With the release Friday of May's terrible jobs report (and let's not sugar coat anything-- 69,000 created is terrible, and the unemployment rate notched up a tenth as a result) Mitt Romney and other Republicans have been quick to say that it is proof that President Obama's policies are not working. Their solution is to (predictably) suggest cutting taxes on 'jobcreators' (meaning the very wealthy and corporations,) getting rid of regulations and slashing government spending.
Not so fast. Certainly the policies in place are failing to stimulate the economy, but let's take a look at the policies in place.
Let's begin with taxes. Federal taxes are now at their lowest rates since 1950. It's hard to remember that during the 1950's and 1960's, the top marginal rate got as high as 91% in the Internal Revenue Code of 1954. And there were far fewer loopholes than there are today, so 91% meant 91%. Contrary to what today's conservatives will tell you, this did not deter job creation at all, as the American economy boomed (for example, Ray Kroc bought a hamburger stand from the McDonald Brothers in 1955, fully aware that if he was successful in his plans to turn it into a national chain of fast food restaurants he would be taxed at 91%. He and others prospered anyway.) Conservatives love to claim that the Reagan tax cuts were responsible for an economic recovery in the 1980's. But the top marginal rate under Reagan was cut in 1981 to 50%. That was what was considered 'conservative' in those days. What we have now is a system of historically low tax rates (on everybody) and then we have enough loopholes so that last year more than twenty thousand billionaires and multi-millionaires paid no tax at all as did many of the most profitable corporations. In other words, we have created a tax system in which tax rates are historically low, and what tax is paid, is paid mainly by the middle class, not the very wealthy. So the GOP argument that cutting taxes on the very wealthy will spur jobs is FALSE. Both the official and actual tax rates on the very wealthy and corporations are ALREADY the lowest they've been in decades and they have not stimulated the economy. Cutting them further will not help any more than the past several years of very low taxes have helped. In fact, if I fault Obama here, it's that he bought into the tax cut argument. Recall that the Stimulus was 43% tax cuts (including a mixture of corporate and individual tax cuts) and that he has further cut payroll taxes, and agreed to an extension of the Bush tax cuts two years ago. Let's be clear. Cutting taxes on so-called 'job creators' has NOT created jobs (certainly not in America.) Mostly, they've stashed the cash in accounts someplace (it is no coincidence that offshore banking in places like Switzerland and the Cayman Islands has exploded since the Bush tax cuts were passed.)
What about regulation? It's certainly true that there are regulations out there that can stifle small businesses. Former Democratic presidential candidate George McGovern, after leaving the Senate, opened a Bed and Breakfast in South Dakota. He later said that he got overwhelmed by all the paperwork he had to deal with, and recognized most of it as stuff he had written, sponsored or voted for while in the Senate. As he notoriously told one interviewer, "If I realized what a pain in the neck it would be, I wouldn't have written half of that stuff." However, in getting rid of regulations or deciding not to write new ones, we want to be careful as well. Let's remember that it was the (bipartisan) vote in 1999 that repealed the Glass-Steagull act and opened the door to exactly the kind of wild speculation by the big banks in risky derivatives that led to the crash of 2008. Taxpayers are understandably irate at having to bail out these big banks after their own irresponsible behavior, especially since as long as the banks were making big money, it went to their own executives and investors, not to the taxpayers (historically low tax rates, remember?) Dodd-Frank is a start in the direction of regulating the banks, but even at that it was watered down by their lobbyists, ensuring that what happened in the early 2000's could potentially happen again. A part of the act which was removed in order to gain the vote of Senator Scott Brown (R-MA) and break a GOP filibuster, the so-called Volcker rule would prohibit banks from investing in hedge funds and private equity funds. This is exactly the kind of investing that got them into trouble in the first place. The CEO of J.P. Morgan Chase, Jamie Dimon, has argued against the Volcker rule and said that the rule could cost his bank $400 million, but then has said little since trading in a hedge fund cost his bank $2 billion, five times the amount he claims the Volcker rule would cost.
Certainly if a chain of interconnected large banks fail, it can destroy the economy for everyone. BUT EVEN WITH Dodd-Frank, and EVEN IF the Volcker rule is in effect, there would still be FAR LESS regulatory oversight than there was under Glass-Steagull. During the time that Glass-Steagull was in effect, between 1937 and 1999, recessions were far milder than they have been since then (even the 2001-2002 recession was much deeper than any other recent recessions before the current downturn.) So once again, conservatives have gotten their way with regulation of the banks. Suggesting more deregulation would be going in exactly the wrong direction.
What about other companies than banks? Certainly if most business fail whether because of lack of regulatory oversight or for some other reason they won't ruin the entire economy. No, but they can ruin a lot for a lot of people. For example, given the BP oil spill, does anyone suggest that we should relax regulations on offshore oil drilling (I'm not saying don't drill, but would 'deregulation' make sense here?) Regulations are generally written either to protect the safety of workers, to protect the environment or to protect the consumer. Which of these three should we protect less? Haven't we seen enough people die in mine disasters in the past few years? Don't we already have enough pollution? Do we want more unsafe products on the market?
Are there some regulations that could go because they are obsolete, unnecessary or needlessly burdensome? Of course. And we should remove unneeded regulation, but we should be sure it is unneeded first. If we don't the price will be paid in lives-- maybe even ours (Vioxx anyone?)
And what about government spending? Isn't the deficit dangerous to the economy? Shouldn't we learn from Europe? To a degree, yes. We do presently have a national debt that exceeds $15 trillion and our debt-to-GDP ratio is very high (though not a record; it was significantly higher in 1946.) However, it must first be noted that a deficit is caused when spending exceeds revenue (just like if you spend more than you make, you will end with a debt, that you will have to borrow to pay.) Republicans love to claim that we have spent our way into a record deficit. Doing so, however, ignores the effect of trillions of dollars less in tax collections (remember those historically low tax rates? That represents revenue not going to the government.) The truth is, that spending under the Obama administration has on average increased at 0.4% per year, the slowest since the Eisenhower administration. I even give the GOP Congress some credit for this, with their (at times unreasonable) insistence on spending cuts as the price for doing anything the past two years (not that we won't pay for it of course, but the price will be less accurate hurricane forecasts and tornado warnings a decade or more from now.) The reason why the deficit has grown so much over the past decade is because tax revenues coming into the government have dropped through the floor (historically low tax rates, remember?)
Well, what about cutting government spending as a means to stimulate the economy then? Unfortunately, as I explained last year, cutting spending in the middle of a recession has exactly the opposite effect. In fact, this is exactly what we SHOULD be learning from Europe. Greece, Spain, Portugal and Ireland have all implemented various types of austerity to combat the recession, which involves massive cuts in their public sector workforces. The European Central Bank and the IMF have helped bail them out, but on the condition they cut their govenrment spending so that they could pay back the loans. Only an unexpected (but entirely foreseeable) development happened-- the economies of the countries collapsed so fast that even with the cuts they are having trouble making the payments because with a collapsing economy less is being produced at all and so less can be collected in taxes no matter how high the rate is. For example, the Greek economy has shrunk by over 20% just this year. What about the U.S. economy? With May's report, it is a fact that over 600,000 public sector jobs have been lost during the Obama administration. This includes over 11,000 federal jobs and much larger cuts at the state and local levels. This is precisely the OPPOSITE of what would be called for in classical Keynesian economic theory. One can argue whether this is itself caused by the bad economy (since states have to operate on a balanced budget) or by a conscious GOP attempt to shrink government (the truth is probably some of both, and there are enough public sector job losses to be explained using both of these causes.) However, contrary to what conservatives will tell you, if the economy has not been stimulated, it is not because of government hiring, but rather the dumping of hundreds of thousands of teachers, police and other public sector workers into the job market. So what we see is the effect of government not hiring, but in fact doing the opposite and sandbagging any private sector driven improvement in the economy by adding to the number of unemployed people (with lower income and consumer spending to match.)
