Why the idea of lower taxes doesn't always work

[robbase]

Let's look at Texas. The state budget has similar issues as others and shows no signs of improving (unless I am missing something). The state tax rate is zero.

I have to say I like to think I am "independent"; but that I do tend to lean "right", but like to think I am capable of independent thought...

.....this is one of the reasons I haven't blindly followed the "lower taxes leads to more gov revenue" mantra of the "right".....zero taxes brings in zero revenue

also following the Laffer curve; that shows too that depending which side of the curve you are on that lowering taxes does not always bring in more revenue it depends on your assumption of which side of the curve you are on (I guess republicans NEVER think we are (or can be) on the left side of the curve)

so in closing, it seems if republicans had their way Texas should be the dream situation

So what went wrong in Texas? (or what am I overlooking?)

[Deleted]

You are overlooking the fact that you are only looking at 1 type of tax

[robbase]

so what is the explanation of Texas current situation?

[AgeOfEnlightenmentSCP]

Jun 15, 2011 15:04:57 GMT -5 @mmc said:

You are overlooking the fact that you are only looking at 1 type of tax

That, and you're not looking at spending at all. Not to mention, you're not looking at Texas with California's 11.9% unemployment rate instead of its real rate of 8%.

People that aren't working don't pay taxes.

Look at places like IL that are running businesses (employers) out, and compare to Texas. Things are bad in Texas now because we're in a recession. Things aren't nearly as bad as they would be if Texas taxed like NY, IL, CA and other failed states.

[tiredturkey]

Texas does not have a state income tax but we do have a lot of "fees" and other taxes that will be going up such as vehicle license tags, drivers license fees, state and local sales taxes, franchise taxes, nail salon licensing fee, daycare center licensing fee, vehicle inspection fee, yada, yada. I'm not saying these are either good or bad, they just are. The governor recently vetoed a bill to tax Internet sales which seemingly irked both sides of the aisle. Perhaps y'all will get a chance to experience Texas economics firsthand if Mr. Perry tosses his hat in the ring. At least his hair is way better than the Donald's.

[phil5185]

also following the Laffer curve; that shows too that depending which side of the curve you are on that lowering taxes does not always bring in more revenue it depends on your assumption of which side of the curve you are on

Art Laffer's Curve identifies the optimal tax rate that will maximize the tax revenue (under current economic conditions). As you point out - you must move in the direction of optimal tax revenue - that could mean either tax rate lowering or tax rate raising. (The concept was not a complex one, it was mostly the media that was confused by it - so they coined 'trickle down' as their pet name.)

As for TX - the composite tax rate in TX is roughly the same as the other 49 states - add the property tax, the sales tax, and state income tax. No free lunch.

[tskeeter]

Texas's budget situation is only one notch under California. They are now cutting teachers

Not so sure that I'd get overly concerned about reducing the number of teachers. Just got a copy of the program for a nephew's graduation (Clackamas High School, Clackamas (Portland), OR). The program listed the names of the teachers in his public high school. There were 180 people identified as faculty, not administrators, not staff, such as cooks, custodians, IT technicians, etc.. I don't know whether teacher aids were defined as faculty, or not, so there could be even more people involved in educating the students. There were 535 students in nephew's graduating class. Assuming that each of the three classes in that school are the same size as the nephew's and allowing for a 10% drop out rate between sophomore year and graduation (150 students), the school has about 1,765 students being taught by the 180 teachers. When you do the math, you find that school has about 9.8 students per teacher. Even assuming a national teacher/pupil ratio is twice as high as in the nephew's school, I think we can probably reduce the numbers of teacher a bit if we have to, without seriously compromising the education that is being delivered to the nation's children.

