No Longer Possible To Pretend

[Leonidas]

Helping the less fortunate is a noble thing. And even aside from my belief that this should be accomplished through private charity to the extent reasonably possible...

Giving to help the less fortunate is a noble thing. There is nothing noble about writing a law that takes money from other people and gives it to the less fortunate.

I'd also say that it's not the poor who generally start businesses and hire people.

I heard a number yesterday that indicated 68% of the people who will be negatively impacted by the tax law changes are small-business owners. That being defined as a business that employees up to 250 workers.

According to the National Federation of Independent Business, small business:

• Small business produces roughly half of the private Gross Domestic Product (GDP) and creates, on average, about two-thirds of net new jobs annually.
• Small businesses are the greatest source of new employment in inner cities, comprising more than 99 percent of establishments and 80 percent of total employment.
• Small businesses employ more than half of private sector employees.

I don't own a small business, and have no intention of ever doing so - but given their importance to the employment picture in this country I have to wonder why the government is doing anything to make it harder for them to succeed and thrive.

 

[newporttony]

I assume your point is that people will ONLY support policies that they perceive to be in their self-interest? I respectfully disagree that we, as a people, are not capable of looking at the bigger picture and making decisions based on what is good for the country as a whole, not just for us individually. And by the way, who is to say that what you perceive as good for you now (at this moment) is not going to be bad for you in the long run? Is it still a bad thing (for you personally) if the removal of the mortgage interest deduction results in general improvement of the economic health of the nation over the longer term? Don't you think you might benefit in some way from that?

The entire basis of macroeconomics and, by extension, the financial markets, is that rational people do behave in a way that futhers their own interests. You should therefore be fully in favor of sacrificing your own wealth for those who are not as well off.

 

[haha]

I assume your point is that people will ONLY support policies that they perceive to be in their self-interest? I respectfully disagree that we, as a people, are not capable of looking at the bigger picture and making decisions based on what is good for the country as a whole, not just for us individually. And by the way, who is to say that what you perceive as good for you now (at this moment) is not going to be bad for you in the long run? Is it still a bad thing (for you personally) if the removal of the mortgage interest deduction results in general improvement of the economic health of the nation over the longer term? Don't you think you might benefit in some way from that?

Instead of guessing at my point, why not just answer the simple straightforward question that I asked? Of course you have answered it; we knew the answer all along.

And by the way, I pay no mortgage interest. To me it is simple fairness- either everybody gets the deduction, or nobody does.

Ha

 

[FIREd]

People who think that increasing taxes on the rich will only hurt the rich don't understand a thing about economics anyways. The pain will be spread around, it's inevitable. There are plenty of ways the "rich" can offset a tax hike.

Take the mortgage interest deduction away? Fine, if you are rich, you can pay off the mortgage and save thousands of dollars in mortgage interests a year to offset the higher taxes. In the mean time, your bank is making less money on a mortgage with a virtually zero default risk (at a time when they already are in trouble) and the government is collecting fewer taxes on money that would otherwise be sitting in cash, CDs or equities earning interests and dividends. So you save on taxes there too.
Take the charitable contribution deduction away. Fine, you'll contribute less and keep more of your money to offset the higher taxes. That's bad news for the needy.
Increase income taxes? Fine, you'll have less money to invest in bonds, money that helps pay to build schools, libraries, bridges, power plants, sewers, and helps create much needed jobs. Of course you'll also cut your spending to reflect a lower net income. You'll save a bunch on sales taxes. But that's not good news for the state and city or anyone counting on you to spend your money on their products or in their establishment. They may have to lay off more workers.
Increase taxes on dividends and capital gains to 20%? Fine, you will make sure that your portfolio is much more tax-efficient than it is now so that you'll probably end up paying even fewer taxes than before.

So call it trickle-down economics if you want, but there is no doubt that the rich won't be the only ones affected by this.

 

[bubba]

And, for retirees, this economic plan has got to work. We cannot fall into a deep depression. If that happens, then retirees of modest means will be in severe jeopardy. I don't want to see that happen. And if that means that we need to impose higher taxes on those making over 250K then so be it.

