Posts Tagged ‘The Economy’

Hypocrites vs. Cowards on Taxes

Sunday, October 3rd, 2010

I’ve been wanting to write about the Democrats punting on tax cuts ever since it became clear that this was the plan, but haven’t had time.

Here’s a nice little piece from Rex Nutting on the issue.

The roots of this issue go back to the early Bush Administration when the Republicans were working on their tax plans. Congressional Republicans (for parliamentary reasons as well as to hide the disastrous long term effects of their tax cutting spree) setup the tax cuts to expire after 2010. As a result, in 2011, taxes will increase to the levels they were during the Clinton Administration for all income brackets, on capital gains and on dividends. The estate tax will also revert to Clinton levels along with a number of additional smaller changes.

In typical fashion, the Republicans are in favor of extending all Bush tax cuts forever, but offer no plan to pay for those tax cuts. These are the same people who have been complaining incessantly about the deficit for 2 years (they apparently discovered it as soon as a Democrat was elected president), but they have no plan to cut it and, in fact, they are insistent that $3 trillion be added to it in the form of tax cuts. 

Meanwhile, the Democrats have a slightly less irresponsible plan, which is that the tax cuts should be extended for 98% of the people, but allowed to expire for the top 2-3%. They’re out there campaigning on the fact that they’re opposed to the additional $700 million and hoping the American people ignore the approximately $2.5 trillion that they’re in favor of adding.

I’ve talked about this issue in detail here. Basically, my take on the tax cuts is that they should be allowed to expire for all income levels because we just can’t afford them as a country. We have a $9-$10 trillion deficit on the books for the next ten years and these tax cuts represent $3-$4 trillion of this. The defcit is one of the biggest and most intractable issues in American politics and in one action (in fact one inaction) $3 trillion could be wiped off of that deficit. At the same time, as I’ve been arguing for some time, the economy still needs stimulus in the short term and I’d be okay with extending all of the tax cuts for two years and then letting them all expire. This is the optimal compromise and has been endorsed by experts like Obama’s former OMB Director Peter Orzag.

Th Republicans’ budget gimmickry allowed the Democrats to craft a great political plan around the tax cuts. Since all tax cuts would expire in 2011, the plan was to allow only the middle class tax cuts come to a vote. It was assumed that the Republicans would filibuster this attempt, effectively holding 98% of Americans’ tax cuts hostage to the top 2% (which some 60-75% of Americans oppose) and giving the Democrats a clear contrast and a great issue to run on.

This looked good until the Senate Democrats met two weeks ago and found that (surprise!) their caucus was divided on the issue. They decided to punt the vote on taxes into the lame-duck session. 

It’s really unbelievable. Somehow, faced with a multitude of options, the Democrats managed to do the wrong thing for their party as well as for the country.

I’m as partisan as the next guy (perhaps more so) and I would love to have an issue to bash the Republicans over the head with,  but more importantly I want to do what is right for the country and for the economy. Whether you think that decreases in tax rates are stimulative or not, the reality is that we’re nearing the end of the year and individuals and businesses are setting their business plans for next year. After two years of debate and legislation over changes to health care,  financial regulation, energy, etc it’s time for some certainty: certainty over what the rules are and certainty over what the tax rates will be.  

The bigger picture here is that we elect leaders to lead and they should do that, not wait for the results of the election and then tell us what they think. The Democrats held large majorities in the House and Senate and the Presidency for 2 years. Saying that they ran out of time or that they don’t want to vote on raising taxes because the Republicans will attack them on it is ridiculous, cowardly and irresponsible. The Republicans are going to attack on taxes no matter what. Democrats: whether you’re giving out tax breaks to 98% of people or just extending all tax cuts for everyone, let us know where you stand. Give people a reason to vote for you. Take tough votes and then defend them.

Don’t act so cowardly. I’ll be voting for you because I’d rather have the cowards than the hypocrites, but I can’t speak for everyone else. This year, you might want to consider giving the other people a reason to vote for you, not just against the other side.

Sunday’s Talking Heads on Economy

Monday, August 2nd, 2010

Lazy Sunday, so I caught a lot of talking heads.

Very good discussions about the economy in general and the slow recovery specifically.

Fareed Zakaria, as he often does, proposed a great fiscal plan that has no chance of happening: let all the Bush tax cuts expire, but provide additional stimulus (such as extended unemployment and aid to states) in the short term  to make up for the loss of income. This will cut over $300 billion off of the yearly structural deficit right away. Unlike tax cuts (much of which will be saved by beneficiaries and won’t go back into the economy), aid to states and unemployment is money that is virtually guaranteed to go back into the economy.

Under this plan, tax rates would then go back to Clinton era levels when tax burdens were so onerous that we had the strongest growth in 3 decades and the budget was balanced.  Of course, since the Republicans have consistently filibustered any additional deficit spending and Democrats won’t repeal the middle class tax cuts, this is nice to discuss, but it isn’t going to happen.

Meet the Press had a great discussion of the economy with Michael Bloomberg, Ed Rendell and Alan Greenspan.

I am particularly struck by this “Wall Street and big business hate the Obama Administration” argument. It came up on both Meet the Press and on GPS  and the language with which they discussed it was particularly dramatic. Alan Greenspan said that he’d “never seen anything like it” and Chrystia Freeland said that many people on Wall Street regularly speak with “venom” and have a “feeling of betrayal” towards Obama.

This is a strange dichotomy.  On the one hand, the American people (myself included) feel like Obama and the Congress have been in hock to Wall Street, the banks, and big corporations, and want(ed) him to be tougher on them. On the other hand, many in the business community feel picked on and, despite higher earnings and about $1.8 trillion in the bank, aren’t  using that extra money to hire new employees.

This is a big topic and I’ll have more comments in the future, but just wanted to put it out for discussion while it’s timely.

Comments welcome as always…