Thaler on Tax Cuts
University of Chicago Behavioral Economist Richard Thaler drops some hard analysis on the tax-cut-at-any-price crowd in his NYT column this week:
“Want to give affluent households a present worth $700 billion over the next decade? In a period of high unemployment and fiscal austerity, this idea may seem laughable. Amazingly, though, it is getting traction in Washington.
I am referring, of course, to the current debate about whether to extend all, or just some, of the tax cuts of President George W. Bush — cuts that are due to expire at year-end. They’re expiring because the only way they could be enacted initially was by pretending that they were temporary.
In this situation, it’s not clear what should be called a tax “cut.” If the temporary law is allowed to expire as planned, does that represent a return to normal, or a tax increase? Conversely, if some parts of the current rates are extended, should those count as a tax cut?
Psychologists call these descriptive choices “framing.” No one is proposing that tax rates be lower than they are now, so the question is whether some people should pay more, and, if so, who.”
The rest of the column is well worth reading. Warning: Many of you will not be happy with what he says (but I think his math is spot on) . . .
>
Source:
What the Rich Don’t Need
RICHARD H. THALER
NYT, September 25, 2010
http://www.nytimes.com/2010/09/26/business/26view.html
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September 26th, 2010 at 12:48 pm
Chicago? Thaler is off the reservation…
September 26th, 2010 at 1:02 pm
He’s one of the few in Chicago that isn’t married to a bankrupt intellectual framework
( so yes, he is “off the reservation”)
September 26th, 2010 at 1:04 pm
How would Thaler’s commentary make anyone angry? He mostly just explains objective, checkable facts. (Which I didn’t bother checking, but I’ll assume the editors at the august NYT made sure had been)His prescription (let the tax cuts end) might anger a few, but this is really just tax policy on the margins. $700 billion one way or another over the next ten years is virtually irrelevant in the face of massive, literally massive, liabilities that are accruing with Social Security and Medicare/Medicaid. But I get it. We can’t talk about those things. So let’s have political warfare over de minimis tax policy. Then one political party can blame the other that if only their prescription had been followed, we wouldn’t be bankrupt, or because their prescription was followed, bankruptcy was temporarily averted. Whatever.
September 26th, 2010 at 1:05 pm
Thomas Piketty and Emmanuel Saez, two academic economists, provide data to back up Mr. Buffett’s view. They show that the proportion of income earned by the top 1 percent of American families was about 10 percent of the national total from 1945 to 1979. Since 1980, that share has doubled, reaching about 20 percent in 2008 — or more, if capital gains are included.
The growth rate has been even faster for the ultrarich — those in the top one-hundredth of 1 percent in income.
Other segments of society, meanwhile, are losing out, with their share of the total declining, and their real incomes remaining stagnant.
September 26th, 2010 at 1:36 pm
“Demanding that the rich get a tax cut as a condition for tax relief for others is simply elitist.”
Damn straight.
“$700 billion one way or another over the next ten years is virtually irrelevant in the face of massive, literally massive, liabilities that are accruing with Social Security and Medicare/Medicaid.”
Well right now we’re running trillion dollar deficits (tax receipts fell off a cliff, recession, bailouts, etc.) and the US is $13.5 trillion in the hole. This has little to do with SS and Medicare, except that the surplus these programs now enjoy (~$4.5 trillion) is helping to pay the debt.
Case and point: the general fund and discretionary spending are NOT irrelevant. If we get our fiscal house in order there, we may have more breathing room to deal with SS and Medicare down the road. But when those bills come due and we’re still up to our eyeballs in debt, then we are double screwed.
September 26th, 2010 at 2:11 pm
I am sorry but even this analysis stops short. I am a conservative yet most conservatives will say i sound liberla. Fact is these were temporary tax cuts. There is no doubt in my mind we should at a minimum not maintain the higher level of 250,000 income tax cuts. However, why don’t we focus on incentives to make money by investing and not on income. Specifically let all the income tax rates return to the old level and maintain or even lower the capital gains rate?
BTW, I shave no interest in a “pledge” f rom any democrat who was inoffice in 2006. Note they didn’t even have the courage to use the word “promise” or even better contract.
America’s financial crisis cannot be addressed until the public and politicians line up committed to economically “rationalize” public servants benefits and pensions. This applies to health care, and pensions for public service workers.
I believe without courage these will only get fixed by systematic bankrupticies first at the city level, then the state level and beyond. Until we muster the courage to confront this accelerating portion of the deficit tax rates are immaterial..
As a result, more and more people will simply not pay. We see this thought process in mortgages, whereby people who can afford it don’t pay, and now it is happening more and more with income taxes.
September 26th, 2010 at 2:24 pm
I see nothing to disagree with here, particularly his closing:
“The question comes down to whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living.”
Such a small shift in tax rates will do little to fix things unfortunately. There needs to be investment — the kind discussed frequently here — in this country, but the corporations and the rich will do little to help.
September 26th, 2010 at 2:25 pm
According to http://crfb.org/stabilizethedebt/ extending all the tax cuts will add $3.280 Trillion to the deficit by 2018, here is a list of their alternatives to lower the deficit that I put together. All together they add up to $3.2 Trillion and would almost offset that cost. More details on each cut are at their website.
