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Obama Considering $310 Billion Tax Cut

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The Wall Street Journal has sent a news alert that says that Obama is mulling a stimulus plan that will rely more heavily on tax cuts than initially envisaged as a way to win needed Republican support. The Journal says tax cuts could be as much as $310 billion, or 40%, of a total package of $775 billion.

I’m not at all keen about the sound of this (and note I am of two minds about stimulus, but am putting that aside for the purposes of this discussion).

In very simple form, stimulus programs of various sorts are meant to compensate for a falloff in demand. You can have government spending (as in government does the consumption) or give the money somehow to consumers (in direct ways, such as tax cuts or vouchers of various sorts, like food stamps).

The problem with tax cuts is they may not be spent. And the degree to which they are saved means the stimulus was ineffective. In other words, reliance on tax cuts runs the risk that greater spending will be required to achieve the same result than via government spending.

That is not a theoretical concern. We saw it, big time, with last summer’s tax rebate. Gary Shllling did a detailed look at when the checks got in the hands of taxpayers versus changes in retail spending. He concluded that about 80% of the tax rebate was saved.

The way to compensate for that is to devise a tax cut program that directs most of the dough to those with a high propensity to spend, namely, lower income groups, and Obama’s plan would apparently contain those elements:

The largest piece of the overall tax relief would involve cuts for people who pay income taxes or who claim the earned-income credit. It would serve as a down payment on the “Making Work Pay” proposal Mr. Obama outlined during his election campaign, providing a credit to offset Social Security and Medicare payroll taxes of $500 per individual or $1,000 per family.

However, in this environment, weighing tax cuts towards the lower economic strata might still lead to a fair bit being saved. After all, consumers at all income levels are carrying a lot of debt, and given how any kind of missed payment leads to catastrophically high interest rates, it would be a wise move for anyone in an arrearage to give getting their credit card debt down top priority.

And since Republicans are presumably not too keen about bennies to the lower classes, there are goodies for business too:

As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. In effect, this would entitle companies to receive cash from the government that they otherwise couldn’t have claimed.

A second provision would entice firms to plow that money back into new investment. The investment write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don’t sit on their money until after Congress passes the measure.

A separate element would offer a one-year tax credit for companies that make new hires or reverse layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250 million in 2009 and 2010. Currently, the limit is $175 million.

Losses in a C-corp had a five year carry back and a 15 year carry forward. so one would think there would be plenty of scope for recovery of 2009 losses (update: an alert reader says tax loss carry backs are now only two years, but that gets changed with some frequency). Well, not everyone thinks that way:

Business lobbyists are pushing hard for Congress to allow companies that haven’t paid corporate income taxes to get a break, too. Start-up companies, alternative-energy firms and large corporations that have been swallowing losses for years — such as automotive and steel companies and some airlines — have already begun lobbying for such “refundability.”

They argue that a provision to claim losses on back taxes will have little effect on the economy if firms that need it most — struggling companies that weren’t obligated to pay any taxes — can’t benefit from a tax break.

For years, the tax code has allowed poor individuals to get tax checks even if they don’t pay income taxes to begin with. But such largesse hasn’t been granted to businesses.

Richard Nixon proposed a negative income tax as an alternative to welfare. Guess we are now going to see large scale business welfare. Most new businesses fail in the first three years, and longer-term survivor rates are even lower, but they will be propped up regardless of their intrinsic viability.

Gee, maybe I should figure out a way to show big losses this year……

Item 2 could have an import leakage component (would there be a local content requirement? Probably not….).

The third item seems the most significant, but if you as a company don’t expect a lot of income this year, the value of a writeoff (as opposed to a credit) is debatable. It could wind up to a significant degree rewarding companies for spending they would have made anyhow. The tax credit for hiring has more potential, but it depends on the size of the credit relative to the employee’s’ total cost (salary plus benefits).

As always, the devil lies in the details, which we will see in due course. But on a first pass, this looks like a pretty big ticket way to co-opt opposition.

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46 comments

  1. Abbott_Of_Iona

    “Richard Nixon proposed a negative income tax as an alternative to welfare”

    Richard Nixon was right.

    With a negative income tax those on welfare have every incentive to make (or declare) more income.

    So, if you earn less than $30,000 you receive $1,000 from the Government..

    After that it is entirely up to you how much you earn and pay.

    Its just a pity that Government chooses to spend the tax it collects from the working and middle to support the Goldman economy.

