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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

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Should the Bush Tax Cuts be Extended?

Uploaded: Aug 4, 2010
The country is stuggling to recover from a brutal recession while at the same time long term federal budget deficits are a serious threat to economic growth. The tax cuts adopted in the Bush administration are set to expire at the end of this year and Congress and residents are debating what to do.

I vote for letting the tax cuts expire. I don't mind extending them for a year if that lessens the partisan gridlock we are in but after that I would let most of the cuts expire and ask the President to acknowledge that all residents, not just higher income residents, need to share in addressing the deficit.

You all know the back and forth. The economy did better in the 1990s after tax rates rose than it did in this decade with lower rates, even before the recession hit. In theory lower tax rates should stimulate economic activity but evidence is scant that this has been a major factor in our economy and Alan Greenspan acknowledged on Meet the Press last week that tax cuts don't pay for themselves.

I am sure we can devise a better tax system in terms of incentives for economic growth but that is not the issue at hand. Continuing the tax cuts will blow a large hole in the deficit, which cannot be redcued enough by changes to Medicare and Social Security.

A week ago my day was brightened when I read the op-ed below from the Wall Street Journal by Pete Peterson who has dedicated his energy and a large amount of personal funds to highlight the seriousness of long-term federal deficits.

Last week he went beyond problems to solutions, which included reducing wasteful spending, getting Medicare and Social Security spending under better control AND an acknowledgement that economic growth, even with reduced spending, cannot get the deficit reduction we need. He tried to get beyond ideology and talking points to a political compromise solution.

What do you think? I include the article because I don't think the WSJ web link works for all.

By PETER G. PETERSON
Too many Americans are out of work. We need to address their hardships with targeted stimulus initiatives such as extending unemployment benefits, which are a very small part of our current deficit. But we cannot continue to ignore our gargantuan longer-term structural deficits. These deficits will soar even after our economy is strong again, and they are the real threat to America's future. We must combine short-term stimulus with a meaningful plan to tackle our long-term structural deficits that would go into effect after our economy has recovered sufficiently.

People fret about the current public debt rising to 60% of GDP, which many economists believe should be the maximum debt level. But they ignore Congressional Budget Office (CBO) projections that, under current policies, the public debt will reach a staggering 233% of GDP in 30 years and nearly 500% in 50 years.

This is an unthinkable and unsustainable path. In less than 50 years, for example, the CBO projects that interest payments on the national debt alone will represent nearly 20% of the entire U.S. economy and consume 100% of government revenues. This leaves not a penny for any government programs, including critically needed education, R&D and infrastructure. With plummeting savings rates, already 47% of the public debt is held by foreign nations. Borrowing trillions more from China, the Middle East and elsewhere will leave us more beholden to lenders whose interests may not align with our own. Given the growing concerns about the global debt crisis, we need to build confidence we are getting our fiscal house in order. This added confidence will help our recovery.

As the very lucky son of poor immigrants, I am also deeply concerned about preserving the social safety net for lower-income families. As we've seen in Greece, safety nets can be brutally shredded in times of fiscal crisis. If we act now, we can combine fiscal responsibility with social justice.

What specific reforms should be included in a long-term fiscal reform program? A plan will only inspire confidence and reach consensus if it confronts difficult issues that have been largely ignored. That means all options must be on the table. President Obama's bipartisan National Commission on Fiscal Responsibility and Reform can play a key role in the development of such a plan.

Some have tax aversion syndrome—they have never met a tax increase they didn't do everything in their power to block. While I believe that spending cuts must play a lead role in any solution to our long-term structural deficits, the sheer magnitude of the imbalances requires revenue increases.

Ideally, the country should raise as much government revenue as possible from a progressive consumption tax. Such a tax can be designed so that it won't overly burden lower-income families but will raise significant revenues and increase our savings rate.

However, given political realities, it is not likely that we could enact a progressive consumption tax that would raise sufficient revenues to meet our needs. Therefore, I would initiate such a tax in conjunction with a simplified income tax (that would have far fewer corporate and individual credits and deductions)—thereby allowing for lower individual and corporate income tax rates.

Finally, we should implement a carbon tax that would reduce our dependence on foreign oil and lending, while improving the environment.

On the spending side, the country needs to address outdated and bloated programs. Why do we spend more on defense than the next 14 countries combined? We should reinstall the tight budget controls that were used successfully in the 1990s, such as caps on discretionary spending and strict pay-as-you-go rules.

Still, the brute fact is that Social Security, Medicare and Medicaid are projected to account for 100% of CBO's projected long-term growth in spending (other than interest costs). With so many more elderly living much longer than ever, we have to ask: If all of us, including the relatively well off, are on the wagon, who is going to pull it? To meet these trillions of dollars of entitlement obligations, we would need to double federal taxes. Wouldn't that be generational theft?

In my view, any reforms to these vital programs should include reductions in benefits for better-off Americans, including options such as raising the payroll cap and making wage and price indexing of benefits more progressive. We should also gradually increase the retirement age for the able-bodied and index it to longevity.

