- Image by Getty Images via @daylife
We are, of course, living under a massive deficit. While I am no economist, the only way to reduce a deficit is to increase income or decrease spending (or both). One obvious way to increase revenue is to allow the Bush era tax cuts to expire. However, the Republicans are generally opposed to this option. The Democrats are also opposed to it-at least for 98% of Americans.
The main argument for keeping all the cuts in place is best put by John Boehner: “I think that extending all of the current tax rates, and making them permanent, will reduce the uncertainty in America, and help small businesses to create jobs again …”
Boehner wisely focuses on the uncertainty factor. To argue that the tax cuts alone will create new jobs would be problematic. After all, the tax cuts are already in place and they are, obviously enough, not creating new jobs. As such, the argument is not that the extending the tax cuts will create jobs. Rather it is that making them permanent will create jobs because small businesses will stop worrying about future taxes and start spending to create jobs now.
This assumes that it is not just taxes that impede job creation but also the fear that taxes might increase at some point.
While it is not uncommon to assume that low tax rates cause an increase in hiring, wealthy business owners seem to be less concerned about taxes than consumer demand and jobs. If this is correct, then making the tax cuts permanent would not create new jobs. Rather, if new jobs start being created and the economy revives, then the wealthy will start spending.
There is also the obvious matter that the tax cuts have been in place for quite some time and they did not seem to have helped with the economy. If they were effective in creating new jobs, then those new jobs should have been appearing steadily. However, as noted above, maybe businesses have been reluctant to hire because they have been afraid for the past two years that the tax cuts might expire.
Given that business do face various risks, it seems odd that they would be willing to gamble on various factors that can shift rapidly and unexpectedly (such as market demand, availability of raw materials, the cost of energy), but that they would be paralyzed in the face of the possibility that the tax cuts might be removed. But, I will admit that this is not impossible-just unlikely.
It can, of course, be argued that the tax cuts do have some benefits. 37% of consumer spending is done by the wealthiest 5% of Americans and, as such, they keep a big chunk of the economy going. If they had less money to spend, they would probably spend less money. However, it seems unlikely that continuing the tax cuts will spur them to create new jobs. Rather, to honestly sell extending the tax cuts, the argument should be this: “if we keep the cuts in place, the wealthy will probably keep spending about the same amount of money and thus help shore up the economy until someone actually starts creating jobs.” However, that does not sound as good as the claiming that jobs will be created.
Of course, the fact that 5% of Americans do 37% of the consumer spending seems to indicate a rather serious economic disparity. Perhaps this disparity is justified-all that high income is earned and everyone has a just and fair opportunity to become exceptionally wealthy. It is just that most 95% of people simply fail to do so and 5% succeed. However, it might be argued that the economy would be better off if the 95% of people had more to spend and that this might create more jobs than having the extremely wealthy driving the economy.
As a final point, since Boehner focuses on small businesses, it might be wondered how many small businesses fall into the 2% of wealthiest Americans (the Democrats want to keep the cuts for 98% of Americans, the Republicans for 100%) and it might also be wondered how effective small businesses actually are at creating jobs.
As I have said before, I am not thrilled to pay taxes. Selfishly, I am looking forward to having more money because of the tax breaks. However, I am concerned about the ultimate price of these cuts for the country and for future generations. While I do have selfish tendencies, I do care about others and those to come. As such, I am willing to sacrifice some of my good for the good of others.
Income is not the same as wealth. An MD can have studied for decades, borrowed heavily, and just when he is starting to get his head above water he is declared “exceptionally wealthy” and according to the Dems deserves to be taxed to oblivion.
Student loan payments should be deductible.
That makes more sense than making mortgage interest deductible.
MDs mostly get nailed with the huge cost of malpractice insurance (which needs to be reformed). A 4% increase in income tax would not be a path to oblivion.
While it is not uncommon to assume that high tax rates cause a decrease in hiring, wealthy business owners seem to be more concerned about the significant financial risk that comes with adding payroll when costs such as taxes are uncertain, than with consumer demand. If this is correct, then making the tax cuts permanent would provide greater incentive for hiring more staff. If new jobs start being created and the economy revives, then the wealthy will start spending even more, and thus create even more jobs and more demand. The resulting increase in GDP would then result in greater revenue for the US Government. Combine that with a serious effort by both parties to cut spending and we could shrink the deficit from both ends.
