James Pethokoukis

Politics and policy from inside Washington

Why Romney’s right that ‘companies are people’

Aug 11, 2011 22:00 UTC

Liberal groups, like Think Progress, are jumping all over Mitt Romney for this (via TP):

Mitt Romney completed a rowdy campaign stop at the Iowa state fair, before a key Republican debate tonight and an upcoming Iowa straw poll. At the end of his speech, a Q&A session quickly devolved into a shouting match during which he defended the rich, argued for cutting entitlements, and equated corporations with people. Romney told a group of angry Iowans that raising the retirement age to protect corporate tax breaks is appropriate. “Corporations are people, my friend,” he said.

Now I don’t think Romney was making a legal argument about corporate personhood, which is well established concept in US law:

In the United States, corporations were recognized as having rights to contract, and to have those contracts honored the same as contracts entered into by natural persons, in Dartmouth College v. Woodward, decided in 1819. In the 1886 case Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394, the Supreme Court recognized that corporations were recognized as persons for purposes of the Fourteenth Amendment

Rather, I am pretty sure he was trying to say that corporations are made up of people, but not in a Soylent Green sort of way. Rather they are comprised of workers generating goods and services for customers. And when you punish corporations, you punish workers and shareholders and customers. A few additional points:

1) Here an interesting bit from an OECD paper on taxes and economic growth

Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. …  A second option is to reform corporate taxes, as they influence productivity in several ways. Evidence in this study suggests that lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth. It also appears that corporate taxes adversely influence productivity in all firms except in young and small firms since these firms are often not very profitable.  … Lower corporate and labour taxes may also encourage inbound foreign direct investment, which has been found to increase productivity of resident firms. In addition, multinational enterprises are attracted by tax systems that are stable and predictable, and which are administered in an efficient and transparent manner.

2) And here is economist Greg Mankiw addressing the topic in his popular economics textbook:

Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.

The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.

3) Finally, economists Kevin Hassett and Aparna Mathur on who bears the burden of corporate taxes: “The results in this paper suggest that corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates.”

 

 

 

 

COMMENT

Thomas Paine said it best in The Rights Of Man in 1791.

“It has been thought that government is a compact between those who govern and those who are governed; but this cannot be true, because it is putting the effect before the cause; for as man must have existed before governments existed, there necessarily was a time when governments did not exist, and consequently there could originally exist no governors to form such a compact with. The fact therefore must be, that the individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise, and the only principle on which they have a right to exist.”

Thomas Paine and others of the Revolutionary Era realized that any institution made up by and of humans – from governments to churches to corporations – must be subordinate to individual living people in terms of the rights and powers held by the institution.

Corporations only gained equal status with people after decades of assault on the Constitution by the railroads in the 1800′s. The peak year for their legal assault was 1877, with four different cases reaching the Supreme Court in which the railroads argued that governments could not regulate their fees or activities, or tax them in differing ways, because governments can’t interfere to such an extent in the lives of “persons” and because different laws and taxes in different states and counties represented illegal discrimination against the persons of the railroads under the Fourteenth Amendment.

In 1886 the Supreme Court ruled on an obscure tax issue in the case Santa Clara County vs. Union Pacific Railroad, but the Recorder of the court, a man named J. C. Bancroft Davis, himself formerly the president of a small railroad wrote into his personal commentary of the case that the Chief Justice had said that all the Justices agreed that corporations are persons. This, in fact, was not true at all.

In so doing, he – not the Supreme Court, but its clerical recorder – inserted a statement that would change history and give corporations enormous powers that were not granted by Congress, not granted by the voters, and not even granted by the Supreme Court. Davis’s headnote had no legal standing, but was taken as precedent by generations of jurists, including the Supreme Court who followed and read the headnote but not the decision.

The Founders never intended corporations to have the same rights as citizens. It doesn’t matter how many rationalizations the right wing think tanks disseminate to their armies of bloggers and pundits. It is only because of an obscure headnote written by a corrupt Supreme Court clerk in an obscure railroad tax case that took place in 1886 that they have been able to excercise such power, and to the detriment of the People.

Posted by GetpIaning | Report as abusive

Just where is the GOP on taxes right now?

Aug 11, 2011 20:26 UTC

After the recent debt ceiling debate, Republicans seemed pretty unified in their stance against raising taxes. But here is Ways and Means Chair Dave Camp, just appointed to the new debt supercommittee:

A leading Republican lawmaker would not rule out tax increases on Thursday if they could boost economic growth, adding that “everything is on the table” for a congressional panel charged with forging a deal to cut the deficit.