    There is nothing a black President rather than the (P)Resident can do to undo what has been done to America.

    Spend $10Tn.

    Where does America make the goods it comsumes.

    IN CHINA

  2. Waldo

    I am a small business owner and I have always thought that tax cuts pushed by Republicans was always centered on the rich to get richer. In real terms for my business it has little real value. My success is dependent on my ability to create “widgets” [in my case a widget is a courthouse building, parking lots, bus facilities, etc.]. The rich always work harder to keep the gains as compared to generating more.

    I am a Republican and I think tax cuts are bull s**t. I do believe that money spent on real product has the most common sense.

    There is one caveat to my political leanings, I find the newer Republicans see things much different now than our older contemporaries. Ironically the newer Republicans think more along Reagan ideals than the current Republican leaders (thugs).

  3. ruetheday

    The investment writeoff seems like a good idea (capital investment is plummeting and anything that helps reverse that will have a positive effect). The other tax cuts are all gimmicks and giveaways that will, at most, provide a small shot in the arm lasting a single quarter like last years cut.

  4. Anonymous

    I think these tax cuts make little sense because 1) most will be saved, 2) much of the rest will leak across the borders, 3) there overcapacity everwhere, so there is little for businesses to invest in anyway, and 4) we already have horrid structural budget problems caused primarily by tax cuts.

    The awful truth is that because the Bush administration failed to run – and failed to try to run – a budget surplus during the growth phase of the last business cycle, taxes will have to go up substantially in a few years. Unless, of course, the debt has been reduced via inflation.

  5. ndk

    I’m somewhat ambivalent as to what form a fiscal deficit should take because I believe these forms are just somewhat different shades of unproductive. There’s at least some empirical support for tax cuts, if somewhat weak. But these are, as you point out, very different times, and consumers that save or pay down debt with their tax cuts are part of the problem when framed as such.

    Also, is more new investment what we need? Domestically maybe I could see it, but remember that corporations saw fit even during the boom years to just to buy back their own stock with their profits. There may not be that many good investments out there right now. Unless there’s demand at the end of the tunnel, we just end up with… even more supply that was built in the absence of good, clean market signals. Awesome.

    Separately, I think we also generally overestimate the amount of traction these types of policies can have in the short- to medium-term. The economy is a massive, complex machine, and it’s extraordinarily difficult to manipulate on a systemwide basis, particularly when your primary tool of interest rate policy is floating near the top of the septic tank.

    But I have a policy that has immediate and strong traction. It would solve our posited overcapacity and supply/demand imbalance issues very quickly within a Keynesian framework. Even better, it too has been tried in the past in various incarnations.

    Follow Rodrik’s recipe: trade wars are superior to anything else. It even makes sense from a theoretical standpoint: if there are global overcapacity issues, why not reduce the efficiency of the economy until less goods and services are produced?

    Half my tongue’s in my cheek.

  6. ndk

    The investment writeoff seems like a good idea (capital investment is plummeting and anything that helps reverse that will have a positive effect).

    You’re right, but why is it plummeting, ruetheday? Why did we dedicate such intense capital investment into first IT, and then residential real estate and all its assorted limbs, all while major corporations only bought back stock with profits? And, why would investment increase merely because there are now tax breaks, if it’s an unprofitable venture in the first place?

    We haven’t had general capital investment in the U.S. for many moons, and I think fundamental forces (cough emerging markets, currency pegs, and globalization cough) are leading to that situation. Without rectifying those fundamental forces, how will investment happen? Without market signals, which are awfully murky right now, how will the right investment happen?

    I keep getting the feeling that some more fundamental sprocket has popped out of the machine somewhere.

  7. foxmarks

    Waldo, who are your customers? And who are your suppliers? Leaving either with more money in their pocket means they can buy more from you.

    The “rich” work harder at everything. That’s how they got rich. Well, harder combined with smarter.

    Anon, Bush only signed and executed the budgets Congress passed. You might believe he did a crappy job of executing, but to blame him for the budget is a half-thought assertion.

  8. foxmarks

    Oops, wrote my own half-thought. Waldo’s customers could buy more, or Waldo’s suppliers could lower their price, if their tax burden was reduced. Both are good for Waldo.

  9. Anonymous

    c corporation nol’s are 2 year carryback not 5 years.

    this would extent it to 5 years.

    they tinker with this every few years.

