Streams

Tax Cut Myths and Other Obama-Induced Fantasies

Tuesday, December 07, 2010 - 02:34 PM

Karol Markowicz

After Obama's compromise with the GOP on the extension of the Bush tax cuts for income above $250,000, which he had long opposed, at least there is finally one thing all sides can agree on: President Obama hasn't got a clue. Even those of us who support tax cuts across the board are flabbergasted. What, exactly, does our president believe? We don't know. He's not a socialist, as many on the right have taken to calling him. He's simply what he's always been: an empty suit. He'll say whatever he has to to get elected. He'll do whatever it takes to be liked. He has carried his record of voting "present" into the White House in a way few presidents have done before. He stands for nothing.

Jennifer Rubin at the Washington Post calls the deal a philosophical victory for Republicans, and that's exactly right. With this deal, the president has admitted that tax cuts do stimulate the economy. After trying all the liberal solutions—which include spending, spending, and more spending—the president is turning to the only thing that works to get our country moving again: letting people keep more of the money they earn.

The arguments against extending the tax cuts have ranged from ridiculous to even more ridiculous. Some popular ones:

• "We shouldn't be giving the rich more money."

Giving? It's their money in the first place! It's like your husband "giving" you a sweater for Christmas that he got out of your closet. It's not giving, it's simply not taking. The top 1% already pay over 40% of the total money collected in taxes. The language of tax increases needs to change and the demonization of the wealthy has to end. President Obama has long led the way of this demonization, calling a tax increase on those who make $250,000 a "millionaire's tax" many times over his campaign.

• "We can't afford to pay for these tax cuts."

Tax cuts are free. They're "cuts." They cost nothing. What people actually mean is that we can't afford to pay for the spending we've budgeted for by using tax increases which haven't happened yet. It's the equivalent of a small widget manufacturer hoping to get a deal to sell his product to Walmart and basing his yearly budget on the possibility that Walmart will buy from him. When Walmart decides to go with a different widget producer, is it Walmart's fault the manufacturer's business collapses? It's not. We shouldn't be spending money we don't have, and we certainly shouldn't be spending more money we don't have with the hopes that "the rich" will pay more than their share to make up for our reckless spending.

• "This is a great deal for Republicans."

This one is half-right. Again, it's a philosophical victory, and sure, all tax cuts are good tax cuts. And yes, in a political sense, anything that makes Barack Obama look bad, especially in such a capitulating fashion, is good for the Republican party. But ultimately, tax cuts are only one part of the good economy equation. We now have 161 weeks of unemployment benefits thanks to this "deal." This is a major drain on employers and will stifle growth.

Our spending habits need to change. The government can't keep saving failing businesses and propping up dying industries. There aren't enough "rich" people to pay for that kind of lunacy. It would be nice if the president understood this. It would be even nicer if he believed in something and had consistency in his beliefs.

Born in the Soviet Union and raised in Brooklyn, Karol Markowicz is a public relations consultant in NYC and a veteran of Republican campaigns in four states. She blogs about politics at Alarming News and about life in the city with her husband and baby at 212 Baby. She can be followed on Twitter.

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Comments [13]

amalgam from Manhattan by day, NJ by night

I'm sure that no one will see this at this late date, but...

Karol, of course tax cuts provide SOME stimulus, it's just that it's one of the LEAST EFFECTIVE forms that exists (especially when it comes to lowering income tax rates on the wealthiest; very weak!).

CBO: http://www.cbo.gov/doc.cfm?index=11874

Orszag: http://www.cbpp.org/cms/index.cfm?fa=view&id=1405

Moody's: http://businesstaxdeductions.net/whats-more-effective-stimulus-or-tax-cuts.html

So take your pick: Effective and efficient or ideology at all costs with lesser effectiveness?

I think you may already know my answer...

Dec. 20 2010 03:35 PM
Marcello from Brooklyn

THE MORALE STATURE OF REPUBLICANS:

After having spent plenty of words in my previous four postings, for this particular section, I am really speechless so I'll let Jon Stewart eloquently describe the depth of the moral bankruptcy we are all witnessing.
I found his video on Youtube.

http://www.youtube.com/watch?v=8wLOKuYZcMw

Dec. 15 2010 12:34 AM
Marcello from Brooklyn

WHERE DECEPTION STOPS AND STUPIDITY BEGINS.

