Robert Reich: The people's tax cut.

While I agree it may be a problem that the gap between the rich and the poor is rising I don't think re-distribution of wealth is ever the answer. Also you will get even more free-loaders sitting on their asses and leaching off everyone else. Byebye USA, and byebye economy if we were ever to do something like that.

Besides the only thing that taxing the rich more will do is allow the govt to waste even more on their own agendas and pork barrel projects.

 

I think there have been a few proposals like this that have come out in the past few years. If I recall correctly Congressional Democrats pushed for a payroll tax cut ahead of the 2006 elections.

I would need to know some more though about how those taxes can be made up to say whether I support it. What are the implications of ratcheting up the payroll on the wealthiest Americans when most of their earnings don't come from pay but investment income?

 

Well, since no one else is presenting the other side, I will present some arguments against this. The idea makes for great politics, and probably good short term policy, but it's not good long term policy.

1. You can't cut payroll taxes for 100% of people under $20k and tack it on to about 3% of people above $250k+ and get the same revenues. The math simply doesn't work. This is in part a simple volume issue, and in part that many of your $250k+ earners don't generate their income from payroll. So this tax is not deficit neutral by any means and would exacerbate the Social Security problem.

2. The economy is not in crisis mode right now. It certainly feels that way, and employment is a total mess. But the reality is that the economy is growing, albeit very slowly. Doing stimulative things makes sense, but emergency policy does not. These types of tax changes, just like the Bush tax cuts, are silly because they are permanent changes - not short-term stimulative. You can't consistently lower taxes every time there is a recession and never raise them down the line. Similarly, you can't just push more of the tax burden on a small group and never even it out again. Eventually, this policy strategy fails. That's the beauty of traditional stimulus - it has a finite lifespan. Tax cuts don't - as we can see with the Bush ones, the end result is that most of them will be extended indefinitely, and the rest will be called a tax increase. Once you make this change, it can't be undone and that means you have one less policy tool during the next crisis.

3. The initial depression threat / economic collapse was mostly caused by the generally wealthy - banks taking excess risks, speculators buying up homes, etc. However, that really brought to the forefront excesses by everyone else as well - living on credit. We're currently in a massive process of deleveraging. There's simply no way around the simple fact that it takes time to go through that. It sucks, but that's the price we pay for years of excess. While the top line numbers aren't good - GDP, jobs, etc - the underlying fundamentals are rapidly improving. The amount of outstanding credit card debt is dropping rapidly. Family balance sheets are improving. People are living more within their means. These are all very good things and are prepping the economy for the next phase of expansion. While there is a temptation to short-circuit this process for short-term benefits, that actually will just delay this return to health. A similar example is the early 1980's where policy basically drove us into a very deep recession by raising rates, killing inflation, and getting the underlying fundamentals back on track. It sucked in the short term, but it contributed in large part to a generation-long expansion - probably more so than either the tax cuts or the deficit spending of that time period.

There's no doubt the suggested policy would put cash in the pockets of those who need it and improve things in the short term. It's probably also good for winning elections (though it's too late to help in 2010). But it will either encourage people to spend more and delay the real healing process or would basically be the rich paying off everyone else's credit cards, which strikes me as patently unfair and eliminates the most important lesson from this recession (spending within your means). I would argue letting this process play out - and I don't think we're talking about a truly long-term issue as the underlying fundramentals are improving *rapidly* - is the best thing for everyone - rich, middle class, and poor - in the long term. Trying to perpetuate the bubble economy is not helpful and will just lead to another collapse in the near future.

I'd rather use unemployment benefits and things like that as a short term solution to supporting the neediest families, which certainly need aid given that jobs simply aren't available right now - as opposed to long term tax changes that just eliminate a policy tool and delay the needed deleveraging of the economy.

 

I'm going to assume this is some sort of insult to me. I'd like to know where I've ever stated that I live on $20,000 or that I make $10,000? I'd also like to know where I begrudge government help on making that amount.

Giving a payroll tax break on the first $20,000 in wages would be great, if they eliminate the Earned Income Credit.

Some thoughts on the rest of the proposals:

1) The Obama plan to extend Bush Tax cuts for those of us making under $250,000 is ok, but not extending them at all is a mistake.

2) A large portion of richer people don't have to pay Social Security Tax on their income because a majority of income isn't from wages or self-employed earnings. With the stimulus bill, we have seen the first medicaid tax on unearned income. The same thing would have to be implemented for social security.