Hmm…I may be getting good at this.
“the significant financial risk that comes with adding payroll when costs such as taxes are uncertain”
Does the uncertainty only work in one direction? If the uncertainty is removed instead by permanently “returning” tax rates to “pre tax-cut levels”, would not business owners be able to make adjustments accordingly, cutting staff where necessary, possibly increasing efficiency, and allowing the dismissed workers to face reality and re-train for other employment –rather than facing the uncertainty (tinged with more than a smattering of hope) of whether or not their old jobs will return. Is it better to be thrown under the near-permanent unemployment bus or the re-training bus?
I should be a bit skeptical as to whether the wealthy owners who get the immediate benefit of permanent tax cuts will spend the new income expanding their businesses. I should wonder whether they’ll expand their personal garages, bank accounts and waist lines instead. I should be just as skeptical of all that as some are that people receiving unemployment benefits lack any real motivation to get off their lazy asses and look for jobs. . .
http://www.politicspa.com/onorato-corbetts-comment-on-unemployed-workers-insulting/13294/
Are working people “worthless” cretins who will avoid work whenever the opportunity arises? Are the wealthy,by definition, “worth more”? Are any and all actions they undertake productive? Perhaps the answer(s) to our current unemployment strife is more complicated than some of the underlying generalizations would tempt us to believe.
Most of the people making $250K and above are hard driving overachievers like MDs, small business people, etc. These super productive people are the ones we need to pull us out of recession. I don’t think they would mind paying a few more percent in taxes, but they really don’t like being demonized by the Dems and called “fat cats” and compared to hedge fund managers.
The class warfare being carried out by the Dems is part of the reason the economy is not recovering.
“I don’t think they would mind paying a few more percent in taxes, but they really don’t like being demonized by the Dems and called “fat cats” and compared to hedge fund managers.” I agree. The vast majority of the wealthy in this country are not the dumb Wall Street fat cats described by Lewis in “The Big Short” (great book, Economist recommended)
But admit it. Those who wouldn’t mind paying more don’t speak out about the subject that much: Only Buffett, Gates and a relative handful of others. . . have been literally trying to shame the wealthiest to support a higher marginal rate.
When the “less wealthy?” people at the other side of the provably ever-widening wealth gap see the gap growing they also hear and see few words or actions from the “other side” indicating that they wouldn’t “mind paying a few more percent in taxes”.
Instead, they hear the wealthy in a snit over being called “fat cats”.
“But admit it. Those who wouldn’t mind paying more don’t speak out about the subject that much: Only Buffett, Gates and a relative handful of others. . . have been literally trying to shame the wealthiest to support a higher marginal rate.” Nobody is stopping them. The IRS allows anyone to pay more than their fair share. Why talk about it? Just do it.
I’m not so familiar with IRS regs. that I can say for certain that someone can voluntarily pay more taxes than the government requires. Is the machinery in place to deal with that? As for what I know for certain, if you offer a “gift” to the gov’t (in excess of what the gov’t requires in taxes) the gov’t will accept it and use it as they wish.
Thanks to the “shaming” by Gates et al, some billionaires (17! at last count of 400+) have chosen to give huge amounts of money to important causes. How much more shaming is needed?
These 17 men haven’t spoken to the issue of why they aren’t pledging the money directly to the gov’t, but the 1st eight years of this century might have led them to believe the billions they have to offer for humanitarian purposes in this country may. if given to the gov’t”. accidentally” end up paying for a war of choice . Or bipartisan pork.
That doesn’t mean that gov’t pork and other unnecessary spending can’t be cut if both sides cut the crap and actually do it. And it doesn’t mean that a higher marginal rate for those making over a million wouldn’t go a long way, combined with severe budget restraint, towards reducing the deficit more quickly.
I think you can send them more money, but maybe not-there are often odd laws about things. Of course, it is easy for most to pay more taxes: just don’t take the various deductions, etc.
Good point. Read anything recently concerning Buffett or Gates or the rest of the gang of 17 declaring their charitable giving on their tax forms?
There is a line for paying extra in your tax form at tax time. It is very easy.
So instead of talking about it, just identify the form and line#. . .so those of us who want to do the right thing can do so 🙂
There are so many different forms but I will tell you the line on mine when I do them.
