S&P Report Cites Bush Tax Cuts as a Reason for Downgrade - CTJ

As I blogged about earlier this week, a number of critics have placed the blame for the S&P downgrade squarely on the policies of the Bush Administration. Similarly, Citizens for Tax Justice also cites the S&P report claiming the Bush Tax Cuts as a reason for the downgrade.

Citizens for Tax Justice also has four new policy briefs on how taxes work, which are worth the read.

"Why do half of all Americans pay no federal income taxes?"

If you've wondered why roughly half of all Americans pay no federal income taxes, Ezra Klein asks the same question and comes to this conclusion:

"But the basic story here is that once you've added together the standard features of the tax code and the tax expenditures for the elderly, poor and young, you've explained almost everyone who doesn't pay taxes."

Read the whole post and the Tax Policy Center report that it links to. You'll be glad you did.

Factcheck.org: Sen. Jeff Sessions Wrong on Bush Tax Cuts

I still don't get what these guys are smoking to still believe this?

"Sen. Jeff Sessions wrongly claimed that federal revenues "went up every single year" after the Bush tax cuts were "put in." Actually, federal revenues declined for three straight years after the first tax cut was signed in 2001."

"We pointed out these figures to the senator's spokesman, Stephen Miller, who blamed the revenue declines of 2001, 2002 and 2003 on the 2001 recession. But that recession ended in November 2001, and federal revenues continued to go down for the next two years. And, as we noted, CBO determined that both income tax revenues and total overall revenues would have increased in 2001, if not for the tax cuts."

"On Wall Street, Why Is Enough Never Enough?" It's not just Wall Street Mr. Cohan...

William D. Cohan, author of "House of Cards" and "Money and Power: How Goldman Sachs Came to Rule the World" penned an opinion piece in the New York Times today about the Raj Rajaratnam insider trading verdict asking the question of why so many people that made their money legitimately (and not through drugs or illegal activities) still end up breaking the law because they don't have enough. The short answer, because it's human nature Mr. Cohan.

This issue does strike me as being very similar to the Red-State obsession with tax cuts for the wealthy. Thomas Frank wrote a great book called "What's the Matter with Kansas?" about how conservatives essentially duped regular people into thinking the wealthy will trickle down their earnings to everyone else.

For the people at the top, it's not about their own personal wealth. It's about their wealth relative to others. The wealthy will always aggressively pursue the last dollar they can get regardless of how much they are taxed, which is why progressives believe the argument that tax cuts for the wealthy encourages economic activity is a straw man at best. So long as there is money to be made in doing so, there will be firms and businesses that cater solely to making the wealthy wealthier at a cheaper and cheaper relative price. They have access to advice and information (legally, mind you) that the average person doesn't have and never will get, making it less labor intensive to accumulate wealth compared to the average person that has to do all the leg work because it's not possible to just hire advisers to do this for you.

Yet the average person is convinced that they will be able to play in the same ballpark as the people trying to put bigger and bigger walls around that ballpark, as I was reminded by via a back-and-forth I had with a conservative a few months ago about the Bush Tax Cuts:
"The tax cuts were across the board for everyone. Its not "for the wealthy" like the left wing media portrays it. I doubt they "hoard" their money. But even if they "hoarded" their money what is wrong with that? It is their money to hoard after fall. Last I checked we lived in the US and people had a right to spend their money or not spend their money as they choose. Wait let me correct that statement, last I checked, a year and a half ago people had the right to...."

So it's okay to hold on to money for yourself even though it is to create jobs and spur economic activity? (And oh yes, the President that signed the largest tax cut in history took away peoples' right to choose how to spend their money, but this is an issue for another day and another argument.) I applaud the people that made their money through their own hard work. However, they are still people and as with all people, some have a larger appetite for greed and corruption than others. The only issue is they also have enablers that will help them get off scot-free because their own less substantial livelihood depends on it.

Armageddon!

In a column at Project Syndicate, economist Jeffrey Sachs begins with an ominous statement, "America is on a collision course with itself.", but then proceeds to back it up with the following:

"The problem is America’s corrupted politics and loss of civic morality. One political party, the Republicans, stands for little except tax cuts, which they place above any other goal. The Democrats have a bit wider set of interests, including support for health care, education, training, and infrastructure. But, like the Republicans, the Democrats, too, are keen to shower tax cuts on their major campaign contributors, predominantly rich Americans.

The result is a dangerous paradox. The US budget deficit is enormous and unsustainable. The poor are squeezed by cuts in social programs and a weak job market. One in eight Americans depends on Food Stamps to eat. Yet, despite these circumstances, one political party wants to gut tax revenues altogether, and the other is easily dragged along, against its better instincts, out of concern for keeping its rich contributors happy.

