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A Budget With No Numbers
Old 03-28-2009, 07:43 AM   #1
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A Budget With No Numbers

Funniest thing I have heard all week.

A GOP budget with no hard numbers - First Read - msnbc.com

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Old 03-28-2009, 11:58 AM   #2
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Wow!

I'm willing to give them a temporary pass on not having any numbers in the initial outline (assuming that a more complete proposal is forthcoming), but the ideas contained in the "Road to Recovery" are straight out of the Hoover administration . . .

http://www.gop.gov/solutions/budget/...recovery-final

1) "Limit the Federal Budget from Growing Faster than the Family Budget" - While I support this goal over the long term, trying to implement it now is highly pro-cyclical and a really, really, really bad idea.

2) "End the Bailouts . . . " - Watch how quickly the financial markets meltdown when they start putting large companies into "receivership"

3) "Keeps the Cost of Living Low" - a.k.a. pressure the Fed to tighten monetary policy. Defending the gold standard (tight money) is now widely regarded as one of the main contributors to the Great Depression.

Other initiatives in the proposal are a mixed bag. The ever present "Capital Gains Tax Cut" is kind of stupid at the moment. Is the capital gains tax rate really impacting anyone's investment decisions right now? Not likely. Although it wouldn't do any harm, capital gains tax cuts are oversold as a cure-all and wouldn't help at all with the current problems.

On the positive side, not pursing a massive energy tax (carbon cap & trade) gets a big thumbs up.
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Old 04-03-2009, 08:41 AM   #3
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Perhaps they thought with the Dems controlling anything it would be shot down anyway. Rep Paul Ryan had an alternative budget, but it was scoffed at and slapped aside.........
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Old 04-03-2009, 08:58 AM   #4
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You guys need to keep up with the news - this is an old story - they put out a new one as they said when they issued the one above.
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Old 04-03-2009, 09:00 AM   #5
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Perhaps they thought with the Dems controlling anything it would be shot down anyway. Rep Paul Ryan had an alternative budget, but it was scoffed at and slapped aside.........
The Rebups suck at marketing. Reagan was the last one who was any good at it and that was the old style. I don't think they even have an internet strategy.
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Old 04-03-2009, 09:10 AM   #6
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The Rebups suck at marketing. Reagan was the last one who was any good at it and that was the old style. I don't think they even have an internet strategy.
Not only that, but they've been pretty inept at selling themselves as anything BUT the party of old, well-to-do white guys. Just as we did when the GOP ran everything, we *need* a viable, mainstream opposition party. Too often they've been catering only to the more extreme parts of their respective bases and not to giving the mainstream a palatable alternative.
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Old 04-03-2009, 09:44 AM   #7
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Too often they've been catering only to the more extreme parts of their respective bases and not to giving the mainstream a palatable alternative.
There is truth in that but also the media tends to focus on those exteme bases and ask Rebups questions about those extremes. They don't ask Dems questions about the extreme bases in their party or associated with it. Most of use could name "exteme" bases associated with the Rebups but would be hard pressed to do so with the Dems; and that speaks volumes.
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Old 04-03-2009, 09:56 AM   #8
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Perhaps they thought with the Dems controlling anything it would be shot down anyway.
Although little can be really *known*, I feel pretty safe saying that we can *know* that a GOP budget would be shot down by a majority Dem Congress (as would the other way 'round).

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The ever present "Capital Gains Tax Cut" is kind of stupid at the moment. ... Although it wouldn't do any harm, capital gains tax cuts are oversold as a cure-all and wouldn't help at all with the current problems..
I don't think the cap gains tax cut is being presented as a "cure-all" - did they say that? Sounds over simplistic. I think you are putting words in their mouths, but I'll rescind that if you provide a quote.

It wouldn't help "at all"?, Hmmm, now who is "underselling"? I suspect it would help some. Do you have references to explain how it would not help? And if so, then how are all the credits and deductions that Congress offers supposed to motivate or demotivate those actions?

Seems like people want to twist the conditions to fit their agenda:

A) Deductions and credits will help spur investment in "Green Technology".

but....

B) Deduction in Cap Gains taxes WILL NOT spur investment in business.

Does not compute for me.


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On the positive side, not pursing a massive energy tax (carbon cap & trade) gets a big thumbs up
But that does not help the govt get it's fingers into controlling business. That seems to be the current agenda.

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Old 04-04-2009, 11:34 AM   #9
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The Rebups suck at marketing.
Maybe one place to start would be to avoid deriding entire cities and states as not part of the "real America".
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Old 04-04-2009, 11:59 AM   #10
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It wouldn't help "at all"?, Hmmm, now who is "underselling"? I suspect it would help some. Do you have references to explain how it would not help?
You're kind of asking me to prove a negative. Maybe you could articulate what specific problem a capital gains tax cut is supposed to correct?

Are people holding on to investments to avoid paying the tax? Makes very little economic sense when investment prices are falling rapidly and capital loss harvesting opportunities abound.

Is it to incentivize investment by increasing after tax returns? Prospective returns on most risky assets haven't been higher in my lifetime. What more incentive do you need?

