How to resuce Fannie, Freddie, other Banks without raising taxes?

You can't. Something gotta give. Stop the war that we cannot afford anymore.

i agree Slee but many people seem to be convinced of this concept that says if you cut taxes then your tax revenue increases. It didnt work under Bush and only led to a huge deficit.

It seems that the same group of people who were against "environmentalists" and didnt see a problem with our oil dependency are the same group of people who are pushing for irresponsible tax cuts that cause a greater dependecy on Foreign debt.

petrfitz, it hasn't been tax cuts causing the deficit, it's been Congress and ultimately the Bush administration's refusal to curb government spending (beyond military), which has spiraled at a much faster rate than in previous administrations. McCain has been very vocal about this, causing a stir within his own party for denouncing their 'pork barrel' projects.

Tax cuts - depending on which taxes are being cut - have a different effect on the economy. Cutting taxes for business and investment has actually shown to increase revenues because it generates economic activity by freeing up money that companies would otherwise pay in taxes or move their operations offshore to countries with lower taxes.

As for the "government bailing out Bear Stearns.." - the goverenment didn't bail them out. It was the Fed, an institution that operates independent of taxpayer funding. The Fed was bailing out the economy, avoiding a possible economic disaster. And the bailout was in the form of a loan, which Bear (actually JPMC) had to fully back with collateral. The chance that any taxpayer money would be spent bailing out Bear is minimal.

As far as becoming 'dependent on foreign debt', I'm not sure what you mean. A good amount of US Treasuries are already owned by foreign governments, have been for years, and this is actually a good thing for our economy as it keeps our interest rates low and helps reduce our trade deficit.

uptowngirl - spoken like a true RNC drone. Cutting taxes has never shown to increase tax revenues this is a "fact" repeatedly spoken by the right but never proven.

Its also funny that you cite becoming dependent on foreign debt is a good thing. What happens when they call that debt in or raise the cost to service that debt? A disaster bigger than the credit crisis and current oil crisis put together.

McCains plan is a shame and he knows it. He cant cut taxes, cut federal spending, fight 3 wars, and all the other initiatives he proposes. He plans to cut taxes to uber wealthy, make a showy attempt to cut a few pork barrel bills, then run up huge deficits leaving the bill to our kids and our future to foreign countries.

petrfitz,

I hate to keep confusing you with facts but:

Since world war II tax receipts have been 19% (+/- 1%) of GDP. Through all the income re-distribution experiments, all the targeted revisions to the tax code (think AMT aimed at 19 millionaires in 1968) and all the changes to marginal tax rates and through several generations the rate is 19%. In a sense , the American people have spoken and they seem to be saying that we are comfortable leting the federal governnment keep 19% of the GDP produced. 19% is the number.

Deficits come about because spending outstrips tax receipts. The key to keeping deficits low is to keep spending at or below 19% of GDP. Neither the Dems or the Reps have been able to do that. Part of the issue is pork barrel politics and wasteful spending to help congressmen stay in office. But the large issue is entitlement spending particularly on medicare and medicaid which is rising much faster than the rate of inflation. To control the spending you either have to reduce benefits or limit access. Neither the Dems or the Reps have the stomach for that. The same is true of the social security entitlement.

The real story is that in order to grow tax receipts we need to grow the economy. If we collect 19% of GDP than the real bonanza it to grow GDP. Grow the economy and you grow tax receipts.

Cutting taxes improves the returns on productive capital (think investment in plant and equipment), allows tax payers to keep more of what they earn (think consumer spending) and helps grow the economy.
It is really not that hard to understand even if you did not take ECON 201.

If nothing else the American people are very good at responding to the incentives provided. Tax their productiviy and guess what - they become less productive. Provide incetives to work hard and gess what they work hard.

Now please take a deep breath, step away from the key board and stop calling people names because they do not share your point of view. Please try to use facs and logic and to stay away from your hysterical rants and hyperboles.

Jake - your logic seems influenced by your politics:

There is no historical evidence that tax cuts spur economic growth. The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent. During this period, the general tax rate climbed as well, but it reached a plateau in 1969, and growth slowed down five years later. Almost all rich nations have higher general taxes than the U.S., and they are growing faster as well.