Reduce troops in Iraq and Afghanistan to 30,000 by 2013–740 Billion
Proposed weapons system cuts– 30 Billion
Cut Foreign economic aid in half– 110 Billion
Reduce veteran’s income security benefits– 50 Billion
Cancel Missile Defense– 50 Billion
Redue spending on ship building– 50 Billion
Reverse grow the army initiative– 90 Billion
Cancel Stimulus funds including tax cuts– 190 Billion
Decrease highway funding 25%– 200 Billion
Freewze average unemployment benefits– 50 Billion
Cut Temporary Assisitnace to the needy– 50 Billion
Cut Federal Funding of K-12 Education by 25%– 60 Billion
Eliminate the New Markets TaxCredit– 40 Billion
Cut School Breakfast Program– 30 Billion
Raise the Social Security Retirement Age to 68– 110 Billion
Reduce Scheduled SS Benefits– 100 Billion
Reduce Spousal Benefits from 50% to 33%– 20 Billion
Increase Cost Sharing for Medicare– 100 Billion
Raise Medicare Premiums to 35% of Costs– 140 Billion
Enact Medical Malpratice Reform– 50 Billion
Increase the Medicare Retirement Age to 67– 80 Billion
Replace Medicare with Vouchers that will grow at a slower rate– 120 Billion
Eliminate outdated Programs– 40 Billion
Freeze Federal Civilian Pay for 2 years– 50 Billion
Reduce Generosity of Tricare for military and veterans– 50 Billion
Reform Federal Retirement Benefits– 30 Billion
Cancel NASA missions to the Moon and Mars– 40 Billion
Reduce Farm Subsidies– 80 Billion
Cut all earmarks and use half for deficit reductions– 80 Billion
Increase user fees– 40 Billion
Sell government assets –70 Billion
Increase gas tax 10 Cents per Gallon– 80 Billion
Eliminate Subsidies for Biofuels– 110 Billion
Cut the Earned income tax Credit– 70 Billion
September 26th, 2010 at 2:49 pm
I like this part:
I’m so tired of the tax cuts for the wealthy nonsense. I’m in the top bracket, but I am not making a $25 million per.
When talk about economic disparity, these are the people — the top 1% of the top 1% — whose gravy train must come to an end.
September 26th, 2010 at 2:49 pm
Glad to see it. Sensible discussion of undisputed facts. Thaler’s being off the reservation is only part of the problem, however. The average reader of the NYTimes is also subjected to the occasional mewlings of his colleague Casey Mulligan. This makes it difficult indeed for the non-economically savvy to know which of these two academicians is the member of the flat earth society. The NYTimes irrational insistence on ‘fair and balanced’ reduces the influence that a man like Thaler can have on public opinion. Damn shame.
September 26th, 2010 at 3:11 pm
Thaler acknowledges that business owners who are in the top 3% of the income scale earn 47% of small business income, which to me is a critical statistic in this debate. Yet in citing this statistic, Thaler offers no comment as to why it might be true that raising taxes on the pass-through income of these companies will not adversely affect overall hiring by small business. Thaler does, however, cite a study by a group of three economists, and asserts in effect that because this one group of three people published a PDF file on the web, that proves that “we shouldn’t expect significant real reductions in economic activity if rates change in the range under discussion”. This is one giant leap on Thaler’s part. The fact that Thaler declines to point to any specific piece of evidence in that PDF file (or elsewhere) makes for a very weak argument. Thaler also hasn’t acknowledged that some tax deductions for the wealthy will be eliminated, or that new Obamacare taxes will arise in 2013 and 2014.
Perhaps one thing that most people can agree on is that economic growth is the single biggest driver of IRS tax receipts. But the question at this point, and in the near future, is how to maximize the chances that economic growth will increase from its current level. I personally don’t believe that creating disincentives for small business owners (to hire people and to re-invest capital) is going to be helpful at this point.
September 26th, 2010 at 3:17 pm
I’ve started calling the Republican/Kudlow platform “No billionaire left behind!” I think Democratic strategists should too.
However, sometimes I think the position should be called “No billionaire left behind, F**k the rest of you!”
September 26th, 2010 at 3:28 pm
Bruman,
Obama could raise the tax rate on people earning more than $1M per year. He doesn’t want to go down that road, but he could.
September 26th, 2010 at 3:29 pm
In all these debates I’ve seen on financial blogs about extending the “Bush tax cuts”, I have yet to see any mention of the inheritance tax. I find this omission a somewhat interesting phenomenon. In any case, I am actually in favor of an inheritance tax. The reason is that I don’t see this tax as anti-growth. Moreover, whatever IRS revenues which would be relinquished by elimination of the inheritance tax would have to be made up by higher taxes on labor and capital.
September 26th, 2010 at 3:29 pm
“The question comes down to whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living.”
Sadly, Thaler perpetuates the Pie Lie.
Does Thaler really think a “pie” is a good metaphor for all wealth? Does he really believe this pie is finite, and if someone gets a bigger slice, someone else will be left with a smaller slice? Does he think all wealth is collectively owned? Does he really think government’s role is to take wealth away from those who have it, and give it to others who do not? Does Thaler really believe the reason middle class income growth has stagnated is because of positive income growth amongst the very wealthy?