For broader reference, according to the National Center for Educational Statistics, the student/teacher ratio has declined 36% since 1965 (24.7 students per teacher in 1965 to 15.8 in 2008/2009). During this period a study of elementary school student achievement on standardized tests performed by the Federal Department of Education determined that the reduction of class size did not yield any significant gains in achievement. Hmmm - I guess in ordinary language, that means that the education community has sold the public a bill of goods and that the current teacher/student rations do not result in a better education, so increasing the ratios a limited amount really won't make any difference.

[AgeOfEnlightenmentSCP]

Jun 15, 2011 15:53:05 GMT -5 @patstab said:

Texas's budget situation is only one notch under California. They are now cutting teachers and moneys for the elderly and disabled. We were already 49th in a lot of categories, this should really help.

Yeah we need someone like Perry at the helm, bush left devastation, perry is slashing and burning.

This is a great example of why Democrat's input should be completely ignored.

Bush tried "compassionate conservatism" which of course is big government, which of course means big spending, none of which is 'compassionate' at all.

So, we spend- they hate us; we balance the budget- they hate us. If we're gonna be hated either way, we may as well do what's right.

If we continue on the big government path, the country goes belly up, and then who are the disabled, the poor, and all the rest of the Democrat-created permanent underclass gonna call?

[AgeOfEnlightenmentSCP]

I tried to explain this yesterday, then someone posted this over on P&M. It does a much better job of explaining why a low tax environment ALWAYS works. The key is keeping government SMALL and spending under control.

online.wsj.com/article/SB10001424052702304259304576375480710070472.html

Using straight nonfarm payroll employment, Texas accounts for 45% of net U.S. job creation. Modesty is not typically considered a Texas virtue, but the results speak for themselves.

[brdsl]

"There were 180 people identified as faculty, not administrators, not staff, such as cooks, custodians, IT technicians, etc.. I don't know whether teacher aids were defined as faculty, or not, so there could be even more people involved in educating the students. There were 535 students in nephew's graduating class. Assuming that each of the three classes in that school are the same size as the nephew's and allowing for a 10% drop out rate between sophomore year and graduation (150 students), the school has about 1,765 students being taught by the 180 teachers. When you do the math, you find that school has about 9.8 students per teacher."

I guess I am not following your math here.

535 x 4 = 2140 - 150 = 1990.

[brdsl]

Jun 16, 2011 7:53:55 GMT -5 AgeOfEnlightenmentSCP said:

I tried to explain this yesterday, then someone posted this over on P&M. It does a much better job of explaining why a low tax environment ALWAYS works. The key is keeping government SMALL and spending under control.

How many of those jobs in Texas were government created jobs?

[KaraBoo]

How many of those jobs in Texas were government created jobs?


I live in Texas, but have no proof to back up my opinion, but I would guess very few. Based on the new companies I hear about moving to our area and how many jobs will be created, the increase seems to be in private companies.

We do hear about job cuts and cut-backs (they are cutting the school budgets and teachers), but overall, there seems to be more companies moving to Texas rather than out. We appear to be a very corporate friendly state.

[crockpottin]

I live in the Northeast, so I really don't have any 1st hand experience with Texas tax rates. I can shed a bit of light on the teacher cuts, though. I agree that at first glance many schools do seem to have a LOT of faculty; however, they are not spread out evenly throughout the student body. In special ed, for example, kids tend to be put in smaller classes. Even if they are mainstreamed for part of the day, they still tend to have teacher's aides (sometimes one-on-one), get assigned to "resource rooms," which are supposed to provide extra academic support, etc. Depending on how many special ed students you have in a school, the faculty needed for this adds up quick. Additionally, the federal laws regarding special ed make it basically impossible to ever cut the special ed budget, so if a school has to make cuts, its always on the regular education end of things. Thus, you can have a lot of faculty at a school, yet your regular ed kid is in classes with 35 other kids.

[Phoenix84]

I agree with the OP.

