Krugman How 30 years of Anti-Government Ideology Have Ruined Us

you continue to demonstrate that you have no clue what you are talking about. the fact that you think ron paul has anything to do w/ mainstream GOP politics shows that you dont know anything about the guy.

and the cato institute is no fan of ron paul. they sure didnt support him in 2008. but what does the cato institute have to do w/ anything? they dont represent "libertarianism". i dont pay attention to them. and you do realize that obama and most of our elected officials have direct ties to quite a few of these "think-tanks" as well.

ill ask again - what "ideologically conservative moneymen" support paul? and is there anything inherently wrong in being "ideologically conservative"? what about "ideologically liberal"? did "ideologically liberal moneymen" support obama? if so, was that bad?

 

The problems is not that we are taking in too little tax revenue the problems is we are spending way too much. Bush was spending money like a drunken sailor on a one day shore leave. So Obama comes in and just puts spending to a whole new level, a completely off the chart ridiculous level. Our government has to start spending less. We need to curtail spending in all areas especially the military and entitlements. We need to cut taxes not raise them. Cutting taxes stimulates the economy which in turn produces more tax revenues.

Check out this link to several quotes by JFK, a Democrat, on how lowering taxes increases the Federal tax revenues because it expands the economy. I know the tax rates were higher in his day however cutting taxes always stimulates the economy. We need to get this economy going which will help increase employment and incomes which in turn will increase tax revenues while at the same time decreasing the size of the Federal government and cutting government spending.

This country can not sustain trillion+ dollar deficits every year. The best thing that can happen to this country is for Republicans to take congress back in November which will cause political gridlock and curtail our ever expanding government. It will cause the two parties to meet in the middle to get anything done. When either party gets control they spend too much. The gridlock of the Clinton presidency helped our country to have budget surpluses. We desperately need that again!!!!

 

Not exactly. Our first income tax was not passed until October of 1913. To state that our progressive tax system has existed for our entire history would require us to totally ignore 1789 through 1913.

This is also a problem of degree. Our first income tax featured rates between 1% to 7%. Those making over $500,000 a year (in 1913) paid a marginal tax rate of 7%. In the subsequent 97 years, our smallest tax rate has increased by 1500% (from 1 to 15). Our maximum tax rate has increased by almost 600%. Not only that, under our first income tax, only 1% of the population paid any tax at all.

We need to look at why tax rates ballooned out of control. Why did the government "need" so much more money from people than it did earlier in the 20th century. My take is that, at some point, it became less about running the country and more about being all things to all people to ensure re-election.

Anybody, regardless of income level, working from January through April just to pay the tax man feels wrong.

 

I surrender to your superior grasp of history. It is not my strong point.

Programs that have a significant impact on our budget are the military, SS and Medicare. Everything else is a virtual drop in the bucket.

The idea that social welfare programs or genuine pork are responsible for the need to tax at the level we do is bunk.

 

i was with you up to here.

after the way republicans behaved for 8 years i dont know how anyone could ever support them in any way again. fortunately for them americans have very short term memories and they probably will take back congress.

nothing will change in this country until we stop voting for republicans and democrats.

 

Can you provide actual numbers that prove that decreasing taxes increases total tax revenue? I've heard before that this is not true, so quotes from a former president, regardless of his party, are not proof enough for me.

 

There are no numbers, because it's not true.

 

I would be with you were it not for one additional fact. SS and Medicare are deducted from paychecks in addition to income tax.

For instance, for a single person making $35,000 a year (based on 26 pay periods a year), their paychecks would look like this:

Gross Pay $1,458.33
Income Tax $171.82
SS $90.42
Medicare $21.15
NET PAY $1,174.94

19% of this paycheck goes to the Federal government. When doing the tax return, you do not count SS and Medicare as tax payments, only the Income Tax deduction counts.

Just for fun, here is the paycheck for a single person making $70,000 a year.

Gross Pay $2,916.67
Income Tax $533.95
SS $180.83
Medicare $42.29
NET PAY $2,159.60

While somebody making $70,000 is very comfortable (at least in Texas), they are far from being amongst the rich. Nonetheless, 35% of their paycheck goes to the Federal government.

Since Social Security and Medicare are collected completely separately from the income tax, why is it that income taxes have risen so starkly as a percentage of income from what it was less than a century ago?

 

The Historical Lessons of Lower Tax Rates
Published on August 13, 2003 by Daniel Mitchell, Ph.D. WebMemo #327

There is a distinct pattern throughout American history: When tax rates are reduced, the economy's growth rate improves and living standards increase. Good tax policy has a number of interesting side effects. For instance, history tells us that tax revenues grow and "rich" taxpayers pay more tax when marginal tax rates are slashed. This means lower income citizens bear a lower share of the tax burden - a consequence that should lead class-warfare politicians to support lower tax rates.

Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues. In other words, when politicians attempt to "soak the rich," the rest of us take a bath. Examining the three major United States episodes of tax rate reductions can prove useful lessons.

1) Lower tax rates do not mean less tax revenue.

The tax cuts of the 1920s
Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

According to then-Treasury Secretary Andrew Mellon:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.

The Kennedy tax cuts
President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

According to President John F. Kennedy:

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

The Reagan tax cuts
Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

According to then-U.S. Representative Jack Kemp (R-NY), one of the chief architects of the Reagan tax cuts:

At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more. There are, after all, two rates that yield the same amount of revenue: high tax rates on low production, or low rates on high production.

2) The rich pay more when incentives to hide income are reduced.

The tax cuts of the 1920s
The share of the tax burden paid by the rich rose dramatically as tax rates were reduced. The share of the tax burden borne by the rich (those making $50,000 and up in those days) climbed from 44.2 percent in 1921 to 78.4 percent in 1928.

The Kennedy tax cuts
Just as happened in the 1920s, the share of the income tax burden borne by the rich increased following the tax cuts. Tax collections from those making over $50,000 per year climbed by 57 percent between 1963 and 1966, while tax collections from those earning below $50,000 rose 11 percent. As a result, the rich saw their portion of the income tax burden climb from 11.6 percent to 15.1 percent.

The Reagan tax cuts
The share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48.0 percent in 1981 to 57.2 percent in 1988. The top 1 percent saw their share of the income tax bill climb even more dramatically, from 17.6 percent in 1981 to 27.5 percent in 1988.

Harmful Spending & Complexity
Lower tax rates are important, but they are not the only critical issue. Both the level of government spending and where that money goes are very important. And even when looking only at tax policy, tax rates are just one piece of the puzzle. If certain types of income are subject to multiple layers of tax, as occurs in the current system, that problem cannot be solved by low rates. Similarly, a tax system with needless levels of complexity will impose heavy costs on the productive sector of the economy.

This WebMemo is excerpted from the author's, Daniel J. Mitchell's, Backgrounder, The Historical Lessons of Lower Tax Rates, published July 19, 1996. The original publication, found here, contains footnotes and numerous charts.
link

 

So you think raising taxes is good for the economy? We will see when Obama allows the Bush tax cuts to expire at the end of the year effectively raising taxes. This extremely pitiful economic recovery we are experiencing during Obama's "Recovery Summer" will fall by the wayside. I guess that will be Bushes fault too. I sincerely hope Obama's plans will be neutered after the November elections because he is driving us off of a cliff. Bush started the car and started excelorating toward the cliff, Obama took the wheel and floored it. If he does not let off of the accelerator of government growth and hit the brakes, this country will be doomed.

 

Taxes No Longer So Certain

Published: Friday, 13 Aug 2010 | 10:05 AM ET
By: Floyd Norris
The New York Times

Death may still be certain, but taxes have never been less so.

United States taxes may soar next year, or they may not. The estates of some very wealthy people who die this year may save hundreds of millions in taxes, but those of merely wealthy people may leave their heirs in much worse shape than if the person had died last year. Or Congress could try to retroactively change that.

Taxes on corporate dividends are in line to soar next year, while those on long-term capital gains will rise, but less abruptly. Virtually everyone will pay higher income taxes if the law is not changed.

The current situation is absurd, a monument to George W. Bush’s determination to cut taxes by the maximum amount possible and to Congressional unwillingness to compromise either in 2001 or now.

Virtually no one, save for Alan Greenspan, a former chairman of the Federal Reserve, thinks it would be a good idea to let current law stand. Mr. Greenspan says he is worried about budget deficits, while other economists are worried about choking off growth.

It is possible that something will happen on Capitol Hill before the election, but it increasingly appears that if anything is to be done before tax rates rise — as the ball falls in Times Square at midnight on New Year’s Eve — it will be done in a postelection lame-duck session.

Even then, there is a potential for deadlock as Democrats, who are sure to control the White House next year, and Republicans, who hope for large gains in Congress, insist on their own solutions and argue that any failure to act is the fault of the other party.

“We’re in a big game of chicken now,” said Roberton Williams, a senior fellow at the Tax Policy Center in Washington.

There is already talk that all this could devastate financial markets and the economy, which has seemed to be slowing after a good start to the recovery earlier this year.

If it appears that nothing will be done in Washington, companies are likely to take matters into their own hands. With the tax rate on corporate dividends, now 15 percent, set to rise as high as 39.6 percent in 2011, some companies no doubt will accelerate planned 2011 dividend payments and make them before the end of 2010.

With the maximum rate on long-term capital gains set to rise to 20 percent, from 15 percent, the pressure to take capital gains this year rather than next may not be as large, but it will be present. That could lead to selling of stocks, bonds and even real estate on which investors have profits to realize.