The cost of health care is the most daunting and difficult challenge of our structural deficits. Medicare obligations, for example, are about five times the size of Social Security. To relieve the burden of health-care costs, we need to tackle the largely ignored systemic cost drivers, such as the fee-for-service payment system that encourages unnecessary and expensive procedures. Pilot programs made possible by the new health law can help determine reforms we should adopt and what effects they would have on costs and health outcomes.

There is no way we can simply grow out of the long-term fiscal crisis. The Government Accountability Office has projected that the economy would have to show double-digit growth in real terms for the next several decades. That's clearly impossible. We've run out of painless solutions, but to do nothing is to aid and abet a looming and most costly crisis.

Our short-term economic challenges are here and now, but our longer-term structural deficits can no longer be ignored. As an American Dreamer and a grandfather of nine, I believe that our nation can deal with both at the same time.

Mr. Peterson, secretary of commerce under President Richard Nixon and chairman of the Federal Reserve Bank of New York from 2000-2004, is chairman of the Peter G. Peterson Foundation.

Comments

Posted by Tea Party, a resident of ,
on Aug 4, 2010 at 2:37 pm

I thought the Republicans were for reducing the deficit. Cutting taxes without replacing the income will increase the deficit. A reasonable compromise is to keep the tax cuts for most Americans, but let the cuts for the ultra-rich expire (say people making more than a quarter million dollars/year).


Posted by John, a resident of ,
on Aug 4, 2010 at 5:26 pm

If we want to attack structural national debt, which as Peterson said, are unsustainable, then we need to make structural cuts. This must include social spending on Medicare and Social Security and Medicaid.

Increasing taxes on the so-called "rich" will probably lead to job losses and diminished investment. Even if it doesn't, taxing 100% of the income of the rich will make very little serious difference on the long-term debt.

The question for Stephen Levy is: Which social programs do you want to cut, by how much and starting when?


Posted by Walter_E_Wallis, a resident of ,
on Aug 4, 2010 at 5:48 pm

Walter_E_Wallis is a registered user.

Let's get to it. Tax all income at 100%, then have agencies allot an allowance to anyone who can demonstrate need.


Posted by chris, a resident of ,
on Aug 5, 2010 at 12:20 am

The taxes should be cut on the lower 98%.

At the same time, it should be made clear that Social Security and Medicare benefits will be cut gradually over time.


Posted by Nayeli, a resident of ,
on Aug 6, 2010 at 2:49 pm

Why are some people so quick in their desires to RAISE TAXES?

What is so difficult for people to understand that we need to CUT SPENDING during economic crises?

:-\


Posted by Walter_E_Wallis, a resident of ,
on Aug 7, 2010 at 3:19 am

Walter_E_Wallis is a registered user.

My son had a great idea. Rename them the Obama tax cuts and keep them.


Posted by Perspective, a resident of ,
on Aug 7, 2010 at 1:56 pm

Good idea!! Call them the Obama tax cuts, and everyone will love them!

What a silly debate. 3 times in our own USA history we have seen ...lower taxes, and the taxes come rolling in...raise them, and we kill tax "revenue".

JFK, Reagan and Bush all showed this to be true.

But, NOOOOOOO, we really simply can't grasp that the less we tax folks, the more they have left to hire others and to buy stuff...and TA DA!! More tax "revenue" rolls into the coffers.

I agree with Walter. Let's just get it over with..simply tax everyone who makes more than $75,000 per year at a 100% rate, and then see what happens. If those "raise the taxes" folks are right, that should fix this deficit once and for all.

Oh, is that too absurd? Ok, fine..everyone who makes more than $100,000 per year..Still too silly? Ok, exactly how "rich" is too rich and so, thus, we can simply take everything away?

Every socialist and communist country in the world has tried to make this "tax the rich" economic theory work. Why can't we learn? If we punish the "greedy" risk-taking, creative, hard working producers, and reward the "greedy" non-producers who want what the producers have produced, we get more dependents, and fewer producers.

Which puts us into a downward spiral ( witness now, for example.

But, hey! Go ahead! I am done crying for all the innocents who are suffering needlessly from this silliness, and enjoying watching the head scratching confusion by "academics" and "PhDs" over why none of these "progressive" ideas are working ( again!)








Posted by pat, a resident of ,
on Aug 7, 2010 at 9:43 pm

5 Top Social Security Myths:
Web Link

What happened to all the jobs?
Web Link

Decoupling corporate profits from jobs
Web Link

Jobless Recovery
Web Link


Posted by pat, a resident of ,
on Aug 7, 2010 at 10:10 pm

>The question for Stephen Levy is: Which social programs do you want to cut, by how much and starting when?

I'd say the question is when are we going to get out of Afghanistan? Web Link

> … we really simply can't grasp that the less we tax folks, the more they have left to hire others….

The less we tax businesses, the more they have left over to pay CEOs and expand overseas operations.


