Payroll tax holiday is usually considered more effective stimulus than just writing a check. It's not like this is a new or extremist idea. I'm surprised they didn't push for a permanent elimination of the death tax; frankly I'd take that over a payroll tax holiday.
Payroll tax holiday will result in less Treasury bond purchases than promised. Does that mean anything to you? I'm sure it means something to China and the rest of the world that was planning on buying more of our debt. But like I said, that revenue stream is secure so tell me where the money will actually come from.
Faith is Hope (see Loki's sig for details)
If hindsight is 20-20, why is it so often ignored?
Yeah, Being, I'm actually behind the payroll tax holiday idea (though I think a payroll tax reduction in the long term would be a bad idea). Additional fiscal stimulus is desperately needed; the Fed's monetary stimulus is shouldering all of the burden right now with most of the other fiscal stimulus winding down, and we obviously need more support for AD. It's also a good idea to temporarily extend at least some of the income tax cuts (a huge contractionary measure is an awful idea for an economy in a nascent recovery), and additional unemployment support is probably a good measure as well.
In general, this isn't the best of all possible policies, but it might be the best of all politically doable compromises. I'd prefer if there was an explicit plan for what's going to happen in two years with the income taxes, but it's still not a bad package. I think it's likely to increase the deficit in the short term, though hardly on a dollar-for-dollar basis - lower taxes means more consumption means higher employment, meaning higher tax receipts and lower outlays for automatic stabilizers. But on a medium to long term view, the change to our debt is probably minuscule, and might be negative if it speeds up the pace of employment recovery and economic growth.
Dread: I'm not a fan of wealth taxes in general, including the so-called 'death tax', but I don't find it a very large impediment to economic growth so I'm inclined to leave it alone for now. Obviously any tax causes avoidance measures, but the estate tax is not really a big deal IMO for most Americans, and it does bring in some cash.
You know, I've seen you say this in a few threads so far and it really bothers me. Don't get me wrong; the defense budget could do with some trimming, and we need to reform both the way we manage personnel costs (where Congress routinely ignores the DoD's recommendations and gives outsized raises to personnel while keeping Tricare premiums from rising) and procurement (with 'requirements creep', bloated budgets, and vastly expanding weapons programs of dubious importance). But for one, how is drastically cutting the defense budget going to solve our deficit issues in the long term? It might make our deficit zero today (well, it wouldn't unless you fixed a lot of other things, but let's say for the sake of argument it does), but that won't change the underlying sources of growth in our deficit, which have little to do with defense and everything to do with uncontrolled growth in entitlement spending.Originally Posted by Being
For another, just how are you planning on cutting defense spending in half? I can see cutting it by 10% or even 20%, but 50%? That's going to require dramatic changes in our strategic capabilities and posture that are dangerous in the least. Please describe to me how the US can maintain some semblance of its desired military capabilities while cutting defense spending in half.
Temporarily reducing the payroll tax is purely a feel-good measure to numb the masses to the unconsionable extension of tax cuts that have already proven incapable of living up to their reason for existence. The payroll tax, as required by law, will be collected. The problem I see is that collecting it later than it is due is that it increases the supply of Treasury bonds.
As for defense cuts, we should look at what happened to former empires when they over extended themselves. Britain was lucky to have us there to fall back on. We don't have that luxury and we look a lot more like the Romans. We need to pull out of Germany, Japan, and Korea and let our treaties assign their parternship to the tasks they already agree to. And withdrawal from Afghanistan and Iraq doesn't need a happy face on it; it just needs to be done.
Faith is Hope (see Loki's sig for details)
If hindsight is 20-20, why is it so often ignored?
From Dread's article: (section posted twice for insult to injury's sake)
The American People. Who are these people? It's an entity with knowledge and the means to make that knowledge clear. Don't say Tea Party rallies. That's not the American People. That's a small vocal portion of it. And how is claiming: They know the issue is spending, all of a sudden truth? Well, you see The American People will interpret ...The American people know, and have made clear they know, that the great issue is spending. If we raise taxes now to cut the deficit, it will depress the entire country, because the American people will interpret it to mean that the government will never control spending, it will only try to tax our way out of debt.
Zombie Christ on a pogo-stick. Everyone who claims to 'know' what 'The American People' (Real ones no doubt, aint no American People on the Coast, thems not Real y'see) think, reason and interpret should be banned from publishing. You think this strengthens your arguments because by your say so you have the voice of the people behind you? The kicker is at the end:
The American People think whatever you think eh? En block. Somebody please shoot this woman. "has read the situation well" my smelly big butt.Will the American people, over the next few years, act seriously on their own beliefs? We're so used to being disappointed in politicians that we forget to be disappointed in ourselves.
And to boot, we have an apprentice "They care about having a government that can come up with something more constructive and bold than "tax the rich (and tax everyone else more too, but let's bury that deeper in the tax code)". And I know this by talking to my friends
Sweet. Can I play as well?
The American People are a little fed up with being used as a crutch for arguments pulled out of dark smelly crevices. They'd like you to provide adequate support for your arguments. For one because they didn't consent to be used as a faceless yes-crowd, two because not all of them agree with you.
