NYT Speaks The Blasphemy: Tax cuts not cure-all.

N&P: Discuss governments, nations, politics and recent related news here.

Moderators: Alyrium Denryle, Edi, K. A. Pital

Post Reply
User avatar
SirNitram
Rest in Peace, Black Mage
Posts: 28367
Joined: 2002-07-03 04:48pm
Location: Somewhere between nowhere and everywhere

NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by SirNitram »

Link
With Congressional midterm elections looming, the financial debate in Washington this fall will probably be consumed by one incendiary and expensive issue: whether, and how, to extend the multitrillion-dollar Bush tax cuts.

President Obama is advocating a mixed bag of tax proposals. He wants to extend the cuts for all but the wealthiest 2 percent of Americans and offer businesses hundreds of billions in breaks and write-offs intended to encourage investment and hiring.

Republicans, and a few Democrats, assert that the Bush tax cuts should be extended for everyone, warning that a tax increase right now, even if limited to the highest income bracket, would hurt small businesses and choke off an economic recovery that is already gasping.

Given the economy’s persistent weakness and an unemployment rate hovering above 9.5 percent, those arguments have gained traction. And because another round of government stimulus spending is considered politically unviable even if it were warranted, the debate over the tax cuts will be laced with promises to spur economic activity and reduce unemployment. The concept of lower taxes is so appealing to voters that many embrace them as an economic cure-all.

But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.

The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.

The office gave higher marks to the proposal, now embraced by President Obama, to allow small businesses to write off 100 percent of their investment costs.

Neither of those options, though, would do as much to stimulate the economy as offering direct payments to the unemployed and Social Security recipients or reducing the payroll taxes of workers, the study found. But those proposals — as well as aid to states and municipalities — are considered politically untenable with many elected officials reluctant to even utter the word “stimulus” after the $787 billion stimulus.

So while the decision on whether to extend the tax cuts will have a lasting impact on the deficit and on how the nation’s tax burden is distributed, economists and tax experts say it is unlikely to offer much immediate relief for high unemployment and sluggish growth.

“It may have some small impact along the margins, but firms don’t hire based on tax breaks; they hire based on demand,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “So a lot of the tax breaks are likely to be rewarding people and companies for that they were going to do anyway.”

When they were signed into law in 2001 and 2003, the huge package of income and capital gains tax reductions that became known as the Bush tax cuts were hailed as a way distribute the government surplus and promote long-term economic growth. Mr. Bush was so confident in their power to generate business growth and revenue that he predicted they would enable the government to pay down $1 trillion in debt in just four years.

Those surpluses have now become crushing deficits because of a combination of factors, including the recession, the cost of the wars in Iraq and Afghanistan, the Medicare prescription drug benefit, and the $1.7 trillion in forgone revenue from the tax cuts themselves.

The specter of a ballooning national debt has led even some of the early supporters of the cuts, including the former Federal Reserve chairman Alan Greenspan, to advocate letting them expire.

Republicans, however, argue that it is essential that they be extended, because taking money out of an economy this frail would derail any hope of a robust recovery.

“We don’t think taxes ought to be increased in the middle of a recession for anyone,” Senator Mitch McConnell, the minority leader from Kentucky, said this summer.

The Obama administration dismisses that argument, saying that nearly a third of the cost of the cuts — more than $700 billion during the next decade — would go to the wealthiest 2 percent of Americans.

“They are essentially arguing that we add $700 billion to the deficit in return for $35 billion in what has been found to be the least effective means of stimulus,” said Jason Furman, a deputy assistant to the president overseeing economic policy.

Mr. Obama’s proposal would preserve the tax cuts for families that earn less than $250,000 a year (or individuals who make less than $200,000) at a cost of $1.8 trillion over the next decade.