Representative Dave Camp, head of the tax-writing Ways and Means Committee in the House of Representatives, told Reuters in a telephone interview that the deepening global financial crisis would prompt him and other super committee members to pull together. …

“I don’t want to rule anything in or out,” Camp said. “I am willing to discuss all issues that might help us reduce our short and long-term debt and grow our economy,” Camp said. ”Everything is on the table, until we as a group rule it out.”

Bet the House GOP leadership didn’t like that one bit, though perhaps Camp was just trying to appear non-absolutist on the issue. After all, if Democrats tossed Obamacare over the side and embraced pro-market entitlement reform, perhaps some concession on taxes wouldn’t be out of order

Now let me also point out comments by Sen. Pat Toomey, another GOP member of the supercommittee, to Politico which may also leave a smidgen of wiggle room: “I think some kind of big tax increase is just … not going to be part of this,” Toomey said.

But what about a not-so-big tax increase? Maybe something from this menu of options (via MF Global):

§ Modification of Mortgage Interest Deduction – Repeal raises $484B over five years

§ Carried Interest – $10B-$15B over 10 years

§ Spectrum Sales – $10B-$15B

§ Higher Guarantee Fees for Fannie Mae and Freddie Mac – $30B

§ Repeal of LIFO Accounting – $70B over 10 years

§ Bonus Depreciation (the corporate jet tax)

§ Repeal of oil and gas subsidies – $40B

§ Repeal of Renewable Energy “tax subsidies”

§ Deferral on foreign income of multinationals – $70B over 10 years

§ Medicare Part D Rebates/Dual Eligibles – $112B over 10 years

I am somewhat relieved, then, by what Toomey added:

Still, Toomey said he is open to reforms of the tax code “because there are tremendous inefficiencies in our tax code.” He said he would like to see “all kinds of deductions and write-offs and special-interest loopholes” eliminated and then “correspondingly lower the marginal rate so we encourage investment and economic growth.”

Exactly. Simplify the tax code and use the revenue to cut marginal taxes. A more efficient tax code, especially one that stopped penalizing investment, would boost tax revenue by boosting growth.

COMMENT

If the C.E.O.s like Larry Young, of Motts brands did not have to earn 13,500$ per hour or 26.5 million per year; then he could easily pay people 25$ to 30$ per hour an their tax base alone would help pay down the Government Deficit.
If American C.E.O.s, were not so anxious to run to China; Where they pay next to no taxes, an comparetly no living wage, we would have Companys an Jobs, an thus an economy in America.
Apparently abortting babys, an sending American jobs to China is a great thing! For I can not find anyone upset about these. In Short Greed, LOVE of money is the root of all evil.

Posted by ANTHONY007 | Report as abusive

On the debt ceiling deal, direction more important than degree

Aug 1, 2011 13:55 UTC

If you want to read the bill yourself, here you go. And here is a nice summary from MF Global:

Ø Debt Ceiling increase in three tranches for a $2.4T total:

o Immediate $400B raise

o Second $500B raise, subject to congressional disapproval (the old McConnell-Reid Plan)

o Third and final $1.5T raise, subject to congressional disapproval

Ø $917B in cuts through the Boehner Plan’s spending caps

Ø Special Committee of 12 Members of Congress with mandate to recommend $1.5T in deficit reduction by November 23, 2011 and Congress is required to vote on recommendations by December 23, 2011

o Simple majority to pass recommendations out of committee

o Fast Track process for votes on House and Senate Floors

o Trigger/Sequester modeled after Gramm-Rudman model

§ If Special Committee can’t agree to recommendations, triggers $1.2 trillion in across-the-board cuts, half would be Defense cuts and the other half would be non-Defense cuts. Non-defense cuts would exempt Social Security and Medicaid, and only impact providers in the Medicare cuts.

Ø Balanced Budget Amendment votes on House and Senate floors

Having now arrived at the beach in the Outer Banks, NC, I am trying to write as little as possible, so brief thoughts only:

a)  This deal does not fundamentally change America’s fiscal trajectory. But that said, it does keep the momentum going for further fiscal fixes. I have been comparing it to the War in the Pacific. This deal is Guadalcanal or, probably more accurately, Tarawa. Hopefully, this new congressional committee to cut spending will be the next island, maybe Saipan. Iwo Jima and Okinawa come in 2013. That will be the time for fundamental entitlement or tax reform.

