Obama’s State of the Union Tax Proposals
by Linda Beale
Obama’s State of the Union Tax Proposals
President Obama delivered his first State of the Union speech tonight, assuring us that we could jump-start job creation through tax cuts for businesses and gain needed relief for families through tax cuts for middle-class households.
What Obama offers is, as usual, a mixed bag–too much of the same old tax cuts favored by the right for decades , which have not been proven to do much to create new jobs, but some good programs that merit passage.
I’ve got strong doubts that an accelerated depreciation provision amounting to a 10% tax cut for businesses and costing $38 billion can be considered an effective jobs bill, even when it is generously offered to small businesses. Similarly, more preferences for capital gains (exempting them from taxes when the money is invested in small businesses) goes the wrong way–without much assurance of real job creation.
The proposal for a tax credit for new workers is more promising–although I’d prefer to see stimulus and not tax cuts, this credit is at least directly related to new employment, unlike the other provisions that simply reduce the tax costs for existing businesses without any guarantee of new jobs.
Adjusting the way the federal government supports loans for college students is a long-needed reform. The current program represents a subsidy for banks that has grown through the years to provide fees to banks even though universities do most of the same administration work that they did under the direct loan programs. Banks have finangled the subsidy (as they have credit card fees, the TARP-related guarantees) into more money for themselves and less for students. It’s time to eliminate the giveaway and provide the money to students instead of to the banks. Obama is pushing the right policy here.
Ending tax breaks for Big Oil, ending the carried interest preferential taxation of compensation for investment fund managers, and not extending the lower rates for the super-rich are all good ideas. Obama finally made the needed argument that the solutions offered from the right–to extend tax cuts for the wealthiest Americans, deregulate, and maintain the status quo on health care–are just what we’ve been doing that led us to crisis and huge deficits. We shouldn’t repeat the failed experiment.
Similarly, Obama made his proposal for taxing financial institutions to pay for the costs of the federal guarantee that has been necessary to move them out of crisis through use of the TARP funding. That’s a reasonable plan, based on the degree of leverage other than ordinary deposits.
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crossposted with ataxingmatter
Linda,
I’m a little more optimistic about the investment tax credits for capital, but that only pulls planned investment forward and doesn’t have a long term effect unless there is some expectation that aggregate demand will pick up. And the jobs tax credit is okay too, as far as it goes. But these are all small ball ideas. And his hope that we’ll have export led growth is fanciful. There’s still a flight to the dollar, which is keeping the dollar higher than it should be, thereby hurting exports. We need a weak dollar policy if we’re going to count on export led growth.
Linda, I’ve already commented in the topical thread, but ignoring consumers and the lending institutions will cause the announced small business policies to fail in job creation. Can’t expand small businesses without new customers for increasing demand. Without increasing demand and lenders willing to lend no point in expanding or making capital improvements. He’s just helping one of three problem areas. Too little.
Linda:
Change the paradigm . . . when the financial services business can garner 40% of the corporate profits pre-2008; it is a reflection on how much an industry passing paper and not creating value with labor input has monopolized the economy or ~31% GDP in 2007. If we wish to export something of value than we have to make something other than SIVs. In any case, jobs will increase creating more consumption as a result.
They need to cap interest rates on credit cards and, in general, expand the availability of credit to consumers. Now, what would that cost the U.S. Government? Zip.
MG, I agree with the cap on CCs, but wonder how to expand availability of credit. I’m thinking some kind of guarantee program from the Fed, and that might cost something. Any other ideas?
The capital gains relief for small business fails because the only way a small business owner can take advantage is to sell the business or the interest in the business.
And what does that accomplish?
If you tie capital gains relief to small business startups you have to find people willing to invest now and wait many years for the possibility of tax relief – if the economy was good this would already be happening, in a bad economy it won’t happen much.
And job creation credits fail unless we would provide 1) a really massive credit in percentage of new wages or 2) find enough business owners willing to spend $20000 plus dollars to earn a $3000 tax credit.
I have no problem leasing out California. Well, we’re doing that now. Ok, sell it.
Incessant tax cuts are the Bush strategy for the economy. I would think we had enough of that. Obama ought to be doing something different. But this shows how he has been captured and intimidated by the right wing.
..,There are lots of people that won’t agree with this proposals… i am hoping that they would do it in a better way.. i myself is not in favor for this…
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A job creation idea.
Removing the 15% Payroll tax would be a great idea. There is NO reason why that cant be permanent and the currency issuer just fully fund the SS/Medicare permanently.
Other tax cuts are probably working backwards to induce hiring. Better to just directly subsidize certain jobs. Cost would be the same but it could start today.
Well, cutting the payroll “tax” is an idiot idea. Whatever happened to “most economists agree it’s the employees’ money.”
I don’t know how they plan to hold Social Security harmless… or if this is just part of the plan to kill social security. But in any case the whole point of Social Security is that it is the workers paying for their own retirement/insurance.
And one more time… the problem with the economy is not that taxes are too high, but that demand is too low. Low because the tax cutting and de-regulating geniuses of the past ten years have created an economy in which people are afraid to spend.