Posted by Walter_E_Wallis, a resident of ,
on Aug 8, 2010 at 2:37 am

Walter_E_Wallis is a registered user.

McGovern said that said that no family needed more than $15,000 a year, because anything beyond that was stolen from the public sector. Under that plan, I would have been able to quit work in August.


Posted by Perspective, a resident of ,
on Aug 8, 2010 at 6:47 am

Well, Obama and the leading Dems have had their cover blown open again. They have McGoverned the Party and turned it into the party of Marx (again..actually, never stopped, just went underground and in the shadows).

'From each according to his ability, to each according to his needs" Karl Marx

Smells so nice at first, until the rot sets in.

Web Link


Posted by Perspective, a resident of ,
on Aug 8, 2010 at 6:56 am

Pat, you honestly think that Moveon dot org is a VALID economic site, with credible opinions on Social Security solvency etc?


but, hey..believe what you will. Soros would LOVE for you to keep supporting policies that expand his wealth. ( just like Buffet loved the Dems bailing out his banks, and certain local internet search engine/electric motor car investors love Dems for their support also!)


Posted by pat, a resident of ,
on Aug 8, 2010 at 10:06 am

Perspective, MoveOn didn't make up the story. There's a long list of references at the bottom.

Whereas your source, Web Link is certainly very credible. Sample: Obama's Parents Met in a Russian Class, proving he's a Commie.


Posted by I was dreaming, a resident of ,
on Aug 8, 2010 at 11:03 am

I would like to see the headline:

Obama era government spending cuts to element thousands of government departments and several complete agencies.

Freedom beginning to return to America!

- whoops I was dreaming.


Posted by stephen levy, a resident of ,
on Aug 8, 2010 at 1:09 pm

stephen levy is a registered user.

I must have been dreaming also.

I thought in Palo Alto there would be serious people who wanted to add their voice to an "everyone to be part of the solution" conversation because the threat of growing federal deficits and debt was a serious problem we all faced together.

I quoted Pete Peterson because he recognized that we need attention to rising health care costs and the impact of baby boomer retirement on Medicare and Medicaid, attention to federal spending on defense and out of date non-defense programs and he also recognized that even with strong growth that taxes would have to increase.

I added that I thought higher taxes as needed should not be solely on higher income folks.

Here are recent thoughts on the Bush tax cut extensions by Alan Greenspan and David Stockman, not likely to be called Obama lovers or socialists.

Web Link

Web Link

But beyond the tax cut extension issue I was hoping that Palo Altans wanted to join a conversation about how all of us could participate together in the fiscal changes needed to hand a better situation to our children and grandchildren. The future deficit challenges are real.

Are there other voices out there who would like to join this important conversation. Though these are national policy choices, these decisions affect people in PA and our children.


Posted by John, a resident of ,
on Aug 8, 2010 at 1:18 pm

This year, Social Security took in less from paycheck deductions than it paid out in obligations to beneficiaries ( Web Link ). This is considered a major tipping point by those economists who track the SS fund. SS does have a reserve fund of about $2.2T, which is completely invested in US Treasury notes. However, these Treasury notes are not the same as cash, they are actually IOUs which pay low interest, and are as secure as the US Treasury. Since the US Treasury runs a perpetual debt, and must issue more IOUs to cover the debt, the SS "Trust Fund" is, in reality, a revolving debt account which is "paid" by increasing the US debt. To put it simply, the US Government has already spent the SS "Trust Fund", and the only way it can keep the fund solvent is to go further into debt. This debt will be monetized, leading to inflation, probably stagflation, like in the late 70s (when the SS was almost completely broke). Inflation is a more injurious tax on the poor than on the rich, thus the poor will be paying to maintain the SS system.

Social Security, in reality, is only as solvent as the money they get from paychecks, which must equal the amont paid out. We paased that point this year. It is time to restructure Social Security.


Posted by Paul Losch, a resident of ,
on Aug 8, 2010 at 2:43 pm

Paul Losch is a registered user.

I have been wondering for some time now if Keynesian fiscal theory or if Freidman monetarist theory fit with what is a rapidly restructuring global economy.

The tax cuts under GW Bush and the stimulative spending sponsored by Obama have done little or nothing to fix the employment problem. The economy may be growing again, but jobs are not coming back, but instead are either permanently eliminated or sent offshore.

Monetary policy has taken interest rates about as low as they can get, to little or no effect. Credit is still difficult to get for small businesses such as mine, and re-financing homes still is very problematic because of all the crazy packaging of mortgages that went on the last several years.

Something else, much bigger, is going on here.

IMHO, it has to do with how the economy is becoming increasingly globalized, and the fiscal and monetary tools that the US has used in the past are ineffective in dealing with the sort of economic conditions we face now and will face going forward.

Why? Because those fiscal and monetary tools do not work effectively in what is a newly structuring global economy, where the States is still an important player, but is no longer the only elephant in the room.

