Supply-side Economics: Tea Party Style
Our colleague PGL offers this take at Econospeak on the new deal this week:
Supply-side Economics: Tea Party Style
Andrew Leonard covers the opposition to the Obama-McConnell tax deal coming from Tea Party star Michele Bachman. I’m tempted to say that her comments make me feel 30 years younger (with the hesitation that this is the 30-year anniversary of when some twit named Mark David Chapman murdered John Lennon). After all, 30 years ago we were mocking supply-siders and their Laugher Curve.
Andrew notes:
And as for what the country can afford? The total cost of the tax cut package unveiled yesterday, counting the extension of all the Bush tax cuts, the new payroll tax cut, the unemployment benefit extension and the reinstated (at a historically low level) estate tax comes to around $800 billion-$900 billion over the next two years. The cost of extending unemployment benefits for 13 months is about $60 billion. If your worry is “massive spending” then there are more appropriate places to direct your ire than unemployment benefits … we should looking very closely at which tax cuts or social welfare policies are most likely to give us the biggest bang for the buck, in terms of encouraging economic growth. And on that score, spending money on unemployment benefits gets a very high rating. Extending unemployment benefits is a sensible move for a government when it is stretched for funds when economic growth is slow and the goal is to increase demand.
In Michele Bachman’s world – is $60 billion much larger than $800 billion? Or does she really believe reducing taxes does not add to the deficit? The latter seems to be the world Art Laffer lives in. Of course, Laffer might argue that fiscal stimulus ala tax cuts will increase real GDP. The endorsement of the Obama-McConnell tax deal from the National Review certainly sounded very Keynesian:
But the deal is still worth taking: If it won’t do much good for the economy, it will avert a serious blow to it.
Of course, a temporary tax cut on the very well to do likely is not going to generate much in the way of additional consumption demand, which is why increase government spending has a bigger bang for the buck. While Tea Party types say they’d like to reduce unemployment, they oppose even modest increases in government spending. And while they say they abhor deficits, they want large tax cuts with little bang for the buck. Go figure!
Well duh? And none of the smart folks around Obama can figure this out?
Nice to hear from PGL again.
Conservatives view the issue not as a “tax cut” but “keeping taxes the same as they have been” or “not raising taxes.” This is certainly a defensible position from a logic point of view.
They view the extension of unemployment benefits as “spending” which is also certainly a logical position. A growing objection to the extension is that they feel 3 years of unemployment benefits is excessive and that people are just gaming the system while they sit at home and collect checks when they could be working, or work under-the-table. There is considerable anecdotal evidence for this notion. Plus you can get the same Keynesian “stimulus” by giving money in all sorts of ways besides the aforementioned paying people for sitting at home.
Of course “changing the law to enable the rich to pay less taxes than under current law,” is rather a mouthfull, and “tax cut” is a reasonable shorthand for it. But of course creating this sort of linguistic bastion against allowing the tax cuts to lapse was part of the original plan.
This is the most absurd piece of legislation since the Iraq war referendum. We are going to borrow 800 billion dollars and put 10% of it to work efficiently. The other 90% goes to the children to play with. Absolutely absurd, no matter what ones politics are.
I believe that the capitulation to the forces of dark and evil is to extend unemployment benefits up to 99 weeks for another year. In other words those who have been unemployed for 99 weeks–2 years are not going to benefit from the capitulation. I am sure there is anecdotal evidence for almost anything, but unemployment benefits are hardly going to keep able bodied folks from looking for good paying work. Note the two caveats–able bodied and good paying. There are undoubtedly some broken down workers who will take unemployment as long as they can before trying to get disability or taking earliy social security benefits. I am sure there are some auto workers who have turned down part time work at McDonalds too.
sammy: “Conservatives view the issue not as a “tax cut” but “keeping taxes the same as they have been” or “not raising taxes.” This is certainly a defensible position from a logic point of view.”
No, it is not. What about the words “temporary” and “expire” do they not understand?
There is considerable evidence? Care to cough some up? I mean seriously, I happen to know there is overwhelming evidence that marginal tax rates over 57% induces piggies to build with straw instead of sticks, but I won’t bother to show the evidence here.
There is theory to suggest that jobless benefits boost unemployment, but in the US, the evidence isn’t there.
The “Obama-McConnel” deal? Can we shorten that to “O’Donnell” in honor of the witchcraft involved in bringing these two together?
The following is misleading:
“Of course, a temporary tax cut on the very well to do likely is not going to generate much in the way of additional consumption demand, which is why increase government spending has a bigger bang for the buck. While Tea Party types say they’d like to reduce unemployment, they oppose even modest increases in government spending. And while they say they abhor deficits, they want large tax cuts with little bang for the buck. Go figure!”
