Idea for a tax extension compromise

[Mr.Phips]

The best compromise for the Bush tax cuts would be to extend the cuts for everyone making under $1,000,000 a year rather than $250,000 a year.  This would likely affect less than .05% of all taxpayers and would not harm the economy, as most people making this much money dont spend a high percentage of their income, unlike middle class taxpayers. 

Obama should throw cold water on any plan that extends all of the Bush tax cuts for any amount of time.  Its bad politics, bad economics, and bad for economic equality. 

[perdedor]

Or Obama and congressional Democrats could just grow a pair and oppose renewal of any portion of the Bush tax cuts. It really blows my mind to think that while the Democratic Party controls both houses by large margins and the Presidency, we are still looking for places in which we can compromise with the GOP. Where's LBJ when you need him?

[Brittain33]

Or Obama and congressional Democrats could just grow a pair and oppose renewal of any portion of the Bush tax cuts.

They campaigned on extending them for 98% of taxpayers. (Which also helps the richest taxpayers, because they pay some taxes in lower brackets.) It would take more than simply wanting to man up for them to decide to oppose the tax cuts in their entirety, it would mean a death wish for something most of them don't actually believe in.

[perdedor]

Or Obama and congressional Democrats could just grow a pair and oppose renewal of any portion of the Bush tax cuts.

They campaigned on extending them for 98% of taxpayers. (Which also helps the richest taxpayers, because they pay some taxes in lower brackets.) It would take more than simply wanting to man up for them to decide to oppose the tax cuts in their entirety, it would mean a death wish for something most of them don't actually believe in.

Let it be known that opposing the Bush tax cuts and opposing tax cuts in general are not the same thing. It was the stimulus that fulfilling Obama's tax promises, the Bush tax cuts are an entirely different monster all together.

[Brittain33]

Or Obama and congressional Democrats could just grow a pair and oppose renewal of any portion of the Bush tax cuts.

They campaigned on extending them for 98% of taxpayers. (Which also helps the richest taxpayers, because they pay some taxes in lower brackets.) It would take more than simply wanting to man up for them to decide to oppose the tax cuts in their entirety, it would mean a death wish for something most of them don't actually believe in.

Let it be known that opposing the Bush tax cuts and opposing tax cuts in general are not the same thing. It was the stimulus that fulfilling Obama's tax promises, the Bush tax cuts are an entirely different monster all together.

Obama specifically promised to keep the Bush tax rates for all but the highest tax brackets when he ran for office.

[perdedor]

Or Obama and congressional Democrats could just grow a pair and oppose renewal of any portion of the Bush tax cuts.

They campaigned on extending them for 98% of taxpayers. (Which also helps the richest taxpayers, because they pay some taxes in lower brackets.) It would take more than simply wanting to man up for them to decide to oppose the tax cuts in their entirety, it would mean a death wish for something most of them don't actually believe in.

Let it be known that opposing the Bush tax cuts and opposing tax cuts in general are not the same thing. It was the stimulus that fulfilling Obama's tax promises, the Bush tax cuts are an entirely different monster all together.

Obama specifically promised to keep the Bush tax rates for all but the highest tax brackets when he ran for office.

I don't recall Obama ever mentioning support for the Bush tax cuts in particular. If you have a link I would be glad to look it over. I seem to only recall Obama mentioning support for cutting taxes for the lower and middle classes (which he has done). It should also be noted that Obama's budget including letting the Bush tax cuts expire.

[Brittain33]

Or Obama and congressional Democrats could just grow a pair and oppose renewal of any portion of the Bush tax cuts.

They campaigned on extending them for 98% of taxpayers. (Which also helps the richest taxpayers, because they pay some taxes in lower brackets.) It would take more than simply wanting to man up for them to decide to oppose the tax cuts in their entirety, it would mean a death wish for something most of them don't actually believe in.

Let it be known that opposing the Bush tax cuts and opposing tax cuts in general are not the same thing. It was the stimulus that fulfilling Obama's tax promises, the Bush tax cuts are an entirely different monster all together.