Please Mr. Thaler, show us some evidence that supports your assertions. And remember, correlation and causation are not the same.
~~~
BR: The data on this is unequivocal — the top 1% share of the wealth has grown to be enormous, while every one else has lost ground or treaded water.
See this, this, this, or this. Where you been? This has been everywhere over the past few years.
Comment Fail.
September 26th, 2010 at 3:33 pm
That last post was my emotional response. And Barry, nothing would make me happier than to hear you use “no billionaire left behind” to ream people at media events, so go for it!
Now here’s the more level-headed post:
Since when did “rich” start at the top 2%. It seems much more natural to think of “The rich” as the top 10% or 20% of society. Perhaps even as far as 33% (top 1/3=Rich; middle 1/3=Middle Class; bottom 1/3=Poor). No matter how you slice it, there are plenty of rich families (most) that wouldn’t have their marginal tax rates go up even under the Obama proposal. Why isn’t that issue coming up?
We need to present this proposal as the über-wealthy not wanting to do their fair share of working to get America running again. The lower classes have to deal with massive unemployment (massive, like 25%+). The middle classes have to deal with years of expertise and expensive education and training not being relevant in the global economy any more. The wealthy, they shirk at the thought that they might have to pay 3% more on income and profits (that’s PROFITS, *not* REVENUE) over a quarter million. When you realize that many in the 50+ crowd in the middle class are facing the prospect of never being employed again in a professional capacity (though possibly as ordinary labor), the refusal of the very top of society to even entertain the idea of shared sacrifice is truly disgusting. This is “fall of Rome” type decadence, shirking of civic spirit, etc..
September 26th, 2010 at 3:33 pm
@Arturo:
Completely agree! I’m sick to death of hearing about how we have to make “painful choices.” Yes, indeed we do. Cutting spending is a “painful choice.” However, restoring the Clinton/Reagan era tax rate on some or all Americans is also a “painful choice.” The question is…which “painful choice” leads to the most beneficial outcome for the economy as a whole, and when you look at the parade of horribles that would result from spending cuts, the answer becomes abundantly clear. We cannot cannibalize our economy by cutting investment on programs that are GDP accretive in the long term, and we can easily afford to restore Ronald Reagan’s tax rates on concentrated wealth.
September 26th, 2010 at 3:48 pm
There’s also the PDF file produced by Christina Romer:
http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf
She says that tax increases reduce economic growth (see, e.g., pages 40-41 of the document).
September 26th, 2010 at 3:51 pm
Apinak posted:
“Reduce veteran’s income security benefits– 50 Billion
Reduce Generosity of Tricare for military and veterans– 50 Billion
Reform Federal Retirement Benefits– 30 Billion”
With thousands dead and millions crippled by two ongoing wars, you really want to cut benefits for those in the military and military veterans ?
~
“Cancel Stimulus funds including tax cuts– 190 Billion
Decrease highway funding 25%– 200 Billion
Freeze average unemployment benefits– 50 Billion
Freeze Federal Civilian Pay for 2 years– 50 Billion
Increase gas tax 10 Cents per Gallon– 80 Billion”
In a down economy, you want to withdraw spending from the economy, which would be anti-stimulative ?
~
“Cut Temporary Assistance to the needy– 50 Billion
Cut School Breakfast Program– 30 Billion
Cut the Earned income tax Credit– 70 Billion”
Really ?
Poverty has increased every year since 2001, after decreasing every year during the previous 8 years.
~
“Raise the Social Security Retirement Age to 68– 110 Billion
Reduce Scheduled SS Benefits– 100 Billion
Reduce Spousal Benefits from 50% to 33%– 20 Billion
Increase Cost Sharing for Medicare– 100 Billion
Raise Medicare Premiums to 35% of Costs– 140 Billion
Enact Medical Malpractice Reform– 50 Billion
Increase the Medicare Retirement Age to 67– 80 Billion
Replace Medicare with Vouchers that will grow at a slower rate– 120 Billion”
* In addition to the fact that Social Security doesn’t have a problem that needs to be fixed, reducing Social Security benefits or raising the retirement age will NOT reduce the federal budget deficit, as by federal statute Social Security monies can only be used for Social Security benefits, the result would only be a larger trust fund.
* Medicare’s only problem is that it is purchasing medical care from a failed for-profit private-sector healthcare industry whose costs are rising faster than in Medicare.
* According to the independent nonpartisan Congressional Budget Office, the American RightWing’s prescription of capping non-economic damages as ‘Malpractice Reform’ has failed to reduce premiums in the thirty-one states where it has been tried. The caps haven’t lowered or even stabilized insurance rates, and have not lowered healthcare costs.
* The CBO also estimates that reductions in the utilization of medical care due to the American RightWing’s ‘Malpractice Reform’ would reduce national health care expenditures by only THREE TENTHS OF ONE PERCENT.
NONE of this is a driver of our federal deficits and debt. The independent non-partisan CBO has stated that both the current federal deficits and future projected federal deficits are overwhelmingly as a result of the numerous rounds of tax cuts for the Rich & Corporate enacted by the previous White House & Republican Congressional Majority.
