The Bush Tax Cuts: Should They Stay or Should They Go?
In his column today, the dour Professor Krugman takes aim at what he calls “deep voodoo, the claim that cutting taxes actually increases revenues.”
Krugman is responding to Republicans on Capitol Hill who are arguing for an extension of the Bush tax cuts. Here's Mitch McConnell, the Senate Minority Leader, on the matter:
There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.
Voodoo economics of course, is George H.W Bush's derogatory characterization of supply-side economics from his 1980 campaign against supply-side champion, Ronald Reagan. Back in the day, Krugman himself characterized the nascent supply-side revolution--and its policy mix of cutting tax rates and stabilizing the dollar--as an "African virus."
Set loose, that African virus caused what was arguably the longest period of sustained economic growth in the U.S.'s history, as Brian Domitrovic, a professor at Sam Houston State University and author of this recent and brilliant history of the supply-side revolution, explained to me when his book first came out a few months ago.
So will extending the Bush tax cuts work the same magic?
Not everyone thinks so. David Stockman for one, Reagan's former budget whiz, was on the Larry Kudlow show two weeks ago calling for higher taxes and less spending. And in an interview with The Daily Beast, this former supply-sider confirms what the ivy league professor is arguing today. To Stockman, letting the Bush tax cuts expire,
would put $300 billion back into the coffers, beginning in 2011 and 2012, and it would erase one of the biggest policy blunders in history. The Bush tax cuts never should’ve been passed because, one, we couldn’t afford them, and second, we didn’t earn them…The lower half of American families don’t pay income tax, and they’re the people who ought to be given a break here. By allowing these tax cuts to expire, you’re putting the burden on the top half of the income earners. What is more fair than that? So why does Obama want to extend, as apparently the White House has been saying, the tax cuts for $150,000-a-year families? So the wife can buy her 19th Coach bag?
But Arthur Laffer, another brilliant supply-side economist, recently argued in the Wall Street Journal that if the Bush tax cuts expire in January of 2011, as they are scheduled to, we will "get our worst nightmare of a severe 'double dip' recession...The economy will collapse in 2011."
So which is it? Should the Bush tax stay or should they go?
- Comment (19)
- · Quote
- · UnfollowFollow (4)
Comments :
Jun '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
Since we can probably agree that imposing a 100% income tax rate would require leg-irons and bull whips to enforce, and wouldn't be practical. Likewise not practical, a 1% income tax that wouldn't keep the lights on. There must be some tax rate between 1% and 100% that brings in the most revenue--a sweet spot. All evidence is that the sweet spot, the rate that brings in the most revenue resides much closer to 1% than it does to 100%, probably near 20%. That's not based on feelings. That's based on history.
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
Well of course that's what Laffer would say. Krugman seems to be confused, or to be hoping that we are. It's perfectly possible, theoretically, for tax cuts to lead to a rise in total tax revenues (basic Laffer Curve stuff) and for the deficit simultaneously to increase. For the latter to occur, you just have to spend more than you're taking in. (It's not only theoretically possible, it's what happened under Reagan.)
You know, I don't think Krugman's confused. I think he's just persuaded that we're either not reading all that carefully or very stupid.
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
This is illuminating:
In a nutshell, you have the views of our betters: When you reduce the tax chomp for the super-ultra $150K earners they devote their largesse to purchasing redundant leather goods. Although I suspect Mr. Stockwood would be annoyed if someone used a tax cut to buy one Coach bag. Not as long as there’s a budget deficit, anyway.
These folks are usually certain you are buying all sorts of things you shouldn’t. I get into arguments about it: well, if my taxes go up, I will spend less, invest less, or save less. Which should I do? Which will be better for everyone? It’s always agreed I should spend less. On what? On things you don’t need. Like what?
They’re never sure, but they’re certain I’m giving someone money for something, and it would just be better for all if I didn’t.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
This bit of Stockman's quote ticks me off.
"...would put $300 billion back into the coffers, beginning in 2011 and 2012..."
Back into the coffers? Back into the coffers?
