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Republicans Ready To Repeat The Same Mistakes All Over Again

Senator Jon Kyl said yesterday that he wants to extend the Bush tax cuts without worrying about cutting spending:

Top Senate Republican Jon Kyl (R-Ariz.) insisted on Sunday that Congress should extend the Bush tax cuts for the wealthiest Americans regardless of their impact on the deficit, even as he and other Republicans are blocking unemployment insurance extensions over deficit concerns.

“[Y]ou should never raise taxes in order to cut taxes,” said the Arizona Senator during an appearance on Fox News Sunday. “Surely Congress has the authority, and it would be right to — if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending, and that’s what Republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.”

White House aides immediately seized on the comments. Press Secretary Robert Gibbs wrote on Twitter, “Kyl says wealthy need big Bush tax cuts while middle class families are on their own to fend for themselves as a result of Bush economy.”

In private, administration officials say that the framing of the argument couldn’t be more advantageous: “It’s cutting taxes for the wealthy and letting the unemployed to fend for themselves,” said one White House ally.

Video:

Leaving aside Gibbs’ rich v. poor rhetoric, the real mistake here is the same one that Republicans made during the Bush years when they cut taxes without cutting spending and, in the process, added to the budget two wars and a trillion dollar Medicare prescription drug benefit program.  The consequences were inevitable; in the course of eight years, Bush and the GOP added to the national debt the same amount that had accumulated during the previous 212 years of the Republic. Now, we’re caught in a debt cycle that will have unforesable consequences in the future.

I happen to agree with Kyl that the Bush tax cuts should be extended. Raising taxes in the middle of an anemic economic recovery that seems as if it could turn into another recession at any money strikes me as a monumentally stupid idea. At the same time, though, it seems to me that Republicans would sound much more credible on issues like this if they came out and identified spending cuts that could be made to offset the tax revenue that would be lost. Otherwise, they’re just making the same mistakes all over again.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Tano says:

    Why would raising taxes in a recession be so stupid? I understand that you are taking some money out of the hands of consumers – but the wealthiest would probably be more inclined to save or invest the money rather than engage in stimulative spending. And when the government takes the money in taxes, it is certain to go right back out the door as government spending.

    So the question seems to be – what is more stimulative to an economy struggling to emerge from recession – having X dollars (a few percent of their overall income) in the hands of wealthy people, or having the government take it and spend it?

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  2. wr says:

    It only makes sense to say that Republicans are making a mistake if you assume that they actually care about fiscal responsibility, or about the country as a whole. Fact is, eight years of W governance shows that their only interest is in transferring the nation’s wealth into the hands of the top tenth of a percent — which, by some amazing coincidence, includes them. They’re not leaders, they’re looters, and if they get back into power they’ll steal everything they missed last time.

    And the idiot Tea Partiers will cheer them on as their futures are stolen from them. Because Glenn Beck told them this will make them “free.”

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  3. Gerry W. says:

    So this holds true, that the republicans are for the rich. There are some other angles to this.

    What good are tax cuts, if we keep sending jobs overseas. If tax cuts are supposed to spur growth and jobs then how do you do that when we keep sending jobs overseas? We lived it under Bush for eight years, and we lost our jobs.

    And what good are tax cuts if you don’t solve problems? We went through this with Bush, all you here is tax cuts and the republicans just keep playing the one man band. Republicans live and die on ideology and ideology cannot run the country. It comes down to management, but if I say the word management, then people on the right will criticize me that I believe in a socialist or communist central government.

    Our main problem, besides our spending and deficits and debt, is globalization and how we are going to create jobs in this country. And what will replace the jobs we sent overseas. And 99% of the politicians and economists do not talk about this.

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  4. Brummagem Joe says:

    Doug, the tax take is at a 50 year low as a % of GDP, that fact along with the recession is the principal cause of the collapse in tax receipts and the deficit. Face it, there is no way to get out of the huge deficit hole that Bush created without a hike in taxes. Now you can debate about when these hikes should occur but occur they must. The problem with postponing expiry is the attitude of Republicans which is totally irresponsible. Basically for them tax increases of any kind whatsoever are off the table so if the Bush cuts were made permanent we’re crippling ourselves fiscally.