Spending, other than on the two wars, Corporate Welfare, and a drug plan for the pharmaceutical industry, has not been the problem. Lack of revenue has been the problem.
September 26th, 2010 at 3:52 pm
Bush included a sunset clause in his tax cuts ‘cuz he understood they were unsustainable. Greenspan only agreed to their implementation on the general agreement that they would be followed up with offsetting spending cuts (which never happened). Orszag has been stating in the past ten days that allowing them to expire prevents adding “north of $2 trillion” to the National Debt by 2020.
Jobs “rhetoric” aside, the cancellation of this measure is vital to stability of the USDollar. The G-8/G-20 Summit in Toronto was instrumental in stabilizing the EURO. Concern over sovereign debt had seen the USA:EU exchange rate fall to 1.18 in a matter of weeks. Prime Minister Stephen Harper’s initiative to have nations commit to a scheduled retirement of their recession-related deficits has been instrumental in the EURO’s recovery to a 1.30 rate. After the UK’s brave lead three days before the Summit, most EUROzone members have declared similarly impressive austerity measures.
But in recent days the EURO has climbed to a 1.35 rate. Why? It is clear to me this represents resumption of the secular decline of the USDollar that commenced January 2002. The international investor community has little faith in Congress’s resolve to address its structural deficits … and is sending a seemingly unheard message.
Earlier this week, Barry Ritholtz posted the newest version of my Debt Meter ( http://www.ritholtz.com/blog/2010/09/effect-of-structural-deficits-on-usa-national-debt ). It was my first portrayal of the 30-yr projection using the CBO’s baseline rather than its Alternative Scenario. The latter assumes continuation of the Bush tax cuts. It illustrates that elimination of the tax cuts locks in a Deficit/GDP maximum ratio of 4.2% … and holds the National Debt/GDP ratio to 93%. This would be a sea change improvement.
In itself these are not great numbers, but at least it puts rebalancing of the Budget within grasp. Neo-Keynesians have this bad habit of forgetting that fiscal stimulus in bad times is supposed to be offset by paying down newly accumulated Debt at the top of the 8.5-yr business cycle. I am confident the key to the Orszag/Obama fallout was America’s first celebrity president’s quest to strive for a 3% Deficit/GDP ratio over ten years rather than eventual surplus (for Debt reduction purposes). Progressives let social engineering get in the way of responsible fiscal management. (ok, rant over!)
Last week’s 5% decline in your currency is only the beginning of a multi-season trend that will move in correlation to Congress ability to adopt the upcoming recommendations of the bipartisan fiscal commission. With sentiment moving away from sunsetting the tax cuts, the Dollar will fall and imported inflation will prevail – especially crude & gasoline. And if crude surpasses $9o/barrel ($3.34 at the pump), time tested oil cost/GDP ratio inspired demand destruction will kick in and re-assault New Car Sales as occurred in 1980, 1990 & 2007 ( http://trendlines.ca/monthlyreport.htm#barrel ). Extension of the tax cuts has ramifications far exceeding current political domestic discussions.
September 26th, 2010 at 4:07 pm
DL,
“There’s also the PDF file produced by Christina Romer:
http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf
She says that tax increases reduce economic growth (see, e.g., pages 40-41 of the document).”
I wouldn’t hang my hat on that study.
There is a rather large problem with the paper cited, namely the classification of tax changes. They classified them into two groups, “endogenous” and “exogenous”.
A) The endogenous tax changes were supposedly made in response to current or future economic conditions. They claimed the effect of these tax changes is difficult to separate from the effects of the events being responded to, so they disregarded them. So, we’re to ignore a whole series of tax changes simply because their effect is difficult to calculate ?
B) The exogenous tax changes were supposedly designed either to reduce deficits or to raise long-term growth. They claimed these weren’t motivated by current or future economic conditions, therefore their effect on the economy is untainted by external factors. It was this second group that they used to calculate the effect of tax changes on economic growth, and produce their conclusion that a tax increase of 1% of GDP reduces economic output by nearly 3%.
All of this assumes that if certain politicians claim a tax cut is designed to spur economic growth or a tax increase was designed to reduce the deficit, then that’s what it must be for. Of course, ever since 1980, the American RightWing has said that about practically every tax cut. Yet, the paper tags nearly every tax change since 1980 as exogenous, which makes all of their post-1980 analysis rather suspect.
Not to mention, that if a 1% tax increase supposedly produces a 3% GDP reduction, then what of Europe ? European nations have total tax rates that are 15% or more higher than in the U.S, which should mean their GDPs should be 45% or more lower.
They’re not.
September 26th, 2010 at 4:21 pm
Well, all the geniuses at University of Chicago, Stanford, Harvard and every other elite place in the US can talk econimc sense unitl the cows come home if they want to.
But I think this comes down to politics.
And right now, in a slow/no growth ecomony, with nearly 10% unemployment, another 15% “under” employment — letting ANY tax cuts expire (Bush era or otherwise) is simply political suicide. And the Dems are already on track to get slaughtered in November. You think they want to give their Repub adversaries the tax issue? By handing them a tax raise bill — NOW? On anybody: rich, middle-class, whatever?
Nevah hoppin.
