Tax cuts are pledged why??
We do know from Mike Kimel’s Presimetrics that the political message that tax cuts raise revenue is false. In particular, here are two looks at the topic from data from the last decade. It does appear that many want to continue what was done during this last decade…hold on to your wallet!!
David Cay Johnston at Tax.com notes (h/t Mark Thoma):
Just as they did in 2000, the Republicans are running this year on an economic platform of tax cuts, especially making the tax cuts permanent for the richest among us. So how did the tax cuts work out? My analysis of the new data, with all figures in 2008 dollars:
Total income was $2.74 trillion less during the eight Bush years than if incomes had stayed at 2000 levels. …
Even if we limit the analysis by starting in 2003, when the dividend and capital gains tax cuts began, through the peak year of 2007, the result is still less income than at the 2000 level. Total income was down $951 billion during those four years.
Average incomes fell. Average taxpayer income was down $3,512, or 5.7 percent, in 2008 compared with 2000, President Bush’s own benchmark year for his promises of prosperity through tax cuts. …
Bruce Bartlett at Fiscal Times notes:
Republicans are heavily invested in permanently extending the tax cuts enacted during the George W. Bush administration, all of which expire at the end of this year exactly as the legislation was written in the first place. To hear Republicans, one would think that the Bush tax cuts were the most powerful stimulus to growth ever enacted and only a madman would even think of allowing any of them to expire.
The truth is that there is virtually no evidence in support of the Bush tax cuts as an economic elixir. To the extent that they had any positive effect on growth, it was very, very modest. Their main effect was simply to reduce the government’s revenue, thereby increasing the budget deficit, which all Republicans claim to abhor.
Contrary to Ronald Reagan’s 1981 tax cut, which was a simple across-the-board marginal tax rate reduction, the Bush plan was a hodge-podge of tax gimmicks designed more to win the support of various voting blocs than stimulate growth.
And the only thing that made GDP and tax revenue come in at all was consumer credit expansion and growth in “bubble job employment” facilitated by the housing boom. This pulled demand from the far future and resulted in overcapacity.
This trick doesn’t work twice in a row.
you know that tax cuts are the answer to everything. cut taxes once to stimulate the economy, cut taxes again to keep the boom going, cut taxes again to cut the deficit…
someone who knows the actual history should comment, but my understanding is that taxes were raised to fight WW2 and yet the economy did right well. no reason not to raise a “deficit surtax” to reduce the debt. a little government spending on selected projects oughtta take care of the “stimulus” problem.
the way i see it is the money is (still) there. just no one is spending it. so tax it, let the government spend it (not give it back as tax cuts). put the people to work. the people spend, and pretty soon private enterprise gets its animal spirits back. besides with all those taxes, even the rich would have to get a job to make some spending money.
But don’t we hit the “zero bound” some day on that?
My view is the government can do “stimulus”, but worthwhile government spending on infrastructure is too long term because it needs lots of planning, design, etc… before major employment happens and major procurement of equipment and materials happens.
So we don’t get anything that great out of government spending.
Now if someone said let’s build the Hoover Dam, and weekly unemployment numbers be damned, maybe we would end up with something.
Bartlett’s right. There are a few items in the grab-bag that are justifiable as social policy (the child tax credit, relief for two-income married couples) but most of it is the epitome of ‘nice to have, if you can afford it.’ Which we can’t. Personally, i’d follow Obama’s prescription on the regular income tax rates; integrate the child tax credit & the earned income credit (as suggested by Adam Carassao & Gene Steurle a few years back); do a revenue-neutral reform of the AMT instead of just indexing it as-is (several good ideas at the Tax Policy Center); and let the estate tax & capital gains/dividend tax cuts expire, or pay for them with other progressive tax changes. That’d still leave almost $2 trillion in tax cuts, and rather than covering that whole cost with offsets within the next 10 years, we should aim to cover the costs by the end of that 10-year period – so it’d have to meet the PAYGO requiremnt of not adding to the deficit beyond the 10-year horizon.