(Parenthetically, I find the GOP, which put the USG into serious deficits under GWB through tax cuts and war, after inheriting a budget in surplus, wants to both keep those tax cuts and also reduce the deficit. I am considered a pretty smart guy, and I don't know how that can get done. But it is easy to go on Sunday morning news shows and talk about it.)

We need some major thought leadership on how to get past country-centric fiscal and monetary policy, and figure out what the US economy and appropriate policies that attend it should be in light of the fact the world is becoming increasingly "flat."


Posted by John, a resident of ,
on Aug 8, 2010 at 4:15 pm

"I was hoping that Palo Altans wanted to join a conversation about how all of us could participate together in the fiscal changes needed to hand a better situation"

Stephen, I would appreciate it if you would simply answer my important question, which is fully related to your initial post:

"Which social programs do you want to cut, by how much and starting when?"

If you want a serious discussion, Stephen, then you need to be part of it, not above it.



Posted by Walter_E_Wallis, a resident of ,
on Aug 8, 2010 at 4:20 pm

Walter_E_Wallis is a registered user.

Eliminate the Department of Education, the Environmental Protection Agency, the Border Patrol, and the Department of Agriculture. An apocryphal story has a Dept of Ag sobbing bitterly. When asked why, he responded "My farmer died."


Posted by Perspective, a resident of ,
on Aug 8, 2010 at 5:04 pm

Pat, try reading the whole article..try to see a "pattern"..kind of hard, I know, but do you know the expression "if it looks like duck, sounds like a duck, and walks like a duck, it is probably a duck"?

the "meet in Russian class" thing was a little bit out there, I agree, but the rest is, in fact, even less than we have on him now. We can add to the list the majority of "Czars" he has appointed and what they are, and his many political actions and speeches. But, whatever..I will just keep watching us go down and try to keep myself above water the best I can.

Enjoy your ride,all of you who like what the Dems have done since Jan 2007


Posted by Perspective, a resident of ,
on Aug 8, 2010 at 5:16 pm

Paul..again,.the tax cuts of Bush led to the lowest unemployment rate of 4.5 %, and greatest amount of Tax Revenue to the Feds in history.

This, following the Clinton recession and the 9/11 shockwave to our country which sent us into a tailspin, but with a calm and steady hand and predictable responses that didn't capsize the ship, our economy roared back to life.

Compared to the inevitable and predictable economic destruction caused by a loose cannon POTUS and Dem controlled Congress, during a perfect storm time when we steered hard left and turned what should have been a single dip short term recession with 1/2 the impact into...this...

Ever growing taxation and government interference staring us in the face tends to dampen economic recoveries, to say the least.

It is time to go back to what works..every time..to recover our economy. I hope that the next time people aren't fooled, but I am old enough now, and have seen it happen nationally now twice in my own life..so I won't hold out much hope for our people to remember this and learn from it.

Some of you may not believe this is a "serious" discussion, but the rest of us do. We are fighting to give our kids the kind of American optimism and opportunity that we had, not the kind of entrenched stratification and mired joblessness of Europe.


Posted by Paul Losch, a resident of ,
on Aug 8, 2010 at 8:37 pm

Perspective,

I refuse to get into polemics with you about the policies during the GWB years. There plenty of talented economists who contend that the fiscal policies during his administration created little or no permanent benefits to the US employment picture. You don't have that point of view, and that is your prerogative.

You missed my larger point:

Fiscal and Monetary theories that worked for this country in a different era have become obsolete, and theories that make sense in a globalized economic model for the United States are needed.


Posted by stephen levy, a resident of ,
on Aug 9, 2010 at 2:54 pm

stephen levy is a registered user.

John,

I agree with Peterson's main areas for deficit reduction. The big spending items are Medicare and Medicaid, defense and Social Security. If we cannot get health care costs down through more cooridinated medical practice and more cost-effective treatment for chronic diseases through involving patients and families, then some kind of rationing will be necessry.

Social Security can be made whole by relatively minor adjustments to benefit levels (means tested), retirment ages or extending the tax base above $100,000. You mentioned Social Security restrcuturing--what were your specifics.

I would eliminate duplication and unwanted defense spending--see today's article by Secretary Gates.

Web Link

I would also trim agricultural and corporate subsidies while retaining a strong R&D tax incentives.

Even with these reductions in spending growth and a good economy, I agree with Peterson and the other conservatives I have cited that higher tax rates are part of the deficit reduction solution.

I think the backwards looking Obama versus Bush dialogue is generally not helpful but one fact is hard to overcome--22 million added jobs between 1992 and 2000 versus 5 million between 2000 and 2008.

I think the most forward looking approach is what Paul Losch suggested by rethinking what being in a global economy means to our theories about recessions and growth. In any event we need serious deficit reduction.

Probably the best middle course is to have one more year of active stimulus including, possibly, not letting the tax cuts lapse until 2012 combined with a strong effort after the deficit commission reports to get something started in 2011 before the 2012 election.