That money was never in the coffers to begin with. It was -- is -- in the pockets of people who busted their individual humps to earn it. They produced it with a lot of effort, long hours, and the sheer cussedness that is emblematic of the free American entrepreneur. That money belongs to them and no former government accountant like David Stockman has any right to it that we don't explicitly give him. Should he be so fortunate as to get our permission to have some more of our money, he should thank us profusely and swear a most solemn oath that he will not waste it on frivolities.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
James Lileks:
In a nutshell, you have the views of our betters: When you reduce the tax chomp for the super-ultra $150K earners they devote their largesse to purchasing redundant leather goods. · Jul 16 at 1:29pm
He wasn't just talking about $150K earners but $150K families. That is, in most cities, a plumber husband and a teacher wife (or a plumber wife and a teacher husband, whichever you prefer). I'm fairly sure that a household of $150,000 is very solidly middle-class in most states.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
Jimmie Bise Jr
He wasn't just talking about $150K earners but $150K families. That is, in most cities, a plumber husband and a teacher wife (or a plumber wife and a teacher husband, whichever you prefer). I'm fairly sure that a household of $150,000 is very solidly middle-class in most states. · Jul 16 at 1:43pm
Or, in my household, that's a teacher wife and a marketing manager husband. We have some toys, we take one nice vacation every year, and we certainly don't starve. But there is precisely nothing extravagant about our lifestyle.
I don't know what the household median is here in Denver, but we aren't wealthy and we aren't anywhere near the top of the earnings charts amongst our social circle.
Not that I'm complaining: we have a nice life and I'm going to work hard to keep it that way. But the idea that we might need to be targeted for a little extra taxation is laughable.
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
Jimmie Bise Jr
James Lileks:
In a nutshell, you have the views of our betters: When you reduce the tax chomp for the super-ultra $150K earners they devote their largesse to purchasing redundant leather goods. · Jul 16 at 1:29pm
He wasn't just talking about $150K earners but $150K families. That is, in most cities, a plumber husband and a teacher wife (or a plumber wife and a teacher husband, whichever you prefer). I'm fairly sure that a household of $150,000 is very solidly middle-class in most states. · Jul 16 at 1:43pm
This point is essential. Consider how many of these households have children in them. This is not 19th Coach bag material. It is getting harder and harder for me not to detect an at minimum implicit anti-family animus in the remarks of some of our commentators who think that families with six figures of gross income are wallowing in luxury.
I further recommend Reihan Salam on this issue. In a very recent post, he reminds us that the Bush tax cuts were explicitly temporary. He also makes clear that sharply increasing taxes is not likely to restore robust economic growth.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
As to the question, the first thing to acknowledge is that Krugman is a jerk. Which doesn't really have anything to do with the question, but it is mighty fun to say.
I'm a believer in the Laffer curve and I do think that history has shown that reasonable levels of taxation lead to greater productivity and tax revenue in a big, general sense. Where that level is, of course, is subject to debate.
Of greater importance is whether the expiration of the Bush tax cuts will impact the economy negatively. I think the answer is overwhelmingly yes. A new hit of higher taxes won't help consumer confidence rise, won't create any new jobs, and won't help guide us out of our recession. It will hurt the middle class in a number of ways--the return of the marriage penalty, higher tax rates most of the way across the board, and a big bump in inheritance tax rates will actually take money away from where it would be most useful: those people who are inclined to buy, invest, and start and expand businesses.
Which leads us right back to the beginning: Krugman is a jerk.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
"...who think that families with six figures of gross income are wallowing in luxury..."
Wish I'd made that point, too. While my wife and I have incomes that put us right in that camp, the truth is that we don't actually take home anywhere near that kind of money.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
James Poulos, Ed.
This point is essential. Consider how many of these households have children in them. This is not 19th Coach bag material. It is getting harder and harder for me not to detect an at minimum implicit anti-family animus in the remarks of some of our commentators who think that families with six figures of gross income are wallowing in luxury.
· Jul 16 at 1:58pm
It is certainly anti-family. I imagine a family of four would have to budget well to afford a moderately-sized house (No Fannie Mae or Freddy Mac subprime mortgage, thanks), a minivan with which to haul the kids to Michelle Obama-approved physical fitness activities, a private school education to ensure they will be able to read when they graduate, a weekly trips to the grocery store to buy healthy foods.
It's also anti-small business as well. I believe it is still true that most small business owners file as individuals. A gross income of $150,000 a year is not exactly booming business. It's certainly not a Thurston and Lovey Howell level of opulence.
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
James Poulos, Ed.
This point is essential. Consider how many of these households have children in them. This is not 19th Coach bag material. It is getting harder and harder for me not to detect an at minimum implicit anti-family animus in the remarks of some of our commentators who think that families with six figures of gross income are wallowing in luxury.
