Mitt's tax plan: Cut taxes for the rich, raise them on everyone else

[Beet]

A graduated tax rate can be justified on the basis of diminishing marginal returns, an economic concept that applies to all forms of income and consumption. To take an extreme example, you could have an extremely poor family that earns just enough to eat, clothe, and pay rent at the poorest possible subsidized housing rate. Any more than a 10% tax means that the family can't afford rent, has to miss a meal, or perhaps can't celebrate Christmas. This is a heavy blow, and it means a lot to these people.

On the other hand, take the likes of Bill Gates. Gates has a huge charity because he knows he has more money than he could ever possibly spend. Even if he tried to spend, the biggest house in the world, an army of servants, the biggest yacht, the biggest plane, the most sumptuous food and entertainment, parties every single day, he could not possibly spend even a small fraction of his fortune. So he gives it away. 10% for him is nothing.

Now, if taxes need to be raised, would it not be worth it to raise Bill Gates' tax from 10% to 15%, and leave the barely-scraping-by family's tax at 10%? Than to raise both Bill Gates' and the barely-scraping-by families' tax reach to 14%? The latter proposal (the flat tax) would actually generate far less revenue, despite the fact that average tax rates under it are higher than under the progressive tax. The progressive tax can absolutely be justified on sound economic and moral grounds that have nothing to do with class warfare.

[Beet]

No one is saying government intervention "only has benefits" and no costs. Everything has a cost.

[Beet]

First of all, even those who do not work pay tax. Even little children pay tax on their toys, or their parents do. Every single person in this country who has reached voting age has at some point seen, firsthand, the cost of government. Are you seriously disagreeing with the idea that death and taxes are the only certain things in life?

Volcker's shock therapy wasn't nearly as much of a success as it was portrayed. Every recovery from 1982 until 2009 was based on an explosion of debt, and that's exactly what we're paying for today. Post-Volcker, debt replaced inflation; and debt is even more insidious, because while the harmful effects of inflation are seen right away, debt can build up seeming innocuously for years until there is finally a crisis. And contrary to popular belief, since 2009 the economy has actually been cutting debt, as a share of GDP, for the first time since the Great Depression.

Not to mention, Volcker was a shameless, unprofessional partisan hack who tried to help Jimmy Carter win re-election but utterly failed at being a partisan hack.

[Beet]

One, I was talking about federal income taxes. Two, if we give tax dollars to somebody in exchange for their existence and they spend part of those tax dollars on taxes, is that person really paying taxes?

In exchange for their existence? One would think people have their mothers to that for that, not the government.

Very, very few people have never done a day of formal work in their lives (well, maybe Ann Romney). Even most people on welfare, or temporary assistance, who currently do zero work (which is a tiny minority of people), have at some point worked and paid federal social security, and unemployment insurance taxes, which are substantial.

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Then why has Obama overseen the slowest spending growth in decades?



Why is this the first recovery from recession in which fewer people are working for the government than before?



I'd argue the opposite of your case- more people are becoming aware that the growth rate of health care costs is becoming unsustainable, and that it needs to be addressed to ensure the stability of the federal budget. With Republicans in control of the House, which decides on the budget, they can't complain that spending is out of their control. Obama can't do anything fiscal-wise as long as Boehner is Speaker, and that is not likely to change after November.

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A plan that lowers revenues would increase public debt, as it did under Reagan and Bush. This is the same failed rhetoric from the Bush administration. Romney is going to need to do better than that to convince people who can remember back more than a few years.

I'm going to do something else now, but I appreciate the discussion.

[Beet]

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The spike in the deficit is mostly due to falling revenues, which was tied to the recession. The increased spending can also be attributed to the effects of the recession. The solution is to stimulate the economy and we've learned from Europe (and the Great Depression) that just cutting spending alone doesn't stimulate the economy. It can actually make the economy worse.