Rather than continuing the breaks for the wealthy, however, Mr. Obama proposes an assortment of tax cuts to encourage business investment and hiring. While he has carefully avoided calling his plan a stimulus, Mr. Obama is calling for a permanent extension of the research and development tax credit for businesses and a change that would allow companies to write off 100 percent of any investments made through 2011.

The president has also called for the creation of a $50 billion infrastructure bank to improve roads, airports and railways, which would stoke business and hiring in the moribund construction industry.

Those plans have received mixed reviews from business groups and economists.

R. Glenn Hubbard, an economist who helped write the Bush tax cuts, said Mr. Obama’s proposals borrow heavily from Republican ideas but would have little impact on business activity.

“Nothing in the administration’s program is good stimulus,” said Mr. Hubbard, now dean of the Columbia Business School. “Investment incentives coupled with a tax increase are not going to get the economy moving.”

But Kevin A. Hassett, an economist at the conservative American Enterprise Institute, predicts the business tax breaks might be enough to reignite the economy and increase investment by 5 to 10 percent. Because some investors and business owners have viewed Mr. Obama’s policies as antibusiness, he said, the very fact that the president is offering the tax incentives could also help to encourage investment.

“I think at some point Americans are going to finally accept that the worst is behind us and that we’re ready to boom again,” Mr. Hassett said. “And this is the kind of proposal that could change the psychology and create the positive momentum we need to really get out of this malaise.”

One curious omission in the Obama plan is the tax cut proposal that many, including the Congressional Budget Office, believe would do the most to spur hiring: a payroll tax holiday. According to various news reports, Obama economic advisers passed on the idea because they feared it would be too expensive or would deprive Social Security and Medicare of crucial revenue. Administration officials declined to discuss their decision.

Whatever Congress and the administration ultimately decide about extending the Bush cuts, however, the narrow confines of the debate show how successful antitax groups have been in defining the terms used to discuss tax policy. Since the tax protests of the 1980s, elected officials have increasingly used tax breaks to finance social programs and business subsidies, and today the cost of those “tax expenditures” is $1.2 trillion — about 25 percent of all spending.

Edward D. Kleinbard, former chief of staff of the bipartisan Joint Committee on Taxation, said the reliance on tax expenditures had distorted the budget process because it induced the public to overlook the fact that — unless they are accompanied by spending reductions — tax cuts have the same effect on the deficit as additional spending. It also allows politicians to make unsubstantiated claims about the power of tax-cutting to accomplish other economic goals, he said.

“The thought that tax cuts pay for themselves or that tax cuts alone can turn around this economy is magical thinking,” said Mr. Kleinbard, now a law professor at the University of Southern California. “The debate has become so unrealistic it makes you want to scream.”
Indeed it does. Tax debates don't ask what's good for the country, either under the general economy or for the common wealthfare, but 'Slash slash slash! Nownownow!'.
Manic Progressive: A liberal who violently swings from anger at politicos to despondency over them.

Out Of Context theatre: Ron Paul has repeatedly said he's not a racist. - Destructinator XIII on why Ron Paul isn't racist.

Shadowy Overlord - BMs/Black Mage Monkey - BOTM/Jetfire - Cybertron's Finest/General Miscreant/ASVS/Supermoderator Emeritus

Debator Classification: Trollhunter
User avatar
General Zod
Never Shuts Up
Posts: 29211
Joined: 2003-11-18 03:08pm
Location: The Clearance Rack
Contact:

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by General Zod »

R. Glenn Hubbard, an economist who helped write the Bush tax cuts, said Mr. Obama’s proposals borrow heavily from Republican ideas but would have little impact on business activity.