Posted by John, a resident of ,
on Aug 9, 2010 at 7:08 pm

Stephen,

That was a serious response to my question. Thank you.

Social Security reforms: I generally agree with your ideas ((means tested), retirement ages or extending the tax base above $100,000.). I am a little leary of means testing, not because the rich cannot afford it, but I, Like Claude Pepper (remember him?) am worried that SS might morph into a welfare system, or as importantly, seen as such. I would also replace your word "or" with "and". I would prefer to avoid increased SS tax rates, because it punishes the next generation and current businesses, and only acts to kick the can down the road. I, personallly, would rather defer my SS benefits if it means that such a move is part of an algorithm that actually keeps SS solvent, without reliance on the "Trust Fund" (which doesn't really exist - see my post, above).

Defense: I can only roll my eyes. I am pro defense, but I fully admit that DoD is a mess. The problem is that it is a political fat pig. Every political district in this country can/MUST bring home the bacon of DoD funds. Ever hear of the Moffett Field Hanger One issue? Big weapons systems are hugely expensive and (politically) dispersed, but they end up being necessary. Do you remember the huge debate about Abrams tank, Apache helicopter and B-2 bomber, etc? These are now considered essential armaments (unless you believe in world peace by singing songs). Also, DoD is always chasing a moving target...it might be al qaeda today, but N. Koreas tomorrow, or ...who knows? I don't believe that DoD can ever be made efficient. If you figure out a better way, please let us all know. I don't know.

Increased taxes: I think they work to increase federal funds if they occur during a period of significant growth, like the dot com era. However, I think they are suppressive of federal income during a down or neutral period. If you have evidence to the contrary, please provide.

While on the subject of taxes, are you aware of a serious optimization calculus that estimates the proper tax rate? For example, and making a simple case Reductio ad absurdum , a zero tax rate will bring in zero dollars; however a 100% tax rate will also bring in zero dollars, because nobody will bother working...what is the optimal rate, in your opinion?

Globalization: Yes, it exists. The question is how do we, and other nations, respond to it? Unlike you and Paul Losch, I am not confident that there is some neat answer, and more importantly, I am not sure that anybody can provide such an answer. I think we might be in for a long rocky period, including political instability and wars. As I think about what I just said, I suppose we will return to the rather usual set of world affairs...and this probably means that America needs to get more realistic.

Thank you again, Stephen. for a serious reply.


Posted by Perspective, a resident of ,
on Aug 10, 2010 at 8:05 am

Paul "refuse to get into polemics" ...what do you think all these posts are? What do you think you are engaging in?

You missed MY point..I have no interest in "theories"..I want what has worked historically, throughout all nations, including ours, and in each of our States.I don't want recycled failed theories put forth as now "ready" for new world time of globalization...

The very nature of democracies is globalization; we have been ever increasingly "global" since our inception, as democracies learned that interdependent, mutually beneficial economics benefit everyone..including stablizing peace. ( Please note that a democracy has never attacked another democracy)

To think that somehow this is a "new" age of globalization is putting on historical blinders. It is definitely speeding up, yes, but it is not mere polemics to point out that we know what has worked in the past, and can apply the same workable principles to now and the future. We know what happens with domestic taxes, tariffs, regulations, unions, etc in disagreements between countries, ever increasingly so as more and more countries enter freedom ..freedom to trade, to work, to create, to grow, and want to do business with us, and us with them.

Applying failed principles of the past as "new progressive theories" that somehow are NOW valid just brings more failures. As evidenced most recently by yet again believing the Keyensian assertion that"$1 of tax transfer to govt will bring about $1.50 of economic growth", which pushed the nearly $1,000,000,000,000 (de) Stimulus package onto our public debt.

This recycled failed theory was one of the principles asserted by the Job Impact of the American Recovery and Reinvestment Plan submitted by the now resigning Romer and Bernstein. See Appendix Web Link

To give this paper's authors some credit where credit is due, though..they ALSO clearly stated "...tax cuts and state relief can be implemented quickly, they are crucial
elements of any package aimed at easing economic distress quickly."

I have read and re-read the report, and it simply is at odds with itself on this one part. But everything else buys, wholecloth, into the idea that massive borrowing for "stimulus" will get us out of a recession, create jobs, blah blah blah..which simply amazes me. If that were true, why not simply borrow 10 Trillion instead of 1 Trillion, and really push us into the stratosphere for wealthy? Who could lose?

This is not mere "polemics", but an attempt to bring rational logic to "theories".

Which brings us back to raising taxes...taking money from producers to give to middlemen govt workers to distribute to non-producers is a bad idea.

BTW, did you know that govt has grown 25% in the last 20 months?Incredible. Where is the private sector growth "promised" by the report I linked to above? I guess private sector is voting "not present".