I consider myself a conservative, but I don't think you can endlessly cut taxes and still expect a decent revenue to run the government. I know that if you overtax and over regulate that it stifles economic growth and activity, so that's not good, but I also think you can under tax as well. The best way to do it would be to find the optimal tax rate that generates the most revenue for the government while giving a steady rate economic growth. As to what that rate is I have no idea, that's for economists smarter than me to figure out.

It's just too bad we only have two choices. Democrats who want to keep spending like drunken sailors and expand social entitlements and republicans who want to cut social programs but also cut taxes. If it were up to me I'd cut spending while moving taxes to the optimal level to reduce the deficit.

[Deleted]

Jun 16, 2011 9:28:40 GMT -5 Phoenix84 said:

I agree with the OP.

I consider myself a conservative, but I don't think you can endlessly cut taxes and still expect a decent revenue to run the government. I know that if you overtax and over regulate that it stifles economic growth and activity, so that's not good, but I also think you can under tax as well. The best way to do it would be to find the optimal tax rate that generates the most revenue for the government while giving a steady rate economic growth. As to what that rate is I have no idea, that's for economists smarter than me to figure out.

It's just too bad we only have two choices. Democrats who want to keep spending like drunken sailors and expand social entitlements and republicans who want to cut social programs but also cut taxes. If it were up to me I'd cut spending while moving taxes to the optimal level to reduce the deficit.

Texas is NOT under-taxed. We just don't pay INCOME tax. There are plenty of other taxes that we pay that more than make up for any income tax that another state might have.

[brdsl]

Jun 16, 2011 8:44:15 GMT -5 KaraBoo said:

How many of those jobs in Texas were government created jobs?


I live in Texas, but have no proof to back up my opinion, but I would guess very few. Based on the new companies I hear about moving to our area and how many jobs will be created, the increase seems to be in private companies.

In a response to the quoted article, around 1/3 (94k) of the jobs were government. I looked for the BLS data, but got pulled away to another site at work.

[midjd]

I agree with Phenoix... though I consider myself a fiscal conservative only. It would be nice to have a candidate who wanted to cut spending and keep taxes at an appropriate level without bringing all the social issues into it. I have a coworker with similar leanings who tried to run for public office (and would have done a hell of a job) but couldn't get nominated to the Republican slate because she was pro-choice... and the Democrats didn't want her because she wanted to cut spending.

[Deleted]

I would prefer elimination of state/federal income taxes and capital gains tax and move right into a consumption tax. A flat consumption tax.

[tskeeter]

I guess I am not following your math here.

535 x 4 = 2140 - 150 = 1990.

brdsl, the nephew's high school has three grades, 10, 11, and 12. Which is why I talked about the three classes in that school.

535 X 3 = 1,605 +160 (10% of students who drop out before graduation) = 1,765. Yes, I miss keyed a number when I said a 10% drop out rate equaled 150 students. Had I actually used 150 to compute the student/teacher ratio, the result would have been even fewer students per teacher.

[brdsl]

"brdsl, the nephew's high school has three grades, 10, 11, and 12."

That is where the confusion was. High schools have 4 levels 9-12.

As of 2009-2010, your nephews school had 2289 students, with 2008-2009 dropout students being 21, 07-08 listed 19 dropouts. There are 90 FTE teachers, 4 admins, 9 FTE assistants and 40 other FTE staff.

So, with the 2009-2010 numbers, 2289 - 23 (I increased it due to the current increasing trend) = 2266. For easy numbers we will say there were 100 teachers/assistants. So, 22 students per teacher?

If you really want to get a little more factual, the assistants typically help a single student. So, we drop 10 students we get 2256/90 = 25 students per teacher.

btw. The information from above was listed in the school report card, listed on the website of your nephews school. I would have used this years numbers, but they were not posted on the site.

[tskeeter]

I agree that at first glance many schools do seem to have a LOT of faculty; however, they are not spread out evenly throughout the student body. In special ed, for example, kids tend to be put in smaller classes.