Besides, I know this'll probably go over your head, but the deficit is a deeply misunderstood phenomenon. I'll let Edward Harrison from Credit Writedowns explain this:

I’ll let you in on a secret: before this crisis, when I thought about the budget deficit I was like everyone else in that I paid no attention to how the government budget interacted with the private and trade sector balances. This is a big error. If you do that, you treat the government budget deficit in isolation, when the reality is that the government is an integral part of an open economy with households and businesses that trade domestically and abroad. When the government balance changes, the balances for those businesses and households change too. If you are talking about deficits then, you need to know how changes in the government balance affect the rest of the economy.

Here’s the thing: when we exchange goods and services with each other, from an accounting perspective, it’s a wash; if you buy my goods, I get money and you get goods of equivalent value. If you pay for those goods with an I.O.U., with a debt, your liability, your deficit in the year we made the transaction, is exactly equal to the asset on my balance sheet and my surplus for the year. I mean this is basic accounting, folks. There’s no hocus pocus. Any person’s, any household’s, any business’s, any group’s, any government’s debt is someone else’s asset. Any person’s, any household’s, any business’s, any group’s, any government’s deficit is someone else’s surplus. Again, it’s basic accounting.

Read the entire article, it's good.

http://www.creditwritedowns.com/2012/05/why-cant-people-understand-national-accounting.html

The point is not that "deficits don't matter", but that the government deficit of the past 3 years has actually been a way to allow the private sector (the much bigger part of the US economy) to rebuild its balance sheets by cutting its borrowing, while still supporting final demand somewhat so that private individuals and companies can continue to earn income. The 2008 crisis was brought on by catastrophic private sector balance sheets (primarily in the consumer and financial sectors) and we as Americans collectively haven't given ourselves enough credit for turning it around. As a result of this turnaround, future government deficits will be much lower than they otherwise would be. Private sector leveraging has been shown on an international basis to have major costs to public sector debt once the private sector can no longer support its levels of debt. Private sector deleveraging will have the opposite effect.

That is not to say that further deficit reduction in the long run is not needed. Obama and Boehner, both agree on this. After the election, no matter what happens, I think you'll see some moves towards fiscal consolidation.

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In 2010, the latest year for which figures are available, there were 2.133 million federal employees. In 1967, there were 2.251 million.

http://www.opm.gov/feddata/HistoricalTables/ExecutiveBranchSince1940.asp

In other words in the past nearly half century when the population went up 60% and and the economy more than tripled in size, the federal workforce has actually fallen. So no, my point doesn't only apply to state and local governments.

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How would the flat tax ensure public debt will get under control when the government can simply borrow? Your plan does nothing to ensure that people 'feel the pain' of government spending because the tax rate can simply be set at an unrealistically low rate while deficits continue to be run. If anything, it would increase the resistance to tax hikes, thus making the deficit worse.

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Another absurdity. We will not "die" (as a nation) on account of fiscal issues, no matter what happens. At the end of the day this nation's wealth is in it's people, it's capital, its laws and values, its technology, its natural resources, it's institutions, it's protection by the oceans, it's international image and brand, and the like. You know, real things. Unlike what conservatives think it does not lie in shiny objects or numbers written down on a piece of paper.

[Beet]

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No it didn't. Thanks to the Obama administration's policies, what was originally projected to cost $700 billion only needed $416.1 billion disbursed, and of that, $350 billion has already been paid back, leaving only about $66 billion left outstanding. Less than one-tenth what the Bush administration thought it would cost (http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/Daily%20TARP%20Update%20-%2007.25.2012.pdf).

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That's not true; the nonpartisan CBO has said time and time again that Obamacare reduces the deficit. (http://www.tnr.com/blog/plank/105327/cbo-obamacare-deficit-medicaid-expansion-cost-revenue-exchange). Repealing it would inrease the deficit (http://www.rawstory.com/rs/2012/07/24/cbo-repealing-obamacare-would-increase-deficit-by-109-billion/). These are the facts, not bluster.

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What percentage of the federal budget is spent on public union pension plans? You do know that public union pension plans are funded by states, right? The federal government has nothing to do with it.

The deficit is due to Bush's policies and the bubble that he oversaw.