Before examining the effect of tax cuts on growth, it should be pointed out that the very premise of this conservative myth -- that growth is good -- is false. The population explosion is adding approximately 1 billion people to this planet every decade. That's nearly the entire population of China. Under the attendant threats to the environment, including global warming and ozone depletion, economists and environmentalists today are increasingly calling for a sustainable economy. It is a sign of how backwards we actually have it that we consider an economy healthy only if it grows, and the faster the better.

Even so, examining this issue is important, because conservatives see growth as an economic goal, and tax cuts as the best way to achieve that goal. So we should study tax cuts for their efficacy in achieving desirable outcomes.

A review of American history makes the opposite case that conservatives would like it to make: high growth usually coincides with high taxes. During both world wars, taxes soared to record heights. And the supercharged economies that resulted produced high growth for decades afterwards. World War I was followed by the Roaring 20s; World War II was followed by the boom times of the 50s and 60s. The reason why wars are good for the economy is a matter of controversy -- one likely theory is that war compels government to invest heavily in manufacturing. Whatever the reason, the point is that these economic boosts occur during a period of unusually high taxation. Hate taxes though they may, people resort to them when their survival is on the line.

The following chart shows economic decline and growth during the Great Depression:

Year %Change in GNP President
----------------------------------
1930 - 9.4% Hoover
1931 - 8.5 Hoover
1932 -13.4 Hoover
1933 - 2.1 Hoover/Roosevelt
1934 + 7.7 Roosevelt
1935 + 8.1 Roosevelt
1936 +14.1 Roosevelt
1937 + 5.0 Roosevelt
1938 - 4.5 Roosevelt
1939 + 7.9 Roosevelt

As you can see, the Depression worsened under Hoover's watch, and recovered during Roosevelt's. By the beginning of Hoover's presidency, the bottom 80 percent of all American income-earners were off the tax rolls entirely, and the rich were taxed at a record low 25 percent. By the end of 1932 this top rate was raised to 63 percent, and by 1936 it was 79 percent. Roosevelt instituted a vast new array of taxes, including corporate taxes, inheritance taxes, dividend taxes, gift taxes and excise taxes. And he raised them at a faster rate than any president in U.S. history:

Annual Growth of Tax Collections by President (1)

President Tax Growth
----------------------
Roosevelt 121.3%
Truman 3.7
Eisenhower 2.4
Kennedy 4.8
L Johnson 6.9
Nixon 0.3
Ford 6.4
Carter 3.0
Reagan 2.4
Bush 0.0

During World War II (from 1940 to 1945), the size of the U.S. economy roughly doubled -- the fastest period of growth in U.S. history. And during this era, the top tax rate soared to 91 percent, and the bottom rate to 18 percent -- again, the highest in U.S. history. In 1944, federal taxes reached 21.7 percent of the GDP -- again, the highest in U.S. history.

The U.S. emerged from World War II as the world's only economic superpower. From 1947 to 1973, it experienced phenomenally high growth; the GDP grew at an average of 3.4 percent a year. The top tax rate remained between 88 and 91 percent until 1964; afterwards, the rate was reduced to 70 percent, still stratospheric by today's standards.

The economy slowed down after 1973, for reasons that economists are still debating. But what is not debatable is that taxes started falling for the rich in 1978 (with a capital gains tax cut). Reagan accelerated these cuts with a vengeance: the top income tax rate was slashed from 70 to 28 percent. Bush and Clinton raised them somewhat, to 39.6 percent today. But that is still roughly half of what it was during the 50s and 60s.

And growth since 1973? It has remained stuck in low gear, dropping from 3.4 to 2.5 percent a year. Individual worker productivity has taken an even more severe hit, dropping from 2.8 percent in the postwar years to about 1 percent after 1973. Some point to the Reagan expansion (that is, the upturn in the business cycle that occurred between 1983 and 1989) as proof that low taxes result in boom times, but this claim is easily disproven. Reagan's expansion averaged 3.6 percent annual growth; earlier postwar expansions averaged 4.5 percent. Correlation is not causation, of course, but the point is that lower top rates on the rich have done nothing to revive the extraordinary growth of the postwar years.