So is the economy not doing very well? Absolutely, the May jobs report makes it clear that it is not. And certainly the interconnectedness of global markets means that we are fools if we believe that problems in Europe or Asia won't eventually be reflected in the U.S. But don't let conservatives suggest that they can 'cure' it by cutting taxes, deregulation and cutting government spending. Because that's what we've been doing for YEARS, and where we are now is where it has taken us! MORE tax cuts, deregulation and cuts to government spending would be like trying to cure high cholesterol by eating cheeseburgers.
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Saturday, June 02, 2012
Friday, November 13, 2009
Why Arizona, California budget woes have similar causes
As I'm sure virtually everyone in Arizona has heard by now, a report out this week states flatly that Arizona is in the second worst financial shape after California.
In fact, I wonder if that's even true, for one thing California actually did overcome partisan differences and get a budget together while our Governor and legislature, led by the same party, were still bickering and not getting anything done. In fact they never did agree on a budget this year, with the Governor 'creating' a pseudo-budget by vetoing some of the legislative cuts and forcing a third special session which may or may not begin next week to address some of the unresolved budget issues.
However, for some clues to why things are so bad, it might be useful to compare the two states and see what is common between them that may have led to this situation.
Party control is not one of those factors. California, once the home of Nixon and Reagan Republicanism, has become a reliably Democratic state, and despite having a Republican Governor has had a Democratic legislature for a long time. Arizona on the other hand has had Republicans running the legislature since 1964 (when Barry Goldwater's coattails in his home state swept the GOP to power in a body they have controlled for decades since then.)
There are however three factors that all appear to have sprung from populist impulses.
The first is that Californians, who were anti-tax during the 1970's and 1980's passed the same kind of law as Arizona passed in 1992. It requires a 2/3 vote of both houses of the legislature plus a Governor's signature to raise taxes. This effectively prevents raising taxes even in an emergency like the present since it is virtually certain that you can muster 1/3 of one house or the other to always vote against a tax increase. Let's be honest here-- if the same provision applied to spending cuts, the state would be just as constricted since you could always find 1/3 of at least one house who would vote against any spending cut. What this does is effectively disables the legislature's ability to deal with problems as they emerge and in a disaster like we have now this restriction is crippling. And it is also true that preventing the legislature from raising taxes is in effect saying that you don't trust the voters to vote out any legislator who voted for an unpopular tax.
In Arizona the supermajority provision was complicated during the 1990's when the state cut taxes very deeply so that we now are faced with a situation where we already are one of the lowest tax states in the nation and still can't raise them back again.
The second is the citizen ballot initiative provision that has essentially pre-written large chunks of the state budget in both states. While I fully supported and voted for dedicated spending on programs like children's health care that I did not believe the legislature could be trusted to fund adequately (and I will oppose any effort to repeal this dedicated spending, at the ballot box or elsewhere because I know that Kirk Adams and Bob Burns would use the money to pay for tax cuts, not to reduce spending cuts) it is true that when there is a big budget deficit, the fact that certain budget items by law can't be touched forces the cuts to be deeper everywhere else. Sort of like building a wall around a town to keep out a flood. It may succeed but it will push more water downstream and flood the next town worse.
As one California observer noted, Californians are schizophrenic-- they don't want to pay taxes but they want the Government to provide a lot of stuff. So they have voted that combination, and the same is true of Arizonans. That's not a partisan observation, it's an observation of the way things are.
The third similarity is legislative term limits. Most people don't like professional legislators, but in Sacramento and Phoenix that problem has been solved by another populist measure that creates a whole new set of problems-- term limits. The biggest problem with this is that there are always at least 1/4 of the members with no experience, another 1/4 of the members who are on their way out and therefore have no reason to try and reflect what anyone in their district thinks (1/4 + 1/4 = 1/2) and the other half of the legislature in between these two extremes (i.e. with little experience and not really needing to satisfy their district beyond the next election or two.) Further, there is a lack of institutional memory. Programs that may have been begun at an earlier time (such as investments in biotechnology) may be discontinued, defunded or severely cut when a new group of legislators comes in with a different idea about where things should be headed and has no idea of what the original justification or purpose for the programs was.
Term limits may be nice in theory but in practice it means we force people to retire once they actually learn what is going on and how to get things done within the system.
These three populist ideals-- supermajority to raise taxes, budget-by-ballot-initiative and term limits, while appealing in some degree to people on both the left and the right, have essentially crippled the governments in both Arizona and California to the extent that neither may be able to deal with the tidal wave of red ink now rolling towards them at high speed.
In fact, I wonder if that's even true, for one thing California actually did overcome partisan differences and get a budget together while our Governor and legislature, led by the same party, were still bickering and not getting anything done. In fact they never did agree on a budget this year, with the Governor 'creating' a pseudo-budget by vetoing some of the legislative cuts and forcing a third special session which may or may not begin next week to address some of the unresolved budget issues.
However, for some clues to why things are so bad, it might be useful to compare the two states and see what is common between them that may have led to this situation.
Party control is not one of those factors. California, once the home of Nixon and Reagan Republicanism, has become a reliably Democratic state, and despite having a Republican Governor has had a Democratic legislature for a long time. Arizona on the other hand has had Republicans running the legislature since 1964 (when Barry Goldwater's coattails in his home state swept the GOP to power in a body they have controlled for decades since then.)
There are however three factors that all appear to have sprung from populist impulses.
The first is that Californians, who were anti-tax during the 1970's and 1980's passed the same kind of law as Arizona passed in 1992. It requires a 2/3 vote of both houses of the legislature plus a Governor's signature to raise taxes. This effectively prevents raising taxes even in an emergency like the present since it is virtually certain that you can muster 1/3 of one house or the other to always vote against a tax increase. Let's be honest here-- if the same provision applied to spending cuts, the state would be just as constricted since you could always find 1/3 of at least one house who would vote against any spending cut. What this does is effectively disables the legislature's ability to deal with problems as they emerge and in a disaster like we have now this restriction is crippling. And it is also true that preventing the legislature from raising taxes is in effect saying that you don't trust the voters to vote out any legislator who voted for an unpopular tax.
In Arizona the supermajority provision was complicated during the 1990's when the state cut taxes very deeply so that we now are faced with a situation where we already are one of the lowest tax states in the nation and still can't raise them back again.
The second is the citizen ballot initiative provision that has essentially pre-written large chunks of the state budget in both states. While I fully supported and voted for dedicated spending on programs like children's health care that I did not believe the legislature could be trusted to fund adequately (and I will oppose any effort to repeal this dedicated spending, at the ballot box or elsewhere because I know that Kirk Adams and Bob Burns would use the money to pay for tax cuts, not to reduce spending cuts) it is true that when there is a big budget deficit, the fact that certain budget items by law can't be touched forces the cuts to be deeper everywhere else. Sort of like building a wall around a town to keep out a flood. It may succeed but it will push more water downstream and flood the next town worse.
As one California observer noted, Californians are schizophrenic-- they don't want to pay taxes but they want the Government to provide a lot of stuff. So they have voted that combination, and the same is true of Arizonans. That's not a partisan observation, it's an observation of the way things are.
The third similarity is legislative term limits. Most people don't like professional legislators, but in Sacramento and Phoenix that problem has been solved by another populist measure that creates a whole new set of problems-- term limits. The biggest problem with this is that there are always at least 1/4 of the members with no experience, another 1/4 of the members who are on their way out and therefore have no reason to try and reflect what anyone in their district thinks (1/4 + 1/4 = 1/2) and the other half of the legislature in between these two extremes (i.e. with little experience and not really needing to satisfy their district beyond the next election or two.) Further, there is a lack of institutional memory. Programs that may have been begun at an earlier time (such as investments in biotechnology) may be discontinued, defunded or severely cut when a new group of legislators comes in with a different idea about where things should be headed and has no idea of what the original justification or purpose for the programs was.