I could have had class. I could have been a contender.
I could have been somebody. Instead of a bum
Which is what I am
I aim at the stars
But sometimes I hit London
It's called an election and polls. I thought you had those too.
Seriously, why does that annoy you? We have a political climate where people are getting sick of government spending, it's not that hard to summarize that.
Wiggin- I think it is very potentially damaging to the economy and the potential for people to save and pass something on to their kids. By forcing family-run corporations and small family businesses to liquidate because their value hits an arbitrary number, it can be ruinous. Everyone dies, so the fact that the amount of money processed through the death tax is relatively small suggests to me that it's not effective because people need to find workarounds.
For example, it's very arduous for anyone who has a single somewhat-illiquid asset in their family that hits the arbitrary limit. My family is not wealthy, but by virtue of having lived in and owned an apartment in Manhattan for decades we have theoretically accumulated a single "asset" subject to a huge tax bill. We are looking into putting my mom's apartment into some kind of weird corporation run by me (and I would technically be her landlord) to avoid that. Otherwise upon her death, we will have to sell the apartment just to pay an enormous tax bill (death tax AND capital gains) that none of us has the cash to afford. We would probably have to sell it to a rich banker, ironically.
This is bonkers, and applies to a lot of people in NY or anyone whose family owns a small business or home that they've put a large part of their live savings into. The raised limit reduces that threat slightly, but being compelled by my government to sell my family apartment to pay a 35% tax rate and a 15ish% dividend tax rate on an apartment is insane. My parents bought it decades ago when the neighborhood wasn't so great and they have remained part of the neighborhood as it's developed. Forcing their descendants out of the neighborhood to satisfy a left-wing pipe dream about "inherited wealth" is sick.
If anything the last election should have shown you that "american people" is about a pointless remark someone can make. Sorta on the opposite spectrum of your "real america" remarks. There is no unified voice for the "american people", just like you used to harp that there isn't a unified tea party everytime an article came up that showed how batshit insane they are.
Not everyone is sick of government spending. Some people just might think that the budget needs reworked and the government could be spending less in some areas and more in others.
Last edited by Ominous Gamer; 12-07-2010 at 03:40 PM.
So, The American People want Obama's Healthcare since he campaigned for it and got elected. What is all that belly acking I heard about Healthcare? the American People had an election didn't they? Polls. Really. Polls? Dear Dread, if you're going to use polls to claim to know the pulse of The American People we're in deep shit with regard to mutual understanding.
My beef with using the phrase "The American People" to pull your political cart is that it's empty dishonest rhetoric. There is no such thing as The American People with regard to political issues. There are many with varied ideas about taxes and spending, and some woman acting as if The American People speaks with one voice should not be cheered by anyone as having read the situation well.
Want to make a case, fine, may not be my opinion, but fine. But please. With icecream, sugar and spices on top. Dont go the Palin/Beck route and invoke The American People as a vessel to replace valid arguments or cheer anyone who does.
I could have had class. I could have been a contender.
I could have been somebody. Instead of a bum
Which is what I am
I aim at the stars
But sometimes I hit London
While I agree there is no single set of 'The American People', it is not only the Palin/Beck tribe that use this lazy argument.
Brevior saltare cum deformibus viris est vita
You have a large segment of the population who love being told they're sick of government spending. There's a difference, and I'd argue it's a significant one.
Due to the commercialisation of all media, including the news, very complex issues (both structurally and ethically!) have to be transformed into products, easy things people can gulp along their morning coffee, or their evening beer. And in order to sell sell sell, the products have to be shinier, more scandalous and more gripping than last year/last election cycle. So things like balloon boy make for fantastic news, and CIA secret prisons less so. No one wants to hear about how US gov employees are shoving cattle prods up Bahir's urethra in some east European hell-hole.
Similarly, people pay great amounts of money for the privilege of being told what to think. That's okay, I get it, I pay a great deal of money to read analysis and interpretation of the events in Soviet Russia, or the Third Reich. The problem comes from the commercialisation. Analysts (on both sides of the fence!) have to provide analysis that will sell. So the right media panders to the hard values, slash those taxes baby and gimme a gun with some beer!, and the lefter media focuses on social injustices in ridiculous and hyper-sensational terms.
The political climate is also so ruptured that any kind of discourse over the line is nearly impossible. At least any kind of discussion that'd serve any benefit towards the voting behaviour of the nation. The Tea Party is just one example, and the left has their nuts, too.
Add to that the bizarre culture of the American Dream, I got mine and fuck you that fundamentally stems from that, and the casual conflation of all forms of structured, government-funded social programs with the horrors of the Soviet Union left over from the Cold War, and half the nation is shelling out top dollar to hear that they are sick of taxes. A large portion of them have no understanding of the underlying causes and effects this would have, but it's the Right Thing To Do to combat Big Government. Just because! This is just as inane and childish as the left-wing desire to guarantee everyone huge pensions and benefits and fuck the costs, it's the Moral Thing To Do! The simplification of these complex problems, the fact that it's okay and main-stream, make the opinion of this 'American People' meaningless, because their desires aren't based on an actually informed basis. People consistently vote against their own interests, because they don't understand or are apathetic to the structural problems causing their poverty.