b)  As far as 2012 election impact, the deal might be more like the killing of OBL — an ephemeral boost rather than a political game changer. Obama is probably happy that few of the cuts happen next year. The White House would view major cuts as a drag on the economy. (Yet liberals still really hate this bill.) Far more important is that time is running out for a major economic acceleration that would dramatically lower unemployment or boost wages. It is growing more likely the jobless rate will be closer to 9 percent at the end of 2012 than 8 percent. As it is, Obama’s approval rating is down around 40 percent, according to Gallup.  The GOP nomination is certainly worth having.

c) Next up: Figuring out deficit neutral ways of boosting the economy. If unemployment stays where it is or the economy veers toward recession, I don’t expect Washington to sit on its hands.  The idea of a tax holiday on foreign earnings of U.S. corporations will get a further hearing. The inflow of money would be used for hiring, buying equipment or stock buybacks/dividends.  Republicans would be greatly in favor. All would have a positive economic effect on the economy. And the tax revenue — some $40-50 billion — could be used for some stimulus plan Democrats would like. Maybe this one from economist Ed Yardeni:

(1) The federal government should provide a $20,000 matching subsidy toward a down payment on a house to any homebuyer who puts up at least the same amount and is approved for a mortgage loan. The program would be capped at two million existing single-family homes. So the cost of the program would be $40 billion. The purchased property would have to be the primary residence of the buyer.

(2) This program could be paid for by slashing the corporate tax rate on repatriated foreign earnings from 35% to 10%. We estimate that doing so could easily raise the $40 billion necessary to finance the program. Moody’s research recently estimated that at least half of US companies’ record $1,240 billion in cash balances is held overseas. It’s over there and not here because of the large repatriation tax. In recent conversations with top executives of several major US technology companies with cash overseas, Carl was assured that lowering that tax to 10% would bring most of the money to the US.

(3) Rental income would be tax free for 10 years for homebuyers who purchase existing single-family houses as rental properties. They would not be eligible for the down payment subsidy. The 10-year tax-free status of the rental income would be transferable to new owners during that period. The number of rental units under the program would be capped at one million.

 

 

 

 

 

COMMENT

“Moody’s research recently estimated that at least half of US companies’ record $1,240 billion in cash balances is held overseas. It’s over there and not here because of the large repatriation tax. In recent conversations with top executives of several major US technology companies with cash overseas, Carl was assured that lowering that tax to 10% would bring most of the money to the US.”
Oh, he was ASSURED, was he? Let’s play a little game called “what’s more likely?” If the US lowered corporate taxes to 10%, would it be more likely that business owners would repatriate all that money and hand the government $124 billion out of the goodness of their hearts and a fine sense of civic responsibility, or would it be more likely that they would leave that money right where it is and continue to pay 0% like they’ve always done?

Posted by 4ngry4merican | Report as abusive

Debt ceiling update: tax increases still a no-go

Jul 31, 2011 21:45 UTC

First, the outline of the emerging debt ceiling deal (via Reuters):

1) The emerging deal includes a two-step process to cut the deficit about $2.8 trillion over a decade while increasing the debt ceiling by a similar amount to cover U.S. borrowing beyond the November 2012 election.

2) Lawmakers have already largely agreed on caps to annual discretionary spending over 10 years, although their estimates of the savings, $1 trillion, are greater than the nonpartisan Congressional Budget Office’s tally of $750 billion.

3) A further $1.8 trillion would be recommended by a special committee appointed by Congress that would make its recommendations by late November.

4) Negotiators Sunday were trying to overcome one of the last major sticking points — a proposed enforcement mechanism, or “trigger,” to ensure additional deficit reduction gets enacted into law. Across-the-board cuts would be triggered if Congress failed to act on the panel’s recommendations.

It seems as if the cuts triggered by the enforcement mechanism will hit Medicare providers and defense, if  debt cuts can’t be agreed on. But it is also important to note that Republican leaders certainly believe that the structure  of the super-committee will be such that it would be virtually impossible for it to recommend tax increases.  This is key because the history of congressional committees and gangs would suggest that tax hikes would be on the table. A GOP aide describes it this way to me:

It has an undefined mandate of deficit reduction but the way that is constructed would essentially make it impossible to raise taxes. Anything scored by CBO is based on current law. Current law assumes that taxes are going to go up by three-and-a-half trillion dollars next year [over ten years].  So anything you do to the tax code, unless it starts off with a $3.5 trillion tax increase, it’s going to be adding to the deficit  … It’s almost impossible for them to touch taxes because if they do, almost anything will be scored as a tax cut, making it that much more difficult to reach the $1.5 trillion that they need to get to.

