Obama’s FY 2011 Budget
by Linda Beale
The Obama Administration released its FY2011 Budget proposals today which assumes a substantial amount of tax cuts (making the 2001-2003 Bush cuts permanent for most Americans costs about $3.75 trillion over ten years) and some tax increases to cover important programs (about $1.9 trillion), resulting in a substantial net tax cut of almost $2 trillion over ten years. See press release and Green book.
The press release claims that the Administration’s plan covers “short-term tax incentives to create jobs and encourage business investment, …proposals to deliver tax relief to middle class families and small businesses, and its blueprint for restoring fiscal discipline and responsibility to our tax code.”
Personally, I think most of the tax cuts are stupid and will do very little to create jobs. Passing a law to permit modification of home mortgage loans in bankruptcy would do more than any item in the bill. And many of the famlies offered “tax relief” are not really middle class–they are the upper middle/lower upper class. They aren’t the ones the Administration should be focussing on. The best way we could help ordinary Americans is to get more people at the lower end spending more. That would let the businesses thrive that are threatened by the drop in spending as people face difficult times, and letting businesses thrive means creating new job opportunities. And the best way to do that would be to use the money wasted in these tax cuts on real programs to create jobs–public infrastructure and public education. And how can you claim that a bill that includes even more tax expenditures for businesses that have been proven not to work except that they give managers and owners more money to spend on themselves (or invest overseas) is a bill that “restores fiscal responsibility”. Nah. I don’t think so.
Naturally, the media are plugging this as a tax hike. See, e.g., Donmoyer, Obama Seeks $1.9 Trillion Tax Rise on Rich, Business, BusinessWeek (Feb. 1, 2010). The Donmoyer story starts out with “the Obama administration wants to increase tasxes on Americans earning more than $200,000 by almost $970 billion.” But of course that’s achieved by letting the law Congress passed in the Bush adminstration play out as the law was written to play out–eliminating the tax cuts which were described as “temporary” measures that were expected to stimulate the economy. Now, if tax cuts really worked as economic stimulus, we should expect to have seen robust job creation over the entire Bush administration. But even though Bush began two wars of choice (Iraq and Afghanistan), which tends to make the military-industrial complex happy and sometimes also creates more jobs as soldiers go to war and others have to fill in back home, neither the war machine nor the temporary tax cuts managed to crank up the economy past weak growth.
The Obama administration takes as a given extending the Bush tax cuts to everybody earning less than $250,000. Most people in government probably think of that as an average wage, but folks making $250,000 are actually quite well to do. The Administration also proposes continue to “patch” the AMT to protect the upper middle class from paying that tax. The media keep repeating that “originally it was intended to ensnare millionaires and now it gets people at lower incomes” but they never read the history. For a long time, the AMT has been intended to get people who have quite high income ($250,000 to $500,000 qualifies) and who have lots of “preferences” that reduce the amount of tax they pay too much. Instead, the AMT expands the base and taxes it at a nearly flat rate. We need to make some corrections to the AMT, but we don’t need to protect the $250,000 to $500,000 group from its impact.
The Obama administration has scaled back its proposals aimed at companies that shift profits offshore. It won’t include a proposal to drop the check-the-box rules–an administrative change that facilitated all kinds of offshore gamesmanship by the big multinationals. Instead, the administration proposes to crack down more on transfer pricing. My view–it will be hard to make the crack down effective, because this is a place where businesses have the facts and can manipulate the results. It’s clear, though, that the transfer pricing changes are targeting the right area–the transfer of intangible properties that are created in the US, so that future profits are offshore. But will the concept of “excessive returns” do the trick? Not sure.
Obviously, big businesses lobbied with complaints about their “competitiveness” to get these watered down provisions. This is just whining–but whining that works on vulnerable congresspeople who don’t want to recognize that the US, after all, is a tax haven, with lower effective corporate tax rates than most OECD countries. It isn’t the tax structure that is keeping US corporations –like Campbell Soup, GE, and Caterpillar–from competing. It may be their over-paid management that has lost the ability to think lean and act smart.
Other business tax changes proposed here don’t make much sense. Making the research & development credit permanent is another one of those crazy giveaways that will reward drug companies for developing a tweak to a patent that keeps them in monopoly profits a little longer and raises our medical care costs even faster. We should instead be investing that tax expenditure money in funding basic research at universities. The expensing writeoff for businesses investing in equipment is just another concession to the lobbying–nobody has shown that it works, and it probably doesn’t work to create jobs. But we keep doing it anyway.
So is there anything I like. Yes. The proposal to ensure that carried interest is characterized appropriately as compensation income. The managers of big equity funds have been playing a game with their wages for years–one that is not clearly sustainable under the Code as written. They claim they earn capital gains, and then they defer their income “to boot” by claiming to work for offshore companies that are essentially mailboxes in the Caribbean run by people in the US. That tax dodge shouldn’t work to start with. And the Congress surely should make sure it doesn’t with a clear statement clarifying the law that such items are 1) compensation and 2) earned currently.
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crossposted with ataxingmatter
Linda
I agree with you. Which puts you in bad company. What happens when you try to explain this to your Congressman, your local Democratic or Rpublican paryt, or your highly respected.. they have respect-o-meters… academic peers?
Linda,
Thanks for the clear eyed analysis. We’re in trouble in spite of having a Democrat in the White House and in control of both houses of the Congress. So what’s new?
Please answer a question for me. I have looked through summarized renditions of the new budget. While much of the rhetoric sorrounding the issue of the deficit character of the budget focuses on Social Security as an entitlement, I can not find any reference to Social Security spending as a cost feature of the budget. What’s up? How are Social Security benefits a problem for the budget if they are not listed as a part of the budget? Have I missed something in the budget summaries? It is also difficult to find the Medicare costs
in the budget summaries, though I have read that the general budget does bear some of those costs? There seems to b e a discrepency between the actual budget line items and the budget rhetoric.
