If tax cuts are so good for the economy, after all those humongous Bush tax cuts, we should be in the best economy this country has seen in quite awhile. We should all be rolling in money. But that’s not where we are. We’re in the worst recession since the Great Depression, and it came about while those tax cuts were/are in force.
We don’t have to wonder about the result of tax cuts, we can see it with our own eyes and experience it with our own anxiety. It’s clear in the unemployment numbers as well.
Tax cuts for the rich don’t work to stimulate the economy much at all. For every dollar of income tax cuts that mostly go to the rich, $1.02 is produced in the economy. That growth rate doesn’t even keep up with inflation. For every dollar of food stamps spent, $1.76 is produced in the economy. For every dollar of unemployment benefits, $1.25 is produced in the economy. Spending stimulates the economy.
Giving payroll tax cuts to working people stimulates the economy far more than income tax cuts to the rich. People who work for a living and get a payroll tax cut take home more money in their paychecks that they will spend quickly.
They will buy groceries, household items, personal items and clothing. They will pay rent or mortgage payments, pay bills, and make car payments. They will spend to repair their houses and cars. Small amounts will be saved for emergencies by some families, but many don’t even have enough saved for a set of tires, and are just one paycheck away from financial disaster.
The Bush tax structure also rewards the rich for not working, and punishes working people. The tax rate on capital gains is only 15%, where most of the rich get their income. The average tax rate on the average middle class working family is 25%. The only people who should receive a rate of 15% on capital gains are retirees who have an annual income at or below $75,000 per year.
Giving rich people tax cuts doesn’t cause them to spend more than they ordinarily would spend. They won’t hire more people than they need. If they own a corporation, its financial position doesn’t affect their individual wealth or income, unless they have an S-corporation. If they have an S-corp and it earns more than $250,000 per year, they need to change to a C-corp and separate their finances from the company’s. It’s not hard. Just call the business attorney and file the papers. Done.
Keeping the Bush tax cuts is a horrible idea. It will cost over $700 billion, put directly on the national debt, to continue those tax cuts for the rich. If we continue them for everyone, it will cost over $1 trillion.
I would rather have all the Bush tax cuts expire and have new tax cuts put in place that are paid for to help working people, like a payroll tax cut or holiday, or more put toward the earned income tax credit, than continue the Bush tax cuts.
income tax cuts, payroll tax cuts, stimulating the economy, tax cuts, tax cuts for the rich
October 13th, 2010 at 6:47 am
“Keeping the Bush tax cuts is a horrible idea. It will cost over $700 billion, put directly on the national debt, to continue those tax cuts for the rich. If we continue them for everyone, it will cost over $1 trillion.”
I have a few really wealthy friends. They are not spending more to help the economy. They act like they are poor.
And they can well afford a tax hike.
Corinne Edwards´s last [type] ..A WOMAN WITHOUT A MAN – My sister – and a barking dog
October 13th, 2010 at 9:57 am
Corinne,
My mom has a few very wealthy friends, too, and they complain they just don’t know how they’ll get by on the Clinton-era tax rates, when the economy was in its longest expansion in history ever (and when they got the richest they’ve ever been). When I’m in ear-shot when they complain, I tell them we live 4-5 years on what they net each year.
Once one is that wealthy, I can’t figure out what they spend their tons of money on, except travel. That does cost a lot, especially if they travel first class for long periods at a time. But there expenses are still much cheaper at home since the home is paid for and the cars are paid for. All they have to pay for is utilities, food, clothing, insurance, upkeep, and domestic help. I guess that gets expensive if you have a mansion and large estate.
Those who are self-insured for medical may have a lot of expenses, but they can buy affordable insurance now in high risk pools, so they should. An income of $250,000 per year more than covers that. My sister and brother-in-law make at least that much (two lucrative careers, no kids) and save a huge chunk of that on top of a mortgage, car payments and regular expenses of a working couple. They clean their own house but hire out the yard work and pool care. They also travel as much as their schedules allow to Europe, Australia, Asia, etc.