First, let me make it clear that I am not advocating ‘trickle-down’ economics, but… it is the reality, and, it is also very possibly the only construct that is doable with a service-based-investment-driven economy, and where the US economy is concerned, the gains from the rentier-class are critical.
To begin with, the paragraph above suggests that the multiplier for government spending is higher than that of private sector spending (bang for the buck), and that is a ‘dead-horse’ argument. Plus, those ‘multiplier’ arguments are based on government borrowing costs from the time when foreign inflows kept interest-rates low and now those inflows have ceased. Of course the Fed is doing everything it can to keep borrowing costs low but the cost factors are thereby increased, and they must increase further as deflation decreases, or deflation must continue. Either way though, deficit spending has more cost without the foreign inflows. Foreign inflows are not just a source of very cheap capital but they are also a key source of supply that puts ‘natural’ downward pressure on interest-rates.
Plus, the ‘rentier-class’ is not known by that name for no reason. That is to say that the additional monies that are allowed by the tax cuts are almost certainly expansionary far beyond what unemployment funds might be (leverage). Unemployment money is merely that which is passed from the government, and then from citizen to citizen, it will maintain a certain level of consumption, but nothing is being added to the economy that did not already exist other than debt. Investment gains on the other hand are in part coming from foreign sources and via equity shares of MNCs, and that is adding something to the economy that did not previously exist within this economy. Exploitative growth perhaps, but growth of the type that the US economy depends on very heavily. Naturally though, these ugly details are not talked about much, (and of course I am not advocating anything here).
Jim a said: “…“changing the law to enable the rich to pay less taxes than under current law,”…” all that occurred in the 1st Bush term. This is a continuation of the tax rates set at that time. To do nothing was to rest the rates to those existing in the 1st Bush term. That can reasonably be called a tax rise.
What’s exceptionally deceptive is that for those making less than $250K doing nothing was a tax rise, but for those making over the magic number was/is/would be a tax cut. It’s gfreat messaging, but really, really poor logic. And, it’s the logical disconnect that everyone gets.
Min, see my comment to Jim a paying special attention to the messaging/logic disconnect. Using the terms “temporary” and “expire” shows you really do understand the reality of the Obama/McConnell agreement. They decided to continue the “temporary” status and extend “expiration” for two more years. No tax rate change (up or down) till then.
So what is illogical about the conservative view point? At what point does messaging supersede reality?
kharris,
I said “anecdotal” evidence. But there is also considerable academic studies that have found that the length of unemployent benefits influences the length of unemployment. People quickly find jobs once their bennies expire. I could google it, but so can you.
On the anecdotal front, I have a friend that owns a car dealership, I remarked that they must be able to get a lot of good salesman because of the downturn. She said “Actually no, they would rather stay home and collect the $2,000 a month than work for $3,000/mo which works out to $2500 net.” Also, I have a friend in the service industry that is amazed by the number of applicants he gets that want to work under the table so…. well you can guess the reason.
Larry Summers wrote of a “reservation wage,” that is a minumum wage that you would accept in return for work. If you were guaranteed $2,000 per month for being unemployed, which is about $10/hr. what would be your “reservation wage?”
Jim a said: “…“changing the law to enable the rich to pay less taxes than under current law,”…” all that occurred in the 1st Bush term. This is a continuation of the tax rates set at that time. To do nothing was to reset the rates to those existing in the 1st Bush term. That can reasonably be called a tax rise.
What’s exceptionally deceptive is that for those making less than $250K doing nothing was a tax rise, but for those making over the magic number that same “do nothing” strategy was/is/would be a tax cut. It’s great messaging, but really, really poor logic, and, it’s the logical disconnect that most voters get.
Rayllove,
One needs to follow the money trail I believe of the one percenters to see if it is expansionary in areas that are also beneficial to me.
Yes Terry, Obama basically traded $800B for $60B. He is in a tough negotiating position because he is so unpopular, due to his policies and incompentence. He can’t withstand being the reason a couple hundred bucks more are being taken out of millions of paychecks.
Sorry, Rdan, I forgot just how important your well-being is! Of course one might argue that the economy not collapsing may be of some benefit to you, but I was accused of being a “troll” just yesterday on Grist… so, I’m not gonna make that argument today.
My comment did need a cute button attached. However:
“Investment gains on the other hand are in part coming from foreign sources and via equity shares of MNCs,” rayllove
Why you think the bulk of the tax cuts (about 25% of the aggregate for the one percenters) translates into jobs for Americans or what % actually remains in the US needs to be demonstrated. Since in context to the deficit spending if I am going to sacrifice, I want to know if that sacrifice is effective for me. Seems reasonable.
