Decader's picture

    The Rich Already Had Tax Cuts: Who Knew?

    By Decader on Thu, 12/09/2010 - 7:48am |

    In all the debates over keeping the top run of Bush tax cuts, one pertinent fact kept getting dropped:

    The rich received the same tax cuts up to $250K or $1 million.

    The proposal was simply to rescind the tax breaks for income over that amount.

    But that wasn't enough, apparently - we can freeze federal employee pay because as fearless leader says:

    "The hard truth is that getting this deficit under control is going to require some broad sacrifice, and that sacrifice must be shared by the employees of the federal government," Obama said.

    "After all, small businesses and families are tightening their belts," added the president. "Their government should, too."

    Thank God he didn't say "big businesses are tightening their belts" - one thing that should never happen, even if they misplanned and blew their wads on fat executive payouts. [Actually they're reaping record profits PLUS getting government subsidies & bailouts. How kind, how Christian.] UAW workers should take a cut, but car company execs and Wall Street bankers? Why, they'd have nowhere to go if they lost their bonuses. Capitalism must live on, no? How else will a Free Market™ survive if we don't subsidize it?

    But that's okay, we robbed the retirement kitty to give the lower worker drones a temporary sniff of crack - we know they'll be back, and then say Goodbye, Kitty™. Funny, the only thing that seemed to come out of "deficit reduction" was federal worker freezes, robbing of Social Security, and more money for the rich - I think their "reduction" needs some redux.

    [As per Bob Somerby, the extra tax cut for the rich was only $800 billion - the total bill for extending tax cuts for everyone was $4 trillion. The big question remains, shouldn't we have rescinded the tax cuts completely and turned the clock back 10 years? Well that's a big rhetorical question now - "Don't Look Back, Look Forward" as our mantra reads. Well that "Forward" is a big drop off a cliff if my binoculars are focused right.]

    [And as Paul Krugman notes:

    So freezing federal pay is cynical deficit-reduction theatre. It’s a (literally) cheap trick that only sounds impressive to people who don’t know anything about budget realities. The savings, about $5 billion (€3.7 billion) over two years, are chump change given the scale of the deficit.

    I mean, that's what, a half month's expenses for Iraq & Afghanistan? Pre-surge that is.]

    [And you should know that that TSA employee feeling you up and porn-scanning you in the airport line has just had his/her pay hike frozen for 2 years. Let's just say, if you didn't lay back and enjoy it last time, you probably won't be able to next either. This flight is in for a lot of turbulence.]

    [Image too impressive to pass up: notice health care costs during the Clinton years, and the jump when Bush came in. Cat got the canary.]

    US health costs compared to the rest

    Comments

    Spot on to remind everyone that it's ONLY the income over a quarter mil that would have been taxed under that plan.  And for a time letting all the cuts sunset was pretty popular with the public.  James Kwak said so early on:

    “Now, $880 means a lot to a middle-class family, and I will no doubt be called heartless for saying we should extend the tax cuts for no one rather than everyone. But letting the tax cuts expire will be better for the middle class, for one big reason–actually, 3.7 trillion reasons.

    $3.7 trillion is the figure that is generally cited as the projected ten-year impact of the Bush tax cuts. Letting the tax cuts expire will eliminate $3.7 trillion from the projected national debt with one stroke. Why does this help the middle class? Because Social Security and Medicare are currently under assault. The national debt is being used as a bogeyman to frighten politicians (and the people who elect them) into agreeing to significant reductions to Social Security and Medicare.

    Yet middle-class households need Social Security and Medicare far more than they need $880 of current-year income. Our country faces the very real threat of a retirement security crisis, since saving via 401(k) plans is shockingly low; in 2007, the average retirement account balance for a household where the head of household was between ages 55 and 64 was only $63,000 (Federal Reserve Survey of Consumer Finances, Table 6). That figure is surely lower today, after the financial crisis. And your administration knows very well the problem of health care cost inflation, having done more to attempt to solve this problem than any other administration, ever.”

    http://dagblog.com/reader-blogs/let-bush-tax-cuts-die-kwak-makes-case-7490

    I read that funding for a week for the wars equals funding a week of unemployment compensation.  People also like to forget that the thirteen months Obama 'won' doesn't help the soon-to-be 4 million (pretty sure of the number) 99-ers. 

     


    by we are stardust on Thu, 12/09/2010 - 8:31am

    And your administration knows very well the problem of health care cost inflation, having done more to attempt to solve this problem than any other administration, ever.”


    What? Please explain what this bill did to control health costs more than "any other administration, ever".

    Look here, and tell me what happened in the Clinton years:

    http://www.theatlantic.com/business/archive/2010/12/what-happened-to-us-...