“Nothing in the administration’s program is good stimulus,” said Mr. Hubbard, now dean of the Columbia Business School. “Investment incentives coupled with a tax increase are not going to get the economy moving.”
I like how they poo-poo all over the idea without bothering to offer alternatives.
"It's you Americans. There's something about nipples you hate. If this were Germany, we'd be romping around naked on the stage here."
User avatar
lazerus
The Fuzzy Doom
Posts: 3068
Joined: 2003-08-23 12:49am

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by lazerus »

I like how they poo-poo all over the idea without bothering to offer alternatives.
Government spending, dumbass. Have the government build public works, buy things, fund R&D. Get some demand going.
3D Printed Custom Miniatures! Check it out: http://www.kickstarter.com/projects/pro ... miniatures
User avatar
General Zod
Never Shuts Up
Posts: 29211
Joined: 2003-11-18 03:08pm
Location: The Clearance Rack
Contact:

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by General Zod »

lazerus wrote: Government spending, dumbass. Have the government build public works, buy things, fund R&D. Get some demand going.
Are you have to put in effort to be this much of a retarded tryhard or does it come naturally to you? I wasn't saying I didn't know how to improve it, moron.
"It's you Americans. There's something about nipples you hate. If this were Germany, we'd be romping around naked on the stage here."
User avatar
JME2
Emperor's Hand
Posts: 12258
Joined: 2003-02-02 04:04pm

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by JME2 »

Let them expire and tax the hell out of the fuckers that contributed to this fucking quagmire...
User avatar
General Zod
Never Shuts Up
Posts: 29211
Joined: 2003-11-18 03:08pm
Location: The Clearance Rack
Contact:

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by General Zod »

General Zod wrote:
lazerus wrote: Government spending, dumbass. Have the government build public works, buy things, fund R&D. Get some demand going.
Do you have to put in effort to be this much of a retarded tryhard or does it come naturally to you? I wasn't saying I didn't know how to improve it, moron.
Goddamnit, too late to edit. "Are" should be "do".
"It's you Americans. There's something about nipples you hate. If this were Germany, we'd be romping around naked on the stage here."
User avatar
J
Kaye Elle Emenopey
Posts: 5836
Joined: 2002-12-14 02:23pm

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by J »

JME2 wrote:Let them expire and tax the hell out of the fuckers that contributed to this fucking quagmire...
You could, but it won't make any difference in the big picture thanks to the joys of consumer debt deleveraging. Taxing the peckerheads to death would undoubtedly be satisfying but the problem is a lot larger.

The Significance of Consumer Deleveraging

Excerpt:
Consumers have only begun to cut back on their severe debt burdens, and the process will take a number of years. Household debt relative to GDP soared from a range of 43% to 49% in the 20-year period between 1965 and 1985 to a peak of 97.3% in 2009. As of March 31st (the latest data point) this dropped only slightly to 92.7%. To provide some more perspective, Ned Davis Research estimates the mean to be 54.2% over the past 58 years. The percentage climbed gradually to 65% in 1998, and then really accelerated to its recent peak.

To be conservative, let's assume that the household debt/GDP ratio falls back only to the 65% level of 1998 rather than to the lower level between 1965 and 1985 or to the long-term mean. Under that assumption household debt would have to be pared back by about $ 4 trillion (from the present total of $13.5 trillion), an amount that constitutes about 40% of current consumer expenditures. While this could be accomplished over a number of years, it can readily be seen that the deleveraging would create a highly significant drag on consumer outlays for an extended period. Since such spending accounts for some 70% of GDP, this creates a serious drag on the overall economy as well.
So, what we have here is a minimum of $4 trillion of debt overhang accumulated over the past 12 years which needs to disappear. This works out to $333 billion of excess spending in the economy which needs to be subtracted out if we're going to stop the ratio from increasing any further. To get back to the 65% debt level over a 10 year time span means that in addition to the $333B a further $400B needs to be removed from the economy each year to pay down existing debts, for a total of $733B which is taken out of the economy every single year. That's an instant 5% decrease in GDP, neglecting the multiplier effects of deleveraging.

