Romney’s Tax (Mis)Calculations:
by Linda Beale
Romney’s Tax (Mis)Calculations: if your two and two don’t add to four, pretend the Laffer curve gives you more
Anybody watching last night’s presidential debate surely became aware at some point that Romney’s so-called “plan” for economic growth is an empty shell based on the idea that he’s made money for himself so he knows how to run a country.
Romney’s plan is pure market fundamentalism–a mistaken view that the “market” will take care of all problems and vigorously grow to elevate everyone’s livelihood just so long as government regulators stay out of the business of regulating and allow business owners and managers (particularly huge multinational corporate owners and managers) to do whatever they want, including fire workers, outsource business assets, and engage in complex schemes to turn tax laws into tax avoidance bonanzas. Oh, and the government should provide all kinds of subsidies to aid those businesses at minimal or no (tax) cost–from interstate roadways to easy rights to exploit national lands owned by the public; from localo fire protection to federally funded international security; from state-based contract protection to federal courts that provide handy forum choices to the wealthy and big corporations; from state and local property tax exemptions and waivers to federal intellectual property rights that provide monopoly power and stifle innovation (exactly the opposite of the Founders’ dream).
And when Romney claims that he can “simplify” the tax system and lower everyone’s rates without increasing the deficit, reducing the taxes paid by the upper crust, or increasing the taxes paid by the middle class, while at the same time increasing the military budget and striking more threatening poses a la the Bush neo-cons on Iran? That’s gibberish, as many respected studies have shown.
So to his rescue comes one of those propaganda tanks in the guise of an intellectual “institute”–the Institute for Policy Innovation (IPI). The Institute puts out a “Tax Bytes” newsletter/blogpost supporting right-wing, market fundamentalist, Friedman-lite tax policies. Not surprisingly, the Institute is sanguine about making a Reagan-style across-the-board rate reduction program work even in an economy that is still in transition back from the brink that the Bush market fundamentalist tax and fiscal policies put us in. That is, in spite of the fact that Romney-Ryan stand for things like making the Bush tax cuts permanent, eliminating the estate tax, maintaining the preferential rate structure for capital gains and carried interest, and even extending that very low rate preference to all other capital income (like interest) for those earning less than $200,000 (who don’t have much capital income to worry about though, since the vast majority of it goes to the people in the very top 5% who make millions, not thousands)–the Institute says “increased private sector growth” will make the plan work. See “Of Course It Can Work“, IPI, TaxBytes 9.25 (October 17, 2012). That’s just the Laffer Curve idea at its worst–the wacky concept that when you cut taxes, there will be more tax revenues because of all the wonderful things that a self-regulated market does for economies.
So IPI thinks you can cut government revenues even more than Bush did (when the Bush tax cuts of 2001-2003-2004 (and the rest) amounted to about one-third of the cause of the Great Recession). It buys into the fairy tale that has been used by the far right to justify obstructionist, non-realistic policy positions and that has created the fiscal debacle we are still climbing out of. That fairy tale is the market fundamentalist “pie in the sky” concept that broad economic growth can be magically generated just by letting the rich continue to get richer even if the middle class is falling into poverty and infrastructure is crumbling.
cross posted with ataxingmatter
Did i read correctly that you claim the Bush tax cuts caused one third of the great recession? Because those cuts had nothing to do with the great recession. All thoughts aside on whether the Bush tax cut was right or wrong for other reasons, it did not cause the recession when Bush came to office or the recent one.
What caused the great recession was the following:
* Over-leveraged banks
* Over-levereaged households and the related housing bubble
* The Fed increased the fed funds rate from 1% in 2004 to 5% by the end of 2007 putting the brakes on the economy
* Federal deficit declined from -$400B around 2004 to less than $200B by the end of 2007.
The latter deficit decline drained $200 billion from the economy (reduced private savings by that amount because those savings are a mirror image of the deficit), that all on top of the other 3 factors. That is why we are here, and the Obama deficit is why its not worse. Some of you will recognize I have had quite an epiphany on the latter.
With that said the Romney plan is a POS. The Obama plan is slightly better, but I hope he comes off his deficits are bad stance once re-elected.
McWop are you really arguing that W’s giveaway to his wealthiest sponsors played no role in this mess? Giving these sociopathic greedheads extra millions didn’t enable them to invest often stupidly in the worst excesses of the financial bubble? Really?
amateur – show me the proof and the economic theory and mechanism behind your comment, and I’ll change my mind.
I do think the big mistake of Bush’s tax policy was to tilt it to the wealthy versus tilting to less wealthy. But Total Credit Market Debt Owed by Domestic Nonfinancial Sectors started to grow rapidly well before Bush’s tax cuts were implemented. And by the way, under Bush II tax rates were higher than when his father raised the top rate to 31%. So his rates fell between Clinton and his father, but in total were much closer to Clinton’s rates – especially when you include the medicare tax increase that remained unchanged.
see also: http://www.econbrowser.com/archives/2012/10/to_make_the_mat.html
I will spare you my non-attempt at something I’m not smart enough to prove if you’ll back away from:
“…those cuts had *nothing* to do with the great recession…”
NOTHING is a large assertion. If you insist on it maybe you have some proof to offer that justifies it.
Please note I am not saying Ws giveaways caused the great dubyapression but it’s not hard to see how a lot of cheap cash laying around helped feed the fire.
voodoo economics. baby bush should have listened to poppy bush.
McWop:
In 2001 through 2007, investment firms were not banks as they are today. If you are going to discuss over leveraging, I believe you might include the Lehmans, Bears, Morgan’s, Goldman Sachs, etc. and the AIGs of the World. The recession started with the collapse of a few of these firms dragging down banks who dabbled in investments.
Run – when i used the term banks I mean to include the AIG’s, Bears etc.
Hyman Minsky captured this perfectly through his Financial Instability Hypothesis. When the fed and the government started tightening, then the whole thing unraveled between all the commercial, investment banks, or any institution peddling things based on real estate.
During an upswing, profit-seeking firms and banks become more optimistic, taking on riskier financial structures. Firms commit larger portions of expected revenues to debt service. Lenders accept smaller down-payments and lower quality collateral. Financial institutions innovate new products and finesse rules and regulations imposed by supervisory authorities. Borrowers use more external finance (rather than retained earnings), and increasingly issue short-term debt that is potentially volatile (it must be “rolled-over” so there is risk that lenders might refuse to do so). As the boom heats up, the central bank hikes its interest rate—and with greater use of short-term finance, borrowers face higher debt service costs.
http://www.economonitor.com/lrwray/2012/03/27/why-minsky-matters-part-one/#idc-container