My sister says they have more than they know what to do with even with all that. I always tease her that she can throw some our way if she has no use for it. But, she used to be the one struggling and I was the one wondering what to do with all the money. It went in my savings account or retirement account, neither of which I have much of today.
I know one thing. I don’t want my son and his family saddled paying for rich people’s tax cuts 10-20 years from now.
October 29th, 2010 at 10:23 pm
As a Canadian, I can tell you that tax cuts would be nice because we just got hit with an extra tax in July and now are paying 13% on everything we buy including services.
Krizia
October 31st, 2010 at 5:45 am
Taxation under every form presents but a choice of evils. To do away with the inheritance tax – part of the Bush Tax Cuts – was a particularly evil choice.
Beat Schindler´s last [type] ..Protected- Guilty Pleasures
October 31st, 2010 at 3:43 pm
Taxes pay for services we all need. The fairest tax is a tax on spending. That could be graduated so that the more you spend the more you pay. Income tax is a negative incentive to produce. I agree we need to let the tax cuts expire. We need to tax behavior we want to discourage and leave alone things we want to flourish. We need to pay down the debt and put rules in place (both Bush’s and Clinton could have averted the current crisis but didn’t by allowing derivatives to be sold and not hiring enough inspectors to find and stop guys like Madof) Over all I agree with you.
Bruce´s last [type] ..Physician Assistant – is this the Right Path for You
October 31st, 2010 at 4:43 pm
A friend recently walked me through the history of tax rates in the US and what was so shocking is that, withouth fail, we were most prosperous as a country when our overall tax rate was at it highest! Our incomes grew as did our GNP. Don’t know why more people aren’t explaining this.
Great post.
WorkingforWonka´s last [type] ..Entrepreneur of the Weak – Richard Heene Pun Intended
November 1st, 2010 at 12:16 pm
I have found in the US a lot of people seem to vote just because that’s the party they support. Not because they have the right policies or ones they agree with. The other party’s ideas are automatically wrong just because they’re the other party and it’s therefore paralyzing to get anything done. Tax is a very decisive issue and I believe it would help if they ever explained what the tax hike/cut was for and why they would achieve x/y/z. However often it’s probably because it makes good headlines… Just my opinion!
Joel´s last [type] ..What’s In A Font
November 1st, 2010 at 4:44 pm
Joel,
These particular tax cuts were approved because there was a budget surplus at the end of the Clinton Administration. Bush and administration interpreted that to mean taxes were too high and the money must be given back to the people. Unfortunately, the most money went to the richest Americans, and these tax cuts became the greatest redistribution of wealth this country has ever seen–from the poor and middle class to the rich. It also wasn’t paid for, meaning it wasn’t accounted for in the budget, and it added directly to the U.S. national debt.
If the Bush tax cuts are renewed or become permanent, they and a few other budget items related to them will add nearly $4 trillion to the national debt very quickly.
I think fewer younger voters vote along party lines and that was borne out in the 2008 election. They are up on the issues and question the authority of older people, especially politicians. They are skeptical about nearly everything, and especially about a generation that doesn’t Twitter or that they can’t follow and learn about on facebook. Websites with talking points and no depth don’t cut it with younger, connected voters.
There is also no longer an option on most machines or on most paper ballots that allows the voter to just choose all Republicans or all Democrats. The vast majority of ballots require voters to choose an item in each election section. If they don’t pick one option, it will be recorded as no vote in that section. That helps a lot to make voters choose someone.
November 1st, 2010 at 5:16 pm
Exactly right, Wonka!
We were most prosperous when corporations had to pay U.S. taxes. Today, it doesn’t matter what the rates are. Many multi-national corporations pay no taxes each year. Exxon, GE, and ChevronTexaco didn’t pay a single penny in taxes in 2009. Exxon made a profit in excess of $40 billion in 2009 (not revenue, profit). Google paid 2%, which I’m sure they are furious about, because 2% of Google’s revenue after expenses is still a really huge number.
We were most prosperous when the company executives only made 5-15 times what their lowest-paid workers made. Today, company CEO’s make over 400 times what their lowest-paid workers earn. That’s what’s happened with excessive greed.
