 19, 2007

Tax Cut 8: Comparing HK and Philippine Taxes, March 04, 2008

Tax Cut 9: Flat Tax, 26 Countries Now, December 16, 2008

Tax Cut 10: Mongolian Taxpayers Movement, July 28, 2009

Oil Politics 1: Bush vs. Chavez?

As Bush tours a number of Latin American countries mainly to projectthe US government as not-as-evil-as-pictured by Hugo Chavez, theVenezuelan President, the usual anti-US government sentiments in the continent (and elsewhere actually) are fired up.

In most news analysis and stories, Mr. Bush is pictured as the leaderof "open capitalism" while Mr. Chavez is the leader of "modern socialism" in Latin America. The former is backed up by trillions of $ of American taxpayers' money, while the latter is backed up by millions of barrels of petroleum production and deposits. But are they really ideological nemesis?

Mr. Bush's government confiscates a big portion of American people's monthly and annual incomes, whether they work in the US or abroad. His government further collects taxes from the savings and consumption (the after-income-tax take home pay) of the citizens, a substantial portion of which goes to Iraq war (about $8 billion/month direct costsalone), in Afghanistan war, and anti-terror war elsewhere around the globe.

Mr. Chavez's government "nationalized" foreign petroleum companies (mainly American, British and French companies) and sold oil to manyLatin American countries at low prices. I dont know how much taxes from Venezuelan people Mr. Chavez also confiscates from their monthly and annualy income.

At the end of the day, both Mr. Bush and Mr. Chavez are not exactly "ideological enemies". Both believe in the coercive power of the state in taking away a big portion of the private citizens' income and savings, and both are practicing it. What distinguish one from the other, however, is the degree of coercion that they practice. While Mr. Chavez attempts a socialist, really-big-state model, Mr. Bush attempts a welfarist and militarist, still big-state model.

Meanwhile, I posted this last June 30, 2006:

World Oil Prices 


World oil prices, in US$/barrel

2006: New York, Dubai
June:
May: 70.96, 65.25
April: 70.25, 64.31
March: 62.97, 58.37
February: 61.93, 57.70
January: 66.15, 58.65(?)

2005:
December: 60.04, 53.04
November:
October: 62.22, 53.86
September:
August:
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World oil prices, 1970-2005
West Texas Intermediate (WTI) prices, $/barrel

Nominal price, Equiv. in current $
Feb. 1970: 2, 7
'73 1st oil crisis
Dec. 73: 5, 17
Feb. 74: 11.5, 39

'79-80 2nd oil crisis
Feb. 79: 22, 51
May 79: 30, 70
Nov. 79: 40, 87

'85-86 OPEC production hike
Feb. 86: 16, 26
July 86: 10, 15.5

'90-91 1st Iraq war
July 90: 17, 23
Oct. 90: 35, 47

'98 Asian crisis + OPEC production hike
Dec. 98: 10, 12

'99-00 OPEC production cut
Sept. 00: 32, 36

'02-03 Venezuela gen. strike + US invasion of Iraq
Jan. 03: 33, 35
June 03: 30.5, 32

OPEC production cut
May 04: 40, 41

2005 Hurricanes, Gulf of Mexico
Sept. 05: 66