 

Resisting the Gang of Six budget temptation

Jul 21, 2011 15:04 UTC

America needs to raise its debt ceiling,  cut spending and implement wide-ranging tax reform. The Gang of Six plan claims to do all those things as it reduces debt by close to $4 trillion over a decade. If I could summarize my opposition in one sentence, it would be this one from Rep. Paul Ryan: “The plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems.”

Not enough? Well, Keith Hennessey,  head of the National Economic Council under President George W. Bush, offers a detailed dismantling of the G6 proposal.

I strongly oppose the Gang of Six plan. I think it is absolutely terrible fiscal policy.

First I’ll flag a few things I like in the plan.

  • I support making a technical correction to CPI, even though it would result in higher revenues.
  • Repeal of the CLASS Act is great.
  • It’s good they included medical malpractice reform.

That’s it. Others right-of-center are salivating at the low marginal income tax rates described in the plan, both for individuals and corporations. I think those low rates never materialize, for both arithmetic and legislative reasons, and explain why below.

Read the whole thing but are some key points:

1. It provides no discretionary spending totals.

2. It cuts defense spending while hiding the ball on nondefense spending.

3. The promised deficit reduction is both overstated and less than is needed.

Their $3.7 trillion of claimed deficit reduction is bogus. It includes an unspecified amount of savings from a future legislative fast-track process that would require further Congressional and Presidential action if health spending growth exceeds a certain target.

The Gang’s plan also uses at least three different baselines in different parts of the document. Combine that with the absence of discretionary spending totals and I have no confidence in their $3.7 trillion deficit reduction number.

4. It is a huge net tax increase.

The Gang of Six plan would increase taxes by $2.3 trillion over the next 10 years relative to current policy. That’s roughly a 6.5 percent increase in total taxation. Put another way, the Gang of Six plan raises taxes $830 B more than would President Obama’s February budget. To those who like the promise of low statutory tax rates – the benefits of low marginal rates are far outweighed by the increase in average effective rates. This is a massive hidden tax increase.

5. It’s a far worse trade than Bowles-Simpson.

The fundamental trade of the Bowles-Simpson group was higher net taxation in exchange for (huge long-term spending reduction, especially in entitlements + fundamental structural entitlement reform + pro-growth tax reform).

The Gang of Six plan drops the first two elements of that trade, the huge long-term spending reductions and the structural entitlement reforms. It instead purports to offer pro-growth tax reform in exchange for much higher net tax levels. It offers trivial spending cuts, no flattening of long-term entitlement spending trends, and no structural reform to the Big 3 entitlements.

6. It trades a permanent tax increase for only a temporary respite on spending.

The plan proposes permanent increases in net taxation levels in exchange for a temporary slowdown in spending. The entitlement spending line would be shifted ever so slightly downward – there would be no long-term “flattening of the spending curve

The consequence of this would be kicking the can down the road. Deficits would be smaller for the next 5-10 years while the higher tax levels offset entitlement spending growth. But since the plan does nothing to flatten the curve of Social Security, Medicare, or Medicaid spending, 5-10 years from now we will be right back where we are now, but with higher levels of taxation. We will again face huge and growing future deficits, driven by unsustainable entitlement spending growth.

7. It’s an unfair deal on CPI.

8. It precludes structural reforms to Medicare and Medicaid.

The Plan says “while maintaining the basic structure of [Medicare and Medicaid].” That language precludes needed fundamental reforms to these programs, as contemplated in Bowles-Simpson, Rivlin-Ryan, or the House-passed budget resolution.

9. It does almost nothing to slow health spending growth, and even the $115 B of additional health savings are bracketed.

10. It leaves the core trillion dollar ObamaCare health entitlement in place.

11. It makes it harder to do Social Security reform, drops the specific Social Security reforms of Bowles-Simpson and increases Social Security spending.

12. It sets the wrong bar for Social Security reform and tilts reform toward tax increases.

13. It locks in the net tax increase, then hopes to deliver on the stated tax reform policies.

If you are tempted by the promised details of tax reform, remember that those details would be negotiated after the Senate had already committed to a $2.3 trillion tax increase.

Even if I could swallow a $2.3 trillion tax increase, which I can’t, I don’t trust the tax reform process enough to take that risk. The plan offers no procedural guarantees to prevent the tax policies described within it from being ignored by the Senate Finance Committee.

14. It undoes most of the benefits of last December’s tax policy battle.

15. It sets up a tradeoff between marginal income rate cuts and capital tax rates.

The tax reform described in the Gang’s plan is silent on capital taxation. Side conversations suggest the Gang agreed to but did not put on paper a 20% rate for capital gains and dividends. From a pro-growth perspective, lowering marginal income tax rates by raising capital taxation rates is a bad trade. And both the numbers and politics suggest that much of the higher revenues raised from “eliminating tax breaks” would come from higher tax rates on capital rather than scaling back even more popular tax preferences for homeownership, charity, and health insurance.

