In some sense, the Republicans have lost the narrative battle over the Bush “tax cuts.” Every administration sets tax rates: Carter raised, Reagan cut, Bush 41 raised, Clinton raised, and Bush 43 cut. “Cuts” is simply an arbitrary label of some part of the cycle apart from the whole. These are not proposals to cut taxes, simply to continue the existing Bush rates, which are now a decade old.
Second, the “millionaires and billionaires” label that has been attached to the 2 percent that were targeted to have their taxes raised is misleading, since 95 percent of these “rich” do not make a million dollars a year; the vast majority made between $250,000 and $500,000. Somehow, the guy who runs a restaurant or has a successful dental practice, often with great risks and responsibilities, and makes $300,000 becomes a greedy “millionaire and billionaire,” while such real billionaires as Warren Buffett and Bill Gates become models of generosity for wanting higher taxes.
Third, the relationship between cuts and spending was not communicated well enough. The country is in near-hysteria over whether we raise taxes on the top 2 percent to 39.5 percent, yet seems indifferent to the fact that over the last decade we doubled the budget. The Republican Congress between 2001 and 2006 was as profligate as any Democratic one. By 2004, despite the aftermath of the 2001 recession and the trillion-dollar hit from 9/11, federal income-tax rates were lowered and revenue soared — but not enough to make up for the jump in spending (thanks in part to such programs as No Child Left Behind, prescription-drug benefits, and the farm and highway bills). Had we simply kept federal spending at the rate of inflation, despite wars and the 9/11 aftermath, Bush would have had near-balanced budgets and the utility of across-the-board tax cuts would now be unquestioned.
In this regard, Clinton’s reference to tax hikes that balanced the budget is half-correct: The Clinton administration and its Republican Congress proved to be the most tight-fisted in memory, and by freezing spending, they ensured eventual budget surpluses. But if we double the budget within a decade from $1.9 trillion to $3.8, then the old arguments over whether reasonable tax cuts lead to greater revenue or drain the treasury become academic.
Clinton's "budget" was only balanced/surplus because FICA tax revenues were also added to the general revenues instead of being accrued/invested against future benefit payments. Also, those two budget years benefited from the one-time Roth IRA conversion program that permitted IRA owners to transfer balances from tax-deferred traditional IRA's to tax-free Roth IRA's. The tax became due in the year of transfer, but the federal government gave the transferors 4 years to pay the tax. When the market crashed in 2000-2002, many recharacterized these taxable transfers and returned those funds to their tax deferred IRA's. In turn, this contributed to the steep decline in tax revenues in 2001-2003. Finally, remember that the federal government's fiscal years run from October 1st of the preceding calendar year to September 30th of the actual calendar year. This had the effect of making the "surpluses" seem even greater because, for example, FY 1999 included Q4 of calendar year 1998.
Reply to this commentLinkReport AbuseWhen did millionaire come to mean one with an annual salary of a million instead of a net worth of a million?
Reply to this commentLinkReport Abuse1. Yes, those "cuts" are a decade old, but they were designed to die at that age. So to claim that letting them expire (a lack of action) is wrong simply because they're thought of as a "cut" misses the point: It assumes that, if people thought about them differently, they would support them to a greater degree than they do. One might make the counter argument and find that, since the media (yes, even the "liberal MSM") has mislabeled the taxes as applying to *people* making $250,000, rather than applying to *income* (since we're talking about marginal rates here) about that level, correcting public misunderstanding in that regard would cancel out any effect from this "messaging error."
However, it assumes that polling the public is a good way to determine what actions the government should take. Recent polling on both the stimulus and health care, for instance, reveal that people support each of the individual provisions of each bill (save, perhaps, the individual mandate, which is necessary for the other, more popular provisions to be enacted), but that when these provisions are combined and labeled "Stimulus" ("Bailout") and "Obamacare," respectively, they are no longer popular. What would public opinion tell us to do?
2. Again, per the previous point, these are marginal rates, and though I do not need to explain what this means, I will: Let's say I'm a doctor with a net positive annual income of $300,000. I will be taxed at lower rates for the first $250,000 (if I have a family) I earn, and I will instead only see an increase (only $4.60 on every $100, by the way, as the rate would only increase 4.6%) on the last $50,000 I earn each year.
3. This is a post hoc ergo propter hoc fallacy. Just because revenue increased (far from "soaring") after the passage of the cuts in 2001 and 2003 does not mean that the revenue increase *resulted* from those cuts. Indeed, revenues tend to increase year-over-year, but the decade of the 2000s, even if you don't count the financial crisis of 2008, saw the slowest economic growth since the 1940s.
Reply to this commentLinkReport AbusePolling the people is the best way to determine what we as a nation should do if you believe that this is a government "by the people". Neither the Constitution nor anything else requires us to be a perfect country or to make only those decisions that lead to someone's definition of a perfect society. Those who make decisions about what is best for the country often forget that there is no agreed on definition of what "best" is. So taxing the rich more than the poor is not best if you believe in the intrinsic fairness of mathematics, where everyone would pay the same percentage of their income of the same number of dollars for what they receive in government services. I suspect we tax the rich because they are comparatively few in number and, as the bank robber said, "that's where the money is." It doesn't sound at all fair to me, and I am nowhere near the cut-off for rich, so it isn't my (marginal) taxes going up to 39.6%.