Progressive taxation -- the entire redistributionist machinery -- is defined by arbitrary categories that cannot take into account the diversity of personal circumstances. If I make $250K "per year" I am "rich," even if as an entrepreneur I only earn that much one year in five. Meanwhile, my tax situation is the same as an identically compensated colleague who earns another $250K in tax-free municipal bond revenue from an inheritance and vacations in a family-owned estate on Lake Tahoe. And pity the breadwinner bootstrapping his way into the middle class, dividing the identical $250K of W-2 amongst four children, one with special needs, and a live-in grandparent.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
The tax cuts added $527 BILLION in IRS collections, above baseline projections, in 2007 alone. I took total collections from 1999 as the first data point, and used 2003 as the second, the year the cuts were fully in place. totals for the three years were: 1999: $1,947, 643 (1.9 trillion) 2003: 1,969,648 (1.9 trillion) There was of course a recession in between 1999-2003. The economy began to seriously grow in 2003. A projection from those two years would have resulted in IRS collections of 2,182,798. The total actual IRS collections in 2007 were 2,709,798, a 24% growth over 2003.
Here is the link to the IRS site where their Excel is linked in “historical table 18.”
http://www.irs.gov/taxstats/article/0,,id=175888,00.html
Nobody that ever argues against tax cuts ever points out this recent example.
Jun '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
Time to put strict rationing rules in place for Coach bags. I always trust the government to know best how to wisely spend resources.
Something about Stockman using a spendthrift wife as his example rubs me the wrong way. It doesn't rise to the level of misogyny, but it's a red flag to me.
Jun '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
This week as I saw a bumper sticker that said:
"10%: If it's good enough for God, it should be good enough for the government."
It's ironic that countries formerly dominated by communists such as Russia and the Republic of Georgia have flat taxes of around ten to eleven percent while Americans labor within a labyrinth of tax laws. Even those on the lower cusp of middle class routinely paying 35-50% of their income in taxes to local, state and federal governments.
At the same time "elites" like David Stockman, (and many politicians of both parties), say we're not paying enough. It's this fundamental disconnect between average Americans and our "betters" that animates TEA party activists. Should the Bush tax cuts stay? Emphatically yes, but why stop there? Vice President Biden says all Americans need "skin in the game," as tax-paying patriots. Why not 10% across the board for All Americans?
After all, if it's good enough for God it should be good enough for government.
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
James, thanks for linking Reihan Salam's article, I think it elucidates the issue perfectly--especially this paragraph.
The debate is pretty partisan. The fact that Stockman, as he explained on the Larry Kudlow show, focuses both on decreasing government spending and increasing government revenues--by letting the Bush tax cuts expire--makes him stand out as nonpartisan--which is refreshing. Whether he's right or not is another matter...
Jun '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
It's essentially the same as immigration. I do not believe the politicians. My respnse is simple: You want a "pathway", shut down the border first. You want higher taxes to eliminate the deficit, create surplus, buy down the debt,.. than cut government first. Get rid of or reduce by half, Depts of Education, Energy, HEW., etc. Develope new contracts for government employees, bringing their salaries and benefits in line with the private sector. In essence, show me you are serious. Get Social Security and Medicare under control with real independent financing. Quit supporting welfare generations. Determine a percentage of the population that we can help (the lowest 5 -10 percent) and figure out what programs we will pay for for them. It is filled with difficult choices. But Their the ones that spend millions to get their jobs. Now do your jobs.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
Refresh my memory. Were Republicans really so politically weak that they were incapable of legislating these tax cuts without the expiration date?
I agree that reducing expenditures and eliminating (or downsizing, if we're so timid) programs and agencies should precede tax reform. But that's assuming the usual politics. If replacing the income tax with a sales tax is politically possible, then I'll follow Republicans giddily like a slobbering dog.
Jun '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
I would suggest there are two considerations here. One, what should the ideal model be, and two, what steps are necessary to deal with our real fiscal problems. Dealing with the latter, I can see a an argument that suggests that allowing the tax cuts to expire - while at the same time pushing through a major spending reduction in government (federal, state and local) for a period of years to serve and resolve the debt problem could be worthwhile toward the goal of getting the fiscal ship righted again. The early years of my marriage were focused on paying down our debts, which we did, and thus are better able today to enjoy what fruits we still receive from our labor. But it takes leadership to put that in front of the American people and call for sacrifice in favor of policies that may cause short term pain in favor of long term gain. (Boy that sounds cliche). Sadly, today's leadership wants to spend more.
The ideal case is inevitably bound up in the debate of the role of government and its relationship to its citizens. And that's a debate that could easily go either way.
May '10
Re: The Bush Tax Cuts: Should They Stay or Should They Go?
James Poulos: I further recommend Reihan Salam on this issue. In a very recent post, he reminds us that the Bush tax cuts were explicitly temporary.
Technically true- but the reason is that the permanent tax cuts they sought were blocked, so they had to use reconciliation to pass them. The conservatives intended to make them permanent, the liberals meant to make them die.
Elections have consequences, Mr. Brooks, Mr. Buckley, Prof. Hart.