And you want to put the GOP back in power with the same ideas as under Bush?

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The Credit Writedowns post went over your head, just as I knew it would. If it hadn't you would have understood that there is no net effect from deficit spending on an accounting basis. If the government borrows from the private sector and spends it, the money goes right back out into the private sector and is earned by the private sector as income. Additionally, the bonds that the government gave in exchange for the funds it borrowed become an asset on the private sector's balance sheet. The deficit is essentially allowing the private sector to earn income while still paying down debt. It stimulates the economy be propping up final demand, thus keeping more people in jobs. It doesn't matter if you think a worker is inefficient, a worker who is working is always more efficient than a person who is not working. It also stimulates demand through the multiplier effect.

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Who is against cutting "waste"? Your points are nothing more than hollow platitudes. What, exactly do you consider to be waste? Cutting taxes will reduce revenue and increase the deficit. If cutting taxes were the path to prosperity, the massive tax cuts of the Bush years should have led to prosperity. Instead, they led to 2008. Besides, it's not as if Obama hasn't cut taxes: Americans paid the lowest tax rates in 2009 since 1950 (http://www.usatoday.com/money/perfi/taxes/2010-05-10-taxes_N.htm). So what was it? Either low taxes lead to prosperity, in which case the low taxes that we currently have are the right path, or the economy currently is still struggling, and low taxes weren't he panacea they are made out to be by the GOP, despite trying them again and again. Bill Clinton, by the way, raised taxes in 1993. The Republicans predicted it would lead to a recession. They were wrong. To top it off, Obama's plan would leave taxes for the vast majority of Americans lower than Romney's plan, so even if your statements are accepted on face, they make no sense as an argument for Romney.

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The interest on the debt can be easily serviced. Interest rates right now are at 60-year lows, some even negative, which means that the private sector is paying the government to hold onto its money. And who do you think would be collecting the interest, if interest rates went back up? The private sector. So it would be funded with taxes on the private sector, and what it is, is payment back to the private sector. Net effect zero.

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Maybe not, but there is a huge amount of evidence from many historical incidents across many countries that excessive levels of private debt get transferred onto governments, whereas countries countries that are able to run government surpluses do so at times when the private sector balance sheets are healthy enough to enable it to create final demand by leveraging itself. This then contributes to higher government revenues.

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That's not dishonest; those are the facts. The long term trend in absolute size of the federal workforce is relatively stable, and as a percentage of the population it is falling. If you made a chart with all the data points there, you would see the same thing. I deliberately excluded World War II because the war effect was so dominant. An 8% increase over 16 years is still not a lot. The US population has increased at a faster rate. So even by your own standards, the federal workforce as a percentage of the population was lower in wartime, post-9/11 year of 2010, than in 1996, when Bill Clinton declared the era of Big Government to be over.

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Forgive me if this sounds arrogant, but attempting to engage you reminds one of an Aesop's Fable:

"The Owl is a very wise bird; and once, long ago, when the first oak sprouted in the forest, she called all the other Birds together and said to them, "You see this tiny tree? If you take my advice, you will destroy it now when it is small: for when it grows big, the mistletoe will appear upon it, from which birdlime will be prepared for your destruction." Again, when the first flax was sown, she said to them, "Go and eat up that seed, for it is the seed of the flax, out of which men will one day make nets to catch you." Once more, when she saw the first archer, she warned the Birds that he was their deadly enemy, who would wing his arrows with their own feathers and shoot them. But they took no notice of what she said: in fact, they thought she was rather mad, and laughed at her. When, however, everything turned out as she had foretold, they changed their minds and conceived a great respect for her wisdom. Hence, whenever she appears, the Birds attend upon her in the hope of hearing something that may be for their good. She, however, gives them advice no longer, but sits moping and pondering on the folly of her kind."

And with that, it being 3:39 AM here, and I being a hardworking, full time professional, I must keep my promise...

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You know nothing about the situation in Europe. The root of that problem is countries that don't control their own currencies, it has nothing to do with any of the debates in the US, except that it shows that austerity doesn't work.