The Bush tax cuts stay — and there it is.
.
September 26th, 2010 at 4:28 pm
Less than 1/3 of the American people want the tax cuts extended for the top 2%.
Where’s the “political suicide” ?
Make the Republicans vote against just the extention of the tax cuts for the bottom 98%.
September 26th, 2010 at 4:41 pm
@Freddy Hutter – TrendLines Research
You wrote “Bush included a sunset clause in his tax cuts ‘cuz he understood they were unsustainable.”
I call bullshit on that statement. Bush understood nothing of the sort. The Bush tax cuts were passed via the reconciliation process in the Senate, which by law requires the sunsetting of any legislation 10 years later, and not because Bush included them on purpose.
The sunset provision sidesteps the Byrd Rule, a Senate rule that amends the Congressional Budget Act to allow Senators to block a piece of legislation if it purports to significantly increase the federal deficit beyond a ten-year term. The sunset allowed the bill to stay within the letter of the PAYGO law while removing nearly $700 billion from amounts that would have triggered PAYGO sequestration.[2]
(http://en.wikipedia.org/wiki/Economic_Growth_and_Tax_Relief_Reconciliation_Act_of_2001)
Bush always assumed that the tax cuts would be made permanent later on, and never ever operated under the assumption they were unsustainable. That would be giving him far more intellectual credit than he ever deserves. Jeez, you’re talking about a man who had no fluidity in his thinking, no adjusting to changing realities.
September 26th, 2010 at 5:02 pm
Joe Friday:
They need a bill to do that.
Election Day is 5 weeks away. There is no bill on any table that has been put to vote in the House, or the Senate saying to exend for some and not others and to what degree who loses and wins.
Dems have promised to “revisit” expiring tax cuts AFTER the election. Obama has already said he’d agree to EXTEND the Bush cuts for EVERYBODY: 2 year extension for high income, 4 years for everybody else.
No takers, so far —
And here’s why: If the Bush tax cuts expire as scheduled, who do think that hurts most? People earning $250K per year? No way, my friend. If those tax cuts expire across the board as scheduled — there will be a alot of pain — among the middle class. (With a slow/no growth economy, 10% unemployment, and a 15% “under”-employment rate.) And what party let this happen by spending their first year passing national health care law? Phew.
Only 1/3 of American people want the tax cuts extended for the top 2% — I guess Obama is going against the grain — again.
.
September 26th, 2010 at 5:36 pm
Joe Friday @ 4:07
I do agree that the Christina Romer study is not the “be all and end all” analysis. But in his article, Thaler merely pointed to a PDF on the web, and argued in essence that if an economist publishes a PDF on the web, his (or her) conclusions must be valid.
As for the European economies, I’m not an expert. But as I understand it, over the last 20 years, most of the Western European countries have experienced lower economic growth and higher unemployment than has been the case here (although, to be fair, one has to consider labor laws and unemployment benefits in addition to taxes).
September 26th, 2010 at 6:06 pm
If you want to collect taxes you have to go where the money is, but you don’t want to tax away the money people need for the basics to sustain a decent life.
I think the picture is clear.
September 26th, 2010 at 6:24 pm
Can someone explain to me how these people caused you to earn less? How exactly did these people prevent you from making more?
http://www.forbes.com/wealth/forbes-400
September 26th, 2010 at 6:32 pm
Wally,
And if you want to balance the budget, you also have to “go where the money is”.
Entitlements and defense.
September 26th, 2010 at 7:01 pm
Gee, if lack of government revenue is our only problem then let’s give every person a job, free education, free healthcare, and a pension at age 55. We’ll just keep raising taxes until they pay for it all. We may have to cut back on invading other countries but no problem because then we won’t need all those military-industrial-complex jobs anyway.
September 26th, 2010 at 7:01 pm
Sorry Barry but the math does not add up at all. GDP was 2.9 trillion in 1980 and 14.6 trillion during Q2, so if the top 1% got 10% of the pie then and now get 20% of a pie thats 5 times bigger how exactly does that leave less for the rest of us?
I’ll take Von Mises, Hayek and Friedman’s “bankrupt intellectual” belief that its not a zero sum game over those that would tell me that allowing someone to keep the money they earned is somehow robbing the rest of us.
September 26th, 2010 at 7:12 pm
this a perfect diversionary Topic to set off a bunch of useless lip-flapping..
maybe, here http://www.projectcensored.org/top-stories/articles/category/top-stories/top-25-of-2010/
we could find an issue, or two, that might get us, a little, closer to instilling the, much needed, “Change” that people are, seemingly, looking for..
September 26th, 2010 at 7:40 pm
MEH:
Looks like the Corporatist/criminal hit parade.
As for the Bush tax cuts, America will allow itself to be fleeced, once more. If there’s no outrage yet, there will be none. We’re docile, complacent, and too stupid to know that our bread isn’t buttered on either side.
September 26th, 2010 at 7:41 pm
Suggested reading:
==========
So How Did the Bush Tax Cuts Work Out for the Economy?
David Cay Johnston | Sep. 24, 2010 08:02 PM EDT
The 2008 income tax data are now in, so we can assess the fulfillment of the Republican promise that tax cuts would produce widespread prosperity by looking at all the years of the George W. Bush presidency.
