Tuesday, December 04, 2012

The Fiscal Cliff: It's not a bug, it's a feature.

It might be too much to say that President Obama wants to go over the "fiscal cliff." It seems increasingly clear, however, that he wouldn't mind it much.

And the reason that he wouldn't mind is not so much that he sees it as a price to pay for some other desired policy. The "policy" that he seems to be insisting on - expiration of the Bush era tax cuts for those making over $250,000 and an equivalent amount of additional taxes on the same ground - yields modest deficit reduction and nothing for the additional spending that Obama wants. It is small ball.

When you appreciate that, the going over the fiscal cliff is not a cost of Obaman intransigency, it's a feature.

Here's why. It has been a long time since the Democrats - and many Republicans - had a vision of government restricted to the provision of a limited number of essential services and a social safety net. But the President has an aggressively ambitious view of what the state can do. It can reorder industries and engage in more substantial redistribution of income that it does today.
But you can't have that kind of state without substantial tax increases on the middle class. No European state does it. We can't either. As the President likes to say, "the math tends not to work."
The problem for the Democrats has been that they can't call for middle class tax increases. If they had, they would have lost the election. (This should be a sobering thought for those who believe there is a permanent Progressive majority.)

Thus comes the beauty part of the "fiscal cliff." The Democrats can help themselves to a substantial tax increase by doing nothing. To be sure, they'll have to live with sequestration for a while but it is heavily weighted toward defense and, if there is one thing that Congress has proven itself capable of doing, it is raising spending.


The "fiscal cliff" becomes a down payment on the Obama agenda.

Cross posted at Purple Wisconsin.

51 comments:

Anonymous said...

Please. Give me a freakin' break. The President has "an aggressively ambitious view of what the state can do," thinks it can "reorder industries," and wants to do substantially more redistribution of income than is done now? What are you talkin' about? Universal health care? A concept promoted by those statists Teddy Roosevelt, Harry Truman, and Dick Nixon? Or the use of a market-based model proposed by the Heritage Foundation and first implemented by Mitt Romney? Or are you referring to the bailout of the auto industry, begun by that statist George W. Bush with $17.4 billion of TARP money?

As for redistribution of income, you're saying a top marginal rate of 39.6% would be radically redistributivist? As opposed to the 91% and 92% top rates that prevailed in the Eisenhower administration? Or the 70-77% rates that prevailed in the Nixon administration? Or the rates between 38.6% and 69.125% that existed during all but the last year of the Reagan administration? Or, for Chrissake, the 56%-73% top rates imposed by that radical statist Warren Harding?

True, Reagan did ultimately -- for his last year in office -- lower top earned income tax rates to 28%. But that was then the top capital gains rate, too. Obama's talking about raising the top cap gains rate to 20%.

Let's get back in touch with the reality-based community here. Top marginal income tax rates are currently among the lowest they've ever been. We're spending more than we take in. That's OK, for the time being, because we're in recovery from a recession. Long term, we need to reduce the federal deficit.

The notion that Obama is some kind of radical statist is preposterous.

Anonymous said...

All those high marginal rates were severely offset by very large write offs. http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth.html
So, let' get back to reality. Obama wants to spend more and he believes that raising taxes will allow him to do it. The Fiscal Cliff is considered an opportunity for Democrats. That is all.

Dad29 said...

Anony 12:36 is correct: TR, Nixon, and Truman were Statists--as were GHWB and his son.

He gets history correct!

Shall we talk about the "minimum/living wage" proposal of $12.25/hour plus health and pension directed towards WallyWorld and BestBuy (which is already a walking BK?)

Shall we talk about killing the coal business in favor of spending $megabucks on unreliable, unproven, and extremely expensive 'wind & solar'?

Or yes, the ObozoCare takeover of 1/6th of the economy? Or the 'rule-by-EO and regs' problem?

Be serious. You come across as a Geithner clone.

Anonymous said...

Anony 1:51: You're right that deductions reduced the actual tax rates paid when nominal rates were much higher. But the effective tax burden on top earners was still much higher than it is today. In the late 1940's, the top .01% paid an effective tax rate of over 60%. They paid an effective tax rate of over 40% until 1985. The effective tax rates paid by the very richest dropped precipitously during the Reagan years, increased somewhat during the Clinton years, and are now, in the low 20%, as low as they have ever been in the postwar era. See Thomas L. Hungerford, "Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945," Congressional Research Service, Sept. 14, 2012, Figure 1, page 3.

Anonymous said...

