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Tag Archives: Tax cut

A Nice Visual Explanation of How the Government Can “Cut” Spending…and Increase Spending at the Same Time

Been curious as to whether or not the government was really cutting spending in all these negotiations?  Wondered what “baseline spending” is?  Didn’t realize that all the crying about cutting programs for the poor is crap?  Check out this video.  You’ll never look at “spending cuts” the same again!

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Where Does Tax Rhetoric Meet Reality?

There has been a lot of talk lately about taxes.  George W. Bush lowered tax rates twice while in office.  Democrats portray those cuts as “tax cuts for the rich” as though no one else benefitted–not even the large number of folks who were removed completely from the tax rolls due to the minimum taxable amount being increased.  Democrats also complain about the cost of the cut for the richest folks, constantly ignoring that the cost of the cut for the other brackets was 3 times as much.  Obama then extended those cuts, much to the chagrin of the Dems.

Now, as talk of deficit reduction and debt reduction heats up, there is much hand wringing going on regarding what to cut and where to get more revenue.  Democrats, of course, say raise taxes.  Republicans say no.

Republicans are playing hardball in terms of tax policy, saying no tax increases will be on the table.  In a way, I can agree, as the more important thing is to lower spending.  Not only that, but the government has a pattern in place:  every time more money comes in, they find a way to spend it.  Without going into detail, the fact that by law, surplus Social Security money is put into the general fund for spending purposes is a prime example.  Anyway, Republicans have their own tax mantra that they will say over and over and over again:

Tax cuts spur economic growth.  But tax increases destroy the economy and destroy jobs!

Having heard this so many times, I finally wondered how much truth there is to this.  Nevermind that I personally believe that taxes can be increased with with no devastating effect to the economy.  I wanted to know what history has shown.  Was there any conclusive proof that showed where tax increases had really hurt the economy?

From what I knew already, I knew that there were examples where tax rate cuts had at least helped spur the economy.  Higher taxes helped fund World War II.  JFK also decreased taxes, which led to economic growth.  Even under G.W. Bush, the economy grew after his tax rate cuts, though in a very tepid fashion.  But what about tax increases?

I was skeptical that I would find evidence and was convinced that the notion was simply a Republican talking point, but there is indeed proof.

  • President Herbert Hoover signed a major tax increase in 1932.  The top marginal rate was increased from 25% to 63%, among other rate increases.  Tax revenues in 1933 were 42% of what they were just two years prior.  Unemployment rose to nearly 25%.  Slowly, though, the economy recovered until…
  • In 1937, Roosevelt signed into law new tax increases.  The result was that the economy went back into recession and didn’t come back until during WWII.  Truman actually cut taxes during that time and by the end of the decade there were budget surpluses.
  • Reagan signed a major tax rate cut in 1981.  Many Republicans like to point this out about Reagan and say that those cuts are why the economy grew during the Reagan years.  But that leaves out part of the story.  Reagan signed a number of tax increases starting in 1982.  Tax loopholes were closed and Social Security was overhauled.  Businesses ended up paying more taxes as a result.  Despite this, there was still economic growth.
  • During the 90s, Clinton raised taxes.  The country was coming out of a recession, and even with the tax increases, the economy grew.  Clinton did, however, also lower taxes on capital gains in the mid-90s.  Many say it was actually the tax cut and not the increase that provided the huge boost in revenue to the government.

So, what is the outcome of my info hunt?  Well, as usual, both sides will make declarations without telling the entire story.  But right now, Republicans are most guilty of cherry picking.  While it’s true that some tax increases did real damage, both Reagan and Clinton showed tax increases can be done and they NOT throw the economy into chaos.  I will also point out that they are especially guilty of ignoring Reagan’s tax increases (yes plural) when talking about how his cuts grew the economy.