Jiggle the tax codes all you want, there's no stimulating your way out of the depression unless the fundamental causes are addressed.
This post is a 100% natural organic product.
The slight variations in spelling and grammar enhance its individual character and beauty and in no way are to be considered flaws or defects


I'm not sure why people choose 'To Love is to Bury' as their wedding song...It's about a murder-suicide
- Margo Timmins


When it becomes serious, you have to lie
- Jean-Claude Juncker
User avatar
JME2
Emperor's Hand
Posts: 12258
Joined: 2003-02-02 04:04pm

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by JME2 »

J wrote:
JME2 wrote:Let them expire and tax the hell out of the fuckers that contributed to this fucking quagmire...
You could, but it won't make any difference in the big picture thanks to the joys of consumer debt deleveraging. Taxing the peckerheads to death would undoubtedly be satisfying but the problem is a lot larger.
You're right. I'm just...frustrated and incredibly angry at these fuckers and their greed.
LionElJonson
Padawan Learner
Posts: 287
Joined: 2010-07-14 10:55pm

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by LionElJonson »

J wrote:
JME2 wrote:So, what we have here is a minimum of $4 trillion of debt overhang accumulated over the past 12 years which needs to disappear. This works out to $333 billion of excess spending in the economy which needs to be subtracted out if we're going to stop the ratio from increasing any further. To get back to the 65% debt level over a 10 year time span means that in addition to the $333B a further $400B needs to be removed from the economy each year to pay down existing debts, for a total of $733B which is taken out of the economy every single year. That's an instant 5% decrease in GDP, neglecting the multiplier effects of deleveraging.

Jiggle the tax codes all you want, there's no stimulating your way out of the depression unless the fundamental causes are addressed.
Maybe a more effective way would be a government dollar-matching program, for the purposes of paying off debt, so that for every dollar a person puts towards paying off debt, the government puts another dollar in to help.

That would probably help accelerate the deleveraging of debt, at the expense of having the government taking on a good portion of it themselves.
User avatar
Alyrium Denryle
Minister of Sin
Posts: 22224
Joined: 2002-07-11 08:34pm
Location: The Deep Desert
Contact:

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by Alyrium Denryle »

LionElJonson wrote:
J wrote:
JME2 wrote:So, what we have here is a minimum of $4 trillion of debt overhang accumulated over the past 12 years which needs to disappear. This works out to $333 billion of excess spending in the economy which needs to be subtracted out if we're going to stop the ratio from increasing any further. To get back to the 65% debt level over a 10 year time span means that in addition to the $333B a further $400B needs to be removed from the economy each year to pay down existing debts, for a total of $733B which is taken out of the economy every single year. That's an instant 5% decrease in GDP, neglecting the multiplier effects of deleveraging.

Jiggle the tax codes all you want, there's no stimulating your way out of the depression unless the fundamental causes are addressed.
Maybe a more effective way would be a government dollar-matching program, for the purposes of paying off debt, so that for every dollar a person puts towards paying off debt, the government puts another dollar in to help.

That would probably help accelerate the deleveraging of debt, at the expense of having the government taking on a good portion of it themselves.
Where exactly would that money come from dumbfuck? An increase in taxation on the very people struggling to pay down their debt, that is where it will come from.
GALE Force Biological Agent/
BOTM/Great Dolphin Conspiracy/
Entomology and Evolutionary Biology Subdirector:SD.net Dept. of Biological Sciences


There is Grandeur in the View of Life; it fills me with a Deep Wonder, and Intense Cynicism.

Factio republicanum delenda est
User avatar
SirNitram
Rest in Peace, Black Mage
Posts: 28367
Joined: 2002-07-03 04:48pm
Location: Somewhere between nowhere and everywhere

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by SirNitram »

Alyrium Denryle wrote:Where exactly would that money come from dumbfuck? An increase in taxation on the very people struggling to pay down their debt, that is where it will come from.
Where does any money come from? Printing presses by the mint, lines of credit, a few strokes on a keypad. Value vanished from the world, and still is vanishing each time prices correct or a foreclosure or similar happens. Welcome to deflation; start the inflation or let things fall apart. But the Fed has decided it's 2% target is now /too high/.