We were most prosperous when there were strong labor unions and good employee benefits, including health insurance. We were most prosperous when the minimum wage was a living wage. We were prosperous when the minimum wage went up with the cost of living. Until 2009, the minimum wage had not gone up since 1999. Today the minimum wage is $7.25/hr, $290/wk, or about $15,080/yr with paid vacation and sick time. If vacation and sick leave are not paid, employees can’t take off work without impacting their financial lives drastically. Most minimum wage jobs don’t offer benefits either.
American workers can’t afford to buy what their employers sell today. How is a company supposed to make a profit if its own employees can’t buy what it sells? I work part-time at Papa John’s delivering pizza to make ends meet while I grow my tutoring business and pay off some debt. I can’t afford to buy pizza from Papa John’s at the regular price. If we didn’t get a 50% or more employee discount, we would never have pizza.
Many Walmart employees can’t afford to shop at Walmart beyond basic food items. They wait for items to go on clearance and get the employee discount so they can buy things like clothing and shoes. Many qualify for food stamps, rent subsidies and child care subsidies, and they work full-time. A person working full-time should be able to live a decent basic life on what they make and today they can’t.
The Republicans used to be the party of jobs, fiscal responsibility, and protection of privacy (staying out of social issues). Today’s Republican party isn’t your parents’ Republican party. Now they are in the pockets of big business, Wall Street, and big insurance. Over the last 30 years Republicans get into office and spend money like a drunken frat boy. They no longer work for the people, and we the people had better realize it. We are already suffering from either not knowing it or not believing it.
November 1st, 2010 at 5:28 pm
Bruce,
I agree, this financial crisis actually started in the 1980′s when the Savings & Loans were deregulated. Then more banks and other financial institutions were deregulated, and new products along with them. Then at the end of the 90′s the final straw broke with the repeal of Glass-Steagall, and it took 10 years for the bottom to fall out of the wagon. We very nearly went back to 1929. Thankfully, the Obama administration followed Keynesian economics and began pulling us out of the ditch so we didn’t end up in 1933.
We’ll have to agree to disagree about what taxes are fair. I don’t think income taxes discourage anyone from earning as much money as they can, and taxes that only apply to spending fall heavily on the middle, working and poor classes because they have to spend nearly everything they make. I’m not willing to let the rich off the hook that easily. They don’t consume that much compared to what they earn. When you are privileged, you have a responsibility to help the rest of your country so you can remain privileged. As everyone besides the rich get poorer, the rich will eventually suffer far worse than if they paid more in taxes. Their wealth ultimately depends on a strong middle class being financially stable.
November 1st, 2010 at 5:32 pm
Beat,
Amen. The inheritance tax only applied to about 1% of estates in the U.S. and negatively affected a lot of tax revenue to states and the federal government.
The Bush tax cuts must end.
November 1st, 2010 at 5:43 pm
Krizia,
On top of our income tax structure and property taxes, we also pay sales taxes of varying rates on everything we buy, including services. The sales tax rate in my parish (county) is 9%. It’s 10% in Orleans Parish. There are separate taxes on utilities depending on where they come from (local, regional, national, international).
The only purchases that aren’t taxed are doctor and dentist visits, prescription drugs, and basic food items. Prepared foods (mixes, boxed meals you still have to cook) have a 3% tax and so do over-the-counter medicines. Ready-to-eat items are taxed at 9% (chips, soda, deli items, restaurant food, etc.).
The only things certain in life are death and taxes!
November 8th, 2010 at 1:06 pm
When it comes to taxes, I believe it is time to do taxes straight accross the board. that way there isn’t all the loop holes. Everyone is treated fairly. Let’s face it things are pretty much a mess. And when Joel talks about people voting for the party and not what they stand for he is right. You always need to look at the person and not the party affiliation.
When it comes to life and the certainty of it yes there is death and taxes, but before I go I am going to enjoy life and not let the taxes take that pleasure away from me. I can’t control the taxes, but i sure can control how I react to them.
Just my thoughts and opinion.
Debbie
November 11th, 2010 at 2:20 pm
Great thoughts, Debbie. Taxes will always be with us, so we might as well get them over with and enjoy the rest of life to the fullest.