And I thought the economy has been saved…wasn’t that the first round?? What is this one for??
Conservatives view the issue not as a “tax cut” but “keeping taxes the same as they have been” or “not raising taxes.” This is certainly a defensible position from a logic point of view.
This is not “keeping taxes the same as they have been.”It’s changing the law to reduce taxes and that’s a tax cut.
Rdan,
I’m sorry, but try as I might I am unable to understand your question. You do realize that just because the trickle-down theory is faulty, that dosn’t mean that economic activity among the elites is not still critical to the economy. I don’t understand what you mean by “effective for me”, it is all connected and for 35 years the technocrats have been working on an investment-based economy. It all depends on leverage so the pace of lending can never be slowed down, so it isn’t so much about whether some should sacrifice, as it is about keeping a faulty economy from collapsing. And jobs are not crucial to economic stability, the high unemployment is just accelerating the race-to-the-bottom for US workers, we knew this was inevitable 30 years ago. Americans though were lured into thinking an investment-based economy would work, but it was wishful thinking, all based on marginal utility nonsense. But leverage makes money in an investor’s hands worth many times more than it is worth for consumption, consumption just creates low paying jobs now, and some brokering gains, mostly. And ag goods are subsidized, so its investment gains or nothing. Dumb.
Joe, to which portion of the proposal do you refer? Proposal changes FICA. Personal contribution cut 2%. Marginal income tax rates maintained at current level for two years. Neither raises nor cuts, stays as is. Death tax IIRC is an increase from current level. Proposal adds a 100% write off for business equipment investments for one year and a 50% write off for 2nd years. That is a tax cut for businesses.
Your arithmetic is off. Obama pushed most of the tax cuts in the compromise. He got the payroll tax cut, equipment expensing (his proposal) and extension of the expanded EITC and the child and tuition tax credits.
I don’t undertant this bit about being the reason a couple hundred bucks more are being taxen out of millions of paychecks. He is the reason that 400 or 800 bucks less are being taken out of scores of millions of paychecks. His huge making work pay tax cut was effectively doubled to his huger payroll tax cut.
As far as I can tell you are completely delusional. Please contact me at robert.waldmann@gmail.com .
Dilbert (Scott Adams) was challenged a few weeks ago by cognitive bias supported by false analysis.
Do you suppose he would be challenged in Obama’s/Mc Connell’s brains as well?
Anywhere inside the 395 beltway for that matter?
Did anyone listen to President Clinton at the White House press conference? Wonder how the U.S. House Democrats handled that.
Robert,
Correct me if I’m wrong, but I thought I heard yesterday, that the “payroll” tax cut was the Republican’s proposal. Making the FICA tax cut permanent, would seem to be the objective here. This might seem silly, but I’ll ask the question anyway: So the 2% reduction in FICA goes directly into my paycheck, adding,in my case around 30 bucks a week to my take home pay. If I don’t adjust my rate of withholding, I will have an additional 1,500.00 dollars of taxable income at year end. No? How about an offsetting tax credit to go with the reduction.
I, and I’m sure most of you, saw Clinton (the DLC champion who never saw a give away to wealth that he didn’t love) spoke in support of Obama’s “compromise” with the Republicans. He didn’t put it quite that way having focused on the stimulus effect, By the way he looked really tired and worn out. So too did his speaking voice not have the old strength that was part of his effectiveness. maybe they were water boarding him in order to get him to join the band wagon. Oh wait, I forgot, he’s become a very wealthy man and he undoubtedly eh now appreciates the value of a tax cut that he benefits from. how are the Obama book sales figures?
RW,
Obama pushed most of the tax cuts in the compromise. He got the payroll tax cut, equipment expensing (his proposal) ……
Repubs are in favor of tax cuts, so it 0 wants to propose tax cuts and claim victory, I’m sure they would zccept that.
I don’t undertant this bit about being the reason a couple hundred bucks more are being taxen out of millions of paychecks.
The Bush Tax Cuts expired December 31, reverting to old tax rates would increase witholding taxes for millions resulting in smaller paychecks. After the obligatory call to HR “Someone made a mistake on my paycheck” and they were explained that it was Obama’s fault, they would immediately think: “That F*ing Stimulus”…….
c’mn kharris
you ought to know that unemplyment is always greater when people are collecting unemployment checks.
sammy
your friend was making stuff up, just like you do. no one sits home and collects unemployment when they can get a job making more, if for no other reason because they dont know they will be able to get that job when their unemployment runs out. also workers, unlike businessmen, have their self esteem tied up in working. they don’t know how to game the system even if their self respect would let them.