Term limits may be nice in theory but in practice it means we force people to retire once they actually learn what is going on and how to get things done within the system.
These three populist ideals-- supermajority to raise taxes, budget-by-ballot-initiative and term limits, while appealing in some degree to people on both the left and the right, have essentially crippled the governments in both Arizona and California to the extent that neither may be able to deal with the tidal wave of red ink now rolling towards them at high speed.
Friday, December 26, 2008
Sad episode (not) in Gilbert underlines the disconnect people have between taxes and services
Gilbert, Arizona is a typical suburban/exurban community (in this case a suburb of Phoenix.) Upscale but not identifiably wealthy (like Paradise Valley, for example) and with a mixture of neighborhoods but few or none that would be considered 'bad' it is politically conservative-- the kind of place in Maricopa county that provides reliable Republican majorities that keep the county tilting red even though the city of Phoenix has begun voting Democratic. Gilbert has been singed by the foreclosure crisis like the rest of metro Phoenix but it has escaped with less of a hit than a lot of other communities. And like in most conservative communities, people there don't particularly like paying taxes and they will tell you that.
Gilbert isn't completely solidly contiguous however, containing several unincorporated 'county islands' surrounded by city. The people who live in those areas are generally a little more well off than the rest of the city, and they have steadfastly refused to be incorporated into the city, because then they would have to pay municipal taxes (though Gilbert's municipal taxes are not particularly high in comparison with other local cities.)
So a couple of years ago the issue of fire protection came up. The legislature passed a law in June stipulating that the residents of the 'county islands' pay a fee of $1.59 per $100 of secondary assessed valuation (a reduced tax, in other words) specifically for fire coverage. According to today's paper the city is being forced to 'eat' a significant loss at that, as the $1.59 only pays about half the cost of providing coverage in the expanded area.
Yesterday that was put to the test. And it failed badly. First of all, firefighters from three fire houses who responded to a residential fire discovered that residents of the 'island' had put 800 to 1000 pound concrete barricades up across the street they were coming down (apparently to keep out unwanted traffic from residents of the town of Gilbert; I guess being 'unincorporated' gives some idiots the right to think they can redraw the street map as they see fit without notifying emergency providers.) So the firefighters had to park their trucks, get out and spend several minutes dragging the barricades away while the fire was flaring out of control. Then they got there, and they discovered that since they were not within the city (where city law specifies that there must be a fire hydrant every five hundred feet) the nearest hydrant was nearly half a mile away. After patching together almost half a mile of fire hose, there was very little to do except put out the embers and make sure that the fire didn't spread to surrounding structures. The home was a total loss (though the good news is that no one was injured.)
A neighbor was interviewed in today's Arizona Republic, and she thought that the $1.59 'fire fee' should have covered the placement of hydrants. In fact it does not. It covers fire coverage-- and that's all. Essentially they paid the firefighters who responded to the call to remove their barricades, piece together a half mile fire hose and prevent the fire from spreading beyond that property. The cost of placing hydrants, a basic infrastructure item (and $15,000 per hydrant) is far more than the reduced tax they are paying will cover, even if the city got authorization to put them there, technically 'outside' of the city limits. But the people in the 'county island' seem to think they should be there-- in other words they refuse to join the city because they don't want to pay city taxes, but they want the city to use those city taxpayers' money to put an infrastructure improvement-- fire hydrants-- in their community that wasn't called for under the legislatively passed law (and recall the city of Gilbert has stated that the fee they are being forced to accept by the legislature only pays about half of the actual cost of coverage, and that's not including hydrants.)
What gets me here though is something that I've seen before. I remember living in a town where there was a municipal bond issue on the ballot to pay for basic services. A group of very vocal anti-tax people campaigned hard, and they succeeded. The measure lost. Fair enough. But then a couple of months later the town announced that it was cutting back on residential garbage collection, from every week to every other week, and all of a sudden the very same people who had been up in arms about the bond issue started complaining loudly about the cut in services. Apparently it didn't register on them that there was any kind of connection-- they must have been spoiled as kids, believing that the services they need will just materialize out of thin air without actually having to pay for it. Maybe they think that government is just awash in waste and fat, so that they can cut taxes and they will still find the money to maintain services by 'trimming fat.' I've talked to more than one person who's told me, after voting against a bond issue and expecting that things will be paid for, "They've got the money, you know they do." Well, in fact often they don't. Tax cuts = budget cuts = service cuts. A really simple equation.
Now, if you honestly believe in tax cuts, that's fine. But don't complain if services get cut. I believe the opposite-- I favor government providing quality service-- but I understand that the price I pay for it will be higher taxes.
Ironically, it is the more conservative regions of the country that most benefit from taxes, but apparently take that for granted. In fact, if you look at Federal spending on a state by state level (using 2005 figures, the most recent ones available) in terms of the amount of money received by the states per dollar of tax revenue collected within the state you will find for example that eight of the top ten states in return per tax dollar voted Republican in the 2008 election* while all ten of the bottom states for federal spending per tax dollar collected voted Democratic this year. In fact, it is even more stark than that. Texas, which gets back $0.94 in federal spending for every tax dollar collected in the state, is the only state that voted Republican this year that does not get a net benefit from federal largesse. Georgia, which barely comes out ahead (at $1.01) and Utah ($1.07) are the only other 'red' states that even come close to breaking even, while every other Republican state gets back at least 10% more in federal dollars than they put into the till. Or put another way, if conservatives got their dream and eliminated the IRS and handed everything back to the states that is now paid by the feds, most blue states could maintain the level of services they have now without having to collect as much as the feds are now collecting, while most red states would either have to drastically cut services, drastically raise taxes even above what their residents are paying in federal taxes now, or possibly do both of those things. Yes, the gospel of anti-big government, from those who most depend on continued big government spending.
But there are still people who think you can get something for nothing, that they can have their cake and eat it too. And until that delusion is addressed and people understand the connection between taxes and the services that are provided, I think we will continue to see more situations like the unfortunate one that happened yesterday not in Gilbert.
*-- yes, the District of Columbia in 2005 did benefit from $5.55 in federal spending in the district per tax dollar collected in the district, but that is neither surprising nor relevant since the District is the seat of the government and most of this was spent on the operation of the federal government. I don't have a figure on just what was spent on programs directly benefitting the district and its residents per tax dollar paid but I suspect it's only a fraction of this.
Gilbert isn't completely solidly contiguous however, containing several unincorporated 'county islands' surrounded by city. The people who live in those areas are generally a little more well off than the rest of the city, and they have steadfastly refused to be incorporated into the city, because then they would have to pay municipal taxes (though Gilbert's municipal taxes are not particularly high in comparison with other local cities.)
So a couple of years ago the issue of fire protection came up. The legislature passed a law in June stipulating that the residents of the 'county islands' pay a fee of $1.59 per $100 of secondary assessed valuation (a reduced tax, in other words) specifically for fire coverage. According to today's paper the city is being forced to 'eat' a significant loss at that, as the $1.59 only pays about half the cost of providing coverage in the expanded area.
Yesterday that was put to the test. And it failed badly. First of all, firefighters from three fire houses who responded to a residential fire discovered that residents of the 'island' had put 800 to 1000 pound concrete barricades up across the street they were coming down (apparently to keep out unwanted traffic from residents of the town of Gilbert; I guess being 'unincorporated' gives some idiots the right to think they can redraw the street map as they see fit without notifying emergency providers.) So the firefighters had to park their trucks, get out and spend several minutes dragging the barricades away while the fire was flaring out of control. Then they got there, and they discovered that since they were not within the city (where city law specifies that there must be a fire hydrant every five hundred feet) the nearest hydrant was nearly half a mile away. After patching together almost half a mile of fire hose, there was very little to do except put out the embers and make sure that the fire didn't spread to surrounding structures. The home was a total loss (though the good news is that no one was injured.)