Obviously, every time you present a conservative with any of the arguments I have just listed in my three previous postings, all you get in response is never a substantive counterpoint but either a deafening silence or an empty slogan.
Of all these slogans, the one that truly belongs in the realm of science-fiction is the comical accusation of “Socialism” which is possible only because the majority of Americans don’t even know what the word actually means.
Markowicz’s claim that the rich pay a huge portion of taxes it’s true only because she (and Conservatives in general) conveniently leaves out the obvious fact that taxes, constitute a percentage (and therefore a REFLECTION…) of income and wealth. So, to say that they pay a huge share of taxes is equivalent to saying that they HAVE a huge percentage of all the wealth of the country and I invite anybody who is interested, to go and check the latest figures on wealth concentration and income inequality in America.
The way American right wing propaganda tries to present progressive taxation as some sort of reversed “class struggle” against the rich, motivated by some lofty egalitarian principal of “socialistic re-distribution” is unbelievable considering that the very opposite is going on.
And what is even more unbelievable, is how the intellectually anesthetized American people just passively buys this perfectly upside-down description of reality!
But back to the true meaning of the word.
Socialism (as Markowicz should know really well given her birthplace…) advocates, among other things, the elimination of private property and the nationalization of the means of production, meaning COMPLETE GOVERNMENT CONTROL OVER THE ECONOMY.
That is, a set of circumstances that is so light-years away from the cultural, social, political and economic realities of today’s America that to even utter the word Socialism would be laughable if it wasn’t for the tragic gullibility of those who actually believe it.
If anything, in a country like this, where you have lobbies of every kind literally buying politicians through campaign contributions and influencing entire pieces of legislation, the problem is exactly the opposite: THE ECONOMY CONTROLLING GOVERNMENT.
So, to lament the dangers of encroaching “Socialism” in America as conservatives do, is like going to the North Pole and convince the Eskimos to give you all their blankets and furs by claiming that the biggest threat to their survival is heat stroke!

Coming up next (oh yes...it's not over yet...): why tax cut for the rich are outrageous from a moral standpoint.

Dec. 14 2010 11:30 PM
Marcello from Brooklyn

WHY TAX CUTS FOR THE WEALTHY ARE ILLEGITIMATE FROM A “PHILOSOPHICAL STANDPOINT”.

“With tax cuts, we are not giving money to the rich! It’s their money to begin with…” goes the conservative propaganda.
Of course is their money!...Whose money should it be?!... It’s their money in the same sense that if I want to buy a pound of ham, the money I use to pay for it is “my money”, but I still have to pay it if I want to eat the ham!!
What do you think taxes are? They are the amount of money we pull together as a society (meaning that we pay…) in order to receive goods and services.
Aside from the sheer, logical simplicity of the basic pulling principle (Those who have more contribute more while those who have less contribute less), rich people and corporations deserve to pay more for these goods and services not because of some sort of lofty egalitarian principle but because of a basic capitalistic pillar: Use.
If I want to buy a pound of ham, it will cost me four dollars. But if I want to buy two pounds, I’ll have to pay eight dollars.
Similarly if Joe the Plumber Inc. becomes a successful business and his owner starts to become rich, he deserves it all because he has worked hard, has made good decisions and has contributed to society at large by hiring people and expanding the economy.
But that was possible also thanks to the fact that he was able to hire accountants and clerks who have studied at public schools (financed with taxpayers money); that he has a plumbing business to begin with, thanks to a sewage systems built with public money; that he was able to unplug toilet bowls by driving his truck to his customers’ aid on roads built with public money and if one day his business continues to grow, he might add more trucks to his fleet which will increase that road use as well as the amount of emissions spewed into the air that we all breathe!
Finally, once rich Joe the Plumber will have made it, he will be able to look back at his success from a beautiful one million dollar mansion built with his earnings. And, in that case, the services of a public police and fire depts. protecting his mansion from burglary and fire, will be more valuable to Joe, compared to the value for someone who owns a
$ 300,000 house!
Coming up next: the conservative mythology gets pounded more by the hammer of logic and common sense!

