The GOP’s absurd ultimatum
Congressional Republicans warn that if the federal government doesn’t make deep spending cuts soon, international investors will start to worry that the U.S. can’t pay its bills. Therefore…unless the Democrats agree to more spending cuts, the Republicans say they will vote against raising the debt ceiling, which would insure that the government couldn’t pay about a third of its bills. This makes no sense at all. Either we shouldn’t be worried about reassuring the bond market (and there are good reasons to think we should be less worried), or we should do everything necessary to make sure the federal government doesn’t go into default. If the mere fear of X has serious repercussions, then X itself is likely to have repercussions at least as serious. The Republicans’ willingness to use the debt ceiling as a hostage in budget negotiations proves a lack of seriousness or sincerity. It’s like threatening to shoot a sick person unless a doctor agrees to see him.
These rats want the Captain to go down so badly that they are willing to take the ship down with him. But they had better watch it or they may drown themselves in 2012.
Add to the absurdity the refusal to consider changes in tax revenues.
Let ‘em. Good politicians would exploit the GOP and paint them into a corner.
“The Republicans’ willingness to use the debt ceiling as a hostage in budget negotiations proves a lack of seriousness or sincerity. It’s like threatening to shoot a sick person unless a doctor agrees to see him.”
Ergo:
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”
~Sen. Barack Obama on the floor of the US Senate, March 20, 2006.
“Add to the absurdity the refusal to consider changes in tax revenues.”
Demonstrably false; the Ryan Roadmap, and various other conservative proposals, contain revenue-increasing measures. Republicans object to the argument that the only way to raise tax revenue is to increase marginal rates.
Yes, Jeff, Obama was wrong — and has said so. In his defense, he knew the debt ceiling would be raised whether or not he voted to raise it. And so he chose to make a statement, one which failed Kant’s categorical imperative but did not immediately threaten to damage the nation’s economy.
Nick Clifford’s comment may be technically false but is substantially true. The Ryan plan not only refuses to raise taxes on income; it explicity promises to cut taxes for the top income brackets. It then promises to offset this with largely unspecified changes to the tax code that would get rid of loopholes and increase the tax base. In other words, well-defined cuts on the one side, and vague commitments (based partly on supply-side superstition) to compensate for these on the other. If you don’t believe me, see what the Congressional Budget Office thinks the Ryan plan would do to revenue.
Matt Miller has a good response to this:
http://www.washingtonpost.com/opinions/boehner-takes-budget-hypocrisy-to-a-new-low/2011/05/11/AFBgW6pG_story.html
“Nick Clifford’s comment may be technically false but is substantially true. The Ryan plan not only refuses to raise taxes on income; it explicity promises to cut taxes for the top income brackets. It then promises to offset this with largely unspecified changes to the tax code that would get rid of loopholes and increase the tax base. In other words, well-defined cuts on the one side, and vague commitments (based partly on supply-side superstition) to compensate for these on the other. ”
I suggest you take another look at his Roadmap (not budget), and perhaps branch out to look at some more sympathetic analysis of his budget reform proposals.
My point re: Obama was to highlight the political gamesmanship; I bet you couldn’t find ONE commentator calling Obama’s sincerity into question when he made his comments. Moreover, the public is solidly on the GOP side in this debate; the latest polling shows only something like 30% of people support raising the debt ceiling untethered from any meaningful budget reforms. That the President can go from seeing raising the debt ceiling as a “leadership failure” to being of such categorical importance doesn’t help.
Jeff,
I suspect if you put the question to voters directly — Should the Republicans vote against raising the debt ceiling if the president doesn’t agree to their demand for more cuts? — the number would be somewhat different. But that’s really beside the point: if most American think it might be OK not to raise the debt ceiling, that’s either because most Americans don’t understand that this would force the government into immediate default or because they don’t understand what default could mean here and abroad. Not the end of the world, certainly, but more trouble for an already troubled economy. More unemployment, more uncertainty, and a lot of anger.
But you seem to be playing both sides of the street. You insist that Obama was once guilty of the same mistake and then claim that it’s not a mistake after all — couldn’t be, since you’ve got a poll showing the American people support it. Again, there was never any danger of Senator Obama preventing the government from raising the debt ceiling, whereas if the whole House Republican majority votes against raising the debt ceiling, it won’t be raised.
Jeff —
Have you looked at this morning’s paper? Now I know where you get your crazy GOP economics from. The Republican chairman of the Louisiana House Ways and Means Committeee has introduced a bill that would abolish all Louisiana personal and corporate income taxes. Your eyes do not deceive you. ALL of them should go according to our distinguished COP confreres.
How’s your house doing in the flooding?
Matthew–
I don’t think you give the bond market enough credit. These investors understand the difference between being fiscally unable to meet current expenses, and not raising the debt limit as a means of forcing spenders to deal with the problem. I don’t know this for a fact, but I imagine those investors would mostly applaud the Republican efforts, since they show a concern for long-term fiscal sanity.
You said Ryan’s plan would cut taxes, but I think you meant to say cut tax rates. The CBO analysis assumes that if you lower the price of something, people won’t buy any more of it, and if you raise the price of something, people won’t by any less of it. Now THAT’S absurd.