This is an unfortunate if not disastrous situation, not proof that tax cuts are the only acceptable solution to the current economic misery!
(I've been criticized before for infantilizing the consumer, but have you seen TV adverts? The commercials here are inane but they're fucking Chaucer compared to the glimpses I've had of US commercials.)
In the future, the Berlin wall will be a mile high, and made of steel. You too will be made to crawl, to lick children's blood from jackboots. There will be no creativity, only productivity. Instead of love there will be fear and distrust, instead of surrender there will be submission. Contact will be replaced with isolation, and joy with shame. Hope will cease to exist as a concept. The Earth will be covered with steel and concrete. There will be an electronic policeman in every head. Your children will be born in chains, live only to serve, and die in anguish and ignorance.
The universe we observe has precisely the properties we should expect if there is, at bottom, no design, no purpose, no evil, no good, nothing but blind, pitiless indifference.
I'd rather abolish payroll tax than have "stimulus"
Wait, wait, wait.
Being, some politicians are running for cover after an election and this surprises you? You have surely overestimated their worth.
Brevior saltare cum deformibus viris est vita
Fuck you. Show me one thing in that post that isn't absolutely true. How dare you act like a shill for the party that credit carded us into this mess?
Extending the W tax cuts is unconscionable. Period. Don't you dare ever talk to me about fiscal responsibility and deficits. You're just another "borrow against our kids" business fat cat Republican.I don't think we're quite yet at the point where we need austerity. But I also don't think Noonan is talking about "starve the beast" mentality here. She's talking about an electorate that won't tolerate tax increases for an obviously bloated government. Because ultimately this particular tax issue isn't going to push the needle very far in one direction or another.
Uhm, it's not a feel-good measure, it's fiscal stimulus, and far more effective than ARRA. Any stimulus is going to increase the supply of Treasuries since it's all funded by deficit spending, but that's part of the bargain in stimulus - you pay more now to improve future growth and employment.
Pulling out troops out of those 5 countries won't come close to cutting our defense budget in half. More so, pulling out troops out of at least two of those countries (Japan and Korea) would seriously harm our strategic posture. Come back when you have some substantive suggestions that will reduce the budget by 50% without harming our strategic position.As for defense cuts, we should look at what happened to former empires when they over extended themselves. Britain was lucky to have us there to fall back on. We don't have that luxury and we look a lot more like the Romans. We need to pull out of Germany, Japan, and Korea and let our treaties assign their parternship to the tasks they already agree to. And withdrawal from Afghanistan and Iraq doesn't need a happy face on it; it just needs to be done.
Dread, I understand that the wealth tax may be difficult on a personal level, but on a national level it's barely important - it only affects a few percent of all estates. A minimum exemption of $1 million (or $2 million for a couple) is quite large, and outside of people with large illiquid assets such as large farms/ranches or expensive Manhattan property, it largely affects those who can easily afford it. Most farms and small businesses, though, don't fall into this category and get away with little or no estate tax.
That doesn't mean it's perfect - far from it! There are those - like your case - who can find it a significant burden even with a million dollar exemption, since the inheritance necessitates liquidating an important asset to pay off the tax. Furthermore, I generally don't like wealth taxes on principle and feel this causes extensive avoidance measures for that few percent of estates who are affected, which is largely unproductive from an economic perspective.
Yet from a national level, the pain is pretty small, it pulls in tens of billions a year, and it's not really materially worse than an income tax from an incentive perspective. Sure, inheritance taxes push people into avoidance measures, but income taxes directly disincentivize work, which is a far bigger burden. I'd prefer to reduce income or payroll taxes than kill the estate tax, all things considered. Of course, I'd prefer if the estate tax were reformed somewhat to help those on the margins (such as yourself) and to index exemption levels to inflation, but in principle I don't think it's so evil.
If you mean abolish permanently, that's a pretty awful idea from a fiscal perspective, RB. I fully support a payroll tax holiday as an alternative to further fiscal stimulus of another kind (though I do like the idea of infrastructure stimulus, it doesn't have as immediate an effect). What is your reason for abolishing the payroll tax to the exclusion of other taxes (e.g. income tax, capital gains taxes, etc.)?
Tear, I think the situation is far more complex than you portray. A massive contractionary measure now would be 'unconscionable' and fiscally irresponsible IMO. Obviously, I think that some tax rates should increase in the medium term to help close our budget deficit (though whether or not these should be primarily focused on income taxes is another story), but in the immediate future significant tax increases are a bad idea. This is a more nuanced position than 'hur taxes are bad' or your own position, but it's probably more realistic, too.
Yes, the government loses revenue when they cut income taxes. Bush's tax cuts proved that it added to our debt. Theoretically the upper quintile will spend and invest, leading to more jobs and tax paying workers, but it didn't turn out that way over the last decade. We hemorrhaged jobs and gutted the middle-lower quintiles of income earners, while the wealthy got wealthier without creating jobs.