Linda,
He’s your guy….so you live with it! Some nits
When did Afghanistan become a “War of choice”? I missed the memo. Iraq and Afghanistan are not Bush’s Wars. They are America’s Wars and were overwelmingly supported by both the Dems and Rep every chance they had to vote from 9/11 until today. Every time without exception. Obama is securing the victory in Iraq and surging in Afghanistan to broad support. I don’t remember even one march in protest during the past year. Sounds like pretty broad support for America’s current War on Terror.
Secondly, All active duty and a lot of the reserves are full time employees of the military. They don’t leave jobs when they are in Iraq, North Korea, or Bosnia. That is their job and they would still have them even if the entire US armed forces were inside the CONUS. The idea that the troops come home and rejoin the civilian economy (except for Guard and Reserve call-ups) is obsolete. Its the WWII model that no longer applies.
I like the AMT! Glad you do to. It mostly snares people in high-cost of living areas on the coast – i.e. blue states. Since they want higher taxes I’m all for them paying it!!!
The idea to not give preferential treatment to R&D research is just dumb. We should be doing everything in our power to help companies, especially medical and drug companies, to bring new and innovative products to market. I want the guy/team/company that finds a cancer cure to become obscenely rich. Same with a order of magnitude better battery. I could go on. We should ALSO be pumping money into basic research both public and private. Your hate for the drug companies bias you against sound policy.
As for fraud and closing loopholes. All for combating both. The Dems are in charge and this should not be a problem. Lets start by getting the $500 Billion in fraud, waste, and abuse out of the Medicare budget that the Dems says was there in the HCR? Just pass that – should be easy to get overwelming bi-partisan support (like Bush did for 7 straight years on Iraq and Afghanistan) to combat this budget drain. Right?
Really Linda, and others on AB for that matter, how does it feal to be out of touch with both the Dems and the Reps? A lot of you guys are way out in the cold with ilsm and MM.
Islam will change
Jack,
Sociall Security has its own budget. It’s interaction with the Treasury budget is through lending money to Treasury and receiving interest from Treasury. Thus the money in the budget discussed here that is slated for interest payments is where you’ll find Social Security mentioned.
Payments between the two budgets are an issue for the “Social Security threatens budget” folks when repayment of principle from Treasury to the Social Security Trust begin. It was fine to take FICA payments to fill in the deficit, but somehow taking other tax payments to fill in the Trust fund deficit is bad.
This administrations proposed budget stikes me as insanely too high in it’s percent of GDP.
Right now the BEA is showing GDP at $14,896.9 Billion. Since the Budget is for 2011 GDP will hopefully be larger with a reasonable wild guess that it will grow by 3 percent. So roughly GDP in fiscal 2011 will be around $14,896.9 billion. Computing percent of GDP spent by the federal government is 3,800 / 14,896.9 = 25.1 percent.
In the 60s through the 00s federal spending a percent of GDP generally has been in the 18-19 percent level. This running up the federal spending to 25.1 percent with the corresponding massive increase in the fedral deficits and debt show this administration is on a menical mission to wreck this country. The right size the federal budget is more like 14,896.9 * .19 = $2.83 tillion.
If Obama was just a crazy liberal maybe he would propose a budget of 3 trillion dollars. But he’s gone right past crazy liberal to someone trying to drive our economy into the ground and cause long term damage to it. Therefore, the republicans need to filibuster any budget materially higher than $2.8 billion, since it’s the only responable thing to do.
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Buff, you were doing just fine until you poked them in the eye! So, let me help correct the conservative view for those you claim are out of touch.
Liberal policies have been tried now for one and 1/2 Lib Dem Congress, and the first year of an even more lib Prez. How’s it helped the economy? Jobs? Health care? The environment? The fight against the Jihadists?
From a conservative’s view the only things that have had a modicum of success is the continuation of the Bush policies in Iraq, Afghanistan, and the drone attacks wherever the Jihadis live and hide.
Guantanamo closure is a disaster. Trying KSM and the other “selected” terrorists on US soil, another disaster. Health care reform, even again a disaster. Stimulus, nope, didn’t. Need I go on? There are more.
Just how callously political is the party of compassion and fairness? The overwhelmingly damning question is why did this Prez delay getting to a jobs program? That delay has extended the recession and deepened the pain caused by the unemployment and/or under employment.
The rest of us are just counting the days waiting for November, 2010.
Buff,
The liberals want to increase spending by the federal government from 18-19 percent of GDP to over 25 percent of GDP. To pay for this they first want to impose a massive new tax on the wealthy including business owners. Latter its a sure thing that they’ll be raising taxes on everyone going down the income scale.
Size matters. $3.8 trillion is too big.
By the way, do you know what the trillion dollar excess spending is going to buy us. I’m thinking they could cut a trillion off this budget and I would never miss it.
The overwhelmingly damning question is why did this Prez delay getting to a jobs program?
Like with the Clinton administration they just anticipated that the problem would solve itself and they could step in and take credit for it. Remember Rahm Emanual’s “Never allow a crisis to go to waste”. Those are the word of somebody who does not realize the seriousness of the challenge at hand.
I haven’t found Linda’s campaign literature on her site during the primaries Buff…can you give some links??
Rdan,
Sorry, making an assumption that she is a Democrat. If not I apologize!
Republican opposition to anything, even legislation co-sponsored by Republicans and then voted down by the sponsors?
Can’t have it both ways. I am sure Bohner feels the same. Where does that leave us?
CoRev,
Did I poke them in the eye? I just pointed out the obvious, this IS a reality based blog I thought. The fact is that there are numerous posters and some of the people who can put up articles who seem from there tome or words are just not in the mainstream of political thought or reality. Neither the Dems or Reps. My first point is a perfect reality based example. Afghanistan and Iraq are America’s wars. Not Bush’s. They both had overwelming bi-partisan support on every single vote, even now with a Dem President and huge Dem majorities in the House and Senate. Its like calling WWII ‘FDR’s war’.