I don’t know this for a fact, Mark, but if the government fails to raise its debt ceiling and stops paying interest to its bondholders, I don’t think the bondmarket will respond favorably, despite the fact that bond sharks are generally in favor of the Republican austerity program. And if the government stops sending out social-security checks, I don’t think the domestic economy or the electorate will respond favorably, no matter what polls say about public support for more spending cuts.
The CBO analysis does not assume “that if you lower the price of something, peoople won’t buy any more of it”; it assumes only what recent history has demonstrated: that lower taxes don’t always lead to more growth and higher revenue, and that higher taxes don’t always lead to less growth and lower revenue.
Recent history has demonstrated? Did President Obama lower income tax rates?
Perhaps fundamental laws of economics recently ceased to hold. Hope the law of gravity still holds.
Oh good. Another purely political post. And reliably partisan too.
Millionaire income is mostly capital gains at 15% ;AND The ideologues want it to go to zero.. Truck driver income has a max of 35%…
These right wing ideologues never mention that the big banks can go to the Federal Reserve discount window and borrow money at 0.75% and lend it out at 5-6-7% to only the most ‘trustworthy’ borrowers. Even stupid me could make money that way. [AT&T pays a 6% dividend].. they also don’t mention this Fed money is borrowed too… No… they say …let’s not stop that… let’s cut un-employment insurance. Even Bush# I called the right wing wackos .. voodoo economics. {Hypocrites if name calling is allowed. ]
Without making some big reductions in spending and/or spending commitments – e.g., wrap it up quickly in Afghanistan and Iraq, seriously ramp down military presence in other non hot-spots like Germany and Italy, stop funding Planned Parenthood, and at least seriously trim funding for the so-called federal Department of Education – I do not see why we would consider increasing the amount of debt we allow our government to incur.
Ken ; Why do you leave out taxing the GEs, Exxon et al and the millionaires? .. they create jobs??? Show the jobs to the people in Missouri please..> .. l love how the right quotes the ‘Laws of economics’ They talk about these laws similar to how the bishops talk the ‘laws of canon’. God gave us these laws [canon law by apostolic succession]???. Economic laws infused into the human nature by God given laws of mathematics which only the right wingers have the right to access the calculator???. God help us from these ideologues.
Ken –
Good economic judgment is a matter of not only *what* is done but *when* it is done.
The fed government does have a mountain of debt, but it isn’t being called in now, and won’t be for some years. True, it will be dreadful IF we don’t start lowering it soon. But, contrary to what many Republicans are saying, that problem won’t come to a head for a number of years because the debt won’t be due till then. (The Chinese don’t really *want* us to go bankrupt anyway — it would ruin their American market.)
.
In the meantime, the economy still needs more stimulation because the 2008 meltdown still is lingering. The rational thing for the Fed to do now is to go somewhat more into debt NOW. It can stimulate the economy in two basic ways: 1) by lending money to businesses cheaply, and 2) by governmet spending, such as helping alternative energy start-ups and by paying for work on the roads and bridges — and levees! — that have deteriorated over the last two generations. Lending businesses money and paying for work on the infrastructure would put money into circulation NOW and increase jobs and taxes.
NO, the Fed can’t keep that up forever — the big debts will come due. But iwthout new revenues/taxes, the debt won’t be paid anyway!. Solution: stimulate the economy AND raise taxres on those who can bear it (mainly the very rich). .
NO more absurd than when Senator Barack Obama voted against raising the debt ceiling as a “failure of leadership.” Are all of the subscribers to Commonweal intellectually, dishonest liberals with selective memory?
TJM–Not all.
“These right wing ideologues never mention that the big banks can go to the Federal Reserve discount window and borrow money at 0.75% and lend it out at 5-6-7% to only the most ‘trustworthy’ borrowers. Even stupid me could make money that way. [AT&T pays a 6% dividend].. they also don’t mention this Fed money is borrowed too… No… they say …let’s not stop that… let’s cut un-employment insurance.”
This is what gripes the hell out of me about banks. I HATE banks. What they do is legal, but they have the souls of thieves. The Fed practically GIVES them money, then they make 6oo% or 700% profit on it, and we the people pay for it because we’re the ones who go into debt when the Fed all but give-away money to the @@#$ banks. How can ANYONE with a brain in his head not see that we are being used shamefully? Their profits soar as we go into more debt.
“But you seem to be playing both sides of the street. You insist that Obama was once guilty of the same mistake and then claim that it’s not a mistake after all — couldn’t be, since you’ve got a poll showing the American people support it. Again, there was never any danger of Senator Obama preventing the government from raising the debt ceiling, whereas if the whole House Republican majority votes against raising the debt ceiling, it won’t be raised.”
I fear you’re missing my point. Do you really believe the debt ceiling will not be raised? I don’t. This is typical kabuki theatre; a deal will be struck.
My point is that you hammer the GOP for playing the same cynical political games that others (most notably the apparently-impervious-to-criticism President). Whether Pres. Obama “really” posed a danger to not passing the debt ceiling is really beside the point. The same game has been played, and will continue to be played.