You would tax the rainmakers into the ground just so retirees aren't in jeopardy? I'll never make $250K, but I can see that's a very narrow point of view. You know I've had my shot, and I wasn't bright enough or talented enough or whatever enough to make that kind of money, but the folks that took the risks and invested/studied/got lucky/whatever damn sure don't owe me a thing.

 

[haha]

You would tax the rainmakers into the ground just so retirees aren't in jeopardy? I'll never make $250K, but I can see that's a very narrow point of view. You know I've had my shot, and I wasn't bright enough or talented enough or whatever enough to make that kind of money, but the folks that took the risks and invested/studied/got lucky/whatever damn sure don't owe me a thing.

Bravo!

 

[RAE]

Instead of guessing at my point, why not just answer the simple straightforward question that I asked? Of course you have answered it; we knew the answer all along.

And by the way, I pay no mortgage interest. To me it is simple fairness- either everybody gets the deduction, or nobody does.

Ha

I pay no mortgage interest either (had you read my earlier post, you would know that I have no mortgage at this time). And I agree, if you eliminate the deduction for mortgage interest (which I think should be done), eliminate it for everyone.

 

[Independent]

The issue is that the US is taking the biggest left turn since FDR. And plenty people on this board will be funding it. Incomes of $250,000? How about income of $125,000 for a single person?

Just about enough to pay a modest mortgage, eat, and put away a few bucks in your 401K.

Wow. I've been a higher-than-average income earner, but I'd never say that $250k for a couple or $125k for a single is "just enough to pay a modest mortgage, eat and put away a few bucks..."

The median income for a full-time year-round worker in the US is under $40k. The median income for a family of four is about $70k. I'm sure most of them have food and shelter. Some even save.

People making the $125k and $250k should have money for things that are "luxuries" to most Americans.

This doesn't mean they should be taxed at 50%. But it does mean that they shouldn't plead "but I can barely pay for the essentials.

 

[Independent]

Yes, government has to play a role in something this massive, I think, but what role? The transition to a nation of better savers is a good thing, but the sudden and dramatic shift to it -- the almost unprecedented slowing of the velocity of money -- is brutally pummeling the industries and businesses that keep people employed. Many people (myself included) who currently have pretty good times going are pulling WAY back just in case they wind up with a pink slip; we want as much cash in the bank as we can muster "just in case." Multiply me by millions of folks who have good circumstances *now* but fear their own personal economic crash in the future, and you have a massive slowing in the velocity of money, combined with the Tragedy of the Commons: What good does it do me to live my life as I normally would unless I feel others in my position would do the same and make enough of a difference to boost the economy?

I think you know the conventional answer. If you are pulling WAY back just in case, and other individuals are doing the same, and businesses are hoarding cash rather than investing, then the number of dollars that people want to save exceeds the number of dollars that businesses want to invest.

The first thing that gov't tries is to force down the interest rate even faster than the market would do it, to reduce the benefits of saving and increase the benefit of investing.

If that's not enough, the gov't soaks up the extra saving by borrowing it, and directly "creates jobs" with various spending programs.

That's the conventional wisdom, and Obama is going the conventional route. The problem is that we're not really sure that it works, and we certainly aren't sure exactly which type of spending is most effective. We've only had one other really big case like this, we think it worked to end the Depression in the 30's, but one case and some theory isn't a proof.

 

[haha]

I pay no mortgage interest either (had you read my earlier post, you would know that I have no mortgage at this time). And I agree, if you eliminate the deduction for mortgage interest (which I think should be done), eliminate it for everyone.

I wish you would quit harping on your original post. I gave it the attention it deserved.

Ha

 

[newporttony]

I pay no mortgage interest either (had you read my earlier post, you would know that I have no mortgage at this time). And I agree, if you eliminate the deduction for mortgage interest (which I think should be done), eliminate it for everyone.

RAE,
Your arguments are inconsistent. On the one had, you think it's okay to tax only the rich, but on the other hand you seem to accept that eliminating the mortgage deduction (and thereby increasing their taxes) in not fair. If you want to argue for a flat tax where everyone pays the same proportion of their income in taxes, I think we could find some common ground.