Obama specifically promised to keep the Bush tax rates for all but the highest tax brackets when he ran for office.

I don't recall Obama ever mentioning support for the Bush tax cuts in particular. If you have a link I would be glad to look it over. I seem to only recall Obama mentioning support for cutting taxes for the lower and middle classes (which he has done). It should also be noted that Obama's budget including letting the Bush tax cuts expire.

At the "Full Obama Tax Plan" link found at this site (it's a PDF) he promises to keep the Bush tax rates for families making under $250,000.

http://www.barackobama.com/taxes/

[angus]

The best compromise for the Bush tax cuts would be to extend the cuts for everyone making under $1,000,000 a year rather than $250,000 a year.  This would likely affect less than .05% of all taxpayers and would not harm the economy, as most people making this much money dont spend a high percentage of their income, unlike middle class taxpayers. 

Obama should throw cold water on any plan that extends all of the Bush tax cuts for any amount of time.  Its bad politics, bad economics, and bad for economic equality. 

I'm no fan of tax increases, but he campaigned on the 250K didn't he?  Our federal government budget deficit is around 90% of our aggregate GDP and this isn't sustainable.  He should make the case.  If you really want to grow the economy, cut the corporate rates but let ALL of the Bush taxes expire.  But Obama did promise 250, so that's the appropriate goal for his administration.

Also, the new congress should repeal or dramatically reduce the scope of the massive health care bill recently passed.

We should also consider means-testing for Social Security and dramatically raising the minimum age.

Most importantly, we need some austerity measures.  Time to cut some spending (some welfare programs and subsidized union activities, for example, as well as hiring freeze in the federal civilian workforce).  Unfortunately I don't think the new congress (no matter which party controls) will have the courage to do this.

[opebo]

Most importantly, we need some austerity measures.  Time to cut some spending (some welfare programs and subsidized union activities, for example, as well as hiring freeze in the federal civilian workforce).  Unfortunately I don't think the new congress (no matter which party controls) will have the courage to do this.

No, austerity = depression, angus.  The way out of a deflation/depression is massive government action.  It isn't hard to accept once you drop the false dichotomy between 'private' and 'public'.

[angus]

No, austerity = depression, angus.  The way out of a deflation/depression is massive government action.  It isn't hard to accept once you drop the false dichotomy between 'private' and 'public'.

okay, I'm not an ideologue, and don't automatically recoil at the idea.  I know that the Make Works programs of the 30s did decrease unemployment, and when everyone thought the depression was over they cut spending and it got worse.  So that's the model you look to, presumably, when you make such statements.  It's a valid one.

But we can also note that the ongoing model shows that countries with high deficit-to-GDP ratios have longer-term problems.  There's also the foreign-owned debt problem, and the fact that we no longer know how to make the goods here and we therefore have huge trade deficits with emerging markets.  It would be one thing if you could do it the way FDR and his cronies did.  Their spending ultimately went into the U.S. national product.  But if you earmark huge sums for science, agriculture, public infrastructure improvements, and the like nowadays, the money spent on the crane makes its way to Japan, and the money spent on the turbomolecular pump makes its way into Germany, and the money spent on consumables like gloves and hats and boots and pipettes and syringes makes its way into China.  Maybe that's okay.  I'm not sure.  But I do know that it's a different world order from the 1930s, so you can't hang all your hopes on that model and expect exactly the same outcome.  

[Beet]

angus makes some very valid points. I generally support fiscal stimulus, but Keynesian AD / AS analysis as it's generally applied assumes a single closed macroeconomy. The effect of stimulus money "leaking" out to other countries I have not seen explicitly included. Money spent on fiscal stimulus should be strictly required to be made here in the USA. Let other countries bring a WTO case if they want; WTO cases take years to resolve anyway, and by then the stimulus may have expired anyway.

