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    Let the Bush Tax Cuts Die: Kwak Makes the Case

    Economist James Kwak who writes at Baseline Scenario with Simon Johnson, explains why the House should allow them to die with no action.  I would offer that the members should pepper the media with his explanations and math; they could reduce the arguments to a paragraph.  And they should.  Dems need to draw some clear lines between the parties, and mean them.

    He first addresses the question about conventional thinking that taxes shouldn’t be raised in such ‘tough economic times’.  He argues that there would be at first a small bit of negative growth, the multiplier of tax breaks is far smaller than for any type of government spending, especially in state and local government.  And he argues that later impacts would be greatly beneficial to most Americans and the overall economy.

    Additionally, tax breaks for the wealthy offer little positive impact to the economy, as the rich spend less of their marginal income.  And the income to the Treasury would make the nation’s balance sheets healthier, and perhaps calm down some of the scare-talk over debt and deficits.

    Kwak also believes that if Obama and Congress kick the can down the road again with a ‘temporary’ two-year extension of the cuts, they will almost assuredly become permanent.

    He runs the numbers obtained from the Congressional Budget Office:

    Families in the median income quintile ($36,000-57,700) would pay about about $880 more in taxes; Families in the 80th to 99th percentile would pay an additional $6094, and those in the fifth quintile (uber-wealthy) would pay about $339,473 more. 

    Recent polls show that while pundits and politicians believe allowing the middle-class tax cuts expire would kill the Dems in the polls and at the ballot in 2012, a majority polled would rather allow them all to die if it means extending them to the wealthy.

     Kwak writes:

     “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.”

     This morning I listened online to last night’s Hardball  just to hear what was being said about the tax cuts and the Catfood Commission Report.  I would imagine the talk I heard here is fairly ubiquitous throughout the media.  Tweety, Mark Halperin, and Jon Heilman all said the President has no choice but to extend all the cuts, and laughed at Progressives being gloomy and doomy about the Bowles/Simpson recommendations for program cuts; they all agreed that they ‘spread the pain around’ so well that not even Progressives should be howling (not that they mentioned any of the multitude of egregious cuts that essentially amount to huge taxes and penalties on the middle and lower classes).  All other guests agreed that the President ‘just has to make some deals with this new Congress’. 

    So use Kwak’s figures and talking points, and send them to your Congress-critters and the White House.  This needs to be a good line in the sand for preventing even more extremes of income bolting upward into the coffers of the already-too-wealthy who are simply not paying their fair share.

    Frank Rich at the NYT asks “Who Will Stand Up to the Superrich?” and introduces a book written by Jacob S. Hacker and Paul Pierson Winner Take All Politics.  Rich says they have tracked upwardly-migrating incomes through modern history, and found that policies from the Democratically-controlled congress under Carter began the process, and it has accelerated since.

    Paul Krugman asks if the President is willing to take a stand, and doubts it (which begs the question of what the President believes is important: American lives or re-election).

     (cross-posted at http://my.firedoglake.com/

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    Comments

    Kwak's logic is compelling, as is yours.  There is no doubt that in the long run middle class families would be better off with their full, promised Social Security benefits than with $880 now.  No doubt at all.

    Except that I don't believe taking the $880 from them now is going to take the heat off of Social Security.  They're likely to lose out now and still see their benefits cut down the road.

    The other problem is that middle class Americans are being faced with stagnant wages and extreme job insecurity.  They need the money now.

    If anything, middle class Americans deserve an additional tax cut, not just the preservation of the Bush era rates.  Obama should let the whole thing expire but should champion a larger middle class tax cut at the same time.  Let the Republicans oppose it if that's what they're going to do.  But be very simple about it.  Propose an additional 5% or 10% cut for every individual who makes less than $150K while rate over that revert to Clinton era levels. It would be very popular.

     


    " Obama should let the whole thing expire but should champion a larger middle class tax cut at the same time."    Exactly, Destor.  Have the fight!  With these numbers ahead of time to convince the public, and a promise to fight for more at the first of the year, they could pull it off, I swear.  And if they hammered these numbers into the heads of the public, they could have a winning issue, AND help people. 

    Earlier polls had shown that a majority of Americans didn't even though they'd gotten the cuts.  HUH?  I understand that the Simpson and Bowles also recommended doing away with the earned income credit, mortgage interest deductions, and more invisible taxes.  I like your plan.  A week or three of ads by some policy groups would be invaluable.  Republicans are advertising like mad against debt and deficits, a la the 'hugh jidette' (funny...) ads.  Where are the progressives???


    I agree with your 'Huh'? regarding people being unaware of the cuts.  Seems like that big unexpected check in the mail would have prompted people to seek answers.

    Good writeup.


    Think it was money not deducted from payroll wages; those of us who are self-employed never saw it, though, and it may have been small enough per check that folks didn't grasp the increase in take-home pay.  Dunno for sure.  The checks were stimulus.


