Compromise on Bush Tax Cuts

[Pangloss]

The president and Republicans came to terms on a deal this afternoon. All tax cuts will be extended, even those for the wealthiest earners.

 

Some details can be found here:

http://www.businessweek.com/news/2010-12-07/obama-agrees-to-two-year-tax-cut-extension-lower-payroll-taxes.html

 

I think this is an excellent step forward. The plan isn't perfect, but I think what's important here is that common ground was found on a number of issues and a path forward was found. It was either this or complete stagnation, and apparently nobody wanted that. That's encouraging.

 

I know many on the left will be disappointed, and indeed the impact on the bottom line is significant, which affects all Americans. It's even more important to cut entitlement spending now. But suddenly I find myself looking very much forward to the next couple of years, and potentially even voting for Obama again.

[john5746]

All the drama to basically "stay the course". The compromise is basically throwing everyone a bone, of course some get a much bigger bone. I wonder if we will see a compromise on cuts, where everyone gets a cut they want? Let's see.

[mississippichem]

The best times in American politics are when the white house and congress are split along party lines. Like when Clinton was in office with a Republican congress. It keeps the balance and forces cooperation. The fringe of both sides gets marginalized. Given this is still the "lame duck session" though. I think better economic times are on the horizon. Better fiscal times...not so sure.

[Marat]

Now millionaires will be able to afford a bigger yacht, billionaires will be able to afford another summer house in Majorca, and all at the cost of less federal funds to protect poor people against the cold, malnutrition, substandard housing, rats, and disease.

 

Just imagine the entire population of the U.S. were one single person. Would it be anything other than utter lunacy for that person to buy a yacht and a summer house in Majorca if he was also suffering from malnutrition, cold, disease, and a rat infestation since he didn't have enough money left over after buying his luxuries to pay for these basic needs? It is no less insane to trade off provision of basic needs for the poorest people against luxuries for the wealthiest on the wider scale for the whole population.

 

If the government takes an additional million dollars in taxes from Bill Gates, it can provide a small apartment for someone living in a dumpster, it can provide basic dental care to some poor person losing his teeth, it can provide warm winter clothing to a needy family, and it can provide a decade of adequate nutrition to a poor family facing malnutrition, and probably still have money left over. But since Bill Gates will only lose about 1/30,000th of his net worth, he won't even notice any loss whatsoever as his price for providing these life-changing benefits and enormous sources of happiness for the poor.

 

In short, extending the Bush tax cuts is just an enormous potlatch which irrationally wastes the real capacity of money to provide happiness, since it concentrates money where it will do the least good possible in answering the strongest human needs.

[mississippichem]

 

Just imagine the entire population of the U.S. were one single person. Would it be anything other than utter lunacy for that person to buy a yacht and a summer house in Majorca if he was also suffering from malnutrition, cold, disease, and a rat infestation since he didn't have enough money left over after buying his luxuries to pay for these basic needs? It is no less insane to trade off provision of basic needs for the poorest people against luxuries for the wealthiest on the wider scale for the whole population.

 

That's quite a logical leap from every US citizen being one person to it being the responsibility of citizens to provide basic needs to others.

[Marat]

As a democratic community we could potentially possess as many or as few of our material assets in common as we wish. As soon as progressive taxation was permitted by Constitutional Amendment, it became possible to set that progressive taxation at any level, with the result that a system could theoretically be introduced in which everyone would have exactly the same income, or an income (through a system of deductions) varying only according to basic needs.

 

Whenever taxes are discussed, we are simply recalibrating that balance between how much of the nation's net wealth will go to buy luxuries for the few, where the net effect of that wealth will do the least good in terms of producing human happiness, and how much will go to pay for basic needs for the poor and the middle class, where that wealth will do the most good in terms of producing human happiness. The fact that we routinely prefer to direct wealth via the tax system towards buyng third yachts for people who already own two instead of paying for decent healthcare, food, shelter, clothing, and education for people who desperately need these things expresses our willingness to limit the net human happiness we can produce with our total stock of wealth just to support the class interests of the rich.

 

A thousand years from now anthropologists will have as hard a time explaining why we do that as they now have explaining why the Aztecs cut the hearts out of living humans to please the Sun.