Monetary stimulus, on the other hand, I think should be more aggressive and unconventional. The argument against 'printing money' from age old has always been inflation. The people who argue against this say that they have thousands of years of history behind them, and they do. But the new economy we have today is one in which, unlike all ancient economies and most developing countries in recent years, is heavily based on leverage. The broader monetary aggregates are huge compared to the actual monetary base. As a result, during a debt destruction, one can print large quantities of money without significant inflation. The reason is that as debt is destroyed, the money supply is actually contracting, ceteris paribus.

Our problems include a weak economy due to weak final demand, a trade deficit due to an overvalued currency, and the threat of deflation. All of these things can be helped by a more aggressive Federal Reserve.

I also agree that allowing the Bush tax cuts for 250 to expire but keeping them for under 250 is Obama's appropriate position, given what he campaigned on. I also agree that the corporate tax rate should be cut (in both the US and Japan, but we're talking US here), although I don't understand corporate taxes as well as I'd like. Here is what CBO has to say about corporate tax rates:

"Corporate
investments are financed by either shareholders or
lenders (which include corporate bondholders). Compared
with the average effective marginal corporate tax
rates for shareholder-financed investment in machinery
among all other OECD countries, the United
States’ rate is slightly higher; compared with the average
among other G7 countries, the United States’ rate
is about the same. Compared with the average rate for
shareholder-financed investment in industrial structures
among all other OECD countries, the United
States’ rate is significantly higher; however, the United
States’ rate is close to the average among other G7
countries. In contrast to rates for shareholder-financed
investment, the United States’ effective marginal corporate
tax rate for lender-financed investment in machinery
is low by comparison with the average for
other OECD countries and for other G7 countries.
From an international perspective, although the
United States’ effective marginal corporate rates for
shareholder-financed investments are higher than the
average, such rates for investments financed by a combination
of shareholders and lenders may be lower
than the average if a sufficient fraction of the marginal
investment is financed by lenders."

And not surprisingly:

"The history of corporate tax rates between 1982
and 2003 suggests that countries do not change
their corporate tax rates independent of one another.
After large reductions in statutory corporate tax
rates by Ireland, the United Kingdom, and the United
States in the mid-1980s, other OECD countries also
cut their rates, perhaps out of concern that they would
lose investments or part of their tax base—for example,
when corporations moved their operations to a
lower-tax country. Hence, the corporate tax rates that
the United States establishes may affect the choices
that other countries make about rates. Thus, how the
United States’ corporate tax rate ranks in relation to
the rates in other countries is not determined by U.S.
policy choices alone."

Total US deficit however is about 10% of GDP, not 90%. Total US debt held by the public (aka real debt) is 60% of GDP as of July 28, 2010. This is lower than the OECD average.

The recent health care bill is deficit neutral, so it can't be blamed for the debt or deficit.

[Torie]

The Bush cuts will be extended for everyone after the election, except that for the "rich" it will just be for two years. Obama will accept the Boehner deal - after the election. You can write that down.

It also appears the Dems will forego a vote getting folks on record about whether to extend the tax cuts for the "rich." That pawn move by the Dems is now inoperative. They decided it was too risky, particularly with one segment of their party off the reservation, and some fear the the Pubbies will just run clips of Dems bashing the Obama plan which the GOP can run elsewhere.

So what is next pawn the Dems will move on the chess board I wonder?  Of is it now just a money game, with the Dems in marginal seats pretending they are off the reservation? 

[Brittain33]

The Bush cuts will be extended for everyone after the election, except that for the "rich" it will just be for two years. Obama will accept the Boehner deal - after the election. You can write that down.

Why would Obama accept an extension for two years? Wouldn't that mean having the same exact fight right before the presidential election?

[Torie]

The Bush cuts will be extended for everyone after the election, except that for the "rich" it will just be for two years. Obama will accept the Boehner deal - after the election. You can write that down.

Why would Obama accept an extension for two years? Wouldn't that mean having the same exact fight right before the presidential election?

Right. He will do it, because given the election result, and all, and because the GOP is holding everyone else hostage, it is a reasonable Faustian bargain, and the voters have made clear that they expect compromises. If he does not do it, and the economy continues to disappoint, then he will be blamed. On this one, I am pretty confident.

