Economic Reality

[Gaspar]

Gaspar, that's not entirely true.

The Bush tax cuts have been extended due to heavy lobbying which claimed it would help bolster the economy by creating a more business and investment-friendly environment.  That was one thing business ("the economy") demanded out of Congress and the President and they got it.  That was the magic panacea that would turn things around.

I said at the time, "don't let the tax cuts expire, it's put up or shut up time.  If the economy rebounds and treasury revenue increases, we know it works.  If we are still in the doldrums a year or two down the road, take the cuts away as it's obviously not a solution."

That extra 3% of income doesn't appear to be finding it's way back into the economy yet, or at least very slowly.

The cuts in taxes were attached to nothing!  There was no reduction in spending.  Nothing to encourage businesses that government was going to act more responsibly.  On the contrary, the carrot was attached to baseball bats.  Promises of tax increases, restrictions, additional healthcare and administrative burdens on employers.  All while massive new spending endeavors were hatched and launched.

Businesses understand what is and what is not sustainable, and the policies proposed were in no way sustainable, nor did they offer any advantage to an employer to take on additional liability.

The extension of the Bush tax structure was not a "gift,"  It was a delay of increased taxes, and the administration said as much. 

It's like saying, "I am going to take away your car", then amending that by saying "I am going to take away your car, but I'll wait until next month."  Are you going to invest anything in your car knowing that?  Gonna buy a new set of rims?

[nathanm]

Gaspar, did you seriously forget the almost $350 billion in new tax cuts included in the stimulus? You seriously think that there have been massive new regulations on business over and above what we had in the 90s? (even finreg lacks much in the way of actual regulation)

You seriously think government is taking the metaphorical car? You're so divorced from reality on this it's painful. Conan and I, for example, have major differences of opinion and ideology, but at least we can agree on the facts of what has actually happened, even if we can't agree on the way forward.

I'm still flabbergasted that you claim that seeing your political ends acheived is apolitical, while seeing mine acheived would be pure politics. It's also odd that you make the claim that the economy as a whole is not a zero sum game when we're talking about income inequality but that it is when it comes to government spending. Be like Avis..try harder.

[Cats Cats Cats]

Gaspar, that's not entirely true.

The Bush tax cuts have been extended due to heavy lobbying which claimed it would help bolster the economy by creating a more business and investment-friendly environment.  That was one thing business ("the economy") demanded out of Congress and the President and they got it.  That was the magic panacea that would turn things around.

I said at the time, "don't let the tax cuts expire, it's put up or shut up time.  If the economy rebounds and treasury revenue increases, we know it works.  If we are still in the doldrums a year or two down the road, take the cuts away as it's obviously not a solution."

That extra 3% of income doesn't appear to be finding it's way back into the economy yet, or at least very slowly.

Yup, its not a simple "cut taxes" and revenue increases.  You have to remember that rich people have assets.  You can choose to sell assets.  So you choose to do it when the taxes are lower.  Its gives a nice bump, then the assets are gone and won't be sold for a few more years.  Then there is the dumb concept that because you give a company more money they magically hire employees they don't need.

[Conan71]

Gaspar,

You and I usually see eye-to-eye on economic issues, but I can't help but hear the scraping sound of shifting goal posts.  I don't recall a reduction in government spending as being part of the argument on why the Bush tax cuts shouldn't be allowed to expire.  I believe everyone was aware the extension was temporary but it was still billed as being a cure for the recession.  By agreeing to extend them, the administration was recognizing more cash flowing through the economy rather than being taken out via taxation had a reasonable expectation for economic growth.  Apparently that's not working as GDP is not rising significantly, jobs aren't being created, consumer spending is down, and manufacturing orders are down.  That was in a nutshell the justification for extending the Bush tax cuts.  That's really got nothing to do with what the government is or is not spending.  

No, I'm not ignoring that spending needs to be cut.  It's got to be cut whether taxes stay the same, are reduced, or increase.  At this point, I think tax increases are unavoidable.  No one is willing to risk the political capital to do that.  Votes appear more important than doing what is fiscally correct.

I don't have a problem with tax increases, what I have a problem with is when they are done for nothing more than class warfare/envy.  Personally, I believe a truly conservative solution I'm not hearing out of any of our conservative prospects for POTUS is across the board tax increases for every income level with a like amount of across the board spending decreases.  In my mind, conservatism doesn't simply revolve around lower tax rates.  It revolves around smart revenue management.  