I think this "soak the rich" class warefare stuff is very corrosive to our nation.

 

[Alan]

The issue is that the US is taking the biggest left turn since FDR. And plenty people on this board will be funding it. Incomes of $250,000? How about income of $125,000 for a single person?

Just about enough to pay a modest mortgage, eat, and put away a few bucks in your 401K.

Some years I have been over this, some years below it. I can tell you that I will be trying mightlly to stay below from here on out.

But hey, add a little inflation which is being cooked up by the same chef and we'll all be rich enough to pay up.

Ha

Don't panic just yet, the limit for single filers is $200K.

The proposed higher income penalty is for married filing jointly at $250k and for single at $200k. I agree if you are single and you earn $200k, you can be recognized as having an upper income. If both spouses work and earn $125k each, especially in high cost of living areas, they are not rich at all. Full text of the budget outline is here:

http://www.whitehouse.gov/omb/asset.aspx?AssetId=793

The three tax increase proposals are on page 129.

1. reinstate the 36 percent and 39.6 percent rates for those taxpayers earning over $250,000 (married) and $200,000 (single)
2. reinstate the personal exemption phaseout and limitation on itemized deductions for those taxpayers earning over $250,000 (married) and $200,000 (single)
3. Impose 20 percent rate on capital gains and dividends for those taxpayers earning over $250,000 (married) and $200,000 (single)

 

[HFWR]

That's the conventional wisdom, and Obama is going the conventional route. The problem is that we're not really sure that it works, and we certainly aren't sure exactly which type of spending is most effective. We've only had one other really big case like this, we think it worked to end the Depression in the 30's, but one case and some theory isn't a proof.

The Keynesian theory would probably be a more sure bet if the gumment wasn't already eyeballs deep in debt. Taking up the "slack" wouldn't be so risky...

 

[Leonidas]

People who think that increasing taxes on the rich will only hurt the rich don't understand a thing about economics anyways. The pain will be spread around, it's inevitable. There are plenty of ways the "rich" can offset a tax hike.

Exactly. The pain will be spread around, it's just that it will be off the books as far as the federal government is concerned.

Prime example, starting 2012 the airlines will pay most of the cost for passenger and baggage screening. While the airlines are arguing that security is a government function and Uncle Sam should pay for it, there is no disputing that the tax will still be collected, only now it will be called a "user fee". And who will pay the majority of that tax/user fee? Business, which accounts for a majority of airline travel, will just pass the increased cost on to the consumer because they can. So, your tax bill will go down, but the cost of stuff you buy goes up.

What was it the Wizard of Oz said? Pay no attention to the man behind the curtain! It's all just a game of sleight of hand designed to confuse people.

 

[RAE]

RAE,

I think this "soak the rich" class warefare stuff is very corrosive to our nation.

The thing that you and others are conveniently overlooking is that marginal tax rates for higher-income individuals have at times been much higher in the past than they are today, and as far as I know, the country survived and prospered just fine. You guys are acting like Obama is proposing a radical idea that has never been attempted before in the country's history. On the contrary, he is merely proposing to allow the Bush tax cuts to expire for individuals in the higher-income brackets (as he very clearly said he would do). Seems like a very reasonable approach to me, in these difficult economic times for many Americans.

I think we can agree to disagree about this and move on to something else.

 

[ziggy29]

The Keynesian theory would probably be a more sure bet if the gumment wasn't already eyeballs deep in debt. Taking up the "slack" wouldn't be so risky...

Yup. Plus, we've never been truly Keynesian; at times we've been "half-Keynesian."

Keynesianism indeed does encourage "pump priming" through deficit spending to put people to work and encourage economic activity. But pure Keynesianism also requires that in the good times, we pay back the debt we incurred in the bad times. In times of plenty, you have the slack to pay back what you needed to borrow to get things going.

We haven't done that. All we do is borrow and borrow and borrow, never paying anything back. Even the so-called Clinton "surpluses" were truly $100 billion deficits which were only balanced because of gains in the Social Security trust fund (which should have been considered off-budget, IMO).