Just to clarify: I fail to see why liberals are objecting to strongly to the the Republicans playing the same game that the now-President apparently saw fit to play a mere 5 years ago. Pres. Obama gets a free pass; but when Republicans attempt to use the situation as leverage for their own position, its suddenly a cynical, “absurb” position!
Jeff,;
Obama voted against raising the debt as a symbolic vote. He did not ask and would not get any concessions. You’re not acknowledging the difference and using your own words is;
“its suddenly a cynical, “absurd” position!’
TJM, welcome to dotCommonweal, where it is customary to read the comments on a thread before you add a new one. That way you don’t end up asking questions that have already been answered.
“Oh good,” Bender writes. “Another purely political post.” On the cover of every issue of Commonweal, right above the word “Commonweal,” is written “A Review of Religion, Politics & Culture” — so you can’t blame us for false advertising. On the blog, as in the magazine, you will find items that are purely about religion, others that are purely about culture, and some that are purely about politics. If that bothers you too much — if you need an admixture of pope-talk or chest-thumping piety in a post about national debt — please go elsewhere. Other websites await you with open arms.
Mark Proska, Obama hasn’t lowered taxes, but he has kept them low by extending the Bush tax cuts. Yet somehow those low rates haven’t managed to produce the growth in GDP the country saw in the mid and late nineties, when taxes were higher. Tax revenue grew so fast at the end of that decade that Republicans, including Paul Ryan, were worried that it was budget surpluses that were hurting the economy. The upper marginal tax rates were higher still in the 60s, when the economy grew much faster than it’s grown under any Republican president since. Now, no one’s claiming that higher taxes by themselves are what produced that higher rate of growth, but they didn’t seem to hinder it much. Even better, the growth in GDP during that period benefited all Americans and not just the very rich — or, as you folks like to call them, “the job creators.”
The “absurd ultimatum” game can be played in several versions. Keith Hennessey, recognizing that many vulnerable Democrats are opposed to lifting the debt limit unless they see solidly based spending cuts, advocates this clever (to my mind) strategy:
————-
“Congress must raise the debt limit. Not doing so would eventually lead to defaulting on Treasury bonds, a potentially catastrophic event. Along with that debt limit, Congress should impose a statutory cap on all non-interest spending.
The president and his allies will demand a clean bill or weaker reforms. Republicans should allow them to try to pass such a bill. They should vote no but not filibuster. When it becomes clear that such a bill lacks even the simple majority needed to pass the House and the Senate, Republicans will have a stronger hand in negotiations.”
http://www.nationalreview.com/articles/265333/ceil-us-nro-symposium?page=3
___________
When it’s obvious that enough Democrats as well as Republicans are against Obama’s myopic budgetary preferences then it is Obama’s position that will be seen as involving an “absurd ultimatum.”
“Moreover, the public is solidly on the GOP side in this debate; the latest polling shows only something like 30% of people support raising the debt ceiling untethered from any meaningful budget reforms.”
Slightly modified: ‘No one ever went broke underestimating the intelligence of the American public.’ H. L. Mencken.
“Congressional Republicans warn that if the federal government doesn’t make deep spending cuts soon, international investors will start to worry that the U.S. can’t pay its bills.”
It’s not this simple, of course. Our Total Public Debt Outstanding is only now approaching 100% of our GDP. But Japan’s Public Debt is 170% of their GDP and I haven’t seen the yen crashing to the ground. Yes, the debt matters. But not in the way the GOP is saying. At least not yet.
The Republicans are trying to pin the old “tax and spend” title on the Democrats and recapture the image of themselves as fiscally responsible that they have not really held since maybe the Carter years. The interesting thing about this to me is that they are searching for a basic theme. Tax cuts for the rich, the elimination of social programs, etc. are not a theme that masses of people can get behind. The radical nationalism they have been promoting in the past decade or so has backfired on them as the radical right wing of their party has more or less split the party to a degree that is starting to scare the “responsible” big money side. They are in desperate need of a theme that will hold the party together, gather the support of the more intelligent Independents, distinguish themselves from themselves and the disaster they have been for so long, and distinguish themselves from the Democrats (who are also very tired, but who still have a more coherent image).
Regarding bonds, don’t forget that the entire bond market is about the selling of debt. No debt, no bonds. The GOP’s real problem regarding the debt is that they can’t convince capital (as a class) that taxes are too high, because they aren’t. And they can’t convince everyone else (not really) that the country’s debt problem comes from Medicare and Social Security. Not with millions of Baby Boomers on the verge of retirement. And their revival of trickle down economics and the Laffer Curve was something that would only have made sense if they still held any semblance of being fiscally responsible in the first place. Right now they give the appearance of trying to milk a dead cow.
I have no fundamental objection to raising taxes on the “very rich” and my admiration for their job creation prowess knows bounds. But I do not believe the debt can be meaningfully reduced solely by taxing the “very rich.” There just aren’t enough of them and the debt is too humongous. And very rich people can easily move to tax havens.
