September 7, 2010--Taxes
An in-law of mine has become increasingly frustrated with some of her friends who are obsessed with taxes.
They are fortunate enough to be affluent, and during the last presidential campaign voted for John McCain because he promised to retain the Bush tax cuts which primarily have been of benefit to folks like them--the top five percent of earners.
Their attitude--"We made it and want to keep our money. Everyone else, not the government, should figure out how to take care of themselves." And thus these former liberals have turned to the GOP in pursuit of their own self interest.
This includes at least one doctor who took the Hippocratic Oath when she graduated from medical school. The last time I read it I did not notice anything about how being a physician entitles one to earn half a million dollars a year. Or if one does, which is fine, how this should exempt one from paying a fair share of taxes.
And I have my own friends who are similarly inclined. Their anti-tax views, though, have the patina of seeming to be more ideological--cutting income and capital gains taxes for everyone and all corporations is the best way to stimulate the economy, and this in turn will benefit those who are struggling. Trickle-down economics is alive and well among these conservatives.
With the Bush tax cuts about to expire, when Congress returns soon from its summer recess, taxes will be at the top of the agenda. Republicans want to retain them as is, with the benefits continuing to go almost exclusively to the wealthiest, while the president and most (but not all) Democrats want to cut those of the middle class and increase taxes for couples earning more than $250,000 a year. Republicans also want to continue the phasing out of estate taxes (they call them death taxes); while most Democrats would like to tax estates over, say, $5.0 million.
It will be an interesting debate, but a debate that will be more about politics than economics or social justice. Republicans will continue to tar Democrats as tax-and-spend liberals while Democrats will try to characterize Republicans as caring only about the rich.
Both, will in effect, be right.
If we were to have an enlightened debate about the effects of various forms of taxation on the larger economy a good and balanced text on which to base it is a column by David Leonhardt that appeared recently in the New York Times. (It is linked below. Pay particular attention to the charts and graphs.)
In it Leonhardt takes a look at the actual results the past 30 years of cutting taxes to see which ones have been of greatest benefit to the economy, especially in growing the GDP and creating jobs, which has been and is the rationale for all recent tax reductions.
He looks at how every president's tax policy from Reagan to Obama has impacted the economy--from permanent tax cuts focused on the affluent (Reagan and George W. Bush), which turned out to be of little long term benefit; to one-time, across-the-board cuts (George W. Bush and Obama), which did have a positive impact; to the most productive tax cuts of all that are designed to get people to create jobs and spend money, like last year's cash-for-clunkers program that resulted in a million new car sales and the 2009 tax break that promoted corporate investment.
President Bush in 2001 got Congress to approve his original income tax cuts to help slow the loss of jobs that had occurred during the last four months of the Clinton administration. But they were so skewed to benefit the rich (who tended to save and not spend the money) that they added trillions to the deficit but did not reduce job losses, which continued at an accelerated rate for the next two years.
And Ronald Reagan's 1981 tax cuts also did not have a positive effect on GDP. After he signed it the economy lost jobs for 16 straight months and the deficit nearly tripled during his eight years in office.
Again from history, the most productive tax cuts are those that have a direct effect on spending and thus lead to business growth and job creation. These include the suspension of payroll taxes on employees, temporary across-the-board tax cuts, housing tax credits, and accelerated depreciation allowances.
If our various conservative friends would calm down a bit about what increasing some taxes would actually mean to them (about $5,000 a year in additional taxes for couples earning a half million) and what the best kinds of targeted cuts would mean for the economy, my liberal friend and I would agree that the debt is indeed a ticking time bomb of a problem and further agree to take a hard look at where governments could cut spending and thereby contribute to debt reduction. There are in fact lots of things to eliminate from every state and federal department. This also means taking a hard look at ways to reduce the escalating costs of all of our entitlement programs, from Medicare to Social Security.
The right kind of tax policy is only one way out of our current mess, be it unemployment, housing foreclosures, and out-of-control debt. Everything we do should be devoted to solving these. If we could achieve this, and it will require sacrifice and at times be painful, even our conservative friends will still find themselves doing quite well.