That's when splitting income earners' tax cuts gained traction; more money in pockets IS spent by those earning under $200,000 because they're living paycheck-to-paycheck, and it does stimulate (by trickle down). Wealthy people buying a 2nd home in southern France, or holiday presents at Tiffany's---not so much.
But now we've got what we've got: a two year extension of all Bush's tax cuts, without any off-setting with spending cuts. That will cost us about a trillion dollars, and more borrowing from China et al. Morons.
You can't possibly know what the economy would look like without the tax cuts.
People making $190k live paycheck to paycheck? That being said, you're right that more of tax cuts gets spent by people in lower brackets. That being said, investment (the alternative to spending for a bunch of money someone hands you) isn't necessarily such a bad idea either.That's when splitting income earners' tax cuts gained traction; more money in pockets IS spent by those earning under $200,000 because they're living paycheck-to-paycheck, and it does stimulate (by trickle down). Wealthy people buying a 2nd home in southern France, or holiday presents at Tiffany's---not so much.
No, but we can look at the last ten years, where we lost 8 million jobs WITH the tax cuts, and ask if they were effective for 'job creation'.
You tell us --- Dread has been saying a family of four in Manhattan with an income under $250,000 is middle class, based on COL.People making $190k live paycheck to paycheck? That being said, you're right that more of tax cuts gets spent by people in lower brackets. That being said, investment (the alternative to spending for a bunch of money someone hands you) isn't necessarily such a bad idea either.I'm not going to argue that cut-off was accurate, just that's where it was made.
Investments aren't bad, Wall St. rising is good (on paper) for peoples' retirement and 401-K, but it doesn't necessarily create jobs or even pump consumer demand. And it sure as hell doesn't fix any of our fundamental or structural problems in the financial industry, or the political games being played in Washington. If anything, consumer/voter skepticism or distrust might be fueled, seeing the huge disconnect between Wall St. and financial firms. They're making billions, corporate profits are way up, even though real unemployment is stuck at 17%, people who want to work can't find a job, and states and municipalities are broke....
Obama slams GOP, calls tax deal politically realistic
Washington (CNN) -- President Barack Obama vigorously defended his agreement with Republicans to extend all of the Bush-era tax cuts on Tuesday, arguing that it was a price that had to be paid to spare the middle class from crippling tax hikes.
The president promised disheartened Democrats that the fight over the cuts for the highest-income Americans would continue over the next two years. He also urged them to take a long-term view of the bitter policy fights now taking place in Washington.
My "number one priority is to do what's right for the American people," he said at a hastily scheduled news conference at the White House. "Because of this agreement, middle class Americans won't see their taxes go up on January 1."
Obama blasted the Republicans for clinging to a rigid ideology that, in his opinion, has blinded the GOP to the needs and concerns of average Americans.
"I've said before that I felt that the middle class tax cuts were being held hostage to the high-end tax cuts," he said. "I think it's tempting not to negotiate with hostage takers, unless the hostage gets harmed. ... In this case, the hostage was the American people. And I was not willing to see them get harmed."
"If there was not collateral damage, if this was just a matter of my politics or being able to persuade the American people to my side, then I would just stick to my guns," he insisted. But "the issue is how do I persuade the Republicans in the Senate. ... I have not been able to budge them."
Extending tax cuts for the wealthy is the "holy grail" for Republicans, he said. It "seems to be their central economic doctrine," and, he noted, one they can defend by using the Senate filibuster.
Democrats need to "make sure we understand this is a long game, not a short one," he concluded, promising to take the fight to the GOP on the campaign trail in 2012.
It was not immediately clear if Obama's defense of the deal -- as well as Vice President Joe Biden's one-on-one efforts behind closed doors on Capitol Hill -- would sway more liberal Democrats. The overall cost to the U.S. treasury of the controversial compromise will be between $600 billion and $800 billion over two years, according to CNN estimates.
At the heart of the deal is an extension of the Bush-era tax cuts for two more years, which would keep income tax rates at their current levels for everyone, as Republicans have advocated. Obama and other Democrats had argued that tax rates should stay the same for most people but rise for people earning more than $200,000 a year and families making $250,000 or more a year.
The deal Obama and Republicans have struck also includes a one-year cut in payroll taxes, from 6.2% to 4.2%. The tax is applied to a worker's first $106,800 of wages. If implemented, it would mean that someone earning $50,000 a year would pay $1,000 less in Social Security contributions next year. Someone earning $100,000 would pay $2,000 less. The payroll tax rate would go back up to 6.2% in 2012.
The estate tax -- currently scheduled to return in 2011 to a top rate of 55% along with a $1 million exemption -- would instead come back with a lower top rate of 35% along with a $5 million exemption.
Agreeing to extend the Bush-era tax cuts for the wealthiest Americans represented a major concession for Obama. In a concession to Democrats, Republican negotiators agreed to leave in place for 13 months the option to file for extended federal unemployment benefits. That will not, however, affect how long someone can collect unemployment benefits -- the maximum will remain 99 weeks in states hardest hit by job loss.