Posted by Perspective, a resident of ,
on Aug 10, 2010 at 8:26 am

Here is a link to a perfect example of what I am referring to..recycled bad ideas presented as necessary

Extended high unemployment benefits depress the ability of employers to find employees

Web Link

Well known, ancient really, basic human nature concept..reward a behavior, and it grows. We reward unemployment, so guess what? Why bother working? Results: "Some economists fear the U.S. could end up with a permanent caste of long-term unemployed, like those that weigh on government budgets in some European countries. "It is a very worrisome development," says Steven Davis, an economist at the University of Chicago's Booth School of Business. "It leads over a long period of time to social alienation as well as economic hardship."

There is a difference between a safety net and a noose... one we really have to re-learn and remember.


Posted by Perspective, a resident of ,
on Aug 10, 2010 at 10:15 am

What is your opinion why, with the Bush tax cuts currently in place and the huge amount of added fiscal stimulus spending since early last year, we have experienced only modest economic growth and virtually no job growth the last year and a half?


Posted by chris, a resident of ,
on Aug 10, 2010 at 11:20 am

Perspective,

The answwer is pretty straightforward. In the last decade, Americans grossly overconsumed beyond their means, adding excessive amounts of debt in the process.

Americans are in the process of cutting back on spending to increase saving, which they need to do to rebuild their balance sheets and prepare for joblessness and retirement in an uncertain economy.

In the current situation, the people with jobs are not willing to share the pain with the large number of unemployed, many through no fault of their own. They feel like the sacrifice of additional saving is enough.

The current Democratic and Republican policies will take years for the low growth and high unemployment to resolve themselves.
They are just treading water right now.


Posted by Paul Losch, a resident of ,
on Aug 10, 2010 at 4:02 pm

My most recent question I posed somehow got attached to Perspective. My apologies, P. It was not deliberate.

Chris provided a point of view, and I still welcome yours.


Posted by Perspective, a resident of ,
on Aug 10, 2010 at 5:03 pm

Why no growth even though the tax cuts are still in place?

An admin that cuts tax rates has certain economic literacy, and it was clear that there was no way this Admin was going to have it.

We knew election night that every bit of tax possible to raise, was going to be raised. Every centralizing of power and control possible to do, was going to happen. And we reacted accordingly, to protect and "hunker down" the best we could to survive this ...storm.

We have loose cannons being shot by a very powerful Admin, and we never know what is next. We only know that whatever comes out will have the aim of bypassing local decision making and bypassing individual choices. Today was another great example..26 billion dollars more of debt heaped on our kids' shoulders to bail out excessive pension plans of States' teachers. Excuse me..but I did not vote to have my kids bail out States with out of control pension plans. I did not vote to lose my ability to have any choice over our local teachers plans..or even through my State.

So, who is going to invest in anything or anybody other than themselves when those with money have no idea where the next cannon is going to land? Which rule will change next? Which business will be the "bad business" to be destroyed? Who would have thought Las Vegas would be excoriated, for example, and destroyed? Who would have thought obstructionism would rule to prevent fall-out from an Oil spill on our own citizens? Health "care" turns into a massive tax and loss of ability for States to choose what insurances to have in their States. Bank Credit is not loosened as promised, instead TARPED banks are really in the business of "bailing out" failing banks. Credit cards are being attacked, so credit card credit is drying up and we can't do our roll-over funding of our inventories. The Feds overule contract law with private execs,the Feds overule "first in line" investors w/bankruptcy law and put their buddies the Unions in front of the line (GM), the Feds continue the farce of bailing out home mortgages that shouldn't have been made in the first place ( big shock..ANOTHER set of billions of dollars being asked for by Fannie Mae.....again taking money from responsible folks to give to irresponsible ones), investors from overseas can't get their money past our IRS without huge penalties, and all we see is ever growing and completely unsustainable debt heaping on our kids and grandkids, if we don't collapse before hand.


All we see on the horizon, those of us with any desire to work and create and invent and invest, and have seen since BHOs election ( think back..why did the Dow plummet from the 9,000s to the 6,000s the month after BHO was elected?)...are loose cannons flying everywhere...all economic sense is gone. The knee jerk reaction of this Admin and the Krugmans of this nation is the usual and expected ones 1) increase taxes on those who earn anything 2) increase DC power over all else 3) take the money earned by those who are working and producing..and pass it to those who aren't, either in government "jobs", welfare, unemployment..the list is long.

Until the tide shifts again, and we see economic literacy return to this nation, those of us with any money are simply trying to ride this out.. for the most part, or maybe "investing" in whatever plan we can flip to profit off "government" money until the government spring dries up. ( there have been a couple very famous examples of this).

Until then, "We are Europe", where our current employment and business regulation status and national discussions are pretty much just like Europe's, much to my dismay.


Posted by Walter_E_Wallis, a resident of ,
on Aug 11, 2010 at 11:58 am

Walter_E_Wallis is a registered user.

"America over-consumed"?
Now comes the sponsor - the America is robbing the world, plundering all its resources gang. Bad America, atone.