Thus far, it appears all the spending cuts Congress has been doing is nothing but smoke and mirrors once the CBO scores are put to it.  Too many sacred cows are in play.  Blind cuts, 3% from every department and entitlement program.  Make an existing department with existing employees responsible for seeking out and eliminating the obviously wasteful programs like you have been highlighting on here lately.

[Cats Cats Cats]

Middle class already has enough taxes make a new bracket with a few % higher and raise the lower %. Increase long term capital gains to max of 20-22%.  Yes I know the middle class will have to pay the low end taxes.  Back to the Coburn science spending post.  Start getting rid of BS like farmville research.

[Conan71]

Middle class already has enough taxes make a new bracket with a few % higher and raise the lower %. Increase long term capital gains to max of 20-22%.  Yes I know the middle class will have to pay the low end taxes.  Back to the Coburn science spending post.  Start getting rid of BS like farmville research.

The middle class has been a major benefactor of tax cuts and tax credits in recent years.  They are also the ones who get to enjoy the bulk of child tax credits, tuition credits, partook in the first time home buyer's program, etc.

I'm not saying they aren't carrying some of the burden, but realistically, effective their federal income tax rate (not including payroll taxes) is really pretty slim once you take into account the common credits they use.  3% would not mean significant pain to a family earning $60K.

We've all got to depend a little less on government and be willing to share in cleaning up the balance sheet.  Simply saying the wealthy should take on that burden alone because they can afford to is politics at its absolute worst.  Why shouldn't everyone be expected to sacrifice something?

[Gaspar]

Gaspar,

You and I usually see eye-to-eye on economic issues, but I can't help but hear the scraping sound of shifting goal posts.  I don't recall a reduction in government spending as being part of the argument on why the Bush tax cuts shouldn't be allowed to expire.  I believe everyone was aware the extension was temporary but it was still billed as being a cure for the recession.  By agreeing to extend them, the administration was recognizing more cash flowing through the economy rather than being taken out via taxation had a reasonable expectation for economic growth.  Apparently that's not working as GDP is not rising significantly, jobs aren't being created, consumer spending is down, and manufacturing orders are down.  That was in a nutshell the justification for extending the Bush tax cuts.  That's really got nothing to do with what the government is or is not spending.  

No, I'm not ignoring that spending needs to be cut.  It's got to be cut whether taxes stay the same, are reduced, or increase.  At this point, I think tax increases are unavoidable.  No one is willing to risk the political capital to do that.  Votes appear more important than doing what is fiscally correct.

I don't have a problem with tax increases, what I have a problem with is when they are done for nothing more than class warfare/envy.  Personally, I believe a truly conservative solution I'm not hearing out of any of our conservative prospects for POTUS is across the board tax increases for every income level with a like amount of across the board spending decreases.  In my mind, conservatism doesn't simply revolve around lower tax rates.  It revolves around smart revenue management.  

Thus far, it appears all the spending cuts Congress has been doing is nothing but smoke and mirrors once the CBO scores are put to it.  Too many sacred cows are in play.  Blind cuts, 3% from every department and entitlement program.  Make an existing department with existing employees responsible for seeking out and eliminating the obviously wasteful programs like you have been highlighting on here lately.

Static revenue would be the only reason for tax increases.  Those increases would then decrease revenue even further by resulting in lower job growth.  At this point revenue balance needs to be mitigated with spending cuts, and everything needs to be done to increase the investment businesses are willing to make in the economy.  

Not only is class warfare the most damaging issue, but it is exactly what is destroying confidence in the economy.  Business owners feel that they are targets.  The private sector has been placed squarely in the sights as the enemy, and unless that changes we will see no growth.

You can discuss tax increases all you like but any increase in revenue they produce will be tragically temporary, and as businesses simply pass tax increases to the consumer, they will represent the final nail in the coffin of an economy attempting to escape the grave.

On the other side of the philosophical coin, you have a revenue shortfall caused by a contracted economy.  Your primary objective it to cause that economy to expand, as a result of that you will achieve increased revenue.  Priority should be on the economy, not on government revenue!  Government spending can be reduced and then re-established at a later date if necessary.  The same can't be said for private businesses.