Good old Dad29. OK, Truman, TR, Nixon, and the Bushes were statists. We'll take your word for it. What about Warren Gamaliel Harding? Was he also too "big government" for ya? Which era, exactly, do you want to go back to? The Pleistocene?

As for wind energy being unproven, haven't the Dutch been using windmills to generate power for at least as long as you've been alive? Or a few centuries more?

Anonymous said...

Wind has been in use to generate power since the Greek engineer Heron of Alexandria used a windwheel to power a machine in the first century A.D.

A newfangled contraption to Dad29, though.

jp said...

Anons;

Do you seriously think Dutch and Greek wind power is comparable to current energy sources?

George Mitchell said...

Yet another argument for why the GOP should cave and let Dems OK the Obama "plan." Make the tax cuts permanent for the 98% and let the country judge in 2014 and 2016 as to the state of the economy.

jp said...

Please see Milton Friedman: Why soaking the rich won't work.

http://www.youtube.com/watch?v=Wi-D24oCa10

jp said...

Please see Milton Friedman: Why soaking the rich won't work.

http://www.youtube.com/watch?v=Wi-D24oCa10

jp said...

I fear the “47 percent” will accept the Democrats reason for the resulting poor economy.

Dad29 said...

Do you seriously think Dutch and Greek wind power is comparable to current energy sources?

Your first mistake was to use the word "think" when addressing them.

"Reliable" means a bit more than anonywusses ever thought: it means pushing precisely 60 cps down the wires at all times.

As to the other bozos, I thought Madison did a fine job.

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Anonymous said...

George: Do you really, in your heart of hearts, believe that raising the highest marginal income tax rate on the top 2% of taxpayers from 35% to 39.6% is going to crater the economy? You really think so?

Your advice is sound, though. The GOP should cave. The economy's on the rebound, and it has been for almost as long as Obama's been president. It will continue to recover. Deservedly or not -- and to a certain extent economic cycles are caused by forces beyond any particular president's control -- Obama will get credit for it in 2014 and 2016.

And your party is going to lose again.

Anonymous said...

NON 10:28 AM

Please read

http://news.investors.com/ibd-editorials/120412-635722-press-admits-economy-stinks.htm

Anonymous said...

During and after World War II, we taxed ourselves to the hilt to pay for a war effort essential to our survival as a nation. George W. Bush started two wars, one in Iraq and one in Afghanistan. You can debate whether those wars were necessary or not, but we fought them, and they cost trillions, and will continue to cost us a lot (through, among other things, the cost of veterans' health care). Rather than raise tax rates to pay for those wars, Bush lowered tax rates, on the theory that lower taxes would produce more tax revenues. That theory didn't work. We've got just about the lowest tax rates since World War II, and they're not generating enough revenues to pay for federal government spending.

Paying low taxes is nice. But paying for the wars you fight is necessary. It is magical thinking to believe that lowering tax rates always produces more revenue. At some point, it doesn't. As long as our defense budget is larger than the next 13 largest defense budgets in the world, we can't be among the advanced industrial economies with the lowest tax revenues as a percent of GDP.

Anonymous said...

Larger than the next 13 largest defense budgets in the world, combined.

Anonymous said...

Gee Whiz, Maybe some anony can enlighten us as to how many economical KWH of electrical energy the Dutch generated with their proven wind technology.

Anonymous said...

Per Wikipedia, 2,221 MW of electrical energy is generated by wind in the Netherlands.

Dad29 said...

Woopdididdle.

Wisconsin consumed 17,000 MW in 2007.

Anonymous said...

Leave it to Dad29 to be shortsighted about alternative energy yet again in regards to our national survival.

Dad29 said...

Coal is long. Wind is fickle.

Feel free to go off the grid and install your own windmill.

Tom said...

Despite the 91% top tax rate at the time, the overall tax structure was LESS progressive back then than it is now.

http://online.wsj.com/article/SB10001424127887324705104578151601554982808.html?mod=googlenews_wsj#articleTabs=article

"In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%."

Low-income earners paid a lot more, too:

"In contrast, the share of taxes paid by the bottom two-thirds of taxpayers has fallen dramatically over the same period. In 1958, these Americans accounted for 41.3% of adjusted gross income and paid 29% of all federal taxes. By 2010, their share of adjusted gross income had fallen to 22.5%. But their share of taxes paid fell far more dramatically—to 6.7%"

Anonymous said...

