Bush tax cuts
Pretty interesting the way the GOP got its way on the Bush era tax cuts – at least for two more years. The minority party in both chambers of the lame duck Congress, other than demand that the Democrats give everyone a tax break, they didn’t have a whole bunch of leverage. Until they were able to successfully block the extension of unemployment insurance. The country was pretty divided on extending it beyond 99 weeks, but not so much that it probably wouldn’t care if that extension was okayed at some later date.
And thus was set up the perfect opportunity to trade that extension for an extension of the Bush era tax cuts for everyone. So in sum, step one, block extension of unemployment insurance. Step two, use unemployment insurance extension as a bargaining chip. Step three, the GOP gets what it wants to begin with plus a lowering of payroll taxes as well. Meanwhile they “give away” what they’d have probably ended up voting for at some future point. And most likely Obama will get little credit for the trade.
Obama also conceded to the GOP’s estate tax and dividends and capital gains demands as well. And here’s the really fun part – by announcing his “framework”, Obama made it official – this is what I want, this is what I negotiated, now Congress do your thing:
"We cannot play politics at a time when the American people are looking for us to solve problems," Obama told reporters. "I am confident ultimately that Congress is going to do the right thing."
Can’t play politics? This has been a lesson in politics.
That’s the DEMOCRATIC Congress he’s talking about, by the way. A Democratic majority in the House and a Democratic majority in the Senate. The GOP is already on board with this, as announced by the President. So what’s left to do?
Pass the compromise in both the House and Senate, Democrats.
So, you say, what if the Dems bow up and refuse to pass it? Well, the unemployment extension, something the GOP is now for will not pass. Additionally, all of the Bush era tax cuts will expire which will mean tax increases across the board for all income levels. All. Everyone. Not just the “rich”, but the middle class as well.
And who will be the bad guys?
Well, not the GOP. From a purely political perspective, pretty impressive if I do say so myself.
And it’s a pretty pointed one showing a very solid Republican lame duck caucus – at least on this particular issue:
Senate Republicans promised Wednesday to block legislative action on every issue being considered by the lame-duck Congress until the dispute over extending the Bush-era tax cuts is resolved and an extension of current government funding is approved.
All 42 Senate Republicans signed a letter to Senate Majority Leader Harry Reid, D-Nevada, vowing to prevent a vote on "any legislative item until the Senate has acted to fund the government and we have prevented the tax increase that is currently awaiting all American taxpayers."
If you’re wondering about the 42 Republicans, don’t forget Mark Kirk was sworn in yesterday as the new junior Senator from Illinois.
So there’s some solidarity that Democrats have to address if they want to pass anything else this session because with 42 automatically saying no, there’s nothing going to cloture and a vote.
Democrats are trying to pass several pieces of legislation before a more Republican Congress is sworn in in January, including the START nuclear arms treaty with Russia, a repeal of the ban on gays and lesbians serving openly in the military, and the so-called DREAM Act, which would create a path to citizenship for young illegal immigrants.
Naturally, Mr. Reid isn’t happy:
Reid blasted the GOP letter on the Senate floor Wednesday morning, calling it part of a "cynical" and transparent" Republican strategy to "obstruct" and "delay" legislative progress while blaming the Democrats for failing to effectively govern.
I thought “transparent” was good? Heh … is this anymore cynical than trying to push through all the garbage on the Dem agenda while they have their last shot when the American people have said “jobs and the economy?” Yeah, I didn’t think so either.
And for once, Reid is at least partially right – this is a tactic to obstruct the majority party’s intention to do as it wishes without having to contend with the minority’s desires. That, as I’ve observed over the last few decades, is how minority parties have acted on both sides of the aisle in Senatorial politics. I get a little tired of both sides complaining about it. That’s the reality of the rules the yahoos making the complaints agreed upon (and used – Harry Reid was the minority leader once as well, and was very complimentary of the Senate’s tradition of protecting the rights of the minority party to have a say).
Anyway, the gauntlet is thrown. Other than whine, it’s going to be interesting to see how Reid, et al, react to this. Time is running out rather swiftly.
CNN has a story about a bike store owner who has retrenched and is weathering the recession. Contained in the story is the kernel of the economics of the problem we face and how the administration still doesn’t get it.
Both then and now, D’Amour said the chief problem for small business owners is access to financing. And lawmakers want small businesses to know this complaint is reaching Washington.
President Obama urged Congress last week to move forward on a bill designed to help small businesses, including a $30 billion lending fund to loosen credit lines and $12 billion in tax breaks.
That will help but it won’t solve the problem, said Anne Mathias, director of policy research at Concept Captial.
"It’s not going to bring a rush of people into stores to buy whatever it is these different small businesses have to offer, but it will help," she said. "It’ll help kind of at the back end."
Republicans say the bill won’t have much effect and are urging the president to extend the Bush administration’s tax cuts.
Todd McCracken, the president of the National Small Business Association disagrees.
"Putting money in the pockets of both consumers and small business people so they can take advantage of the opportunities when they come along is crucial," McCracken said Sunday morning on State of the Union with Candy Crowley.
Access to financing, although important, isn’t the base problem. Consumption is – or the lack thereof. Additionally, payroll taxes will be going up for everyone in January (a little known part of allowing the Bush tax cuts to expire).
Question: if you are charged – both short term and long term – with getting the economy moving by implementing policies/laws at a national level, how would you go about it?
Well, in the short term you can provide businesses with all the financing in the world, but unless consumption steps up, it doesn’t do anything useful. Until buyers are buying, businesses won’t be hiring.
