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Wednesday, December 8, 2010

Tax Cuts: Apologists in Full Swing

So the first day was anger, and then we skipped two stages of grief and went right to acceptance?  The real tragedy here is that there was never any evidence on the other side of the debate.  The two main arguments for keeping the tax cuts were that they would hurt employment, and that it would decrease overall investment.

The first point was picked apart by Andrew Leonard at Salon yesterday, "that, at best, extending all the tax cuts would lower the U.S. unemployment rate by an additional 0.1 percent by the end of 2012" Add to that the fact that American's tax burden is the lowest its been in 60 years.  American's corporate tax burden is the lowest it's been in 60 years by A LOT.  See the gap between the middle blue hue and the darkest blue, see how it gradually disappears?

The second point is defrayed by the simple fact that corporations are getting the highest profits ever recorded (link to Department of Commerce press release), and are getting the largest pay checks ever reported, and it doesn't matter if 10% of the country is unemployed, because they're obviously the ones who deserve to be, because corporate income taxes are just 11% of 2010's Federal budget receipts, whereas individual and social insurance count for another 82%.  And with all of that money, the Fed still has to grease the wheels with quantitative easing because corporations are hoarding they dolla bills instead of spending them!

And now they're framing this as a New Stimulus bill (link to David Leonhardt's Op-Ed in the NYTimes.)  Right, good frame Democrats, it's not like the Stimulus plan is the most hated American program in the past decade when only 29% of the people think it accomplished anything.  How?  Well, because of the unemployment benefits for starters.  How else?  Because of the 2% cut in the payroll tax.  My prof spoke about this last night, and was completely mystified, couldn't think of any stimulative effect this was going to have.  And in fact, since the payroll tax pays into Social Security is more likely to reduce American's retirement funds than anything else.  My favorite line:  "In exchange, Republicans agreed to extend unemployment benefits, cut payroll taxes and business taxes, and extend a grab bag of tax credits for college tuition and other items." Oh, I'm sure Obama had to suck a couple to get the Republicans to agree to a cut in business taxes.  Puhleeease!

One last point.  I've soliloquised before on why I think tax cuts are the worst kind of stimulus.  I won't belabor the point.  Standard economic theory has proven that the multiplier is much higher for direct government spending than it is for tax cuts.  While stimulus was always a terrible a word, weak, pitiful, indirect, and bureaucratic, this only qualifies as a stimulus in the most threadbare sense of the term.

For the record, I'm told my vernacular is somewhat offensive here.  I have the highest esteem for the President, and there's no shame in "sucking a couple" of lollipops.

Also, I'd like to add a correction to yesterday's post.  I indicated that the expiry of the tax cuts would have an immediate effect come April.  I asked my tax professor about this.  He said that the effects would occur immediately, bringing higher government revenues to bear immediately.  Remember that pay-as-you-go means just that.  Tax Day is just when you find out what, how much, if anything, you may have overpaid.  Also, even if taxes were to go up, if the Republican Congress were to revisit the issue and get a bill passed, it could take effect more or less immediately, and at least all of us would be able to file an amended return.  No harm, no foul.

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