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This morning, US GDP 3rd quarter GDP was revised down
from 2.5% to 2.%. Typically, of course, taxes are cut
(and
other stimulative measures are enacted) to avoid
recessions.
Got me to thinking, why isn't our tax rate progressive
visavis the government. In other words, if the tax rate
we
paid was indexed to GDP growth, it would seem to create
a
continuous feedback loop with stabilizing effects,
stimulative in the worst of times, stabilizing in bubbly
times, all without "fiat" currency manipulation.
When times are good, the government collects more
money due to growth. When times are bad, government
collects less, but we have more money to spend without
having to pass legislation and hopefully create growth
again.
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Seems a reasonable suggestion but I think the arguments start when you come to try and establish the base level to start from. |
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I think the rate could be very different for an
emerging economy versus an established one. |
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But it seems that this would be a great way to
take
politics and tinkering out of trying to maintain an
economy on a stable growth path while neither
overheating nor diving -- and actually getting
revenue into government coffers when they are
most available. |
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This doesn't address where individual rates would
be -- that's a separate debate -- this is how
anyone's individual taxes would relate to GDP. |
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The ratio of tax receipts to GDP is already
discussed all the times -- but I don't believe that
anyone's ever suggested autotuning it. |
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There is a "pro-cyclical" concern here -- during bad
times, money collected falls faster, and vice versa
-- but I think stimulus is enacted anyway in the
form of rate manipulation, printing, and debt --
feels like this could reduce the need for that
dramatically. |
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GDP is not a useful or accurate measurement of anything. Much better to peg taxes to government spending. |
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//...peg taxes to government spending.// |
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More or less so than usual? |
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The point would be to connect it to a measure of the
economy's output, not government spending. GDP is
adequate so long as trending is accurate. |
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and another one to dust off |
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//a "pro-cyclical" concern// |
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I'm not sure "concern" is a quite strong enough word here.
As one Irish government minister said around the time of
the GFC, "If I've got it, I'll spend it." |
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Apart from the John Howard government in Australia
twenty-odd years ago, I can't think of any government
anywhere that really walked the talk of counter-cyclical
fiscal policy. Gordon Brown in the UK pretended to do it,
but I heard that was mostly just dodgy accounting. |
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in theory -- that being the key word -- the key is all govts --
and industries -- know what happened in 08, and in 1918. |
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I suspect the US will ultimately spend as much as 5 to 10T --
maybe more. |
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