[Pangloss]

Or they'll wonder why people who work hard pander to people who don't. I mean, as long as we're generalizing.

[Marat]

If we had a carefully researched and democratically agreed upon measure of what work was really worth in terms of its difficulty, unpleasantness, and true value to society, then there would be a better argument for saying that people 'who contribute more' so get to keep their money. But the problem is that an investor can make more money in a one-minute telephone call than a coal miner can make in his entire life, and Johnny Cash made a fortune by singing off-key while many talented graduates of the Julliard Opera program can never earn a living, so people don't generally 'deserve' their money by any rigorous criteria of desert.

[zapatos]

The best times in American politics are when the white house and congress are split along party lines. Like when Clinton was in office with a Republican congress. It keeps the balance and forces cooperation. The fringe of both sides gets marginalized. Given this is still the "lame duck session" though. I think better economic times are on the horizon. Better fiscal times...not so sure.

Do you know of any studies to back this up? I wasn't able to find any.

 

I would have thought it was the other way around. If you don't have to compromise you can take bold steps. If you do have to compromise you more or less stay in place. (Although I guess this is good if you like where you are.)

[Pangloss]

If we had a carefully researched and democratically agreed upon measure of what work was really worth in terms of its difficulty, unpleasantness, and true value to society, then there would be a better argument for saying that people 'who contribute more' so get to keep their money.

 

Absolutely! And I think we have that debate every day in America, and the people inevitably come down on the side of a mixed socio-economic strategy that includes a robust capitalistic motivation combined with social safety nets.

 

Currently that means that people wanted all the tax cuts preserved. They wanted the <200k cuts preserved for their own wallets, and they wanted to the >200k cuts preserved for their jobs. They might have gone along with Chuck Schumer's suggestion of a tax increase on those making a million per year or more, had Republicans gone along. But not because they believe that it's a good idea to redistribute income.

 

 

But the problem is that an investor can make more money in a one-minute telephone call than a coal miner can make in his entire life, and Johnny Cash made a fortune by singing off-key while many talented graduates of the Julliard Opera program can never earn a living, so people don't generally 'deserve' their money by any rigorous criteria of desert.

 

That's not a "problem", it's a "motivation". The American people don't care that some people get ahead -- even WAY ahead. What they care about is whether their own opportunities will be there when they come knocking at the door.

[CharonY]

Currently that means that people wanted all the tax cuts preserved.

 

People? Which people? Polls tell a different story. My link.

 

The people (whoever they are) apparently are divided with a skew towards letting the tax cuts expire for the highest earners.

[Marat]

It's been common wisdom since about the time of the split in the Republican Party between the Taft conservatives and the Teddy Roosevelt progressives that the Republicans have no other political interest than governing the country to benefit the richest 5% of the population, no matter how much harm has to be done to the national interest or to the other 95% of the population to accomplish this. That is why the Republicans always have to go to great lengths to ensure that political campaigns are silly (should we blame Gore for being part of the administration that was headed by someone who cheated on his wife? should we vote for George Bush I because he went to a flag factory while Michael Dukakis looks funny in a tank?), since in a rational campaign they would lose.

 

But I would have thought that the recent tax cuts for millionaires issue would have forced the Republicans to come out into the open and get blamed forever for being what they are: the political agent of rich people rather than a legitimate party in a democracy. But no, it seems as if the American electorate has been schooled so well and so long to be brainless that a majority of people who will never be rich and who themselves need federally funded social programs to prosper will still always support the upper 5% of the population.

[mississippichem]

Do you know of any studies to back this up? I wasn't able to find any.

 

I would have thought it was the other way around. If you don't have to compromise you can take bold steps. If you do have to compromise you more or less stay in place. (Although I guess this is good if you like where you are.)

 

There are no studies to back this up. I wasn't trying to imply a factual statement. My definition of best times will obviously differ from yours or anyone else's. The word best might be the most subjective word ever.

 

I just feel that whenever the Republicans get absolute control we end up blowing our money on medicare and obscure wars. Whenever the Democrats get total control, we end up spending too much money on medicaid and other entitlements. Once again, my definition of wasteful spending probably differs from that of others though. Just an opinion.

[Pangloss]

People? Which people? Polls tell a different story. My link.