Tom: The stats cited in the Wall Street Journal article don't show that the income tax structure in place in 1958 was less progressive than today. They do show that income is increasingly distributed unequally. Take a look at the ratio between the percentage of all AGI earned by the top 3% in 1958 -- 14.7% -- and the percentage of all taxes paid by the top 3%, 29.2%. It's just under 2 (29.4% is twice 14.7%.) If the same rates were in place, but the top 3% earned 27.2% of all AGI, they'd be paying 54% of all taxes, whereas today they're paying slightly less than that, 51%. So even this cherry-picked statistic doesn't support the point that the incidence of taxes today is less progressive than it was in 1958.

Moreover, the statistics cited by Hungerford, in the Congressional Research Service report cited above (ordered expunged by Republican fiat), show that the effective tax rates paid by the very wealthiest are indeed far less progressive than they were in the 1940's, the 1950's, the 1960's, the 1970's, the 1980's, and the 1990's. The top .01% paid over 60% -- of all income -- in the late '40's, and over 40% right up through the mid 1980's. This is not the marginal rate, this is the average effective tax rate paid. Today that number is in the low 20's (and with good accounting advice it's not hard for folks like Mitt Romney to pay 13.9%). As Warren Buffett and other civic-minded members of the top .01% point out, that's just wrong.

As far as the WSJ's point about the bottom two-third of taxpayers, it, of course, omits to point out that it's discussing federal income taxes, and not payroll taxes, or other taxes whose incidence is largely regressive. Payroll taxes are significantly higher than they were in the 1950's, as are (regressive) state sales taxes.

The very rich are paying significantly less, as a percentage of their income, in taxes than they were from the Truman years all the way up through the first half of the Reagan administration. And that's part of the reason why income and wealth inequality has dramatically increased since Ike was in the White House.

Dad29 said...

They do show that income is increasingly distributed unequally

There are two responses: 1) So What? and 2) Do you really think that you can make greed illegal?

If you respond positively to the second, you are in serious need of help.

As Warren Buffett and other civic-minded members of the top .01% point out, that's just wrong.

You agree with Buffet's MORAL judgment. Others do not, and can rationalize it, too.

Go back to my question #2 above.

There is a matter of property rights here. Under the moral law, property rights are not absolute. However, the moral law's teaching on the issue is that owners of wealth are to be charitable. Flagrantly charitable.

If they're not, they account to Someone who does not write tax laws.

Under the Constitution, however, property rights are virtually absolute; there are some exceptions, but those are generally dealing with land/buildings, not income.

When earning a large income becomes immoral--which is what Buffett suggests--then the only remaining question is "What is 'Large'"?

Do you really, really, want to go there?

Anonymous said...

"If they're not, they account to Someone who does not write tax laws."

That's IF those individuals believe in a God.

"When earning a large income becomes immoral--which is what Buffett suggests--then the only remaining question is "What is 'Large'"?"

That's rich, Dad29, when you constantly complain about the supposed machinations of the "crony capitalists".

Do you really want to go there?

Dad29 said...

CronyCap is wrong.

Earning a large income is NOT wrong in se.

Maybe you don't understand the verb "distinguish."

Anonymous said...

"CronyCap is wrong".

No such thing as "crony capitalism". It's straight up capitalism. The companies know how to find the loopholes and use their operatives, i.e. lobbyists, in the process. Perfectly legal.

Don't like it? Try to get legislation regulating their activities. Ooops, can't support that idea, it's against the "free market".

Dad29 said...

The companies know how to find the loopholes and use their operatives, i.e. lobbyists, in the process. Perfectly legal.

1) You begin with a flawed definition of the term.

More accurate: CC is using friendship to exclusively obtain Government business. This may be a straight "quid pro quo" (campaign funding for contracts) OR it may take the form of excluding competitors through contract specifications.

2) You--once again--confuse "legal" with "moral." Abortion is legal, but quintessentially immoral. Crony capitalism (you now have an operating definition) is morally wrong, but legal.

And I don't care WHICH party practices it, by the way.

Anonymous said...

"CC is using friendship to exclusively obtain Government business...(campaign funding for contracts) OR excluding competitors through contract specifications."

You just described two specific outcomes of capitalism that are unlawful and immoral. Congratulations. There are laws on the books to deal with the culprits. Regarding the "morality" part, I don't think the individuals involved give a damn.

Regarding this "friendship", it has and always will exist between business and government. Lobbyists are hired to look out for the company's well-being by getting the ear of government in some way, shape, or form that take advantage of the system.
Big deal if these grey areas are "immoral", they are legal, and that's what matters most to citizens.

So, the question that you continue to avoid, how do YOU propose to reduce its impact?

Anonymous said...