Since the government is always willing to allow people to incur a tax liability, there are no restrictions on immediate reinvestment in the same security, as there are when a capital loss is realized. So if you want to take profits on shares that you wisely bought early last year, you can do so and then immediately repurchase the shares.

If enough companies and investors do such things, government tax revenue will be unexpectedly high for 2010, and then suffer the following year.

It seems obvious to say that higher taxes discourage economic growth and hurt investments, and that lower taxes do the opposite, but it is not as simple as that, as James Grant noted in the current issue of Grant’s Interest Rate Observer. He pointed out that taxes were raised in mid-1932 — with the top marginal tax rate rising to 63 percent, from 25 percent — on the theory that lower government deficits would increase confidence. By then the stock market, and the economy, were near their Depression lows. It was a great time to invest, if anyone had any money left.

Similarly, Republicans forecast disaster when the Democratic Congress and President Bill Clinton raised taxes in 1993, and forecast rising prosperity when taxes were cut in 2001. Both forecasts were wrong.

From the end of 1993 through the end of 2000, the American economy grew at a compound annual rate of 3.9 percent. Since then, the average rate has been 1.6 percent. The Standard & Poor’s 500-stock index rose at a compound rate of 13.1 percent a year during the first period, assuming reinvestment of dividends. Since then investors have not even broken even. Of course, there is no way to know what would have happened had tax laws not changed in those years.

It was the 2001 and 2003 tax cuts that produced the current absurd situation. But it is no credit to the Democrats that they did nothing to fix the system — and reduce uncertainty — in the last two years when they held the White House and had majorities in both the House and Senate.

In 2001, the law as passed called for income taxes to rise to their pre-2001 levels at the end of 2010. The estate tax would be phased out, and end entirely in 2010. After that, it would bounce back to 2000 rates and rules.

That was not done because anyone thought it would be good tax policy to raise rates in 2011. Instead, under an obscure Senate rule, it was possible to pass such a bill with fewer votes than would be required for a permanent cut. In addition, the 10-year math used in budget calculations looked better if it could be assumed that tax rates would rise in 2011.

Such arithmetic alchemy was not really needed then. Democrats were not determined to block any tax cut, and enough votes to meet the Senate rule could have been found with a permanent tax cut that was smaller, but not necessarily a lot smaller, than the one that was adopted.

But Republicans were in no mood to compromise that much if they did not have to, and Mr. Greenspan’s statements at the time were typically Delphic but seemed to support the cuts.

Budget forecasts at the time were for surpluses, even with lower taxes. It turned out those predictions were based on bad assumptions about tax receipts, in part because of a lack of understanding about the extent to which the 1990s stock market boom had inflated tax revenue. Spending forecasts did not assume that two long wars were about to be fought.

Now forecasts are for huge deficits. Those forecasts could be similarly wrong if the economy is able to return to stronger growth. The chances of that happening do not, however, seem to be increased by raising everybody’s taxes just now.

“We’re in a big game of chicken now.” Roberton WilliamsTax Policy Center

When the Bush tax laws were passed, there were jokes about the “Dr. Kevorkian provision,” named for a doctor then notorious for assisting patients in committing suicide. The idea was that as the final days of 2010 approached, the children and grandchildren of superwealthy people would be encouraging them to go quickly to save on taxes.

Those were jokes then. Even a year ago, few thought Congress would fail to act long before now.

In 2009, there was estate tax only on estates over $3.5 million. And that figure covered the value of estates after deducting bequests to spouses and charitable contributions. Next year, if current law holds, the exemption will fall to $1 million. Amounts over that, not including the charitable contributions and spousal bequests, will be taxed at rates up to 55 percent, compared to 45 percent in 2009.

Some still think Congress could retroactively change the estate tax law for 2010. If it did so, the action would certainly be challenged in court.

Repealing the estate tax was not good news for some estates of people who died in 2010. That is because the repeal also limited the step-up in tax basis for inherited property.

Until 2009, and next year as well if current law remains in effect, any property passed on to heirs gets a tax basis based on value at the time of death, not original cost. But this year, estates can step up value only on $1 million of assets that are left to someone other than a spouse.

The result is that heirs to estates with more than $1 million of taxable bequests, but not a lot more than $3.5 million, are likely to end up worse off this year than they would have if the person had died in 2009.

Getting the data on original cost will not be easy for some heirs. If your father died this year and left you 10,000 shares of I.B.M. stock, and those shares were not part of the $1 million in assets whose value was stepped up, then your tax basis is what he paid. Any sale by you will produce a large — and taxable — capital gain.

As to whether those shares are included in the $1 million, it is up to the estate executor to determine which assets are stepped-up in basis. That could lead to hard feelings, not to mention lawsuits, among heirs.

