News Are the Bush Tax Cuts Still Beneficial to the Economy?

[CRGreathouse]

Given that his competition bears the same tax burden, obviously your brother's employer had other problems.

Absolutely it had other issues. [Buy me a beer and you can hear the whole story...!] But so do many small businesses. When taxes increase, certeris paribus, the worst-off businesses will fail; stronger ones will merely cut costs (reducing profits, overhead, and excess jobs). In fact the two can be combined: when costs to businesses increase (e.g., due to a tax increase), businesses cut their own costs (layoffs, reduced hours and profits, consolidation, etc.); if these reductions reduce profits (or, for that matter, jobs) below 0, the business closes.

It often strikes me that the right seems to have no faith in the market.

Quite possible. What did you have in mind?

 

[Ivan Seeking]

Absolutely it had other issues. [Buy me a beer and you can hear the whole story...!] But so do many small businesses. When taxes increase, certeris paribus, the worst-off businesses will fail; stronger ones will merely cut costs (reducing profits, overhead, and excess jobs). In fact the two can be combined: when costs to businesses increase (e.g., due to a tax increase), businesses cut their own costs (layoffs, reduced hours and profits, consolidation, etc.); if these reductions reduce profits (or, for that matter, jobs) below 0, the business closes.

You left out the most important option: Raise the price of their services or goods.

Quite possible. What did you have in mind?

You seemingly did this just now. But I have noticed this much of late. Tea partiers esp who bend my ear will defend the free market, but show no faith in it. One guy was recently telling me how no one in Oregon can get health insurance for their kids because of Obama care. Even if this were true, which I seriously doubt, the market will adjust. When I asked why he had no faith in the market, he fell silent.

 

[CRGreathouse]

You left out the most important option: Raise the price of their services or goods.

Yes, absolutely. (Actually, I was thinking of the percentage of the tax that they are forced to take on in order to keep prices at a competitive level, which is based on competitor's prices and ultimately the price elasticity of demand. But that was a shortcut I shouldn't have used here, at least not without spelling it out.)

You seemingly did this just now.

I question both assumptions: that I'm (a representative of) "the right", and that I have no faith in the market.

One guy was recently telling me how no one in Oregon can get health insurance for their kids because of Obama care. Even if this were true, which I seriously doubt, the market will adjust. When I asked why he had no faith in the market, he fell silent.

I guess that could be taken as "many in Oregon can't afford healthcare now". I don't know if that's true. Personally, I'll soon learn whether I need to drop my coverage as a result of the price increases. (My company will announce the new cost schedule next week, I think.) Fortunately I'll be fine either way: I'm in excellent health.

Since this "one guy" wasn't particularly specific, at least in your telling, I can't say whether the claim was that private insurers were refusing to cover more people, or simply that the costs were rising enough that many couldn't afford it. I've heard cases of the former, but I assume it's extremely rare.

 

[mheslep]

Something frequently lost on the rabidly anti-tax crowd. For instance, if the top marginal income tax rate is low, a business-owner can and will take profits in the form of income. If the marginal rate is higher, and he doesn't want to pay more taxes, he doesn't take the profits as income and instead plows them back into the business, building its value. That has a far better influence on job creation than simple profit-taking.

Following that logic the US should immediately raise its taxes to 100% and the employment problem will vanish, the economy will boom.

 

[mheslep]

Did your state raise their tax rates? I don't see anything in the Fed Income Tax brackets - only the tiny adjustments for inflation. For instance, see the tables below for single filers:

Nice - are those tables from your personal tax software or the net?

 

[mheslep]

I haven't heard it, myself. A search for
"evil rich" site:pelosi.house.gov
came up empty, and likewise with
"evil rich" site:speaker.gov/newsroom/speeches

I encourage anyone doing similar searches to omit the article as I have done.

Such a phrase would never make it into a prepared speech. If she said it then its mostly likely in a Q&A session - off the cuff.

 

[turbo]

Following that logic the US should immediately raise its taxes to 100% and the employment problem will vanish, the economy will boom.

What a wonderful argument. The top marginal rate on income the lowest it has been in decades. You can look it up. Our economy was booming during periods when the marginal rate was hanging around 90% (within my life-time).

