Line of the Day: Tax and Spend Edition

They aren't going to stop, but the cliches that pass for debate sure are tiresome (plus some musings about the tax cut extension debate).

“Our friends on the other side will always spend that money.  That’s how they keep themselves in power”—Senator Orrin Hatch (R-UT).

The context is the debate in the Senate over whether to extend all of the Bush tax cuts or just the tax cuts on either the first $250,000 of earnings or even the first $1,000,000 of earnings.

I have reached a point in life as both a citizen who has been interested in politics since he was a child during the Carter administration and as an adult analyst of politics that statements like this (that I used to have great sympathy for, by the way) grate on my nerves not unlike fingernails on a chalkboard because it is both clichéd beyond all measure and it is also highly disingenuous.

In regards to clichés, this is not a serious debating point, it is a caricature of complex policy problems.

More importantly, though, it is radically disingenuous.   The pretense that the Republican Party is the party of fiscal discipline has long since passed from the realm of promised truth to exploded myth.  As such, we need to more beyond hand-waving promises about the country’s fiscal health and enter into a more serious discussion.

Even if one accepts the assertion that the Democrats keep themselves in power by tax and spend, it seems that the Republicans think that their route to power is to promise lower taxes and all the popular federal program as well (sans “waste,” of course).  I will take their assertions about the Democrats more seriously when they get their own intellectual house in order.

I am personally ambivalent about what the proper tax cut strategy is.  Part of me thinks that the fiscal situation is sufficiently dire that we all should have to pay more to fix it, so I can see the logic of letting all the cuts expire.  However, I fully recognize the difficulties in such a course of action in the current economic situation, so can see the argument for extensions (and, indeed, lean quite heavily towards a temporary extension).  The question then becomes whether a full or partial extension is warranted.  Given the fiscal problems we are facing, a partial extension strikes me as making more sense.  At the moment, were I in the Senate, I likely would have voted for the option to extend the cuts on earnings up to one million dollars (which was defeated along with the $250K-level proposal).

Regardless of all that, the practical politics go like this:  do the Democrats balk at a full extension on fiscal responsibility grounds even to the point of allowing all the cuts to expire, or do they blink and let the GOP get a full extension?

If the Democrats blink and the cuts are extended in toto, then the entire situation presents an interesting illustration of the functioning of US political institutions, i.e., the party that (currently) has an overwhelming majority in the House and a commanding one in the Senate will end up not getting what it wants, save in part, while the party of the minority will have gotten precisely what it wanted.  Granted, the lame duck session and the results of the November elections are part of the calculus, it still is a noteworthy possible (likely?*) outcome.

Another interesting element here is time:  how long will the two sides drag this out?  The brinksmanship will only matter if the Democrats are actually willing to have no extension whatsoever.

*Yes, I know that I am now contradicting myself in terms of whether the GOP would filibuster this (I was obviously wrong)-call it a moment of analytical weakness and excessively quick posting.

FILED UNDER: Taxes, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. steve says:

    They will filibuster almost anything.

    Steve

  2. Eric Florack says:

    It is beyond any discussion that “soaking the rich” kills jobs, particularly among small businesses. So….Tell me… if I am a middle class type, of what use is are lower taxes, if I don’t have a job?

  3. john personna says:

    Taking away the 250k+ tax cut would generate $70B per year in revenue. That is still a fair amount of money. Even with spending running at $3,600B, that $70B is 2 percent of the total. That’s significant, especially when you are trying to get your house in order.

  4. john personna says:

    So Eric, how many jobs exactly does the 250k+ cut create?

    Is this a real economic analysis? Who has the study?

  5. mantis says:

    Is this a real economic analysis? Who has the study?

    It’s an article of faith. They don’t need facts, studies, or analysis. Just dogma.

  6. Eric Florack says:

    That point can be seen in U.S. Treasury Department data. Treasury found in 2007 that many of the wealthiest tax filers report some type of non-wage income, such as income from a sole proprietorship, a partnership or an S corporation. (An S corporation is simply a corporation that chooses to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes.) The Treasury Department estimated that 75 percent of tax payers in the top bracket reported this type of income.

    Now there’s a fair amount of discussion/argument about the exact lay of the land insofar as taxes and small business. Most of that is because of privacy concerns and so on. Yet, we find, on of all places, CNBC:

    The NFIB or National Federation of Independent Business has released a statement on taxes. Entitled “The Small Business Tax Increase Clock is Ticking”, the report states:

    “Small businesses created 2/3 of the net new jobs in the last decade. With small businesses struggling to recover from the recession and unemployment near 10 percent, no small business should face a tax increase.” They are concerned that a tax increase for the “wealthy” will negatively impact their members as it will effect 75% of small business.