    Or it doesn't count unless you give big breaks to PhRma and insurance companies, and send out your advanced marketing team while your spine's collapsing? Tell me what's happening to health care costs *RIGHT NOW*? Including more waivers to corporates, jacked up premiums for employees...?

    And my bet is that the health care bill will be repealed by 2013, i.e. before it really kicks in, sometime just after when the next tax break expiration is supposed to happen.

     


    by Decader on Thu, 12/09/2010 - 9:21am

    Yeah; we were supposed to overlook Kwak on that part, eh?  That's one breath-taking chart.  Even the Catfood Commission mumbled something about public option being a possible way to lower health costs.  Gasp!  So states are exploring options, an opt-outs to Romneycare.  Colorado voters just almost overwhelmingly rejected a bill for the state to opt out. 


    by we are stardust on Thu, 12/09/2010 - 9:46am

    It should also be emphasized that the increase in the debt does not directly lead to cuts in social security and medicare.  It only provides as you put it a "bogeyman to frighten politicians (and the people who elect them) into agreeing to significant reductions to Social Security and Medicare."  Nothing is carved in stone.  One could just as easily use the deficit as a bogeyman to frighten politicians (and the people who elect them) into agreeing to significant reductions to the defense budget, as well as an increase in taxes in two years.  As Obama pointed out yesterday, the Republicans now have the next year to show how they will pay for this tax break for the rich if they want it to continue. 

    So now is the time to craft and articulate a solution to the national debt that is aligned with liberal principles.  One that shows how the solution reinforces and facilitates a healthy, sustainable economy and provides a quality standard of living for the lower income classes.

    And remember that while the increase on the tax was pretty popular with the general public, so is freezing government employee wages and reducing the number of federal employees (see page 14 on this AP-GFK poll).  What we need is a good plan of action based on what will work, not what happens to be popular with the public at the moment.


    by Elusive Trope on Thu, 12/09/2010 - 9:24am

    Oh come on, this one's easy:

    Republicans will propose ridiculous spending cuts in the House, and when Obama and Senate Democrats refuse to go along (or at least the Senate), they'll hang it around the Democrats' neck as being fiscally irresonsible.

    It's so easy when you're in the opposition. (At least for Republicans who know how to strategize - for Democrats it's tough to even be in the majority)


    by Decader on Thu, 12/09/2010 - 10:10am

    Yet it is also true that everyone of those ridiculous spending cuts impacts someone.  Here in the nonprofit world, the continuing loss of federal grants that support health and human services in the community is having a noticeable impact.  Those in the for profit e business community representatives who are involved whether through board of directors, volunteerism or as donors can become more aware of just how serious those cuts are in the real lives and quality of their local communities.  It is one place in terms of advocacy that people can do is ensuring that people are made aware of just what is being proposed by the Repubs and what that impact is for the nonprofits in their local area.

    It is a kind of particularly American thing (as opposed to the European approach) that one will fight to avoid an extra $500 in taxes then turn around and cut a check for $5,000 to the local free health clinic.  At the same time, it is important that they know that along with their donations, it is federal and state grants that is keeping the doors open.


    by Elusive Trope on Thu, 12/09/2010 - 11:54am

    Yeah, and Obama and the Dems need to spell out how much tax cuts for the wealthy are rotten for the nation's economics and employment.  Correntewire has this, and lots of great links to Angry Bear, et.al.:

    "The fact is that high marginal tax rates strongly correlate with economic growth. As Mike Kimel wrote yesterday on Angry Bear:

    But perhaps it is unfair to compare Reagan to big-government types like Lyndon Johnson or Roosevelt, as they served during very different eras. Focusing instead on more recent periods, real GDP also grew faster under Bill Clinton, who raised taxes, than it did under Ronald Reagan. In fact, from 1981 to the present, the period in which Reagan’s philosophies have reigned triumphant, the correlation between the top marginal tax rate and the annual growth in real GDP has been positive. That is to say, higher top marginal tax rates have been associated with faster, not slower real economic growth. Conversely, lower top marginal tax rates have coincided with less economic growth.

    The positive relationship between the top [higher] marginal tax rate and the growth in real GDP is very nearly bullet-proof. For instance, it extends all the way back to 1929, the first year for which the government computed GDP data. Additionally, higher marginal tax rates are not only correlated with faster increases in real GDP from one year to the next, but also with increases in real GDP over the subsequent two, three, or four years. This is as true going back to 1929 as it is for the period since Reagan became president. In fact, since the Reagan Revolution took hold, similar relationships have existed between the top marginal rate and several other important variables, like real median income, real private investment, consumer sentiment, the value of the dollar relative to other major currencies, and the S&P 500. Lower tax rates in any given year are associated with slower growth rates for each of these variables, whether those growth rates are measured over periods of one, two, three or four years.