  10. Richard

    The Earned Income Tax Credit, which Obama has always planned to expand, is a very bad business. Because it caps out at two kids, people with extras assign them to aunts and uncles, with whom the extra kids supposedly live. Because it caps out it caps out in the $30Ks, and married fathers’ income counts but boyfriends doesn’t, it discourages marriage and encourages false separations. Because the EITC maxes out well below the $30Ks (creating a very high marginal tax rate) it encourages people to quit jobs mid year. Also, those high-interest loans the national tax prep companies make (and scandalize the media each year) are in great part made to EITC recipients, who are more than willing to share someone else’s money with their tax preparer.

    The proposed business cuts don’t seem much better. They reward gaming the system. As an excercise, take any of the items listed (the tax credit for companies that make new hires or reverse layoffs, for example) and think about how you could game it.

    The Republicans are fools if they fall for this mess. But they they are fools.

  11. Bob_in_MA

    Tax cuts/rebates for businesses will all be saved (used to pay down debt) and those for individuals will mostly be saved (just as happened in 2008.)

    Also, state and local government spending on construction increased 50% from 2003-2008. Due to revenue shortfalls, it would probably fall by $100B/yr, so spending $200B on infrastructure over two years will mostly just make up for this. Meanwhile, residential and commercial construction will continue to fall.

    This stimulus package isn’t going to provide much of a stimulus, but it may help pop the bubble in long Treasuries.

  12. David

    >The problem with tax cuts is they may not be spent. And the degree to which they are saved means the stimulus was ineffective.

    I never agree when I see this kind of statement. There are two different but related problems: lack of demand and basic insolvency of households. If the money is saved by paying down a delinquent mortgage or paying down overdue credit cards then this acts to improve the balance sheet of consumers and it helps out banks by lowering defaults. So it might not juice GDP right away but it still improves the economy. In effect it moves debt from the consumer to the government. You can think of it like society refinancing at a lower rate. Just because it is not spent does not imply that it is wasted.

  13. Michael Fiorillo

    Foxmarks said, “The rich work harder at everything.”

    Pray tell, how?

    By acting as rentiers?

    By securitizing fraudulent mortages?

    By charging usurious rates of interest?

    By making it virtually impossible to unionize, which most workers would do if not for the very real threat of firing?

    Are the rich busy? No doubt, but you need to broaden your worldview before you claim they work “harder.” The majority of them were helped along the way to wealth by good fortune in the birth lottery.

  14. MarkB

    As a small business owner, a minor tax credit for new hires would be completely immaterial to my decision on whether to hire someone. A low paid administrative assistant might cost $25,000 a year – the payroll expense far dwarfs a $500 tax credit. On the other hand, it might motivate me to fire every existing employee on Friday and then hire them all back on Monday.

  15. Anonymous

    It seems that if we can’t get the money into the economy by getting people to spend it, maybe we can at least get rid of the bad bankruptcy bill that was passed not too long ago and let people get out from under their debt. The sooner people get solvent again the sooner we can get people spending again.

    Having said that I think we are in for a very sluggish economy for the duration. We are now post-industrial England but without the colonies. We have made our bed and now we have to either figure out how to lie in it or we have to change the paradigm, again.

    What are the chances we can change the paradigm?

  16. john bougearel

    @ NDK,

    My first reaction was “what is he thinking?” Ugh! Different shades of unproductive is putting it mildly. I reminds me of FDR’s WPA program: it stood for we-poke-along in its slang form.

    @ ruetheday,

    Now I wish I could steal your handle. The financial markets are a mess for folks like me whose only desire was to keep politics out of the market, not unlike a separation of church and state by constitutional law. Now the financial markets are a total hostage of politics.

  17. Waldo

    Foxmark; you have got to be an entrenched Republican elder.

    One bit of advise, as soon as you attain the capitalistic plateau (personal worth greater than $1 million on a cash basis) it is best not to bow to the “wealth affect”. To do this best focus on operations at your business and be wary of your accountant and financial adviser.

    Yes, Waldo is a successful capitalist at a fairly young age. Still possible.

  18. john bougearel

    “but remember that corporations saw fit even during the boom years to just to buy back their own stock with their profits. There may not be that many good investments out there right now. Unless there’s demand at the end of the tunnel, we just end up with… even more supply that was built in the absence of good, clean market signals. Awesome.”

    I wonder if anyone has tallied the total shares outstanding that have been bought since 2001 minus total issued to determine net share shrinkage in % terms. Then do the same with annual eps since 2001.

