[QUOTE]Originally posted by lead thrower:
[QB] Is it good fiscal policy to cut taxes in times of record deficits?

The definition of a negative deficit is that you are spending more then you are taking in.
They either need to reduce spending or leave the tax as is. [QUOTE]


What is a negative deficit other than a double negative? What you described is a deficit, ie spending more than you take in.....

The dividend piece of the tax package is without a doubt going to only provide significant benefit to the wealthy and probably not a good idea on top of the rest of the package.

I find a couple of things suprising in this whole tax cut debat in DC:

1. Democrats are actually calling for a tax cut, just smaller than the one Bush is calling for. This is strange considering that normally they oppose tax cuts stating that they only benefit the wealthy and do not stimulate the economy. So if this is true why are they proposing a $350b tax cut???

2. If this huge tax cut is going to be so bad for the economy and the next Presidential election is going to be largely effected by the state of the economy and the candidates view of how to stimulate it. Why don't the Democrats give him the tax cut and assure themselves the Presidency in the next election?

Regarding tax cuts and the effects on the population I think the following by Professor Kamerschen is better than anything I could write.


" Let's put tax cuts in terms everyone can understand.


Suppose that every day, ten men go out for dinner. The bill for all ten
comes to $100.


If they paid their bill the way we pay our taxes, it would go something like

this:

a.. The first four men (the poorest) would pay nothing

b.. The fifth would pay $1

c.. The sixth would pay $3

d.. The seventh $7

e.. The eighth $12

f.. The ninth $18

g.. The tenth man (the richest) would pay $59.

So, that's what they decided to do.


The ten men ate dinner in the restaurant every day and seemed quite happy
with the arrangement, until one day, the owner threw them a curve.


"Since you are all such good customers," he said, "I'm going to reduce the
cost of your daily meal by $20."


So now dinner for the ten only cost $80.


The group still wanted to pay their bill the way we pay our taxes. So the
first four men were unaffected. They would still eat for free. But what
about the other six, the paying customers? How could they divvy up the $20
windfall so that everyone would get his "fair share?" The six men realized
that $20 divided by six is $3.33. But if they subtracted that from
everybody's share, then the fifth man and the sixth man would each end up
being "paid" to eat their meal.


So the restaurant owner suggested that it would be fair to reduce each man's

bill by roughly the same amount, and he proceeded to work out the amounts
each should pay.


And so:

a.. The fifth man, like the first four, now paid nothing (100% savings)
b.. The sixth now paid $2 instead of $3 (33% savings)

c.. The seventh now paid $5 instead of $7 (28% savings)

d.. The eighth now paid $9 instead of $12 (25% savings)

e.. The ninth now paid $14 instead of $18 (22% savings)

f.. The tenth now paid $49 instead $59 (16% savings)

Each of the six was better off than before. And the first four continued to

eat for free. But once outside the restaurant, the men began to compare
their savings.


"I only got a dollar out of the $20," declared the sixth man. He pointed to

the tenth. "But he got $10!"


"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too.

It's unfair that he got ten times more than me!"


"That's true!" shouted the seventh man. "Why should he get $10 back when I
got only $2? The wealthy get all the breaks!"


"Wait a minute," yelled the first four men in unison. "We didn't get
anything at all. The system exploits the poor!" The nine men surrounded the

tenth and beat him up.


The next night the tenth man didn't show up for dinner, so the nine sat down

and ate without him. But when it came time to pay the bill, they discovered

something important. They didn't have enough money between all of them for
even half of the bill!


And that, boys and girls, journalists and college professors, is how our tax

system works. The people who pay the highest taxes get the most benefit
from
a tax reduction.


Tax them too much, attack them for being wealthy, and they just may not show

up at the table anymore. There are lots of good restaurants in Europe and
the Caribbean. "


David R. Kamerschen, Ph.D

Distinguished Professor of Economics

University of Georgia Athens