This tax-cutting frenzy comes, incredibly, after three decades of elite fiscal rule in the US that has favored the rich and powerful. Since Ronald Reagan became President in 1981, America’s budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, the richest 1% of American households now has a higher net worth than the bottom 90%. The annual income of the richest 12,000 households is greater than that of the poorest 24 million households.

The Republican Party’s real game is to try to lock that income and wealth advantage into place. They fear, rightly, that sooner or later everyone else will begin demanding that the budget deficit be closed in part by raising taxes on the rich. After all, the rich are living better than ever, while the rest of American society is suffering. It makes sense to tax them more."

This passage in the piece reminds me of a recent Nicholas Kristof column that I blogged about last month about how the gap between rich and poor leads to dysfunctional countries.

Read the entire Sachs piece because it is not just another "left is right and right is wrong" diatribe. He is fairly critical of both sides for succumbing to the whims of the rich.

So what's all this bickering over taxes really about?

Washington Post columnist Steven Pearlstein tries to explain why Democrats and Republicans disagree on tax policy:

"There may be some truth to the Republican belief that lowering taxes overall is a good way to boost economic growth or contain the size of government. However, that would apply just as well to cuts in corporate and payroll taxes or additional income tax cuts for the middle class. Yet you don't see Republicans drawing lines in the sand over those. What's so magical about the estate tax or the top marginal income tax rate?"

Read the entire column to find out the answer to this question. My personal take on it is both the Left and the Right have gotten themselves so wired up for a fight that they have forgotten the basic difference between fact and opinion.

What would Brian Boitano do?

(If you didn’t get the reference, it’s from South Park: Bigger, Longer & Uncut.)

David Leonhardt explains in today’s New York Times what the $60 Billion that could be raised from not extending the Bush Tax Cuts for the highest income bracket would buy. Some of my favorites:

- Universal preschool for 3- and 4-year-olds, with relatively small class sizes.
- A national infrastructure program to repair and upgrade roads, bridges, mass transit, water systems and levees.
- Free college, including room and board, for about half of all full-time students, at both four- and two-year colleges.

Paul Krugman takes the argument further by saying “a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.”

What Krugman fails to mention, as does everyone else, is extending the Bush Tax Cuts permanently for incomes below $250,000 still blows a $2 Trillion hole in the deficit. Again, that’s $2,000,000,000,000! The $700 Billion the administration speaks of is the difference between the $2 Trillion Democrats want to create and the $2.7 Trillion Republicans want to create. In reality, both sides are being dishonest here and people are falling for it all over the place.

The most important question is, if you didn’t make enough to notice the tax cut nine years ago, do you think you’ll notice the taxes go back up now, especially since incomes have been flat over that period? Would you be willing to do that for the nation’s economy?

Wouldn't starving the beast just make it angry enough to consume disproportionately more than it should?

The Economist's Democracy in America blog has an interesting post about a column in The Fiscal Times by Bruce Bartlett, a former Jack Kemp staffer, advisor in the Reagan Administration, and Treasury official under Bush 41.

In talking about Reagan and Bush 43, the The Economist's blog writes:

"...both administrations revved up spending at the same time they were cutting taxes, in the political equivalent of an overweight person who rewards himself with an extra helping of ice cream because he has just purchased a membership in a gym."

The Bartlett column also provides empirical evidence contradicting its counterpoint, that raising taxes results in uncharacteristic increases in government spending:

"By this logic, the tax increase enacted in 1993, which raised the top federal income tax rate to 39.6 percent from 31 percent, should have caused a massive increase in the federal budget deficit. In fact, it did not. Spending was 22.1 percent of GDP in 1992 and it fell every year of the Clinton administration, to 21.4 percent of GDP in 1993, 21 percent in 1994, 20.6 percent in 1995, 20.2 percent in 1996, 19.5 percent in 1997, 19.1 percent in 1998, 18.5 percent in 1999, and 18.2 percent in 2000."

When a staunch Reaganite involved in its fiscal policy is jumping the ship on the economic theory they so dearly espoused, why are today's Republicans still hanging on dearly hoping against hope that they might be proven right this time against all evidence otherwise?

"The Shroud of the Dark Side has fallen"

I've stated in the past about how Steven Pearlstein's column has become a must-read for me because of its pragmatic, fact-based perspective. A couple of key passages from today's column that are right on the money (pun intended):

"Republicans like to pretend that their real concern is for job creation, citing the fact that about half of all business profits now flow through partnerships and small corporations that are taxed at personal rates. ... Very few of those businesses earn more than $250,000 in profit, and those that do tend to be very successful hedge funds and law firms that are flush with cash and unlikely to be dissuaded from hiring extra employees or make new investments because of a 4 percentage-point change in the marginal tax. Because most hiring and investment can be done with pre-tax dollars, ... the tax rate is largely irrelevant to those decisions."