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.
That much additional income would have more than made up for the lack of demand that keeps us mired in the Great Recession. That would mean no need for a stimulus, although it would not have affected the last administration’s interfering with market capitalism by bailing out irresponsible Wall Streeters instead of letting the market determine their fortunes.
In only two years was total income up, but even when those years are combined they exceed the declines in only one of the other six years.
…
http://www.tax.com/taxcom/taxblog.nsf/Permalink/CHAS-89LPZ9?OpenDocument
September 26th, 2010 at 7:57 pm
Wow, BR. Quite the bitch-slapping of tool Tom K, but well deserved IMO. LOL>
September 26th, 2010 at 8:28 pm
Let’s see, we could use our money to help the elderly retire, help the elderly pay medical bills, or attempt to sustain an unsustainable military empire. And which of those three has the deepest pockets for political contributions?
Note to elderly: you will enjoy the clean mountain air in Afghanistan so don’t wait for the old people draft to kick in; sign up today for the U.S. Geriatric Brigade and get free arch supports with your boots!
September 26th, 2010 at 9:02 pm
Tax cuts, like shares of stock, should be considered in *relative* terms. Don’t think “I have xx shares.” Ask yourself: “what percentage of the company do my shares represent?” Well, what % of the “tax cut” did you get??
Giving everyone mo’ money means there’s more base money to chase around goods and services. Giving the top 1% more money than the bottom 99% combined means that it’s a tax cut for the rich and a tax increase for the poor.
September 26th, 2010 at 9:21 pm
The article made sense when I read it in the NYT and it made sense when I re-read it on the blog. I’ve yet to seen any credible evidence that tax cuts for the top 2% are likely to do anything for the economy or hurt “small business” (by the IRS definition of the term.) I’ve also seen no serious argument that tax cuts are in any way correlated positively with job creation, much less causally related to them.
Finally, does anyone dispute the fact that extending the tax cuts for the top 2% will add $700 billion to the deficit? If not, then the critics should admit it and explain WHY they think it’s the proper alternative just like those who promoted the recovery act explained WHY they thought it would help the economy, whether one agrees with them or not.
September 26th, 2010 at 10:46 pm
“The United States is rapidly becoming the very first “post-industrial” nation on the globe. All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing. It was America that was at the forefront of the industrial revolution. It was America that showed the world how to mass produce everything from automobiles to televisions to airplanes. It was the great American manufacturing base that crushed Germany and Japan in World War II. But now we are witnessing the deindustrialization of America. Tens of thousands of factories have left the United States in the past decade alone. Millions upon millions of manufacturing jobs have been lost in the same time period. The United States has become a nation that consumes everything in sight and yet produces increasingly little. Do you know what our biggest export is today? Waste paper. Yes, trash is the number one thing that we ship out to the rest of the world as we voraciously blow our money on whatever the rest of the world wants to sell to us. The United States has become bloated and spoiled and our economy is now just a shadow of what it once was. Once upon a time America could literally outproduce the rest of the world combined. Today that is no longer true, but Americans sure do consume more than anyone else in the world. If the deindustrialization of America continues at this current pace, what possible kind of a future are we going to be leaving to our children?
Any great nation throughout history has been great at making things. So if the United States continues to allow its manufacturing base to erode at a staggering pace how in the world can the U.S. continue to consider itself to be a great nation? We have created the biggest debt bubble in the history of the world in an effort to maintain a very high standard of living, but the current state of affairs is not anywhere close to sustainable. Every single month America does into more debt and every single month America gets poorer.
So what happens when the debt bubble pops?
The deindustrialization of the United States should be a top concern for every man, woman and child in the country. But sadly, most Americans do not have any idea what is going on around them.
For people like that, take this article and print it out and hand it to them. Perhaps what they will read below will shock them badly enough to awaken them from their slumber.
The following are 19 facts about the deindustrialization of America that will blow your mind….
#1 The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation…”
http://theeconomiccollapseblog.com/archives/19-facts-about-the-deindustrialization-of-america-that-will-blow-your-mind
disincent Capital Formation, and You, too, can become a Sharecropper..
September 26th, 2010 at 11:45 pm
DL,
“I do agree that the Christina Romer study is not the “be all and end all” analysis. But in his article, Thaler merely pointed to a PDF on the web, and argued in essence that if an economist publishes a PDF on the web, his (or her) conclusions must be valid.”
Thaler made no such ridiculous argument.
~
“As for the European economies, I’m not an expert. But as I understand it, over the last 20 years, most of the Western European countries have experienced lower economic growth and higher unemployment than has been the case here”
Since 2001, their GDP has been higher, and if we calculated our unemployment the way the OECD countries do, their unemployment was lower.
~
“And if you want to balance the budget, you also have to ‘go where the money is’. Entitlements and defense.”
Entitlements are not driving our federal budget deficits.
September 26th, 2010 at 11:46 pm
ACS,
“Gee, if lack of government revenue is our only problem then let’s give every person a job, free education, free healthcare, and a pension at age 55.”
What’s any of that have to do with the fact that the numerous rounds of tax cuts for the Rich & Corporate enacted during the previous administration caused federal income tax revenues to plunge down to 1959 levels ?