[Beet]

Why am I still awake. Why O Why.

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The link I pasted included AIG. The Obama Treasury has been regularly earning back the AIG money (http://www.bloomberg.com/news/2012-03-15/aig-said-to-boost-u-s-tarp-recovery-to-80-with-payment.html) that the Bush Treasury spent.

Yes the government lost money on the takeover of Fannie Mae and Freddie Mac, but the losses in the mortgages giants were directly tied to the overinflated value of housing in the mid-2000s, at the height of the Bush Presidency, aided and abetted by deregulation that he accelerated, and a conservative Republican Fed Chairman who looked the other way. In 2004 Bush campaigned for reelection on the housing bubble, bragging about the "homeownership rate" and benefitting from the temporary construction jobs created by the bubble. To use those losses as a reason to reward the same party that caused the calamity selling the same ideas that caused the calamity would be blaming the victim- not as bad as impriosning a rape victim for being raped, as they do in some areas of Pakistan, but the same principle. It would be heinous.

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There are cuts to Medicare, as well as increased taxes in Obamacare that more than offset the entitlement for poor people. Hence, it leads to a lower deficit. If you can't understand that you are really stupid. The CBO's projection is actually conservative, as it only covers the years to 2022. Once you go past that, the deficit reduction from Obamacare is even greater. Also, the CBO actually has a history of overestimating entitlement costs (http://insuremekevin.com/2012/05/10/prescription-drug-plan-cost-overestimated-by-cbo-healthcare-reform-also/) so there's a chance that they're actually being too harsh on Obamacare.

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A stimulus that was 28 percent tax cuts and cut taxes overall for 95 percent of Americans? Keynesian theory says nothing about where the money is spent; in fact Keynes himself once drew the analogy that the economy would be better off if the government hired people to dig useless holes, because at least it would get money flowing. I've already posted a list of nine studies of whether the stimulus worked (http://www.washingtonpost.com/blogs/ezra-klein/post/did-the-stimulus-work-a-review-of-the-nine-best-studies-on-the-subject/2011/08/16/gIQAThbibJ_blog.html) and most of them say that it did have a large positive impact. If anything, the stimulus was too small. A bigger stimulus would have helped even more.

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Go back and read what I wrote about deficits up above.

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No, it's simple accounting, the same kind you can find in any freshman-level 101 economics textbook. National accounts are the F = MA of economics. In any case, nowhere have you shown that you even understand what was being presented, let alone begin to formulate a response to it.

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LOL. Public unions have taken a massive hit in this country in the past few years. Have you ever heard of Wisconsin? In Wisconsin, it wasn't even the benefits that the unions were attempting to defend, it was merely their right to negotiate, and they still lost. Even Andrew Cuomo has cut the public unions' benefits. The massive losses in state and local government jobs compared to all the previous postwar recoveries show that state and local public workers have been hit hard. And before that, Republicans as well as Democrats fed them richly.

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And the GOP opposes even the modest regulation that was passed under Dodd-Frank.

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That is bullsh**t-- read the Financial Crisis Inquiry Report. The vast majority of problem loans came during the private sector subprime bubble of 2003-07, when mortgage shots like Ownit, Golden West, and Countrywide were shovelling bad loans to Wall Street with assembly-line efficiency, since they thought they could offload the risk and Wall Street thought it could offload the risk through securitization.

[Beet]

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Well low taxes and unsustainable deficits is exactly what you'd get under Romney, who wants to cut taxes for the rich and increase spending.

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Without the tax increase of 1993, the budget would have never been balanced. The Internet didn't only grow during Clinton, it also grew during Bush. Bush also had the housing bubble going for him. He also had massive tax cuts, supposedly, going for him. Two rounds of them, in fact. Yet his record was worse than Clinton's.

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LOL. He already had a chance to put in a new Chairman of the Fed and he reappointed the Republican, Ben Bernanke. Romney would do the same. There is no difference between the two on who they'd put in as Fed Chairman. And it's hard to argue Obama has had a raging hard-on for raising taxes when he cut taxes in 2009 and again in 2010 during the lame duck session, and wants to extend the vast majority of the Bush tax cuts.