But if changes in the top tax rate apparently have no effect on the economy, what about general rates? Since World War II, federal tax collections have remained surprisingly stable, fluctuating within a few points of 18 percent of the GDP. However, this is not the complete picture. State and local taxes have been steadily rising since World War II, which resulted in a steadily growing tax burden until 1969, when tax collections reached a plateau that has not changed since. Interestingly, the economy slowed down 5 years later:

petrfitz, for the record I'm a registered Democrat who's studied finance and economics and, like many on this board, works in financial services, so I know a bit about this stuff.

You ask "What happens when they call that debt in or raise the cost to service that debt?" but I'm not sure I understand your question - it wouldn't matter who the investor is, it's the issuer (in this case the US Gov't) who would decide to call the debt or have to deal with servicing costs, which probably wouldn't change that much beyond interest rates.

Well I am glad we got that straightened out:

You prefer a shrinking economy - the faster it shrinks the better, you prefer higher taxes it sounds like that's because you think the federal government is better at resource utilization that the average American. And you prefer a world with less people. Yes, I see your point - breathing does create a lot of carbon dioxide and if we got rid of all the people we would not have to worry about global warming.

Actually, as much as it pains me to agree with petrfitz, he is correct: there is no correlation between taxes and prosperity, which is probably why the richest people in the world (Gates, Buffett, Soros) agree that taxes on the rich should increase, and the middle-rung wannabes (Forbes et al.) want flat taxes.

Taxes buy you something: services. Granted, the government is inefficient, but so is private enterprise if you've ever worked there. The poorest states in the union are the ones with the lowest tax burdens (Mississippi, Alabama, Louisiana); the richest are the ones with the highest tax burdens (California, Massachusetts, New Jersey, New York).

Why anybody thinks the military deserves more money is beyond me. Eisenhower (5-star general, remember) warned against its inefficiencies. Worse than public education, actually. Healthcare is an issue, but until you nationalize it - let the Republicans howl - it will not get fixed, because doctors and hospitals are paid on a per-service basis giving them an incentive to do a lot of services, and supply is distributed by ability to pay rather than need, both of which drive costs up.

Europe has high taxes; Latin America has low taxes. Pick where you want to live.

More taxes for the Board of Education, I'm sure the extra billion, on top of the already obscene billions, is all worth the investment, in the youth of this city. Give me a break. Taxes s%^k and I'm done paying for every tree hugging dead beat in society. This city pays starting cops $25,000/year and it's one of the safest cities per/cap in the world, but we pay teachers double for kids that spend most of the day eating paint chips at school. Taxes my A$%. When I start to see the money being spent on the essentials, and not wasted, I'll be the first to say raise my taxes, until then step away from MY PAY CHECK.

Europe might have high taxes, but those countries also have higher unemployment and laws that are more restrictive when it comes to starting/running a business. As a result many companies have been moving operations outside of their home countries, and the young and educated are moving as well because they can't find jobs.

Also, petrfitz, you're confusing GDP growth (total output) with job growth. At the end of the day people want jobs and opportunities to put food on the table.

Plus, the reason why the US experienced such a tremendous growth in GDP after Hoover was because the country was getting out of a depression, so, yeah, compared to previous years of negative growth, the GDP rate would look good. Post war we've been in a mature economy so we shouldn't expect as high growth rates. China and other emerging nations are also experiencing hight growth rates compared to the US because these economies are emerging.

petrfitz asked how can we raise tax revenue without raising tax rates. petrfitz then correctly answered his own question when he pointed out that tax revenues have remained at a relatively constant slice of the economic pie at 18%. Tax revenues increase when the size of the economic pie increases. Tax revenues do not increase when tax rates increase as the incentive to be productive is reduced and the size of the economic pie shrinks. Grow the pie, grow tax receipts.

jake i guess you missed the whole part in my post about the top tax rates and when our top tax rates approached 90% the country experienced its most prosperity.

There is no data that speaks to lower taxes causing increased revenues to the govt. This is a lie a myth and is not reality just a talking point to mislead the uninformed.

your post? you mean the one you copied and posted as your own? Man, instead of coying jibberish you have found on the internet and tried to pass off as your own creative thought how about just using some common sense. If tax rates were 100% no one would work. How can it be made any simpler?