[Mr.Phips]

The Bush cuts will be extended for everyone after the election, except that for the "rich" it will just be for two years. Obama will accept the Boehner deal - after the election. You can write that down.

Why would Obama accept an extension for two years? Wouldn't that mean having the same exact fight right before the presidential election?

Right. He will do it, because given the election result, and all, and because the GOP is holding everyone else hostage, it is a reasonable Faustian bargain, and the voters have made clear that they expect compromises. If he does not do it, and the economy continues to disappoint, then he will be blamed. On this one, I am pretty confident.

What is to stop angry defeated Democrats like Barbara Boxer, Russ Feingold, and Patty Murray from filibustering any extension in the lame duck session?  They could give a sh*t if taxes are increased on everyone once they are defeated.  Im pretty sure that the only Democrats who would vote for cloture on this would be Evan Bayh, Ben Nelson, Bill Nelson, Kent Conrad, Mark Warner, Mark Pryor, Mary Landreau, and maybe Jim Webb. 

That's only 49 votes to shut off debate, not anything close to the 60 they need.

Democrats will be in no mood to compromise after the way the media and Republicans treated them for the last two years. 

[Mr.Phips]

The Bush cuts will be extended for everyone after the election, except that for the "rich" it will just be for two years. Obama will accept the Boehner deal - after the election. You can write that down.

 

And Obama will earn himself a primary challenge in 2012 if he does this. 

[Torie]

Sure it might have to wait until January.

[Mr.Phips]

Sure it might have to wait until January.

And there will still be a filibuster.  You would not believe how angry Congressional Democrats are at Obama, the Republicans and the media.  He will be forced to veto any extension or face primary challenge.  

Besides, even if Republicans get 51 votes in the Senate, they will still need nine Democrats to support them to shut off debate.  Right now, I can only count Ben Nelson, Bill Nelson, Conrad, Warner, Pryor, Landreau and possibly Webb.  That is only 58 votes, at most,  for cloture.  Most Democrats wont be doing any favors for Obama and Republicans after this election. 

[Torie]

We shall see. Someone should make a list of all my wild predictions. It might turn out to be a very fun roast - at my expense.

[Mr.Phips]

We shall see. Someone should make a list of all my wild predictions. It might turn out to be a very fun roast - at my expense.

Well, you were wrong about healthcare not passing. 

My prediction here(about taxes) is that a bill wont even get to Obama's desk. 

[angus]

Money spent on fiscal stimulus should be strictly required to be made here in the USA.

Some inherent problems in that as well.  It may be that the specific gene sequencing device you need to buy is manufactured only in France.  Or that the lithium you need is mined only in China.  You can encourage US-made goods, and in the 1930s that would have been great, because there were many US made goods.  Back then, all you really needed to go outside the US for was tequila and silk.  And I don't mind a few dollars going to Jalisco and Oaxaca if it makes for a good party, or a few dollars going to China if it means the softest sheets and pajamas.  But I don't want boatloads of money going redistributed, by fiat, from the US taxpayer to the rest of the globe.  It's really a dilemma.  Let me buy anywhere and I'll buy from the cheapest supplier.  Let me only buy from US manufacturers and I'll limit myself to sub-standard equipment in certain cases, and not even be able to find it in other cases. 

[Beet]

Money spent on fiscal stimulus should be strictly required to be made here in the USA.

Some inherent problems in that as well.  It may be that the specific gene sequencing device you need to buy is manufactured only in France.  Or that the lithium you need is mined only in China.  You can encourage US-made goods, and in the 1930s that would have been great, because there were many US made goods.  Back then, all you really needed to go outside the US for was tequila and silk.  And I don't mind a few dollars going to Jalisco and Oaxaca if it makes for a good party, or a few dollars going to China if it means the softest sheets and pajamas.  But I don't want boatloads of money going redistributed, by fiat, from the US taxpayer to the rest of the globe.  It's really a dilemma.  Let me buy anywhere and I'll buy from the cheapest supplier.  Let me only buy from US manufacturers and I'll limit myself to sub-standard equipment in certain cases, and not even be able to find it in other cases. 