    Here’s why according to NFIB

    * According to an NFIB poll, 75 percent of small businesses are organized as pass-through entities (sole proprietors, partnerships, S Corps, etc.), meaning they pay taxes on their business income based on the individual tax rates.
    * Increasing the individual rates will mean that business owners have less money for business investment and job creation. One study found that a 5 percent increase in individual tax rates decreases business investment by 10 percent. (Robert Carroll, “Entrepreneurs, Income Tax, and Investment, January 1998).
    * Raising the tax rates on the top two income brackets also has a negative impact on small business job creation. Based on an NFIB small business survey, the businesses most likely to face a tax increase by raising the top two rates are businesses employing between 20 and 250 employees. According to U.S. Census data, businesses with between 20 and 299 workers employ more than 25 percent of the total workforce.

    And in any event, why are we still arguing about this socialist class warfare idiocy?

  7. Tano says:

    “It is beyond any discussion that “soaking the rich” kills jobs, “

    How many jobs were killed the last time the top marginal rate was moved up to 39%, by Clinton?

  8. Eric Florack says:

    The pretense that the Republican Party is the party of fiscal discipline has long since passed from the realm of promised truth to exploded myth. As such, we need to more beyond hand-waving promises about the country’s fiscal health and enter into a more serious discussion.

    More than agreed. Yet, I think that to be the reason the tea party is drawing such attention.

    How many jobs were killed the last time the top marginal rate was moved up to 39%, by Clinton?

    If you look at this washington post growth chart you can see that there was already an economic boom before the Clinton tax increase.
    http://www.washingtonpost.com/wp-dyn/content/graph…010/01/01/GR2010010101478.html

    Note there’s also a ~1.5 year delay between economic event and resulting effect on job growth
    (e.g. the 2007 crash which didn’t actually turn job creation down until the end of 2009)

    Note also that there’s about ~1 year delay between Bush’s tax cuts and the turn of job growth going up.

    A small tax in a time of prosperity don’t do too much damage, but any tax during economic hardships is stupid.

  9. michael reynolds says:

    Arguing about taxes with Republicans about taxes is like arguing with Jehovah’s Witnesses or Scientologists. Facts are irrelevant, logic is irrelevant, they have their faith and reality has no impact on their thinking.

  10. sam says:

    That link goes nowhere.

  11. Eric Florack says:

    Reynolds, I’ve responded with facts.
    Have you?

  12. sam says:

    Hard to tell if any facts are involved, see my last.

  13. Eric Florack says:

    Hm Thanks sam. Maybe I mistyped it. Lemme see

  14. Eric Florack says:

    Can someone point to a point in history where an increase in tax rates was used to reduce the debt?

  15. Tano says:

    A small tax in a time of prosperity don’t do too much damage, but any tax during economic hardships is stupid.

    So you admit that going from 35-39% on the top rate is a small increase, right? And to claim that the time when those increases passed was “prosperity” is quite the exaggeration. But are you also acknowledging that the ear-shattering howls from people like you, back then, about how this would throw the country into a depression, were dead wrong? They came at the beginning of the strongest decade of economic growth on record.

    Can someone point to a point in history where an increase in tax rates was used to reduce the debt?

    Well, the Clinton tax raises were used to balance the budget, which is the first step toward reducing the debt. Some reductions actually began, but then Bush lowered the rates/

  16. ponce says:

    “It is beyond any discussion that “soaking the rich” kills jobs, particularly among small businesses.”

    It’s amazing the millionaires who control the Republican party can get the WalMart greeters and McDonald’s employees that make up their base to cry themselves to sleep worrying about the Paris Hilton’s marginal tax rate.

  17. sam says:

    “Can someone point to a point in history where an increase in tax rates was used to reduce the debt?”

    Yes. But not income tax rates. At the behest of Hamilton, a tax on whiskey was imposed to help pay off the debt incurred and assumed by the Federal government at the end of the Revolutionary War. Of course it lead to the Whiskey Rebellion and the putting down of the rebellion by Washington (also a tax on carriages was imposed)… Interesting history. See, http://www.taxanalysts.com/Museum/1777-1815.htm.

  18. Eric Florack says:

    They came at the beginning of the strongest decade of economic growth on record.

    Which was only possible because of Bush and is pro-business policy. As I say, the boom began a year before Clinton.

    Well, the Clinton tax raises were used to balance the budget,

    The Clinton tax increase of 1993 resulted in short-term increases in revenues to the government but became an anchor that stopped economic growth. and in the end left the country on the brink of recession by the end of his second term in 2001 .

    …which is the first step toward reducing the debt.

    A leftist fallacy. The first step in reducing the debt is lowering spending. THe national debt is not an income problem. It is a spending issue. The only reason Spending didnt get further out of control under Clinton was the Republican takeover of 1994.

    Some reductions actually began, but then Bush lowered the rates/

    Again, wrong. Bush lowered the rates because of an in response to, the slowing of the economy, which among other things, lowered tax revenue. When Bush lowered rates, revenue spiked back up.