    This way we can get at how much share buybacks have contributed to earnings growth this past decade.

  19. bg

    “That is not a theoretical concern. We saw it, big time, with last summer’s tax rebate.”

    “And since Republicans are presumably not too keen about bennies to the lower classes”

    Since I disagree with both of these statements, we either disagree on the substance of the debate or you are misrepresenting the arguments.

    In the first argument, a retroactive tax rebate is not the same as a tax cut. People who are fearful of the future save money currently in their checking accounts, whereas permanent future tax cuts could make people less fearful. You draw a line between business and personal taxes, but I think this is a false line, as most high personal income comes from business activities. I suspect you would disagree with the conclusions, but I found your points misrepresentative on what the adherents consider the stimulative benefits of tax cuts.

    “And since Republicans are presumably not too keen about bennies to the lower classes”

    On this quote you put it in terms of class warfare. While it is true that there are a lot of honest conservatives who feel that taxation to create direct subsidies to the poor may have net negative impacts on the economy and in some cases on the beneficiaries -

    many of those same conservatives believe in stimulus (which I do not) – and would argue for benefits like unemployment insurance or other targeted subsidies, as it would target those most likely to spend the money (because they need the money).

    This crisis is redrawing ideological lines within both parties, and outside the environmental movement and primarily religion focused leaders, there are declining numbers of dangerous idealogues left in politics.

    We should fear a worldwide crisis that will create new ideological zeolots that will be popular with the masses (does putin really have 80% approval rating?)

  20. Yves Smith

    bg,

    The tax cuts proposed by Obama are temporary in nature, as article discusses.

    The tax proposals advocated by McCain, which one can reasonably presume reflected conventional Republican views, were clearly skewed towards the rich. The break point was $112,000 in income. Below that level, you did better with Obama. Above that level you did better with McCain:

    http://money.cnn.com/2008/06/11/news/economy/candidates_taxproposals_tpc/index.htm

    I hardly consider it “class warfare” to describe the repeatedly demonstrated Republican attitude toward taxes of various income groups. The McCain package, and his failure to budge on it as the campaign progressed, would suggest this posture is alive and well.

  21. bg

    yves,

    your points are fair. Temporary tax cuts are more similar to retroactive tax cuts than they are to permanent tax cuts.

    Also, I was sloppy with the word class warfare. It is still an overly simplified to refer to McCain/Obama tax plans in terms of class. This implies a disregard for the poor, as opposed to the belief the excessively progressive tax rates are counter productive.

    Obama may have switched the democrats to becoming the party of the rich (as opposed to the party of conservatives). It will be quite interesting to see who’s water he carries.

  22. Yves Smith

    bg,

    Aha, the “what does Obama stand for, really?” point is one I agree with completely. I did not have great hopes for any of the presidential candidates, but (at least at this early juncture), Obama is looking like as big a bait and switch as Bush’s “compassionate conservatism” was. A professor I know who is pretty plugged in to DC is already saying that he will go down in history as the Bernie Madoff of politics.

    Not that I think liberalism is the be-all and end-all (I think knee-jerk adherence to any formula is likely to be a bad idea), but this country has swung tremendously to the right, with a lot of class stratification that is denied. That in turn erodes any sense of community and shared sacrifice, which is very important social glue in bad times.

  23. bg

    “with a lot of class stratification that is denied. That in turn erodes any sense of community and shared sacrifice, which is very important social glue in bad times.”

    Wow. I think that intellectual stratification has been stronger than class stratification – with arguably dangerous consequences. (not that there isn’t and hasn’t always been a correlation between intellegence and social class in America) My parents felt far more obligated to blend in than my generation. But other than that I don’t see much loss in shared sacrafice and social glue out here in the hinterland.

    “the Bernie Madoff of politics??” Another Wow. I am not going to be suckered into defending him. I presume the argument is that his campaign promises were fraudulent. How far back do I have to go to argue that campaign promises were genuine? Reagan? Carter? Does that us any happier with politicians? We are in deep do-do, and I share your low confidence in our leaders to do the right thing.

  24. Yves Smith

    bg,

    Your choice of words was apt. Intellectual stratification is not the same as educational stratification, although many would make that assertion (that Ivy League types hang together). I don’t see that except as it tracks in jobs (ie, if you wind up in the elite professional track, like top law job, then yes, you probably had to go to a really good law school, and at least a pretty good college, and most of the people you meet will be through work, hence from similar backgrounds). But intellectual, yes. My high school dropout autodidact friends read more elevated fiction than I do (Pynchon, eek) and know more about film and opera than I do as well.