 

[Al68]

Something frequently lost on the rabidly anti-tax crowd. For instance, if the top marginal income tax rate is low, a business-owner can and will take profits in the form of income. If the marginal rate is higher, and he doesn't want to pay more taxes, he doesn't take the profits as income and instead plows them back into the business, building its value. That has a far better influence on job creation than simple profit-taking.

That's certainly true if the capital gains tax is significantly lower than the income tax marginal rate. But even if not, the business owner will either spend the income on goods or services, or invest it in other companies by buying stock or mutual funds.

 

[Al68]

You left out the most important option: Raise the price of their services or goods.

Gee, you mean consumers assume the tax burden?

Tea partiers esp who bend my ear will defend the free market, but show no faith in it. One guy was recently telling me how no one in Oregon can get health insurance for their kids because of Obama care. Even if this were true, which I seriously doubt, the market will adjust. When I asked why he had no faith in the market, he fell silent.

Probably because you used a bait and switch. He, like I, probably has much faith in a free market, but not much faith in a government regulated market.

 

[CRGreathouse]

Such a phrase would never make it into a prepared speech. If she said it then its mostly likely in a Q&A session - off the cuff.

Have you heard her use the phrase?

 

[CRGreathouse]

What a wonderful argument.

Are you actually accepting mheslep's 'slippery-slope' argument?

Assuming the answer is no (and the post was thus a rhetorical flourish), at what point does it no longer apply? I'm accustomed to using this line of questioning on purported proofs of (otherwise) unsolved mathematical conjectures; I hope you won't be bothered by its use here. (That is: this is an honest question, I'm not trying to provoke you.)

 

[turbo]

Have you heard her use the phrase?

Nobody has heard her use that phrase. You can count on it. It would have been on the news (actual news, not pretend-news) and all over the blogosphere with attribution. Whether or not one agrees with Pelosi's positions, it is beyond ridiculous to believe that she would be stupid enough to utter such a phrase. Politicians are not wired that way.

 

[CRGreathouse]

Gee, you mean consumers assume the tax burden?

This wasn't directed at me, but for those following: essentially every tax is shouldered partially by the consumer and partially by the producer. Taxes on goods that have relatively elastic demands* are shouldered mainly by the producer, while goods with relatively inelastic demands** pass most of the costs on to the consumer.

Of course there are also deadweight losses (consumers who won't buy the product at the higher price, and thus provide neither tax for the government nor revenue for the company, but also no longer benefit from the product) -- but that's neither here nor there.

* For example, there are easy substitutes: orange juice can be replaced by apple juice and grape juice, and to a lesser extent lemonade and Sprite.
** For example, patented medication and goods where switching to substitutes is costly, e.g. crude oil.

 

[CRGreathouse]

Nobody has heard her use that phrase. You can count on it. It would have been on the news (actual news, not pretend-news) and all over the blogosphere with attribution. Whether or not one agrees with Pelosi's positions, it is beyond ridiculous to believe that she would be stupid enough to utter such a phrase. Politicians are not wired that way.

I don't think anyone here has heard her say that, thus my (suggestive) question.

Incidentally, I disagree with your last sentence -- little though that has to do with the present situation. I've heard lots of stupid things from politicians.

 

[Gokul43201]

Following that logic the US should immediately raise its taxes to 100% and the employment problem will vanish, the economy will boom.

I'd like to point out that this goes both ways. How many arguments have we heard about cutting taxes to save the economy, without the tiniest mention of how much to cut, and why that much? I've seen dozens of protest signs, forum posts, opinion pieces, etc. demanding lower taxes and spending and I wish I could respond with: you got it buddy, let's set both at ZERO starting today, and see how that works out

Nice - are those tables from your personal tax software or the net?

The net - it was among the top hits in a Google search for Federal tax brackets: http://www.moneychimp.com/features/tax_brackets.htm

 

[mheslep]

Have you heard her use the phrase?

Nope

 

[mheslep]

I'd like to point out that this goes both ways.

In the short term at least I'd disagree. On the sole issue of jobs, turbo1's topic, I'd say taxes and jobs go only one way, at least in the short term. Revenue to run the government is also required for other reasons, and telling T-bill holders their Tbills are going to default would eventually cause other problems. BTW, there's a study on how much government is actually optimal for max jobs: 14% of GDP.

 

[OmCheeto]

Gee, you mean consumers assume the tax burden?Probably because you used a bait and switch. He, like I, probably has much faith in a free market, but not much faith in a government regulated market.