Posted by Paul, a resident of ,
on Aug 11, 2010 at 10:05 pm

In 2001 Bush gave the Wall Street crowd a big tax cut. It was supposed to benefit all of us. Then, guess what, Bush had to bailout the W Street gang 7 years later, paid for by the taxpayers who didn't get the tax cut. That's us, people. I say it's time to make those clowns pay their fare. No more government subsidies for their party.


Posted by Perspective, a resident of ,
on Aug 12, 2010 at 6:07 am

I would almost think Paul Krugman was practicing absurd and extreme "polemics" in order to show how wrong the basis is for his economic theories, except that he is serious.

In his editorial yesterday, Web Link he actually posited that the Feds are not at all cash-strapped ( his words!) because they can post unlimited bonds.."And the federal government, which can sell inflation-protected long-term bonds at an interest rate of only 1.04 percent, isn't cash-strapped at all."

What???

Bonds are DEBT to whoever buys them!

By the same logic, Greece is not at all cash-strapped because it can sell bonds.

Of course, if one accepts his premise, then of course one can accept his conclusion, which is that the Feds (us) need to up the ante and keep bailing out States.( we would then have to default on our bonds in the future, since we wouldn't have the money to pay them, there would be an outcry, and the taxpayer, again, would have to "bail out" the bonds market, thus continuing the absurd eggshell bailout cycle)

No..I did not sign on to hijack my kids' future to bail out ANYBODY, not the least of which are the pensions of other States that couldn't manage their money better, let alone hijack their future to bail out my own State.

I, as a parent, want to hand my kids less debt than I inherited. I, as a middle aged person, have known for 30 years that I will have paid my "social security" for nothing more than a Ponzi scheme that will collapse by the time I have reached my age of "entitlement", and that the Medicare "Insurance" will have gone the way of "death panels" ( or "managed care" if you prefer) by the time I get to it.

I am willing to accept this..but I am NOT willing to keep making it even worse for MY KIDS!

Get back to sane and logical thinking! We can not spend our way out of debt!

This is what is driving anyone with money to withdraw into their shells and hang on for the ride. Krugman's "rationale" passes for political and economic "intelligentsia", and there are enough who don't understand economics well enough, and trust his "PhD" and Nobel Prize "titles" enough, that to them he seems like a "guru"...and this scares the heck out of us.




Posted by trex, a resident of ,
on Aug 12, 2010 at 4:47 pm

Bush Tax cuts were aimed squarley for the very rich. 2% of the citizens of this country own 70% of our wealth.

2 = 70% of wealth

That leaves 30% for the remaining 98% of the citizens.

98 = 30% of wealth

Which group should pay more in taxes. Even the cookie monster would get this one right.


Posted by John, a resident of ,
on Aug 12, 2010 at 9:09 pm

trex,

"Bush Tax cuts were aimed squarley for the very rich."

Please explain to us how lowering the capital gains rate only affects the very rich. I am not rich, by a long shot, but I do own stock in a mutual fund which has gone done by a lot. I also am part of a pension fund that is heavily invested in stocks and bonds. How does taxing my investments help me?


Posted by Perspective, a resident of ,
on Aug 13, 2010 at 4:59 am

1) Big picture: can't poke a hole in the front of the boat to "get" the rich people and not expect to sink along with them.

On the other hand, plugging that hole back up keeps you afloat also.

2) Bigger picture: Is it, or is it not, immoral to steal from others? If it is wrong to take what doesn't belong to you, it doesn't matter how "rich" the neighbor is...it is still theft.

First they come for anyone who makes more than you, then they come for you.




Posted by Perspective, a resident of ,
on Aug 13, 2010 at 6:46 am

So, do you want to pay more taxes to supplement the buying of 1-3 Million Dollar Condos in NYC? That is what is happening...have fun letting the "Bush tax cuts" expire, then have fun picking up the bill on THOSE defaults in a couple years.

Web Link


Posted by Paul, a resident of ,
on Aug 13, 2010 at 2:46 pm

"Get back to sane and logical thinking! We can not spend our way out of debt!"

The usual way out of debt is to pay it off. In 2000 Bill Clinton was paying down the national debt. Bush and the Repubs were horrified. They cut taxes for the top moneymakers. They immediately reboosted the debt by cutting taxes on the top moneymakers.

I think Perspective's idea to pay down the debt by repealing the Bush tax cuts is the right call.


Posted by John, a resident of ,
on Aug 13, 2010 at 3:11 pm

"In 2000 Bill Clinton was paying down the national debt."

That is true. However, Clinton was the benficiary of the dot com boom, and that is the time to raise taxes (to pay off debt). He did the right thing, but he did not cause the dot com boom, in fact his anti-trust suit against Microsoft is when the boom started to bust. He left that bust to GWB.


Posted by Perspective, a resident of ,
on Aug 13, 2010 at 6:05 pm

Remember... Congress controls the budget, and makes the laws, not the POTUS.

Dems and Clinton started us down the path that we are now on, but Clinton was smart enough to listen where the people wanted to him to lead, and declared the "Era of big govt is dead" after the Repubs took over Congress in 1994...leading us to a huge economic upswing.