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  5. JRog says:

    Well, Brum, if the principle cause of the deficit is the collapse in tax receipts due to the recession, isn’t is clear that one key to fixing the deficit is to stimulate the economy, get out of the recession and thus raise tax receipts? Higher tax rates do not equal higher tax revenues, as you pointed out.

    They could even enact spending cuts that are effective 2 or 3 years from now to offset the extension of the Bush tax cuts and counteract the argument that reducing govt spending in a recession is counter-productive.

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  6. Joe,

    I’ll be willing to consider that if you’re willing to admit that tax increases alone are not going to solve the problem and that we’re going to need massive spending cuts, including cuts to programs that might be popular

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  7. G.A.Phillips says:

    WOW……lol…..Brummagem Joe, Gerry W., wr, Tano, BDS,TPDS,TCDS,CSDS, another kind of BDS, and a whole lot of CBS……..

    hahahaha see you in November:)……

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  8. TangoMan says:

    Fact is, eight years of W governance shows that their only interest is in transferring the nation’s wealth into the hands of the top tenth of a percent —

    Hold up a second. When I earn income in exchange for providing a service I’m not acting merely as a conduit for the wealth of the nation – the money I earn with my labor is my money, not yours and everyone elses.

    Similarly, allowing high income earners to keep more of the money they earned isn’t the same as allocating to them a larger share of the “nation’s wealth.”

    Do you really see the world as you describe it in your comment – that what you earn actually belongs to everyone in the nation and the voters will determine who much of an allowance they’ll grant you from their “national wealth?”

    So this holds true, that the republicans are for the rich. There are some other angles to this.

    Earlier James posted about people holding opinions in contradiction to facts. Take a look at which party the richest of the rich have been donating to and been associating with. Hint: It’s not the Republicans.

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  9. Gerry W. says:

    JRog,

    But can tax cuts stimulate the economy? Here are two points.

    How can you stimulate the economy when we keep sending jobs overseas? How can you fill a bucket with water with a hole in the bottom?

    And point two. What kind of leverage do we have with tax cuts? In other words, look at the fed. The fed cannot lower interest rates anymore, as they are at their lowest. So there is no more leverage there. And the tax cuts are near their lowest. In fact they were higher under Clinton. But if we had some six years of tax cuts now, you have to ask yourself if they did any good. Looks to me, with the high rate of unemployment, the closed factories, and cities and states going broke that the tax cuts did not solve any problems. It evidently did not create any prosperity and we are certainly losing the middle class. And the number one cause of this is globalization. There are some 2 billion cheap laborers that want our jobs. Now, we gave up a lot of jobs, and what is going to replace them and preserve our middle class?

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  10. john personna says:

    FWIW, I think what people want is a sensible path to the future. Give them that and they’ll have economic confidence. (You can work the “spending – tax = deficit” equation a number of ways, but the thing you can’t do is ignore the equation.)

    I don’t think cutting unemployment benefits while cutting tax at the top-end is a sensible path to a confident economic future … but maybe that’s just me.

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  11. mantis says:

    I’ll be willing to consider that if you’re willing to admit that tax increases alone are not going to solve the problem and that we’re going to need massive spending cuts, including cuts to programs that might be popular

    Yeah, like defense spending, perhaps? Good luck trying to get many Republicans on board for that.

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  12. David Elliott says:

    Tax cuts increase revenue by spurring businees; and, yes, that happens because those with money to create jobs invest in their busineees and add new employees. No poor man ever created a job. Increased government spending under Bush caused the deficit. Government spending reduces revenue by increasing regulation on business, taking money out of the private sector, and generally has a 70-75% administrative overhead, i.e. whoever the proposed benefits of government largesse are get less than 30% of the cost, most going to administration. For example, Obama’s 2.5 trillion health plan provides a $15,000 per health plan for about 25 million people for ten years. He proposed spending in 10 years $150,000 on benefits to $850,000 on administrative costs. This is typical for government. The mistake Kyl is making is that tax cuts must he combined with government spending cuts to have a salutary effect on the economy. As Adam Smith noted we have the choice between “the dead hand of government” or a thriving economy. As government grows our freedoms are lost. Glen Beck is right about this.

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  13. Gerry W. says:

    Tangoman,

    I don’t agree with what the democrats are doing, however, the republicans, the party that is supposed to understand economics only goes by ideology. Now, I only saw jobs lost when we had the Bush tax cuts. I see us losing the middle class. And the republicans keep saying the same thing. So tell me something new in policy.