The ineluctable truth is: you can’t reduce deficits by (merely) raising taxes on the rich because there aren’t enough of them; you can’t reduce deficits by raising taxes on the poor because they don’t have enough money. The only way to reduce deficits is for middle-class people to pay more in taxes and receive less in government services. The big debt accumulator is Medicare. Somebody is going to have to suffer more and die sooner.
I think most voters have figured this out, and they will not vote for people who keep promising that the debt can be kept under control by “taxing the very rich.”
” … the entire bond market is about the selling of debt. No debt, no bonds.”
There are good debts and bad debts, right? Going into debt to build roads on which products will be transported to markets is good debt. Going into debt to keep an Alzheimer’s patient on dialysis is, um, sorry, not good debt. Going into debt to provide tuition assistance for more Walmart greeters with bachelor’s degrees in history is questionable debt.
Bravo, Felapton, bravo!
Indeed, raising marginal rates ALONE is not sufficient to generate the added income to cover the “hole”. Megan Mcardle and Clive Crook over the Atlantic (not exactly forthing supply siders) have made this point repeatedly. This exposes the own political game Pres. Obama is playing in how he defines “rich”, but Pres. Obama always plays the game for a higher purpose than those slimy, dirty, greedy GOPers.
The Republicans ran as less-government deficit hawks in 2010 and cleaned up. They will continue to run as less-government deficit hawks until someone, i.e. the voters, make them stop. In addition, the Republicans will continue to play high-stakes poker until the President demonstrates to them that he’s not the fish at the table.
“There are good debts and bad debts, right? Going into debt to build roads on which products will be transported to markets is good debt. Going into debt to keep an Alzheimer’s patient on dialysis is, um, sorry, not good debt. Going into debt to provide tuition assistance for more Walmart greeters with bachelor’s degrees in history is questionable debt.”
As far as the bond market is concerned, no. There are only good debts. Regarding what we go into debt to do, there is no need to reduce or eliminate taxes on capital (since this is what we are really talking about when we talk about “taxing the rich” and I’ll bet you even know it), unless we have reason to believe that this additional capital will be used for capital projects in the United States. Since we have no reason at all to believe this, it will be better for the country as a whole to tax it.
Ann, you might be correct about keeping the cost of business credit down, and the government providing temporary subsidies or venture capitol to so-called “green” start-up businesses (albeit General Electric is definitely part of “Big Green), however I think it is time to serious trim military expenses and the money we spend outside this hemisphere.
We have quite a few military folks stationed around Europe (Germany, England, Italy, even Spain I think) whom I think, for the sake of the cost involved with them being there, we could and should bring home, and we should ramp down in Iraq and Afghanistan asap. We have done our best in the so-called “war on terror” for ten years but the fact of the matter is we simply cannot afford to keep spending so much money on things like that. Likewise, we should greatly reduce any dinero we give the UN.
President Obama took the right tack in Libya, doing just enough to placate the Europeans, and we should take care not to start spending more money there.
Charity begins at home and we live in the Western Hemisphere. We do not and should not rule the world, and other than the special and eternal obligation we have to Japan, we should tend to matters closer to home. Let the Europeans and the Asians do something for once.
A few items come directly to mind:
– We have important economic matters and ties to tend with Canada and Mexico.
– We have important matter of legalizing so many indocumentados; mainly Mexicans
– We should work on helping Mexico resist the narco trafficers
– We should improve trade relations with Latin America, especially with Brazil
– We should cooperate and get the best deal we can in Cuba and with Venezuela
Because we are financially strapped just now, because we have greatly weakened Al Quadra to the point where it is manageable without great military ventures, and because we have a lot of important matters to tend closer to home, we should in my opinion leave the Muslim peoples to chart their own course.
A lot of well-meaning Americans (on the Left and Right) think Arabs and other Muslim folks are too stupid to manage their own affairs, but they are wrong. Muslims are as smart as anyone else and we should leave them alone.
Egypt and the other North African nations will figure out what they want and we should leave them to it.
“unless we have reason to believe that this additional capital will be used for capital projects in the United States. Since we have no reason at all to believe this, it will be better for the country as a whole to tax it.”
How’s this argument worked out with respect to corporate tax rates, which are currently among the highest among industrialized nations (and which is leading Obama to propose lowering the rate)? The highest rates and there is little income to show for it. Obama seems to believe that lowering the corporate rate would induce American investment. At least that’s what Jeff Immelt must be telling him.
Ed – Our government receives plenty of money; just look at all the fat cats and their entourages. The problem is how they spend the money we do give them. They simply fritter a lot of it away.
If the government did not waste so much money on nonsense and if it did not spend so much money on things we either do not need or cannot afford, it would have enough money on-hand for the things we do need and can afford.
The time to levy hefty taxes is not when the economy is weak, but when it is roaring. Like the old Pharaoh in the Bible; when Joseph read his dream about the seven fat cows and seven lean cows. On Joseph’s advice the Pharaoh stored of wheat in the granaries during the seven years of plenty, and distributed it to the Egyptians during the seven years of famine; it worked out fine.
Accordingly, we should (via our state and federal governments) set up rainy-day funds during the good economic times (the years of plenty), upon which we could then draw during bad economic times; during the lean years.