A neighbor was interviewed in today's Arizona Republic, and she thought that the $1.59 'fire fee' should have covered the placement of hydrants. In fact it does not. It covers fire coverage-- and that's all. Essentially they paid the firefighters who responded to the call to remove their barricades, piece together a half mile fire hose and prevent the fire from spreading beyond that property. The cost of placing hydrants, a basic infrastructure item (and $15,000 per hydrant) is far more than the reduced tax they are paying will cover, even if the city got authorization to put them there, technically 'outside' of the city limits. But the people in the 'county island' seem to think they should be there-- in other words they refuse to join the city because they don't want to pay city taxes, but they want the city to use those city taxpayers' money to put an infrastructure improvement-- fire hydrants-- in their community that wasn't called for under the legislatively passed law (and recall the city of Gilbert has stated that the fee they are being forced to accept by the legislature only pays about half of the actual cost of coverage, and that's not including hydrants.)
What gets me here though is something that I've seen before. I remember living in a town where there was a municipal bond issue on the ballot to pay for basic services. A group of very vocal anti-tax people campaigned hard, and they succeeded. The measure lost. Fair enough. But then a couple of months later the town announced that it was cutting back on residential garbage collection, from every week to every other week, and all of a sudden the very same people who had been up in arms about the bond issue started complaining loudly about the cut in services. Apparently it didn't register on them that there was any kind of connection-- they must have been spoiled as kids, believing that the services they need will just materialize out of thin air without actually having to pay for it. Maybe they think that government is just awash in waste and fat, so that they can cut taxes and they will still find the money to maintain services by 'trimming fat.' I've talked to more than one person who's told me, after voting against a bond issue and expecting that things will be paid for, "They've got the money, you know they do." Well, in fact often they don't. Tax cuts = budget cuts = service cuts. A really simple equation.
Now, if you honestly believe in tax cuts, that's fine. But don't complain if services get cut. I believe the opposite-- I favor government providing quality service-- but I understand that the price I pay for it will be higher taxes.
Ironically, it is the more conservative regions of the country that most benefit from taxes, but apparently take that for granted. In fact, if you look at Federal spending on a state by state level (using 2005 figures, the most recent ones available) in terms of the amount of money received by the states per dollar of tax revenue collected within the state you will find for example that eight of the top ten states in return per tax dollar voted Republican in the 2008 election* while all ten of the bottom states for federal spending per tax dollar collected voted Democratic this year. In fact, it is even more stark than that. Texas, which gets back $0.94 in federal spending for every tax dollar collected in the state, is the only state that voted Republican this year that does not get a net benefit from federal largesse. Georgia, which barely comes out ahead (at $1.01) and Utah ($1.07) are the only other 'red' states that even come close to breaking even, while every other Republican state gets back at least 10% more in federal dollars than they put into the till. Or put another way, if conservatives got their dream and eliminated the IRS and handed everything back to the states that is now paid by the feds, most blue states could maintain the level of services they have now without having to collect as much as the feds are now collecting, while most red states would either have to drastically cut services, drastically raise taxes even above what their residents are paying in federal taxes now, or possibly do both of those things. Yes, the gospel of anti-big government, from those who most depend on continued big government spending.
But there are still people who think you can get something for nothing, that they can have their cake and eat it too. And until that delusion is addressed and people understand the connection between taxes and the services that are provided, I think we will continue to see more situations like the unfortunate one that happened yesterday not in Gilbert.
*-- yes, the District of Columbia in 2005 did benefit from $5.55 in federal spending in the district per tax dollar collected in the district, but that is neither surprising nor relevant since the District is the seat of the government and most of this was spent on the operation of the federal government. I don't have a figure on just what was spent on programs directly benefitting the district and its residents per tax dollar paid but I suspect it's only a fraction of this.
Wednesday, April 30, 2008
Obama takes the right position on 'gas tax holiday,' even though it will cost him votes
Gas is creeping upwards towards $4.00 per gallon (diesel heading towards five) and may get there this summer. Voters want to see gas prices go down. So both John McCain and Hillary Clinton have proposed a Federal 'gas tax holiday' during the summer (peak driving season.) Clinton, to her credit, at least has a plan to offset the loss of revenue-- earmarked for highway funding-- with a windfall profits tax on oil companies. I guess McCain would just as soon sacrifice the quality of American roads to serve his own short term ambition of getting elected President. Of couse he flies everywhere anyway so I guess he never has to worry about a pothole doing thousands of dollars worth of damage to his car.
However the candidate showing real leadership here is Barack Obama. In the face of the demands for a 'tax holiday,' he is making the difficult case that cutting off the gasoline tax won't reduce prices, and whether offset by a Federal windfall tax on oil companies as Clinton proposes or offset by not funding highway repairs as McCain proposes, either way in the long run it will cost more, not less.
For starters, in an economics 101 class you will learn that if you decrease the price on any item, demand increases. But if supply does not, it puts upward pressure on price which in turn leads you back to the same equilibrium point, a price at which demand equals supply. That is as true for gasoline as for any other commodity, which is the point that economists are making, Senator Obama understands and Senators Clinton and McCain either don't understand or choose to wilfully ignore in their reckless search for votes.
WASHINGTON (MarketWatch) -- As summer approaches, Hillary Clinton and John McCain have found a common problem and a common solution. Both want to suspend the federal tax on gasoline, giving drivers a break from high prices at the pump.
At first glance, that sounds like a great idea. But if economists are right, it's their fellow senator Barack Obama who's got the better idea when it comes to the gasoline tax: Do nothing.
Both McCain and Clinton would suspend the 18.4 cents a gallon tax on gasoline. Clinton said Monday that she would also suspend the 24.4 cents a gallon tax on diesel this summer...
It would appear that Obama is risking a chance to win populist points by not standing behind a tax break, particularly when gasoline is at a punishing $3.65 a gallon. But if it's real relief the candidates are looking for, economists say, they should look elsewhere.
"I don't think that a gas-tax cut would result in a really big drop in gasoline prices," said James Hamilton, a professor of economics at the University of California San Diego. It's simple economics: Without a corresponding increase in supply, he added, the price would rise again.
Boosting supply at this stage would be difficult. In the summertime, refineries run at close to full tilt to meet expected demand from vacationing families and other summer drivers.
Since the refiners can't produce much more without building new refineries, the price has to go back up," wrote Len Burman and Eric Toder on TaxVox, the blog of the Tax Policy Center. (Their post is titled "What Were They Thinking???") "Unless the plan's aim is to boost short-term profits for petroleum refineries, the proposal makes no sense...
It might seem axiomatic that cutting taxes on gasoline would make it cheaper. But economists also say a side effect of cheaper gas would be increased demand for fuel as more people drive. That, they point out, would put prices right back where they started.
"They'll bid the price back up," said Andrew Samwick, a professor of economics at Dartmouth College and a former economic adviser to President Bush.
In fact, if the Clinton plan is adopted there is nothing to prevent the oil companies from passing the tax right back to the consumers while if the McCain plan is adopted then sooner or later the highway repairs will still have to be done, which means that some other tax will have to be used for the purpose and likely raised. So what we really see is that there is no such thing as a free lunch, just politicians who promise you one.
Obviously while Obama is right on this one, it is going to cost him votes. But sometimes leadership means doing what's right, even at a price.