Then i’d set about reforming the payroll tax. For example: let the current OASDI tax expire on March 31; on April 1, start a new payroll tax that covers a broader base (all wages, at least some non-wage compensation) at half the rate (6.2% rather than 12.4%); and then over the couse of 2012-2014, phase in a carbon tax & a low-rate (~5%) VAT to fill the gap, with the proceeds dedicated to the SS Trust Fund. Back of the envelope, that’d probably cost around $700 billion over the next couple of years (good stimulus when we need it), and if it was structured right it could actually pick up slightly more revenue than the OASDI tax after 2014 (so it’d be cost-neutral from the standpoint of the SS Trust Fund over 75 years).
I think it was the Treasury and Fed bailout of the banks that averted GD2. Not that we want to do that of course. But they had to unfreeze the credit lockup, otherwise the real economy does freeze up.
A lot has to do with stopping panic mentality, in markets, financials, business and the consumer. The banks bailouts did that and the stim plan probably stopped a few consumers from panicking.
My point is that I don’t think we get anything long term, including job growth, out of stim spending because it is short term in nature.
But we don’t have an Obama Dam, and Bush’s face hasn’t been chiseled into Mt. Rushmore yet.
Y’all– Why not tax all income at the same rate, progressively? Now, if I have said something awful, it’s just because I’m nowt but a liberal arts major and I know nothing of the world. NancyO
well, much as i hate to say it
engineers and planners are people too.
i bet if you looked around you, you could list a bunch of things that need done that are going undone because no one can think of a way to make a huge profit out of it. i’m all for the private sector except when the private sector sits on its ass to wait out the recession.
as for the zero bound
no, of course not.
once taxes are zero we just keep going and print money to give to rich people. i suppose we could give them poor people, who don’t pay taxes, to polish their boots or something.
i was pretty skeptical until i hit your recommendationi for the “OASDI tax.” then i knew you were an idiot. Social Security is an insurance program whereby the workers pay for their own retirement and other insurance protected by the government managed pay as you go with wage indexing finance system.
it is not welfare. there is no sane reason to try to pay for it by taxing someone else. please, we don’t want the dole.
whatever cockaminie scheme you come up with to “pay for” social security other than the current worker paid system, the workers will end up paying for anyway… except they won’t be able to “follow the money.”
and that’s true whether it’s taxes or investing in stocks.
and it’s not clear, but it doesn’t sound like you really understand the SS trust fund either. it is not supposed to be like your grandaddy’s trust fund that he gave you so you’d never have to work. it’s just a goddam bank account. a place to put your money until you need it.
and there is no good reason to worship a “paygo” requirement for the budget. sometimes deficits are good.
we might or might not get job “growth.” we would get some work done and put people to work doing it.
We’ve got the Catalina Mountains here, but being AZ, John Kyle has diverted some campaign funds to have a local artist sketch out where McCain’s and Palin’s face should go.
We are a little miffed around here that we do have a FDR project that’s still around, and the R’s have nothing to point to to get the aged population around here excited about. There is a paved hiking road 6 miles long going back into scenic Sabino Canyon that was origionally a FDR make work project. Been repaved a few times because people prefer that to rattlesnake infested trails, and if you don’t want to walk it there is a little tour bus you can ride for 8 bucks.
But we think John and Sarah smiling down from above on our golf resorts should be good for the tourism and convention biz.
Still, I wish they would repave our tennis courts and buy new nets before we have to pay for those in yuan.
The Bush tax cuts were no good, because they weren’t sufficiently targeted to the rich.
That is the entire message of his piece.
I’m trying to like him since he speaks truth about the current Rethigs, whose policies make no sense at all, and Baggers, whose policies make no sense at all. But he is still an ideology-blinded supplier sider, whose policies make no sense at all.
We are SO screwed.