Lowering the corporate income tax rate is nice, but you get more growth bang for the buck by allowing immediate expensing of investment. If depreciation is treated as a tax expenditure and the lower corporate rates are paid for in part by lengthening depreciation schedules, that will slow growth, not accelerate it.

16. The rate cuts are overpromised because the Gang overestimated the revenue that would be raised from reducing tax expenditures.

I strongly support scaling back or even eliminating most if not all tax preferences. I’d go much further than I could ever get support for from elected Members of Congress. But I want to use the revenue raised from eliminating those tax expenditures to cut rates, not to make spending cuts smaller as the Gang’s plan does.

The Joint Tax Committee warns us that the revenue raised by eliminating a tax preference is less than the measured “tax expenditure,” and often far less, because of the incentive effects. It appears the Gang far overestimated the revenues that would be raised from eliminating tax preferences, and therefore are promising marginal rates they cannot deliver. Those who are attracted by the low promised rates for individual and corporate income should understand that if the revenue raised from eliminating other tax preferences is insufficient, the actual rates in reform will be higher. And that’s assuming you trust a Senate Democratic majority process to deliver the unenforceable tax policy promises described in the Gang’s plan.

Tax experts I trust tell me they can’t see how you could design a tax reform that hits the revenue targets promised (even with a +$2.3T revenue increase) and get statutory rates as low as promised. The revenue raised from “reforming” these preferences won’t be enough to lower rates that much, and repeal the AMT, and move to a territorial system, and reduce deficits.

17. The plan proposes a deficit trigger mechanism that might include automatic tax increases.

 

 

Explaining Obama’s tax-hike obsession

Jul 19, 2011 02:41 UTC

It’s the great mystery of the debt ceiling debate: Why is President Barack Obama so darn adamant about raising taxes? “This may bring my presidency down, but I will not yield on this,” Obama told Republicans before dramatically exiting their budget meeting last week.

“This,” of course, is his demand that large spending cuts be “balanced” with tax increases on wealthier Americans, entrepreneurs, investors and unpopular businesses such as Big Oil and Wall Street. But why insist on higher taxes in the middle of weakest economic recovery in the post-World War II era?

Wouldn’t standard Keynesian economics, much beloved in the White House, actually call for cutting taxes (or increasing spending) to boost aggregate demand?

Doesn’t Obama know that even his former chief economist, Christina Romer, says tax increases “will tend to slow the recovery in the near term.” Not that things look much better a few years out. The International Monetary Funds sees economic growth below 3 percent through 2016. And Democrat-friendly Goldman Sachs now thinks a double-dip recession is possible even as it lowers its growth forecast and raises its prediction for unemployment.

But Obama’s tax obsession becomes understandable when you realize the long game he’s playing: Big Taxes to fund Big Government. Decade after decade. See, it’s an almost universal belief among left-of-center journalists, economists, policymakers and politicians that Americans must pay higher taxes in coming years to cover the medical expenses of its aging population – not to mention all sorts of brand new social spending and green “investment.” Dramatically higher taxes. On everybody. And if we have a debt crisis, maybe those tax increases come sooner rather than later.

And it’s not even a secret, really. Here’s liberal economics columnist Ezra Klein of The Washington Post:

The reality is that we’re going to have higher taxes in the coming years, and beyond that, we’re going to have higher taxes than we’ve traditionally had during periods in which taxes were relatively high.

And liberal economics columnist David Leonhardt of The New York Times outlines a completely implausible scenario — at least to himself — to avoid massively higher taxes:

For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military – or do some combination of the above.

How high? Three liberal think tanks recently devised budgets to put the U.S. government on a sustainable fiscal path through 2035. Their plans, collectively, called for Washington to collect an average of 23.6 percent of GDP vs. the post-World War II average of 18.5 percent. To put that in further perspective, the highest level of tax revenue that Uncle Sam has ever taken is 20.9 percent in 1944.

And to reach such a stratospheric level of taxation, these groups are calling for unprecedented tax hikes via millionaire surtaxes, higher taxes on alcohol and tobacco, securities transaction taxes, higher taxes on capital gains, higher taxes on corporations, higher death taxes, carbon taxes, and gasoline taxes. None of which, supposedly, would hurt economic growth. Even worse, all those tax hikes would still fail to balance the budget. And when you move past 2035, taxes would almost certainly need to go even higher.

