July 28, 2010

Ruth Marcus - Why Congress should let the Bush tax cuts expire

Ruth Marcus - Why Congress should let the Bush tax cuts expire:
"The modern Republican argument about taxes seems to boil down to two principles, both misguided: Taxes can be reduced, but they can never be allowed to go up. And whatever level taxes are at, they are too high.

Think back to the beginning of the Bush administration tax cuts. It seems almost impossible to believe, but the argument then was that the budget surplus was too large."
I think most Republicans I know are honest, but I also don't think that they have actually thought this through. Marcus gets to what I noted the other day. The argument around tax cuts is not intellectually consistent, and until the right gets some basic consistency, I think they should be dismissed on this issue.


Louise D. said...

What effect will raising taxes have on the ecomomy? Do the Democrats really believe that raising taxes will spur economic growth, and help produce jobs? Is the goal to help the economy, or is it something else?

Bob said...

It is questionable how much impact tax changes impact the economy. Bush attempted to stimulate the economy with rebates, which seemed to have little or no impact. On the flip side, tax rates increased under the Clinton administration and a period of economic growth followed.

In terms of the size of our overall economy, tax changes aren't great enough to have a large impact in either direction. Plus any tax cuts can be either:
1) saved, which is positive, but doesn't generate economic growth, or
2)spent at the retail level, where only a small portion remains in U.S. hands, considering most goods are now imported.

While also small relative to the size of the economy, stimulus spending is the best way to generate economic activity because unlike a rebate or tax cut, it can be targeted to job-generating activities such as infrastructure improvements, etc. plus at the end, society has an improved infrastructure, which can assist economic growth.

Streak said...

Louise, your question misses at least some of the point. First, this post addresses the Republican belief that taxes can never be raised. Do you think that is responsible? Should we, for example, pay for the two wars begun in this decade? Or should those be simply pushed to later generations?

Past generations of Republicans may have resisted tax increases, but they believed in paying for government. Eisenhower refused to cut taxes during his Presidency until the deficit was manageable.

Second, I actually do believe that there is a multiplier effect from some taxes, and I stress some taxes. Not all are good, to be sure. But some can be invested in a way that private money could not, with a resulting impact of encouraging private business. My favorite example is the Interestate Highway Act, which was paid for through taxes, but has produced untold billions in private wealth for truckers, hoteliers, gas stations, suburbs, etc.

Finally, the counter question is on the table. As Bob notes, Bush cut taxes (without actualy paying for those tax cuts, mind you through spending cuts) and we have seen a steady decline in the middle class and continued stagnation of wages for most Americans. Cutting taxes at the federal level is an easy political sell, but it doesn't actually accomplish much. Not only, as Bob notes, by the fact that much of that money does not go back into the economy, but by the effect of shifting pressure onto other taxation areas. State and local governments have had to either cut programs or raise fees and taxes.

The rich are doing fine, btw. Just fine. Saw a chart that said somewhere around 66% of the income increases during the 2001-2007 period went to the top brackets.