American Elephants

There Are No Tax-Cuts On the Table! by The Elephant's Child
December 2, 2010, 4:04 pm
Filed under: Capitalism, Economy, Freedom, Taxes | Tags: , ,

The Hoopla in the House of Representatives has many people confused.  The subject is the Bush Tax Cuts from 2001 and 2003.  George W. Bush was able to get tax cuts for all Americans passed.  Democrats cried “Tax Cuts for the Rich”, but “the rich” got the smallest percentage tax cut of all, and the bottom 40% of taxpayers had to pay no income tax at all.  To get the bill passed, the tax cuts came with an expiration date, which is December 31,2010. Which means that if they are not extended, your taxes will go up — a lot.

Most sentient human beings know that it is supposed to be a very bad idea to raise taxes during a recession, when the economy is struggling to recover. It’s a bad idea politically to raise taxes on the middle class — they don’t like it, and there are a whole lot of them.  But to the leftist mind, “the rich” are very bad people, which is odd, because a great many of them are very rich indeed.  So we have to assume that they believe that disparaging the rich helps them politically.

A recent poll showed that 78% of all those queried said that they would like the tax cuts for households earning under $250,000 to be extended either permanently or for a few years or until the economy fully recovers.  Democrats agreed by 73%.  What about “the rich?” A solid majority (56%) said they wanted tax cuts extended for households with more than $250,000 in income.  Only 39% wanted the rich to pay more.Support for letting the tax cuts be made permanent for the rich is overwhelming for both Republicans and Independents at 63%.  Democrats oppose this by 55%.  Democrats hate tax cuts.

President Obama has claimed that Republicans want to give “the rich” another tax cut, which will cost the Treasury $700 billion which they will have to borrow from other countries.  This is patently false.  Republicans are trying to keep the Democrats from raising your taxes.  Refusing to extend the Bush tax cuts means that taxes would go up for everybody. Capital gains taxes would rise from 15% to 20%.  Estate taxes which are zero right now, would climb to 55% — or over half of anything over $1 million.  To claim that leaving tax rates for the rich right where they are would cost $700 billion simply means that Obama is counting his chickens before they hatch.  He expects $700 billion to come in from increased taxes on the rich — but the rich are perfectly capable of rearranging their finances to they don’t have to pay more.

There are no tax-cuts on the table.

Estimates from the respected Heritage Center for Data Analysis show that over 10 years, letting the bush cuts expire would slash $1.1 trillion from GDP, kill 6.9 million jobs, reduce overall business investment by $330 billion and lower Americans’ disposable income by $726 billion.  A real disaster.

The Twentieth Amendment intended that there would be no such thing as a “Lame Duck Session.”  The amendment was ratified on January 23, 1933, when travel was a lot slower, and no one considered that members of Congress could dash back to the Capitol for another session after the election had been determined.  When a business fires anyone, their things are packed up and they are escorted off the premises immediately, with the undercurrent that they might commit an act of sabotage if they were allowed to linger.  A goodly percentage of the members of Congress have been fired, but they are back in he Capitol building committing what political sabotage they can manage.

This chart from the Heritage Foundation shows that tax receipts as a percentage of GDP remain relatively constant no matter what the top individual tax rate.  (Click to enlarge).

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What that graph leaves out is sources of tax receipts that went up that kept the total relatively constant as taxes on the rich declined, like increases in the Social Security tax under Reagan that only hits the first $100K or so of income, which was then borrowed from to make up for the lost receipts from tax cuts for the rich.


Comment by Professor Smartass

—Don’t confuse the “payroll tax” (FICA- Social Security) with the income tax. Everybody pays the same percentage of their pay into FICA, up to a certain dollar limit (I forget what that is, but it’s the same for everyone). That’s the way Congress conceived the Social Security Law, and over the years, they have resisted making it means tested or different for higher earners. The whole Social Security thing needs reform, but that is a different matter. Has no bearing on the sources of tax receipts. The rich do pay a lot more because their pay is higher, but everyone pays up to a set limit.
—Tax rates declined for everyone under the Bush tax cuts. They declined less for the so-called rich than for the other income brackets. The two lowest brackets were largely removed from paying any income tax at all, though they still have to pay FICA.
—70% of manufacturing concerns in the U.S. have owners whose business is taxed at the individual rate (S Corporations and the like). These are people who are expected to commit capital to new hires and new equipment. When you threaten them with higher taxes (an unknown amount) or even when you say OK I won’t raise your taxes now, but I’ll get you in 2 years, you obviate those manufacturers ability to do long range planning. Businesses don’t plan on a 2 year cycle.
— There were no “lost receipts” from the “tax-cuts for the rich.” Having certainty for the future, and less worry about what government was going to take from their business, they hired, expanded, and bought new equipment, and consequently made more money in a more prosperous economy and paid more taxes, though at a lower percentage tax on their marginal income. As the graph shows, the tax receipts stayed about the same even after the tax cuts.
—Nobody had to “borrow” to make up for lost receipts. Obama has been claiming that if he doesn’t get to raise taxes on the rich (a big error in a recession) then he will have to borrow that money because

    he didn’t get what he wanted.

Sorry, it doesn’t work that way. Shouldn’t count your chicken before they hatch! Perhaps William Daley, who is the only person in the administration with the slightest business experience, can help Obama to understand how things work.


Comment by The Elephant's Child

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