PeakTrader.com

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PeakTrader said...

Wikipedia:

In June 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget.

The American economy then took a sharp downturn, lasting for 13 months through most of 1938.

Industrial production fell almost 30 per cent within a few months and production of durable goods fell even faster. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938...Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels.

How to prevent a double dip or a slow U-shaped recovery:

1. Cut government spending.
2. Cut taxes.
3. Deregulate (e.g. energy, health care, education, etc.).

Federal spending has increased by over $1 trillion and federal revenue has decreased, since 2007:

Federal spending 2007: $2.73 trillion.
Federal revenue 2007: $2.57 trillion.
Budget deficit 2007: $161 billion.

Federal spending 2011: $3.82 trillion.
Federal revenue 2011: $2.17 trillion
Budget deficit 2011: $1.65 trillion.

(2011 estimates)

The Obama Growth Discount
APRIL 15, 2011

If we had matched the 1982 recovery rate, today annual per-capita income would be $4,154 higher than before the recession—that's an extra $16,600 for a family of four—and some 15.7 million more Americans would have jobs.

Some apologists suggest that the current recovery is so weak because the recession was so deep. But the totality of our experience in the postwar period is exactly the opposite—the bigger the bust, the bigger the boom that follows.

The Output Gap
January 19, 2011
Paul Krugman

"...there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce (over four years; 2008-2009-2010-2011, based on real output)."

My comment: We still need pro-growth policies that will reduce the unemployment rate faster.

So, the economy can expand faster to raise tax revenues, and lower unemployment benefits, which will help shrink budget deficits.

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Rufus II said...

So, to review the bidding. Bubba Clinton had a 39% top tax rate. In his final two years he collected 20.7, and 19.8% of GDP.

Dubya had a 35% top rate. His two best years yielded 18.2 and 18.5%

Looks like cutting from 39% to 35% was Not a Revenue Maximizing Strategy.

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PeakTrader said...

In the late '90s, higher tax rates were more than offset by:

The "peace dividend" (after we won the Cold War), $10 oil, and other low commodity prices, the Baby-Boomers reaching their peak productive years, a structural bull market (from 1982-00), the height of the Information Revolution, the Workfare bill, a GOP House and Senate that didn't restrict economic growth, etc..

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PeakTrader said...

And "In his final two years he collected 20.7, and 19.8% of GDP."

Then we had the Clinton recession.

Fortunately, Greenspan's accommodative monetary policy and Bush's expansionary fiscal policy (i.e. tax cuts) prevented a deeper recession.

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PeakTrader said...

If every economic period was the same, you could make the same generalization.

However, each economic period is different. There are major and minor "structural breaks."

Also, it should be noted, the stock market bubble from 1995-00, where the market reached spectacular new highs, raised tax revenues substantially from capital gains and the Alternative Minimum Tax, which were not sustainable.

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