Bottom line, rolling tax rates back to pre-Bush levels will not damage the economy.  Just like before, businesses will still find a way to survive and eventually thrive, the economy will grow, and there will be jobs.

to pass a bill they say we can’t afford, let’s make it MORE expensive

An article out today explains how Senator Harry Reid has added some things to the Obama tax cut deal to help get it passed. Confusing, since much has been said about how the agreement does nothing to help with the deficit, and how the tax rate cuts for the higher income earners is unaffordable:

The sweeping tax cut bill introduced Thursday night by Senate Majority Leader Harry Reid is chock-full of sweeteners which could serve as a legislative pacifier for Democrats outraged over the concessions President Obama has handed to Republicans.

The stimulus-sized package includes about $55 billion worth of short-term tax extensions for businesses and individuals. They cover a host of alternative energy credits, a potential salve for environmentally conscious lawmakers, as well as targeted benefits for everything from the film and television industry to mining companies to rum producers.

Senate Tax Cut Package Filled With Sweeteners, Obama Predicts Passage

So, the answer to unaffordability? Make it more expensive!

Republicans inciting violence! oh, wait. She’s a Democrat. Will she get condemned?

I’ve lost count of the number of times I have seen those on the left calling for condemnation of statements made by folks on the right.  But what about when one of their own says something in the same category?   It seems a senator was suggesting that americans take up pitchforks…she’s a Democrat!

But lets look at some of what she says:

“…they insist on a permanent tax cut for the wealthiest americans, completely unpaid for”

Lets look at this the way it should be looked at. If the projected loss in revenue is indeed $700 billion over 10 years, that means spending would need to be cut from elsewhere for it to be “paid for.” The problem is, instead of suggesting that cuts be found, its easier to criticize the cost. Further, someone should ask a pertinent question: if continuing a tax cut that is unpaid for is such a bad thing, how is continuing ANY of the tax cuts good, since NONE of it is paid for?

“we are fighting for the middle class”

No. you are pulling the wool over the eyes of the middle class in hopes of getting them vote for you and keep you in office.

“70% of Americans don’t itemize deductions.”

So what? That has nothing to do with extending tax cuts. Wait…unless you’re building towards a bigger point…

“so that big ol complex tax code? its been written for wealthy america.”

Ah, there it is! Let’s dig at the high income earners! THATS what you were getting at! Unless there are rules in the tax code that say “only wealthy americans can get these deductions,” you just bent the truth, Senator.

“they have all kinds of ways that they can use the tax code to avoid paying taxes.”

Ah, yes, a famous tactic, used often by Democrats. Let’s imply that the high income earners aren’t paying their “fair share.” Too bad that the top 5% of income earners (making over $158k/yr) make 35% of all adjusted gross income (AGI) in the US, but pay almost 60% of all income taxes paid. The top 10% ($114k and up) make 46% of US AGI, but pay 70% of all income taxes paid. So, that leaves the bottom 90% of income earners to pay the remaining 30% of income taxes paid. This includes the bottom 50% of income earners, who pay less than 3%. The point? High income earners pay a lot in taxes, as they should, but implying they aren’t paying their share is rediculous.

“Its about leveling the playing field”

Its not the government’s job to redistribute wealth and calling it “leveling the playing field!”

“If they think its ok to raise taxes for the embattled middle class because theyre gonna pout if we don’t give more money to millionaires, it really is time for the people of america to take up pitchforks.”

Where do I start on this one? First, Republicans want to extend tax cuts for EVERYONE, not just the wealthy. Second, can someone explain to the Senator that a tax rate cut is not giving money away? To give something away implies there was possession in the first place. When someone has a tax cut, that means they get to keep more of THEIR OWN MONEY! I can only assume that she and other Democrats feel the government is entitled to everyone’s money and should be able to tell folks what they can and can’t do with it. Finally, the pitchfork comment, which is what came to my attention in the first place. I’ve heard many of my left-leaning friends screaming about something someone on the right said, how it should be condemned, and implying that Dems don’t do such. Well, let’s see if those people step forward and comment on this one.
The rest isn’t worth breaking down, other than to mention that she throws in a few digs at the wealthy just to get her constituents even more ticked off at Republicans and at the filthy rich people. It’s a shame that Congress can’t have serious discussions about this type of thing, but also a shame that people don’t realize people like her are part of the problem, not part of the solution.