So easily people forget money is just a bit of paper or string of data trying to place a bit of stability on value of goods.
Manic Progressive: A liberal who violently swings from anger at politicos to despondency over them.

Out Of Context theatre: Ron Paul has repeatedly said he's not a racist. - Destructinator XIII on why Ron Paul isn't racist.

Shadowy Overlord - BMs/Black Mage Monkey - BOTM/Jetfire - Cybertron's Finest/General Miscreant/ASVS/Supermoderator Emeritus

Debator Classification: Trollhunter
User avatar
J
Kaye Elle Emenopey
Posts: 5836
Joined: 2002-12-14 02:23pm

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by J »

SirNitram wrote:Where does any money come from? Printing presses by the mint, lines of credit, a few strokes on a keypad. Value vanished from the world, and still is vanishing each time prices correct or a foreclosure or similar happens. Welcome to deflation; start the inflation or let things fall apart. But the Fed has decided it's 2% target is now /too high/.

So easily people forget money is just a bit of paper or string of data trying to place a bit of stability on value of goods.
It doesn't quite work that way unless one chooses to adopt the Zimbabwe Model. See The Roving Cavaliers of Credit by Prof. Steve Keen for explanation of why this is the case.
This post is a 100% natural organic product.
The slight variations in spelling and grammar enhance its individual character and beauty and in no way are to be considered flaws or defects


I'm not sure why people choose 'To Love is to Bury' as their wedding song...It's about a murder-suicide
- Margo Timmins


When it becomes serious, you have to lie
- Jean-Claude Juncker
User avatar
SirNitram
Rest in Peace, Black Mage
Posts: 28367
Joined: 2002-07-03 04:48pm
Location: Somewhere between nowhere and everywhere

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by SirNitram »

J wrote:
SirNitram wrote:Where does any money come from? Printing presses by the mint, lines of credit, a few strokes on a keypad. Value vanished from the world, and still is vanishing each time prices correct or a foreclosure or similar happens. Welcome to deflation; start the inflation or let things fall apart. But the Fed has decided it's 2% target is now /too high/.

So easily people forget money is just a bit of paper or string of data trying to place a bit of stability on value of goods.
It doesn't quite work that way unless one chooses to adopt the Zimbabwe Model. See The Roving Cavaliers of Credit by Prof. Steve Keen for explanation of why this is the case.
I see your objections, and find no real rebuttal. Conceeded. It was intended to just make an observation that people seem attached to the idea of money being some resource. At a reserve rate(With the example of 10% from your article), a bank with a hundred million in reserve can establish credit for one billion. Where's the new money from? Not some place we removed it from.

Of course, I'm not sure how precisely to stop the deflationary pressures which are undoutably here. If I did, I'd be plastering them up in vain hope.
Manic Progressive: A liberal who violently swings from anger at politicos to despondency over them.

Out Of Context theatre: Ron Paul has repeatedly said he's not a racist. - Destructinator XIII on why Ron Paul isn't racist.

Shadowy Overlord - BMs/Black Mage Monkey - BOTM/Jetfire - Cybertron's Finest/General Miscreant/ASVS/Supermoderator Emeritus

Debator Classification: Trollhunter
User avatar
General Zod
Never Shuts Up
Posts: 29211
Joined: 2003-11-18 03:08pm
Location: The Clearance Rack
Contact:

Re: NYT Speaks The Blasphemy: Tax cuts not cure-all.

Post by General Zod »

SirNitram wrote: Conceeded. It was intended to just make an observation that people seem attached to the idea of money being some resource.
I think it's because too many people are used to the idea of a gold or silver standard for currency.
"It's you Americans. There's something about nipples you hate. If this were Germany, we'd be romping around naked on the stage here."
Post Reply