And I agree with you. After watching Clinton win in 1992 you would think Obama and the Dems would learn its all about jobs (mostly keeping them for senators and congressman). That should have been job #1 when he hit office – not signing the GITMO “I’ll close you someday, maybe” closing directive!
Islam will change
Dan, I have yet to read anywhere what was the final form of the bill. If the turn about was a strictly political move then I give them more credit than they deserve, but disagree with the move. But, my first thoughts were what changed?
I actually support such a commission if truly bipartisan, because it is one of the most successful approaches to make basic, politically damaging change happen. A presidential commission is/was a nonstarter. No teeth, and all fluff.
I am still left with that earlier question: Why did this Prez not follow up with jobs legislation? That delay has extended the recession and deepened the pain caused by the unemployment and/or under employment. All politics and little compassion!? Dunno, but it sure is painful for too many.
Kharris,
Right on the money. They have been using the trust fund to mask the deficit – well sooner or later that will end. And it should be obvious to all that no one actually wants to pay it back….
I am truely starting to think that Obama may be the one to gut SS….which I have trouble wrapping my head around. A Dem might be the one to actually kill FDR’s signature New Deal program. Just unbeleivable…
Islam will change
Buff, yup, you poked em. Glad I didn’t. 😀
DAn, I’m sorry, but if you really don’t undertand that the past year’s policies unsettled and confused business persons, then we are on totally different wave lengths. That confusion created by the policies on top of a deepening recession made for a business climate where risk avoidance was the only path. Add to that the demonization of big/selected businesses unnerves business owners. Don’t you think they wonder: “How long before it’s my business sector’s turn?”
Dan, I’m sorry, but if you really don’t undertand that the past year’s policies unsettled and confused business persons, then we are on totally different wave lengths. That confusion created by the policies on top of a deepening recession made for a business climate where risk avoidance was the only path. Add to that the demonization of big/selected businesses unnerves business owners. Don’t you think they wonder: “How long before it’s my business sector’s turn?” This is not the way to engender businesss expansion. Just the opposite.
Buff,
Sorry, making an assumption that she is a Democrat.
This seems like a good guess to me given on her website she starts her profile with the following lines.
Yes, I have considerable confidence, in spite of the conservative effort over the last four decades to turn government into a handmaid of the wealthy and prevent it from serving
the people through deregulation, privatization, tax cuts and militarization
So she wants tax hikes, a puney defense, nationalization, and heavy handed regulation. And given that she does not waste her vote on some third party communist i’m pretty sure she’s a democrat.
Cantab![]()
Buff,
Sorry, making an assumption that she is a Democrat.
This seems like a good guess to me given on her website she starts her profile with the following lines.
Yes, I have considerable confidence, in spite of the conservative effort over the last four decades to turn government into a handmaid of the wealthy and prevent it from serving the people through deregulation, privatization, tax cuts and militarization
So she wants tax hikes, a puney defense, nationalization, and heavy handed regulation. And given that she does not waste her vote on some third party communist i’m pretty sure she’s a democrat.
Why haven’t we heard about the tax increases in this budget? Why have we not heard about the false assumptions re: revenue (passed Cap & Trade) in this budget? Spending increases and increased taxes?!??? Didn’t we tell you? Tax and spend and borrow, but we never expected it to be this bad.
Buff “When did Afghanistan become a “War of choice”? I missed the memo. Iraq and Afghanistan are not Bush’s Wars. “
So there was no choice to go? I seem to remember a resolution authorizing force voted on by congress. That makes it a choice. It might not have been a choice to you or me, not having a vote at the time, but there was clearly a choice and Bush chose to go. Well before that according to the Downing Street Memo’s and other sources. He owns it, now Obama owns it too. You can argue for or against, but that there was no choice? That’s just ridiculous.
“The idea to not give preferential treatment to R&D research is just dumb. ” … There seems to be this entire government entity devoted just to that. I’ll let you find them all on your own.
“Lets start by getting the $500 Billion in fraud, waste, and abuse out of the Medicare budget that the Dems says was there in the HCR?” I thought you were all for health idustry profits. Where do you think that money is going?
Buff “When did Afghanistan become a “War of choice”? I missed the memo. Iraq and Afghanistan are not Bush’s Wars. “
So there was no choice to go? I seem to remember a resolution authorizing force voted on by congress. That makes it a choice. It might not have been a choice to you or me, not having a vote at the time, but there was clearly a choice and Bush chose to go. Well before that according to the Downing Street Memo’s and other sources. He owns it, now Obama owns it too. You can argue for or against, but that there was no choice? That’s just ridiculous.
“The idea to not give preferential treatment to R&D research is just dumb. ” … There seems to be this entire government entity devoted just to that. I’ll let you find them all on your own.
“Lets start by getting the $500 Billion in fraud, waste, and abuse out of the Medicare budget that the Dems says was there in the HCR?” I thought you were all for health idustry profits. Where do you think that money is going?
Buff “When did Afghanistan become a “War of choice”? I missed the memo. Iraq and Afghanistan are not Bush’s Wars. “
So there was no choice to go? I seem to remember a resolution authorizing force voted on by congress. That makes it a choice. It might not have been a choice to you or me, not having a vote at the time, but there was clearly a choice and Bush chose to go. Well before that according to the Downing Street Memo’s and other sources. He owns it, now Obama owns it too. You can argue for or against, but that there was no choice? That’s just ridiculous.
“The idea to not give preferential treatment to R&D research is just dumb. ” … There seems to be this entire government entity devoted just to that. I’ll let you find them all on your own.
“Lets start by getting the $500 Billion in fraud, waste, and abuse out of the Medicare budget that the Dems says was there in the HCR?” I thought you were all for health idustry profits. Where do you think that money is going?
Ricky,
“When did Afghanistan become a “War of choice”?
From the beginning since we always had the option of giving up to OBL.
Cantab,
So what. Registered or not, or an independent. And your list is is only slogans without any thought, nuance etc. or reality testing.