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Now you're confusing real interest rates with nominal interest rates. I'm talking about real interest rates. But including inflation as a variable changes nothing, b/c interest rates are judged on a real basis. If you tax the interest that is earned on government debt, and then use that tax money by spending it in the real economy, the money still goes right out back to the private sector. The private sector still earns it as income. Nothing in my point is changed. Ironically, the only way that the government could reduce the balance sheet of the private sector, is if it ran a budget surplus. In that scenario, the government would be taxing the private sector, but not buying from the private sector in the same quantity, thus it would be taking from the private sector on an accounting basis. Economics is based on accounting; you don't have economics without numbers, so there's a distinction without a difference in this case.

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This is unsupported. FactCheck.org, which critically analyzed and debunked the claims from both sides, concludes that "In reality, the question of whether or not federal employees are overpaid doesn’t have a simple answer, according to Charles Fay, a professor at Rutgers University and former Federal Salary Council member. Those in entry-level jobs in the government might earn more than entry-level jobs in private practice, he notes, while the opposite is true for those in management and specialized fields requiring years of experience. "The higher you go, the more they’re underpaid," Fay says. "The lower they go, the more they’re overpaid." (http://www.politifact.com/truth-o-meter/statements/2010/feb/10/jon-stewart/stewart-claims-stimulus-bill-one-third-tax-cuts/)

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There is no reason to believe that it would. Clinton's cuts to the federal workforce were miniscule, and they're a miniscule part of the economy. And the economy was already recoverying strongly in 1993 and 1994, before the GOP took over the House, and before Clinton's shift of message to a more economically centrist approach. In any case, Obama has been to the right of Clinton when it comes to tax rates.

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To still a lower level than Clinton had in 1996, once all federal government workers are included (http://www.opm.gov/feddata/historicaltables/totalgovernmentsince1962.asp). And as a percentage of the total population, an even lower number than that.

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First of all, nice dishonesty, posting a chart with the last data point having unemployment at 9.1% when the most recently available data shows it at 8.3%. But I've already addressed that chart in a previous post. See here.

And yes, over 8% unemployment is not good. In the past 80 years only one President has been reelected with over 8% unemployment (FDR). But the main difference between 1936 and the other economic downturns that doomed incumbent parties in 1980, 1992 and 2008 is that in 1980, the economy was worse than in 1979, in 1992 it was worse than 1991, and in 2008 it was worse than 2007. Wheres in 1936, it was better than in 1935 and had been improving since FDR's first year in office. Similarly the economy this year is better than last year and it has been improving, albeit more slowly, since 2009. Hence Obama still has a chance, since we're heading in the right direction. People don't want to go back to the failed policies that got us here in the first place.

[Beet]

Nor will I respond to your post point by point.

I will make a few minor points- first of all, what you linked to was not a study, not really even a "mainstream report", as you put it- it was an opinion piece. Although the WSJ is certainly reputable and Taylor is reputable, the piece itself consisted only of a series of stylistic representations of historical events with no quantitative founding whatsoever. The heavily misleading style of the article can be found in the fact that no mention is made that monetary policy was the primary driver of economic shifts 1980-83, or that GDP and jobs growth was very strong throughout 1975-79. These omissions are enough to discredit the article because the authors do know better, but they deliberately misrepresent.

Secondly regarding the borrowing costs of US businesses- what are they? As usual you make assertions that are the direct opposite of the actual truth, which you seem to think you can get away with on account of not actually citing the relevant facts:



There are your corporate borrowing rates. Collapsing.

Rather than respond to the rest of your points I will simply note that the central thrust of your argument, that 'Obama is hurting business' argument just won't fly. Why? Let's see- The value of major American public companies has surged since March 2009. The NYSE Composite is 73% higher today than when the stimulus passed. Other major indices have doubled. The Dow is up 103% in just three years. The S&P is up 110%. The Nasdaq, which represents the leading technology edge of corporate America, is up 137%. These are not my judgments or the result of anything you or I, or Obama or Romney, say; they are the judgments of the free market, of millions of people putting their trillions of dollars where their mouths would be if they spoke what they thought.