The truth is, the reason for the high gas price is because we spent so many decades doing nothing (recall that Jimmy Carter had a plan to make America self-sufficient in energy by 2000 but except for the Alaska pipeline, a small part of it, Ronald Reagan dismantled the whole plan.) Just a couple of months ago, Congress passed the first increase in CAFE standards since 1978. And America is a nation of cars, partly because we lag the rest of the world in investment in mass transit (and then, like in the case of the Phoenix light rail system, we wait to build it until decades after it is proposed, and therefore at dozens of times the cost.)
We will need a comprehensive long term energy policy (which the next administration can and should put together and propose,) not a short term bandaid which will in the end save you nothing.
However the candidate showing real leadership here is Barack Obama. In the face of the demands for a 'tax holiday,' he is making the difficult case that cutting off the gasoline tax won't reduce prices, and whether offset by a Federal windfall tax on oil companies as Clinton proposes or offset by not funding highway repairs as McCain proposes, either way in the long run it will cost more, not less.
For starters, in an economics 101 class you will learn that if you decrease the price on any item, demand increases. But if supply does not, it puts upward pressure on price which in turn leads you back to the same equilibrium point, a price at which demand equals supply. That is as true for gasoline as for any other commodity, which is the point that economists are making, Senator Obama understands and Senators Clinton and McCain either don't understand or choose to wilfully ignore in their reckless search for votes.
WASHINGTON (MarketWatch) -- As summer approaches, Hillary Clinton and John McCain have found a common problem and a common solution. Both want to suspend the federal tax on gasoline, giving drivers a break from high prices at the pump.
At first glance, that sounds like a great idea. But if economists are right, it's their fellow senator Barack Obama who's got the better idea when it comes to the gasoline tax: Do nothing.
Both McCain and Clinton would suspend the 18.4 cents a gallon tax on gasoline. Clinton said Monday that she would also suspend the 24.4 cents a gallon tax on diesel this summer...
It would appear that Obama is risking a chance to win populist points by not standing behind a tax break, particularly when gasoline is at a punishing $3.65 a gallon. But if it's real relief the candidates are looking for, economists say, they should look elsewhere.
"I don't think that a gas-tax cut would result in a really big drop in gasoline prices," said James Hamilton, a professor of economics at the University of California San Diego. It's simple economics: Without a corresponding increase in supply, he added, the price would rise again.
Boosting supply at this stage would be difficult. In the summertime, refineries run at close to full tilt to meet expected demand from vacationing families and other summer drivers.
Since the refiners can't produce much more without building new refineries, the price has to go back up," wrote Len Burman and Eric Toder on TaxVox, the blog of the Tax Policy Center. (Their post is titled "What Were They Thinking???") "Unless the plan's aim is to boost short-term profits for petroleum refineries, the proposal makes no sense...
It might seem axiomatic that cutting taxes on gasoline would make it cheaper. But economists also say a side effect of cheaper gas would be increased demand for fuel as more people drive. That, they point out, would put prices right back where they started.
"They'll bid the price back up," said Andrew Samwick, a professor of economics at Dartmouth College and a former economic adviser to President Bush.
In fact, if the Clinton plan is adopted there is nothing to prevent the oil companies from passing the tax right back to the consumers while if the McCain plan is adopted then sooner or later the highway repairs will still have to be done, which means that some other tax will have to be used for the purpose and likely raised. So what we really see is that there is no such thing as a free lunch, just politicians who promise you one.
Obviously while Obama is right on this one, it is going to cost him votes. But sometimes leadership means doing what's right, even at a price.
The truth is, the reason for the high gas price is because we spent so many decades doing nothing (recall that Jimmy Carter had a plan to make America self-sufficient in energy by 2000 but except for the Alaska pipeline, a small part of it, Ronald Reagan dismantled the whole plan.) Just a couple of months ago, Congress passed the first increase in CAFE standards since 1978. And America is a nation of cars, partly because we lag the rest of the world in investment in mass transit (and then, like in the case of the Phoenix light rail system, we wait to build it until decades after it is proposed, and therefore at dozens of times the cost.)
We will need a comprehensive long term energy policy (which the next administration can and should put together and propose,) not a short term bandaid which will in the end save you nothing.
Wednesday, July 04, 2007
Governor's move was brilliant, absolutely brilliant.
A little while ago, I blogged on Governor Napolitano's decision to sign the very tough employer sanctions bill that the legislature passed after it was pushed primarily by hardcore anti-immigration GOP hardliners. I briefly alluded to the political impact of her decision, but as I've thought about it, I've realized how truly brilliant her move was, and how it warrants another post.
In Star Trek II: Wrath of Khan, Mr. Chekov and companion are surprised to meet Khan on a world they thought was deserted. Though Khan has not seen anyone from outside for years, he thinks at first that Chekov may have come to his world by intent. But then he realizes that they landed on the wrong planet, and he says, in an excited but subdued voice, strengthened by sudden realization of discovery and advantage, "You didn't expect to find me!"
And so it is here. I could almost hear the Governor saying with a feeling of victory under her breath as she read the sanctions bill, 'Ah, I see... you didn't expect me to sign this bill.'
After vetoing scores of the legislature's most draconian bills since taking office in 2002 (and making every single one of those vetoes stand) the Governor has largely muzzled the legislature's conservative leaders. They still try to pass a lot of bills that have veto-bait written all over them, mostly to embarrass the Governor or perhaps to get her on record (a record they can distort) for 2010 in the event that she runs for the Senate.
And I believe that was the case here. Governor Napolitano has said before that the way to deal with immigration is to get tough on people who hire undocumented workers. So the legislature decided to call her bluff and pass this piece of legislation so she'd veto it and then they could cite it when they went after her on immigration sometime in the future. Her past defense of vetoing immigration bills has been that it is a Federal responsibility (which is true, in fact.) But after last week's defeat of the Federal immigration bill they would be able to hit her with the failure of the Federal government to act.
Only, they were sure that she would veto it. After all, she invariably vetos any bill that is this draconian in its effects and she has always maintained decent relations with the business community in the state. So when they wrote the bill they didn't bother to exempt anyone who has a business license. They wrote in some ridiculous figures-- $100,000 to maintain a statewide database AND cover statewide enforcement of the law, and $70,000 to educate employers all over the state about it. County attorneys get $2.5 million-- spread among all 16 counties in the state-- which is supposed to cover the cost of hiring people to investigate and prosecute these cases. In other words they didn't think much through. Why waste time working very hard on a bill that is going to be vetoed anyway?
So they thought.
Then she signed it. And announced that she is likely to call a special session to deal with the glitches. So much for the 'part time legislature.' They will be back in August or September for what could be a very rocky session.
And she holds all the cards. In exempting infrastructure, there is little they can argue. They don't really want their constituents to freeze in the dark this winter when the electric company closes up shop. They don't want to be closing hospitals.
They will of course want to exempt private schools (at least those which are run as for profit businesses) so they don't have to comply with a law that the public schools won't have to worry about the consequences of. But right now, the private schools will be hit with the new law, and I have a feeling the Governor will demand a stiff price for exempting them (wonder how much of a split that one is causing in the GOP caucus, since some members are very committed to private schools and 'educational choice,' and are probably furious at their own leaders for getting them to vote for this package which has now come back and gored their own ox.) Getting rid of the flawed database requirement and going back to Social Security cards may be one price that she demands.
The funding is the other big issue here. $170,000 might pay for the computers the database is to be maintained from. It certainly won't cover the employees or resources necessary to educate and then enforce the law on employers statewide. For $2.5 million total, the county attorneys won't be able to investigate and prosecute more than a few really egregious cases. Only, the state budget has already been passed for this year. And at that, the slump in the housing market (to say nothing of what this bill will do-- certainly not cause a short term economic boom) is likely to bring revenue projections down. So she holds all the cards again-- she can simply insist that the legislature leave the already approved budget for this year alone, and find their own funding sources. In other words, they can choose between in effect gutting their own law (essentially keeping it on paper with no one out there enforcing it) or raising the revenue to fund it. She can point out the disaster that happened in the early 2000's when the state took money out of the rainy day fund, and the prospect of a near-term slowdown and refuse to accept that as a source of revenue. Bonds, as have been used in the past to finance things like school construction are generally backed by real assets, so she can refuse to allow the legislature to borrow by way of bonding for that reason. The Governor, who ran in 2002 on a pledge to ask for tax increases only as a last resort, has not once in five years asked for one. And she won't need to now. But she can close all the other doors and in effect force the GOP hardliners who control the legislature to either fail to enforce their own pet bill or raise taxes to pay for it.
