Tax extenders legislation
by Linda Beale
crossposted with Ataxingmatter
As most everyone knows, the Bush tax cuts were passed as temporary measures, with a provision sunsetting the cuts at the end of 2010. Back when the GOP controlled Congress passed the series of Bush tax cuts, they knew that they were creating a whopping deficit but said that deficits don’t matter. They were worried enough about appearances, though, to make the tax cuts temporary and be able to claim lower deficits than if they had been made permanent from the outset. They were quite clear that they planned to make the tax cuts permanent eventually, but they figured that revenue losses of $1.3 trillion or so in the first ten years of the tax cut were about all that they could get by with.
In the meantime, a few things came along that upset the applecart. First, the deregulatory agenda combined with casino banking to create a “perfect storm” financial crisis that quickly mushroomed into a deep recession. In Bush’s last years in office, billions were committed to bailout the financial system and plans were begun to put in place an economic stimulus package to attempt to thwart another depression along the lines not seen since the 1930s. Second, the ongoing wars in Afghanistan and Iraq continue to swallow billions annually. In that context, making the revenue reductions permanent starts to sound like crazy thinking.
Obama campaigned (somewhat foolishly, from my perspective) on retaining the tax cuts for those in the lower four quintiles, but letting the cuts lapse as scheduled for the wealthiest Americans ($250,000 or more in income). The fact is that we have huge revenue demands from the banking crisis/recession and the ongoing wars, and we cannot afford to continue a foolish fiscal policy by extending the tax cuts permanently.
One of the obvious items that should be allowed to lapse is the treatment of dividends as net capital gains subject to the preferential rate. GOP Senators, like Chuck Grassley from Iowa, are arguing that all of the tax cuts must be extended, even for the rich. See Heflin, Senate GOP: Small Businesses Would Suffer if Tax Cuts Expire, July 13, 2010. They claim that we shouldn’t tax the rich, because the rich will put their money into small businesses and that will be good for business: taxing the rich would mean that it would “dry up the funds of small-business owners and make it harder for them to expand their operations.” Id.
They even got Holtz-Eakin–a Republican economist–to argue that we need to extend tax breaks for the wealthy on the old claim that tax cuts foster economic growth. This is like the claim that the estate tax causes the loss of small family farms–it sounds good, is picked up by the media, fits the ideology of the “starve the beast” crowd, but it has the unfortunate attribute of not being true. We have achieved growth more consistently in periods of higher taxes, not vice versa. The “theory” on which the “tax cut equals growth” rests is a mixture of outright buffoonery (the Laffer curve “idea” drawn on a napkin and treated as though it were a scientific hypothesis by the Tax Foundation and Cato Institute types) and irrelevance (the Chicago School economic theory that makes assumptions so far removed from reality that it cannot be considered a reliable instrument for policy considerations).
Update: Rdan..Republican tax nonsense is worth a read and has a great chart.
Of course, the rich will just as likely put any money not paid in taxes in an offshore bank account that they hope to keep hidden from the IRS or in an emerging country market or in stock purchased in the secondary market, which doens’t help small business at all. The only way that anyone helps a business is to put money directly into the business. Most purchases of stock don’t put money in businesses–they are just financial transactions among people who own financial assets, not investments in businesses. This use of “small business” is just a ruse–the right-wing figures that ordinary Americans think small business is a good thing, so they provide a lot of rhetoric about protecting small businesses. But they are really just shilling for the rich, who have enough money to invest in small businesses whether they pay 2001 or 2010 tax rates.
Why doesn’t Obama just say: “We’re starting over. We’re not extending anything. We’re going to pass a new middle class tax cut.” Then he can put new legislation in front of the Republicans and let them veto it.
As long as things are framed as extending Bush’s tax cuts, anything Obama doesn’t extend will be viewed as a tax increase by Obama, and the Bush tax cuts that get extended will still be Bush’s tax cuts. Obama can even give the middle class a larger tax cut than they got under Bush because tax cuts don’t need to be offset by spending cuts, at least according to the GOP.
Such appears to be the message. Well stated.
A little reality to counter Linda’s revionist history.