So what’s the best way to quickly boost consumption? Obviously it is to put more money in the hands of consumers. And one such way to do that is to cut payroll taxes, or, as has been suggested, have a payroll tax holiday.
That, of course, has been rejected by the Obama administration which feels it would “cost” the government to much money. They’d rather government “cost” the consumer too much money and the consumer stay home as a result one supposes.
Instead, the administration is proposing a $100 billion “research and development” credit for businesses. A couple of observations – that’s not a short term fix and not all businesses engage in R&D.
The point, of course, is the administration is more concerned about the government revenue stream than the economy and it is, as John McCain has said, just “flailing around”. It is much more concerned with the “cost” incurred by government necessary to actually have some impact on the economy than it is the “cost” it will impose on the tax payer for it’s future multi-year deficit fueled budgets.
It refuses the other side of tax cuts – spending cuts. Instead, it simply intends to shift the burden of its profligacy to you. And these tax cuts are for show only – a way of claiming to do what the GOP wants without really doing much of anything. When this tiny and piece meal approach fails to get the dead weight of the economy moving, the left will claim to have tried the right’s prescription and that tax cuts didn’t work.
Anyway, the administration plans to “pay” for this tax credit (oh, so now PAYGO is important) by increasing taxes through closing “tax loopholes” for multinational corporations and some energy companies. This, dear friends, is simply another much desired wolf from the liberal agenda in sheep’s clothing.
The National Tax Payer Union points out that those taxes being proposed as “closing loopholes” will actually make our domestic oil and gas business uncompetitive. It will, for instance, tax all the revenue Chevron earns (both here and overseas) because Chevron is an American based company but won’t do the same to BP (or Venezuela or China) because BP isn’t an American based company. Unilateral nonsense like that will put Chevron in an unenviable competitive situation.
Make sense? Especially in times of recession? Can anyone guess what a Chevron may decide to do (hello Toronto, any office space to lease up there?). And, of course, the taxes in question will be passed along to the hard pressed consumer with increased prices. That’ll spur increased consumption, won’t it?
The rest of the proposed economic package is the usual failed stuff – increased infrastructure spending. The only laudable portion of the package is the proposed extension of the middle class portion of the Bush tax cuts. But again – that doesn’t put more cash in the pockets of consumers, it simply maintains the status quo.
But the “rich” – tough noogies. You may have seen administration flunkies out pushing the canard that the tax will only effect 3% of the small businesses out there. The Wall Street Journal blows that bit of spin out of the water – first by explaining the smoke and mirrors the administration used to produce that number and then pointing out what the number really is:
According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007.
So, the proposal by the administration to get the economy moving is maintain the status quo taxes on the middle class (no immediate impact), provide a limited benefit (at best a long term impact) cut to some business in the area of research and development, more infrastructure spending (long term because of the government project process), an increase in taxes on American oil and gas companies (immediate negative impact) and an increase in taxes for 48% of the small businesses in America (immediate negative impact).
If that’s not a bad tasting hash of ideas, I’m not sure what to call it. And yeah, you can bet your bottom dollar it will get the economy moving.
Excuse my sarcasm, but obviously this is “rocket science” to the administration, and they’re totally baffled by it. Someone, anyone, tell me why the GOP should support this?
I know, you’re going,” say what!? “
A year ago, probably when Obama thought we’d be out of the recessionary woods by now and only 20% of the “stimulus” had been spent, he was questioned while in Elkhart, IN, about the economics of a tax hike during a recession. The question was submitted by an Elkhart resident (Scott Ferguson) and asked by Chuck Todd of SNBC. Todd asked, “Explain how raising taxes on anyone during a deep recession is going to help with the economy.”
Obama said it wouldn’t:
“Well—first of all, he’s right. Normally you don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes. So I guess what I’d say to Scott is—his economics are right. You don’t raise taxes in a recession. We haven’t raised taxes in a recession.”
Absolutely true to that point. But the larger point is the admission – “you don’t raise taxes in a recession”.
Todd riposted with “But you might for health care. You might for the high—for some of the wealthiest.”
Obama responded very emphatically:
We have not proposed a tax hike for the wealthy that would take effect in the middle of a recession. Even the proposals that have come out of Congress—which by the way, were different from the proposals I put forward—still wouldn’t kick in until after the recession was over. So he’s absolutely right, the last thing you want to do is to raise taxes in the middle of a recession because that would just suck up—take more demand out of the economy and put businesses further in a hole.
Emphasis added, but wow – exactly. It is “the last thing you want to do” and it will “put businesses further in a hole”.
So that was then and this is now – everyone who is actually having to deal with what is going on know we’re still in a recession. But technically, we’ve had the “two consecutive quarters of growth” necessary to claim we’re in a recovery. The fact that the “growth” was pretty much all government spending – borrowed money – doesn’t count. The technical definition wins out.
That means he can, with a straight face, claim that letting those tax cuts expire is OK because we’re no longer in a recession.
Of course that’s just ludicrous to anyone who has two brain cells to rub together. It is unwise and economically the wrong thing to do. But, as Turbo Tax Timmy Geithner has decided, when asked about those expiring tax hikes, “The country can withstand that. The economy can withstand that. I think it’s good policy.”
Is it? Or is it good “ideology”?
Tax the rich – a liberal mantra for decades. Take the seed corn and pass it out to those who will eat it instead of plant it. Ensure that those of the investor class have less to invest. Put businesses in a deeper hole. Give the money to government which can obviously spend it more wisely than can the private side.
The $787 billion dollar “stimulus”?
Move along, citizen – nothing to see here.