The Looming Tax Hike - A Question for the Ricochet Community
Everyone knows what's coming -- when the Bush tax cuts expire at the end of this year, unless Congress acts to extend all or some of them we will face the largest tax increase in American history. At this point, Congress looks singularly unmotivated to do any such extending.
Conservative commentators have generally described this outcome as anything from just-plain-awful to God-awfully-horrific. And every instinct I have wants to believe this. But.... There is one stubborn and annoying little voice somewhere in the deep recesses of my head asking a question to which I have, as yet, no good answer. To wit: At least as far as income taxes go, all this will do is bring us back to the tax rates that applied in the 1990s, pre-Bush. Economically, at least, the 1990s look pretty good, especially from today's vantage point. So if 1990s tax rates didn't cripple or debilitate the economy then, why would they be so bad now?
Obviously, a lot of things are worse for the economy today than they were in the early 1990s -- the grotesque level of spending, the cancerous spread of regulation and government intervention, etc. -- so there's no chance that 1990s-level tax rates are going to correspond to a 1990s-performing economy in the near future. But to isolate just the tax-rate question -- what grounds are there for believing that the re-imposition of 1990s tax rates will be relatively any more damaging in 2011 than they were in 1993?
If there are any good answers or points-of-view out there, I'd love to hear them.
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Jul '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
We now have more debt.
Jun '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
Doubt can be more precisely named expectation. The economic conditions extant breed economic insecurity, which mandates caution.
May '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
If (when?) the Bush tax cuts are allowed to expire, it will be answer beyond any doubt whether Congress would prefer to raise taxes or cut spending.
The policy premises of Obama's candidacy - for the few Obama voters who looked beyond the Hopenchange spiel - were goodies for "the poor," and a soaking for "the rich." If the second part of that equation is put into motion in the form of expired Bush tax cuts, it will mash any hopes of a Clintonian pivot from President Obama, and any investor confidence for 2011 will die with it.
Re: The Looming Tax Hike - A Question for the Ricochet Community
Truly, Steven, I wish you hadn't asked that question, complicating, thereby, our lovely inveighing against the looming tax hikes. Inveighing feels marvelous. Thinking hurts.
We can say, though--can't we?--at least this much: That whereas Clinton raised tax rates to the pre-Bush levels when the economy was rolling merrily along, the repeal of the Bush tax cuts on January 1 will take place when a) economic growth remains, at best, tentative, b) all sorts of new taxes, in particular the twenty or so new taxes connected with ObamaCare, will also be kicking in, c) federal spending as a proportion of GDP is higher than at any point since the Second World War, d) the Fed has pumped so much liquidity into the banking system that everyone, but everyone, feels uneasy about whether the Fed will be able to mop up the excess with adequate deftness or whether inflation will instead take hold, and, e) the most anti-business chief executive since FDR in his first term has wounded the morale of investors and entrepreneurs woefully, depressing what Keynes called "animal spirits."
As a moment to hike taxes, January 1, 2011 looks mighty inauspicious.
Does that do?
Edited on Jul 13, 2010 at 3:43pmJun '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
Clinton was extremely lucky to take office when he did. He had the gift of the peace dividend, where he could cut half a million active-duty troops, make the Navy smaller by 100 ships, and use that money for other things. That's what helped him grow his way out of the deficit. But when you're not able to transfer money away from defense, as GW Bush was not able to, the only way left is to cut taxes, grow the economy, and increase net revenues that way. And tax revenues did grow with tax cuts, but spending grew even faster. So, I'd say Clinton was a success at budget balancing, but he did it in large measure by cutting the size of government--exactly what the tea partiers prescribe. The tea partiers just don't recommend doing it at the expense of the Defense Department this time.
Jun '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
No family making under $250K will see any increase in their taxes...sayeth Barak Hussein Obama. Are you calling our President a liar?
Re: The Looming Tax Hike - A Question for the Ricochet Community
I'm with Peter, and here's why: Think of the economy as a lawnmower and taxes plus regulation as the grass. A rapidly spinning mower can move right through some pretty tough patches, laboring a bit but doing just fine. However, if you go through too much grass too quickly, the mower sputters.
Unlike the 1990s, today our mower is barely running. Guess what happens when you advance a sputtering mower into higher grass? Nothing good. Any kid with a couple of neighbors' lawns to trim can tell you that you avoid a stall by backing the Briggs & Stratton into lower grass so it can spin up to speed again.
I don't know for sure, but I'm willing to wager that President Obama didn't mow many lawns as a youth.
May '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
Steve Manacek: ...what grounds are there for believing that the re-imposition of 1990s tax rates will be relatively any more damaging in 2011 than they were in 1993?
Well. I'm certain that the economy could tolerate the reintroduction of higher tax rates. But that does not disprove the proposition that maximizing economic growth requires a continual reduction in taxes. Taxation withdraws scarce resources from the productive private sector and transfers them into the unproductive "public" sector. It reduces the marginal utility of labour, reduces the supply of financial capital, reduces the influence of consumers on production, and causes a series of other economic problems. So while its possible for an economy to weather taxation, why bear the burden of it if its not necessary? I suppose one could tolerate carrying a 5 pound dumbell to work everyday - but why bother if such behaviour is unnecessary?
Jun '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
Generally I'm opposed to tax increases of any sort. However, the tax increase next year could be a net positive if Congress and the President used the event to enact rigorous budgetary and deficit reform. <Pause for copious laughter.>
Since they won't, the tax increase will merely exacerbate our economic misery and provide further proof that Democratic Party rule is dangerous to the Republic and to our individual financial health.
Jul '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
It will be a different Congress next year, and we may somehow see the reverse of the famous retroactive rate hikes laid in by Clinton's first Congress.
Jul '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
One less geeky observation: the sum total of "things" the government takes away from us - options, choices, independence, liberty, income - defines how unfree we are as a people. A sort of Unfreedom Index. I haven't crunched the numbers, but we are waaaay more Unfree in total than at any point in my lifetime. Adding more taxes adds to the Unfreedom Index, regardless of its exact economic consequences.
The intuitive reaction of free citizens to this ongoing encroachment fuels, among other things, the energy of the Tea Party movement.
May '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
We've got the debt commission making noises about the cancer that is the debt. It's interesting that this is coming out now. It will percolate all summer long and into election season. Then come the tax "hikes". There are already indications that this is going to be a double dip recession, so is it going to be correlation or causation when/if the economy tanks?
Also, I don't agree that the tax cuts paid for themselves. http://www.cbpp.org/cms/?fa=view&id=966
And what is this doublespeak "Unfreedom Index"?
May '10
Re: The Looming Tax Hike - A Question for the Ricochet Community
My only issue with George's analogy is that spending is the water and fertilizer. If we can cut off the sprinklers and stop spreading manure all over the place, the grass won't grow as fast and the blasted lawnmower may be able to move, even better as the grass dries out and lies down and the mower can run right over it.
We have a finite amount of legislative energy. We should use the tax hikes as electoral fodder and fulminate about them at every opportunity. But save our strategic capital to block any VAT and chop down spending. Then revisit the tax cuts after we have settled the other side of the ledger first.
BTW, this is the time, given long grass and Obamacare, to readdress National Lawn Care Now!---- http://www.jefflindsay.com/NLCN.shtml