I have said in the past that Bush was a far better economic Prez than was allowed in the press. He cut the deficit by 2/3s in a lttle over two years. That is actually impressive. He lowered unemployement to ~ 4.5% in that same period. Unlike clinton who started on an economic upturn, Bush started with a downturn and tried to govern after being attacked. He did this while cutting taxes. TWICE!
Moreover, when he campaigned for his first term, we were in an annual budget suplus, and he promised that he would reduce taxes to give that suplus back to wage earners. The Govt, when it has a surplus, will always spend it. There is no way to save! So even spending by redeeming treasuries, paying down the debt is still spending. BTW, paying down the debt is a two edged sword. It actually is taking away the safest place to invest for the many billions (China, Japan, the EU, etc) of retirees and those saving for retirement who are the actual
> “I have said in the past that Bush was a far better economic Prez than was allowed in the press.”
Say it all you like – it doesn’t make it true.
Bush took the largest budget surplus ever, and squandered it into the largest debt ever.
He chose to start an unnecessary war in the middle east, and to do so, he caused us to lose the war in Afghanistan. Bush is pretty lucky to have evaded war criminal charges so far.
Whether taxes are going up, down or staying the same, we need to know soon.
Otherwise businesses will put the most pessimistic tax assumptions into decisions models and projects will not move forward.
Certainty always beats uncertainty.
Hilarious! Deficits = bad. Paying them off = bad. I guess the only good policies come from pols with Rs by their names.
not sure “shilling for the rich” is exactly right.
the very rich know better.
what the Rs are doing is telling the ignorant masses, including small business owners, what they want to hear. so they will vote for the R’s, giving the R’s the power to…ahem… reap the spoils, and of course enjoy the power which is always nice.
the small businessman and the better off worker for wages will certainly like to have their taxes cut. they will be too stupid to know they pay for it with a worse economy, and when they have given the really nasty folk the power they need, they won’t even know why really bad stuff happens them.
just as a rich company can afford to take losses by undercutting a smaller competitor, the customer will not be better off in the long run, however many pennies he saves today.
i have to agree with that. one reason i hate all this tax gaming, “fine tuning”, looking for the “optimal” tax rate.
the damn taxes need to be set high enough to pay the bills. the economy will work it out from there if it knows what to expect.
AS, that’s not what I said, but you keep believing the Dem talking points. Looking at those charts what is it I said that is not true?
Annual deficit reduced by 2/3s? Check!
Taxes used to stimulate us out of the 01 recession. Check!
Taxes (1st round) given back to wage earners because of surplus. Check!
Deficit expanded to stimulate us out of recession. Check.
Policies got us out of the recression. Check!
On a track to balance the budget. Check!
Of course, if you listened only to the MSM or visited the left leaning blogs, none of this was obvious. That’s not to say we conservatives were all together happy with Bush’s performance. Not paying for the Medicare expansion and the wars are not what we wanted.
Rusty, I agree with you completely. It’s not just taxes but clarification of the regulatory environment that is affecting business planning. This administration is the most anti-business that has been in place since…??? Continued demonization, sector by sector, is no way to add confidence. It only leaves decision makers with one thought: Who’s next? On top of that we have constant attacks on those who are making profits.
With that level of uncertainty, no smart business person is going to be very aggressive in his planning.
Dale said: “what the Rs are doing is telling the ignorant masses, including small business owners, what they want to hear.” So the Rs have a better, more acceptable message.
Michael H said: “Bush took the largest budget surplus ever, and squandered it into the largest debt ever. ” Not factually true. The largest debt ever as a percentage of GDP was in WWII.
The word squandered is interesting. It implies that the excess was misused. If so, you must point to your fellow tax payers/wage earners who received those tax cuts.
Bush, after all, is a Republican, and they believe in lower taxes and smaller Govt. Regardless of party, excess revenues get spent! There is no other way to handle them.
Bush was on a track to reach that point of annual budgetary surplus. This administration, I may be reaching here, your preferred administration, has no hope of coming close. They appear to not even be trying.
So cry all you want about Bad, bad Bush, but your preferred policies are not working. Bush’s clearly were.
The real voters know it! How’s that for electioneering Dan?