    What gets me about Obama (assuming performance lives up to early action) is that he may be hugely cynical. Most pols lie about the details of their programs, and Obama clearly ducked a few questions in the debate that really demanded better answers (like “push comes to shove, what on your policy wish list are you going to postpone if you have to”?) But it is one thing to overpromise, or revise details. That is standard politics. Obama’s headline was change, but the only change I see looks to be purely cosmetic. That is a much more serious deception.

  25. ndk

    My high school dropout autodidact friends read more elevated fiction than I do (Pynchon, eek) and know more about film and opera than I do as well.

    Suppose I’ve got to read more fiction to properly fulfill my class role, then, though I’m afraid I’m a hard science type at heart. You sent me on a seismology bender with your link to Yellowstone over the holidays. I’m recovering gradually, as is the magma chamber, which I suspect based on GPS and seismology data vented some magmatic pressure from the upwelling under Mary Lake by fracturing some rock near Yellowstone Lake(and possibly westward as well, as DLP earthquakes resonate around Madison River) and expanding the lava sill. Looks pretty benign from here.

    Thank you for your support of the egalitarian society, Yves. It’s a refuge for people with a lot to say despite little hanging on the wall.

  26. Anonymous

    My high school dropout autodidact friends read more elevated fiction than I do (Pynchon, eek) and know more about film and opera than I do as well.

    This seems woefully Renaissane Man-ish. We should only judge success and knowledge by wealth and avariciousness. This is how successful societies are built.

  27. mmckinl

    Tax cuts will be used to pay down debt or saved. In either case the banks will not recirculate the money.

    Until there is a bank holiday to scrub bank balance sheets of bad debt and worse derivatives the banks, especially those of Wall Street will suck the economy dry of liquidity.

    Where are all you so called left leaning economists when it comes to demanding a Bank Holiday ? FDR did it , Sweden did it, Norway did it …

    I am seeing a larger failure of so called economists now than with the Housing Bubble.

    William Greider called for a Bank Holiday more than six weeks ago …

    Time for a Bank Holiday

    By William Greider, The Nation

    November 19, 2008

  28. Blissex

    «In very simple form, stimulus programs of various sorts are meant to compensate for a falloff in demand.»

    NOT QUITE! it is to cmpensate for a falloff in utilized capacity.

    If demand has fallen off because absolute capacity (as opposed to percent utilization of capacity) has fallen off, a keynesian stimulus will only stimulate imports, inflation or both.

    This is a very, very importanmt point. Because it is the difference between macro/demand driven policy and micro/supply side policy.

    If demand is low even if production capacity is high, then stimulating demand is needed so unused capacity is utilized; if it is low because production capacity is low, then investment is needed so new capacity is created.

    Of course neither of these policies always works or is needed; in theory in the long term if demand is because capacity is low, then capacity will get created, and coversely creating new capacity does not mean that demand will rise, if the capacity is not the right one to satisfy demand.

  29. Blissex

    «corporations saw fit even during the boom years to just to buy back their own stock with their profits.»

    Often, especially in the tech sector, this was done to allow insiders to cash in their stock options without depressing the stock price through dilution.

    When Microsoft was still handing out stock options some people did a calculation that a very large percent of their profit was used to cash in stock options…

    «There may not be that many good investments out there right now.»

    All the insiders that cashed in their stock options at prices supported by share buyback programs by their companies surely saw a lot of better opportunities than leaving their money in their company… :-)

  30. bena gyerek

    “The way to compensate for that is to devise a tax cut program that directs most of the dough to those with a high propensity to spend, namely, lower income groups..”

    aren’t lower income groups the ones with the biggest debt problems?

  31. Andy

    Overall, I think the Obama administration is right in its efforts to focus on job creation and stimulating the economy over the long term. I also agree that issuing stimulus or rebate checks (even if there were near $5000 as initially rumoured) would have done little in the medium to long term to revive economic growth. It would have been a populist, short term impact, move which I am glad the Obama administration has decided not to pursue. Tax cuts are a better solution, and will also help win support from congressional Republicans to ensure the ultra-large stimulus package is passed sooner rather than later.

  32. Stephen

    Yves,

    I am still of two minds around stimulus packages. especially in light of the Jarislowsky article.