    I get that would be difficult for self-employed but the majority aren't self-employed.  Surely they noticed more money coming to them in paycheck and elsewhere.  But maybe not.  A person's personal narrative seems to take precedence over inconvenient facts.


    Wish I could remember where I read the poll, Emerson.  Without a citation, I'm just barking soundlessly here.  I'll try to remember; it may even have been that I heard it, and that's easier to forget for me.  Sorry.


    Hey at least your barking.  Much better than silently seething.  Seriously though, I will look for the source as well.  At work we get a daily summary of news, polls, general crap, etc.  I can well imagine you are right in your remembering.  All the polls I have read back you up.  I get frustrated because it seems as though people are willing to follow along with a general wave of discontent as opposed to asking questions and looking at the facts.


    Woof!  Woof!  "Never let the facts get in the way of a good opinion or conviction."  (We can also remind people that the tax breaks, even though most of them went to the wealthy and corporations, did...er...dick.)  The wealthy and the businesses sat on them, didn't spend, didn't create jobs, the middle class didn't spend, they paid down a bit of debt...)  I seem to remember that saving went up a tick or two, but it had been in free-fall for so long....


    haha. That's good!  Yep, I put that big check in savings.  Felt a bit guilty but hell, I don't want to buy anything.


    It wasn't really a lot of money.  I bet a lot of it just got gobbled up by cost of living increases that aren't measured as part of inflation.  This summer my utility bill, cable bill, public transporation bills and local taxes all went up by way more than I got from Obama.


    It is nice to see someone with credibility say this. I have commented here three times recently that I thought Democrats should be willing or even advocating letting all the Bush tax cuts expire. I gave some reasons why. I did not get a single response, either yay or nay.


    I think the Dems have gotten too used to giving in, and worry that this will weaken them politically, which has sadly been what drives most policy lately.  DeeCee pundits say rotely, "He has to extend them; no choice."  Well of course there is a choice, and many see it as an enormous issue.  I can almost see Pelosi taking it on, and encouraging Dems to even pass some middle-cut tax relief by reconciliation in January, though I don't know if that could get out of committee or how it would work, but they could sure as hell TRY. 


    Yes, but my point was made regarding the middle class being willing to listen to their own arguments about why the rich need to, as opposed to should,  pay more taxes and apply those arguments to themselves. If the money from the rich is vital, and we believe it is, then shouldn't money from the middle class be very important also. And, letting the middle class tax cuts expire would only affect those still making middle class wages.
     This is what James Kwak says:

    "The question is: Is it better to extend the tax cuts for everyone or for no one? The answer is to extend them for no one."

    Does anyone here who is in the middle class believe that the deficit is a genuine problem that they would agree to help solve by paying the old rate while a more fair tax was levied on the rich? So far, no one has said so that I have seen. 


    What a great, direct question.

    On one hand, I don't believe that the deficit is a genuine problem that needs solving right away.  I think this is the wrong time to even be discussing it.  So in that sense, my middle class answer is no.

    However, I might be wrong.  Maybe it's a more pressing mattter than I think it is.  If I'm wrong on the first part of my question then yes, I am willing to go back to my pre-Bush tax rate provided that those with higher incomes pay a lot more.


    I'm at the lower edges of the middle class now, but I would let the cuts expire.  I would totally support an enormous jobs bill, if it weren't targeted the crap way the last one was, and actually employed millions.  The debt to gdp ratio is high, but others have pointed out that Japan and other nations have leveraged at far higher ratios to cure economic woes like this recession/depression, and done fine.  Depends what government spends the money on.

    If it's for billions more for mega-bases and mega-embassies, I don't support the debt.  We're not being asked about those enormous piles of treasuries sold to finance the wars, are we?  But the Drudge Retort puts the issue of tax cuts for the upper brackets this way:

    "Extending the 2001 and 2003 federal income tax cuts would sharply increase the national debt, even if the extensions were limited to individuals earning below $200,000, according to a new report by the Pew Economic Policy Group.

    The current debt-to-gross-domestic-product ratio in the United States is 57 percent, compared to an average of 37 percent over the last 50 years. Making the tax cuts permanent for all taxpayers would cost $3.1 trillion, including interest on the national debt, over 10 years, and cause the national debt-to-GDP ratio to rise to 82 percent."

     

     

     


    As you say, it depends largely on how they spend the money.  If they just raise our taxes to distribute payments to bondholders then count me out.  But that's really what they want to do.  They're certainly not talking about offering better or more generous or even better thought out government services.


    Proper use of tax money should always be the question regardless of who carries the load. If we were to get those paying over a million to pay every bit of the tax we should still try to spend the money wisely.
     The Republicans have succeeded in making too many people feel that taxation is illegitimate in principle and so any tax cut for them is always good. They also get a lot of play out of Norquist's idea of starving the government, but as long as they have a nickel coming in they will happily spend a dime of it on our war machine.

    "If it's for billions more for mega-bases and mega-embassies, I don't support the debt.  We're not being asked about those enormous piles of treasuries sold to finance the wars, are we?"