But, why are Dems running against Bush? I can assure you folks, he will not be on any ballot. 🙂
I’m sorry Corev — you are lying by changing your story.
I am not surprised. That’s the kind of deceit you commonly practice.
I called you on your lie about Bush’s economic performance, by pointing out that “Bush took the largest budget surplus ever, and squandered it into the largest debt ever. “
You came up with some nonsense about “largest percentages”. My correction to your original statement is clearly about absolute numbers. The old republican cherry picking — gets you every time.
Under George W the war criminal president, we had a Treasury Secretary who headed up an investment bank that committed massive fraud, and when their excessive risk taking put the company at risk, came to the rescue and had the taxpayers pick up the bill, i.e. AIG bailouts.
Things are no better under Obama, so I cannot see how he is anti-business. He is certainly anti-accountability and pro-Wall Street fraud.
Blurt, are there no other businesses than investment banking he has attacked? Off the top of my head, I remember Pharma, medical insurance, oil, autos, coal electric energy producers. If we sat and thought we could probably come up with several others. So, yes, he is anti-business.
I said: “I have said in the past that Bush was a far better economic Prez than was allowed in the press.” Then MichaelH provides his own strawman argument, then when I try to respond tells me I am changing my story? MichaelH, you must at least respond to theprimary point. “Bush was a better economic Prez than presented by the press.” Your beliefs are not a response.
OK MichaelH, as for your claim that Bush “squandered it into the largest debt ever. ” is also factually not true in one other respect. Since you want to use absolute numbers, today’s debt is larger than any Bush ever had! Bush is not, today, the Prez.
BTW, for your edification, the June 30, 2010 one day deficit exceeded the entire Bush 2007 ANNUAL deficit.
Also using percentage GDP in long term comparisons is common to offset the temporal drift of dollar values due inflation. But if you insist on using meaningless absolute numbers, go right ahead.
So let me recap. Bush did take over the historical peak in surpluses. I disagree that a large surplus is necesssarily a good thing. Long term it clearly is not. The actual public debt when Clinton left office was in the ~$3.5 – 4T range. The surplus was in the ~$230B/Yr range. Ten years at that rate would have pretty much cut all the fat from the debt and would have been cutting deeply into the retirees investment accounts. You do realize that the bulk of our treasuries are owned by pensioners and pension funds (Even those owned by the Chinese, Japanese and the UK.) You obviously are unaware that treasuries underpin many of our financial institutions (insurance companies, banks, etc), and much of that is required by law. So I can only assume you want those institutions and your Grannies pension to be less safe.
Why is that again?? What important political point are you making?
I tried to correct your use of comparing absolute numbers with large temporal time scales. If its any consolation, you’re absolutely correct, but the comparison is nearly meaningless.
Oh Bull Shit! put down the bottle
Anti pharma? Data requested please.
Taxes used to stimulate us out of the 01 recession. Check!
What “stimulated” us out of the recession’s jobless recovery of 2002-2003 was the mortgage industry going bonkers 2003-2005, with about $500B/yr of cash out “withdrawals” as home prices started skyrocketing due to the lowering of lending standards and new innovations of zero-down, negative-am, teaser-rate, and sub-prime lending, all things that are again banned now that the adults have regained control of government.
Ooh, here’s a pretty picture if you can’t understand the words I just wrote:
“Obama campaigned (somewhat foolishly, from my perspective) on retaining the tax cuts for those in the lower four quintiles”
The lowest four quintiles don’t really shoulder the tax burden so keeping their cuts are neither here nor there.
The top 5% got 44% of the Bush tax cuts.
The top quintile pays 85% of the income taxes according to the Heritage Foundation. We’ve gotta tax them since they’ve got all the money these days.
Blurt, did you forget all the bully pulpit ranting zgainst BIG PHARMA during the healthcare build up?
Troy, sigh! Is that all you have? The same ole talking points. BTW, take a better look at those charts I provided.
Take a look at the chart I provided.
Here’s the link:
Any economy will VOOM if you pump five trillion of consumer debt into it in five years (2002-2006).
To think the Bush tax cuts had anything of the impact of this debt expansion would make you rather ignorant of reality.