 

The people (whoever they are) apparently are divided with a skew towards letting the tax cuts expire for the highest earners.

 

Fair enough, it's more a split, but I don't think we can blame this entirely on Republican grandstanding, because we weren't given a lot of options by Democrats, either. The 250k mark dipped into small business jobs, and Dems felt that higher marks didn't do enough for the deficit. If Chuck Schumer's suggestion of $1-mil+ had been allowed time to percolate and draw support it might have been useful.

 

All of this just underscores the point that the problem is spending, not taxing. But I would have happily supported a tax increase that didn't adversely impact the economy, as long as we take a serious look at spending. I'd accept the proposal of the Obama administration's deficit panel and implement the entire package immediately -- and MOST of that deficit reduction comes from tax increases. They just aren't the kind of tax increases that hurt the economy.

 

 

It's been common wisdom since about the time of the split in the Republican Party between the Taft conservatives and the Teddy Roosevelt progressives that the Republicans have no other political interest than governing the country to benefit the richest 5% of the population, no matter how much harm has to be done to the national interest or to the other 95% of the population to accomplish this.

 

No it's not.

 

 

But I would have thought that the recent tax cuts for millionaires issue would have forced the Republicans to come out into the open and get blamed forever for being what they are: the political agent of rich people rather than a legitimate party in a democracy. But no, it seems as if the American electorate has been schooled so well and so long to be brainless that a majority of people who will never be rich and who themselves need federally funded social programs to prosper will still always support the upper 5% of the population.

 

Does it help when you call them "brainless" and "schooled"? I mean, does it change their minds?

[Marat]

I still bet it counts as a common assumption among Americans that the Republicans are more inclined to favor the rich while the Democrats are more inclined to favor increased federal and state spending to achieve social justice. Isn't this why Labor Unions are always Democratic and why Westchester County and Orange County vote Republican? The only way this class interest voting is broken up is by the Republicans supplementing their appeal by posing as the party of religion to attract the cornpone crowd south of the Mason-Dixon line and as the party of international aggression to please frustrated, testosterone-driven old males shouting at television news pictures of Iran or other countries defying U.S. interests. The Republicans also used to make a covert appeal to racism until that became too unfashionable.

 

The real problem in the economy is not excessive spending, as so many assume, but simply insufficient taxes to pay for the starkly minimalist expenditures of the U.S. federal government. Just look at the facts: France collects 46% of its GNP in taxes; Germany collects 41% of its GNP in taxes; England collects 39% of its GNP in taxes; while the U.S. takes in only 28% of its GNP in taxes at all levels of government. Of course there's going to be a huge deficit, but not because entitlement programs are generous, which they are not by international standards, but just because taxes are low.

 

It's quite instructive to see how the Tea Party was screaming hysterically about government expenditures, the deficit, and taxes, but doesn't seem to notice the $800 billion just piled onto the U.S. government's obligations by the massive Bush tax cut for the wealthy being extended.

[divagreen]

I still bet it counts as a common assumption among Americans that the Republicans are more inclined to favor the rich while the Democrats are more inclined to favor increased federal and state spending to achieve social justice. Isn't this why Labor Unions are always Democratic and why Westchester County and Orange County vote Republican? The only way this class interest voting is broken up is by the Republicans supplementing their appeal by posing as the party of religion to attract the cornpone crowd south of the Mason-Dixon line and as the party of international aggression to please frustrated, testosterone-driven old males shouting at television news pictures of Iran or other countries defying U.S. interests. The Republicans also used to make a covert appeal to racism until that became too unfashionable.

 

The real problem in the economy is not excessive spending, as so many assume, but simply insufficient taxes to pay for the starkly minimalist expenditures of the U.S. federal government. Just look at the facts: France collects 46% of its GNP in taxes; Germany collects 41% of its GNP in taxes; England collects 39% of its GNP in taxes; while the U.S. takes in only 28% of its GNP in taxes at all levels of government. Of course there's going to be a huge deficit, but not because entitlement programs are generous, which they are not by international standards, but just because taxes are low.

 

It's quite instructive to see how the Tea Party was screaming hysterically about government expenditures, the deficit, and taxes, but doesn't seem to notice the $800 billion just piled onto the U.S. government's obligations by the massive Bush tax cut for the wealthy being extended.