On top of that, business leaders, while maintaining a cordial relationship with the Governor, have given Republicans-- even hard core loonies like Pearce-- their support, including their financial support. Of course the Governor has always protected them from some of the more ridiculous bills they passed, such as the law which she vetoed this week which would have required all businesses to buy storage lockers for customers to store their guns. In their Republican pipe dream, they can think about how great having a GOP legislature is while they shovel money at them without having to worry about some of the most odious requirement that they pass on to businesses. If it's too bad, Janet will take care of it. Only this time she didn't. Wonder how much they will donate to Pearce next time around? This bill drives a wedge between Republicans in the legislature and some of their most reliable supporters.
Certainly, had the Federal bill passed last week, Governor Napolitano would have had all the cover she needed to veto the bill. But since she didn't, she has dealt a blow to private schools, is forcing the business community to realize the true cost of supporting some legislators who represent the fringes, and may force Republicans to be the ones to raise taxes.
Not a bad political payout for a day's work.
In Star Trek II: Wrath of Khan, Mr. Chekov and companion are surprised to meet Khan on a world they thought was deserted. Though Khan has not seen anyone from outside for years, he thinks at first that Chekov may have come to his world by intent. But then he realizes that they landed on the wrong planet, and he says, in an excited but subdued voice, strengthened by sudden realization of discovery and advantage, "You didn't expect to find me!"
And so it is here. I could almost hear the Governor saying with a feeling of victory under her breath as she read the sanctions bill, 'Ah, I see... you didn't expect me to sign this bill.'
After vetoing scores of the legislature's most draconian bills since taking office in 2002 (and making every single one of those vetoes stand) the Governor has largely muzzled the legislature's conservative leaders. They still try to pass a lot of bills that have veto-bait written all over them, mostly to embarrass the Governor or perhaps to get her on record (a record they can distort) for 2010 in the event that she runs for the Senate.
And I believe that was the case here. Governor Napolitano has said before that the way to deal with immigration is to get tough on people who hire undocumented workers. So the legislature decided to call her bluff and pass this piece of legislation so she'd veto it and then they could cite it when they went after her on immigration sometime in the future. Her past defense of vetoing immigration bills has been that it is a Federal responsibility (which is true, in fact.) But after last week's defeat of the Federal immigration bill they would be able to hit her with the failure of the Federal government to act.
Only, they were sure that she would veto it. After all, she invariably vetos any bill that is this draconian in its effects and she has always maintained decent relations with the business community in the state. So when they wrote the bill they didn't bother to exempt anyone who has a business license. They wrote in some ridiculous figures-- $100,000 to maintain a statewide database AND cover statewide enforcement of the law, and $70,000 to educate employers all over the state about it. County attorneys get $2.5 million-- spread among all 16 counties in the state-- which is supposed to cover the cost of hiring people to investigate and prosecute these cases. In other words they didn't think much through. Why waste time working very hard on a bill that is going to be vetoed anyway?
So they thought.
Then she signed it. And announced that she is likely to call a special session to deal with the glitches. So much for the 'part time legislature.' They will be back in August or September for what could be a very rocky session.
And she holds all the cards. In exempting infrastructure, there is little they can argue. They don't really want their constituents to freeze in the dark this winter when the electric company closes up shop. They don't want to be closing hospitals.
They will of course want to exempt private schools (at least those which are run as for profit businesses) so they don't have to comply with a law that the public schools won't have to worry about the consequences of. But right now, the private schools will be hit with the new law, and I have a feeling the Governor will demand a stiff price for exempting them (wonder how much of a split that one is causing in the GOP caucus, since some members are very committed to private schools and 'educational choice,' and are probably furious at their own leaders for getting them to vote for this package which has now come back and gored their own ox.) Getting rid of the flawed database requirement and going back to Social Security cards may be one price that she demands.
The funding is the other big issue here. $170,000 might pay for the computers the database is to be maintained from. It certainly won't cover the employees or resources necessary to educate and then enforce the law on employers statewide. For $2.5 million total, the county attorneys won't be able to investigate and prosecute more than a few really egregious cases. Only, the state budget has already been passed for this year. And at that, the slump in the housing market (to say nothing of what this bill will do-- certainly not cause a short term economic boom) is likely to bring revenue projections down. So she holds all the cards again-- she can simply insist that the legislature leave the already approved budget for this year alone, and find their own funding sources. In other words, they can choose between in effect gutting their own law (essentially keeping it on paper with no one out there enforcing it) or raising the revenue to fund it. She can point out the disaster that happened in the early 2000's when the state took money out of the rainy day fund, and the prospect of a near-term slowdown and refuse to accept that as a source of revenue. Bonds, as have been used in the past to finance things like school construction are generally backed by real assets, so she can refuse to allow the legislature to borrow by way of bonding for that reason. The Governor, who ran in 2002 on a pledge to ask for tax increases only as a last resort, has not once in five years asked for one. And she won't need to now. But she can close all the other doors and in effect force the GOP hardliners who control the legislature to either fail to enforce their own pet bill or raise taxes to pay for it.
On top of that, business leaders, while maintaining a cordial relationship with the Governor, have given Republicans-- even hard core loonies like Pearce-- their support, including their financial support. Of course the Governor has always protected them from some of the more ridiculous bills they passed, such as the law which she vetoed this week which would have required all businesses to buy storage lockers for customers to store their guns. In their Republican pipe dream, they can think about how great having a GOP legislature is while they shovel money at them without having to worry about some of the most odious requirement that they pass on to businesses. If it's too bad, Janet will take care of it. Only this time she didn't. Wonder how much they will donate to Pearce next time around? This bill drives a wedge between Republicans in the legislature and some of their most reliable supporters.
Certainly, had the Federal bill passed last week, Governor Napolitano would have had all the cover she needed to veto the bill. But since she didn't, she has dealt a blow to private schools, is forcing the business community to realize the true cost of supporting some legislators who represent the fringes, and may force Republicans to be the ones to raise taxes.
Not a bad political payout for a day's work.
Wednesday, January 24, 2007
Net effect: 'tax cuts' are GOP code for 'tax shifts.'
Last night in his State of the Union address, the President suggested taxing some people's health care benefits to help pay to make health insurance more affordable for some other people.
What is remarkable is not that his vapid proposal about health care marks the first time he has addressed the problem of the uninsured in six years of his presidency, nor the fact that he suggested a tax increase.
No, it is that he is trying to do something that conservatives were very successful at twenty years ago. Shift taxation away from the wealthy onto the middle class.
The President did not say we should hurry up and get rid of his massive tax cuts that favored the wealthy. Nor did he say we should borrow the money, as he has done for everything from Iraq to the medicare presecription drug scam. No, he wants to fund his program by taxing people with employer provided health insurance. The threshhold sounds high enough, $7,000 per individual and $15,000 per family of health care benefits, but in fact with the rate of increase in premiums it is not unusual for people to receive this much in benefits and he didn't say whether this would just be the threshhold for premiums of whether actual payments made to health care providers would also figure into it.
To understand how profound this is, let's begin with the observation that Republicans are not against government spending, despite all their rhetoric. They have different spending priorities, such as funding wars and major military purchases, and multitrillion dollar giveaways in to already profitable companies in the pharmaceutical and energy sectors, to name a couple, but in the end they are even bigger on spending than the Democrats are (one reason why overall spending exploded under Bush much more quickly than it had had grown under Clinton.)