Perhaps it's the fact that I'm too much of an engineer at heart to agree with you.

Whenever something was prone to "running away" as in "It's going to freakin' explode!", we'd put a governor on it.

But that was the steam driven section, the electrical section simply had regulators.

But I'm being flippant as usual. The over $250k tax cuts should be allowed to expire this coming new year. The remaining tax cuts can go bye-bye after Barry* leaves office.

I'd prefer a more "governed" increase in taxes, say a 1% per year increase, to allow the economy. investors, and last but not least, me, to adjust.

I'm tempted to say; "I mean really!", but I know I've used that line before, and I feel like John Stossel when I use too many "Give me a break" type lines,... But then again... I mean really, didn't we go from $2.00/gal gas to about $4.5/gal gas in a period of about, well, it seemed to me anyways, like 6 months?
Did we die?
Did we survive?
Was that not like a tax?
How was it different from a tax?
How did we benefit from that hike?
Did we learn anything from that hike?

lame ***, trying to keep down with the 20 year olds lingo preemptively deleted.

*Dumb *** kid got suckered into making a promise he should have never made.
hmmmm... Maybe he can switch parties while in office, and claim he's Bush Sr.?
"Read my lips!"

 

[CRGreathouse]

I'd like to point out that this goes both ways. How many arguments have we heard about cutting taxes to save the economy, without the tiniest mention of how much to cut, and why that much? I've seen dozens of protest signs, forum posts, opinion pieces, etc. demanding lower taxes and spending and I wish I could respond with: you got it buddy, let's set both at ZERO starting today, and see how that works out

Next time you should say that, then report back what's said. It's evident (to me) that the issue in both cases is marginal cost (amount of tax plus deadweight loss) vs. marginal benefit, but I'd be curious to see how people on 'both sides of the fence' think about this one.

 

[CAC1001]

If it was true, what they say about taxes, then the best opportunities would be in the places with the least taxes... like Somalia. But it's not true, is it? Is it? It's not true. The best opportunities to create great wealth, in this country — and in the world — are in high-tax places.

IMO, this is a rather silly statement. The best opportunities are always in the places with the least taxes and regulations, provided you're in a developed, Westernized nation. You are going to find far more opportunity in the United States than you will France, and within the United States, you'll find a far more business-friendly climate in Texas than in California.

What his statement should say is that "Within industrialized nations with an established market economy..." or something like that.

Places like Somalia have no functioning government or institutions necessary for a market economy to develop.

There is no established financial or banking system (you cannot create businesses without a financial system in place).
No education system.
No educated workforce.
No established legal system.
No framework of laws.
No way to protect the rights of the citizens.
No way to keep what government may form accountable.
No infrastructure (roads, bridges, transportation, electrical, plumbing, heating, ventilation, etc...)

And so forth. Third World nations tend to lack all of this stuff.

For example, take bankruptcy law. This is very important. America has some of the most lenient bankruptcy laws in the world. Bankruptcy law is needed because without it, no one in their right mind will risk starting a business, because should they go bankrupt, they end up in jail. And hence the kicker that they cannot get out of jail until they pay off their debts, but they can't pay off their debts if they're in jail.

That one variable in itself is a crucial aspect of a nation being able to develop a market economy.

Every industrialized democracy... every single one... is a high-tax, high-regulation, high-government society. And that is because these two things are inextricably intertwined.

No they aren't. The United States is not a high tax, high-regulation (hasn't been for awhile), high-government society, not like Europe (and what government programs we do have are struggling financially).

Nor is Switzerland. Most Westernized nations have higher taxes and higher regulations because they adhere to a model whereby they have very generous public services. They usually have a VAT tax, high fuel taxes, somewhat higher income taxes (not always though), and so forth, and thus much more generous welfare programs, "free" healthcare, "free" college, etc...in France, I believe that it was only recently one could start a home-based business, and usually the laws on hiring and firing people, especially young people, are much more strict (resulting in chronically-higher unemployment), companies must adhere to very generous maternity leave rules and so forth, usually the retirement age is far lower than in America.

No market economy needs to adhere to that model to be successful.

I am not here because I am a do-gooder. I don't want to pay more tax for fun. I want to pay more tax because it will create more prosperity for you and me.