Thanks for setting me straight on all of those points i didn’t make. If it makes you feel any better, i don’t think SS benefits should be cut, or need to be. But as you know, SS benefits are based on a formula that takes into account earnings during your working life – not the amount of taxes you’ve paid into the system. It’s social insurance: everybody pays in under one formula, everybody takes out under another formula. There’s no reason that one forumla can’t be changed (the pay-in part) while the other one’s left alone (the pay-out part). And if the pay-in part can be changed in a way that falls a little heavier on higher-earners, lowers the tax burden on jobs & speeds our economy’s transition to clean energy, why would that be such a bad thing?
Rhetorical question. Please don’t answer that – your blood pressure’s probably high enough already. Have a nice night.
This statement caused me to think:
“my understanding is that taxes were raised to fight WW2 and yet the economy did right well.”
I was not aware during WW II, however, my training and working life has been involved with doing what was done in WW II with new enemies and new tools.
I have considered “mobilization” in the main for individual weapons and also the broader economy.
In WW II about 40% of the US economy, and the economy in main grew rapidly to make more war materials, went to the war effort. This is incredible efficiency, only 60%overhead to produce huge output.
This occurred through centralized planning and control (no market force here), not only of inputs but of pricing, profits, rationing and so forth.
Taxes (and selling war bonds) were helpful to control “demand” for things production of which did not help or could hurt the “war effort”. Taxes became part of the planning and control mechanism along with bond drives, the effect was the overhead was limited 40% went to the war effort.
In the later 20th century, demand limits to 98% of the population are not dependent on taxation, off shoring, collapse of the housing ATM scam and so forth took care of that.
There is no career in taxes controlling the profligate ways of the 2% who own the place.
There is no national emergency that requires efficiencies as achieved in 1944. There is no basis to do a fraction of what was done then in the US today.
Or is there?
you know the details better than i do. i was just thinking that high taxes do not necessarily kill the economy in spite of all those economists in long robes walkling around chanting “taxes kill jobs, taxes kill jobs.” maybe sometimes in some ways taxes is bad for us. and maybe sometimes in some ways they are the medicine that’s good for us. but economics is religion not mechanics.
Bartlett has long criticized that tax cuts as not having much stimulatory effect because they where phased, which caused business men to delay expenditures, and had a sunset clause which had a simalar effect. Did you even bother to read Bartlet?
If my congressment trys to claim that tax cuts are needed to stimulate the economy, I’m going to denouce him as a charlatan, and cite my buddy Mike Kimmel’s work as proof.
I’m for a confiscatory tax on this nations wealthy, and I’ll vote for no politician who wants anything less. Screw the rich.
Some of my best friends are engineers.
If I hadn’t read Bartlett, I wouldn’t have been able to paraphrase him with such succinct accuracy.
I could have made his point a bit more explicit by indicating “the rich and business”, but I thought that fact that the “rich” includes business was rather clear in Bartlett’s context.
Phases and sunsets are timing and implementation details – they don’t change the central point.
do they have jobs?
it occurs to me that i am being excessively rude here to woods who is probably on the good guys side.
but after years in the trenches i get mad at not only the enemy, but at the well intentioned people who can’t or won’t think… and end up doing the enemy’s work for him.
i certainly understand the emotion. but some of those rich folk are actually useful and do find useful things for the rest of us to do.
and you don’t need to confiscate their money. a return to pre Bush tax levels would be sufficient, about a 3% increase. i’d make the increase across all levels, just to keep the poor and the poor middle class honest. i would devote the 3% increase on the poor to paying for their medical insurance and their own retirement benefits.
The wealthy and corporations do not pay very much under our present and previous governing regimes. Nothing will change. The game is rigged by those who have the wealth and power. They care little for you criticisms, statistics, and charts. The Supreme Court has empowered corporations to act as voters, and with the money they spend on their candidates comes the power to make laws. I predict these laws will not be unfavorable to our rulers.