“How’s this argument worked out with respect to corporate tax rates, which are currently among the highest among industrialized nations (and which is leading Obama to propose lowering the rate)? The highest rates and there is little income to show for it. Obama seems to believe that lowering the corporate rate would induce American investment.”
The rate may be high, but the effective rate (what is actually paid) is not. This is why Obama is proposing lowering them. Since corporations are getting around them anyway, we might net more if they are lowered and simplified.
Regarding whether lower taxes will lead to increased investment in the US, I’ve been hearing from the right that the world is now flat. So why in particular should anyone invest in the US? And this is one of the reasons why the Republicans want to continue corporate welfare; they argue that big capital needs incentives to invest in the US. So, if they need additional incentives to invest in the US outside of the profitability of the business they are in, then again, taxing capital (but maybe we should be taxing capitalists too) at least keeps the money in the US.
@U:
For a bond-buyer, any debt that is overwhelmingly likely to be repaid is a good debt. But for the debtor, a debt is only a good debt if it will produce income in the long run.
An example of a really, really, really good debt would be to borrow money to build a road which would be used so frequently that it would increase economic activity so much that the additional revenue would pay off the loan and the interest. Those kinds of debts almost never occur in the real world.
But if the debt will do something useful, increase income for a reasonable number of people who will pay some meaningful amount in taxes and hire a non-negligible number of other people, it’s a good-enough debt in my book.
But the Alzheimer’s patient’s dialysis will provide about one hundreth of one dialysis technician’s job and maybe a thousandth of one dialysis machine maker’s. The Walmart greeter’s history degree will provide about one thirtieth of a job for about four adjunct professors. The Alzheimer’s patient’s lifespan will hardly increase and the greeter will be no better at greeting for knowing history. From a purely financial point of view, those are bad debts to incur.
I agree the bond market will be happy to lend the government money for those things. Because the government can almost always be trusted to pay off debt sooner or later, even at the expense of going into even more debt.
I don’t necessarily think reducing taxes on capital is a good idea. Neither do I think raising taxes on capital is necessarily a good idea. The question is, if we do, what will the government spend the revenue on? Will the benefits of the government’s expenditure of the revenue be more than the benefits of the owners’ investing it instead? To whom will the benefits accrue in each case and to whom should they accrue?
Ken –
I agree about the military spending, and the need to pay a lot more attention to the countries south of us. These things are also related to our — and their — future economic success. It is unlikely the world will solve its energy needs (which are even more critical in Latin and Sought American countries) unless the U.S. with its great technological establishment takes the lead.
Unfortunately, at the moment start-up money for American alternative energy companies is not forthcoming from the private sector — financial times are very iffy and American venture capitalists avoid risks as much as possible. T. Boone Pickens has been trying to kick-start an alternative energy business, but few moneymen have the vision or the economic guts to risk a pile of money on what will undoubtedly include some losers. They’d rather make money on those money-machines, the banks and automatic stuff like that. So the only alternative for the rest of us is to spread the risk and have the government make loans for alternative energy companies. (Those start-ups will also eventually provide new jobs as well as energy.)
It really is pretty simple, but too many conservatives think that government has no business in business. Nonsense, Ours has been helping business in major ways at least since it gave away great chunks of U. S. land to the railroad companies leading West. (The Republicans have also been favoring the materials companies, but the news media don’t seem to understand the imortance of those give-aways. We barely heard about it.)
If you don’t like government in business, just look at the Japanese who, after WWII, built an economic powerhouse from scratch (Japan was positively medieval at the time) with assistance given to business by their government. And history shows that royalty, with its royal treasury, has also helped business. REmember Queen Isabella and King Ferdinand and Christopher Columbus? What a great investment that was for Spain! Not for the Indians, but great for Spain.
So we still have to look at the moral implications of our investments. And that means supporting the Humanities majors who deal in such things. You know, like the above-mentioned history majors working at Walmarts — the ones who know the historic results of what the Spanish did to the native peoples. But American business doesn’t have the sense to look at anything but quantitative data. But that’s about 20 different threads. Sigh,.
Perhaps an extraneous issue: If we stopped paying Pakistan, Egypt, Israel, Afghanistan, etc. to love us maybe we could put a real dent in the deficit. And, of course, if we ratcheted down our military activities that would help. But perhaps that is the part of corporate welfare that needs protection, along with the oil companies, pharmaceuticals, etc.
“I don’t necessarily think reducing taxes on capital is a good idea. Neither do I think raising taxes on capital is necessarily a good idea. The question is, if we do, what will the government spend the revenue on? Will the benefits of the government’s expenditure of the revenue be more than the benefits of the owners’ investing it instead? To whom will the benefits accrue in each case and to whom should they accrue?”
This is a helpful framework for analyzing the tax issue, seems to me.
{“How’s this argument worked out with respect to corporate tax rates, which are currently among the highest among industrialized nations (and which is leading Obama to propose lowering the rate)?”
C’mon, Jeff. You can’t make me believe that you haven’t ever heard of corporate tax loopholes — that you haven’t heard that GE ;PAID NO TAXES AT ALL LAST YEAR. Surely you’re not that naive.