September 27th, 2010 at 12:23 am
hammerandtong2001:
You are wrong, sir. Soaking the rich is a very popular idea these days. Check out the polling. It’s the Blue Dog Democrats(which means they are the corrupt, brain-dead ones) that are trying to suck up to the Kochs of the world.
September 27th, 2010 at 12:25 am
Joe Friday:
Health care and defense are driving our budget deficits. We spend double what other advanced economies do on a per person basis for outcomes that are no better.
September 27th, 2010 at 12:30 am
Joe Friday,
I was not suggesting that we should enact all those cuts, I was showing howcrazy it is to think we can pay for those cuts with spending cuts. Only Dick Cheney would look at that list and think we should make all those things to pay for more tax cuts.
September 27th, 2010 at 1:36 am
Most approaches to balancing our nation’s books proposed by various luminaries call for tax increases AND spending cuts. Here are some sobering stat’s: over the next decade, with ALL tax cuts expired the federal deficit will still be north of $2 trillion. The $700 billion “saved” by allowing the tax cuts for the 2% (rich) may not even materialize, not fully anyway. So, increase taxes and cut spending but cut where? Discretionary is only 16% of the budget and anything else puts you in the sacred cow domain. Tough choices lie ahead, made tougher by the daunting demographics: an increasingly graying population (with obesity and diabetes complicating things further). Que faire say the French? What to do? Rely on growing the economy and technology? May be….
September 27th, 2010 at 2:10 am
Apinak,
“I was not suggesting that we should enact all those cuts”
I’m aware. That’s why I used the ‘Apinak posted:’.
It wasn’t directed at you, but just at what was posted.
September 27th, 2010 at 8:12 am
As if facts mattered.
Here is some insight from a former Congressional staffer:
http://www.talkingpointsmemo.com/archives/2010/09/a_voice_from_inside.php#more
I don’t think the “expiry over $250K” vote is nearly as easy a vote as you make it out to be. Certainly it polls well, but a lot of members see the $250K+ people as their donors, coevals, colleagues, friends, etc. Most of the people (lawyers, lobbyists, business owners, PR people) who walk through the door of your average congressional office on a daily basis (excepting constituent tourist visitors) are making well over $250K.
September 27th, 2010 at 8:25 am
Professor Thaler is unaware that the economic world changed in August, 1971, the month year we went off the gold standard — the month the United States became Monetarily Sovereign. I would be willing to bet, that despite that massive change in economics (equivalent to the change in physics caused by Einstein), Professor Thaler has not changed any of his theories. He still lives in a pre-1971 world.
For instance, he believes the federal government still spends tax money. That no longer is true. While Illinois, Cook County and Chicago (which are not monetarily sovereign) do spend tax money, the United States does not. Even, if federal taxes were reduced to $0, this would not affect by even one penny, the federal government’s ability to spend and to pay its bills.
The math that Barry thinks is “spot on” is based on the false premise that the federal government needs and uses tax money. This is factually incorrect. Ask Barry why we went off the gold standard, and he simply will not know. The answer: To make the United States monetarily sovereign, and to end all the arguments about what the U.S. can and cannot afford.
I wish Barry would stop spreading obsolete information. Will we next see “spot on” math pertaining to the world being flat?
Rodger Malcolm Mitchell
September 27th, 2010 at 8:47 am
Stupid me, I thought Federal income tax revenure in 1959 was 54 billion.
September 27th, 2010 at 11:02 am
I forgot one more likely scenario to the question: What to do (with the federal deficit) ? Answer: just muddle through, we’re very good at THAT. Unfunded SS, Medicare and Medicaid liabilities? kick the can down the road multiple times. If the can slips into a storm-drain, get another can and keep kicking. RodgerMitchell you do have a good point: the US Government can spend regardless of the amount of taxes coming in; however, the debt servicing burden may overwhelm us even with high inflation. Two images come to mind: a structure collapsing under its own weight and a serpent swallowing its on tail.
September 27th, 2010 at 11:40 am
Victor, the collapsing structure and the serpent are good analogies for the federal debt, but you forgot Ticking Time Bomb . That one has been used since 1940 (See link.) And then there is the ever reliable Unsustainable for which I found references as early as 1980.
But here we are. The structure is erect, the serpent’s tail is intact, that old bomb still ticks and we somehow seem to sustain, despite at least 70 years of the dire predictions. Here’s an analogy for you: The sect leader once again marches his disciples up the mountain to await the end of the world. The next morning he marches them back down again, and changes the date. He has done this every day for 70 years, but his followers just keep on blindly following.
Seriously, there is no way the federal debt service can “overwhelm” us (That’s a new one. I’ll put it on the list). And, since 1971, there has be no connection between federal deficits and inflation, which actually has been caused by oil prices. Anyway, inflation easily is prevented by raising interest rates.
Meanwhile, we pay taxes, and do without myriad benefits, all because of vague hunches that in some unproven way, federal deficits are bad. It would be laughable if it weren’t so sad.
Rodger Malcolm Mitchell
September 27th, 2010 at 1:00 pm
ACS,
“Stupid me, I thought Federal income tax revenure in 1959 was 54 billion.”