Dec. 11 2010 11:16 AM
Marcello from Brooklyn

WHY TAX CUTS DON'T WORK FROM A POLICY STANDPOINT:

If I go to a bank and ask for a business loan, the bank will want to see some collateral.
If I want to start a business and ask a venture capital firm for money, most likely they'll ask for an equity share (that is, a piece of the ownership) in return.
That is the way it works in an efficient capitalist system.
In general (and in a depressed economy in particular) it is a very good idea to give business tax cuts IF this money would actually get re-invested in their firms because that will boost hiring and the economy at large.
But, like with everything else, if you give money to somebody without asking for any guarantee, just hoping that they will do what you think they should, than you are an idiot. Or, more accurately, you are just practicing wealth-shifting to the top, which is really what the GOP is all about.
But that is not all.
Let's say I have a widget factory and pay myself a salary of one million dollar a year. After taxes at a 35% rate I take home $ 650.000. After my living expenses, I would be left with a certain amount of money (according to how extravagant my lifestyle is). What am I going to do with that?
Am I going to re-invest it in my firm to expand it and boost the economy? Or am I going to put it in my bank fearful about the economic outlook? It depends on what my tax bracket rate is.
If my tax rate is high, I will have more of an incentive to leave money in my business and expand it.
If it's low (the way the GOP likes it...) I will take more money out of my business (because it costs me less) and stash it in the bank.
You could say: “But what if with all that extra cash I buy a yacht instead? Doesn't that increase demand and boost the employment for yacht-making?”. Yes, it does but that is, again, IF you actually do that. If instead you choose to invest it in Collateralized Debt Obligations which produce nothing and actually wreck the financial system you are helping nothing.
But finally, even if you DO buy a yacht, in a society such as this with huge social inequality, there is a built-in limit (called Upper-bound Consumption Rate) to the money that super-rich can or want realistically spend on things for the very same reason explained in my previous post and having to do with the Multiplier Effect (the more money you give to those who have less, the more they'll be ready to spend it and therefore expand the economy).
But enough about cold and boring economic facts. Coming up next, a look at the “Philosophical” argument.

Dec. 10 2010 10:26 AM
Marcello from Brooklyn

Ah yes!.. Here we are. Our weekly appointment with conservative reality-making.
With flipping facts and truth on their heads with utter disregard for any evidence or corroboration.
What is funny is that, if we have an infection and we go to a doctor, most of the time we don’t argue the need for an antibiotic. Nobody is going to have a debate on “whether or not the antibiotic is right for an infection” since there is already vast previous evidence and scientific literature to support that fact.
Yet, with Economics everybody feels entitled to open their mouth and say whatever they want, no matter how crazy or outlandish: “It’s true because I am saying it!”
I guess that is why it is called the dismal science…
Then again, if evidence and facts had any effect on them, they wouldn’t be conservatives.
Let’s take a look at the mythology of the sentence “Tax cuts work”.

WHY TAX CUTS ARE INEFFECTIVE FROM AN ECONOMIC STANDPOINT:
In the world according to Markowicz we should rejoice for having extended tax cuts to the richest 2% of the population. Why?
Maybe on the basis of how well they have worked since 2001….
After all, a near-decade of conservative policies has given us the biggest budget deficit in the history of the country, the “jobless recovery” following the 2001 recession and, finally, the collapse of the global economy with the highest and most persistent unemployment since the Depression.
The cure? The Republican “one-size-fits-all” tax cut gospel of course!
A recessionary period with high unemployment, low interest rates and lagging investments, is usually brought about by a “Liquidity Trap” which happens when the economic system is awash in savings to the point that further cuts in short term interest have no effect. And yet neither firms nor families invest or spend, because of a general sense of uncertainty or because of high unemployment.
When individuals and firms don’t spend and invest, the economy falls in a deflationary spiral that depresses things even more.
Keynes and History (that would be the reality of what actually happens…) show that when nobody spends, the only entity able to do it is Government through expansionary fiscal policy which means: direct spending and tax cuts.
Of these two, tax cuts are the least efficient because their stimulating effect (their “Multiplier Effect” if you want to look it up…) is blunted by the fact that some of these rebates are saved rather then spent and SAVING DOES NOT WORK TO STIMULATE THE ECONOMY. The saving vs. spending issue is even more pronounced for the rich, because if you give five dollars to somebody who has nothing, he is probably going to spend it all to eat and drink but if you give the same amount to somebody who has another hundred stashed somewhere he will not need to spend it thus offsetting the “stimulating” effect.
Coming up next, a look at how the rest of your arguments are coming straight out of the conservative “philosophical” loony bin.