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  14. john personna says:

    David, theory was that “tax cuts [always] increase revenue” but sadly this was dis-proven in practice. If it had [always] worked, the Bush recoveries would have “stuck” and we wouldn’t be in this mess.

    Remember that definition of madness: to keep doing the same thing and expecting different results.

    (tax cuts [sometimes and in certain situations] increase revenues, which is why the should stay in the tool box.)

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  15. Raoul says:

    When will conservative analysts learn that the modern Republican party does not believe in governance. The worse government is the better their philosophy- it is a self fulfilling prophecy. As to higher taxes leading to reduce investment- how come, amid the lowest taxes in the last 80 years corporate and individual capital reserves are at the highest number, ever? BTW- I do agree with re-instituting the the Reagan Tax Reform Act of 1986 and while we are it, reducing or eliminating the home interest deduction.

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  16. JRog says:

    Gerry,

    I think that is a reasonable point to explore but remember, the extension of the Bush tax cuts would act to keep taxes THE SAME, not as a tax cut. By allowing them to expire we are RAISING the tax rate in a recession and I think we should almost all be able to agree that raising taxes in a recession is not good for anyone.

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  17. mantis says:

    Similarly, allowing high income earners to keep more of the money they earned isn’t the same as allocating to them a larger share of the “nation’s wealth.”

    Hold up a second yourself. You forgot to consider the massive offshoring of wealth by the rich to avoid their tax responsibilities, the insane amounts of corporate welfare that enables the rich who own corporations to further expand their wealth, and the fact that such people employ legions of accountants to find ways for them to avoid as much tax responsibility as they possibly can.

    That’s not even considering that all those high income earners earn their money on the backs of American workers, using infrastructure and resources provided by the taxpayer, all resting upon an economic stability that in no small part depends on the United States’s military and cultural dominance in the world. One might think they owe a little something to the country and countrymen that make their prosperity possible. But no, you’re right, they earned every cent through their own hard work with no help from anyone anywhere, and they don’t owe nobody nothin. Their wealth is created in a vacuum, while the bankruptcy, unemployment, foreclosures, and the rest of the misfortune of the riff raff are their own damned fault for not being superbeings like the “high income earners.”

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  18. Brummagem Joe says:

    Doug Mataconis says:
    “I’ll be willing to consider that if you’re willing to admit that tax increases alone are not going to solve the problem”

    Well the fact is they will largely solve the problem. Bruce Bartlett did a great piece in Forbes a few months back pointing out that for most of the postwar period taxes have been around 22% of GDP with occasional rises to around 24-25%. Currently it’s in the teens! He also pointed out that as practical matter the scope for “massive spending cuts” is actually fairly small because so called “discretionary” spending is only about 20% of the budget and even “discretionary” is a highly misleading term since much of it has sizeable constituencies to defend it. The best we can hope for is modest adjustments to expensive programs like SS (raising age to say 67 or 68, raising FICA cap etc), bringing our adventures in Afghanistan and Iraq to a close and the containment of Medicare cost growth. Most of the deficit is going to get taken care of with growth, inflation and raising the tax take. Sorry if this sounds blase but it’s reality.

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  19. Gerry W. says:

    David Elliot,

    If we lived in a world of our own, I could buy the tax cuts and cuts in spending. But there is some 2 billion cheap laborers that want our jobs. We are sending our jobs overseas. And that 2 billion people is much more powerful than tax cuts. Cities and states are desperately giving tax incentives to keep and create jobs. States are voting in casinos in a desperate attempt in creating jobs. But jobs are leaving just as fast or faster. My town has over 30% unemployment and you cannot create a small business in this environment.

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  20. Brummagem Joe says:

    David Elliott says:
    Monday, July 12, 2010 at 16:41
    “Tax cuts increase revenue by spurring businees; and, yes, that happens because those with money to create jobs invest in their busineees and add new employees.”

    The problem was this did not prove to be the case with the Bush tax cuts, they never came near to paying for themselves and were of much less importance as a stimulus after the dot com bust than Greenspan’s cheap money and the huge increase in govt spending.

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  21. grampagravy says:

    “…including cuts to programs that might be popular”
    Since we know this phrase is never used to suggest programs “popular” in corporate boardrooms, why not just say “including socking it to the little guys?”
    The other one I really like is “we have to make tough choices.” Translation: tough for you not me.