Dad29: You ask, "So What?," if income and wealth are increasingly distributed unequally. I'll tell you so what. Economic growth -- not to mention a host of other factors, including health, social cohesion, life expectancy, and crime rates -- is negatively impacted by income and wealth inequality, as economists like Joseph Stiglitz and Alan Blinder have pointed out.

And one of the exceptions to the Constitution's protection of property rights is the power to tax. We do not enjoy property rights free of our obligation to pay for government. To the contrary, the Constitution explicitly recognizes the power to tax, including, in the Sixteenth Amendment, the power to tax incomes from whatever source derived. In setting tax rates, Congress can and should consider the common good -- such things as economic growth, social cohesion, and the like -- as well as ability to pay.

That Someone who does not write tax laws also suggested that it would be harder for a rich man to enter the Kingdom of Heaven than for a camel to go through the eye of a needle. As for taxes, He said, render unto Caesar the things that are Caesar's.

Anonymous said...

Yesterday's (Sunday 12-9) Business section in the JS highlighted a great example of GOP hypocrisy on government spending and its role in the private sector.

The paper mill in Park Falls that could not attract private investment to stay alive gets assistance from the state. All those employees and residents in that area vote GOP yet love former Governor Doyle for providing the bailout.

As usual, the typical GOP'er thinks all government spending is wasted unless it's spent on them, and when it is, they're not on the dole, it was "earned".

Dad29 said...

You just described two specific outcomes of capitalism

Not "capitalism."

Human nature. Sin, in one word.

And you Anonymii should get your playbooks straight: either it is, or it is NOT "illegal."

But I was unclear about quid-pro-quo: I should have specified that nobody is fool enough to make that obvious.

Dad29 said...

Umnnhhh...Anony 7:01....

You have ward-by-ward voting results which you can show us?

jp said...

Anon 7:01

"the typical GOP'er thinks all government spending is wasted."

Most GOP'ers think most FEDERAL government spending is wasted and most government control and spending should be at the local level.

Mostly just sos ya know.

Anonymous said...

Anony--"You just described two specific outcomes of capitalism."

Dad29--Not "capitalism." Human nature. Sin, in one word.

Whoop de do. Sin. The question that you continue to dodge is "How do YOU propose to reduce the impact of "crony capitalism"?

Dad29--And you Anonymii should get your playbooks straight: either it is, or it is NOT "illegal."

Perhaps you should read more carefully. The anony's have been abundantly clear where they stand. "Friendships" established between lobbyists
and the government, which results in favorable legislation for an industry, is an inherent part of capitalism. You talk about "campaign funding for contracts" fits the definition of "crony capitalism". Haven't you heard? Corporations have First Amendment rights.


jp--"Most GOP'ers think most FEDERAL government spending is wasted and most government control and spending should be at the local level."

Since when???

Dad29 said...

is an inherent part of capitalism

That is by far the dumbest categorical error you've pixellated.

Graft, corruption, and CC are a factor of overweening Gummint, NOT "capitalism," dumbass.

The less powerful the Gummint, the less anyone cares what it does--because small Gummints can't throw off big money.

The Soviet Union and PRChina have (or had) plenty of graft/corruption issues. You would ascribe that to capitalism, too?

Anonymous said...

Answer the question, Dad29, "How do YOU propose to reduce the impact of "crony capitalism"?


"Graft, corruption, and CC are a factor of overweening Gummint, NOT "capitalism," dumbass."

So much for your Christian values.

You just stated that corruption was "human nature. Sin, in one word." So, which is it in your world, gummint or human nature?

For your benefit since you are slow, capitalism is defined as a social and economic system where assets are mainly owned and controlled by private persons. Gummint is the vehicle by which INDIVIDUALS AND GROUPS are motivated to ensure that their own financial interests will be cared for.
From a historical standpoint, left to their own designs, capitalists have proven incapable of preventing itself from engaging in exploitive actions because the system perpetuates itself.

The Soviet Union and China, like the United States, have had corruption because of the flaws in their economic systems, regardless of type.


"The less powerful the Gummint, the less anyone cares what it does--because small Gummints can't throw off big money."

Talk about idiotic. Go back to the late 1800's. Small gummint. Laissez-faire approach. The private sector generally existed only for profit at the expense of the public welfare. Capitalists were primarily responsible at that time for a litany of problems. Big money, i.e. the robber barons, was thrown at small gummint and nearly won. Try again!

Dad29 said...

Your confusion is so vast that it is no longer worth the time or effort.

Go your merry way.

Anonymous said...

Dad29, proving once again that he can't bring home the intellectual bacon when the chips are down. All he has is his "take my ball and go home" mentality.

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