but what is truly wrong about your and co rev’s “anaysis” is that you choose to neglect every “fact” that does not support the conclusion you want to come to. essentially “unemployment hurts” which you would know if you ever had to work for a living. and isn’t it amazing that the unemployment roles always drop whenever businesses start investing. hey, a cure for laziness! who’d a knowed? maybe it’s those businessmen who are gaming the system: refusing to invst until they can get a tax cut.
ray
i try, i really do, to respect your expertise. but in this area i think you may know too much that isn’t so. too much book larnin.
i used to be able to follow a theoretical calculation with the best of them. but then i got so smart i started asking questions about the assumptions. for now i’d just hazard a guess that this particular recession seems to have begun when the banks outsmarted themselves. i don’t know what the multiplier is (the number, not the concept) but i’d rather open up a government store and hire people to shovel litter off the street, than give money to “rentiers” and wait for them to get their courage to invest back.
ray,
almost with you to the last. what exactly do you mean by Dumb.
meanwhile, yes about the investments… IF they are investing. in the meanwhile the people need to eat. and if the goddam investor class won’t invest, well have I got a tax for you.
do I think that’s the whole answer? no. but i’d settle on it as a beginning.
The top rate for unemployment benefits in Arizona is $240 wk. Granted, we rank at/near the bottom on most spending stats, but I have to doubt that anyone in the US is receiving $2000 per mth.
The top rate for unemployment benefits in Arizona is $240 wk. Granted, we rank at/near the bottom on most spending stats, but I have to doubt that anyone in the US is receiving $2000 per mth.
The top rate for unemployment benefits in Arizona is $240 wk. Granted, we rank at/near the bottom on most spending stats, but I have to doubt that anyone in the US is receiving $2000 per mth.
Slim,
but I have to doubt that anyone in the US is receiving $2000 per mth.
Here in OR the max is $496 per week, which works out to about $2,200/mo. http://www.oregon.gov/EMPLOY/UI/ui_benefit_eligibility.shtml The max can be obtained if you make about $35K per year. Plus you automatically get food stamps, COBRA etc, so you figure that is about $2,500 per month. You would probably need to make at least $3,200 per month just to break even.
So if you were to get a job paying $4,000 per month, or a pay raise of $1,000 per month from what you were making when you were laid off, you would be working 180 hours just to earn $800 extra dollars, or about $4/hr. And that is before tax. I would prefer to be unemployed and playing golf and going to the gym for 3 years. How about you?
Oh yes, and Oregon has the 5th highest unemployment rate in the states at 10.5%. http://www.bls.gov/web/laus/laumstrk.htm
Slim,
but I have to doubt that anyone in the US is receiving $2000 per mth.
Here in OR the max is $496 per week, which works out to about $2,200/mo. http://www.oregon.gov/EMPLOY/UI/ui_benefit_eligibility.shtml The max can be obtained if you make about $35K per year. Plus you automatically get food stamps, COBRA etc, so you figure that is about $2,500 per month. You would probably need to make at least $3,200 per month just to break even.
So if you were to get a job paying $4,000 per month, or a pay raise of $1,000 per month from what you were making when you were laid off, you would be working 180 hours just to earn $800 extra dollars, or about $4/hr. And that is before tax. I would prefer to be unemployed and playing golf and going to the gym for 3 years. How about you?
So it is perhaps no wonder that OR has the 5th highest unemployment rate in the States at 10.5%. http://www.bls.gov/web/laus/laumstrk.htm
This is ridiculous. I have to wonder if anyone here has actually been unemployed. One minute you are working along with a certain amount of monthly bill obligations, standard of living and vague visions of the future for you and your family. Crash! You are out of a job. Replacement of 1/3 to 2/3 of your monthly bill obligations is hardly an incentive to join a country club and play golf or to join a spa.
Being unemployed is so, so very scary that you would gladly take any job that will provide for your family, even if it is less than you previously earned. Also, the personal pride factor is huge. Collecting unemployment, at any level, is not a country club. It is the most frightening thing that can happen. Add this to the available jobs in this economy and we have a large number of citizens that, as far as I can tell, are not the problem but rather desperately need the bridge that unemployment payments provide.
I am not good at explaining what I am thinking but let me ask all of you this question: Would it be better just to throw all these people away since they will not ever find a job in the US that will partially replace the one they lost? I ask this because investing in their getting on their feet again is worth it UNLESS we know they will never get on their feet again so it is a waste of money. There must be a reason that I see an increase in support to throw the unemployed under the bus.
“Dumb”, means we should have not distorted the value of ag goods while also eliminating jobs in manufacturing. Mechanization should have been seen as a need to increase rural opportunities instead of encouraging urban concentrations where labor was not competitive with the ROW.
And as for “rentiers”, I am Labor-Left, so I am of course not advocating their support, I’m trying to show how screwed-up they have made our world!