The plan also would continue tax breaks for students and families contained in the 2009 stimulus bill and allow businesses to write off all investments they make next year.
Republicans appeared quick to rally behind the deal.
"The right thing for our country is to support the tax agreement," Tennessee GOP Sen. Lamar Alexander said before Obama spoke. "It makes it easier and cheaper to create private sector jobs."
Senate Minority Leader Mitch McConnell, R-Kentucky, predicted the "vast majority" of Senate Republicans will back the deal.
Several Democrats said they have reservations about the agreement. One key reason is the cost of extending benefits for wealthier Americans.
Extending the Bush-era tax cuts for two years would cost $458 billion, the Treasury Department has estimated -- $383 billion for lower and middle income Americans plus $75 billion for individuals making more than $200,000 a year and families making $250,000 or more. The White House has estimated that lowering the payroll tax would cost $120 billion. Extending unemployment benefits for 13 months comes with a $62 billion price tag, according to CNN estimates.
Lowering the top estate tax rate to 35% -- combined with the $5 million exemption -- costs $88 billion over two years, according to the Tax Policy Center.
The deal doesn't say anything about raising money to pay for the changes. That suggests that the federal deficit will continue to rise despite rising pressure to curb spending and lower the deficit. Just last week, a bipartisan presidential panel voted 11-8 in favor of spending cuts and tax changes that would cut $4 trillion from the projected deficits between now and 2020. That majority, however, was not big enough to send the proposal on to Congress.
The 2010 federal budget deficit was $1.3 trillion; it's projected to be somewhat smaller in 2011. That projection doesn't take the proposed tax deal into account.
Defenders of the deal contend that it is possible to be fiscally responsible while adding to the deficit in the short-term. The package, they argue, could help stimulate economic growth necessary to create new jobs and generate new tax revenue.
"One of the critical things for what our fiscal situation is going to be in 2014 and 2015 is not only the tougher policies that the president will talk about in his (upcoming) State of the Union (address), but ensuring that we get growth going in 2011 and 2012," a senior administration official said Monday.
If Congress doesn't pass some kind of tax deal by the end of the year, taxes will go up for everyone, since the current rates set under President George W. Bush expire automatically at the end of 2010. Democrats control both houses of Congress, but the Republicans will take control of the House of Representatives in January, and the Democratic majority in the Senate will be smaller than it is now.
Some Democrats, speaking to reporters before Obama's news conference, said the president had conceded too much to Republican demands.
"I still seem puzzled at the president's enthusiasm, and the Republicans giving an income tax break for people making over $1 million. We're borrowing $46 billion to do so," said Louisiana Sen. Mary Landrieu, a moderate Democrat.
Liberal Sen. Frank Lautenberg, D-New Jersey, accused the president of "capitulation under pressure."
"What do I think of it? Not much," said Sen. Patrick Leahy, D-Vermont.
House Speaker Nancy Pelosi, D-California, said Tuesday the agreement "clearly presents the differences between Democrats and Republicans."
"Republicans have held the middle class hostage for provisions that benefit only the wealthiest 3%, do not create jobs, and add tens of billions of dollars to the deficit," she said. "We will continue discussions with the president and our caucus in the days ahead."
Maryland Rep. Chris Van Hollen, a member of the House Democratic leadership, said he has "serious reservations" about the deal, particularly as it relates to the estate tax.
House Majority Leader Steny Hoyer, D-Maryland, said he has not decided whether he'll ultimately vote for the proposal.
A revolt by liberal Democrats, particularly in the House, would imperil the chances for the plan to win approval before the end of the current lame-duck session of Congress.
"We won't rubber stamp a deal," one Democratic congressional source told CNN Monday. "We want to make it clear. Don't take our support for granted."
In the future, the Berlin wall will be a mile high, and made of steel. You too will be made to crawl, to lick children's blood from jackboots. There will be no creativity, only productivity. Instead of love there will be fear and distrust, instead of surrender there will be submission. Contact will be replaced with isolation, and joy with shame. Hope will cease to exist as a concept. The Earth will be covered with steel and concrete. There will be an electronic policeman in every head. Your children will be born in chains, live only to serve, and die in anguish and ignorance.
The universe we observe has precisely the properties we should expect if there is, at bottom, no design, no purpose, no evil, no good, nothing but blind, pitiless indifference.
Whatever you tax you discourage, thus higher duties on 'sins' like alcohol and tobacco (that and the fact the politicians can get away with those). Payroll taxes are a tax on jobs, they discourage both employers giving out jobs, employers legally declaring those jobs or employers providing full time jobs.
Corporation taxes, a tax on company profits are one thing, but payroll taxes? If I hire somebody I not only have to pay their wages etc, it doesn't just affect my profits but I have to pay more taxes? Its a direct disincentive on top of the wage costs themselves and don't think companies don't factor this in resulting in either lower employment or underemployment.