When it comes to polling people on what they want, however, you cannot just ask them if they would like a given service to be eprformed without pointing out what it will cost. Would you prefer a Ford Escape or a BMW? I might prefer the BMW but if it costs a lot more (and it does), I might find a Ford Escape does everything I need. Similarly with healthcare, no one wants the poor to be without health care, but that doesn't mean anyone wants to pay what it will cost. One might as well ask people if they want every child to be able to have a pony. Few would say no, but no one would want to pay for the maintenance and street cleaning that would be required. People have to be informed. Or we could go by the Constitution and on;y have government do what it allows. Just a thought.
Reply to this commentLinkReport AbuseI'm glad VDH concentrates on the "vast majority" who are in the $250k to $500k bracket. That "vast majority" gets at most an $11,500 tax savings. That's not even one minimum wage full-time job. Subtract from that tax savings the added FICA, Medicare and state and local employer-side expenses, and the "vast majority" won't wind up with anything other than a few grand added to the bottom line, which we all hope employers will go out and spend.
Reply to this commentLinkReport AbuseBeLogical,
My point about polling is not that a government does not receive its mandate to govern from the people, but it is instead that asking questions without the necessary context (and, like you said, including how much things cost is necessary context) produces an answer without any value, per my "stimulus" and "Obamacare" examples. One issue that becomes confusing here, though, is what kind and how much context is necessary: One might say simple money figures are, but those figures themselves need to get put in context. People thought the cost of the health care bill was too great, but it becomes something different when we include that the cost of its implementation (to say nothing of the money that implementation saves, at least according to the only estimates we have) constitutes 4% of what the country spends on health care annually. And so on.
Of course, I, too, believe in the intrinsic fairness of math, but we both know that it is much more complicated than that. People aren't variables. A more apt comparison would be one in which x only equals 6 if it were born into a middle-class family with access to quality education and after-school programs. Of course, these things are not determinant of a person's future, but they clearly influence it in ways at once easy and not-so-easy to quantify. So 2 +2 = 4, yes, but such a comparison assumes that the process by which we arrived at the equation is also fair.
Reply to this commentLinkReport AbuseFederal money used to sustain government (Security and Non-Security) amounts to less than 40% of the total spent currently, recent past, and projected.
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This means in excess of 60% will simply be used to write checks for people to cash.
Drop those transfer payments, taxes could be cut by more than half.
Reply to this commentLinkReport AbuseWho’s money is it?
Reply to this commentLinkReport AbuseA few thoughts. I have been without internet access for the last two days and am not completely up to date on this deal Obama and congress are striking on “tax cuts.” But why is it that we assume that money earned by an individual or a company is deemed the property of the government and is virtually a gift when those who earned it are allowed to keep it? I know there are people out there who literally make billions (with a B) and I have no doubt that they can take advantage of access and resources that the rest of us simply do not have. But it seems to me this is more a function of human nature than of capitalism. I suppose there is room for debate here, but there is an elite minority in North Korea who enjoy the trappings of prosperity as the vasy majority live in abject poverty. If someone can legally and honestly earn two or three million annually and they pay their share of taxes (and tax data clearly suggests that they do) then how much is enough? And why is their income considered the government’s to give back to them?
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Read "The Millionaire Next Door". These people are the salt of the earth, and to vilify them as the greedy rich is moronic.
Reply to this commentLinkReport AbuseThe economic aaspect of the narrative is quite important. However, I would suggest that there is a moral or casuistic aspect of the narrative where conservatives have failed also. We have not done well in rebutting the drumbeat against the "greedy" rich. Besides pointing out that people with incomes just over $250K are hardly mutli-millionaires or billionaires, we shoud ask this: why do leftists so intensely and viscerally hate succeesful people?
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Reply to this commentLinkReport AbuseIt's always interesting when the proponents of a higher tax rate claim that the extra tax, in the $10K range or so for someone earning $250-500K, matters not a whit in either their own economic decisions or to the economy in general. But if you suggest a similar percentage cut to a federal program the same folks gnash their teeth and rend their garments over the horrors that these massive cuts will unleash on the downtrodden, the environment, or the very fabric of America itself.
Cutting budgets ONLY hurt the government, and NEVER hurt businesses or families. Wash, rinse, repeat.
Reply to this commentLinkReport AbuseNot to mention the fact that there were no 'tax cuts' on the table this year--the only thing up for a vote were huge tax increases. Yet they were constantly referred to by the left as letting the 'Bush Tax Cuts' expire, as if they were some horrible plague on the land. We allowed the left to define the terms of the debate. It wasn't the Bush tax cuts, it was the Obama tax increase! Instead of forcing them to defend a huge tax hike, they forced us to defend 'tax cuts for the rich'. BTW, I don't call them the 'rich' anymore, I call them 'employers'.
Reply to this commentLinkReport AbuseNo, Sceptic, it's in the ZERO to $10k range for "someone earning $250-500K."
In other words, for someone pulling down $300k a year before taxes, it's a whopping $2300. That isn't going to make the difference for many, I'd venture, in deciding whether to hire another employee. On the contrary, it's likely to be viewed as a rounding error.
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