I understand that confusion occurred, yes. And it is all unsettling. And business looks to stability. And risk avoidance for main street businesses and households is a predominant emotion. I see GS making tons of money in carry trade and commodities…built on my taxes. It is confusing. Why you see Republicans in their current form a benefit is what confounds me.
I don’t know…did you read the budget? And slogans and waving hands doesn’t cut it. Write a post and I may post it. One has to be careful with spending and taxes, but I haven’t seen care taken by Republicans either.
Rdan,
Last year John Boehner showed us what it means for the GOP to offer a budget alternative. It was a four page cartoon (literally!) that had no numbers. It was fiscal policy for the GOP target group…the low information voter.
Slugs,
If you take the 2008 budget and increase it at 3 percent a year you are under $3.1 trillion (and that was a budget with a large deficit). Now Obama’s budget has shot up to $3.8 trillion, so it seems to be at least 800 billion too high. $3.8 trillion is the cartoon, and Americans are getting sick of the Loony-Tunes running the government. That was the true message of Scott Brown’s election to the Senate, and you can forget about what the Maggie person was trying to sell us.
Buff
“He’s your guy” but “Iraq and Afghanistan are not Bush’s War’s”
I think you are not being very consistent.
But let me say I, too, am an American. and not a Democrat or an Obamaist. In fact I got in big trouble with some thin skinned people when I referred to him as yo bama.
I, we, will criticize Obama when we think it’s for the good of the country. I hope you don’t persist with this “he’s yoru guy” nonsense.
Does the $3.8 trillion budget include tax cuts?
exactly why i called him yo bama. he may do right in the end (i have heard rumors) but he is scaring the hell out of me at the moment.
CoRev
not sure those drone attacks are doing us any good. kill a terrorist leader and his kids. a new terrorist leader steps to the fore, but 1 billion people remember the kids.
Cantab
Like he said, the low information voter, with the cartoon logic system.
Dan said: “Why you see Republicans in their current form a benefit is what confounds me.” because we have now several years of history of a Dem dominated Congress and a year of Dems having a super majority and the presidency. Nothing looks good under their leadership.
What have they done to better the country and your/our lives?
Dale, don’t start in with the name calling. Those low information voters are what Dems have relied on for two generations.
A tax cut for whom? A tax cut for today’s upper income “worker” means a tax increase for tomorrow’s worker. A tax increase for today’s upper income “worker” means a tax cut for tomorrow’s worker.
Cantab,
The 2008 budget was a knee slapper at the time Bush presented it. It pretended that there was no war (those costs were deferred to the supplementals), it didn’t have any TARP monies, it didn’t have any recession monies and it didn’t have prescription drug benefit of any consequence because that cost was pushed into the Obama years.
Well folks, always glad to stir up a hornet’s nest. Let me respond briefly to the arguments made.
1) Buffpilot.
a) My guy? Whatever my politics, I try to be frank about my criticisms of pols, be they Dems or Republicans. Nobody is “my guy” if that person is not doing what I think he should be doing. Obama has done fairly well, given the hostile environment (a Republican party of no, a bunch of “blue-dog” Dems that haven’t got any vision of the future). And I think his biggest mistake was to bring in the Wall-Street-Comfortable-Crowd of Geithner and Summer, who tend to go with what they know, which is not much different from the failed policies that got us into this mess.
b) Afghanistan not a war of choice? Whenever we go to war, we choose to do so. Bush chose to retaliate against Al Queda’s attack in New York by attacking the Taliban in Afghanistan. I opposed the invasion at the time, because I questioned Bush and the Bush cabinet’s ability to deal with such a complex area in a wise way that would have a sound result. We have squandered vast resources in these two wars, that could have been used in much sounder ways to build better airport security systems, improve intelligence gathering, etc. I question whether war will prove to have been wise. I know it will prove to have been extremely costly. Either way, it was a choice. That the American people tended to support the Afghanistan war doesn’t prove much to me. We Americans support many stupid policies, because we are by nature very short-sighted and easily swayed by the vast sums of corporate dollars spent to sway us.
c) The military budget is not fixed for all time. Yes, many of our soldiers are currently full-time employees (up until the time they can retire–rather early–and get retirement benefits while holding a different job). Many are also reserves that have been called up for duty from their regular careers. But many are also mercenaries. In fact, substantial amounts of our military budget have now been contracted out (a part of the privatization policy pushed by Reaganomics and loved by Rumsfeld). That means they are much more expensive–The BlackWater employees in Iraq cost 2-4 times what a real US soldier cost (and of course were wild cards with no accountability for most of the war). The gadgets and gimmicks we invest in are outdated before we build them, but we keep investing most of the time anyway, because of the effective lobbying of the military contractors. We can cut immense amounts out of the military budget, but it requires a complete rethink that Washington (Dems or Repubs) seems incapable of. Paul Kennedy wrote back in 1989 a history of sovereign powers He noted that as they grow, great powers tend to resist overinvesting in military, because they are concerned with domestic growth and security. But as they decline, they tend to overinvest, because they have taken on too much, are stretched too thin, and yet tend to think of themsevles as still the superpower that they once were. In questioning the vast expenses in our military budget I am merely calling for a reevaluation of these expenditures and whether they make sense for this country. Do they make us more secure? Questionable. Is it necessary that we spend as much as we are spending to be secure? Questionable.
