Tag Archives: taxes

Making Sense of Obama’s Tax Compromise

Marc Seltzer © 2010

By Marc Seltzer; originally published at care2.com on December 8, 2010.

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The Obama compromise, which renews existing tax rates for middle class and wealthy Americans and continues tax incentives aimed at speeding economic recovery is not as simple as it seems.

At first it appears that the President allowed wealthy Americans, who have done exceedingly well in the past decade and generally survived the economic crisis with losses, but not foreclosures or unemployment, to win a battle in class warfare.  It is true that letting the Bush tax cuts (for Americans earning more than $250,000) expire would have forced the wealthy to contribute significantly more to the public budget when high unemployment and underemployment were causing a great deal of stress and suffering to middle and lower class workers. In a simple contest over redistribution of wealth, wealth won.

In the larger context, the President’s compromise may have been a significant achievement.  The President is working to stimulate the economy to speed economic recovery.  The best way that he could have done this without continuing tax cuts for upper incomes would have been to let those tax cuts expire and separately to provide a major new stimulus to the economy.  This could have taken the form of a half-trillion dollar infrastructure program or multi-year green-energy committment to make American energy consumption more efficient and take a leadership role (now held by China) in developing green-energy technology.  However, there was not enough support in Congress, let alone the public at large, for such a major new stimulus program.

Without new stimulus spending, the higher tax rates, as Bush tax cuts expired, would have taken money out of the private economy.  This money would go as tax revenue to pay down the deficit, but would not create new public spending or jobs without additional stimulus legislation.

This is the real problem.  The economic recovery is not yet fast enough or strong enough to endure, without harm, tax hikes, absent a corresponding increase in stimulus from another source.  Yet no other stimulus was politically available.

This put the President in the position of having to accept a renewal of all the Bush tax cuts, to keep the economy from losing steam, at least while the economic recovery was weak.  The two-year tax-cut extension was the estimate of that vulnerable window of time.

Importantly, the high-income tax cuts were not the whole deal, they were only the Republicans’ bargaining chip.  As David Leonhardt reports in the New York Times, the President got unemployment benefits extended, a cut in the payroll tax and some business taxes and college tuition tax credits in addition to continuing the lower tax rates for middle income earners.  The President’s package amounts to significant new stimulus over and above continuing the Bush tax rates.  Economists like Paul Krugman and Christina Romer have said, since the financial crisis, that more stimulus was needed to keep the economy growing and to support employment.  The fight in Congress and in the general public has been about how much to spend on stimulus, in light of the deficit and the Republican preference for free-market solutions and lower stimulus spending.

Seen in this light, the President was able to provide significant governmental support for economic and job growth, at the cost of lower tax rates for the wealthiest two percent of Americans than was the President’s preference.  The President ran for office asserting that wealthy Americans should pay a greater share of the nation’s tax burden to insure that all Americans could afford health care and the continuance of social safety-net programs.  However, the economy was not yet in crisis, the unemployment rate not near 10%.  In the current circumstances, the President must focus first on supporting the economy with stimulus and spending, even in the face of the deficit and his stated belief that wealthy Americans should, in the long term, contribute more.

As the growth rate improves, and unemployment comes down, it will be appropriate to cut spending and raise taxes to balance the budget and make decisions about fair contributions from different income earners in society.  For those that believe in a more progressive income tax with higher earners paying more than the historically low levels they pay today, the real fight will be in two years’ time, when the economy is stronger, and the primary consideration of a tax hike on the affluent will be social justice and the great disparity in incomes between rich and poor, rather than the impact on the overall economy.

Economists will still argue about how much impact tax hikes on wealthy Americans will have on the wider economy and politicians will continue to argue about the social justice goals of a progressive tax system, but the context should be quite different.  Hopefully, substantially more of the millions of unemployed Americans will be back at work and the growth rate will have continued to improve.

UPDATE DECEMBER 11, 2010:  Bill Clinton discusses tax compromise

Marc Seltzer is also a contributor to SupremePodcast.com, a weekly U.S. Supreme Court case review podcast.

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Winning the Argument on Tax Cuts and Government Spending

By Marc Seltzer; originally published at care2.com on December 5, 2010.

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It’s a funny thing.  Only about two percent of Americans make up the wealthiest two percent of Americans.  How is it then that so many Americans are willing to stand with Republicans in their efforts to lower taxes on the top two percent?

What is it about slogans like “no more taxes,” and “government spending is out of control” that are so appealing to the other ninety-eight percent of Americans?  The 98% don’t really pay all that much in taxes, and they recoup a substantial amount of what they do pay through their use of social programs such as Social Security, Medicare, Veteran’s benefits, welfare, public education, transportation, environmental protection and unemployment insurance, etc.

Liberal commentators often skip over this question and jump into the fray accusing Republicans of greed, manipulation and deception.  Rachel Maddow recently expressed concern that Democrats would compromise on the Bush tax cuts.  She railed against the Republicans’ consistent refusal to compromise and extolled Vermont Senator Bernie Sanders for blasting Republicans for cutting taxes on the wealthy at the same time as they complain about debt and deficits.