(You been vacationing on the Moon? (Not a bad place to vacation. No floods.)
“I don’t necessarily think reducing taxes on capital is a good idea. Neither do I think raising taxes on capital is necessarily a good idea. The question is, if we do, what will the government spend the revenue on? Will the benefits of the government’s expenditure of the revenue be more than the benefits of the owners’ investing it instead? To whom will the benefits accrue in each case and to whom should they accrue?”
Felapton –
Now you’re getting somewhere.
If the government uses chunks of the new taxes to develop alternative energy then not only the country, but our markets have gained. The cost of oil and gas is killing our economy, not to mention the attendanat pollution. Spending some on the infrastructure == repairing roads, etc. — will provide jobs for the least employable youth in this country. That’s what FDR’s programs did during the depression. You don’t need to have a high school diploma to help build levees.
This kind of thinking requires foresight — our ability and willingness to look more than one play ahead in the checker game. But Americans are notoriously short on foresight. It takes a crisis like this economic one to force us too focus on some very slightly complex ideas/processes. Tthe media doesn’t help us much. It loves, loves, loves sound-bites. Sigh.
“You can’t make me believe that you haven’t ever heard of corporate tax loopholes — that you haven’t heard that GE ;PAID NO TAXES AT ALL LAST YEAR. Surely you’re not that naive.”
Uhhh, I think that’s the point i was making; tax rates are high, no income. Yes there are loopholes, but most corporate income is NOT taxed by the US. And I’m on record as supporting closing tax loopholes FIRST (before we get to tax rates). Sorry, Ann, but you can’t knock me on this one.
Ms. S. –
Your thoughts are far from extraneous — they’re the kind of thinking widely and thinking ahead that American education generally doesn’t prepare us to do. We’re paying for it now.
“Uhhh, I think that’s the point i was making; tax rates are high, no income.”
Jeff –
You’re saying that when rates are high companies don’t pay taxes. I’ve got news for you– companies don’t pay taxes regardless of the tax rates. There is NO correlation between tax rates and tax avoidance. Yes, it’s the loopholes that make the difference.
Remember what Earl Long said about the Louisiana legislature == “People complain about our legislature. But they shouldn’t. It’s the best legislature money can buy.” Same holds for the U.S. legislature, so far as I can see, and that’s why the rich get richer and the poor get poorer.
Doesn’t it bother you that it has turned into an inevitable historical process that the rich Americans get richer and the poor ones get poorer? Is that what this country is about? The dominance of the monied classes? The capitalists regularly take way, way more than their share of the gravy and at an increasing rate..
Matthew–
I’m not sure what you mean by “you folks”, but I’m afraid I remain one of them, whatever they are. In my view, the 60′s economic growth was unleashed by JFK’s drastic reduction in federal tax rates. He was one of the first to appreciate the cost of high tax rates in the supply/demand for economic capital. After stalling with the Nixon/Carter tax hikes in the 1970s, Reagan’s significant tax rate cuts revived the economy, unleashing a torrent of economic growth, which carried through the 1990s. Admittedly, the pace of growth retarded somewhat with the Bush/Clinton tax hikes, eventually leading to a recession at the end of the Clinton term. We came out of that recession with the GW Bush tax cuts in 2000.
The budget surpluses in the 1990s were induced by the “austerity” measures (think, welfare reform) pushed through by the Republican Congress. It’s odd that you now celebrate those surpluses, yet decry the measures Republicans currently are taking to reproduce them. People have such short memories. People have such short memories.
To Felapton:
I should specify that when I talk about taxing capital, I mean both corporate taxes and capital gains taxes.
Of course if we borrow money we want to spend it on the right stuff. But you bring to mind several points.
First, your argument on road building seems to me to be a good one for taxing capital. After all, it isn’t just the taxpayer that uses the infrastructure. And if the infrastructure was paid for through tax revenues, we 1) wouldn’t have to pay interest on it and 2) it would amount to the same job creating capital investment in the United States that reducing taxes on capital will supposedly produce.
Second, before we throw grandma under the train, while it is true that there is a diminishing utility for a lot of old age late stage medical stuff, what you are talking about is euthanasia. But leaving that aside, as a pure expense problem, the problem is that the US will spend more on the same patient than anyone else in any other country will spend. In other words, we have a cost problem, not a utilization problem. Or to put it another way, to let grandma die lowers medical utilization, but I will argue that it will create other kinds of expensive problems when it comes to deciding whose particular grandma gets unplugged from the life support system.
Third, regarding Wal-Mart workers with history BA’s, you might say they are over educated but I might say that they are underutilized. Do we save (make) more money cutting back on education or on promoting job creation? I have to note that the US is falling, falling, falling in the world stats on educational outcomes and educational levels. We are also starting to be out-competed all over the place. I see a correlation. I see some statistic that says that the Chinese (who shortly will have a bigger economy than ours) have something like a million students studying abroad. How many do we have?