And if you spend, then there will be taxation. Either it will come now, as Democrats tend to feel, believing that we should pay for what we propose, or it will come later, for future generations to pay off our debt (as we've seen with the massive borrowing over the past few years.)
But what this does is, without revoking a penny of the previous tax cuts, create a new tax on people who may not be the ones who received the Bush tax cuts earlier this decade. So the net effect is that this is a tax shift. So when conservatives talk about 'tax cuts,' over a period of several years it will turn out not to mean 'cuts,' but rather 'tax redistribution.'
And it's not the first time this has worked for the GOP. For example. the 1981 Reagan tax cuts blasted a hole in the deficit that continued to grow throughout the 1980s until Bush I started to get things under control in 1991. Then the Clinton tax rates were set in 1993 with another tax hike (leading to a budget surplus and the most prosperous economy in decades, suggesting that conservatives who predicted a recession were way off the mark.) But the 1991 and 1993 tax hikes were 'across the board.' What this meant was that compared to 1980, the wealthy were still paying far less in taxes while the poor and middle class, who had not benefitted much from the 1981 cut, were now paying more.
And so it is here. I don't dispute the idea that taxing health care benefits to pay for what is officially being billed as an increase in the number of people covered is politically adroit, but in the end let's see how it, combined with the 2001 tax cuts, affects who pays taxes in America. My expectation is that taxes will as a net effect hit the middle class harder while the wealthy will still come out ahead on the exchange.
Why do we keep falling for this 'sucker punch?'
What is remarkable is not that his vapid proposal about health care marks the first time he has addressed the problem of the uninsured in six years of his presidency, nor the fact that he suggested a tax increase.
No, it is that he is trying to do something that conservatives were very successful at twenty years ago. Shift taxation away from the wealthy onto the middle class.
The President did not say we should hurry up and get rid of his massive tax cuts that favored the wealthy. Nor did he say we should borrow the money, as he has done for everything from Iraq to the medicare presecription drug scam. No, he wants to fund his program by taxing people with employer provided health insurance. The threshhold sounds high enough, $7,000 per individual and $15,000 per family of health care benefits, but in fact with the rate of increase in premiums it is not unusual for people to receive this much in benefits and he didn't say whether this would just be the threshhold for premiums of whether actual payments made to health care providers would also figure into it.
To understand how profound this is, let's begin with the observation that Republicans are not against government spending, despite all their rhetoric. They have different spending priorities, such as funding wars and major military purchases, and multitrillion dollar giveaways in to already profitable companies in the pharmaceutical and energy sectors, to name a couple, but in the end they are even bigger on spending than the Democrats are (one reason why overall spending exploded under Bush much more quickly than it had had grown under Clinton.)
And if you spend, then there will be taxation. Either it will come now, as Democrats tend to feel, believing that we should pay for what we propose, or it will come later, for future generations to pay off our debt (as we've seen with the massive borrowing over the past few years.)
But what this does is, without revoking a penny of the previous tax cuts, create a new tax on people who may not be the ones who received the Bush tax cuts earlier this decade. So the net effect is that this is a tax shift. So when conservatives talk about 'tax cuts,' over a period of several years it will turn out not to mean 'cuts,' but rather 'tax redistribution.'
And it's not the first time this has worked for the GOP. For example. the 1981 Reagan tax cuts blasted a hole in the deficit that continued to grow throughout the 1980s until Bush I started to get things under control in 1991. Then the Clinton tax rates were set in 1993 with another tax hike (leading to a budget surplus and the most prosperous economy in decades, suggesting that conservatives who predicted a recession were way off the mark.) But the 1991 and 1993 tax hikes were 'across the board.' What this meant was that compared to 1980, the wealthy were still paying far less in taxes while the poor and middle class, who had not benefitted much from the 1981 cut, were now paying more.
And so it is here. I don't dispute the idea that taxing health care benefits to pay for what is officially being billed as an increase in the number of people covered is politically adroit, but in the end let's see how it, combined with the 2001 tax cuts, affects who pays taxes in America. My expectation is that taxes will as a net effect hit the middle class harder while the wealthy will still come out ahead on the exchange.
Why do we keep falling for this 'sucker punch?'
Monday, January 08, 2007
There are times when a tax hike is needed, and this could be one of those times.
Republicans are flabbergasted that some Democrats are suggesting rolling the Bush tax cuts back to the Clinton rates, particularly on the wealthy. And this could be accomplished easily just by letting the expiration dates already written into the Bush tax cuts come and go without taking any action at all. In fact, some have even proposed specifically increasing taxes on the wealthy.
And why not?
The GOP has always proposed tax cuts, at least for the past couple of generations since I can remember. When the economy was booming and we had a surplus, they wanted tax cuts. When it was in a recession, they wanted tax cuts. When it was rebounding from the recession, they wanted tax cuts. Inflation? The answer was tax cuts. Unemployment? Tax cuts. Tight job market? Tax cuts. In fact for at least a generation, whatever condition the economy was in, the Republicans have always proposed tax cuts. Name the economic malady, and the GOP has exactly one answer for it, tax cuts. And when it happened that those tax cuts came the wealthy made out like bandits (surprise)?, the middle class got small amounts (myself, I got enough from the Bush tax cuts to fill the tank a couple of times) and the poor in many cases got nothing.
When taxes have been raised, either at the Federal level (i.e. the 'read my lips' tax hike of 1991 or the 1993 tax hike that was central to the Clinton economy) or at the state or local level (often to replace lost Federal revenues that were withheld in the wake of Federal tax cuts) those taxes tended to be raised 'across the board.' In other words, the net effect over the past couple of generations has been not to eliminate taxes, but rather to shift taxation from the wealthy onto the middle class and the poor.
What about the promises that lower taxes would help the economy? The argument goes something like this-- when wealthy individuals and businesses have more money then they can invest it, and the investment will create more jobs. And more jobs will mean more prosperity for everyone. How has that worked out?
Well, let's look at the record:
In another study that tells us something that we already know, the Bureau of Labor Statistics has confirmed that job growth under George W. Bush is pretty puny.
WASHINGTON (AP) -- The economy has cranked out fewer jobs under President Bush -- by millions -- than it had by the same point in the presidencies of Ronald Reagan and Bill Clinton...
Under Bush, the economy produced 3.7 million new jobs from January 2001 through December of last year based on nonfarm payroll figures collected by the Labor Department's Bureau of Labor Statistics.
Republicans try to blame Clinton of course:
Commerce Secretary Carlos Gutierrez counters, in an interview, "It's just a matter of timing and when we started getting out of the recession that the president inherited."
Let's torpedo that explanation right off the bat: In eight years Clinton's economy (including the 1993 tax rates) created 20 million jobs, for an average of 2.5 million per year. In the first two years of Bush's economy (which incidentally the economy did not show negative growth until after the first Bush tax cut was passed in March 2001) we lost 3 million jobs. So even if we assume that in the succeeding four years 6.7 million were created (replacing the three million lost plus the 3.7 million net gain) you have the creation of just under 1.7 million jobs per year. And that's being as generous as I can to Bush, starting him from the low point of the recession, both timewise and jobwise. Even with that, his economy still doesn't come close to Clinton.
What about the jobs that all that money flowing into large businesses created? Well, it did create them. Remember how the economy, though it was slowing, did not show negative job growth until after the March 2001 tax cuts? There is a simple explanation for this. The large corporations that got the bulk of the benefit from the tax cuts did use it to create jobs. In Asia-- where labor is cheaper than in America (funny how 'free marketeers' who backed the 2001 tax cuts on the basis of job creation didn't see that result coming). At the cost of a deficit, America helped finance the movement of millions of jobs out of the country. And most of that outsourcing occurred within those first two years of the Bush tax cuts as companies took full advantage of their new windfall and 'invested' it. The economy in Mumbai and Shanghai is much stronger for it today.