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  22. I have a lot of respect for Bartlett’s work but the idea that it’s going to be possible to deal with a budget deficit of nearly $ 2,000,000,000,000 without cutting spending and dealing with the entitlements problem is just fanciful

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  23. Gerry W. says:

    JRog,

    I do agree with you that in a recession you don’t raise taxes. But I have a further problem. We have lowered interest rates till they cannot be lowered anymore. We have reduced taxes to a low level and we are either not getting enough revenue (partly by recession and unemployed) and/or we are not cutting spending. And we are not creating jobs as we keep shipping jobs overseas.

    So, what I am saying is that we lost our leverage. I equate what Bush did is similar to the roaring 20′s and the country went into a depression thereafter. And we have a similar effect today.

    So, we are rather trapped in a box and don’t know which way to turn as our problems have been ignored for many years and they keep mounting.

    And all I hear is tax cuts and it is the same song over and over again. And I just wonder, when we are going to work on and solve our problems. Having tax cuts and seeing our jobs leave the country is just saying a person is for the rich as the middle class is losing his job or getting lower pay.

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  24. JRog says:

    Gerry,

    I understand your concern. I think we are sort of caught between a rock and a hard place. But I do feel like allowing the tax cuts to expire, at this point in time, would do more harm than continuing them for at least the short term.

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  25. TangoMan says:

    Hold up a second yourself. You forgot to consider the massive offshoring of wealth by the rich to avoid their tax responsibilities, the insane amounts of corporate welfare that enables the rich who own corporations to further expand their wealth, and the fact that such people employ legions of accountants to find ways for them to avoid as much tax responsibility as they possibly can.

    Point by point:

    1.) Offshoring wealth. If it’s done legally, then I have no problem with the practice. If it’s done illegally, then those doing the offshoring will pay a price. As for tax responsibilities, you make it sound so neutral. Tax responsibilities are set, ultimately, via majority preferences. There is no civil rights procedure to protect against class hatred. If people target the rich by wishing to impose unfair burdens then that process isn’t a neutral civic action to which one must acquiesce. The most effective form of fiscal discipline in this case is to allow those who don’t want to be governed by parties driven by class hatred is to maintain the freedom which allows people to pick up their marbles and find a new game. Capital flight is a necessary countercheck to oppressive policies.

    2.) Corporate welfare. I agree that this needs to be eliminated. My reading of wr’s comment was that he was focusing on the Bush Tax Cuts. Tax cutting implies that the taxpayer has earned income that will be taxed. Tax deductions is a better term for what you’re describing here and even then it’s “still allowing taxpayers to keep more of what they earned.” The absolute best term though is net corporate welfare redistribution – that is, a corporation actually benefits more from corporate welfare than it pays in taxes. That’s welfare. That’s redistribution.

    The Bush tax cuts have nothing to do with redistribution – they simply allow taxpayers to keep more of the money that they earned and that belongs to them, not to the nation. As for corporate welfare, take a blowtorch to it. The problem here is that this is more a reflection of size of government than it is of political philosophy, when government is a large player in the economy then it pays to influence government because politics is the bedrock principle underlying redistribution – the politically connected interest groups can work redistribution to their advantage and in a large redistributive pie there is little likelihood that such action will cause unrest. This process is difficult to affect when government is a smaller actor on the economic stage.

    3.) Legions of people. This is mostly a function of large government which has complex rules on redistribution that can be gamed and where the rules can be influenced to aid particular parties. This doesn’t have much to do with Bush Tax Cuts or those tax cuts “transferring the nation’s wealth into the hands of the top tenth of a percent.” If you want to see a fairer tax system then you need to advocate for a less complex tax code and smaller government, which has less ability to play favorites between different groups.

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  26. Dwight says:

    I was always taught you don’t get rich by spending money. The poor and middle class are much more likely to go out and spend money on services and goods. Consumer spending accounts for 2/3rds of the economy.

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  27. Brummagem Joe says:

    Doug Mataconis says:

    “but the idea that it’s going to be possible to deal with a budget deficit of nearly $ 2,000,000,000,000 without cutting spending and dealing with the entitlements problem is just fanciful”

    It’s not at all fanciful but I guess we’ll see whose right.

    JRog says:
    Monday, July 12, 2010 at 17:09

    “But I do feel like allowing the tax cuts to expire, at this point in time, would do more harm than continuing them for at least the short term.”