They are fortunate enough to be affluent, and during the last presidential campaign voted for John McCain because he promised to retain the Bush tax cuts which primarily have been of benefit to folks like them--the top five percent of earners.
Their attitude--"We made it and want to keep our money. Everyone else, not the government, should figure out how to take care of themselves." And thus these former liberals have turned to the GOP in pursuit of their own self interest.
This includes at least one doctor who took the Hippocratic Oath when she graduated from medical school. The last time I read it I did not notice anything about how being a physician entitles one to earn half a million dollars a year. Or if one does, which is fine, how this should exempt one from paying a fair share of taxes.
And I have my own friends who are similarly inclined. Their anti-tax views, though, have the patina of seeming to be more ideological--cutting income and capital gains taxes for everyone and all corporations is the best way to stimulate the economy, and this in turn will benefit those who are struggling. Trickle-down economics is alive and well among these conservatives.
With the Bush tax cuts about to expire, when Congress returns soon from its summer recess, taxes will be at the top of the agenda. Republicans want to retain them as is, with the benefits continuing to go almost exclusively to the wealthiest, while the president and most (but not all) Democrats want to cut those of the middle class and increase taxes for couples earning more than $250,000 a year. Republicans also want to continue the phasing out of estate taxes (they call them death taxes); while most Democrats would like to tax estates over, say, $5.0 million.
It will be an interesting debate, but a debate that will be more about politics than economics or social justice. Republicans will continue to tar Democrats as tax-and-spend liberals while Democrats will try to characterize Republicans as caring only about the rich.
Both, will in effect, be right.
If we were to have an enlightened debate about the effects of various forms of taxation on the larger economy a good and balanced text on which to base it is a column by David Leonhardt that appeared recently in the New York Times. (It is linked below. Pay particular attention to the charts and graphs.)
In it Leonhardt takes a look at the actual results the past 30 years of cutting taxes to see which ones have been of greatest benefit to the economy, especially in growing the GDP and creating jobs, which has been and is the rationale for all recent tax reductions.
He looks at how every president's tax policy from Reagan to Obama has impacted the economy--from permanent tax cuts focused on the affluent (Reagan and George W. Bush), which turned out to be of little long term benefit; to one-time, across-the-board cuts (George W. Bush and Obama), which did have a positive impact; to the most productive tax cuts of all that are designed to get people to create jobs and spend money, like last year's cash-for-clunkers program that resulted in a million new car sales and the 2009 tax break that promoted corporate investment.
President Bush in 2001 got Congress to approve his original income tax cuts to help slow the loss of jobs that had occurred during the last four months of the Clinton administration. But they were so skewed to benefit the rich (who tended to save and not spend the money) that they added trillions to the deficit but did not reduce job losses, which continued at an accelerated rate for the next two years.
And Ronald Reagan's 1981 tax cuts also did not have a positive effect on GDP. After he signed it the economy lost jobs for 16 straight months and the deficit nearly tripled during his eight years in office.
Again from history, the most productive tax cuts are those that have a direct effect on spending and thus lead to business growth and job creation. These include the suspension of payroll taxes on employees, temporary across-the-board tax cuts, housing tax credits, and accelerated depreciation allowances.
If our various conservative friends would calm down a bit about what increasing some taxes would actually mean to them (about $5,000 a year in additional taxes for couples earning a half million) and what the best kinds of targeted cuts would mean for the economy, my liberal friend and I would agree that the debt is indeed a ticking time bomb of a problem and further agree to take a hard look at where governments could cut spending and thereby contribute to debt reduction. There are in fact lots of things to eliminate from every state and federal department. This also means taking a hard look at ways to reduce the escalating costs of all of our entitlement programs, from Medicare to Social Security.
The right kind of tax policy is only one way out of our current mess, be it unemployment, housing foreclosures, and out-of-control debt. Everything we do should be devoted to solving these. If we could achieve this, and it will require sacrifice and at times be painful, even our conservative friends will still find themselves doing quite well.
posted by Steven Zwerling at
5:15 AM
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