    If you look under the hood of the industrial economy, you easily see why there is this counter-intuitive relationship between tax rates and economic growth . With high taxes, the only way to retain the bulk of the wealth created by a business is by reinvesting it in the business -- in plants, equipment, staff, research and development, new products and all the rest. But if tax rates are low, then there is more incentive to pull the wealth out, by declaring it as profits that are taxed at what turns out to be too low a rate. In other words, low taxes create an incentive for profit taking."

    http://www.correntewire.com/why_obama_tax_deal_republicans_insane

    We might have hoped that Reaganomics would have been buried by now; but no.


    by we are stardust on Thu, 12/09/2010 - 10:26am

    Worse, the effective tax rate for the rich is very very low because much of it is paid out as capital gains - taxed at much lower than the highest tax bracket: 15% vs. 39.6% income tax. Bouncing up to 20% next year. Still lower than the income tax rate for people earning <$35K (25%)

     


    by Decader on Thu, 12/09/2010 - 10:35am

    Increasing capital gains tax is one of those no-no's for waaay too many Congresscritters.  Fire!  Fire!  Fire!!!

    Those pieces from Correntewire (and many others) do some of the math on tiny, wee, miniscule taxes on financial transactions, (.05% maybe; sorry, brain fart; is that 1/5 of one percent?) and come up with a trillion dollars annually, even while admittedly the transactions would likely decrease, but so the hell what?  Might slow down casino gambling with our tax dollars.

    He wonders why the sainted Paul Krugman never brings it up; Ratigan does.


    by we are stardust on Thu, 12/09/2010 - 10:52am

    If the economy can rebound to some degree, then this might be something that could get some legs in spite of its "no-no" status in Congress because now dealing with the deficit is sooo important.  It is hard to claim 0.05% tax would somehow cripple the economy by putting some undo hardship on investors and creating some disincentive to not invest.


    by Elusive Trope on Thu, 12/09/2010 - 11:24am

    The economy has recovered for the banks and traders.  Transaction taxes would tax the buying and selling events (as I understand it) not the profits.  And if increasing the marginal rate at the top actually incentivizes investment (expansion, job creation) wwe could get somewhere. 


    by we are stardust on Thu, 12/09/2010 - 11:34am

    But the general conventional wisdom one fights is that any tax (or fee or whatever it is that a Repub can call a tax) is not good during a general downturn in the economy, regardless of whether the individual who is being taxed is personally doing fine.  I think the poll numbers showing how many people were in favor of letting the taxes expire on the wealthy shows that there may be some positive developments in this area which can built upon.  I don't think we're building some new collective insight from scratch.  But where we need to be is that point where congress believes there will be serious blowback at the polls if they continue to coddle the wealthy when it comes to taxes.  Because quite frankly if one has to talk about "marginal rate at the top" to make one's case, it won't be very effective across the broad spectrum of the voting public. 


    by Elusive Trope on Thu, 12/09/2010 - 12:02pm

    Get out those EZ Charts, Dems!  Show Em How It Really Works!!!  More cartoons like the QEII one! 

    The Great Lie of Trickle-Down Economics!  See, the problem must be that too many Dems either still believe it, or are paid to pretend to believe it. Rats.  Double rats.  But yes: avoid crap terms like 'marginal rates at the top'.   ;o)  Or: 'capacity'.  A slew of other sleep-inducing economic terms.  Put it into Palin-understandable language. 


    by we are stardust on Thu, 12/09/2010 - 12:13pm

    the problem must be that too many Dems either still believe it, or are paid to pretend to believe it.

    I think it's both.  The reptilian part of the brain responds to seeming logic of trickle down, while they override their frontal lobes with the lure of cash. 

    I hate to say it but the left needs to find its Palin.   He or she must be out there, somewhere.  One that preach the talk without resorting to a call for pitchforks and torches. 


    by Elusive Trope on Thu, 12/09/2010 - 12:31pm

    LOL!  Go ahead and say it!!!  By the by, Bernie Sanders is for calling for street demonstrations; God love him!


    by we are stardust on Thu, 12/09/2010 - 1:09pm

    Someone made this point last week and I have been researching to see if this point was brought out  as an argument for keeping just the formerly known middle class tax cuts.  So far I have found few making this argument, mainly journalists and economists.  I get why the Repulicans would be silent about this but why the Democrats? Seems like the right creates  narratives that everyone goes along with even if they don't agree with them. Really really really don't get that.


    by Anonymous (not verified) on Thu, 12/09/2010 - 9:58am

    I guess it would help to sign in before commenting.  I wondered why I had to fill out the captcha code.


    by emerson on Thu, 12/09/2010 - 10:03am

    Go home. Your country needs you. 