Is it to spur the "supply side" of the economy? What exactly do we need more supply of? Houses? Cars? Banks? Shopping malls? Not likely. The problem we have now is one of excess supply because of over investment and credit constraints on demand. Adding supply only increases downward pressure on prices, which reduces margins, which spurs cost cutting, which increases unemployment, which creates further excess supply, which increases downward pressure on prices, rinse, repeat . . . .

I'm in favor of promoting solutions that fit the problems (not ones that fit a particular political orthodoxy). In the late seventies / early eighties the problem was that loose monetary policy pushed excess demand up against supply constraints (i.e. an oil embargo, wage & price controls, burdensome regulation, high taxation, etc.) causing stagflation. Demand side solutions couldn't fix what was essentially a supply side problem. The proper response to that specific set of problems was tight money, lower taxes and reduced regulation. The problems we face today look nothing like those of the early eighties. Proscribing "supply side" remedies (as in the Republican budget) for a "demand side" problem makes as much sense today as loose money and high government spending made in the late 70's.
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Old 04-04-2009, 12:13 PM   #11
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Are people holding on to investments to avoid paying the tax? Makes very little economic sense when investment prices are falling rapidly and capital loss harvesting opportunities abound.
I don't think it's as much for current positions (many of which are underwater) as it is to avoid discouraging people from investing because of what could be extremely punitive "real" taxes rates on capital gains.

Remember that long-term gains are particularly susceptible to inflation. Let's say I buy 100 XYZ @ $50 per share today -- my cost basis (ignoring commissions for simplicity) is $5000.

Ten years later, in 2019, I sell these shares for $90 per share. The net to me is $9,000. I have made a $4,000 capital gain...in NOMINAL dollars. But do I have anything close to that in real terms? Probably not, at least not historically; if over that ten-year period inflation was a cumulative 50%, then my *real* cost basis in 2019 dollars is $7,500, not $5,000 (i.e. $5000 in 2009 has the same puirchasing power as $7500 in 2019). So I've really made only $1,500 in "real" dollars, but I am taxed on $4,000. In my current 25% federal bracket (if we taxed LTCG as ordinary income), that would mean paying $1,000 (in 2019 dollars) in taxes for a real gain of $1,500 in real 2019 dollars.

Apples to apples -- with everything in 2019 dollars -- my gain is effectively taxed at 66.67%, not 25%!

In fact, as long as inflation happens, the longer you hold your investment, the more you're paying taxes on "illusory" gains that really aren't gains after inflation.

If there were a simple way to inflation-index capital gains and losses for something held longer than a year (perhaps by adjusting the cost basis), I don't think it would be terrible to tax ALL cap gains at ordinary rates. But uunder the current system with no inflation indexing for capital gains, taxing LTCG as ordinary income would be exceedingly punitive to very long-term holdings.
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Old 04-04-2009, 12:31 PM   #12
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In fact, as long as inflation happens, the longer you hold your investment, the more you're paying taxes on "illusory" gains that really aren't gains after inflation.
This is a fine argument for indexing capital gains rates (and something I would support except for the administrative nightmare it would cause). But what I don't see is how this addresses a specific problem of the current economic crisis. That is unless you're telling me that people aren't buying stocks today at an earnings yield of 8% because of a 25% gains rate when they were perfectly willing to buy them 18 months ago at a 4% yield under the same tax regime. (And with breakeven inflation rates for 10-yr TIPS at around 1.4%, worry about runaway inflation isn't exactly reflected in the market).
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Old 04-04-2009, 01:05 PM   #13
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If there were a simple way to inflation-index capital gains and losses for something held longer than a year (perhaps by adjusting the cost basis), I don't think it would be terrible to tax ALL cap gains at ordinary rates. But uunder the current system with no inflation indexing for capital gains, taxing LTCG as ordinary income would be exceedingly punitive to very long-term holdings.
The problem you mention was actually caused by the same folks who successfully argued for a lower gains rate. Ordinary income tax brackets are adjusted for inflation. So if gains were taxed at ordinary rates, they'd be taxed at the inflation adjusted brackets. It is only because gains are treated differently than ordinary income that the problem you mention arises.

Based on your calculation above, I'd also argue that the current "preferential" gains rates favor short-term gains over long-term gains. Long-term gains get chewed up by the lack of inflation adjustments, whereas short-term gains don't. That doesn't sound like good public policy.

Looks like you're building a case for raising the gains rate to the ordinary income rate after all. Good work.
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Old 04-04-2009, 09:26 PM   #14
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Is it to incentivize investment by increasing after tax returns? Prospective returns on most risky assets haven't been higher in my lifetime. What more incentive do you need?
It isn't about what went before or after, it is about what affect it has on a decision someone makes today.

This is the same argument we hear when people say "tax rates were higher at such-and-such time, and the economy did fine".

It is irrelevant. Very simply, if you place a higher tax on something (regardless of what it was before), it will reduce demand for that thing. Do we want to reduce demand for investments?


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Old 04-04-2009, 09:32 PM   #15
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The Rebups suck at marketing.
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Maybe one place to start would be to avoid deriding entire cities and states as not part of the "real America".
I guess they could take a lesson (in what not to say) from Barack Obama, talking about "some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest":

"And it's not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."

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Old 04-04-2009, 10:00 PM   #16
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