What you do not seem to understand is that people act in their own best interests. Tax rates do not equate to tax receipts. Wealthy people can defer income, defer capital gains, defers sales of businesses and real estate and move to tax havens to avoid high marginal rates. Remeber when Bjorn Borg moved to Swededn? Or when John Templeton renounced his U.S. citizenship and moved to the Bahamas right before he sodl his company to Franklin for $900mm? In fact we have the AMT because 19 millionaires managed to pay no no tax at all in 1969 when marginal rates were 70%. Yes despite a 70% marignal rate no tax was collected.

jake nothing like a little facts that are completely counter to your argument to get you in a tizzy.

Dont worry i think that if you believe enough and click your heels twice the concept of higher tax revenues thru tax cuts could actually come true - but only if you believe.

Either way, the argument of lowering taxes is irresponsible and not in the best interests of the country. It will only led to more dependence on foreign debt. Dependence on foreign debt is letting those terrorists win.

petrfitz,
Facts what facts? Just because you agree with an opinion that someone else wrote does not make it fact. What is a fact is that you copied the work of another and tried to pass it off as your own.

And lowering the tax burden on hard working Americans who are facing declines in real wages and higher inflation is not irresponsible. Again it is common sense.

New Yorkers have the 3rd highest tax burden in the country. Do you live in New York state? Are you happy with the way your hard earned tax dollars are being spent?
Are you pleased that New York spends more on education than any other state and our test scores place us 31st, or that our graduation rate is 43rd?
Or that New Yorkers receive .79 cents for every dollar they send to the Federal government? Which also ranks us 43rd. We have Chuck Schumer and Hilary Clinton to thank for that.

petrfitz, that's right, the world is going to blow up because our taxes are too low.

It seems the reason you posted this thread was to rant and rave on topics on which you apparently know little.

uptowngirl - so you are telling me that irresponsible tax cuts do not make the country dependent on Foreign Debt? And you also say that there is no issue with foreign countries owning so much of our debt?

please educate me.

We are all trying petrfitz we are all trying. But as you have demonstrated your education up to now has not helped you discern fact from opinion or taught you that copying the work of others and passing it off as your own is plagiarism.

ah you didnt answer the question just attacked me personnally. Also I have a masters in chemical engineering. I think my education is just fine.

petrfitz, i'm saying there is little if any correlation between tax rates and foreigners who invest in US Treasuries. Also, there are benefits to foreigners owning US debt and some drawbacks, like anything else in life.

you don't hear us arguing w you about engineering-related issues. Apparently you're set in your ways so it doesn't matter what jake or I say.

1) $450,000,000,000 - The approximate amount of write-downs to date from the financial sector stemming from the subprime crisis and housing market downturn

2) $325,000,000,000 - The approximate amount of capital raising to date in the financial sector

3) $9,500,000,000,000 - The approximate amount of the National Debt (source)

4) $5,600,000,000,000 - The approximate amount of total residential loans that Fannie Mae & Freddie Mac either own or guarantee (source)

5) $900,000,000,000 - The approximate value of the Fed's portfolio

6) $450,000,000,000 - The approximate amount that the Fed used of its total portfolio to help ease distress in the credit markets

7) $985,000,000,000 - The approximate amount of US agency debt held by foreigners; mainly China, Russia, and the oil countries (source)

8) $230,000,000,000 - The approximate amount of Fannie & Freddie debt purchased by foreigners in the past year

9) $710,000,000,000 - The approximate amount of the global US current account deficit last year; or 5% of US GDP (source)

10) $1,000,000,000,000 - The approximate amount of foreign money the US must import each year to support the current account deficit

11) $14,300,000,000,000 - US GDP (source)

12) $411,000,000,000 - The increase in the amount of foreign-owned assets here in the US, in the 1Q of 2008 alone, following an increase of $380.4 Bln in the fourth quarter (source)

13) Between $1,000,000,000,000 - $2,000,000,000,000 - The implied total credit losses predicted by Professor Nouriel Roubini (source)

14) $1,300,000,000,000 - The entire capital of the US financial system; as stated by Professor Nouriel Roubini (source)

15) $53,000,000,000 - The approximate total amount of funds held by the FDIC (source)