In the UK we have "Employers National Insurance" contributions, essentially a payroll tax of 12.8% of all earnings above £110 per week. This means if I hire one person full time and pay them £550 it costs me about £607.6 but if I have 5 part timers on £110 each then it only costs £550.
I have never understood any fiscal logic for a tax on jobs. Yes taxes have to happen and yes there's never a good place to put a tax that won't annoy somebody. But earnings (eg Income Tax/Company Profits) and expenditure (eg Sales Tax). A sales tax has an advantage of getting income from tourists etc, if you're a left-winger then Income Taxes etc provide "fairness", "death taxes" provide tax from what is unearned income, CGT is again a tax on "income" so "progressively" it is "fair" - almost all taxes can be spun so that somebody sees a positive out of it. But the side-effects of taxing jobs ... what positive is there? In order for a company to pay someone £550 (of which a large portion will directly go to the state in income taxes anyway), they have to make a profit from that person on top of their wages of at least 10% just to break even.
PS yes I will deliberately employ as many part time people as I can in my own profession, I have under me in my employment "tree" that I'm responsible for over 200 employees now and only about 10% are Full Time. This is a minor factor in that admittedly, but it is something I think about - any sensible businessman should think about their costs and unnecessary taxes are a cost. Afterall when I report any profit or loss and take responsibility for that, taxes etc have to be paid for. If I was to pick a single tax to abolish it would be taxing jobs.
So much for the GOP being deficit hawks, huh.Extending tax cuts for the wealthy is the "holy grail" for Republicans, he said. It "seems to be their central economic doctrine," and, he noted, one they can defend by using the Senate filibuster.
Democrats need to "make sure we understand this is a long game, not a short one," he concluded, promising to take the fight to the GOP on the campaign trail in 2012.
It was not immediately clear if Obama's defense of the deal -- as well as Vice President Joe Biden's one-on-one efforts behind closed doors on Capitol Hill -- would sway more liberal Democrats. The overall cost to the U.S. treasury of the controversial compromise will be between $600 billion and $800 billion over two years, according to CNN estimates.
Oh but thank God he froze the wages of federal employees for two years, that should solve everything.
Congratulations America
It's a baby step in the right direction.
I think this is a disingenuous argument. Let's suppose for a moment that the payroll tax is entirely shifted to the employee (we already cover a 7.65% payroll tax, equal to what the employer pays, in addition to normal income taxes) - currently, self-employed people already pay the full 15.3%. What would happen? Obviously wages would rise to compensate for the lower taxes on the employer. So, essentially, whether you're talking about a payroll tax split 50/50 between the employee and employer or an income tax, they both act as a disincentive to work (and, indirectly, hire). To my knowledge companies don't calculate how much they're spending on employees by looking at their gross salary, but look at the cost of total compensation - healthcare, retirement funds, salaries, and payroll taxes, etc. Repealing the payroll tax is likely to change steady-state costs per employee negligibly as the costs will just be shifted around.
Obviously if the payroll tax is not replaced with some other form of income tax on the employee but rather some other income-raising measure, things would be different, but that's not really a polemic against the payroll tax specifically but rather any taxes indexed to income and employment.
I think this might be where our difference of opinion comes in. In the US, the payroll tax is not progressive, and even slightly regressive. Every dollar of your first $106k is taxed at the same rate, so there's no incentive to have a bunch of lowly paid or part-time employees. Oh, there's theoretically an incentive to have a few highly paid employees, but that's not a very convincing incentive unless you have very high average salaries for your company. In that context, the payroll tax is just the cost of doing business and doesn't encourage much avoidance behavior. The only real exceptions I know of to FICA taxes are for graduate student stipends, which is a vanishingly small part of the employment population and is irrelevant since the employers already have fantastically lucrative reasons why they should exploit the graduate student population that have nothing to do with payroll taxes.In the UK we have "Employers National Insurance" contributions, essentially a payroll tax of 12.8% of all earnings above £110 per week. This means if I hire one person full time and pay them £550 it costs me about £607.6 but if I have 5 part timers on £110 each then it only costs £550.
I'm not getting your logic here. How is an income tax any better than a payroll tax? It's just a matter of accounting whether it gets paid by the employer or employee.I have never understood any fiscal logic for a tax on jobs. Yes taxes have to happen and yes there's never a good place to put a tax that won't annoy somebody. But earnings (eg Income Tax/Company Profits) and expenditure (eg Sales Tax). A sales tax has an advantage of getting income from tourists etc, if you're a left-winger then Income Taxes etc provide "fairness", "death taxes" provide tax from what is unearned income, CGT is again a tax on "income" so "progressively" it is "fair" - almost all taxes can be spun so that somebody sees a positive out of it. But the side-effects of taxing jobs ... what positive is there? In order for a company to pay someone £550 (of which a large portion will directly go to the state in income taxes anyway), they have to make a profit from that person on top of their wages of at least 10% just to break even.
edit: As an addendum, there's a clear example of this kind of compensation behavior in real life. Back in the 80s the government decided to start taxing graduate student stipends. Over the course of the next decade, stipends grew at a disproportionately fast pace to effectively negate the taxes and leave graduate students with more or less the same buying power they had beforehand. Since they were mostly paid by federal grants, the entire system was an exercise in futility that just wasted everyone's time. I imagine shifting a payroll tax into increased income taxes would have a similar effect.