    The obverse of this argument is of course that another dose of govt spending (pace Krugman) would be a good thing if you think the recovery is that anaemic that it couldn’t stand the Bush cuts expiring. I don’t think it’s actually that anaemic but looks like most other recoveries from much less serious recessions, a bit of a switchback. Personally I wouldn’t be unhappy to see them in place for another year but it’s not going to happen because of Republican’s unwillingness to be sensible about tax policy so the risk must be taken.

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  28. john personna says:

    I’ve got a question. If you drop taxes expecting a great stimulus, and it doesn’t come, what do you do? Can you never raise them again because you fear that with higher taxes things would be even worse?

    If so, I think you should expect permanent deficits.

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  29. john personna says:

    (I suspect that there are certain targeted spending reductions and tax increases which would increase confidence in the economy, but I fear those will ever be explored. They are in political taboo. Like in those old movies where the native porters all turn and run, except in this case it is congressmen.)

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  30. TangoMan says:

    So, we are rather trapped in a box and don’t know which way to turn as our problems have been ignored for many years and they keep mounting.

    I don’t mean to sound flip but our problems are not, in non-recessionary periods, characterized as a shortage of revenue rather our problems are on the spending side.

    In the American political-cultural milieu there appears to be a limit as to how high as a percent of gdp our taxes can go irrespective of the actual marginal tax rate. See Hauser’s Law.

    We’re not going to be able to tax ourselves to a resolution in that as we increase the marginal tax rate this has the effect of lowering economic growth and all we get is the same amount of tax revenue as a percent of gdp with the added bonus of lowering growth. Given that this empirical observation holds very steady it would appear to me that the solution is to match government spending to the level of tax collection.

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  31. sam says:

    “Leading Republican says, We should keep taxes cuts for the wealthy. And to those whose unemployment benefits have been exhausted in the worst downturn since the Depression, Leading Republican says, Drop dead.”

    For this written exam, list and explain all the reasons that can be called the Marie Antoinette approach to politics.

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  32. Gerry W. says:

    I have no problem in cutting spending, and as we know, our social programs need fixing and cut.

    You say “it would appear to me that the solution is to match government spending to the level of tax collection.”

    In theory I have no problem with this either. Our deficits are higher and our programs are going broke as we still have high unemployment. We cannot sustain any of our programs as long as people are not working and/or paying taxes. And so we go back, the the worst problem we face, is globalization. Globalization is bigger than any tax cut or anything we can do. We are losing middle class jobs. And when you lose privatized jobs, the government has to step in.

    I look at globalization just like the inflation of the 70′s and we have to deal with that. Some 30 years and we are not dealing with it. Now, I live in an area effected by globalization. I would say my town has more than 30% unemployment. And what I am saying is that you are not going to solve any problems, until we get people back to work. Our country cannot function without jobs. So what is going to replace the jobs we lost, so that people become part of the community again and be tax paying citizens?

    That unemployment is not coming down anytime soon. At least, we will not see 5% unemployment for some 20 years. You are getting a shortage of revenue that keeps our cities, our states, our federal government, and social security functioning. And we are shelling out money for those unemployed. So, one way of solving our problem is employing people, and that is the box we are in, because we will feel like we are in a recession for years to come in many parts of our country as we lost the jobs.

    And if we had tax cuts, in which it was to create prosperity, and if we have had low interest rates to spur the economy and if we lost the leverage on them, then we are trapped in a box. Because these two vehicles is what we relied on in stimulating the economy.

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  33. wr says:

    Would one of you wealth-worshippers out there please explain to me how having the same marginal tax rate on a small businessman with at 250K income and on an investment banker pulling down 100 million increases job growth? Sure, the banker may eventually higher another gardener or security guard at minimum (or more likely sub-minimum) wage, but he’ll make his money by looting the company’s he’s “helping,” loading them down with debt so that another group of investors can strip out assets, lay off workers, and gut the business. Then this banker will lay multi-million dollar bets against the company he’s helping and sucker instututional investors into taking the other side, thus impoverishing yet another set of people. Oh, and of course the debt-laden company will be so cash-strapped that the first thing they’ll do is empty the “surplus” in the pension fund so that later they can cry poor mouth and stop paying pensions.

    But we can’t possibly raise taxes on these people, because that would slow job growth.