[And how sad is it that a $100 billion deficit sounds glorious right now?]

In reality, pure Keynesianism hasn't been discredited. We had opportunities to generate surpluses in good times but never did it. I'm not an advocate of Keynesianism, but in its defense I felt it's important to remember that it doesn't mean constantly increasing national debt. It's easy to say Keynesianism has failed, but it hasn't been tried in its entirety. You want to cut taxes and/or raise spending to stimulate an economy in a recession, you have to raise taxes and/or cut spending to pay it back in good times.

 

[ERD50]

The thing that you and others are conveniently overlooking is that marginal tax rates for higher-income individuals have at times been much higher in the past than they are today, and as far as I know, the country survived and prospered just fine. You guys are acting like Obama is proposing a radical idea ...

I think we can agree to disagree about this and move on to something else.

Not quite yet please, as I think there is a gulf in understanding.

In the context of the discussion in this thread, it is not the absolute value of the increase that I'm arguing about, or whether it was higher or lower in the past. What bothers me is the idea that the increase won't have any adverse affects, such as dampening business investment. And the failure to recognize that that seems contrary to trying to "stimulate" the economy.

Is it really the right thing to do at this time?

-ERD50

 

[ERD50]

RAE, maybe I'm missing something in the address that you see. Where is the President addressing ....

-ERD50

Obama talked about some of this just the other day, actually. If you recall, he mentioned in his 2010 budget address that some of the housing mess was the result of some homeowners buying more house than they could afford. He has also talked about the sacrifices we are all going to have to make in the coming years to reduce the deficit to a level that our kids and grandkids won't be forever burdened with.

But I did re-read the text of the address before I posted. You are right, he did say that some bought more house than they can afford. But did he what should be done to address that problem? I didn't hear that.

Please show where he outlines the sacrifices that we "all" are going to have to make. Here's what I read:

In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2% of Americans.

I'm having some serious issues with his math comprehension when he can say that 2% = "all", and 95% are going to get a tax cut, when ~ 50% pay no federal tax.

I think you will see much more emphasis from Obama on the need for people to get off credit and live within their means as time goes on - but the immediate problem is to stabilize the dying patient, and get the economy moving again.

I hope you are right, but we can't know that until he does.

Let's give him a chance, folks, he has been in office for less than 2 months!

I'm certainly not expecting tangible results in 2 months. That's not my problem with all this. My problem is that he has outlined a plan that he claims will fix things. Yet, that plan does not sound right to many of us. And there are gaping holes.

If he said their team was working on it and they need more time to develop a plan, that would be one thing. But when they put a plan out there - yes, it is up there for critique. So I am totally willing to "give him a chance" - but that would be to give him a chance to come up with a plan that addresses the issues. Not one that doesn't address the issues, but is claimed to. That just weakens confidence further.

-ERD50

 

[laurence]

I don't have a big foam #1 hand & could really give a hoot whether you or the USofA has one or not - as long as we actually are #1 - I don't have to crow about it - but, if Pres. Obama's agenda of "sharing the wealth" results in my having to put away my big foam Early Retirement hand for a while - that's getting a little too personal!

(BTW - which country in the world should we hand that "big foam #1 hand" over to? And shall we just hand it over willingly or insist it be taken?)

I think this analogy has been beaten to death in two posts, but my point is there are a dozen countries with high standards of living, stability and freedom for it's people. Handing it over, insist it be taken, you sound like there is some choice in the matter. If we are measuring by GDP, China will pass us eventually. Per capita income, that's already happened with a couple of other countries. Longevity? Check.

We live in a great country, no doubt. I try to make it a little bit better in the ways that I can. My point is we aren't about to fall into the abyss and we can't find any more arguments to claim we are "the greatest" it won't be the end of the world. For one thing, we won't have as big a target on our back.