“I’m not sure what you mean by “you folks”, but I’m afraid I remain one of them, whatever they are. In my view, the 60’s economic growth was unleashed by JFK’s drastic reduction in federal tax rates. He was one of the first to appreciate the cost of high tax rates in the supply/demand for economic capital. After stalling with the Nixon/Carter tax hikes in the 1970s, Reagan’s significant tax rate cuts revived the economy, unleashing a torrent of economic growth, which carried through the 1990s. Admittedly, the pace of growth retarded somewhat with the Bush/Clinton tax hikes, eventually leading to a recession at the end of the Clinton term. We came out of that recession with the GW Bush tax cuts in 2000.”
What? None of this is true. All of it is revisionist. And you are not including the massive increase of debt that went along with the GOP tax cuts. Regarding GW’s tax cuts, these didn’t pull us out of a recession. They were largely responsible for the much worse recession that came at the end of this term. If tax cuts alone without any offsetting borrowing had raised us out of a recession, then your argument would make sense. But GW cut taxes, borrowed a lot of money because he cut taxes, and now we are on the hook for the borrowed money and the interest. And what did capital do with the taxes they didn’t have to pay? Was there an industrial renaissance in the US that went unreported in the news? Our industrial base declined under GW, and I think everyone knows it.
Unagidon–
I believe you’re confusing debt with revenue. They’re related, but deficits are a function of revenue AND spending. You can’t fault tax cuts for increased spending and resulting deficits.
“I believe you’re confusing debt with revenue. They’re related, but deficits are a function of revenue AND spending. You can’t fault tax cuts for increased spending and resulting deficits.”
Sure I can, because that’s what happened. GW lowered taxes then started a couple of wars. Would we be in as much debt if he had not done the former?
The whole GOP theory of the relationship between taxes and revenue is that reduced taxes equal increased capital spending equals increased revenue equals increased net taxes from a higher net revenue base. This looks like common sense, which is why the theory is still alive despite the fact that it doesn’t work in practice. The reason that it doesn’t work in practice is because capital can go where it wants and can pursue what it wants. There is no necessity for it to stay in the country and there is no reason why it should be invested in anything that produces jobs. People can just as well use it to speculate on real estate in Ireland.
“I see some statistic that says that the Chinese (who shortly will have a bigger economy than ours) have something like a million students studying abroad. How many do we have?”
How many are studying here? I don’t see the connection between competition and number of students we have studying abroad. Our universities remain the most attractive around the world. I’ll agree with on our dismal educational policies, but I’m afraid we’d probably disagree about the causes and solutions needed.
When you make the claim “Was there an industrial renaissance in the US that went unreported in the news? Our industrial base declined under GW, and I think everyone knows it.”
Actually, yes, in certain sectors and certain states (usually in those states that lowered labor costs, i.e. right to work states such as South Carolina, Mississippi, Tennessee, etc. Now you are right other sectors declined, but on the whole, the picture is more complicated. Moreover, to the point you and Ann Olivier seem to be making, I think you would agree that global economic policies as a whole have an effect on industrial jobs, wage stagnation, etc. To lay the blame on tax rates alone seems to me overly simplistic.
“Moreover, to the point you and Ann Olivier seem to be making, I think you would agree that global economic policies as a whole have an effect on industrial jobs, wage stagnation, etc. To lay the blame on tax rates alone seems to me overly simplistic.”
I would agree. It’s just that we are not making the argument that tax decreases will stimulate domestic capital spending. The GOP is. We are saying (or at least I am saying) is that there is no particular reason to think that tax cuts on capital, capital gains, or the rich or whatever will lead to more domestic investment.
How about all the jobs the rightwing economists says the rich create?. Some of these jobs are not so ‘permanent’ e.g. Arnold Schwarzenegger’s ‘love child’ with the household help.
“We are saying (or at least I am saying) is that there is no particular reason to think that tax cuts on capital, capital gains, or the rich or whatever will lead to more domestic investment.”
A valid proposition, no less valid as the opposite position: that increased rates on capital cold lead to less. That’s the rub, isn’t it, and one where policy meets politics.
“A valid proposition, no less valid as the opposite position: that increased rates on capital cold lead to less. That’s the rub, isn’t it, and one where policy meets politics.”
Perhaps more valid, since as a proposition it has been successfully tested. This is why the right likes to cast things in terms of “common sense”, rather than talking about what actually happens.
I am not convinced “alternative energy development” is a good use of public funds. This is not because I have any connection with Big Oil, in fact, I have family and friends in the solar cell business. But all of them tell me that right now it is necessary to burn considerably more fossil fuel to make a solar cell than the cell will ever produce in its lifetime, even under “ideal operating conditions.” Wind turbines are an even more extravagant waste of fossil fuel.
It seems likely that the best solution right now is to wait for basic physics research to develop principles and techniques that will make alternative energy feasible and to burn fossil fuels in the meantime.
I personally am suspicious because it looks to me like all the things the Democrats decided were “good stimulus” turned out to be things that funneled taxpayers’ money to the people who voted for them. “Education” funding to please the professors and the 18-20 age group, “alternative energy” for environmentalists, “shovel ready projects” that just happened to hire a lot of people from predominantly Democratic demographic groups. Is this really stimulus or is it plain old vote-buying?