[Cats Cats Cats]

The middle class has been a major benefactor of tax cuts and tax credits in recent years.  They are also the ones who get to enjoy the bulk of child tax credits, tuition credits, partook in the first time home buyer's program, etc.

I'm not saying they aren't carrying some of the burden, but realistically, effective their federal income tax rate (not including payroll taxes) is really pretty slim once you take into account the common credits they use.  3% would not mean significant pain to a family earning $60K.

We've all got to depend a little less on government and be willing to share in cleaning up the balance sheet.  Simply saying the wealthy should take on that burden alone because they can afford to is politics at its absolute worst.  Why shouldn't everyone be expected to sacrifice something?

You are right on the child tax credits etc.  They should be removed.

[Cats Cats Cats]

Static revenue would be the only reason for tax increases.  Those increases would then decrease revenue even further by resulting in lower job growth.  At this point revenue balance needs to be mitigated with spending cuts, and everything needs to be done to increase the investment businesses are willing to make in the economy.  

You still are missing the fact that lower taxes doesn't mean higher job growth.  Taxes are lower than they were in 2008.  Where is the job growth?  More money in a business doesn't always mean more jobs it only means more profits.

[Gaspar]

You still are missing the fact that lower taxes doesn't mean higher job growth.  Taxes are lower than they were in 2008.  Where is the job growth?  More money in a business doesn't always mean more jobs it only means more profits.

You are correct, that's why it has to be attached to some form of responsibility on the part of government and impart some degree of confidence in promoting a "business friendly economy." 

Besides the contracted economy, the primary cause of our stagnation in growth is based on an administration that is completely focused on government expansion.  There is every indication that they intend to use up what is left of private sector growth to fund that, and no indication that they put any value on the growth of the private sector except as an engine for government spending.

Even if the president poses another temporary tax cut to the wealthy it WILL NOT WORK.  We are beyond temporary solutions to permanent problems.  We need to change the way this administration views the private sector and vise-versa.  As I mentioned before that would mean admitting some degree of fault, and that is simply out of the question for President Obama. 

Pride goes before destruction, a haughty spirit before a fall.

[we vs us]

You're listening to the wrong radio shows, d00d.

[Hoss]

You're listening to the wrong radio shows, d00d.

Didn't I say some time back he's our own local version of Beck?  And not the 'two turntables and a microphone' kind, either...

[Conan71]

Static revenue would be the only reason for tax increases.  Those increases would then decrease revenue even further by resulting in lower job growth.  At this point revenue balance needs to be mitigated with spending cuts, and everything needs to be done to increase the investment businesses are willing to make in the economy.  

But there's been little job growth as a result.  It was touted we could not grow jobs if the Bush tax cuts expired.  They didn't expire, the government has continued to spend even more money it does not have, and guess what?  We are still not recovering and neither idea of what sort of consumption would make the economy recover has been successful, it would appear.  Now what?

Ever since 2008, the government has been handing out tax cuts and tax credits like candy (energy efficiency improvement credits, first time home buyer, cash for clunkers, etc.), yet unemployment has grown and can't seem to get back below 9%.  Those were all temporary in nature, but we cannot continue to essentially provide every new homeowner with what amounts to a $7500 rebate from the government to go spend at Lowe's and Home Depot.  The tax structure, just like the spending structure must necessarily evolve with the times.  I'm in a middle class tax bracket.  I'm still in shock at the different credits I've gotten in recent years.

Even the extra 3% the "wealthy" are being allowed to keep doesn't seem to be doing anything to stimulate more job growth.  If companies have no need for more employees, they simply are not going to hire them regardless of taxation.  Conversely, if a company needs more employees, they will hire them regardless of the tax climate (within reason, 3% is hardly something to get in a twist over).  Obamacare is a whole other can of worms as well as new environmental regulation when it comes to the confidence of those who hire.  However, I'm simply trying to point out the argument that extending the Bush tax cuts would help with economic recovery appears to have been a complete fallacy.

There's simply still not enough demand to stimulate the economy and rising fuel prices are dictating money which could be spent on consumer goods or even small vacations is going into the tank and out through the tailpipe.  I realize spending patterns of people who aren't living paycheck to paycheck gives them far more discretion on where they spend or don't spend their money.  Forecasts of an impending depression are going to create enough psychological resistance to hiring and spending right now as people hoard cash waiting for the worst.  It's starting to become apparent even marginally lower taxes on their own simply would not stimulate any new job growth right now.  