While I agree that smaller class sizes in special needs programs have reduced student/teacher ratios since 1965. But, I don't think those programs account for the lions share of the 36% reduction in the student/teacher ratio (36% increase in teachers per student) between 1965 and 2008. On the whole, it appears that class sizes are smaller than they used to be. Another thing to consider is that in 1965 very few, if any schools had teacher aids of any kind. The data I have looked at indicates that teacher aids are not included in the "teacher" numbers, so the ratio of students to instructional personnel (teachers and teacher aids) is even lower than the ratio of students to teachers.

Based on historical student/instructional staff ratios, it seems like the cuts many school districts are doing are simply returning class sizes to closer to what they have been in the past. This belt tightening sounds like a prudent thing to do when taxpayers are not able to maintain the level of funding that schools have enjoyed until the last few years.

[crockpottin]

Jun 16, 2011 9:39:17 GMT -5 midjd said:

I agree with Phenoix... though I consider myself a fiscal conservative only. It would be nice to have a candidate who wanted to cut spending and keep taxes at an appropriate level without bringing all the social issues into it.

I totally agree with this-it irks me that finances & social issues get tied together when they really shouldn't. I consider myself a social liberal and a fiscal conservative (well, conservative for my area, but I live in a reaaally blue state, so....yeah, a moderate anywhere else in the country ). There really aren't any political candidates who fit the bill for me.

[brdsl]

"Based on historical student/instructional staff ratios, it seems like the cuts many school districts are doing are simply returning class sizes to closer to what they have been in the past. This belt tightening sounds like a prudent thing to do when taxpayers are not able to maintain the level of funding that schools have enjoyed until the last few years. "

Agreed. But the offerings of classes will also be adjusted. So, cutting of non-state mandated courses will be the objective.

The problem here is the state mandated courses are going up, hence requiring more teachers than in 1965.

Current:
4 language arts
2 writing intensive courses
3 years of math (which must include Algebra I and Geometry)
2 science,
2 social studies,
1 art, music, foreign language or vocational education

Previous:
3 language arts
0 writing
2 math
1 science
2 social studies
1 art, music, etc.

[crockpottin]

Jun 16, 2011 11:25:14 GMT -5 tskeeter said:

Based on historical student/instructional staff ratios, it seems like the cuts many school districts are doing are simply returning class sizes to closer to what they have been in the past. This belt tightening sounds like a prudent thing to do when taxpayers are not able to maintain the level of funding that schools have enjoyed until the last few years.

I don't disagree with you about belt tightening, I'm sure some is needed in every area. That said, part of why larger classes were ok in the 60s is that there was more parental/societal support for education in general. Back then, if little Johnny got disruptive in class, his parents would generally support/reinforce whatever discipline he got. That makes controlling a large class WAY easier. Don't get me wrong, there are still plenty of good parents out there, but the job is definitely harder than it once was.

At this point, I feel like this is bordering on a thread hijack-maybe we should start a new thread on this?

[thyme4change]

I guess I'm having trouble seeing how showing that Texas is struggling now damns an entire economic theory. If California was doing really well, and Texas was sucking dirt, I'd agree. But if you can point to a state that is doing really well right now and we can examine their tax structure, we might be okay. My latest understanding was that 48 states were in budget trouble or crisis. That indicates that the problems aren't related to tax structure, but to the overall economy.

[robbase]

If we continue on the big government path, the country goes belly up, and then who are the disabled, the poor, and all the rest of the Democrat-created permanent underclass gonna call?

Oh, that's a good one, the dems created the disabled, the poor and the rest, that includes elderly. I didn't know we had the power of God. Wow

although I hate to defend WCP, I believe he is saying the democrats did not create these people's physical disabilities / disadvantages, but that the democrats has created their DEPENDENCE on government assistance, thus they created a permanent gov dependent class (those that are dependent on government)..... I do believe the disabled need / should get some assistance but it needs to be measured, some of them can succeed (look at Stephen Hawking)