On a tredmill going in the other direction a thousand times faster.
Congratulations America
The Experts weigh in!
http://blogs.wsj.com/economics/2010/...e-tax-package/
Economists and others weigh in on the agreement between the White House and congressional Republicans on a broad tax package.
–The proposed temporary tax cuts and spending increases will provide a substantial boost to growth in 2011. Instead of another year expanding at no more than the U.S. economy’s potential growth rate — with job gains of 1.2 million and unemployment hovering near 10% — real GDP growth will accelerate to 4%, job gains will pick up to 2.8 million, and the unemployment rate will decline to around 8.5% by year’s end. In all likelihood, the recovery would have made it through next year without backtracking into recession, but this deal improves those odds significantly. It also reduces the pressure on the Federal Reserve to engage in more aggressive monetary easing, a possibility even the central bank’s most ardent supporters aren’t happy about. –Mark Zandi, Moody’s Analytics
–The [tax proposal] would represent a significantly more positive fiscal outcome for 2011 than we and most others have been expecting, including a one year reduction in the payroll tax. In all, this proposal would add $185 billion in stimulus in 2011 beyond what we have been assuming, not including the corporate tax provisions. –Goldman Sachs
–The package should provide a noticeable boost to GDP in 2011. Some of the tax cuts will be saved and some of the purchasing power will be taxed away through higher energy prices. In addition, the obvious omissions from the proposal are any austerity measures which would begin to address the surmounting fiscal challenges ahead. We do anticipate that some of the tax cut will be rolled back through fiscal tightening measures in 2012. –Bricklin Dwyer, BNP Paribas
–I’d discount the [expensing of business investment]: we’re awash in excess capacity, and likely to stay that way for years, so I don’t expect business investment to be noticeably affected by tax breaks that give an incentive to move spending up in time. The rest is about $220 billion, or about 0.75% of GDP over the two-year period. What’s the multiplier on that? Pretty high on UI, which will get spent; less on the rest. Overall, probably less than 1. So let’s say that this raises GDP by 0.7% relative to otherwise; rule of thumb is that one point on GDP is half a point on unemployment, so add 0.35 points to the CBO numbers. –Paul Krugman, Princeton University
–I am generally pleased with the compromise over taxes the President and Republicans struck yesterday… As the policy was described yesterday, this payroll tax cut goes entirely to the worker. This increases work incentives, but the main motivation is probably to increase take-home pay and consumer spending… An alternative would have been to reduce the employer’s share of the payroll tax, at least to some degree. Given a sticky wage, this policy would have reduced the cost of hiring and, to the extent labor demand curves slope downward, increased employment. It would also have increased business cash-flow and, to the extent that firms are cash-constrained, increased business investment. I should note that, as part of the deal, the President also got his proposal to allow businesses to expense investment spending. As I have said previously, this is a good idea, but the impact is likely to be modest. –Greg Mankiw, Harvard University
–[The payroll tax cut] continues the administration’s obsession with short-term stimulus rather than long-term growth. Temporary tax cuts can make sense from the stimulus perspective, since they shift activity from the future to the present. But this short-term approach generates uncertainty and might reduce employment two years from now, when the tax rate goes back up… All that having been said, a short-term reduction in the payroll tax is not a terrible price to pay for extending (all) the Bush tax cuts. –Jeffrey Miron, Harvard University
–On net, the package probably adds around $200 billion in new stimulus for the economy, maybe a bit more. Notice, however, that it is entirely tax cuts. The estate tax and the extension of high end tax cuts are causing the most heated reactions, and the payroll tax cut is generally being applauded. But I see the payroll tax reduction as potentially troublesome as well. Though the revenue the Social Security system loses due to the tax cut will be backfilled from general revenues, the worry is that the tax cut will not expire as scheduled — temporary tax cuts have a way of turning permanent. That’s especially true in this case since labor markets are very unlikely to recover within the next year and it will be easy to argue against the scheduled “tax increase” for workers. –Mark Thoma, University of Oregon
–Most of the money in this package is maintaining tax cuts in place that were scheduled to expire. This will prevent tax increases from having a contractionary impact on the economy, however there is very little, if any, net stimulus in this package compared with current levels of taxation and spending. –Dean Baker, Center for Economic and Policy Research
–Remember that the package represents a defensive measure to avoid recession, not a pro-growth policy that is going to catapult US growth back to trend speed growth. In particular, we view the temporary, 2 percentage point tax cut on payroll taxes with suspicion. First, the full 2 percentage points will not accrue to tax payers, as the income will still be taxable. Second, the tax cut is only for one year, and so is unlikely to have a significant impact on consumer behavior (ie spending), especially when consumers are worried about falling house prices, stagnant 401(k)’s and keeping their jobs. Finally, the tax package does not address the federal funding cuts to states, which are having to cut budgets, including transfer payments to municipalities, which are then having to cut budgets, including laying off employees. –TJ Marta, Marta on the Markets
–It’s the typical pattern we’ve seen for the past several years. “Bipartisan compromise” means both sides get what they want, because deficit financing of these policies seems like the painless way to get out of gridlock. Rather than mutual sacrifice, it is mutual grabbing. We can never manage to “trade off” — we only “pile on.” –Diane Lim Rogers, The Concord Coalition
–[The tax deal] should help to reduce uncertainty within the financial markets. The result of this deal, once passed, will support greater income and spending on the part of consumers and provide investors with a much clearer picture of short-term fiscal policy. The continued reduced tax rate on both firms and consumers should provide a stronger incentive to hire through increased demand… These fiscal policy changes are not without some costs. The direct effect of the unemployment benefits extension will likely contribute to continued elevated unemployment; however, the negative effect of this provision should be offset by the strong incentives to hire resulting from the continuation of the tax cuts. Another unintended consequence that may develop is that state governments, facing another tough year of budget deficits, may use this federal fiscal policy decision as leverage to increase their own state-level taxes to help address budget shortfalls. –John Silvia, Wells Fargo
And the winner is......