Dec. 10 2010 09:25 AM
Mike from Chicago

We now have 161 weeks of unemployment benefits thanks to this "deal."

I believe you have this wrong. The benefits are still the same length. That the deal did is EXTEND the benefit for an additional 13 months. It did not tack on an additional 13 months to the benefits.

Dec. 09 2010 11:55 AM
Alan

I don't deny it's true. I said that. They pay 40% of taxes. They also make 24% of the money. I am fine with that.

The government (under both Republican and Democratic control) has shown that it is perfectly willing to spend money they don't have. Dick Cheney said "Reagan proved deficits don't matter." Until they're willing to cut spending, cutting taxes is a mistake. It's not going to starve government spending, it will just lead to bigger deficits. Once the budget is running a surplus, then maybe we can talk about cutting taxes.

Dec. 08 2010 03:44 PM
Karol from NYC

Alan, what's misleading? Top 1% of earners pay 40% of taxes. That's exactly what it is. Read the article I linked. Your comment about cutting the taxes to zero and seeing what an unfunded system looks like would be stronger if we didn't have high taxes now and the system is still in danger. No government agency ever has enough money, why is that?

Drew, we actually had a huge growth period during the time you describe. Also, someone is selling those diamonds and pearls, right? That's a job, as is finding the diamonds and pearls, assessing them, shipping them, etc.

John, doesn't spending more money on their own companies create jobs? How does the company grow and produce more income without also creating jobs?

Dec. 08 2010 12:00 PM
Mrbill from usa

Iv never been hired by a poor person
that is all

Dec. 08 2010 11:59 AM
Alan

"The top 1% already pay over 40% of the total money collected in taxes."

While true, that's very misleading. It's not like they make 1% of the income. The only figure I could find for that (here: http://www.nytimes.com/2010/11/07/opinion/07kristof.html?_r=1) is that they make 24% of the income. So they're paying more than "their share," according to income, but it's not a 40/1 disparity. Far from it.

"all tax cuts are good tax cuts"

Let's just cut taxes to zero, and see how well we get by with an unfunded court system, military, and police force! Sounds like a good plan.

The real myth is that the 2% payroll tax cut is going to add more jobs. It won't. It will go directly into executives' pockets and bank accounts. Companies hire people when they have a need for work, not when they just have more money to spend on employees.

Dec. 07 2010 09:53 PM
Drew from New Hqven, CT

TAXCUTS KILL JOBS by making it cheaper to realize profits and buy diamonds and pearls (rather than reinvesting them to make them tax free). Or where are all the jobs created between 2001 and 2008?

Dec. 07 2010 08:22 PM
John Pyrch from Bridgeport, CT

If we sunset the tax cuts for the 2% what will the 2% do. They are ultimately greedy. They don't want to loose that money. They certainly don't want that money to be paying for any social services. so what will they do? I believe they will sink that money into thier companies so their comapnies will be able to generate ever increasing profits. With higher company profits, they will be able to pay themselves more thus offsetting the money they would have had to pay in taxes. The side product of all this would be jobs in their companies.
As for everyone else having to pay taxes, people would not mind paying if they got what they paid for. This has not been the case. People are paying for education, infrastructure, protection, mass transit etc. They are not paying for bailing out major corporations. If the major banks and insurance companies were not bailed out, they would have had to sell their toxic assets at - oh let's say $0.50 on the dollar. State and local banks would have bought these discounted assets and then could have offered the original morgages at oh let's say $0.70 on the dollar. This would have been an immediate $0.20 on the dollar net revenue for these banks. This money could have and would have been made available to small business for growing their business. These business would have bought new equipment and would have hired new people. Where is the down side. Too big to fail means ... according to some that all the associated business needed to be protected. don't you think they would of had bigger profits and grown a ltitle by doing business with all the small businesses going through the growth spurt? What up Obama?

Dec. 07 2010 06:47 PM

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