“What? None of this is true. ”
Can we stipulate that the economy is more complicated than a single-variable response system, such that cutting taxes ALWAYS results in economic growth by a predictable amount, and raising taxes ALWAYS results in economic slumps?
Besides, the last I saw of Progressive talking points, I thought it was Paul Volcker’s monetary policies that saved us from the Carter years :-).
And sure, let’s stipulate that the deficit increased GW Bush presidency, as it did during the Reagan presidency. For purposes of assessing the Obama Administration, it doesn’t matter. What is past is past, and the past is unalterable. President Obama inherited an enormous deficit and a contracting economy. That was his starting point. We’re past that point now. We can, should and will judge him on how he responded to that situation, and how successful his solutions have proven to be.
It seems the conventional wisdom, particularly in the wake of the 2010 spanking of Democrats, is, ‘he started with health care, but he should have started with the economy.’ My own view is that he did start with the economy, just not very well.
At any rate, the President’s RCP approval rating is 51.6%. If he can kill enough terrorists, maybe the economy won’t matter come 2012.
“cutting taxes ALWAYS results in economic growth by a predictable amount, and raising taxes ALWAYS results in economic slumps?”
But isn’t this precisely the point you tried to make?
“Besides, the last I saw of Progressive talking points, I thought it was Paul Volcker’s monetary policies that saved us from the Carter years :-).”
I hope you don’t think I am a progressive. So far it seems to me that we have just be arguing statements of fact, as Mr. Landry points out.
“And sure, let’s stipulate that the deficit increased GW Bush presidency, as it did during the Reagan presidency. For purposes of assessing the Obama Administration, it doesn’t matter. What is past is past, and the past is unalterable. President Obama inherited an enormous deficit and a contracting economy.”
True enough. But the GOP is claiming to be operating from principle, not pragmatism in the case of what they want to cut. It seems to me to be reasonable when people do this to see what their principles have been in action.
I wrote (snipped from a larger comment): “cutting taxes ALWAYS results in economic growth by a predictable amount, and raising taxes ALWAYS results in economic slumps?”
Unagidon replied: “But isn’t this precisely the point you tried to make?”
Who, me? It’s not clear, from the quote you pasted above your comment, how you understood my comment – for which ambiguity I take responsibility. Let me try to say it this way: the effect of tax cuts on the economy isn’t always the same. The recession from which we hope we’re still emerging was one that was comparatively impervious to whatever magic is supposed to be worked by tax cuts – as can be seen by the lack of success of … President Obama’s tax cuts, which were part of his stimulus package. The root cause of the recession – a meltdown in the financial sector – is not something for which tax cuts are the cure.
The condition of the economy is different now than it was during the last presidential campaign – the financial sector seems more stable, at least in the US, and GDP has been growing (weakly) for a number of quarters in a row. The key problem seems to be unemployment. Can tax cuts stimulate employment? Possibly, if they’re targeted correctly. My view is that small businesses and new businesses are the engines of job growth in the US, and tax cuts targeted to those sectors could result in some marginal improvements in hiring and investment.
For the record: I’m not opposed to swizzling the current mix of the tax burden, including raising taxes – marginally – on most brackets. And I would applaud a grand bargain that would result in some higher taxes with some government spending discipline. But I would want it to be a grand bargain with a long time horizon – measured in generations, not years. That’s what it will take to get the deficit tamed.
There’s an opportunity for statesmanship here. President Obama and Speaker Boehner can embrace it, and I believe they’re both capable of it.
What actually happened: In the four years prior to Reagan’s tax cuts, tax revenue increased at an annual rate of minus 3%, i.e., it decreased at 3% per year. In the four years after the tax cuts, tax revenue increased at an annual rate of 3%. That’s a swing of +6%, per year! Investment managers would kill for a bump of that size.
Coincidence? Perhaps, but the same increase occurred when JFK lowered tax rates. Even if it’s luck (which I doubt), I’d rather be lucky than good, and maybe said luck is part of an American acceptionalism–we’ve always accepted people into our country who are willing to work hard and play be the rules, much more so than other countries. Surely a good God would smile on such an idea.
“Perhaps more valid, since as a proposition it has been successfully tested. This is why the right likes to cast things in terms of “common sense”, rather than talking about what actually happens.”
I am by no means a tax expert, let alone an economist (although I do as a result of my legal practice have significant exposure to tax law). Nonetheless, I do try to read a diverse array of economists/policy wonks with more tax understanding than (from a diversity of POVs of view such as Ezra Klein to Reihan Salam). From my understanding, the evidence actually goes both ways, and as usual the truth is somewhere in between. Hence my comment about policy meeting politics, and hence my counter-assertion that Democrats are no more wont to rely on the way things actually are than other politicians.
“There’s an opportunity for statesmanship here. President Obama and Speaker Boehner can embrace it, and I believe they’re both capable of it.”
At the end of the day, I’m with Jim Pauwels – a deal will get done. For all of the attacks launched against Boehner in this space, he’s shown himself incredibly adept at getting a deal done, which I think would be a good outcome. Already the GOP has moved more toward the center with respect to Medicare and I suspect Obama will probably give on taxes somewhat. The outcome won’t be perfect, but we’ll get something.