Thursday, December 09, 2010

The Tax Battle Rages

The verbal battle rages on about the President’s tax deal, and the more that everyone else rants and raves about it, the more rational President Obama sounds. I regard the deal itself, of course, as nonsensical because I’m of the school that thinks taxes should go up. I have a hard time believing that this country would founder with the Clinton tax rates in effect, when it thrived so well when the Clinton tax rates were actually in effect.

I seem, however, to be the only person in the United States who holds that position so, for the purpose of discussion, lets assume that keeping taxes lower is the sole purpose of our elected officials. […] I’m back, I had to go take an Alka-Seltzer after typing that.

Opponents of the tax deal say that taxes for everybody else should go up in order to prevent a good tax deal for a handful of rich people who don’t need the tax cut. That’s called “cutting off your nose to spite your face.” In order to piss off a few rich people you are willing to financially damage several hundred million poor people.

Conservative supporters are fine with the deal because the tax cut for the rich is going to help rich people and businesses create jobs and stimulate the economy. We may need to point out that this is not a new tax cut; it has been in place for ten years. If it is going to stimulate the economy and create jobs, why has it not been doing so for the past ten years?

Liberal supporters… Sorry, I’m the only liberal remaining in the US.

Progressive supporters of the deal are happy because it is going to create jobs and stimulate the economy. That’s directly from Nancy Pelosi, by the way, I’m not making that up. Republicans are no longer alone in the belief that tax cuts grow the economy, that mantra has now apparently become universal. Seemingly Paul Krugman, Karl Denniger and I are the only ones not agreeing with it. That puts us on the short end of 100,000,000:1 odds, a position in which I am perfectly comfortable.

Progressives also need to be advised that there is nothing in this deal that has not been in place for at least two years, raising the question of what is it going to do now that it has not been doing for the past two years?

Well, okay, the two percentage point cut in the payroll tax is new and is, to me, by far and away the most pernicious part of the deal. What’s interesting is that one side or the other is complaining about everything else in the deal, but neither side is complaining about this. Both sides seem to think this is just fine, even though it further jeopardizes the Social Security program that is already threatened with cuts.

Yes, there is a provision that transfers the reduction into the trust fund from general revenue, so Social Security is actually unaffected. That reduces my objection, but does not eliminate it. When the deduction comes due for elinination it will be treated as a tax increase, and we are going through that exercise now. Tax cuts are essentially never allowed to expire.

The other issue is that Social Security was formed as a "self funded" program which would distinctly not be "welfare" because its funding would not come from general revenue but from the people who were receiving the benefits. This fund transfer from general revenue weakens the nature of the program is a very unhealthy way.


  1. That makes two of us who think taxes should go up! I'd like to see an increase in gasoline tax to be used for debt reduction and building public transportation infrastructure. This nonsensical idea that revenue will go up if you just cut taxes is laughable. On the other hand I'd love to see reformation of the way public entities budget. The incentive now is never to save or set aside money if you don't need it all; it's spend every last dime so you won't get penalized in the next budget cycle so profligates are rewarded. Time to change that.

  2. Actually three now.. I don;t think the tax cuts should be renewed for anyone. The Rubs are hypocrits if they talk tax reduction and deficit reduction in the same breath. And Eric has a good point. Rainy day money needs to be put away, and just spending money to ensure a same amount next time is wasteful.

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