Of course there is one more issue which makes this even more difficult.  We demand low priced consumer goods here in the states to the detriment of American jobs.  Example: I bought a new chain cleaning kit for my bicycle yesterday. I got it home and on the package it says: "Designed In Italy.  Made In China. Packaged In America."  I didn't pay attention before I left the bike shop.  It's basically an assembly of injection-molded plastic which is a relatively inexpensive process.  It's the tooling which is costly because it's very labor intensive to build the molds.  Otherwise for a product like that, you pay someone to man the molding machines, and people to assemble the parts into a working unit.  

Is that the sort of standard of living we want?  We can't make anything here but we can have it manufactured overseas then we can pay Americans menial wages to package it for us.  If we didn't put such a priority on lower priced goods, we wouldn't be losing so many jobs to China.

Some durable goods cost about the same or little more than they did 20 to 25 years ago.  They use cheaper materials and the people that make those products are willing to work for much less money than Americans will.  

/ramble

[Gaspar]

Not a ramble, what you are saying makes perfect sense except. . .

We were on the decline, and any tax increase would have accelerated that (both sides agree on that).  Extending the tax cuts alone did nothing to further stimulate, or create jobs.  All that did was slow the downward spiral.  After all, it was not like the government was providing anything new, it was just not taking anything more.

Cutting taxes works, but not when you increase spending at the same time.  It's like a dividend on a stock. . .when you see companies increase their dividends to shareholders while at the same time increasing their spending without any increase in revenue, it raises red flags among investors.  Conversely, any stock that increases dividend yield while at the same time increasing revenue and showing a respectable amount spent on development will gain investment capital.

We are all deeply invested in our government and those with the most significant investment are the business owners who shoulder the highest investment burden.  They must be treated as partners, not as a means.

[Conan71]

Not a ramble, what you are saying makes perfect sense except. . .

We were on the decline, and any tax increase would have accelerated that (both sides agree on that).  Extending the tax cuts alone did nothing to further stimulate, or create jobs.  All that did was slow the downward spiral.  After all, it was not like the government was providing anything new, it was just not taking anything more.

Cutting taxes works, but not when you increase spending at the same time.  It's like a dividend on a stock. . .when you see companies increase their dividends to shareholders while at the same time increasing their spending without any increase in revenue, it raises red flags among investors.  Conversely, any stock that increases dividend yield while at the same time increasing revenue and showing a respectable amount spent on development will gain investment capital.

We are all deeply invested in our government and those with the most significant investment are the business owners who shoulder the highest investment burden.  They must be treated as partners, not as a means.

I'd agree but it does appear it worked under the Bush Admin.  The recession of '01/'02 was pretty well mitigated and we went to what was essentially full employment for several years and we experience real economic growth.  Bush spent money like a drunken liberal, as well as being faced with several massive natural disasters, two new wars, and a huge new bureaucracy.

IMO, President Obama wasted his first two years in office trying to ram through his legacy agenda while he had majorities in both houses.  Instead of going to work on the economy, he spent the first 8 to 12 weeks continuing to bash the economy into the ground.  He and Geithner did absolutely nothing to inspire confidence in the economy.  Real or imagined, the Obama Administration was painted as socialists before he was even sworn in, yet they did nothing to try and dispel that notion.  Instead of trying to reassure corporate and small business America, they proceeded with all sorts of programs and initiatives which would wind up doing nothing to inspire confidence.

Obamacare either created enough doubt amongst less savvy business owners who still don't fully understand it nor what compliance will look like and apparently that's enough to keep some small businesses from adding anyone to the payroll out of fear of additional costs and time for compliance.  That's what I'm hearing anecdotally anyhow.  Now they appear to want to press on with cap and trade.

Couple that with our continued demand for cheap consumer goods and I honestly think 9% U.E. could be the new norm.  We've ceded many jobs to cheaper labor outside our borders.

If you want to argue that lower taxes inspires something psychologically which will make people create jobs when they are needed I can buy that.  If you are saying higher taxes symbolizes hostility toward business and therefore they won't hire new people either out of spite or fear, I can see that.  However, if you are maintaining that it's simply lower taxes which will create jobs, it's impossible.  Demand will create jobs regardless of the tax climate when you are only talking a few percentage points.  People hire people, economic theory physically cannot hire them.