 

I could be wrong, but I am going to take a stab that you live in Texas.

 

The Tea Party Movement was highly successful in the spreading of disinformation to the general public, that went against the general public's own personal interest.

[john5746]

I think we should eliminate taxes on those making greater than 1 million dollars for the next two years. That will really get us growing. Not only that, but it will then force Obama to run on the idea of tax increases in the next election(because he won't make these cuts permanent) and the huge deficit will prove he is a big spender.

[swansont]

I think we should eliminate taxes on those making greater than 1 million dollars for the next two years. That will really get us growing.

 

Is there any independent, objective evidence that this is true? Any evidence that the tax cuts of 2001 and 2003 were the actual cause of creating jobs? I seem to recall that it had no effect on the baseline rate. I see statements to the effect that moving the tax bracket up will kill jobs creation, and I have to ask where the hell those jobs have been for the last 7 years. If you make $300,000 (filing singly), your tax increase is ~$3,000. How many jobs can you create for $3,000? I get the feeling the republicans were offering a pig in a poke, and nobody actually bothered to get a look at the pig.

[Mr Skeptic]

Looks like either someone's sarcasm meter needs recalibrating, someone needs to make their sarcasm more obvious, or Poe's Law has struck again.

[Marat]

When you consider that the Bush tax cuts have been in place since 2001 and through all this time they have not only failed to stimulate the economy but have even allowed the worst recession since the Great Depression to develop, it seems bizarre that some people claim we need more of the same to get us out of the recession.

 

For capitalism to work, there has to be a balance between the disposable income of the workers and the investment capital of the wealthy, since otherwise the investment capital can't find sufficiently productive investment opportunities since the mass of the consumers don't have enough spare income to soak up what those investments are producing. Both the 1929 crash and the 2008 collapse were produced by top-heavy wealth distributions with too much excess wealth in search of too few profitable investment opportunites being generated by workers whose wages had been stagnant for a decade or more. The weath massively concentrated among the wealthiest by 30 years of right-wing policies had to contrive more and more unstable and risky avenues of investment to provide artificial sources of investment so this excess of capital would not lie fallow, and that is how we got so much money invested in subprime mortgages, derivatives, and credit default swaps. When the artificiality of these minimally asset-based investments became clear, the bubble burst, and now we are all paying the price for it.

 

But since the 2008 crisis cleared about $55 trillion in wealth off the balance sheets (the total world economy only produces $66 trillion of wealth per year), the whole insane cycle can now begin all over again with investment opportunities developing to fill in the gap. Extending the Bush tax cuts for the wealthy is only going to make the problem of excess capital having to generate flimsy investment gambles -- the problem of 1929 and 2008 -- return all the faster.

[john5746]

Yeah, I should have put a smiley after that one, I agree completely that it would be a dumb idea. It should be obvious that middle class demand and confidence is the primary issue, not lack of capital.

[swansont]

Looks like either someone's sarcasm meter needs recalibrating, someone needs to make their sarcasm more obvious, or Poe's Law has struck again.

 

Since I was the one suckered in, I vote for Poe.

[Pangloss]

I still bet it counts as a common assumption among Americans that the Republicans are more inclined to favor the rich while the Democrats are more inclined to favor increased federal and state spending to achieve social justice.

 

Yup. And they knew that when they went to the polls last month. Isn't that interesting? It means your ideological preferences may be recognized to some extent, but that most people weight it against other ideological preferences and/or more immediate problems.

 

The great unwashed. Hand 'em a bar of soap and they trade it for milk. Go figure.

 

 

The only way this class interest voting is broken up is by the Republicans supplementing their appeal by posing as the party of religion to attract the cornpone crowd south of the Mason-Dixon line and as the party of international aggression to please frustrated, testosterone-driven old males shouting at television news pictures of Iran or other countries defying U.S. interests. The Republicans also used to make a covert appeal to racism until that became too unfashionable.

 

So what you're trying to say is that you don't think much of Republicans. (grin) Hey, more power to you. Everyone has their view.