Mortgage equity withdrawal was $500B in 2005. At $50K per job, that alone could support TEN MILLION McJobs of the erstwhile Bush economy.
Of course, mortgage equity withdrawal is also highly correlated with people walking away from their houses in the aftermath of the Bush Boom.
Typical Pump n Dump. Saw it with the S&L crisis, and we’ll see it the next time the Republican crew crawls back into governance.
Morgage Equity cashouts were padding the GDP growth:
We were living on borrowed money and borrowed time 2002-2006. The wheels started coming off in 2007 and the engine threw a rod or three in 2008.
Real genius there. Ch-rist what an ignoramus you either are or pretend to be.
Troy said: “Typical Pump n Dump. Saw it with the S&L crisis, and we’ll see it the next time the Republican crew crawls back into governance.”
Pump & Dump is a neat catch phrase, but politically and economically meaningless. We stagger from one economic bubble to the next. The business cycle, don’cha know?
The prior cycle, Tech Boom, was ridden by your last successful Prez. Policy success, or as Mike Kimel admitted once, Just pure luck?
So, there is no argument with your point. You still, however, need to address mine. If anything you have reinforced it. Is your failure to admit that Bush’s economic successes have been unreported or under reported just evidence of brain washing? Was the reporting lies?
So, does your rant prove anything? The housing bubble helped the economy and then caused the recession. As did the tech bubble.
Troy, what’s your point? No one argues that the housing bubble was a/the major determinant in the bubble’s growth and burst.
The charts I provided make my point re: Bush’s comparative success. Your charts actually reinforce them. Consumers borrow and spend in good economic periods. We’ve been on a public and private borrowing spree for decades. Your housing equity bubble is just one of those sources for that private borrowing.
The impacts of getting caught over your head from that borrowing during economic down turns is a lesson lost to the boomer and Gen-X generations.
The difference between the tech bubble and the RE bubble is one of magnitude and one of feedback effect, and also one of misinvestment and outright economic harm.
As for the latter point, a man outbidding me for a share of Worldcom stock does not harm me in the slightest. A man outbidding me for a place I need to live in this world does.
As for the first point, there was speculation but it was 1/10th the size of the speculation in real estate.
Mortgage borrowings nearly doubled from $5.4T in 2002 to $10.5T at the peak in 2007-2008. (Federal Flow of Funds Report, Table L.100, Row 27).
This was a turbo injection of money into the system (prompted partially by your beloved 2001-2003 tax cuts, btw, as giving money to everyone will inevitably cause rents and home prices to be bid higher given the supply/demand situation of housing).
Rates falling from above 7% to below 6% also encouraged valuation increases. But the real kicker was the abandonment of previous lending standards by nearly the entire free-market mortgage industry (Wamu, Countrywide, Wachovia, and hundreds of other lending fronts who are no longer with us now). What resulted, if you can remember in your apparently enfeebled state, was a virtuous feedback cycle of inflating housing values and cash-out refis. Real Estate was going up and everyone in the sector was making serious bank — mortgage brokers, real estate agents, flippers, producers of flipper TV shows.
But real estate, unlike tech, does not “help” the economy. Real estate is consumption, pure and simple. Real Estate investment increases our standard of living, but does not increase our productive capacity. It consumes it.
Is your failure to admit that Bush’s economic successes have been unreported or under reported just evidence of brain washing? Was the reporting lies?
LOL. Lies told by professional idiots and/or liars.
Nice slogan…you lose, suckers. The gamblers got ya…
Also, I am not so sure your going to sell the incomplete numbers on the deficit…
Troy, nobody is arguing with you re: the housing boom. Nuanced or not!
What is the purpose of your links to my point?
I’ve said more and more often lately, it is easy to tell when your point is hitting the center of the target. When the counter arguments devolve to ad homs and strawmen then the target is ranged and hit.
Thing is, wages didn’t go up to service the added borrowing and debt loads. The whole $5T bubble was a pure ponzi play that absolutely dwarfed the tax cuts (which were largely banked by the top 5% who collected ~40% of the benefit of the cuts). What Bush tax cuts didn’t end up in hedge funds ended up pushing up the cost of real estate.