For the ordinary income tax, marginal tax rates now range from 10 to 35 percent. If nothing is done, they will revert to a range of 28 to 39.6 percent. The Tax Policy Center estimates that effective tax rates would rise for all income groups, with the largest increase on those with the highest incomes.

President Obama wants to return the estate tax to 2009 levels, and renew the tax cuts for all but the highest-income taxpayers. He wants to tax both dividends and long-term capital gains at 20 percent rates.

Most Congressional Republicans want to renew all the tax cuts, although some would be willing to reinstate estate taxes. There has been talk of extending income tax cuts for two or three years, setting up another potential battle then.

Congressional partisanship and hesitation to compromise across party lines seemed high in 2001. Now there is much less willingness to compromise. Logically, the parties should at least be able to pass the cuts — from planned 2011 levels — that virtually everyone agrees are wise.

But there is no guarantee that such logic will prevail.

http://www.cnbc.com/id/38690708

This piece from the New York Times is disturbing. If the bolded part is true, it would cause Obama's campaign promise of no increase in taxes on those making less than $250,000 a total lie.

 

For comparison's sake, here's how the Dem and Repub positions stack up by the numbers...



And how can people say Obama would raise taxes if neither plan is passed is beyond me. This was a Republican construct built specifically because they couldn't pass such ridiculous tax breaks legitimately. If this thing falls through, it's a Republican "tax hike" more than anything since they were the ones that set it up.

 

You've repeated this statement at least 5 or 6 times on this board calling Obama a potential liar. Do you actually believe it? When the Dems propose to extend tax cuts for the under $250,000 people, do you think Republicans are going to filibuster it? That's the only way it doesn't pass. And if the GOP filibusters a Dem tax cut, does that make it a lie by Obama?

 

I honestly believe that Obama will let the tax cuts pass without amendment. If that comes to pass, everybody will have taxes go up. That will make Obama's campaign promise ring hollow.

I thought it was utter crap when he said it. I believe it more now. There is no way to support the increased spending without more tax revenue from all sources.

This is how I think it will play out. The Dems will propose it. Repubs will oppose certain aspects of the plan. Dems will give lip service about being tough on it. Nothing will get done and both sides will point the finger at the other.

 

Fair enough - if that occurs where Obama doesn't really push it, I agree with you. But everyone on the Dem side from the White House to the House to the Senate has fairly forcefully stated (within the past several months) that they intend to extend the tax cuts. The only issue that has really been up for debate is whether to extend them on the top marginal rates. It's not as though it was just a campaign talking point that they've avoided since getting elected.

Outside of the stimulus, which ends next year anyway, there hasn't really been any significant new spending that hasn't been paid for in other ways through pay-go. Most of the deficit problem is a combination of the temporary stimulus, a huge drop in revenues, and continuing growth in entitlements. However, I think the tax cut either has to be temporary again (10 yr max) or go through pay-go - I'm not positive on that, but I think that's why it was made temporary in the first place. No one wanted to find 2 trillion in cuts to pay for it in 2001 and this was a loophole to get around pay-go.

I think the Dems will force it to a vote no matter what. They would love nothing more than to force the GOP to try to filibuster a tax cut. Right or wrong, it makes for great campaign ads. I also can't see the GOP holding a filibuster together on this issue, even if they'd prefer to extend the tax cuts for everyone (and on estates/etc).

 

You're rockin' today. Of course the Repubs will oppose "certain aspects." They will oppose the changes in the last two brackets on the chart above. They want the big circles, Dems want the little circles. They are willing to scrap the whole thing if they don't get the big circles. Dems have no choice in the matter because if they pass the big circles, that's both bod policy and bad politics. Bad policy because it blows out the debt in perpetuity, and bad politics because if they cave to the Repubs and pass it, the Repubs will run on "See, the Dems are really big spenders... look at the increase in the deficit under the Obama admin."

And again, you cannot hang this on Obama since the Repubs structured this to go up at this time because they couldn't pass it honestly. It is wholly a Republican issue.

 

The problem is that both sides are wrong on this issue. My suspicion is that the largest reason why we need such large marginal tax rates has more to do with the seemingly limitless number of tax shelters and deductions. You repeal all of them and put in its stead a larger standard deduction and personal exemptions. Whatever is left gets taxed at a reasonable set of progressive rates.

Back on topic...the Dems have a majority in both houses. If they feel strongly about this issue and want to pass it, they need to muster the balls to take it to a vote. If the Repubs filibuster, then it is solely a Republican issue. If the Dems will not take it to a vote with a majority in both houses and a Dem President, then it has all been lip service and is not solely a Republican issue.

 

The House vote doesn't matter... the Dem version will pass and the Repub will not, so it can come before or after the Senate vote with little consequence. It will get clogged up in the Senate by Repubs as long as they think they can turn the rhetoric in their favor.

 

39% is large compared to what? It's certainly not large compared to the US historically or to other countries.

 

It's also not large compared to what we have now.