continuation:
d) Research & Development. You are missing the forest for the trees. I certainly don’t think R&D is bad or that we don’t need it. We do. The question–which you disregard–is whether a TAX CREDIT increases R&D. Most studies that I’ve read–I’ll try to get some cites later but just noting this for now–suggest that the credit does not increase R&D. I’ve argued many times that the best way to increase research (which I think is a good thing) and foster innovation in technology, disease prevention and a myriad of other categories is through funding of BASIC RESEARCH at research universities. That is, in fact, where many of our advances have come in the past. That direct funding means that dollar for dollar goes to support real research that may or may not find a practical use but that wouldn’t be done without noncommercial funding. Commercial R&D by businesses tends to be very focused. It tends to be small-minded, tweaking rather than big-thinking, creative and innovational. Not always, but most of the time. So if we want to get more bang for the buck, we should invest in funding through NSF and similar ventures that support basic research at universities rather than through giving pharmaceuticals (a big user of the R&D credit) a boost for coming up with a tweak that extends their profit-making patents well beyond what the Framers could possibly have envisaged for patent rights. Perhaps even more importantly, the credit regretably is likely just to be a windfall and not further incentivize research. Companies that need to do research in order for their business to survive will do the research without a credit and will get appropriate deductions which mean that they are not taxed on the income that they invest in the research and development. That is a proper expense, but turning that expense into a windfall credit does nothing to ensure that even more R&D will be done. That’s the point of the tax policy issue.
e) Countering my complaint about loopholes with a statement about Medicare doesn’t make much sense to me. We aren’t talking about Medicare here. I suspect there are ways to remove ridiculous loopholes in the health care system, of course–the most important would be to either get rid of or tightly regulate the profits that insurance companies can make as middlement in the provision of health care. Right now, they charge exorbitant premiums for delivering as little medical care as they can get away with. NOt a very efficient process.
Continuation
Cantab
You work your usual of taking a simple statement, rephrasing it to say something it did not say, and then attacking the rephrased statement. I said that I don’t want the government to be the “handmaid of the wealthy.” That is a worry for any institution, as money begats power and power begats control and control begats actions in favor of the controler. I believe that one important role that the tax system can play is as a barrier against that accumulation of power. I then go on to say that if government becomes a handmaid to the wealthy, they are able to prevent it from serving the people through “deregulation, privatization, tax cuts, and militarization.” These four things were the cornerstone of Reagonomics and have proved to be enormously costly to ordinary Americans. Opposing deregulation, by the way, is not the same thing as favoring “heavy-handed regulation” as you suggest. Instead, opposing deregulation recognizes the enormous force of a capitalistic economy, which we have, towards accumulation of wealth and power, and so calls for adequate regulation to prevent important systems–such as the financial system–from being captured by the regulated (ie. the banks). Deregulation is the primary cause of our current recession and of the financial crisis–the deregulation of swaps permitted banks to engage in casino gambling with the economy as hostage, in an enterprise that added nothing to ordinary people’s lives because the money from the gambling filled the banks’ and bank executives coffers and could at best “trickle down” to ordinary people (or out to offshore tax haven hideaways). Privatization means that programs that the government can and should run itself–because of the inherent public nature of the program –are privatized and allowed to be run as profit centers by “cozy” (euphemism) businesses. The privatization of the military under Rumsfeld is a good example. The attempted privatization of Social Security is another. Militarization doesn’t need further discussion–see above. A highly militarized society, with huge swaths of industries dependent on military purchases and huge swaths of society dependent on continued militarization faces the potential for demand for wars to sustain the military enterprise. Even if you don’t think Afghanistan and Iraq were unreasonable choices, you should question the degree to which we become dependent as an economy on military spending controlled by a very few people with questionable levels of accountability to Congress and perhaps even to the President. Tax cuts are sometimes good, but when they are pursued as an end in themselves without understanding the context and the impact on the economy, with constantly repeated propagandistic claims that they are the panacea for all times, the solution for all problems–we are in trouble. The Bush tax cuts fit that description. At the time they were passed, surveys showed that most Americans did not believe that we needed tax cuts. Of course, once we have them, we never want to give them up. If you just allowed the Bush tax laws to be implemented as they were written, we’d return next year to a saner tax system and the extraordinary deficits that many complain about would practically disappear. If you selectively chose to retain tax cuts that help those in the lower half and increased taxes even more on the upper half (without enacting the same broad AMT patch, without giving small corporation stockholders a zero rate of transaction on what is really close to compensation income, without continuing the preferential rate for capital gains that the 1986 tax drafters realized was a problem), we could see a more reasonable path to the future, I think.
continuation
Oh, by the way–being against over-militarization does not mean wanting a “puny defense.” How easily you create straw-man arguments, Cantab. There is plenty of middle ground between over-militarized and “puny defense”. I’d like us to move some distance back towards that center.
And being against privatization doesn’t mean favoring nationalization. Yes, the big banks that were bailed out should have been nationalized and then broken apart to prevent them holding our economy hostage in the future. But where, pray tell, have I ever written in favor of broad-scale nationalization? We should deliberate and decide what core public functions need to be controlled by the people rather than by private enterprise. There are some. But I’m no dogmatic idiot who thinks the government should run or is capable of running the CVS store and the shoe shop and the….. etc…..
CoRev
Hah. “liberal and failed”? as compared to, I guess you think, “conservative and succeeded”? We have such a history that we can actually look back and see that we have succeeded best, economically, in terms of standard of living for all, in terms of people reporting a good quality of life, under liberal regimes. The conservative “market-based” philosophy pushed from the 70s on provided the primary ideas (deregulation, militarization, privatization, tax cuts no matter whether there are surpluses or deficits) behind the many ills that beset us today–low employment, low growth, concentrated accumulation of wealth, high inequality, distorted allocation of resources, huge debter nation. Neither liberals nor conservatives have been very good at controlling spending, but so-called conservatives (doubtful they really are, in the fiscal conservative sense) tend to spend on things that don’t help ordinary Americans (Bush’s wars) and subsidies to big business (Reagan’s change from the direct loan system to the subsidized loan system whereby banks acting as middlemen got a huge cut for doing almost nothing) while liberals at least recognize that broad-based growth is what benefits all of us more and that such growth can’t happen if we let wealth accumulate at the top and human capital and public infrastructure go undeveloped.
