Both candidates are campaigning on cutting taxes. The back-and-forth is who will do it, who won't, which income classes will get more or less, and so on. There have been several independent analyses of the campaign plans of both candidates which has provided some clarification. That hasn't changed the allegations and advertising of the respective campaigns, of course.

But in the midst of the campaign we have encountered an unprecedented financial crisis. The effects will be extraordinarily expensive and long-lasting. We won't know for certain how much resolving the crisis will cost, but at the moment it appears to be somewhere in excess of $1 trillion. Adding what may be significantly reduced revenues resulting from a slowing economy and reduced tax receipts, the effect on deficits and the national debt almost certainly will be severely damaging. We'll know better when the incoming President presents his proposals for a federal budget in the first couple of years of his administration. By then, the actual costs and effects will be more measurable.

So a question we should all consider--an issue that should be discussed by the candidates, but probably won't be--is as follows...

Is it reasonable to expect that a tax cut will be passed by Congress, regardless of which candidate is elected President? In fact, is it more reasonable to expect that a tax increase should be legislated?

If it is unlikely that any sort of tax cut makes fiscal sense in the situation the U.S. finds itself in, then why shouldn't the electorate simply ignore the "tax cut" claims being made by both candidates and concentrate on understanding their opposing views on other important issues? I might suggest--staying with fiscal issues--that we have a thorough understanding of how both candidates propose to create a balanced federal budget and begin to work on reducing our overwhelming national debt. Sarah Palin was campaigning today saying, "John McCain and I will balance the budget by the end of our first term." Is it reasonable to ask...HOW?

To propose a tax cut at this time proves one of my thoughts on just how government works. If it is reasonable, logical, and sensible it won't happen. (ha, ha) Good Post

Kahuna,

I know. I do not see how a tax cut could be coming. I try to believe. But I cannot.

I have been looking at conversion to Roth with IRA's for this all too obvious reason.

But what do I know?

But on Friday, I talked to my CPA.

Yeah, he calls himself Dr. Doom. But I have always just called him Eeyore.

He has been pessimistic for years about the state of things to come.

Well, guess what. The state has come.

Boomer

"After consulting with Barack Obama, Democratic leaders are likely to call Congress back to work after the election in hopes of passing legislation that would include extended jobless benefits, money for food stamps and possibly a tax rebate, officials said Saturday."

http://apnews.myway.com/article/20081011/D93OHKO80.html

I remember when everyone call President Reagan nuts when he cut taxes and used the philosophy of supply side economics. I hope he will be alive today.

Few people remember it, but President Reagan reflected massive cuts in federal spending in his initial budgets in his first term. Reagan appointed David Stockman, a relatively unknown Congressman from Michigan to the position of Director of the Office of Management and the Budget. Stockman was Reagans' first apointee, less than a week after he was innaugurated. History records that Reagan told Stockman that he was appointed first because he had the most work to do. He was told by his new boss to create a budget with massive spending cuts and that his early appointment was designed to give him time to do it.

Reagan's only proviso to Stockman, other than the amount by which he wanted the budget to be cut, was that "everyone gets hurt equally"--the rich, the poor, people from all parts of the country, everyone was expected to feel the pain of the budget cuts. There were to be no favorites in the budget cutting.

Once the slashed budget was created, Reagan appointed Alan Greenspan to chair a bi-partisan committee of members of Congress, union and business leaders, and senior bureaucrats. The committee was purposely selected to include the farthest right conservatives and the farthest left liberals. Greenspan's charge was to get the diverse group to unanimously endorse Stockman's budget. Greenspan got the endorsement that Reagan was seeking by forcing the committee members to take personal responsibility for the elements of the budget that they might have disagreed with. They all knew that if they wanted certain spending programs retained that other programs that would have to be slashed and that the public would be told that "their" programs were cut because one of the committee members wanted other programs funded. It was kind of an early PayGo budgeting process. It worked and Greenspan got Reagan the bi-partisan endorsement he was seeking. With it, the budget passed Congress with relative ease.

I repeat this story (it's all documented in Alan Greenspan's recent book, The Age Of Turbulence) only to emphasize that the tax cuts and "trickle down economics" would not have worked were they not accompanied by significant federal spending cuts.

Personally, at this point in time I think we need the spending cuts first with a delay of quite awhile before taxes are cut and the trickle down effect is permitted to work. But one thing is absolutely certain--as a nation we need to dramatically cut government spending! Our national debt is simply too massive and our economy too depressed to further increase our debt with a reduction in tax revenues. If our new elected representatives can accomplish that, we will have all been successful in electing the right people.

Bucco, I sure hope the Democrats don't pass a tax cut as a pre-Christmas present. Personally, I think the discipline to spend within your means has to start with Congress. if they keep spending like drunken sailors it will be hard to convince the public that they should change their ways. Like in the early years of the Reagan administration, I think we need some seriously deep spending cuts--ones we all will suffer from.

Having said that, a $150 billion tax cut-economic stimulus might not be a bad idea in the current state of the economy. The actions taken by the central banks of all the developed countries seems to be having a positive effect on the credit markets. I've been told that the statistic to watch is the "Ted Spread" (the interest rate spread between 3-month Treasuries and 3-month LIBOR). If it declines towards parity, that's good for expanded credit. The other half of the equation is to get the consumer to be less frightened and begin spending again. While I don't like funding such an economic stimulus with increased deficits, it will probably work to re-energize the consumer. Without stimulus the impoertant Christmas buying season would likely be a disaster and prolong a weakened economy.

I suppose it's six of one and half dozen of the other as far as the stiimulus is concerned.