After numerous rounds of tax cuts for the Rich & Corporate:
‘Receipts in 2004 … As a share of GDP, they accounted for the smallest proportion since 1959’
http://www.cbo.gov/doc.cfm?index=6002&type=0
September 27th, 2010 at 1:34 pm
The consumer is the goose laying the Golden eggs. Unfortunately everybody want’s to harvest the eggs and nobody want to feed the goose.
That is why we have had no real (organic) growth in the economy since the end of the Clinton years. The minimal GDP increase we had with Bush II was all directly coming from debt and real estate bubble money. We never really left the 2001 recession and in 2008 the past 7 years of fake GDP growth from debt and home equity withdrawals collapsed and was withdrawn in a crash.
The only real growth is that which is based on increased income to the consumer class (poor and middle class people who spend all the extra money they get). Money given to that group gets a lot more velocity than money given to the investor class, so it creates more economic growth. The investor class is per definition people who have all they need for personal indulgencies, and who put excess money into investments to create future financial security for themselves. This investment can be productive if the economy is growing and needs to increase its production of goods and services. However, when the economy is not growing much, excess money in the investor class is outright destructive. They put their money into speculative rather than productive markets and things like bubbles in commodities are created. Such speculative bubbles are at best harmless to the economy (e.g., some rich people rip other rich people off their excess capital in a gold bubble). At its worst bubbles are created in commodities like oil and food that directly leads to increased prices in necessities and transfer money out of the consumer class, decreasing productive consumption to further reduce the velocity of money and economic activity.
At its best the US had good minimum wage laws that ensured a man could feed his family with a full time job, and strong unions that ensured a distribution of the wealth created by increases in productivity. This created a strong consumer class and a healthy growing economy. We protected our domestic markets and production facilities with restrictions and tariffs such that the middle class goose would not starve. Most of these things are gone in a desperate attempt to protect “free trade” and the billionaires that it created. If we do not find a way to again protect the middle class, then we will slip into a second nation status like that enjoyed by most of the South American countries in the eighties and nineties. They had a small class of very rich with a large population of poor people, and in spite of lots of natural resources they remained stuck at second rate status, because the economy of such a society cannot grow much (no consumers = no growth).
September 27th, 2010 at 1:38 pm
If any of you folks believe the federal debt and deficit are too big, unsustainable, a ticking time bomb, owed by our children and grandchildren and any other “sky-is-falling” description, you can win an easy $1,000 reward.
Rodger Malcolm Mitchell
September 27th, 2010 at 2:10 pm
Barry, linking to the Nation? You deserve a research project for that if you are willing to put down the penne bolognese for a few minutes this PM… What percent of the earners over the last 30 years has been within the top 1% of earners in any given year?
September 27th, 2010 at 2:13 pm
Victor, my analysis of CBO’s projections indicates your estimate on the magnitude of the future Deficit is quite mistaken. Sunsetting of the Bush tax cuts & current Recession related expenditures brings the Deficit to a low of $438 billion in 2014 (2.5% of GDP), then entitlements and debt service swell the Deficit to $685 billion (3.1%) by 2020. Based on current legislation the Deficit does not reach $2 trillion ’til 2039 (3.9%).
The key to preventing a bond vigilante assault on the treasury auctions is to aim increased taxation & payroll witholdings, adjustments to entitlements, and expenditure cuts/freezes at the post 2015 era so that the Deficit continues to wane and eventually turns to Surplus. The USDollar will continue its eight year debasement ’til progress in that regard is evident … not just an aspiration.
“Should your mission fail” … $135/barrel crude is the outcome for Americans again. Most nations whose currencies are tied to the buck will join in the suffering of destructively higher petroleum costs.
September 27th, 2010 at 8:59 pm
Freddy Hutter, yes, mea culpa, I messed up the stat’s, though directionally correct. Your numbers are very close to my initial source, see “The Economis”t Sep-18/24, pg. 46: by 2020 federal spending forecast as % of GDP is still 24%, equal to this year’s and much larger than in year 2000 (18%). If all tax cuts are allowed to expire by end this year, the 2020 gap between the spending forecast and the total tax revenue is pegged at 2%. Allow the tax cuts for the 98% non-rich to continue and the gap widens to 4%; and if the taxes for the 2% rich are also continued, the gap is 4.4%….The graph has a subtitle “not nearly enough” and the article is titled “Someone will pay” and I believe many will say: yes, someone but not me? I also agree with your comment on the US dollar. It’s going to be tough, very tough indeed.
September 28th, 2010 at 2:10 pm
OK, RodgerMitchell if the taxes and other receipts coming in do not balance the spending budget, the US Treasury simply issues debt and more debt. Also, we issue debt to balance our trade account, all well known facts even for an engineer like me, ECON 101. And I agree we’re not at the point where we collapse under its weight; we may never collapse, things may improve or really things aren’t as bad as we think?. I went to the two links and yes, you do have a convincing point. I just am, by disposition uneasy with a growing amount of debt. Here are two Latin proverbs that I will submit, they are more than platitudes and our nation has strayed from these dicta:
1) Felix qui nihil debet: happy is he who owes nothing,
2) Patris delictum nocere nunquam debet filio: A father should not leave liabilities to his son.