"...if Republicans were truly interested in reducing the deficit while stimulating private-sector job creation, they would have jumped to embrace the idea floated last week by Sen. Mark Warner, the centrist Democrat from Virginia: let high-end tax rates return to where they were during the Clinton years and use the $65 billion in additional income over the next two years for tax breaks for businesses that increase investments or hire new employees. After that, the extra revenue would go toward deficit reduction."

{Emphasis mine in both passages}

Pearlstein concludes by saying that no Republicans have taken up Mark Warner on his compromise proposal. So much for the much bally-hooed bipartisanship.

"The Shroud of the Dark Side has fallen. Begun, the Clone War has..."

"Ben Stein, the guy who got rich because when he talks it sounds so boring it's actually funny."

Bill Maher gives a sneak preview of one of his new rules that will be on tonight's episode of "Real Time with Bill Maher". I'd be curious to see the next Christine O'Donnell clip but unfortunately the HBO/Cinemax free preview was last weekend and someone manages to post it on YouTube anyway (before HBO makes them take it down.)

If a picture is worth a thousand words...

If a picture is worth a thousand words, how many words do you think you can come up with for this one?

Analysis Looks at Effect of Letting Tax Cuts Lapse for Rich - NYTimes.com

Three key points from this article in today's New York Times:

1. "Given the progressive nature of the federal income tax system, in which tax rates increase with income, even the richest households would continue to pay the four lower rates on up to the first $250,000 of their income, under the approach being pushed by Mr. Obama and Democratic leaders in Congress."
2. "Filers with taxable income of $500,000 to $1 million would still get on average a tax cut of $6,700 compared with pre-2001 rates, according to the data from the tax analysts. But that compares with roughly $17,500 if the top Bush tax rates were maintained."
3. "Extending them for the next 10 years would add about $3.8 trillion to a growing national debt that is already the largest since World War II. About $700 billion of that reflects the projected costs of tax cuts for those in the top 2 percent of income-earners."

So just to recap, giving a tax cut of $17,500 instead of a paltry $6,700 to filers with taxable incomes of $500,000 to $1,000,000 would add $3.8 trillion to the national debt. Again, $3.8 trillion so people earning over a half million dollars can get an extra $10,800 in their pockets.

Five myths about the Bush tax cuts

A thought-provoking piece on the Bush Tax Cuts. The five myths, according to the writer are:

1. Extending the tax cuts would be a good way to stimulate the economy.
2. Allowing the high-income tax cuts to expire would hurt small businesses.
3. Making the tax cuts permanent will lead to long-term growth.
4. The Bush tax cuts are the main cause of the budget deficit.
5. Continuing the tax cuts won't doom the long-term fiscal picture; entitlements are the real problem.

While we’re on the topic of the Bush tax cuts, Ezra Klein posted on his Washington Post blog earlier today the general sentiment regarding whether the tax cuts should be extended, partially extended, or be allowed to expire entirely.

Update: Fareed Zakaria also offers a very pragmatic piece about the expiration of the tax cuts and a general argument about how low our taxes are in this country compared to other countries around the world today and to the historical rates in the United States.

Corporate Profits = Jobs? No, not really (but CEO's want you to think that's true.)

In a column on his website, RobertReich.org, former Secretary of Labor in the Clinton Administration and current professor at UC-Berkeley Robert Reich writes about why corporate profits have nothing to do with job growth. The one point he made that jumped out at me was the following:

“Corporations are using their pile of money to pay dividends to their shareholders and buy back their own stock - thereby pushing up share prices.”

This is something I have noticed for years. I always wondered why companies that reported consistent quarterly profits from 2004-2007 always tended to have more downsizing periods than hiring periods. They're boosting the income of their higher end shareholders at the expense of their much lower-end employees that have to scrape by to make ends meet in this job market of exploited employees.

This has always been my personal argument against the Bush Tax Cuts as well. I have no problem with wealthy individuals getting a tax break so long as they’re creating jobs with those tax breaks. If a job is being created, let them get the tax credit for it. I still don’t get the argument that tax cuts spur job growth and tax revenue through the actions of that multi-millionaire takes the extra $50,000 or $60,000 in his pocket each year and buys his 2nd or 3rd yacht with it rather than hire a new employee for $30,000 a year.