Don’t you keep your copy of last year’s form? At least tell us which form or schedule. . .Don’t leave us hanging until you do your 1040 EZ (which I’ll just bet is April 14 🙂 you rascal you.
You are a smart guy. You can find the section where you can voluntarily give more of your dough. You shouldn’t have to wait for me to tell you where. I’m sure you’ll give extra on principle. 😉
You’re right on one thing. I’m smart enough not to accept a blatant statement without verification. That would be foolish. I could assume you’re smart enough not to make a statement without being able to back it up, but that would be foolish.
http://fms.treas.gov/news/factsheets/gifts.html
Gifts to the United States
Citizens who wish to make a general donation to the U.S. government may send contributions to a specific account called “Gifts to the United States.” This account was established in 1843 to accept gifts, such as bequests, from individuals wishing to express their patriotism to the United States. Money deposited into this account is for general use by the federal government and can be available for budget needs. These contributions are considered an unconditional gift to the government. Financial gifts can be made by check or money order payable to the United States Treasury and mailed to:
Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 6D37
Hyattsville, MD 20782
Any tax-related questions regarding these contributions should be directed to the Internal Revenue Service at (800) 829-1040.
TJ. Thanks, heaps. But you know the issue immediately at hand here, and raised by kernunos himself, is whether , as he says, “There is a line for paying extra in your tax form at tax time. It is very easy.” Dec 13, 1:06 pm
I’ve known about the url that you provide here. I allude to it in my 12/11–11:13pm . Finding it’s Google easy. Like finding old sayings and famous lines from movies.
We’re just waiting patiently here until k spits out his evidence to back his claim. It seems like a minor thing, but, seriously, I like to know that the claims I’m reading, howsoever minor, are truth and not fiction.
Has anyone here ever been hired for a job by a poor person?
The hating of the rich is pure political theater; it’s a show who’s actors are primarily intellectual and cultural elites (read: professors and Hollywood actors) and it looks so self-effacing. It’s really just stupid. I’d like to see Atlas Shrugged actually happen. every single competent, driven person just refuse to work. Watch the world cave in and all the people standing around refusing to even try (that’s all I ask: TRY) start yelling “Where’s the GUBMENT!!!!!”.
From what I’ve seen, almost all poor peopl elove rich people; it’s the only place they can get money from besides the government which gets almost all it’s money form “rich” taxpers. Top 1% pay 90% of taxes.
But what do we expect to happen when our elites are TRYING to punish success? Have the rich stolen their money? Did they break into a poor dude’s house, steal his Sony TV, sell it, and become rich?
“While it is not uncommon to assume that low tax rates cause an increase in hiring, wealthy business owners seem to be less concerned about taxes than consumer demand and jobs.” The article you cite is not focusing on ‘wealthy’ business ownes. It(the article) focuses on ‘wealthy’ households in the top 10%. The top 10% of wage earners pay 70% of the taxes.
http://www.allegromedia.com/sugi/taxes/
The lowest 45% of wage earners pay nothing in income taxes. I gaurantee you are in the top 10% good doctor.
http://wiki.answers.com/Q/What_salary_would_you_need_to_earn_to_be_in_top_10_of_wage_earners_in_the_United_States
Are you wealthy? Do you pay extra on your taxes voluntarily?
“As a final point, since Boehner focuses on small businesses, it might be wondered how many small businesses fall into the 2% of wealthiest Americans (the Democrats want to keep the cuts for 98% of Americans, the Republicans for 100%) and it might also be wondered how effective small businesses actually are at creating jobs.” How about 52% of US private labor?
http://www.dol.gov/odep/pubs/ek00/small.htm
It is also estimated that half of these small businesses roll their business taxes into their personal as with an LLC for example. This means that increases in taxes would surely cause problems.
Man I just can’t wait until these Dem knuckle-heads are gone. Punish people who did it right; frigging brilliant.
Well, the Republicans will no doubt do some knuckleheaded things. Then the Democrats will be back for their turn.
I don’t care what label they have. They need to stop punishing success. Dems are still dumber though.
I was reading about a professor who took points from the students who did well and redistributed them to the poorly-scoring students. There was practically a riot.
Mike, have you ever tried anything like this?
Wow, that’s crazy.