IMO, all paying more taxes will do is incentivize the government to spend more and put the country into a worse situation financially. The only time taxes are going to "create more prosperity" is if they are used to pay for/develop certain institutions or infrastructure the nation is lacking that will ultimately help economic growth. For example: the interstate highway system, certain roads and/or bridges to connect cities and areas so that trade and commerce can occur, a public library system, good public schools system, etc...a certain level of taxes is needed to develop all this stuff in a nation, and then to maintain it.

But there's a limit to just how much taxation should be levied. Not everyone wants the European model, cradle-to-grave style social welfare state.

The most successful areas within Westernized democracies are those that adhere to a fairly lower tax, light and efficient regulatory framework, limited government model.

Of course there are exceptions. California can have higher taxes and more regulations than say Kentucky, but California will still be the more economically successful state. But there is a point to where you regulate and tax too much, and you really damper economic growth (also keep in mind that part of the reason California became so economically successful is because it used to be a very business-friendly state, now however, many businesses are fleeing).

Within Europe, the most successful economies are Germany and the United Kingdom (and Switzerland, though it isn't part of the EU). Germany and the UK may have more more taxes and regulations and government than say America, but in comparison to other Euro nations like France and Italy, they are pretty good.

Modern Westernized democracies with market economies are all "high-tax, high-regulation, big-government" societies to perhaps a person from the 1800s, but to a modern person, certain ones have a lot more taxes and regulations than others.

 

[CAC1001]

You left out the most important option: Raise the price of their services or goods.

Raising prices in a bad economic environment is only something a government-run corporation will do. If a private business does that, they are asking to get killed. Businesses slash prices in bad economic times. Some industries are so competitive that prices get slashed to the point where it gets difficult for businesses to survive.

Remember at the height of the recession, how you could go to the mall and buy things for 50% off.

Higher taxes in this sense can actually help big businesses, like Wal-Mart, because those big global corporations can absorb the higher costs (the same applies with higher regulations). Smaller companies usually either have to fire people, reduce their goods and services being offered, reduce pay, benefits, etc...or perhaps try raising prices and increasing the quality of service, but that is risky.

Either way, all of this helps their big business competitors if it helps drive the smaller companies out of business.

 

[CAC1001]

What a wonderful argument. The top marginal rate on income the lowest it has been in decades. You can look it up. Our economy was booming during periods when the marginal rate was hanging around 90% (within my life-time).

When the marginal rate was around 90% though, very few people or businesses earned enough to fall into that bracket. The modern equivalent would be if we levied a 90% top marginal bracket on people making $30 million a year in income, and up.

Also, the UK tried a 90% top bracket under Labour party pre-Thatcher, and their economy didn't do too well.

Having said all this, I do think that if the top marginal rates were allowed to expire, at least on ordinary income, that it may not be disastrous in the way some are making out, because as you have pointed out, a person making say $300K a year, the entire $300K is not taxed at the top bracket. Only a portion of it gets taxed at the top bracket. One has to average all of the portions of the income taxed at the various brackets together to get the actual income tax rate for such a person.

However, I also don't think allowing the top rates to expire will bring in much revenue or that the government would be responsible in spending it.

 

[CAC1001]

But then again... I mean really, didn't we go from $2.00/gal gas to about $4.5/gal gas in a period of about, well, it seemed to me anyways, like 6 months?
Did we die?
Did we survive?
Was that not like a tax?
How was it different from a tax?
How did we benefit from that hike?
Did we learn anything from that hike?

That was the straw the broke the camel's back regarding the American automotive industry. Although did it go as high as $4.50? I thought it was more like $3-something...?

 

[Office_Shredder]

That was the straw the broke the camel's back regarding the American automotive industry. Although did it go as high as $4.50? I thought it was more like $3-something...?

Depends on where you were but it definitely was over 4 bucks a gallon
http://www.eia.doe.gov/petroleum/data_publications/wrgp/mogas_home_page.html

June 2008 the average price was 4.10 a gallon

 

[airborne18]

The tax brackets across the board increased in 2008 and 2009 and 2010. Just the standard in your face income tax. This does not include all the other taxes that went up they take out of my check. On top of that... looking at my current phone bill...the federal excise, federal uni and federal subscriber line taxes all went up... again. Is it much dollar wise on those three? No about a total of 7.00 for all three monthly. But, when you add that the income, the federal taxes on everything else, cable (cable modem can't work without it), SSI, Medicare, etc so on and so forth... All taxes increased these last two years. At least the ones I have to pay, which I imagine most people do who live an average life the under 250,000.00 crowd.