 

For what it's worth, my feeling is that you lost me at the word "only". It seems to me like you're just doing exactly the same thing that you accuse your ideological enemies of doing -- demonizing the other side, never considering voting for anything other than your own side (because no matter how bad they may be, at least they're not the enemy), and seeing everything as a war.

 

I don't think that works, I think it just makes things worse. But hey, maybe it's just me.

 

 

The real problem in the economy is not excessive spending, as so many assume, but simply insufficient taxes to pay for the starkly minimalist expenditures of the U.S. federal government.

 

It's not an assumption. And what you're calling "starkly minimalist" is a 2010 expenditures of $3.552 trillion, the majority of which is mandatory social spending.

 

 

When you consider that the Bush tax cuts have been in place since 2001 and through all this time they have not only failed to stimulate the economy but have even allowed the worst recession since the Great Depression to develop, it seems bizarre that some people claim we need more of the same to get us out of the recession.

 

Isn't it Democrats who are arguing that the President's stimulus package stopped things from being worse? Why do Democrats get to use that reasoning but not Republicans?

 

I think there's a pretty good argument being made that businesses are hesitant to expand and invest right now because of uncertainty over tax policy. Actually I think investment would increase immediately even if they had gone with the bash-the-250k crowd as planned, just because at least then everybody would have known what was going on. But the early argument that was so commonly made by the left that small business would not be effected just did not seem to jive with the concerns. Too many businesses claimed that they would be affected, and since most Americans are employed by small business, it matters when you raise the taxes paid by those small businesses.

 

And by the way, that refutes your insinuation that intelligent people vote Democrat and stupid people vote Republican. Democrats and ideologically-minded liberals have gotten quite a wake-up call here about how small business operates.

 

Anyway, there's a whole host of "we've already tried that" items on the liberal side of the equation too, Marat. Nobody has any definitive answers. That's why there are not one but two equally leading schools of economic thought, and they are in direct contradiction of each other.

[swansont]

 

Isn't it Democrats who are arguing that the President's stimulus package stopped things from being worse? Why do Democrats get to use that reasoning but not Republicans?

 

It's not the same argument. Government spending ≠ tax cuts

 

 

I think there's a pretty good argument being made that businesses are hesitant to expand and invest right now because of uncertainty over tax policy. Actually I think investment would increase immediately even if they had gone with the bash-the-250k crowd as planned, just because at least then everybody would have known what was going on. But the early argument that was so commonly made by the left that small business would not be effected just did not seem to jive with the concerns. Too many businesses claimed that they would be affected, and since most Americans are employed by small business, it matters when you raise the taxes paid by those small businesses.

 

Of course, the whole thing could be a sham. It's politics. It wouldn't be the first time spurious arguments were used to support an action, when the real agenda was different. People don't want their taxes raised, so they claim it will hurt businesses and cost jobs. But since I still don't see an answer to the question of how $3,000 creates/costs a job, I'm leaning toward smokescreen.

[Marat]

You can always get some economic stimulus and some job creation by directing more money via the tax structure to the rich to invest and create jobs or to the poor and the middle class to increase demand for products and thus also create jobs. Which end of the wealth spectrum you choose to stimulate with additional money to create jobs depends on where you want the most money to stick on the first pass through as it moves from the government and tax structure to the private economy. The Republicans want to make the rich richer so they argue for tax cuts for the wealthy to stimulate job growth and economic development. The Democrats want to help the poor and the middle class so they argue for more government stimulus programs which benefit lower income earners.

 

But if you look at history, giving huge amounts of government money to the poor and the middle class via the GI Bill in the post-World War II period, which allowed people who otherwise would never have owned homes or gone to university to experience greater prosperity, produced one of the greatest economic booms in American history at the same time as it promoted social justice by helping those less well off. In contrast, all the Bush tax cuts did was produce the greatest downturn in the economy since the 1929 market crash. Naturally, the only sensible solution to get us out of that downturn and generate more jobs is to continue the program which created the problem in the first place.

 

The only way you can explain this is to recognize that this is pure class warfare, with all the arguments about tax cuts stimulating the economy and creating jobs -- entirely disproved by the failure of the Bush tax cuts to produce anything other than a huge recession -- merely serving as a smokescreen to cover the Republican's protection of the economic interests of the wealthy, their political clients.