What about unemployment? Conservatives always like to cite the unemployment reports. It reached a low of 4.0 % during the last year of Clinton's term-- 2000, then went up to 6.0 % during 2003 and has since declined to 4.6%. Isn't that proof of hiring?
Sure, it is. But consider that during Clinton's first year of 1993, it averaged 6.9%. It dropped down to 4.0%, representing a decline of 2.9%. In the case of Bush, it has gone up a net of 0.6%. If you again look back to 2003, it has dropped by 1.4% in the succeeding four years-- so again, not as fast as it did under Clinton (though barely less) even if you give the Bush administration the complete benefit of the doubt and start measuring from the worst it got and just measure the decline). So even using what has lately been the favorite measure of conservatives, Bush still doesn't come off as good as Clinton.
This means at best the Bush tax rates have not done anything compared to what the higher Clinton tax rates did for the economy, and at worst, they have hurt the economy.
And the real irony is that by creating deficits they will require that we raise taxes in the future just to pay back. As interest rates rise, expect that interest payments on the national debt will again be a significant drag on our economy. And when that day comes, expect some statement about 'across the board sacrifice.' Translation is this: The debt was run up giving tax cuts to the rich while continuing to spend like mad, especially in the area of corporate welfare; but paying it back will require that the tax increases fall disproportionately on the middle class.
Meanwhile, we continue to pour hundreds of billions down an endless black hole in Iraq, fighting a war that while we have been told of 'sacrifice,' none of us, except of course for the military members fighting the war and their families, have had to actually worry about. This is the first time in history that taxes were not raised to finance a war, In fact, if the financial costs of the Iraq war (about $320,000,000,000.00 and counting) were distributed evenly among all current American citizens, we would each owe just over a thousand dollars in extra taxes. But the Bush administration has defined for most people the meaning of 'sacrifice' to mean putting a yellow ribbon decal on your vehicle, and some future generation will have to actually worry about the dollar cost of this war (compounded by that time by interest, of course.)
So I would posit that at this time, 1) the tax cuts we've had in the past have done nothing, and 2) right at the moment given the deficit and the cost of the war, increasing taxes makes a lot of sense.
And why not?
The GOP has always proposed tax cuts, at least for the past couple of generations since I can remember. When the economy was booming and we had a surplus, they wanted tax cuts. When it was in a recession, they wanted tax cuts. When it was rebounding from the recession, they wanted tax cuts. Inflation? The answer was tax cuts. Unemployment? Tax cuts. Tight job market? Tax cuts. In fact for at least a generation, whatever condition the economy was in, the Republicans have always proposed tax cuts. Name the economic malady, and the GOP has exactly one answer for it, tax cuts. And when it happened that those tax cuts came the wealthy made out like bandits (surprise)?, the middle class got small amounts (myself, I got enough from the Bush tax cuts to fill the tank a couple of times) and the poor in many cases got nothing.
When taxes have been raised, either at the Federal level (i.e. the 'read my lips' tax hike of 1991 or the 1993 tax hike that was central to the Clinton economy) or at the state or local level (often to replace lost Federal revenues that were withheld in the wake of Federal tax cuts) those taxes tended to be raised 'across the board.' In other words, the net effect over the past couple of generations has been not to eliminate taxes, but rather to shift taxation from the wealthy onto the middle class and the poor.
What about the promises that lower taxes would help the economy? The argument goes something like this-- when wealthy individuals and businesses have more money then they can invest it, and the investment will create more jobs. And more jobs will mean more prosperity for everyone. How has that worked out?
Well, let's look at the record:
In another study that tells us something that we already know, the Bureau of Labor Statistics has confirmed that job growth under George W. Bush is pretty puny.
WASHINGTON (AP) -- The economy has cranked out fewer jobs under President Bush -- by millions -- than it had by the same point in the presidencies of Ronald Reagan and Bill Clinton...
Under Bush, the economy produced 3.7 million new jobs from January 2001 through December of last year based on nonfarm payroll figures collected by the Labor Department's Bureau of Labor Statistics.
Republicans try to blame Clinton of course:
Commerce Secretary Carlos Gutierrez counters, in an interview, "It's just a matter of timing and when we started getting out of the recession that the president inherited."
Let's torpedo that explanation right off the bat: In eight years Clinton's economy (including the 1993 tax rates) created 20 million jobs, for an average of 2.5 million per year. In the first two years of Bush's economy (which incidentally the economy did not show negative growth until after the first Bush tax cut was passed in March 2001) we lost 3 million jobs. So even if we assume that in the succeeding four years 6.7 million were created (replacing the three million lost plus the 3.7 million net gain) you have the creation of just under 1.7 million jobs per year. And that's being as generous as I can to Bush, starting him from the low point of the recession, both timewise and jobwise. Even with that, his economy still doesn't come close to Clinton.
What about the jobs that all that money flowing into large businesses created? Well, it did create them. Remember how the economy, though it was slowing, did not show negative job growth until after the March 2001 tax cuts? There is a simple explanation for this. The large corporations that got the bulk of the benefit from the tax cuts did use it to create jobs. In Asia-- where labor is cheaper than in America (funny how 'free marketeers' who backed the 2001 tax cuts on the basis of job creation didn't see that result coming). At the cost of a deficit, America helped finance the movement of millions of jobs out of the country. And most of that outsourcing occurred within those first two years of the Bush tax cuts as companies took full advantage of their new windfall and 'invested' it. The economy in Mumbai and Shanghai is much stronger for it today.
What about unemployment? Conservatives always like to cite the unemployment reports. It reached a low of 4.0 % during the last year of Clinton's term-- 2000, then went up to 6.0 % during 2003 and has since declined to 4.6%. Isn't that proof of hiring?
Sure, it is. But consider that during Clinton's first year of 1993, it averaged 6.9%. It dropped down to 4.0%, representing a decline of 2.9%. In the case of Bush, it has gone up a net of 0.6%. If you again look back to 2003, it has dropped by 1.4% in the succeeding four years-- so again, not as fast as it did under Clinton (though barely less) even if you give the Bush administration the complete benefit of the doubt and start measuring from the worst it got and just measure the decline). So even using what has lately been the favorite measure of conservatives, Bush still doesn't come off as good as Clinton.
This means at best the Bush tax rates have not done anything compared to what the higher Clinton tax rates did for the economy, and at worst, they have hurt the economy.
And the real irony is that by creating deficits they will require that we raise taxes in the future just to pay back. As interest rates rise, expect that interest payments on the national debt will again be a significant drag on our economy. And when that day comes, expect some statement about 'across the board sacrifice.' Translation is this: The debt was run up giving tax cuts to the rich while continuing to spend like mad, especially in the area of corporate welfare; but paying it back will require that the tax increases fall disproportionately on the middle class.
Meanwhile, we continue to pour hundreds of billions down an endless black hole in Iraq, fighting a war that while we have been told of 'sacrifice,' none of us, except of course for the military members fighting the war and their families, have had to actually worry about. This is the first time in history that taxes were not raised to finance a war, In fact, if the financial costs of the Iraq war (about $320,000,000,000.00 and counting) were distributed evenly among all current American citizens, we would each owe just over a thousand dollars in extra taxes. But the Bush administration has defined for most people the meaning of 'sacrifice' to mean putting a yellow ribbon decal on your vehicle, and some future generation will have to actually worry about the dollar cost of this war (compounded by that time by interest, of course.)
So I would posit that at this time, 1) the tax cuts we've had in the past have done nothing, and 2) right at the moment given the deficit and the cost of the war, increasing taxes makes a lot of sense.
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