But still... the point really is, why? Why should I pay more taxes when the feral government wastes, hands out, and refuses to stop spending? Why should I pay more and more taxes cutting my ability to provide for my family when more and more are not paying any.

All this stimulus money, bailing out corporations, and pork galore... and I am to pay more? Why?

BTW... just the FIT, the difference between what I made two years ago to one I just got recently. Just in this tax alone... 10.2% increase. I pulled my check stub from the last two years. There is a 3.00 difference for the same month two year ago. (This is due to the fact I dropped dental coverage.)

I wish more people would calculate their tax burden from the bottom up. The federal marginal rate is just one part of the cookie.

People always throw out percentages about various income brackets paying more than their fair share versus another bracket. While a family of 3 making under 50,000 has a small federal income tax liability, they also never max out on their fica contributions. And they also do have the same level of tax shelters that higher income brackets enjoy.

And on the state and local level they have no tax breaks and have even a bigger burden.

Now that there are a large number of people stuck with negative equity in their real estate, and cannot move, local jurisdictions will bump up real estate taxes to cover the shortfalls in their revenue.

 

[CRGreathouse]

FICA is an interesting case, though, because it gives benefits -- that is, under the usual definition, it's not a tax (just an obligatory bad investment). With a true tax, paying more doesn't result in any direct benefits to the taxpayer. Probably the best way to compare its cost as a part of a tax burden is to count the contributions less the price of an equivalent annuity.

Does anyone know of such a comparison? I'd be interested to see it.

 

[airborne18]

FICA is an interesting case, though, because it gives benefits -- that is, under the usual definition, it's not a tax (just an obligatory bad investment). With a true tax, paying more doesn't result in any direct benefits to the taxpayer. Probably the best way to compare its cost as a part of a tax burden is to count the contributions less the price of an equivalent annuity.

Does anyone know of such a comparison? I'd be interested to see it.

Social Security and Medicare are taxes. The unemployment you can probably say is a mandatory insurance.

Anything mandated is a tax. And it is for the common good and not a payment for a future service. That is what government is all about. You can receive social security benefits if you have not worked. Though they closed the windows a few years ago, it is still possible.

You can do the comparison, I took a finance course where they did it. But the issue illustrated is that social security is not a defined benefit plan. Even though it was sold that way decades ago, it is not.

They do keep an accounting of the trust fund, but that is misleading. Years ago congress eliminated the boundary under the correct assertion that no matter what was in the trust fund the tax payers would have to fund the benefits.

Why this distinction matters is that the trust fund only exists on imaginary paper. If it were a real defined benefit plan and independent government fund ( like some agencies are ), they could actually invest the money for a return. This keeps coming up every so often in the political realm. But it is just another account in the treasury and it is used to loan money from agency x to agency y at a very low interest rate.

 

[Al68]

Anything mandated is a tax. And it is for the common good and not a payment for a future service. That is what government is all about.

That's not what the U.S. government was chartered to be "all about". Not even a little.

Legitimate government (to a libertarian) is "all about" protecting liberty, not taking it away. Legitimate taxation is for "services rendered", like defending liberty from foreign invaders and criminals.

 

[airborne18]

That's not what the U.S. government was chartered to be "all about". Not even a little.

Legitimate government (to a libertarian) is "all about" protecting liberty, not taking it away.

We are a representative democracy with a constitution that grants the power to create laws to the Congress. Which means it is defined constantly. So it is all about whatever Congress passes, the President signs, and if the Supreme court upholds it.

That is what it is all about. 100 years ago we had different laws than today. It is an evolution.

You have to take the good with the bad.

A charter has not figured into since the articles of confederation, which was the lack of any federal government, or at least not one that does anything.

 

[airborne18]

Call me crazy, but given the fact that I have spent my life protecting and defending the Constitution, I tend to be a stickler for what it means. And what I have given up the better part of my life for.

100 years ago it was Okay for our government to let disabled vets starve to death. Luckily we have a system that evolves to correct such things. No matter how inconvenient or distasteful it might be to others who don't feel it is the responsibility of our government to do so.