    Here’s an alternative thought: If the marginal rate on every dollar over, say, 10 million was 90 percent, maybe people like the brain trusts at the investment banks would have less of an incentive to loot their clients and the nation.

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  34. steve says:

    1) We could balance things out for a while with tax increases, just not forever. Most other countries pay more in taxes. The proper question would be about that being the correct solution. I think it a valid consideration in getting the current deficits under control.

    2) Long term, it is Medicare/Medicaid that is the real driver for future debt. To refine it further, it is medical costs that drive those two entitlement programs up. Non-defense discretionary spending has varied some, but is not the big driver. The GOP needs to directly address spending in these areas.

    http://www.heritage.org/Research/Testimony/Discretionary-Spending-Trends-Past-Present-and-Future

    Steve

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  35. Pete says:

    For all you wealth envy socialists:

    Tax System explained in beer

    Suppose that every day, ten men go out for beer and the bill=for all ten comes to $100. If they paid their bill the way we pay our taxes,=it would go something like this

    The first four men (the poorest) would pay=20 nothing.
    The fifth would pay $1.
    The sixth would pay $3.
    The=seventh would pay $7.
    The eighth would pay $12.
    The ninth would pay $18

    The tenth man (the richest) would pay $59.

    So, that’s what they decided to do.

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.”Drinks for the ten now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men- the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’

    They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
    And so

    The fifth man, like the first four, now paid nothing (100%=20 savings).
    The sixth now paid $2 instead of $3 (33%savings).
    The=seventh now pay $5 instead of $7 (28%savings).
    The eighth now paid $9 instead of $12 (25% savings).
    The ninth now paid $14 instead of $18 ( 22% savings)=
    The tenth now paid $49 instead of $59 (16% savings).

    Each of the six were better off than before. And the first four continued to drink for free But once outside the restaurant, the men began to compare their savings.

    Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”

    “That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

    David R. Kamerschen, Ph.D.
    Professor of Economics
    University of Georgia

    For those who understand, no explanation is needed. For those who do not understand, no explanation is possible

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  36. MarkedMan says:

    In the late 1800′s and early twentieth century, the wealthy were so powerful in this country
    the federal government sent out troops to shoot strikers at their behest.
    The actions of the government were deemed legal in the case cited, but that was because the laws were written by the powerful. American labor became increasingly outraged and many intellectuals sympathetic to them turned to socialism and communism, believing the capitalist system was hardwired against the workers. Finally, as we entered a great depression and hard working people starved to death, the sane business leaders realized the seeds of the Russian Revolution were blowing to US soil. It was not yet apparent that the Soviet Union was a hollow joke, in fact to the average worker the promise of capitalism was the obvious joke, and dreamy eyed idealists bought back stories of utopia and justice done to the fat cats. So, in order to avoid a real revolution the power brokers in the US gave in and allowed monopolies to be broken up, imposed a confiscatory inheritance tax, created social security and started the tilt towards the idea that a society is obligated to help its citizens if it expects those citizens to be vested in that society. (And yes, I realize the time line is off. Poetic license.)

    We are not yet to the 1920′s degree of dissatisfaction, but we are getting there. If the average person realized their children was twice as likely to move up the social and economic ladder in Sweden than in the US, the glorious capitalistic system in this country might lose some of its luster. From a recent CAP report:

    By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.

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  37. MarkedMan says:

    Dr. Kamerschen, if that is the economics you are teaching your students, it is no wonder we are in such bad shape.

    How about this analogy:
    - 4 people can’t afford the beer, so they don’t get any. They are working two jobs anyway, so wouldn’t have time to drink it if they did. They don’t have to pay for the beer, but they still pay the sidewalk fee, the street fee, the public light fee, the police fee and the fire department fee. They are so far out of the system they don’t even know how it works.
    - 4 people drink the beer, and they were fortunate enough to go be raised in a family that could afford to send them to beer school (I know, sounds like heaven) which qualified them for jobs that let them afford a beer every night. They basically did as good as their parents.
    - 1 person drinks the beer, but also gets a great meal. He was born to families that had gone to beer school for generations, and by hard work and good luck (one of his childhood friends came from a family high up in the local Department of Brewers and was able to steer some lucrative contracts his way) managed to end up with a very comfortable life with some real luxuries.
    - 1 person doesn’t drink that swill, but instead is sipping champagne on his yacht. Never worked a day in his life and is congenitally simple minded, but his parents were rich and tucked his money away in a perpetual trust so he can’t fritter away his money. None of the other nine have a chance of ever getting his wealth and one day they get tired of listening to sycophants trumpeting his entrepreneurial spirit and denigrating their work as a bunch of uneducated morons unwilling to work hard or take risks. So they dump the champagne on his head and throw him overboard.