SANDERS: “We are now faced with the issue of what we do with the Bush tax cuts of 2001 and 2003, and if you can believe it, we have people here, many of my Republican colleagues who tell us, oh, I am so concerned with debt and deficits, I am terribly concerned with a trillion dollar national debt, terribly concerned, but wait a minute, its very important that we give, over a ten year period, 700 billion in tax breaks to the top 2 percent.”

“We talk about a lot of things on the floor of the Senate, but somehow we forget to talk about the reality of who is winning in this economy and who is losing, and it is very clear to anyone who spends two minutes studying the issue, the people on top are doing extraordinarily well at the same time as the middle class is collapsing and poverty is increasing.”

This is true, so why don’t Americans vote 98-2 in support of taxes and government spending?  Why don’t Democrats have more traction when they argue for raising taxes on the wealthy and spending money on social programs?

Could it be that Americans don’t feel good about taxes and government spending because they really are naturally wary of big government?  Remember that the nation was born of the fundamental principles that power corrupts and authority must be held in check.  Yet the size and scope of government today dwarfs any monarchy or authority that the founding fathers could even have imagined.  The British Empire of old doesn’t hold a candle to present day Washington.

This isn’t to say that Social Security and Medicare shouldn’t be revered and safeguarded.  But costly foreign wars and catastrophic financial mismanagement have caused more than the usual doubt or despair over government.

Anyone who argues in the public arena that taxes must be collected and spending authorized would do well to respect the public’s healthy skepticism. To speak to this concern is to talk about good management practices and improved efficiency; more persons served and better services with lower costs.  This doesn’t have to hide the difficult decisions about balancing budgets and taking care of our fellow citizens.  But it’s not enough to say the rich can afford to pay, or that Republicans want to cut spending on social programs, and think that you’ve won the argument.

Americans know that the breakdown in good government is in part because government’s very size and financial power have turned it into an unwieldy, unaccountable beast.  How the public regains control is not yet known, but those working to preserve the social safety net, should avoid collisions with the public’s genuine desire for government reform.

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Check out my U.S. Supreme Court case law podcasts at supremepodcast.com.

No Tea Party in Canada

By Marc Seltzer; originally published at care2.com on October 13, 2010
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Democrats seem bewildered by the strength of the Tea Party movement.  Powerful incumbent Senators such as Boxer (CA) and Reid (NV), and numerous House Reps in leadership positions find themselves in difficult contests. Republicans are poised to gain significant numbers in the legislative branch in November’s mid-terms election.

Fighting back, Democrats and their supporters have gone after Tea Party-Republican candidates, focusing on their oddities, inconsistencies, and lack of coherent policies.  Rachel Maddow, among others, has exposed the remarkably poor caliber of some candidates propelled by the Tea Party to victory in the Republican primaries.

Be that as it may, the legitimate complaint of the Tea Party movement has not been effectively dealt with by Democrats.  The root groundswell of anti-government energy comes from fear and anger about deficit spending and debt.

Deficits matter.

In Canada, governments of the past decade worked hard to erase the substantial deficits of the 1990s.  When the 2008 financial crisis arrived, Canada was able to face the recession with sound economic fundamentals.   Increased public spending in 2009 and 2010 again created deficits, but helped Canada recover nearly all the jobs lost in 2008.  Embarking on a new deficit spending program did not faze the public, and Canadian leaders are now talking about returning to surplus budgets in the next 7 years.

There is no tea party movement in Canada.  National health care, yes.  Major tax protests, no.

For all the things wrong with aspects of the Tea Party movement, from blaming the Obama administration for current ills to dredging up misguided social views, the truth is that the U.S. would have braved the recession far more effectively if it had had a budget surplus.

In not addressing this aspect of the financial health of the nation directly from the start, with a coherent long-term plan, the Democrats have allowed the opposition to bundle legitimate disapproval of the government’s budget outlook with generalized anger at banks, unemployment, the Bush administration, Congress, taxes, and government spending.

It’s working for Republicans so far, and if this election looks bleak, imagine Sarah Palin filling a stadium near you in 2012.

(Marc Seltzer has been on paternity leave after the birth of his daughter in June.  Marc can also be heard reviewing U.S. Supreme Court cases at SupremePodcast.com)

Stinginess with public dollars

Stinginess with public dollars (comment to US News story April 16, 2010)

I externed for the federal district court judge Harry L. Hupp a few years back. I still remember that when it came time for the annual judicial conference, which took place at the Dana Point Ritz Carleton that year, Judge Hupp disapproved of the extravagance for a government meeting. I do not begrudge such judges anything as they are remarkable high-achievers, accepting far less in salary than they would receive in the private sector, but I will say that his attitude made an impression on me, as does that of Clarence Thomas, reported here.

The public purse is a strange beast, where it is all but impossible for the spenders of it to feel the pain of those who give it through their taxes. It is not just these two judges who exemplify careful stewardship of public funds, but we would be well to have this attitude infect our congressional leaders, rather than the ethic we have now, which is still, The more you bring home the bacon by steering public funds into your district, the more likely you are to get personal support in your re-election campaign.

If Justice Thomas’ ethic were pervasive, the public would feel much better about paying its share of taxes and about the government those taxes fund.