–Most of this round of stimulus does look to be relatively low bang-for-buck, and it is not paid for over ten years, but it does look to me as though it is better than a poke in the eye with a sharp stick. –J. Bradford DeLong, University of California at Berkeley
I never expected the summary of a bunch of polls and a political shift to generate such a outlandishly negative response. This isn't about a media conspiracy or manipulation. Go out there and ask everyone you know if the government has a problem with uncontrolled spending. I would be very surprised if anyone disagreed with the assertion. Even my most liberal friends agree with that. Everyone knows that there is a major problem brewing; it's not rocket science to point that out and suggest that the creeping dribble of events (threats of municipal default, etc) are adding up in everyone's mind.
This goes way beyond my personal situation, I was just blurting that out because it was early in the morning and I wanted to give an example. The impact on employment can be severe. For example, imagine you run a business that employes four people, has some physical assets and has revenues of about $600,000/year.
You die and leave your sole proprietorship business to your kids. But the value of your business could easily be considered to be 10x revenues (a pretty standard valuation in some sectors, and reasonable if the business has an established customer base, brand loyalty, etc). Suddenly the IRS demand that you pay them 35% of your inherited "$6 million" asset, which is $2.1 million. Your business doesn't have the cashflow for that, so you either have to take out an unsustainable loan or sell the business.
And for what? What is the purpose? We all know it doesn't generate that much revenue, but the potential for traps like this are immense.
Studies have shown that relatively few small businesses actually fall into this kind of trap. For those that do, it's not an argument to scrap the tax entirely but to change the exemption structure and such.
Can you point me to one of those studies? Candidly, I think the chance that any business could fall into this trap is unacceptable.
What is the purpose of having a complicated exemption structure? What is the purpose of this tax exactly? I don't see it at all and, given the revenues, I would rather get rid of it over reducing overall rates.
You don't need studies, just ask a CPA. If a company is making over a certain amount and growing, they can change from an S corp to a C corp. Estate planners help with Wills, changing title ownerships, finding loopholes all the time (that's what they DO) It's not a federal estate or death tax that's as harsh as states'.
Don't have time to dig one up now, but I recall reading recently that only about 10% of farm estates (the most likely enterprises to be hit by this problem) would be hit by the original 2011 levels, and much less if the levels are brought back to $3.5 million or higher. I agree, though, that even those on the margins should be adequately cared for in the law.
Just dug up an old Economist article on the issue I read:
http://www.economist.com/node/10024733
Two reasons: first, you have to make up the lost revenue somewhere. IMO most other options are worse - they disincentivize something very immediate like work or consumption, while all an estate tax does is disincentivize large accumulation of wealth at the end of a life. (I have problems with other wealth taxes because they continually disincentivize capital accumulation, rather than a one-off tax.)What is the purpose of having a complicated exemption structure? What is the purpose of this tax exactly? I don't see it at all and, given the revenues, I would rather get rid of it over reducing overall rates.
Secondly, estate taxes are actually good in some respects. Inheritors of large estates are more likely to stop working, so a tax on large estates is actually providing an incentive for work. Furthermore, it helps to counterbalance unhealthy accumulation of vast wealth to a select few, which is very much a self-perpetuating problem that results in poor capital distribution.
I'm not saying that there aren't problems with the tax. I think the ridiculous amount of avoidance that goes into things definitely needs to be addressed, but that can be done by simplifying the tax code and changing the exemption structure rather than killing the tax entirely. My real problem was with your statement that rather than a payroll tax holiday you'd like to get rid of the estate tax for good. A payroll tax holiday has immediate positive economic benefits and improves our growth prospects immeasurably. Getting rid of the estate tax might feel good, but it won't appreciably help our economy right now, nor does it pose much of a problem to most Americans. There might be some longer-term benefits (maybe) but that's largely irrelevant for the issue at hand, especially when the tax can be fixed and serves some useful purposes.
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