    (Yes, it's that bad.)


    by quinn esq on Thu, 12/09/2010 - 10:44am

    People actually don't understand how marginal tax rates work.  This is actually why I cringe when people on our side say things like "the top tax rate used to be 90%" or "it used to be 50%."  True, naturally and those rates would work today, were they applied high up enough on the income scale that very few would pay it and the ones who did would pay it on very few of their dollars.  But sadly, people can't get their heads around it.  They think that if they breach the higher tax bracket that the government will take 90 cents from every dollar they earn.  I don't know how to educate people better about this.  I suspect that even when they do understand what's going on that they still get confused and that the immediate lizard brain reaction is that these rates amount to theft.

    The other thing people don't get is that this isn't just 2% making over a quarter million a year.  The tax rates effect far less money than that.  It's hard to make $250,000 a year.  Not many people get to do it.  But fi you do make that much, let's face it... that's likely the bulk of what you make!  What are you paying the top rate on... the extra 5K you might make beyond that?  Only 2% of the whole country gets above a quarter million.  But only a small percentage of those people get to half a million or a full million in income per year. Sigh.  The only people who get this are in the choir here.


    by Michael Maiello on Thu, 12/09/2010 - 11:59am

    Your point is valid (and I agree the majority of people don't understand it), but I think you might be underestimating the fraction of people making at least $250k a year who make $500k a year. Income distribution tends to follow more of a power law than a normal distribution.


    by Atheist (not verified) on Thu, 12/09/2010 - 12:16pm

    I see what you're saying.  But 2% make over $250,000.  .03% make $1 million or more.  You have to get to half a million before you're even paying the top rate on half of your income.  Look, this is bad for Derek Jeter, I know.  But it's not even that bad for most rich people!


    by Michael Maiello on Thu, 12/09/2010 - 1:10pm

    We know the numbers No need to guess.

    By agreeing not to raise the marginal tax rate Obama is foregoing $160 Bn over two years. That's the extra tax that would have been collected from those earning  over $200K when that higher rate applied on their income in excess   of $200K

    Or put another way , that's the  price Obama was willing to pay for the Republican agreement to  $600Bn of badly needed additionaly stimulus.

    My impression is that some of the commenters here would forego that $600Bn of stimulus if that was what they had to do to collect that $160Bn  of extra tax from the rich.

    That doesn't compute.

     

     


    by Flavius on Thu, 12/09/2010 - 4:54pm

    Yup.  Nope.  Yup.


    by we are stardust on Thu, 12/09/2010 - 12:19pm

    But part of the meme is that it is the motivation to create that "extra $5,000" which leads to economic growth.  If I currently make $325,000 through my business, why should I go the extra mile (e.g. hire new employees) so I can make $375,000 if that extra $50,000 will just be taken by the government."  But I don't think this is generally how things work.  Businesses are generally driven by increasing their market share through retention of current customers and generating new customers.  Usually these new customers are obtained at the expense of their competitors.  A household spends $100 in entertainment expenses.  They go see a movie or a sporting event.  The movie theater doesn't grow the economy by taking the family from the sporting event.  Moreover, whatever effort the movie theater will expend to retain and obtain customers will be the same whether their tax rate is A or B since there is no guarantee that they will make the same amount as the previous year.  About the only people one could say that increasing the tax on the wealthy would disincentivize effort would be the one who make their primary income through investments.  Here the government could easily set up programs that provide counter incentives to those who invest in things that will actually improve the economy (as opposed to gambling on things like derivatives).  Sigh.


    by Elusive Trope on Thu, 12/09/2010 - 1:06pm

    But part of the meme is that it is the motivation to create that "extra $5,000" which leads to economic growth.

    The flip side of that meme is that it's well known in psychology circles that sometimes reduced pay motivates more. For example, if you need to earn $5k, and I'm paying you $100/hour, then you're very motivated to work 50 hours. On the other hand, if I'm paying you $50/hour, then you're very motivated to work 100 hours. This strategy breaks down at some point, of course. Unfortunately, this concept is not even close to being known as well as the meme you're citing.


    by Atheist (not verified) on Thu, 12/09/2010 - 1:09pm

    Very true.  I've actually been wondering about and meaning to post about the use of the tax code to encourage work for a long time.  Basically I've been pondering the question "does the government want you to be rich?" by which I mean rich enough that you can work if you want to but don't have to.  I think most people would like that but if space aliens landed and offered some new technology where our needs would be met without working that the government would slyly say no thanks.  Work is, after all, part of the social order.  But I'm off on a tangent here.  For another thread!


    by Michael Maiello on Thu, 12/09/2010 - 1:13pm

    Good post.