And they would be right, for the profits of US companies are in fact surging:



The economy is not a monolith. It has various parts and components. It baffles me that you- and Romney, are focusing on the one are of 'the economy' where things are going the most smoothly. One can argue that Obama hasn't created enough jobs. One can argue that income growth hasn't been fast enough. One can argue that people are struggling. One can argue the deficit. The one thing one cannot argue with a straight face is the condition of American business.

[Beet]

Hey Beet, whoever the Obama campaign has that is handling their policy and economic messaging, they should fire that person and hire you!  Well done.

Thank you anvi. Yes, it may be too complicated, but surely there is room for messaging at different levels. Anyway - the points above are not all that complicated.

[Beet]

I will caveat my position to say that there's a big difference between large business and small businesses. Small businesses are much like the rest of the economy - they're struggling much more than large ones. Of course, they also don't compete with the government to borrow.

[Beet]

The Taylor article you linked is actually in the link that I pasted first-- it's the one study out of nine that didn't find a substantial effect from the stimulus. The other eight studies all found more effect.

My point was that government spending is crowding out private investment. Case in point, we're almost three years into the recovery yet private investment is nowhere near the level it was before the recession:

The chart seems to show steady recovery- growth since 2009 has been as fast or faster than any other time on your chart. Also keep in mind that domestic 'investment' includes residential & commercial real estate construction. Since there was a massive glut of real estate after the bubble, not as much 'investment' was needed or desired.

Once you narrow it slightly to private nonresidential fixed investment (still including commercial real estate), we are almost completely recovered:



But our real disagreement is a fundamental difference- I think the low interest rates show it's clear private investment isn't being crowded out. The market is practically begging the government to take it's money. In other words, the verdict of the markets themselves are that the government is best suited to invest more than it currently is.

Government and private sectors aren't competitive-- they're complementary. The competitive narrative assumes that there is no slack in the economy and that any resources are either being utilized under the direction of government or private business. But the problem in our economy today is precisely that there is slack. The existence of unemployment, for instance, represents slack. The fact that industrial utilization is below its long term average tells us the same.

In any case, but especially under these conditions, government and the private sector are complementary-- private activity boosts government revenues, and government activity boosts private revenues. Neither could exist without the other, and both help each other. They're two sides of the same coin.

The fundamental variable here is final demand-- the higher final demand, the more the private sector will invest, for they will see that there will be a return on their investment. The government can play a role in supporting final demand.

[Beet]

Erskine Bowles: Romney’s tax plan wouldn’t cut the deficit

http://www.washingtonpost.com/opinions/why-romneys-tax-plan-wont-cut-the-deficit/2012/08/09/37fb2d20-e19c-11e1-a25e-15067bb31849_story.html

"The most important lesson Al and I learned on the commission is that to fix the debt, everything must be on the table. Americans everywhere have told us that as long as the sacrifice is shared, they are ready to do their part. The surest way to doom deficit reduction is to play favorites by taking things off the table.

So although I give Romney credit for pledging to reform the tax code to reduce loopholes, his current proposal will not take us to the promised land. Our commission’s tax plan broadens the base, simplifies the code, reduces tax expenditures and generates $1 trillion for deficit reduction while making the tax code more progressive. The Romney plan, by sticking to revenue-neutrality and leaving in place tax breaks, would raise taxes on the middle class and do nothing to shrink the deficit.

Obama hasn’t gone as far in cutting spending, particularly in health care, as is necessary to stabilize the debt at a reasonable level and keep it on a downward path as a percentage of the gross domestic product. But in contrast to Romney, the president — like the “Gang of Six” and other like-minded members of both parties — has embraced the central principle of Simpson-Bowles: that America will turn the corner on its debt only if Republicans and Democrats come together to support a balanced deficit-reduction plan. For the numbers to work, both parties need to put aside partisanship."

Ouch.