I had a logic professor last semester who intentionally paired the best students with the worst students for all of the group projects…I disliked it at first because of the imbalance, but some of these D and F students really seemed to benefit from the individual attention their peers had to give them. I actually felt proud for this one girl who showed me the B she got on her test after the group project…
It wasn’t a group test, was it? 🙂
That could be an interesting method. I abandoned the idea of group projects about a decade ago. The problem was that groups would get stuck with slackers who would either drag the grades down for the whole or require the others to carry them. It seemed unfair to have someone’s grade rest in the hands of others, so I stopped that.
They were all in-class group projects resembling quizzes and the like. His idea was that his personal manner of lecture and demonstration, though aimed at helping the most people, would inevitably not work well for everyone…by having the students who understood the material try to teach it to the students who didn’t, he felt he was giving the latter the best chance possible to discover a way of thinking about logic that worked for them.
I remember on the first day of class he said that there were no smart or dumb students in his classes, just students who needed extra help and students who had extra help to give.
“That could be an interesting method.”
I hope you got the irony of TJs example Mike.
No. Each student starts out with the same chance of doing well as any other. True, some students have better abilities or a better base education than others, but I design the classes so that all that a college student could reasonable need is provided in the class (I go over how to write, how to argue, and so on in the classes with papers in them). Social class, ancestry, social connections, political connections, wealth and so on matter not to me. Only what the student puts down on paper matters.
Now, if the grade worked like wealth, then I would consider some changes. To use an example, if a student could inherit a grade from a smart relative or could bring in grade points because of social or political connections, then I would have to make adjustments so that less connected students and students who did not chose their parents wisely would have a fair chance at success in the class.
Why not “spread the points around” to reduce inequality?
Or maybe only the smartest kids should have points taken from them. Serves them right for upstaging the others.
Well, people have a fair chance to earn their grades. True, students do have some advantages they gain from their background, but these can be overcome with effort. Students cannot cash in on family or political connections, etc. to get better grades in the class.
Some people inherit their wealth, and some cheat on exams. The vast majority do not inherit much wealth or cheat on their exams.
Most MDs, for example, will earn more than $250K/yr. It really does not seem fair to lump them in with the hedge fund managers like the Dems have been doing.
Not to say that there’s anything wrong with being a hedge fund manager. Most people who hate them have no idea what it is that they do.
I am trying to feel sympathy for the folks who make more than $250K a year and feel the terror they must have felt about the possibility that they would be losing their modest tax cuts. I just can’t do it, though.
Yeah, wait until those people making 250K start questioning the real value of their daughters’ classes in 16th Century French Literature, etc. And I think you know what I mean when I say “etc.”…
I can only assume you mean engineering.
Mike,
You’ve really fallen for this inherited wealth bullshit. Did Bill Gates inherit his wealth? Did Henry Ford? He was born on a farm. Did all the successful authors? Stephen King grew up poor. Lots of authors did that are now rich. So all the wealth in America was made by inheritance? Yeah, there’s some that inherit riches, and some whos rich parents don’t give them a dime. Most actors didn’t have rich parents, same with pro-athletes.
You’re thinking is exactly why I can stand liberalism. I think it’s all based on entitlement and jelousy; the worst traits a man can have. Actually, I’m pretty sure those are the two traits Cain had when he smashed his brother in the head with a rock.
Very interesting interview with Deirdre McCloskey. She argues what enabled the industrial revolution was a sociological change that made it OK to be rich.
http://www.nationalreview.com/articles/print/253676
And, according to Deirdre McCloskey, all explanations so far have failed. Those failures, in turn, indicate the failings of modern economics. Her magnum opus, an explanation of the birth and flourishing of the bourgeoisie and its subsequent transformation of the modern world, will occupy at least six volumes. This month, Chicago University Press releases the second installment: Bourgeois Dignity: Why Economics Can’t Explain the Modern World.
*********************************
What changed was the sociology. That is, what changed was the attitude of the rest of the society toward businesspeople, and with that new attitude came a change in government policy. It was suddenly all right — most clearly in the most bourgeois country on earth, the U.S.A. — to get rich and to innovate.
Awesome.
Imagine–treating teachers like professionals and giving them more autonomy produces a better result… Simply shocking…
http://www.economist.com/node/17572635
At the very top of the global educational league table—where only a handful of countries or systems within them manage to attain really high standards—decentralisation is the name of the game. The authorities hand control over to teachers, most of whom are highly educated and motivated, so they can learn from each other and follow the best practices. When it comes to getting the very best grades, it seems that teacher still knows best.