Maybe yes, maybe no. Marx included engineers as an absolutely essential part of the proletariat, but we’ve all heard how that’s been going.
oh ye of little faith.
but let me ask a question for purposes of something to think about. suppose corporations paid no taxes at all. then the money to run the government would come from taxes on poor people (lets say the rich avoid taxes also). now, since poor people buy stuff from corporations, and they have less money to spend, the corps are going to have to lower prices or sell less… less money for them. so how exactly do they come out ahead in this game?
on the other hand, suppose ONLY corporations paid taxes. the corps will be the first to tell you they will just pass the costs on to their customers. but since the customers aren’t paying taxes, they have the extra money to pay the higher prices. so exactly how are the corporations, or the people, hurt by this arrangement?
if the economy is “efficient” it doesn’t seem to me to matter at all where the taxes are collected.
[note… i don’t think the economy is ever “efficient.” what happens is that different power groups can and do rig the game so that they get more than what an efficient economy would predict that they get. but if i am right, it means that most of the “economic” discussion we have about policy is just noise. we need to pay more attention about the power relationships that determine who gets rich and who gets stepped on. to some extent the political discussion does talk about that… but almost always cloaked in a veneer of entirely meaningless “principles of economics.”]
oh, yes, i am not sure an “efficient” economy is such a good idea either. it seems to me that that would force a perfectly short term get what you can while you can ethic… and no country that lives by that rule can last long.
Certainly there can be no substantive disagreement with what you say. Tom, however, has the more functional point. Wealth knows no rationale for its need for greater wealth. That need is achieved by rigging the market game, but it is further assured by avoiding all avoidable costs. Some how a fair share of tax requirements are seen as an avoidable cost, a cost that can be shifted to others. It’s been going on now for about half a century. Shifting the costs of maintaining our society has always been part of our traditions. It waxes and wanes changing directions only when circumstances become virtually unbearable. Our society is not unique in this regard. Greed may not be good, but it seems to be a part of the fabric of man.
i agree. just trying to understand the mechanism here. certainly if you tax the poor and give the money to the rich, the rich are going to get richer and the poor poorer up to a point. that point is likely to be where the economy crashes entirely, as in France about 1789… but again, i’d be looking for the actual cause and effect links before i get carried away with my own rhetoric.
the point, if i have one, so far, is that all the rhetoric about gummit bad private enterprise good… doesn’t seem to mean very much at a first level of analysis. not saying it doesn’t at some other level, but i haven’t seen the case made yet. aside from the arm waving.
for what it’s worth, i think the ‘right’ would argue that greed is part of the fabric of man and capitalism captures the energy of that greed and turns it into the greatest good for the greatest number, or some such. they could even be right. but not absolutely right. mostly you just have short term self interest dressed up as eternal economic priniciples.
what’s insane here, given the title of this thread, is that the same people who are crying about the deficit are calling for tax cuts.
becuse if we cut taxes enough John Galt will come back and save us all by creating jobs.
Ask the ASCE.
80 to 90% would be more effective.
Exxon and many, many others have beaten you to the zero tax for corporations finish line. They won that race, pal.
hush, my friend, you weren’t supposed to notice.
nevertheless, that’s what they always argue.
Jeremy would not be amused at the liberty you’ve taken with his philosophy. I doubt me Social Darwinism will ever disappear which makes it no less vile.
Two kinds of infrastructure spending, in broad, broad terms. The spending to build it, and the spending to maintain it. Building it has a far longer ramp to the big spending period. Maintaining, in a sane world, would be planned right from the outset and never require delay to plan – or offer much opportunity for one-time stimulus spending. The way we do it, there is plenty of room for one-time spending to catch up on neglected infrastructure, though the time needed to get ready is longer than in a sane world. Still shorter than new construction. Sadly, there is only a trillion dollars or so in needed repair work on existing infrastructure.
“in a sane world…”
in a sane world when the state hires workers and agrees to pay them 75% of the prevailing wage “now” and 25% when they retire, the state would budget for that. Instead we have… the state and the big newspapers crying that the state can’t afford to pay the “generous” pensions that somehow the devious public employees have tricked them into promising. That campaign worked so well five years ago… they cut pensions… that they are doing it again.