 

[newporttony]

The thing that you and others are conveniently overlooking is that marginal tax rates for higher-income individuals have at times been much higher in the past than they are today, and as far as I know, the country survived and prospered just fine. You guys are acting like Obama is proposing a radical idea that has never been attempted before in the country's history. On the contrary, he is merely proposing to allow the Bush tax cuts to expire for individuals in the higher-income brackets (as he very clearly said he would do). Seems like a very reasonable approach to me, in these difficult economic times for many Americans.

I think we can agree to disagree about this and move on to something else.

Unfortunately I can't just agree to disagree with someone who wants to take my money.

Putting aside all the evidence that increasing taxes slows economic growth and decreases tax revenue (and therefore only serves the purpose of hurting the rich, which is all some people desire), there is the issue of property rights. You see, I legally earned my money and you should have no claim to it. If you want more money, you should produce something others value and they will give it to you. It is morally wrong to take wealth from others through force (and if you think force is not involved, try not paying your taxes).

 

[HFWR]

Section 8. Clause 1. The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.

This is where it gets tricky...

 

[newporttony]

Section 8. Clause 1. The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.

This is where it gets tricky...

Congress has become incredibly creative in defining general welfare (and interstate commerce). Is there any aspect of our lives in which they don't feel compelled to involve themselves?


WASHINGTON - Eight days after a 200-pound chimpanzee critically mauled a woman in Connecticut, the House moved Tuesday to ban the transport of monkeys and apes across state lines for the purpose of selling them as pets.

A week after attack, House members move to control trade in pet primates

 

[RAE]

In the context of the discussion in this thread, it is not the absolute value of the increase that I'm arguing about, or whether it was higher or lower in the past. What bothers me is the idea that the increase won't have any adverse affects, such as dampening business investment. And the failure to recognize that that seems contrary to trying to "stimulate" the economy.

Is it really the right thing to do at this time?

-ERD50

Actually, none of the tax changes proposed by Obama (assuming they are approved by Congress) would go into effect until 2011. I believe he purposely decided to let the Bush tax cuts expire, rather than changing them immediately, for the very reason you state - making changes right now, in the middle of a crisis, would be counter to the goal of stimulating the economy. The expectation is that by 2011, the stimulus plan and other measures will have had the desired effect, and the economy will be stabilized and in recovery mode (whether you believe that will happen or not, that is the expectation). The proposed tax changes in 2011 are intended to address the widening income gap that has developed in this country over the last 30 years. The country obviously has other major problems that need to be addressed, health care for one, and the expiration of the Bush tax cuts is one way to help pay for those initiatives.

 

[newporttony]

...making changes right now, in the middle of a crisis, would be counter to the goal of stimulating the economy...

Isn't this a tacit admission that increasing taxes stunts ecomonic growth??

 

[Independent]

Yup. Plus, we've never been truly Keynesian; at times we've been "half-Keynesian."

Keynesianism indeed does encourage "pump priming" through deficit spending to put people to work and encourage economic activity. But pure Keynesianism also requires that in the good times, we pay back the debt we incurred in the bad times. In times of plenty, you have the slack to pay back what you needed to borrow to get things going.

We haven't done that. All we do is borrow and borrow and borrow, never paying anything back. Even the so-called Clinton "surpluses" were truly $100 billion deficits which were only balanced because of gains in the Social Security trust fund (which should have been considered off-budget, IMO).

[And how sad is it that a $100 billion deficit sounds glorious right now?]

In reality, pure Keynesianism hasn't been discredited. We had opportunities to generate surpluses in good times but never did it. I'm not an advocate of Keynesianism, but in its defense I felt it's important to remember that it doesn't mean constantly increasing national debt. It's easy to say Keynesianism has failed, but it hasn't been tried in its entirety. You want to cut taxes and/or raise spending to stimulate an economy in a recession, you have to raise taxes and/or cut spending to pay it back in good times.

I think I agree with you and HFWR. We'd be better off today if we had balanced the budget when we could. If I could turn the clock back to 2000 or 1990 or 1980 and change taxes/spending, I think we would be better off today.

But we can't turn the clock back. We can say "if/when we get back to reasonable level of employment, then we should be balancing the budget. That doesn't settle what we should be doing in March of 2009.