QuickHit: very good article about tax cuts and small businesses

today on Yahoo, there is a very good fact checking article about tax cuts and small businesses. As is usually the case, both parties are bending numbers to make their argument look better, but the truth is in the middle:
FACT CHECK: Small business caught in tax battle

Tax shenanigans, or why $700 billion is unaffordable, but $3 trillion is affordable

The level of back-and-forth over the extension of tax rate cuts enacted under Bush 43 has reached a fever pitch.  From the right, we get “all or nothing!” or “no one should have a tax increase in this economy!” or, to borrow from a classic hip hop song by the one-hit-wonder group, The Double XX Posse, “not gon be able ta do it!”  From the left, we get “no tax cuts for millionaires and billionaires!” or “tax cuts for the rich” and “no subsidizing the rich” or “they don’t need it.”  But my favorite is that, in essence, we can’t afford the $700 billion cost (CBO projected).

For the life of me, I could not figure out how anyone would have the nerve to specifically talk about the $700 billion that extending the current rates for high-income earners may cost (remember, they are projections, so its only a guess), but not talk about how the cost of the rest of the cuts.  After all, the same CBO that produced the $700 billion number also stated that the TOTAL cost of extending ALL current tax rates would be $3 trillion.  So what gives?

Just more political shenanigans.

Let’s step back for a moment to 2007.  From wikipedia:

The PAYGO system was reestablished as a standing rule of the House of Representatives (Clause 10 of Rule XXI) on January 4, 2007 by the 110th Congress:

It shall not be in order to consider any bill, joint resolution, amendment, or conference report if the provisions of such measure affecting direct spending and revenues have the net effect of increasing the deficit or reducing the surplus for either the period comprising the current fiscal year and the five fiscal years beginning with the fiscal year that ends in the following calendar year or the period comprising the current fiscal year and the ten fiscal years beginning with the fiscal year that ends in the following calendar year.

Less than one year later though, facing widespread demand to ease looming tax burdens caused by the Alternative Minimum Tax, Congress abandoned its pay-go pledge.

So, to set themselves apart from the previous congressional crew, the swept-into-power Democrats in the House re-enacted a rule that makes a lot of sense–if we are gonna spend it, we are going to pay for it. Tub notice the next next line: it lasted less than a year. PAYGO was shelved, allowing major pieces of legislation, like the Bush Stimulus package in 2008 and Obama’s Stimulus package in 2009, to be passed without the rules applying. Then, new statutory PAYGO rules were again passed in February of 2010.
In addition, Obama signed new budget rules. From Businessweek:

Under the budget rules, any tax cuts benefitting individuals earning more than $200,000, or couples earning more than $250,000, must be offset with new tax revenue or spending cuts elsewhere.

Apparently, the tax cut line-in-the-sand was drawn long ago. After bucking the PAYGO rules, now the rules must apply and for those high-income earners, tax cuts aren’t affordable.
Here’s what’s missing.
Lets be honest. If there is an argument to be made, its that NONE of the tax rate cuts are affordable. But let’s stick to the current discussion. The reason that Democrats are saying we can’t afford the $700 billion is not because we can’t afford it. That can’t be the case, since evidently, financing $2.3 trillion via debt is not a problem (and allowed under the rules!). The real problem is that offsetting spending cuts would have to be made. History has shown that Democrats are not big on cutting spending (unless its Defense related). Any mention of cutting programs, especially entitlement programs, is met with more resistance than a goalline stand in the national championship game. Any other arguments, like referring to lower tax rates as a “subsidy” (how can the government grant or gift a person their own money) or “welfare for the rich” (once again, its their money) just distracts from the true discussion.