Unfortunately for everyone, some of the Repubs lost their way, and joined Dems and Clinton in defunding the military ( which is where the "balancing" happpened), and still increasing spending.

Even more unfortunately, Dems controlled all the White House Cabinet and all new Fed Judgeship appointments ( having gotten rid of all Repubs), so we had that "wall" between the CIA and FBI go up, which made possible 9/11..and we had the expansion of the Community Reinvestment Act which was the root of our foreclosure mess lately.

As wiser minds than mine connected the dots on what was happening, we went into the Clinton recession, which I have learned tends to be a norm of the last 6 months of every 2 term POTUS..uncertainty leads to a small slump...

And, even more unfortunately for our economics, but thankfully for our security, once Bush took office, and declared the era of Compassionate Conservativism, we learned that this meant...bigger government, and more spending, whenever we got more tax "revenues". It seemed he and the ruling Repubs believed the point of an improving economy was to have more government money to spend, instead of spend down our debt.

So, we snowballed,..and now here we are!


Posted by Perspective, a resident of ,
on Aug 14, 2010 at 7:28 am

Why should we raise our taxes to pay for bailing out retirements of State Union members to the tune of the 26 BILLION dollars just passed this week in a "special session" to "save teachers, firefighters and police jobs" ( ha! Most of us know it was a bailout to pensions that were not and are not the taxpayers issue. More vote buying)

Web Link

Why should we raise our taxes to pay for "anchor babies", who are 8% of the over 4,000,000 babies born in the USA per year? That is about 350,000 babies per year born to women who are here illegally...What percent of these kids end up having their education, food, health care, housing and even imprisonment ( sadly) paid for by the taxpayers their whole lives? What percent of their mothers (and fathers) earn their childrens' place at the table by "doing jobs that Americans don't want"?

Web Link

These make up 60,000 babies per year in Texas alone. I can only assume that California's rate is higher, given how much friendlier Ca is to the "undocumented" than is Texas.

Web Link

These 2 examples, yet more politically favored group bailouts, and yet more spending of money on "future Democrat voters", are part of the whole pattern that most Americans are starting to see as part of the left-wing pattern. Take hard working, tax paying peoples' money in the name of "for the good of the people", then launder it through and give it to whomever the Dems favor.

This is why we don't want to raise taxes on anyone.


Posted by Perspective, a resident of ,
on Aug 15, 2010 at 7:00 pm

When even Yahoo News has a story like this, you know that the "word is getting out" about taxes and who pays them. Web Link

BTW, a link on WSJ to what would happen to even single people making $40,000 per year, let alone "the rich" if we let the tax cuts expire

Web Link

$400/year more if a single person makes $40,000/year.

$1600/year more if the same person makes $80,000/year.

$2200/year more if it is a married couple making $80,000/year ( wow...a huge marriage penalty!)

etc.

So much for the standard line about the "tax cuts for the rich"...

I would rather let all those folks keep their own money and save it or spend it, rather than give it to the government to squander.


Posted by Perspective, a resident of ,
on Aug 19, 2010 at 5:52 am

wow, it is worse than I thought.

In just six months, on January 1, 2011, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves. On January 1, 2011, here's what happens.


First Wave:
Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.
These will all expire on January 1, 2011.

Personal income tax rates will rise.
The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).
The lowest rate will rise from 10 to 15 percent.
All the rates in between will also rise.

Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
The 10% bracket rises to an expanded 15%

The 25% bracket rises to 28%

The 28% bracket rises to 31%

The 33% bracket rises to 36%

The 35% bracket rises to 39.6%

Higher taxes on marriage and family.
The "marriage penalty" (narrower tax brackets for married couples) will return from the first dollar of income.
The child tax credit will be cut in half from $1000 to $500 per child.
The standard deduction will no longer be doubled for married couples relative to the single level.
The dependent care and adoption tax credits will be cut.

The return of the Death Tax.
This year only, there is no death tax. (It's a quirk!) For those dying on or after January 1, 2011, there is a 55 percent
top death tax rate on estates over $1 million. A person leaving behind two homes, a business, a retirement account, could easily pass along a death tax bill to their loved ones. Think of the farmers who don't make much money, but their land, which they purchased years ago with after-tax dollars, is now worth a lot of money. Their children will have to sell the farm, which may be their livelihood, just to pay the estate tax if they don't have the cash sitting around to pay the tax. Think about your own family's assets. Maybe your family owns real estate, or a business that doesn't make much money, but the building and equipment are worth $1 million. Upon their death, you can inherit the $1 million business tax free, but if they own a home, stock, cash worth $500K on top of the $1 million business, then you will owe the government $275,000 cash! That's 55% of the value of the assets over $1 million! Do you have that kind of cash sitting around waiting to pay the estate tax?

These hit everyone in Palo Alto, of course. And most working or retired from working Americans across this nation.

Have fun next year doing your taxes.


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