That is the high-tax future the liberal establishment has in store for America. No wonder Obama rejected his own debt commission last December. It would limit the tax and spending burden to 21 percent of GDP. Neither is nearly enough for the Obamacrats and their successors. Just look at Obama’s budget from last February. Over a decade, it never reduces spending to less than 23 percent of GDP and spending is actually higher at the end of the ten-year span than in the middle. And eventually all that spending would need to be paid for via higher taxes. Recall that back in 2009, the White House floated a trial balloon about a instituting a value-added tax to pay for healthcare reform or general debt reduction.

Underlying all this longing for higher taxes is a belief government can’t and shouldn’t be cut. Nonsense. Both the American Enterprise Institute and Heritage Foundation have devised workable fiscal plans that would keep taxes below 20 percent of GDP. And Rep. Paul Ryan’s Path to Prosperity shows how to reduce spending to below 19 percent of GDP by 2040. And rather than managed decline toward a slow-growth, EU-style social welfare state  (that even the EU can’t afford anymore,) these plans would help keep America growing and living standards rising as they have for decades. Those are high stakes in the debt ceiling debate —  and in the battles over taxes and spending in the years to come.

COMMENT

@Dustycornfield, the poor, once deprived of a job, housing and lastly food, will simply eat the rich. They lack good protein in their diets.

@jabone, welfare for the rich and corporations rather than working to move the USA forward is what the Republicans are all about … giving the most to those who do not need it, are what people like you don’t/can’t see.

The propaganda machine that is fox news truly worked its magic on the dimwitted… especially being you blame the Democrats for the “class warfare.”

http://www.nytimes.com/2003/09/14/magazi ne/the-tax-cut-con.html?pagewanted=19&sr c=pm

Posted by hsvkitty | Report as abusive

Is Obama getting ready to snooker Boehner on taxes?

Jul 9, 2011 15:30 UTC

The media accounts of the tax reform deal being cooked up by President Obama and House Speaker Boehner aren’t all that clear. But it is looking like a big tax increase:

– The White House is insisting that as part of any deal the current tax rates on the middle class—the child tax credit, etc.—would be made permanent, while the lower rates on capital gains, dividends and the higher income brackets would expire after 2012. Taken by itself this would be a tax increase pure and simple and violate the GOP’s campaign pledge.

But here’s what we’re told is Mr. Boehner’s political kicker: The proposed deal would also include some kind of “trigger” device, so far undefined, that would compel House and Senate negotiators to complete tax reform discussions over the next several months. We’re told the White House has said it is open in principle to a top rate of 35% on individuals and something like 26% or 27% on corporations—in return for closing various loopholes.

More troubling than these details is the staggered timing. Republicans would be putting their fingerprints on a tax increase in return for spending cuts as a first order of business, which would raise the dividend and top income tax rates to 39.6% (from 35%), or 41% if you include the phase-out of deductions. (Plus the 3.8% payroll tax hike baked into ObamaCare.) Only then would Mr. Obama and the Democrats negotiate the details of tax reform and lower overall rates. (Wall Street Journal editorial)

– With House Speaker John Boehner’s encouragement, President Obama is pushing for congressional leaders to strike a far-reaching agreement to reduce the deficit by more than $4 trillion over 10 to 12 years, which would include more than $1 trillion in new revenues, officials said. (The Hill)

– Boehner would have to agree to revenue boosts through tax-code reform, including closure of loopholes then coupled with lower corporate tax rates, all of which is designed to spur economic growth. The new revenue could reach up to $1 trillion over a ten-year period, funds that could be used for deficit reduction. Boehner and his top aides insist there will be “no tax increases.” (Politico)

– Such a deal could go as high as an eye-popping $3 trillion in overall deficit reduction, but as much as $1 trillion would be in revenues: $700 billion from letting the Bush tax cuts for the highest income brackets expire and another $300 billion from increased revenues, from auctioning off frequencies, increased payments to federal pension plans and ending agriculture subsidies in addition to ending tax breaks such as deductions for corporate jets, yachts and race horses. The deal would come with a pledge, or clawback provision, to revisit comprehensive tax reform in the coming years so as to offset the higher taxes on the wealthy by eventually flattening and broadening the tax base. (Time)

All very confusing, but the best I can make of it is this: higher taxes now in exchange for a promise of tax cuts later to be “paid for” by reducing tax breaks/deductions/loopholes with perhaps some of that money going toward deficit reduction.