  19. sam says:

    And, guys, c’mon. Anybody with an ounce of sense knows we’re going to have to cut spending and raise taxes to get out of this hole. The problem is, the left goes batshit over the first, and the right believes raising taxes for any reason is some kind of blasphemy.

    I don’t know if I’ve told this story here at OTB or not. If you’ve seen it before, bear with me. It’s a story that I think captures our situation perfectly. It’s a story about how folks catch monkeys in some country in Africa. What they do is this.

    First, the take a coconut and cut a hole in one end, and hollow the coconut out. Then, they attach the other end of the coconut to a rope or a vine, and tie the rope or vine to a stake in the ground. Now, the hole they’ve cut in the other end of the coconut is big enough for a monkey to stick its hand, but here’s the kicker. They put something the monkey loves in the coconut; the monkey comes along, sticks his hand it, and grabs the goody in its fist. Only thing is, while it can stick its hand in OK, when it makes the fist, it can’t get its hand out. The stupid, greedy monkey will not let go of the goody, cannot get its hand out, and the folks walk right up to it an catch it.

    That, dear readers, is us: We’ve got our greedy fist stuck in the monkey trap, and until we let go of the high spending/low tax goody, we are well and truly fvcked.

  20. Tano says:

    The national debt is not an income problem. It is a spending issue.

    This is ideology, not economics. You are just spouting your preferences.Anyone who has graduated sixth grade should understands that you can balance a budget by either increasing income, decreasing spending or a combination of both. Why do you waste our time with nonsense statements like this? Don’t you ever wonder why you don’t convince anyone with your arguments?

    When Bush lowered rates, revenue spiked back up.

    And this is just a lie.

    2000 – 2025.2
    2001 – 1991.1
    2002 – 1853.1
    2003 – 1782.3
    2004 – 1880.1
    2005 – 2153.6

    It took 4 years for federal revenues to get back to where they were when Bush first took office. And of course, the deficit just exploded even though the GOP controlled everything for most of those years.

  21. ponce says:

    “And this is just a lie.”

    “Just remember, it’s not a lie if you believe it.”
    – George Costanza

  22. anjin-san says:

    > The national debt is not an income problem. It is a spending issue.

    And he wonders why no one takes him seriously…

  23. Eric Florack says:

    This is ideology, not economics.

    Not really. It’s PRACTICAL economics.

    It took 4 years for federal revenues to get back to where they were when Bush first took office. And of course, the deficit just exploded even though the GOP controlled everything for most of those years.
    By the smallest of margins… by Republicans not by conservatives… a point well made in the post itself.

  24. ponce says:

    “by Republicans not by conservatives”

    “Conservative” meaning people whose beliefs are even more juvenile than the libertarians, if that’s possible.

  25. jpe says:

    @ Eric: that wealthy people have substantial partnership / s-corp income is both expected (of course they invest in hedge funds) and irrelevant (unless one defines, say, Paulson’s hedge fund as a “small business.”)

  26. steve says:

    “Which was only possible because of Bush and is pro-business policy. As I say, the boom began a year before Clinton.”

    So the tax increase did not stop the economy from growing.

    “The Clinton tax increase of 1993 resulted in short-term increases in revenues to the government but became an anchor that stopped economic growth. and in the end left the country on the brink of recession by the end of his second term in 2001 .”

    Let us rewrite this.

    The Bush tax cuts eventually lead to economic growth (mostly in the financial sector). Revenues, after four years, got back to where they were in 2000. However, the tax cuts became an anchor that left the country with huge deficits and did not keep the economy growing, rather it went into the worst recession since 1929.

    Steve

  27. john personna says:

    I think the vital statistic is missing:

    What percentage of folks earning over $250K per year are principles in sole proprietorships, partnerships, or Chapter S Corporations?

    It is not a symmetrical relationship. You can’t say that since small businesses create jobs, they are also everyone in that income category.

    (And of course if you wanted to target jobs creation, you’d be talking about reducing payroll tax, the direct path.)

  28. john personna says:

    That “most small businesses would not be affected by the $250K limit” is rated a “true” on the truth-o-meter:

    http://www.politifact.com/truth-o-meter/statements/2008/oct/16/barack-obama/most-small-businesses-wont-be-subject-to-obamas-ta/

  29. ponce says:

    “That “most small businesses would not be affected by the $250K limit” is rated a “true” on the truth-o-meter:”

    Save your breath, John.

    Some Americans are natural born peasants who will defend America’s rich elite in the face of mountains of facts that undermine their case….they can’t help it, it’s genetic.

  30. anjin-san says:

    > As I say, the boom began a year before Clinton.”

    In fact. the GHW Bush recession ended shortly before the elder Bush left office, and he was unfairly saddled with the reputation of a President who left office with an economy in recession. Which is not at all the same as the boom beginning a year before Clinton. That is simply more ot bitsy’s hot air.

    The GOP has a history of attempting to revise economic history for political reasons:

    http://www.businessweek.com/magazine/content/04_08/b3871044.htm