"Taxes don't directly affect the economy at all, except that it gives the government more money to lend to banks, to offer to states, etc."
Yes, I see this has already been brought up as a point of contention, but I'd like to take a minute to examine this statement a little more fully.
Whether taxes affect the economy is dependent rather heavily on how they're spent, and to a slightly lesser extent on where they're applied. When taxes are spent strictly on things that count as "production" in the economic sense, they don't particularly affect the economy, national or global. They merely redistribute consumption. When they're spent on things like national defense, important as that is, they take that money out of the production-consumption cycle that drives the economy.
The numbers don't really matter conceptually. There is some total amount of money P that everybody gets as income. In a tax-free economy, that number is exactly equal to the amount of money that all the goods and services produced are worth, and if nobody is saving up any money, it's equal to the value of goods and services produced. If people save money, that's what's available for investment in future growth, and if there's tax, that's what's available for government spending. (There are exceptions and murky areas, but they aren't that important for basic understanding.)
So, if money is taken in taxes, it comes from either consumption or savings, which is to say it comes from current productivity or future growth. So, the effect of taxes on the economy is inversely proportional (and directly dependent on) the value of goods and services provided by the government plus the investment by the government in future economic growth.
To make clear exactly what the difference is, consider FDR, the New Deal, and the WPA. Government taxation and spending were shown to be not just a theoretical but a practical way to pull a country out of an economic depression. I.e., there is nothing inherently wrong with "tax and spend" politics or economics, and strong evidence that it's exactly what we need right now.
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Date: 2009-04-16 07:11 pm (UTC)Yes, I see this has already been brought up as a point of contention, but I'd like to take a minute to examine this statement a little more fully.
Whether taxes affect the economy is dependent rather heavily on how they're spent, and to a slightly lesser extent on where they're applied. When taxes are spent strictly on things that count as "production" in the economic sense, they don't particularly affect the economy, national or global. They merely redistribute consumption. When they're spent on things like national defense, important as that is, they take that money out of the production-consumption cycle that drives the economy.
The numbers don't really matter conceptually. There is some total amount of money P that everybody gets as income. In a tax-free economy, that number is exactly equal to the amount of money that all the goods and services produced are worth, and if nobody is saving up any money, it's equal to the value of goods and services produced. If people save money, that's what's available for investment in future growth, and if there's tax, that's what's available for government spending. (There are exceptions and murky areas, but they aren't that important for basic understanding.)
So, if money is taken in taxes, it comes from either consumption or savings, which is to say it comes from current productivity or future growth. So, the effect of taxes on the economy is inversely proportional (and directly dependent on) the value of goods and services provided by the government plus the investment by the government in future economic growth.
To make clear exactly what the difference is, consider FDR, the New Deal, and the WPA. Government taxation and spending were shown to be not just a theoretical but a practical way to pull a country out of an economic depression. I.e., there is nothing inherently wrong with "tax and spend" politics or economics, and strong evidence that it's exactly what we need right now.