“And one more time… the problem with the economy is not that taxes are too high, but that demand is too low.” ***And jobs are too few, resulting in*** “an economy in which people are afraid to spend.” coberly, annotated by Jack
I think Jack is agreeing with me, but just to be sure: jobs are not too few because business taxes are too high. jobs are too few because people are afraid to spend. afraid to invest.
Coberly,
Well, cutting the payroll “tax” is an idiot idea. Whatever happened to “most economists agree it’s the employees’ money.”
I don’t like the idea of cutting the payroll tax since its used to pay for current benefits. However, I have to quibble with the notion that “it’s the employees’ money”. I think not, I thinks its spend money which is the same as no money.
Coberly,
Well, cutting the payroll “tax” is an idiot idea. Whatever happened to “most economists agree it’s the employees’ money.”
I don’t like the idea of cutting the payroll tax since its used to pay for current benefits. However, I have to quibble with the notion that “it’s the employees’ money”. I think not, I thinks its spent money which is the same as no money.
Krugman, cute as ever, says his instant answer when asked what he thinks of the Obama folk is that they are not stupid or evil, which makes them an improvement over the prior batch. Now, however, he is concerned that they are pretending to be stupid. My suspicion is that they are learning from observation. The Bush administration and the GOP in all its active encarnations thrives on saying things that are stupid. Bad results, like Katrina, Iraq and recession are punished, but making really stupid excuses for behavior is apparently a political advantage.
The problem is, the Obama guys have not learned the whole lesson. They need to sound stupid, but not behave badly. Bank rescue of some form was needed, but they signed on to what is turning out to be – surprise, surprise – the Bush administrations huge transfer of wealth to bankers as the price of having a banking sector. Behavior – along with a bad economy, of course – is what they are being punished for. Make stupid excuses for behavior, but make sure the behavior is not going to earn you a kicking.
I’m not sure I would say afraid to spend Coberly. Most of the people with money are spending at the levels they always were, if not more because things are cheaper. The problem we have is that what people thought was “investment”, that which stimulated more growth, was actually casino activity. People sitting on piles of money thought their money was being used to build other things (thats what they had learned from Mankiws textbook) so they felt like they were actually responsible for others growth by their savings. They had no qualms sitting on it and living off the interest because it was stimulating economic growth…………..it wasnt. It was deflationary because it actually removed capital form the economy which the rest had to make up for by borrowing. Well the results of the borrowing are upon us and many people are simply looking for the 200-1 longshot to hit so they can cash out. Its pathetic but endemic. No one wants investment, which would be good, but everyone wants windfall, which is lottery winner mentality.
Coberly
I know you were rather dismissive of my post in the original SS thread where I copied Warren Moslers position on SS. You said it was cute or something like that but I really think you may have missed the point of it. We do not have to FUND social security. We simply have to decide how much money our seniors get, which would be a reflection of what percentage of resources are allocated to them. We do NOT have to save money aside, what good is that if there is nothing for them to “have” down the road. Our “spending” needs to maximize production but the govt does not need to “save” for anything. Its a specious notion.
So removing 15% from peoples checks for later is unnecessary and silly. Let our leaders, elected by the people and speaking for them hopefully decide what percentage of resources our seniors get. Let them make those political arguments and suffer the consequences instead of letting them hide behind the facade of “We cant afford it, we have no money” because that is ALWAYS a bullshit claim when you are a sovereign currency issuer. Finance is a human created thing, it came after money was invented. Resource allocation is economics/politics and has been around for ever. Lets not let the politicians hide behind finance anymore, make them deal with economics.
Cantab
I suppose if you spent your money for a new car you would have no money. but you would have the car.
Greg
I agree with that. except that people in the lower reaches of the economy do tend to hoard their money in bad times.
Greg
as i said before, i half agree with your cute idea. it reminds me of some of mine. but first, people need to at least think there is a relation between their work and their money and what they get. a check from the government funded by inflation would still be welfare. and if your cute idea has a way to avoid inflation, you are still subtracting goods and services from “the economy”, of which at any given time there is a limited supply. i do not agree that we need to “maximize production.” A day spent fishing is better than a day spend working.
Coberly
Even if we continue to “fund” SS the current way, there is no guarantee that when the retirees go to spend their money that it wont be inflationary. If there is a shortage of goods and services, those that are not contributing to further production will just compete and drive prices up. Goods and services are being extracted from the economy under either “funding” method, that is mainly my point. THAT is the economics and we tend to get off track and argue about funding which is a smokescreen.
We do need to maximize production from everyone working or else we will have shortages of things and high prices, especially of things which everyone seeks to have.
Yes a check from the govt could be referred to as welfare or it could simply be referred to as deferred compensation. Those that dont like it will call it welfare, those that dont mind will call it deferred compensation. Its no different than some calling SS a ponzi scheme and some calling it (by its proper name) insurance.
I dont know about a day spent fishing but a day spent golfing certainly is.
They hoard it if they have it I suppose. Mostly they just seek it in bad times.