As far as policies “confusing” businesses–business always operates in uncertainty, and surely the tax laws as written (with the provisions expiring at the end of 2010) provide more certainty than a constant debate about “can we get this additional break if we lobby hard enough for it.” Yet the businesses push the lobbying, don’t they. The fact is, the tax cuts in this budget far outweigh the tax increases, because of the proposal to make the Bush tax cuts, in the most part permanent. And the tax increases that are here–like the removal of subsidies to Oil and Coal –are very reasonable ones that adjust an imbalance in favoring old technologies over new. The individual tax increases–only on those making lots of money anyway–are also reasonable ones. It’s clear that you can’t squeeze blood from a turnip, so you try to get tax revenues from them that has rather than from them that hasn’t got. And if Obama’s line is kept (I wouldn’t, if I were Congress), it will only be those making $250,000 or more a year that pay more. That’s clearly reasonable.
The “spend and borrow” party was the one that controlled the White House and Congress most of the Bush adminstration. Spending and borrowing increased, in order to pay for the tax cuts, in part. And the tax laws were written with the clear provision of expiration after 2010. So you can’t blame the Obama administration for the fact that those laws are on the books–they were enacted mainly in 2001-2004 by a party that […]
CoRev,
Tax increases were baked in the cake back when Bush cut taxes in 2001. That created a long run structural deficit. In fact, back in 2001 the GOP admitted that they were baked in the cake because the 10 year horizon was the only way that they could fake the numbers in such a way that they were able to get the tax cuts passed.
Obama is extending the Bush tax cuts for those making less than $250K. I’m on the fence as to whether or not the tax cuts should be temporarily extended due to the recession. The math says it makes more sense to increase stimulus spending dollar for dollar with each dollar the govt gets in new revenue by letting the tax cuts expire. The math is pretty clear on that point. The problem is that most congress critters are not econ geniuses, so temporarily extending the tax cuts for upper income types might be the best approach given political realities.
Linda,
As far as policies “confusing” businesses–business always operates in uncertainty, and surely the tax laws as written
Back in the day when I took public finance the general rule was that the big business and the wealthy like uncertainty because they owned the more elastic factors. The old saying was that the best tax was an old, established tax because it allowed all parties to adjust. A new tax regime always favors those with the most elastic factors because they are in the best position to shift costs onto those with the least elastic factors.
But I think CoRev was probably referring to cap and trade. He thinks that the specter of cap and trade is causing businesses all kinds of angst. His view is that some Sarah Palin-like renunciation of cap and trade will give businesses certainty. He’s mistaken. An incredible policy pronouncement does not increase certainty even if it’s a policy that many businesses would like to see. Certainty assumes credibiity and denying the inevitability of cap and trade is not credible.
Linda, I’ll work backwards. I didn’t say spend and borrow. I said Tax and spend and borrow, and that was specifically targeted at “O’s” administration. So taking my words (how did you phrase it to Cantie? “taking a simple statement, rephrasing it to say something it did not say, and then attacking the rephrased statement.”) Is just another debating trick. You are seriously not denying “O’s” admin is a tax, spend and borrow admin?
(More to follow)
CoRev,
Given that we’re in a hell of a deep recession, shouldn’t Obama’s budget reflect a “tax and spend and borrow” approach? What we’d like to know is what Obama’s budget would look like if we weren’t in a recession. My guess is that he’d be a “tax and spend” kind of guy as opposed to your GOP-standard-issue “borrow and spend” kind of President.
CoRev
i lost track of ‘oo called ‘oo first. But I make an exception in Cantab’s case. He comes here to play the fool, and the purpose of the fool, is to give the court a chance to vent.
Jobs tax credits are very unlikely to work, except for those who do not understand accounting.
Creating a job at $10 an hour costs about $26,500 per year with employer portion payroll taxes. So I get a tax credit of $5000, I am still out of pocket $21,500. Before i do that I need to be certain I really need the employee and really can generate enough top line to add to the bottom line.
Cap gains relief for investing in a small business is a chancy and long-term play, so why would that stimulate any new activity, except perhaps among those who were determined to do the deal anyway.
Coberly,
Like he said, the low information voter, with the cartoon logic system.
I’m the one noticing this size of the budget and commenting on it, while you just made another stupid comment.
Hi Linda:
For the most part I agree with what you have to say.
The pre-AMT or the “Minimun Tax” as it was called in the late sixties was passed because some 155 taxpayers making >$200,000 (20 were millionaires) were able to evade any Federal Income taxes. It originated at a 10% flat tax (because of who you are I assume you know this). It later evolved into the 26 and 28% tax, which according to my tax accountant is not quite as bad as many make it out to be.
The present AMT came to being in 1978 as brought to you by Carter. Capital gains tax reductions were supposedly offset by the AMT increases. It was again modified in 1982 and called The Tax Equity and Fiscal Responsibility Act. This incorporated the adding back of deductions and a $50,000 deduction with income taxed at 15% afterwards. There is more in changes; but it is not worth citing. I guess my main thought would be is $200,000 was considered rich in income in 1969, which is hardly rich in income today.
The AMT/Minimum tax was meant to capture those who paid “no” federal income tax after deductions. I am not sure what the right posture is today and I do agree the > $250,000 can afford increased taxes and should pay more. I would almost recommend the elimination of the corporate tax and have the same tax for corporations as exist for individuals. Since they are equal under the law as individuals in freedom of speech, coporations should also enjoy similar taxing up to 39% of course and exposure to the AMT.
I don’t care that companies offshore; but, I do care when they leave the US to evade taxes and emerge to sell their cheaper products. Product made by domestic companies overseas should enjoy the same taxes as if they made it here. Great post and I enjoyed the answers you gave also.
Linda,
I put words to your innuendo and I don’t care if you don’t like it. I don’t like people that communicate using weasel word and innuendo. I voted for (in order) Carter, Reagan, Bush, Bush, Dole, Bush, Bush, and McCain. So you do it, let’s see who you’ve voted for, maybe reveal where your preferences are. I don’t have a problem being truthful and straight forward and think it would be better if more people would do the same. I don’t like lies or secrets.