As this chart:
shows, the GDP rises of the Bush Recovery were funded by unsustainable borrowing against (largely phantom) home equity due to the inflated valuations caused by the bubble mentality in real estate 2004-1Q07, plus the overall economic activity the increasing income flows directed into the housing sector threw off.
$500B of cash-out spending a year was an immense stimulus, as was the overall transaction volume of over $1T moving through the real estate sector, a sector filled with skimmers.
All this activity was just one big circle jerk from an economic standpoint. Little produced means of production resulted from these trillions of “investment”. New or rehabbed houses aren’t going to be paying anyone’s bills.
The wealth may be gone, but the debt remains. There may be a FOUR TRILLION dollar overhang that will be grinding us down for the foreseeable future, much like the Japanese experience 1990-now.
Your point was that the $250B/yr 2001-2003 Bush tax cuts helped the economy.
My response — that the $500B/yr mortgage equity withdrawals and the $1T+ housing purchase activity 2004-2007 had more to do with it what “recovery” existed 2005-2008, was neither ad hom or strawman fallacy.
Just the facts. The administration allowed a really big asset bubble to blow, and we’re stuck with TRILLIONS of debt from it.
This of course doesn’t even count the national debt rising from $3.3T to over $6T, on his watch either. The Bush economy was run on borrowed money, trillions of it, and we’ve got precious little to show for it other than crippling debt loads and a much wealthier upper class.
Troy, why do you keep arguing with yourself? I do not dispute the impacts of the “Housing Bubble.” I do question your duck is smaller than my elephant argument that you are making.
Are you saying that if Bush had done nothing we would have been at the same place? Dunno, there not a whole lot of evidence for that.
And finally, you do seem to be saying that the Bush $6T debt is worse than Obama’s $13.2T? Nah! Nobody is that desperate to make a point.
Note that there are two threads running in close proximity one of which dsicusses the solution to the problem outlined in the other. Taxation is the answer to excessive compensation; not as a means of redistribution, but as a means of exacting a price for the lavish level of income being doled out to publicly owned corporations run by sefl interested individuals at the expense of their share holders. Ike was president and business was booming, and taxes were sky high at the upper brackets. Seems like a plan. Exdecs were well rewarded, but not with a king’s ransom. Who on Earth is worth mutiple millions of dollars per year. One can’t spend that kind of income fast enough to get it back into circulation. You can only buy up other financial assets, as Linda seems to point out. That’s poor economic structure. Tax it and spend it, but get it out there so that others can work to earn it.
Yup! Your chart confirms there was a housing bubble. It even occurred during the Bush administration.
Now make the case that that elephant, which was not evident on your chart in the Bush recession, drove us out of the recession.
Dan’s getting into the election season spirit.
To whom and what comment portion were you referring?
My two cents worth: I agree with the story & Jack. Show me what’s wrong with what Jack said. I know that my simple points are not always liked, but, can you explain to me why if you line up the CEO’s, with out their clothes, along with the multitudes of workers in the same sense, what is the difference between them? Don’t give me that they are the brightest of the bright, or that they should be rewarded for making stupid desissions that cost the taxpayers to shoulder the burden.
There is also the issue of the supposed greater value of the executive group in any corporation relative to the general employees group. Often one hears that the CEO “added great value to the company and is being rewarded for the income increase, stock price appreciation, etc.” The implicit assumption in this line of reasoning is the the general employee group added nothing special to the performance of the company, that only the executive group was responsible for that enhancement. Can any line of reasoning be more deficient or deceitful?
Salk and Sabin between them were critical to the eradication of polio in this nation and maybe the world. They had others working with them, but they were the lead investigators in each of their situations. I would doubt that either received in a life time what any CEO of a Fortune 500 corporation receives in a single year, year after year. If you agree with the current method/system by which executives at major corporations, especially publicly traded companies, then your head is firmly in a hole in the ground. Or more likely up a dark, warm and odoriferous place.
Sorry, I’ve been trolled enough on this beautiful day.
Ok, here’s the data in pictorial form. The green box is the 2009 stimulus, for scale.
wait, that’s not quite right with the deficit spending area effect.