I can tell you this: Democrats need a lot more tax revenue to make their long-term budget plans works. This is why Obama has not offered a long-term budget plan. The need for massive tax increases would then be clear to all. In private, liberal economists all talk about a need for a value-added tax to raise the additional revenue.

But a liberal think with close ties to the White House, the Center for American Progress, recently released a budget plan that goes out to 2035. It shows taxes as a share of the economy rising dramatically to nearly 24% of GDP vs. around 18-19 percent historically. And I am guessing they would go even higher if the table went beyond 2035. If Boehner and the Republicans don’t hold the line now on taxes, this is the American future

 

 

COMMENT

Of course America needs tax increases: it’s mixed up in two wars, and has spent eight years borrowing from the Chinese to finance the Republicans’ payoffs to Big Pharma and tax cuts for the rich.

These guys seem to be able to calculate a golf score. Surely that’s enough math to handle that much budgeting.

Posted by DavidLJ | Report as abusive

Why the GOP should reject tax increases, in one chart

Jul 8, 2011 00:20 UTC

Why are Republicans demanding a debt deal that has big spending cuts but no tax increases? (Besides, of course, the fact that spending is the problem and the last thing this weak economy needs is a tax hike?) Maybe it’s because the last time they agree to one of these “$2 in spending cuts for every $1 in tax hikes” agreements, they got snookered.

An explainer from Americans for Tax Reform (which created the chart):

In 1990, President George H.W. Bush was promised $2 in spending cuts for every $1 in tax hikes by Congressional Democrats. That’s not what happened.

All $137 billion in tax hikes went through. Most notable was raising the top marginal tax rate from 28 percent (the Reagan low) to 31 percent (itself a setup for the 1993 Clinton tax hike of this rate all the way up to 39.6 percent). There were also increases in “sin” taxes and the Medicare payroll tax, as well as the yacht “luxury tax” that President Obama seems so intent on re-visiting on the jet plane manufacturers.

Not only did the $274 billion in promised baseline spending cuts never materialize–baseline spending was actually $22 billion higher than what CBO projected it would be before the deal. This despite another tax hike/baseline spending cut deal in 1993 (the Clinton tax hike) and the GOP takeover of Congress in 1995.

 

COMMENT

In case anyone does not know, “The Economist” is an über-left-wing publication that parrots the DNC. The ONLY reasonable path to fiscal responsibility is TO CUT TAXES on job-creators (i.e., the “wealthy”, and TO CUT SPENDING. This is the paradoxical truth touted by JFK in 1962, and proved every time it was tried in modern history, from JFK to George W. Bush. Tax cuts increased revenues to the Treasury that Tax-N-Spend liberal politicians eagerly used on new spending programs. The problem is NOT revenues, but SPENDING!

Conservatives may tentatively control the House, but ruling-class RINO’s still hold the Senate and hold some powerful positions in the House. These closet-liberal Republicans are too willing to deal with Harry Reid and Nancy Pelosi clones in Congress.

Posted by barron2lds | Report as abusive

What Reaganomics meant to accomplish

Jul 5, 2011 15:43 UTC

Excellent piece by Brian Domitrovic of Forbes:

What was the point of Reaganomics? Starving the beast? None of the above. The point was to get the private sector booming. And could we ever use this as an objective today.

The prophet of the renaissance of the 1980s was the Reagan budget team’s economic forecaster, John Rutledge. Rutledge noticed that in the dozen years prior to 1981, money had been fleeing from the real economy, what with its taxes, regulations, and currency devaluations, and into tangible safe havens – especially commodities: oil, gold, and land.

Rutledge calculated that over the 1970s, some $11 trillion had migrated out of real economic enterprises into these hedges – a whopping number. And yet if the burdens on the economy were to lessen, a prodigious amount of money stood to flow back into the real sector, with epic growth, employment, and profits in tow.

This is of course what happened in the 1980s, as taxes got cut, regulation stymied, and money stabilized. GDP growth was north of 4% per year for a seven-year run, job creation was measured in the eight digits, and the stock market was off on a 15-fold advance. All because huge money had been parked elsewhere waiting for the real sector to become attractive again.

Sound familiar? Today, we see gold at $1500 an ounce, oil crossing $100, massive retained profits at corporations, and excess reserves at banks. And we’ve just endured a real estate bubble. If economically inert investments – vehicles that are not themselves businesses or their financing instruments – are capturing an extra-large portion of our financial capital, our economy is underperforming.