    Case in point. I was listening to the radio this morning and heard the following news item (paraphrasing from memory but accurate, I think):

    "The White House announced it has reached agreement with the Senate on a package of [...tax cuts, I don't recall the exact words used to describe it.] House Democrats oppose the bill, saying they will not support it until tax cuts for the wealthy are scaled back." (last two words spoken in a slower cadence with a Scrooge-ish tone of voice)

    As I listened to it, it was not difficult for me to imagine many listeners hearing the House Democrats' message as being vaguely petty and spiteful.

    Now imagine the second sentence read: "House Democrats oppose the bill, saying they will not support it until additional tax cuts that benefit only the wealthy are scaled back."

    First point is that this is more accurate.  It adds 3 words, which in the news business isn't nothing, but it probably would add about a second to the report. 

    Now the question is how did the words the announcer read come to be written in the way they were?  Was this taken verbatim from a House Democrats' press release that characterized the House's position using those words?  Was this a paraphrase constructed by someone at the radio station based on what they read? 

    Democratic politicians don't control the words the media uses to report the news.  All they control is what they say.  But I think with the second set of words, the message many listeners hear is substantially different, and more appealing, than the words they actually heard. In addition to being more accurate.

    In general I am a fan of "murder boards", wherein politicians or their media spokespersons deliver their planned message and get grilled privately by staff or advisors with framing improvement suggestions, and also anticipating the toughest talking points the other side is going offer, hearing first responses, and refining better responses.  With the press of the 24/7 news cycle there is a premium placed on speed, getting one's message out first, even if one is not having a microphone thrust in front of one's face on leaving a hearing or a building. So this often is not something that is possible, even if desired.

    Maybe an end of year message refinement boot camp for members of the House Progressive Caucus, with extensive use of murder boards?  It might help improve consistency as well as quality of message.  The Republicans and their media partisans have enough message consistency effectively to have a pretty straightforward national script where one knows before they respond what they're going to say. 

    There isn't any excuse for progressive Dems not to have more message consistency, with better quality of  what they are saying, recognizing, again, that they don't control what the media chooses to report in formats where their words are edited.  Again, just a thought.  I'm sure others have had similar thoughts, watching progressive Dems losing message battles time after time after time, year after year after year.


    by AmericanDreamer on Fri, 12/10/2010 - 8:28am

    Sadly, I'm afraid that Democrats probably think the wording is fine.

    And yours is a bit verbose.

    "Eat the rich" - that works.

    "Eat only the guys making more than $1 million a year" - bad bumper sticker

    But the biggest thing is - Obama always consults the Senate and tells the House Democrats to bugger off.And then it's their fault?

    He had Boehner or McConnell or someone in his office, a pleasant camaraderie.

    Then he brings in one of the House Dems and tells him, "Take it or leave it".

    What a jackass.


    by Decader on Fri, 12/10/2010 - 9:11am

    If even you think that is a bit verbose, requiring more of the listener than is reasonable to hope for, decader, then we're in even more trouble than I thought.  I wasn't sure it was possible for me to think that.  Verbosity when I'm worked up about something is one of my worst faults.  I hadn't thought words like that are too hard on the ears, but maybe so.  I get the affective thrust of your comment, that you're royally po'd.  As am I.

    I think Obama's idea of progressive Dems is that they are family and, well, you know, sometimes people are rough with members of their own families in ways they wouldn't be with others. 

    Until the divorce.  Even when that happens, some don't learn from it.

    He certainly gets plenty of editorial page praise for "standing up" to his liberal supporters.  David Broder in his column yesterday lauding Obama the Emerging Centrist is, as usual, helping to set the dominant MSM meme, and in case it wasn't clear, the editorial page cartoon in yesterday's Post showed Palin being sworn in with liberal Dems off to the side saying "See, we really showed Obama." 

    The politician's assumption is, as always, that their disappointed base has nowhere else to go.   Many progressive Democratic activists are somewhere beyond sick and tired of being treated like what my former boss, an African American former member of Congress now retired, on occasion used to refer to privately with his staff as plantation n******, whose job in this context is to bust our asses and empty our pockets to elect people who spit in our faces.  Justifying same to themselves as what a bunch of utopian, inflexible purists deserve. 


    by AmericanDreamer on Fri, 12/10/2010 - 10:04am

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