    I agree completely. I believe that radically reducing our military is the thing to do. If we continue to try to rule the world we will lose.


    There are people who believe that as we go further into debt, military adventures will be neccessarily restricted.  I have my doubts, though I wish it were so.  Unless there is some major movement in America to truly examine the advisability of our global hegemony, I think the MICC will always find ways to fund it.  Look to the present as indicators of the future.  I am so glad that your experiences in war, Lulu, have made you so very suspicious of the uses of the military.


    Unfortunately it appears the President has lost his mojo (if he ever had any) and Pelosi is one of the few who want to end the taxcuts for the wealthy and she is not likely to prevail with no support from Obama.

    One wonders how the GOP 'Base' has been sold the premise that a $700 billion bail out of Wall Street was bad, but a $700 billion dollar tax cut for Wall Street is great and necessary.


    You start to wonder what people believe v. what they purport to believe, don't you?  Not to much mojo evident during Obama's recent trip; it's like the world sees him weakened, sadly.  Man, I wish the man could have some nocturnal visions of what to do and fight for!  We'd help him! 


    A quick google found that many didn't know they gotten the Obama tax cut...so...

    http://www.cbsnews.com/8301-503544_162-6201911-503544.html

     


    That tax cut not being known came up on the Diane Rhem show this AM on her political hour, they said the GOP had a lock on messages, while Obama was too tied up with policy, neglecting to get out his message.


    Isn't it the white house who is supposed to control the news cycles? Instead it is Fox and Limbaugh, with everyone else trying to keep up. Giving a tax cut and not getting credit for it makes W look like a bloody genius for simply putting checks in the mail.


    Thanks for posting this Stardust, and for cross-posting it at firedoglake.com. Here's a ditty I posted at TPM back in August that touches on the topic. Check out the link to the NPR interview with David Stockman, who recommends letting all the cuts expire.

    http://tpmcafe.talkingpointsmemo.com/talk/blogs/w/a/watt_childress/2010/08/reaganomics--vs--bush-tax-cuts.php


    Good post, Watt.  And Stockman is still saying it, apparently.  Cripes, I think I even read Greenspan is saying it!  Innocent

    Yep; here it is:   http://capitalgainsandgames.com/blog/pete-davis/1857/alan-greenspan-opposes-extending-all-bush-tax-cuts

    Not that I think he cares a fig if the Dems pass a Middle-class tax cut afterward, but...


    Mr. Kwak states "tax cuts to expire on December 31, so they could pretend they were smaller than they actually were"  Why?  What does this mean?


    This sentence (above) is incorrect:

    • Families in the median income quintile ($36,000-57,700) would pay about about $880 more in taxes; Families in the 80th to 99th percentile would pay an additional $6094, and those in the fifth quintile (uber-wealthy) would pay about $339,473 more. 

    Here's the correction:

    • By contrast, tax units from the 80th to 99.9th percentile will gain $6,094 each, and the top 0.1 percent–those with over $2 million in annual income–will gain $339,473 each.

    The distinction between the 99th and 99.9th percentile is major, and the difference between fifth quintile and top 0.1% is also major!   Also, it might be better to refer to the "middle quintile."

     

    Having said all that, as one who is strongly in favor of progressive taxation, I think we ought to be more selective about what we tax and what we don't.  The income tax is a blunt tool, and falls equally heavily on both enterprise and speculation.   We'd be better off if we used a more precise tool (which of course is why the powers-that-be like the income tax well enough, thank you).

    There is a 2008 study by the OECD comparing income taxes, consumption taxes and property taxes.  I commend it to your attention.  See http://lvtfan.typepad.com/lvtfans_blog/2010/11/do-tax-structures-affect-aggregate-economic-growth-empirical-evidence-from-a-panel-of-oecd-countries-do-tax-structures-aff.html.  We'd be better off with alternatives to the income tax.  Too blunt.  (You might explore that blog -- http://lvtfan.typepad.com/  -- for a fleshing out of what I think is the superior alternative.

     


    Sorry for the error, LTV, and for the correction.  I did read a bit at your site, and need to say that much of it is hard for me to grasp.  I think there is need for tax reform, but likely no political will for it, though that coud change, especially if Republicans were to take control of Congress and the Presidency.  I watched the tag end of a panel recently with Simon Johnson and two others discussing it; not knowing some of the concepts made it some of it hard for me to follow, but clearly there wasn't a lot of agreement for what the changes should be.

    In the piece you linked to, some of what you maintained about taxes being linked to land, not structures on the land, is counter-intuitive to me.  Also, that corporations being taxed at lower rates driving up revenue might be factually so, but you only discuss things in terms of efficiency, and not fairness, which, rightly or wrongly, would be a key weight in new policy.  Anyway, I canb't discuss it very rationally, as I don't even know many of the terms you used.

    But I'm glad you posted your links for others to read who may know quite a bit more than I.


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