If you really want to keep the few from gaining power you would be for small government, low regulation, and privatization. The powerful will always run institutions, you can’t control this, to try is to engage in fantasy. The powerful make the rules so the more rules the more the powerful will run our lives. I really don’t have an issue with the wealthy. In Boston the Johnson family (owners of Fidelity investments) provide thousands of middle class and upper middle class jobs to people in this area. The Father now is worth around 5 billion and the daughter is worth 11 billion. So it looks like this family has managed their estate planning so they won’t have to break up the company to pay inheritance tax. It really strikes me as insane for Bostonians to want to break up this family owned company that has done so much for the city and region, all for some nebulous goal of avoiding the concentration of power.
Reaganomics was great. Too bad you never understood what it was all about. The economy has done very well since 1980 and what we should be doing right now is to get back on the horse and resume the good times. In the yellow wood taking the road to the left is a bad idea since it leads to a congested roadblock (examples – The Soviet Union, Eastern Europe, communist China, and many other countries before they liberalized) so let’s take the right road.
On the financial system you need to acknowledge that it did a fantastic job raising funds. It did it so well it acted as an enabler for the housing bubble, which collapsed for many reasons (including $100+ oil). Those that think derivative brought down the system apparently don’t understand what a zero-sum game is. Zero-sum games shift risk and outcomes on who wins and who loses but it does not drag down a system. The system became stressed because the economy had a hiccup which caused the bubble to burst – this is the cause, not the composition of financial instruments.
I don’t know what you mean by the privatization of the military. I remember the United Nations and many of the NGOs in Iraq hauling ass out of Iraq after the terrorists bumped off a few of them. The contractors were NGOs that did not run and hide in Iraq. When you looked to you left and right, on the right the contractor was serving our interest and when you looked to the left there was nothing but empty space.
You also don’t understand tax cuts. Low but not too low taxes are always good for the economy and those with an understanding of economics understand the superiority of long term consistent policy rather than trying to play ambulance chaser for the economy and always coming up with policy that’s 6-12 months too late.
Now for you, how about admitting that you’re a lifelong […]
Back again: Linda, as to the unsure/unstable business environment, we are talking about business tax increases, demonization of business, demonization of success in business, we are talking about Cap & Trade, we are talking about uncertainty re: Health care law changes, we are talking about investment demonization and nonexistant investment/lending incentives. But, the real business problem is the inability of this administration to realize that consumer incentives are needed and are essentially non-existant. Consumer tax cuts are too little, too short and not efficient. Try an extended FICA holiday along with tax write offs for capital improvements, vehicles, and major purchases.
As DOLB has pointed out several times, incentivizing small business without incentivizing consumer spending generates no demand for small business to invest. In what are they going to invest without customers?
Finally, Linda, the redistribution welfare state is what has gotten us into this economic situation. We have no budgetary flexibility. What little budget is left after paying for the entitlement programs leaves every administration tied in knots trying to prioritize the diminished available revenue on what is left for discretionary spending. Increasing taxes gets us to a point where few are willing to pay.
And, that is the bottomline driving the Tea Party movement. We are teetering on the edge of a tax payer revolt. And what will set it off? That ole taking from those who are woprking hardest for those who are not. Your fairness and redistribution points. Attacking the building of wealth to make those thing happen.
Since this is a discusssion of the latest budget is there anything in it to reinforce that perceptions? How about removal of tax credits for: 1) home loan interest, 2) charitable giving, 3) 401K (not sure what and where is in it here), 4) deferred income income in its several forms other than 401Ks and 5) attacks on the Cap Gains tax.
Slugs,
Given that we’re in a hell of a deep recession,
In the coming months do you expect the NBER to second this opinion by saying we are still in recession?
I say build a court room and prison on Attu Island in the Aleutians (its the furtherest east island, furthest from the mainland and very lightly inhabited. It was taken over by the Japanese in WWII.) The weather is terrible there and being so far from everywhere would let us conduct the trails without the media circus. Allow the unemployed and homeless to volunteer for the Jury and build a nice luxury hotel for them there. Take the death penalty off the table because this is what the terrorists want, just life at supermax + where no human contact is allowed. You could even release them on the island if you patrol so that no one approaches, the weather will get them soon enough.
The contracting out of the war is done because we choose to have a 1/3 effective military. They are promised 2 years at home for one deployed, in order to attact volunteers. The alternative, which would shut the wars down rapidly is a draft, and go back to army cooks and the like ala WWII. The 1/3 use factor means that if it costs as much as 3 soldiers for a contractor you likely come out ahead.
Lyly
I didn’t notice that having a draft shut down the war in Vietnam rapidly.
Lyle
I didn’t notice that having a draft shut down the war in Vietnam rapidly.
But it did eventually shut it down it was not rapid but it did. Today the college campuses would erupt in multiple riots, particularly if you had a draft for both men and women. Also you would have to repeal don’t ask don’t tell if you had a draft else there would be an easy way to beat the draft, say you were gay, since there is less stigma to it today then back then.
2slugs, changes the subject to obfuscate, even again. It’s not about republicans.
Don’t care too much what the NBER says. 8+% unemployment is a recession – or, if you insist on fighting about words, it’s the kind of economy that calls for action on the part of the gov.
Yet, the health insurance companies make, on average, a 4% profit margin, which is what most people with a mutual fund in regular times – including every “liberal” that I know” – would consider a fairly low, unsatisfactory level of return.
If you say you want to “get rid of” insurance company profits, you are essentially saying that you want this to be a purely government function, since no private company can exist without profits.
With only a 4% profit margin, perhaps one should look at WHY these premiums are so “exorbitant,” since clearly the premiums are paying for many things well above and beyond the 4 cents the insurance company keeps from each dollar it collects. How about things that the Democrats chose to completely ignore out of political expediency and fear of one of their primary constituents: tort reform? Why is it that liberals are so concerned with insurance companies making 4 cents on the dollar, but not at all concerned with the legal industrial complex making presumably a much higher profit margin on the same dollar, and enriching people like John Edwards with bogus and unscientific medical law suits? Perhaps you can describe exactly in what way this contributes to medical care?