    He mentions that this is a balance sheet recession….meaning two much debt. So the question is then why would would a saved tax cut, or direct injection, be a problem since it is used to cut debt or at least improve a balance sheet?

    In the US I dont know if they need any more tax cuts, at least personally, at the federal level. You are talking about the ability to recover revenue when things turn. Isnt it really about the government assuming the debt of individuals, the corollary of the government picking up the demand of individiuals in a demand driven recession? This is a question not a propsed solution but IF it is a balance sheet recesion then there is only one way out strategically

    1) Debt reduction

    How you tactically acheive that is the debate

    From a govenrnment standpoint, a recession is a good time to engage in investments, costs might be lower and you arent competing for private sector resources, in theory. So “investments” make some sense, and to some level.

    But fixing households and businesses balance sheets….I guess I questioning whether infrastructure spending fixes that.

    One wonders if there should be “debt stamps” that te government puts out there based on income for pople to retire debt.

    Inflation is a universal debt stamp. right now unemployment isnt the problem, but is it the one coming.

  33. VangelV

    You can’t solve a problem that was caused by excessive consumption and a lack of savings by policies that encourage more consumption and more borrowing. If Obama chooses to reduce taxes and encourage investment in productive capital he is on the right track. But if those actions are a part of a broader set of activities that encourage more borrowing and more spending by people and companies that that have no savings the US will be heading towards disaster even faster.

    What we have experienced was predicted by every member of the Austrian school of economics that I can think of. If we want to get out of the mess we need to pay more attention to what those rational and insightful individuals are suggesting, not going with the statist voices who were cheer leading the steps that got us here.

  34. ardano

    The use of tax bills/tax policy to buy votes for larger issues is a longstanding and fundamental pillar of our federal system. It is why Congressmen and Senators gravitate towards the House Ways and Means and Senate Finance Committees. Recent history provides a perfect example.

    When the House of Reps. failed to pass the TARP, the Senate took control of the process. How did the Senate pass TARP? They took TARP, combined it with a series of tax plays and got the vote they needed in the Senate. In the process, Senators made it almost impossible for the House to pass-up the tax “pork.” in the new and improved TARP.

    We’re seeing the same thing now. However, readers of this blog should be sensitive to the distinction between a tax cut and a tax incentive. I agree with those who say that simple tax cuts do not necessarily lead to intended reallocation of capital. While I am not opposed to tax cuts, corresponding tax credits are far more important. Frankly, the current economic crisis cries out for focused tax credits. Otherwise this stimulus could fail as those who receive the tax cut will not invest the money in appropriate sectors of the economy.

    Put simply, its not the tax cut that matters, its where and how the federal system re-directs the saved capital. As was discussed above, some of the leaked details of this measure, namely a credit for companies who retain workes, addresses this issue. The hallmark of an Obama plan should be the use of this style of tax policy.

  35. Anonymous

    Bush only signed and executed the budgets Congress passed.

    Hilarious. The implication that the president is somehow a passive victim of the process is nonsense. Every year, Congress waits for the president’s budget request to arrive, and then negotiation between the majority parties and the president begins. When the budget(s) finally lands on the president’s desk, he can either sign it or NOT sign it, meaning his authority is necessary for its passage. He’s fully invested.

    On top of that, the president is frequently the driver of new programs, such as the wholly unnecessary Iraq War, or No Child Left Behind, that add major spending items to the budget.

    On top of that, if you scroll up, you will see I said “caused primarily by tax cuts.” The 2001, 2002, 2003, and 2006 tax cuts were all Bush administration initiatives, or long-standing Republican ones, that were passed by Republicans in Congress and signed by Bush.

  36. Charles Kiting

    The problem with tax cuts is they may not be spent.

    Then that would be the will of the people.

    And by the way, our current top-down bailouts are ALSO not being spent – the banks are sitting on the money FOR THE SAME REASON the individual taxpayer would.

  37. Charles Kiting

    He concluded that about 80% of the tax rebate was saved.

    Paying down debt is NOT saving!

  38. Charles Kiting

    The way to compensate for that is to devise a tax cut program that directs most of the dough to those with a high propensity to spend, namely, lower income groups,

    WTF?

    Believeing that poor people are going to save the economy is the exact same stupidity that believes poor people CAUSED the economy to crash.