    Is this analogy simplistic drivel? Of course. But no more so than yours.

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  38. Gerry W. says:

    That beer was made by people getting paid 20 dollars an hour. After the fall of communism, other countries opened up. They (other countries) made products for a dollar an hour. The company making the beer in America, knows he cannot survive with paying 20 dollars an hour. If he does nothing, he will fold up. He knows the only way to compete is move overseas and pay a dollar an hour. As he knows in economics, it is the best product at the best price. We lose our standard of living as we cannot compete with a dollar an hour wage. And their numbers of 2 billion people who want our jobs is too much for us to deal with. We try tax cuts, we try lean management, lean inventory, robotics, Six Sigma, and none of this works. And add the loss of anti-trust laws that were put in place by Reagan, and you cannot compete with price fixing and you sell out and end up having a monopoly. The next guy wants to have a business but the monopolies own 75% of that business sector. In the end, everyone loses, except for the fat cats. They own it all. And you will end up with the rich and the poor. The country runs up deficits and debt, there is no future as we only had tax cuts for years and no investment for the future for future jobs and growth. We are where we are.

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  39. glasnost says:

    Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

    Kind of reminds one of the mafia, doesn’t it? Nice economy you’ve got, shame if something happened to it? The nice thing about veiled threats is that they can be applied any time! Will the indispensible rich people flee if we dare raise their tax rates to 30%? Will they flee if we dare not to cut them to 15%? Will they go to greener pastures if product safety laws are enforced on their companies? What about when we attempt to hold them (individually) accountable for their share of the nation’s rapes and murders committed by them? What if they’re refused a special set of lenient criminal penalties, will they all fly away to Galt Land?

    So get the heck out already. Have fun getting a better deal… somewhere! Maybe Russia? I know, how about Central Africa? You can live like a white farmer in Zimbabwe!

    You’re only allowed to flee with your assets because of how few of you do it. Were that ever to change, there’s these things called “capital controls”…

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  40. TangoMan says:

    By international standards, the United States has an unusually low level of intergenerational mobility:

    Another GIGO (Garbage in- Garbage Out) study. I give them credit for noting the internal demographic differences in the measure of intergenerational mobility but then they completely ignore these differences when they compare internationally. Presuming this study is seeking to demonstrate the effect of government policy on intergenerational wealth mobility, comparing the US, with its multiracial society, to more demographically homogeneous societies results in a study riddled with confounding factors.

    As recent census data shows:

    Real median income rose for native-born households for the second year, up 1.0 percent from 2006, to $50,946. For foreign-born households whose householder was not a U.S. citizen, income dropped by 7.3 percent to $37,637. For households maintained by a naturalized U.S. citizen, median income remained statistically unchanged at $52,092.

    For Hispanics, 21.5 percent were in poverty in 2007, up from 20.6 percent in 2006. Poverty rates remained statistically unchanged for non-Hispanic whites (8.2 percent), blacks (24.5 percent) and Asians (10.2 percent) in 2007.

    * Among the native-born population, 11.9 percent, or 31.1 million, were in poverty in 2007. Both the poverty rate and number in poverty were statistically unchanged from 2006.

    * Among the foreign-born population, the poverty rate and the number in poverty increased to 16.5 percent and 6.2 million, respectively, in 2007, from 15.2 percent and 5.7 million, respectively, in 2006. An increase in poverty for U.S. noncitizens (from 19.0 percent in 2006 to 21.3 percent in 2007) accounted for the rise in poverty for the foreign-born population overall.

    There are lots of moving parts in this dynamic, so a junk study like that issued by CAP doesn’t inform us, at all, about what is really going on. The Census data seems to indicate that we’re importing poverty and that this is having an effect on the aggregate measures. The international comparisons are worthless to the issue of cause and effect in that all they show is effect.

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  41. steve says:

    “The tenth man (the richest) would pay $59.”