“And being against privatization doesn’t mean favoring nationalization…..B ut where, pray tell, have I ever written in favor of broad-scale nationalization? We should deliberate and decide what core public functions need to be controlled by the people rather than by private enterprise. There are some. But I’m no dogmatic idiot who thinks the government should run or is capable of running the CVS store and the shoe shop and the….. etc….. ”
So, you argue that you are not in favor of nationalization generally because you are not in favor of 100%, complete nationalization of the entire economy? Did someone accuse you of being in favor of this? If not, this is a mere strawman.
What exactly are you in favor of nationalizing?
Health care? (Except for CVS, apparently)?
Housing (why or why not?)
Food production?
Clothing production?
Automobile industry?
Financial industry? (How did Freddie and Fannie do?)
etc.
etc.
etc.
I will drop the “he’s your guy” when I see the left here acknowledge that 1) Bush was their President and 2) acknowledge the fact that Iraq and Afghanistan were America’s War not Bush’s and were both done in their name!
I doubt that’s going to happen anytime soon….sorta like the fact that the Dems had control of the House and Senate from 2006 onward and thus were equally complicit in the mess we are in. That fact seems to keep falling off the fact sheet (BTW how did Bush do all those unpopular things with a much smaller congressional majorities and after 2006 only minority party support? Bush that much better a politician than Obama?)
Islam will change
“”Lets start by getting the $500 Billion in fraud, waste, and abuse out of the Medicare budget that the Dems says was there in the HCR?” I thought you were all for health idustry profits. Where do you think that money is going? “
And apparently you are not for health industry profits. So why not start by getting rid of the fraud, waste, and abuse in Medicare that Democrats readily acknowledge exists, and claimed to address through the broader health care reform package? Why not address this part immediately and by itself to save the taxpayer $500B? What can you possibly have against addressing this??????
As an alternative turn the insurance companies into mutual insurance companies like many used to be before their executives decided they were underpaid. Blue Cross in many states used to be a mutual but went to wall street so that they could give stock options to the executives. Once again spineless boards of directors gave in, and the law did not protect the coop form enough. IMHO once a coop always a coop, no conversions ever allowed.
CoRev,
2slugs, changes the subject to obfuscate, even again. It’s not about republicans.
Wrong. Cantab was talking about the 2008 budget, which was Bush’s budget. Try to keep up.
Buff;
“When did Afghanistan become a “War of choice”? I missed the memo.”
It would have been as useful to invade Saudi Arabia where all the 9/11 terrists came from. Preemptive war on the other side of the world is not a “clear and present danger”, as much as it assuaged the bloodthirsty and created huge war profits.
If you attended AWC or read anything you may have heard of Sun Tzu. He said the last resort is to wage war and no “prince prospers from long war”.
Only the war profiteers and ignorant see war as unavoidable with a dirt poor country 9 time zones away.
“Secondly, All active duty and a lot of the reserves are full time employees of the military.”
The US has demobilized after Korea, Vietnam and to a small extend after 1991 when the Soviet Union collapsed under the weight of its militarists’ burden.
In this war proifteers’ dream scenario to avoid a draft and keep the uniformed population down, while fielding unreliable untested toys to reduce casualties there are a huge support and services contractor force in the areas of operations of choice.
These unmobilized resources are very expensive, take combat punch out of the fight to secure them and will likely not go away as easily as the draftees who demobilized after Vietnam.
Your sentences are a defense of militarism.
ilsm will not change
The current US “force Structure” is about 66% its size during the cold war.
It is wasting about 6% of GDP, not including the supplemental outlays to pay for the wars of choice and profits for the militarists plundering the US.
In real dollars the US DoD is more costly than during the cold war when the 6-7% drag on the US was over a much smallers economy.
How can a military reduced by one third be more costly than the old 100 percent?
Easy, more corporate war profiteers supply the services and support, as well as most of the supply and maintenance of the new, high tech, unreliable, low quality expensive toys.
There are over 100,000 contractors in the theaters, making good salaries, and profits for their high margin employers.
War is good for business that is why these wars of convenience are endless.
How do you stop the profits when they pay for good Bagmen from K Street?
Neil Young sang about “military madness destroying the country”
He was wrong it is not madness it is military profits.
For buff: ilsm will not change.
Linda,
I’m not a Private Equity manager, nor do I work at a Private Equity firm, but I wanted to ask you about your strong support for closing this “loophole”.
Let’s say I want to open large scale flower shop operation. I have my own means to capitalize the business with $100,000 initially and in five years I sell it to DOLB for a gain of $1MM. My basis is $100k, and my gain is $900k, which is a capital gain – thus getting treated as capital gains.
Now assume I don’t have the means to capitalize the business, but my brother does. In exchange for his capital, I give him 50% of the equity. My basis is $0, his is $100k and when we sell, we split the gain, so there’s still a $900k gain, I get $500k, and he gets $500k (but only pays tax on $400 gain).
Now assume that I don’t have the money, nor does my brother. But for 20% equity, my brother is willing to go out and find someone with the money. If I give him 20% of the equity, and split the remaining 80% in half, both his basis and my basis is zero and the third parties is $100k.
Note, that in all three of these examples, the economics are identical – and so far none represent the Private Equity industry.
The Private Equity industry works like the third example in reverse. The “middleman” (=PE manager) knows people with money (pensions, endowments), but with no investment ideas. The middleman is paid 20% for finding such investment ideas by the people with money, but not straight equity, they’re actually in a subordinate position, such that the people with money get preferential payment.
The character of the gain is the same in all instances.
I appreciate the argument that they are being paid a fee for their investment management career, no different than an investment broker, mutual fund manager, or hedge fund manager, but note that we tax base on the character of income, not on the job function that generates that income.