Don’t worry, my Dem friends, I’ll tackle the Repubs too.

Tax cuts, small businesses, and the $250k line

During the long drawn out battle regarding the Bush Tax cuts.  Democrats have drawn the line at $200k/yr for individuals and $250k/yr for families as the dividing line between those who should get permanent tax cuts and those who shouldn’t.  The main argument is that the $700 billion in lost revenue over the next 10 years is unaffordable.  Republicans counter that not only should there be no tax increases in these economic times, lots of small businesses will be negatively affected.  Of course, the truth (as I see it, of course) is somewhere in the middle.

A logical approach would be to extend them all temporarily (give it a year or 2), then let them expire.  Now, people are right now saying I’m crazy.  But if we’re going to be for real about getting the deficit under control, that should be option 1 on the table.  Republicans like to say “no tax increases” but there has to be a middle ground where folks aren’t overtaxed and the government is getting more revenue.  If anything, add a new bracket for folks making a million per year or more.  Either way, its illogical to completely remove the idea of a tax increase of some kind to combat spending.

Democrats, on the other hand, have established $250k as the line in the sand.  Mind you, no one has any idea why this number is the magic number.  But as Dems often do, it becomes an emotional issue.  That approach started from the beginning, when the tax cuts were enacted.  Despite the easily researchable facts that the cuts actually removed a number of lower income taxpayers from the tax rolls, reduced the lowest tax rate, and shifted the overall tax burden to the highest income levels (look it up), the cuts have often been referred to as “tax cuts for the rich” simply based on the sheer amount that an upper income earner got to keep (not “was given to them” as is often used as yet another argument).  What’s often heard is that folks making that much money either “don’t need a cut” or “won’t spend it.”  Or, that they cost too much.  I usually wonder how it can be said that the estimated $700 billion over 10 years is considered unaffordable, when the rest of the cuts are estimated to cost over $2 billion over the same time.   This is why if anything should be done, ALL should be rolled back.

I predict that the White House will give in to all cuts being renewed for 2 years in order to avoid all of them expiring on 12/31/10, which would be a political disaster.

Quack! Quack! The Lame Ducks are here! What to watch for.

No, I’m not talking about all those Canadian Geese that are blocking traffic and crapping all over your lawn.  I’m referring to the “Lame Duck” session of congress.  For the uninitiated, the term refers to the congressional session between the elections and the beginning of the new congressional term, when many of the members of congress are simply biding their time before they are shown the door and replaced.  It’s a time where lots of shenanigans can occur; if you’ve been voted out and you only have a few weeks to “live,” you can vote on some things with no concern as to how it will affect you.

In this case, congressional democrats originally had lots of plans for the session.  Unfortunately, November 2 hit like a category 5 hurricane and messed up their plans.  But no worries, there will be fireworks.  Here is a sample of what to watch for:

  • The biggest issue to be resolved will be the extension (or not) of the Bush Tax Cuts.  Republicans want all of them made permanent.  Democrats want to draw the line at people making $200k/$250k individual/family.  There is talk of a 2 year extension of all cuts, but Obama and Pelosi are holding firm that they want no compromise.  Another compromise by Senator Chuck Shumer (D-NY) popped up over the weekend.  We will see if anyone pays attention.
  • The estate tax, aka the “death tax,” if not addressed, will go from 0% back to its original level of 55%.
  • Funding of the government is currently done via a temporary spending bill.  Congress will have to put in place a new spending bill for the year.  Should be a simple thing, right?  No.  Dems are refusing to accept a Repub proposal to hold spending at 2008 levels to reduce spending.

Other things that may come up include “Don’t Ask Don’t Tell” (which needs to go), the DREAM Act (a little too soon and too controversial right now), and the Alternative Minimum Tax, which could hit a lot more people if nothing is done.