Of course there is a trade off between quality and choice, angus, but without pain there is no gain. That is, without the government willing to take a slightly inferior good (to the best of its knowledge... for some goods you really cannot tell which is superior and which is inferior) that is made in this country, we will never benefit from our own stimulus. And don't bring in fairness, because it's a joke that other countries don't heavily subsidize their own industries. The US has historically been more committed to free trade than anyone else, which our large trade deficit is a prominent exhibit thereof. We are entitled to a little favoritism when the case is fiscal stimulus. In the case that said good or substitutes absolutely cannot be found in the US is an extreme case, IMO; in this case there is little to be lost by importing, but if such purchases are to be the bulk of any project, then stimulus money should be spent elsewhere unless what is being bought nonetheless will benefit the US long term. Capital goods that will ultimately return a greater profit than their cost might be one example.

[angus]

don't bring in fairness, because it's a joke that other countries don't heavily subsidize their own industries. The US has historically been more committed to free trade than anyone else, which our large trade deficit is a prominent exhibit thereof. We are entitled to a little favoritism when the case is fiscal stimulus.

Inside every moderate Democrat is a Republican struggling to break free.  

Okay, good points all.  I'll surrender specifically on the point of favoritism.  After all, if the stimulus is to bolster the US economy, you have to make some stipulations.

In the broader context, you have to address the huge federal government's budget relative to the aggregate economy.  Regardless of opebo's comment about private and public sectors being arbitrarily defined (assuming he's serious), it's a real concern.  So does the stimulus really help grow the economy, or does it simply delay the inevitable contraction which must necessarily follow the irrational exuberance of the preceding decade and a half?  If it is our time to recognize that we are no longer the biggest bully on the block, we can admit that gracefully and move on.  After all, China's stimulus was only a fraction of what we did, and theirs was more more targeted, and therefore more effective.

[🐒Gods of Prosperity🔱🐲💸]

The best compromise for the Bush tax cuts would be to extend the cuts for everyone making under $1,000,000 a year rather than $250,000 a year.  This would likely affect less than .05% of all taxpayers and would not harm the economy, as most people making this much money dont spend a high percentage of their income, unlike middle class taxpayers. 

Obama should throw cold water on any plan that extends all of the Bush tax cuts for any amount of time.  Its bad politics, bad economics, and bad for economic equality. 

this idea occurred to me as well, but I'm not sure if it makes sense. how much revenue will that actually take in? and just as importantly, how will it be used? if we using it to support other tax cuts or decrease the deficit it could be a good idea, but what assurance is there it wont just be used for more spending? if it's just more spending, there's really little case for not just letting it be spent privately.

[Mr.Phips]

The best compromise for the Bush tax cuts would be to extend the cuts for everyone making under $1,000,000 a year rather than $250,000 a year.  This would likely affect less than .05% of all taxpayers and would not harm the economy, as most people making this much money dont spend a high percentage of their income, unlike middle class taxpayers. 

Obama should throw cold water on any plan that extends all of the Bush tax cuts for any amount of time.  Its bad politics, bad economics, and bad for economic equality. 

this idea occurred to me as well, but I'm not sure if it makes sense. how much revenue will that actually take in? and just as importantly, how will it be used? if we using it to support other tax cuts or decrease the deficit it could be a good idea, but what assurance is there it wont just be used for more spending? if it's just more spending, there's really little case for not just letting it be spent privately.

Lets actually figure this out.  There are about one million taxpayers who make over $1,000,000 a year.  Lets say the average of these million make around $5,000,000 per year.   This comes to a total of four trillion dollars.  Four trillion taxed at 35% gets you 1.4 trillion, while four trillion taxed at 39.6% gets you 1.584 trillion.  Thats almost $200 billion a year in savings right there.