The important takeaway, of course, is that the promise of the 2001-2003 tax cuts were far from realized.
Something happened on the way to the forum with that whole idea, as the events of 2008 so vividly demonstrated.
The tax cuts certainly benefited the upper quintile, but the lower quintiles had to fund their own stimulus with new, unsustainable debt.
CoRev — you are running around different blogs making the claim that the federal budget was on course to be in surplus in a couple of years if the US had had two more years of growth.
I’ve checked what the CBO was saying in 2007 and 2008 and they were projecting expanding deficits as far as ahead as they could see.
Can you provide us with a link to a reputable source making projections of future federal budget surplus ahead in 2007 and/or 2008?
Spencer, why the misinformation? Check the Bush 07 budget. He was claiming, IIRC, balance in 2011. Why quote sources after the recession was being recognized? What’s really intriguing is that you are ignoring the charts I have provided.
The reason I am doing this is to counter the other misinformation (spin) being put out by the administration. Voters can and will believe the spinmeisters or they can believe their eyes. Policy impacts in action.
As Dan says, it’s election season.
Spencer, do you dispute my two bookend statements?
Annual deficit reduced by 2/3s? Check!
On a track to balance the budget. Check!
You will have to go to Confederate Yankee to sell it…the charts are what Bush was claiming right before an election. Aha! Case closed I guess. If your comparing to Obama spin, so what. The point is to figure out a sane policy that provides benefits to…..????probably filling in the blank is where arguments occur.
I think the only way to compare using your metrics is to wait for Obama’s 5-7th years in office. Ok by me for this thread.
“I think the only way to compare using your metrics is to wait for Obama’s 5-7th years in office.”
If he can get past his 3rd & 4th years. There’s a great deal of pessimism on that issue.
Yep……Your right!, now ride your Pink Unicorn over to the Daily Kos and whine to them about it….We are all stocked up on crazy here!
“Things are no better under Obama, so I cannot see how he is anti-business.”
What do mean no better? It’s an absolute disaster, and not even close to Bush Years? If the buisness community had any faith in Obama and the Democrats as being leaders who can legislate in fashion that was good for buisness then we would have seen some results, instead of the situation getting worse everyday….Good For Buisness? Uh-huh…
“Bush took the largest budget surplus ever, and squandered it into the largest debt ever.”
I am assuming you meant “budget deficit”, because debt is different, and has grown in every administration.
When Bush came to power, revenues were decreasing. The left likes to point out that the tax cut was for the rich, and the war was not paid for. The truth is, everyone got a tax cut, and the theory being, we had to figure a way to maintain growth during a recession. The economy grew every year during Bush. Some like to point out that growth was not as good as it should be, and that’s debatable, but we made a hell of a run during a recession and dealing with 9-11 and a war on two fronts.
When the economy is growing the deficit is managable. Since Bush was able to maintain growth, revenues actually trended back upwards and peaked at the start of the 2007 Recession back to the levels of when he took office.
The situation now is much worse. Triple the deficts as far as the eye can see, a declining economy, revenues decreasing again, the debt cap has been raised, no growth in sight.
The obvious difference is growth in the economy. Bush had it, Obama seems to not want it.
The housing bubble was not legislated by Republican or Bush Policy. The Bush Administration pointed out in 2006-2007 that the Bubbble burst was coming and wanted to do something about Freddie and Fannie, and the Democrats told him he was crazy…why?
The housing Bubble was already a major problem when Bush took office. As much as everbody wants to pin it on one Man or one Administration, the truth is, it’s the entire the cultures fault.
If your gonna practice for this upcoming election…your gonna need to work on, trying to figure out how to sell misery as happiness.
Try…”No…that’s not a $#!T Sandwich your eating…it’s just a ‘Previously’ eaten sandwich.”
“It’s not green…it’s Blue plus Yellow”
“Well that all depends on what your definition of “Is” is!”
CoRev’s insistence on the superiority of W’s economic performance makes me wish that he’d take some time from his forthcoming memoir to go out and campaign for the GOP this summer. Let’s let W be W on the stump and help his Republican candidates get elected. I’d write a $100 check to help with those travel expenses. It’s worth that much just to see the best parts on The Daily Show