3) I think by re-implementing SS and an increase in income taxes on people making over $250,000 is too much at once(Especially considering the new tax increases already passed in the HCR bill). The increases would have to hit gradually.

4) The tax code and certain government programs need to be changed dramatically.

 

With all due respect, if you're post had a higher bull**** content, it would need an enema.

 

Good post Major and it addresses some of the concerns I have with this proposal.

 

Normally I wouldn't think letting the top rate go up a few percent is a big deal, but it is right now when combined with the 3.8% levy from healthcare reform. When someone is taking home less than 50 cents out of every dollar (probably not in Texas, but often the case for someone like a NY lawyer), the impact of a tax increase more than doubles. For instance a 5% increase may not sound like much, but if their total tax rate was already at 50%, it's reducing their marginal earnings by 10%. Reasonable people could differ on if the levy or a fed rate hike is too much, but I can't take someone seriously if they believe both are warranted simultaneously.

I can't agree with this. Social security is a retirement program, not a redistributive welfare program. I do agree that the tax burden it places on poors is too high. I'd handle this by

-requiring that ALL payroll taxes be itemized on checks so people can see the true cost. I believe the only reason these programs haven't been dismantled from public outrage is that half of the taxes are hidden.
-Allow everyone to opt out of paying SS taxes and receiving SS benefits should they desire

 

Suppose someone does - and most will because money that you get now always sounds better than money 40 years down the road - and then is broke and homeless when they are 65. What exactly happens?

As a society, do we just leave the person to be homeless and die? Give them social support / welfare?

 

Jesus dude, do you ever think before you post?

 

It has been proven by scrub Jr's administration that tax cuts r****d econimic growth---skyrocketing unemployment

after 8 years of permanent tax cut, scrub Jr brought the US economy to the brink of depression.

During this past 30 years, consistent robust econmic growth was most evident during the Reagan and Clinton administrations.

the common economic thread that binds them together is tax increase; Reagain did it twice and Clinton once.​

 

The bolded option. Trading liberty for comfort has a pernicious effect on society. I don't doubt that some will be worse off from making poor choices, but in aggregate there will be a net gain. Since it's pretty tough to craft legislation around the idea that some people are too dumb to think for themselves and need the govt to do it for them, whereas most are better off making their own choices, it's better to err on the side of freedom than on the side of tyranny.

 

All evidence is to the contrary. Pretty much everything shows that having a healthy, lively older populace has a major positive economic effect. Everything from lower health care costs to added demand to new services and new industries for businesses.

 

I've used this analogy a couple of times here, but your post reminded me of it again, and it applies to the current GOP's agenda, in my opinion. Get the Middle Class to buy into the belief that, by golly, they can get rich, too! It'll be easy! Nothing to it! The same bankrupt philosophy that applied to the Southern Whites that fought for slavery as much as they did for states rights. The fact that the overwhelming majority of White Southerners would never be able to afford to buy a slave (they were very expensive. look it up), much less care, feed, and house a slave made no difference. Those who simply fought for their state and its rights and didn't buy into slavery (and there would those who felt that way), I admire, just as I admire those few true conservative Republicans that inhabit this forum.

It is interesting to me that I know a far higher percentage of reasonable, intelligent, conservative Republicans "in real life" and outside of this forum, than the number, vanishingly small, who inhabit this place. Weird, isn't it?

 

Now this I agree with!

 

lol, what about the brainwashing billionaires who control environmental/liberal think tanks? Al Gore ring any bells? Don't kid yourself, EVERYBODY who is a billionaire has an agenda.

Good post by Major. Seeing things like consumer debt being paid off is a positive sign. The amount of deleveraging going on shouldn't be underestimated to our long term sustainable economic health-and that is keeping things from really speeding up. I forget where I read it but something like since the year 2000 to 2007 spending on vehicles went up 40% while wages increased overall like 5 %. Paying lots of interest on a depreciating asset=not smart money decision. Consumers were in a haze in the late 90's to mid 2000's with the false sense of how much money actually existed in the market place. Thanks Greenspan. Thanks Bush. Thanks Clinton. Thanks too-big to fail over leveraged later bailed out financial institutions.

Federal spending-particularly defense spending-needs to get under control more than talking about the expiring tax cuts.