Why Christina Romer is wrong on taxes

Jul 5, 2011 14:41 UTC

President Obama’s economic all-star team from 2009 is all but gone. But it’s the gift that keeps on giving. In yesterday’s NY Times, former White House economist Christina Romer offered a rather strange op-ed in favor of tax increases. The crux of her argument is this:

The economic evidence doesn’t support the anti-tax view. Both tax increases and spending cuts will tend to slow the recovery in the near term, but spending cuts will likely slow it more. Over the longer term, sensible tax increases will probably do less damage to economic growth and productivity than cuts in government investment.

And her evidence?

Some in Washington and in the news media have seized on a study I conducted with David Romer, my husband and colleague, that they say shows tax increases having a bigger short-term effect on the economy than spending cuts. Our study, which examined only federal tax policy, found that conventional analysis underestimates the effect of tax changes on the economy substantially. The key problem we address is that changes in taxes are often linked to what is happening in the economy.

That Romer-Romer study offered this conclusion:

Our results indicate that tax changes have very large effects on output. Our baseline specification implies that an exogenous tax increase of one percent of GDP lowers real GDP by almost three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still typically over 2.5 percent

Right, tax increases hurt economic growth. Agreed. And they may only raise half of the revenue predicted by static analysis that does not take into account behavioral effects. But then Romer makes this claim:

If there were a similar study on government spending, it would likely show that spending cuts also have larger effects than conventionally believed. Like tax actions, spending changes are often correlated with other factors affecting economic activity. For example, large cuts in military spending, like those after World War II and the Korean War, were typically accompanied by the end of wartime taxes and production controls. Those probably lessened the economic impact of the spending cuts, leading many researchers to underestimate the reductions’ effects.

It is hard to argue against a hypothetical study. But Romer’s reasoning, though flawed, is hardly novel:

1) She states that, at least over the short-term, $100 less in government spending reduces aggregate demand by $100. On the other hand, a $100 tax increase on “wealthier households” does not reduce demand by $100 since at least part of that tax increase would be paid from savings rather than consumption.

Me: Been there, done that. This is sort of the flipside of the Keynesian argument in favor of the $800 billion Obama-Romer-Bernstein stimulus plan.  Except she uses a smaller fiscal multiplier here , 1.0, than she used in analyzing potential impact of the stimulus plan, 1.6. But even that may be too high. Economist John Taylor thinks the multiplier is about 0.5. In fact, there are several models that find such a low multiplier.

Unfortunately, we find substantially smaller government spending multipliers than those used by Romer and Bernstein. For example, the multiplier associated with a permanent increase in government spending by the end of 2010 lies between 0.5 and 0.6. In other words, government spending does not induce additional private spending but instead quickly crowds out private consumption and investment.

We also provide an assessment of the impact of the American Recovery and Re-investment Act. This legislation implies measures amounting to $787 billion and spread over 2009 to 2013 but peaking in 2010. Our estimate of the total impact is closer to 1/6 of the effect estimated by Romer and Bernstein. By 2010 we project output to be about 0.65% higher. Using the same rule-of-thumb as Romer and Bernstein, this increase in GDP would translate to about 600,000 additional jobs rather than three to four million.

2)  Next, Romer says that while “higher tax rates reduce the rewards of work and investing,” raising current tax rates by 10 percent would only reduce reported income by 2 percent.

Me: Again, I am not sure whose taxes she is talking about, but research by Martin Feldstein on the 1993 Clinton tax increase found that a) high-income taxpayers reported 8.5 percent less  taxable income than if their taxes had not been raised, which resulted in b) the tax increase only raising about one-third as much dough as Team Clinton has predicted.

3)  Romer also worries that “certain spending cuts may also have small effects on long-run growth.” She’s talking about stuff like basic scientific research, education and infrastructure.

Me: Ah yes, the “good” sort of spending. But as I have noted before, McKinsey consultants have found that if the U.S. public sector could just halve the productivity gap with the private sector, its productivity would be as much as 15 percent higher and would generate annual savings of up to $300 billion a year. We’re far from cutting into the muscle and bone. And there’s no reason not to take a look at basic research, infrastructure and other investment spending to see if they could be done  more productively.

Bottom line: But the basic problem here is that Romer, like the rest of Obama’s all-star team, is worried about stimulating consumer demand rather than encouraging — by the removal of tax and regulatory barriers – established businesses and new entrepreneurs to invest, expand, hire and create. And talk of raising taxes distracts from the real work that needs to be done to reduce spending. Whenever economists talk about the need to raises taxes, they are actually making a political argument rather than an economic one.  Either they are ideologically opposed to smaller government or they don’t believe Washington will ever cut spending. But that isn’t surprising since there really isn’t a valid economic argument to support the long-term Obama spending binge.

 

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