    To complete this useless analogy, this guy would also drink most of the beer. How much we cannot tell as he would drink much of it out of sight (offshore). Those who forget this part, how was that phrased?

    “For those who understand, no explanation is needed. For those who do not understand, no explanation is possible”

    Steve

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  42. Dwight says:

    “Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.”

    David R. Kamerschen doesn’t know very much about the US tax system then. As a US citizen they are liable no matter where they live and earn their money, to pay taxes to the US. If they are a business owner they have to pay social security no matter what. Of course they can deduct the lower local taxes if a double taxation treaty exists, but they can’t escape US taxes without giving up their citizenship.

    I have no problem with the wealthy. Even those who sit on the largess of their families. However I do have a problem with the wealthy, and those similarly, who think their wealth was created in a vacuum. It is often off of the backs of the less well off and being part of a stable society. Most wealth today is made on the premise of this quarter at the cost of next quarter.

    Let’s look at Wal-mart. At one point they cut a bunch of their employees to 38 hours. Suddenly these employees were no longer eligible for the company health plan. I happen to know one such person who was impacted by this. She didn’t make a lot of money, so she went on Medicaid. Now the Walton’s probably didn’t even feel a difference in how much money that saved them, but certainly their lowest employees did. A lot went on Medicaid, so it would seem perfectly fair that the Walton’s get taxed more to help fund a government program that their employees are reliant upon.

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  43. john personna says:

    There are a lot of ways to say “I don’t like taxes” but unless you actually solve the “spending – tax – deficit” equation, it is just emotion.

    I haven’t been hearing enough cuts to current spending (people are only willing to cut future spend increases) to make it work.

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  44. Brummagem Joe says:

    “The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore.”

    It doesn’t take a PhD or a lengthy parable to understand that those who pay the most in taxes benefit most from tax breaks but moving to another more friendly regime seems unlikely because guess what, we have one of the lowest effective tax rates in the world. Where are they all going to move to Doc?

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  45. john personna says:

    And it’s not like “I’m not going to make $10B any more, corrupting the system, $2B is good enough for me.”

    http://www.zerohedge.com/article/scientific-proof-high-frequency-trading-induces-adverse-changes-market-microstructure-and-dy

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  46. [...] Doug Mataconis: Leaving aside Gibbs’ rich v. poor rhetoric, the real mistake here is the same one that Republicans made during the Bush years when they cut taxes without cutting spending and, in the process, added to the budget two wars and a trillion dollar Medicare prescription drug benefit program.  The consequences were inevitable; in the course of eight years, Bush and the GOP added to the national debt the same amount that had accumulated during the previous 212 years of the Republic. Now, we’re caught in a debt cycle that will have unforesable consequences in the future. [...]

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  47. Andre Kenji says:

    The point of outsourcing is that wages are significantly lower outside the US. When there is no outsourcing foreign companies simply take over the market of American companies(That´s what happened with steel mills in the US).

    And deficits are a bigger problem because they take out money that would be used for investments. When people decides to buy government debt instead of lending it to businesses, buying stock or saving it on the banks(That uses the money to lend to businesses) that´s a MAJOR problem.

    And there is no way that you can pay the debt only with inflation and higher growth. Specially because the debt will make the interest rates to raise and paying interest rates is a major burden to the economy. The US WILL have to raise taxes and to make painful budget cuts. That would includes SS, Medicare and the military.

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  48. Gerry W. says:

    Andre,

    So is outsourcing good for the middle class? What about jobs?

    And deficits are a big problem, but you cannot solve the deficit problem without jobs. I would say, globalization is probably the biggest problem we face.

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  49. Stan says:

    My understanding of Bruce Bartlett’s position is that there is no way of bringing the budget into approximate balance on the basis of spending cuts alone, and therefore he suggests a combination of cuts (in Social Security and Medicare) and tax increases. He’s been pushing for a VAT in the 5% range, and, I think, for ending the Bush tax cuts for the wealthy. This seems like common sense to me. Of course it will never happen.

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  50. john personna says:

    I’m enough of an old-line conservative to oppose the VAT, because any new tax will expand. 5% to start, 10% in a decade or two.

    I agree though that we need to restructure at both ends: spending and revenues.

    … it would be a nice time to kill farm and energy subsidies, wouldn’t it?

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  51. sam says:

    “… it would be a nice time to kill farm and energy subsidies”…But those are Republican sacraments.

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