  39. Charles Kiting

    Also, paying down debt would be good for the banks, would it not? The less they have to mark down their accounts receivable, the closer to solvency they become. Solvent banks are banks that can lend.

    But I forgot – we’re in a hurry.

  40. Anonymous

    Just more political patronage machine payoffs of phony tax & stimulus package payoffs.

    Taxing schemes handed to lobbyist buddies created the tech spec to real estate bubble blowouts.
    Corporations only bought back their stock. Private Equity vulture cos. bought out businesses to reap paper profits & fees while overloading cos. with debt.
    If anything as a start need to get rid of the tax system and simplify to some percentage while emphasizing genuine productive investment side.

    Without "genuine investment" in the productive and export sectors, the U.S. is doomed.

    They spent their last "stimulus checks" on goods from China.

    independent

  41. lineup32

    Nothing about saving the homeowner since the election from the Obama team, guess that crisis must have passed!

  42. Anonymous

    Why is everyone on this board upset about the tax rebate (not a rate cut). The Messiah campaigned on the rebate, now you want him to welch on it like your boy Billy from Arkansas did?

  43. Edward

    Economic Nullification: When the American taxpayer fully recognizes the weight that has been placed in his rucksack – a stupefying 8.5 TRILLION in future tax debt and counting – to be repaid via man-hours of labor devoted each day to the so-called Common Good, THEN we will most assuredly experience “Economic Nullification”. Straight barter, like exchanges, cash markets, and a dramatic switch from tax avoidance to tax evasion will be born out of necessity. Either you feed, clothe and house your family or pay a debt that on average will be $142,000 per household. This is where the mule lays down. Labor is finite and precious and this government does not speak for us when it has been so clearly co-opted by Wall Street and the 35,000 lobbyists who contravened the relationship between the Electorate and their representatives. We all are being mailed maxed out credit cards to repay. It will take generations.

    The brass tacks are that Congress and Wall Street collapsed the bourgeois (the middle class), and took down the rest of the planet with them through conspiratorial malfeasance. Now, in slow motion we see Congress (the Blogojevech’s) stare directly at the Electorate who is solidly against any bail-out of the guilty, turn to the same experts (the Madoff’s) who provide NOT the feasibility study but just another set of prospectuses spun by the criminals who are in complete control of Washington DC.

    They are going to keep going until they will be lucky if we only nullify their ponzi scheme, and not treat them like Ceausescu.

  44. William Mitchell

    Assuming low-income recipients do simply pay down debt, this basically becomes another form of debt monetization.

    Whether this is good or bad depends upon whether you think monetizing debt, and associated inflation, are a good idea.

  45. Waldo

    “Either you feed, clothe and house your family or pay a debt that on average will be $142,000 per household. This is where the mule lays down.”

    Edward, this is one of the clearest and most compelling back-of-the-envelope analysis of this mess so far.

    Also has a sense of humor, good work.

  46. datadave

    hey, waldo. Welcome to Yve’s excellent blog of economic knowledge.

    I agree with much you said except your acclaim for President Reagan. Being around the block a few times I remember his huge deficits, ignorance of history, and grandstanding and his support for international terrorists as in Central America and Iran and Afghanistan. Reagan gave us Alan Greenspan you’ll remember….and ‘supply-side’ economics which has got us in this mess.

    Not to say that right-wing Democrats (which surprisingly Obama now seems to be who is also supporting Alan Greenspan’s belief in Leverage, and More Debt as a way to run businesses)…are also following Reagan’s leadership in Deficit spending. And Reagan’s belief in funding military adventurism has never been tempered by modern Republicans. (they never see a new military program they can’t spend more money on…especially if it benefits their cash supporters..)

    I do see a long continuum of Reaganism at hand here. Old Republicans and new ones aren’t that different. (Gay-bashing and tax cuts for the Rich seem to be all that they stand for now.)

    I say we need to return to responsible govt….and tax those who most benefit from it (remember those over 50 percent rates for unearned income millionaires..?) and not so much the working person who’s income has fallen drastically even during the Boom periods of the Current Republican President…now soon to leave us!

    We in the small business sector hire more people than the big business sector and yet we are not millionaires and usually only make a little more than our employees. We are now seeing that employees and employers (in the real “middle-class”, not “investors” or trustfunders) are in the same boat and we all need a break from the top-down, trickle-down from the Reaganite philosophies that still dominate both political parties economic philosophies…(after all Larry Summers and Phil Gramm were on the same page in their deregulation of banking and finance.)

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