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The Bush tax cuts need to expire to pay for Bush's spending

bushandbho.JPG

There's not much more to be said about Todd Henderson's financial situation. But one element of his complaint that hasn't gotten much attention is what he thinks he's being taxed for: "I would introduce [the president] to my family and our lifestyle," Henderson writes, "one he believes is capable of financing the vast expansion of government he is planning."

Henderson's taxes aren't financing the government Obama would like to build. They're financing the government America already has. George W. Bush passed his tax cuts without offering any offsetting spending cuts. It was apparent then, and is even more apparent now, that he'd brought federal revenue beneath the level of federal spending -- and then he increased spending, too. Nothing Obama has signed into law will add as much to the deficit as Medicare Part D, for instance. Or the two wars George W. Bush began. Or, for that matter, the tax cuts Bush passed.

As for Obama's "vast expansion of government," the question Henderson is actually posing is whether Obama has proposed initiatives that require a large increase in income taxes. Health-care reform does not use income-tax revenues, and it cuts the deficit. Cap-and-trade won't pass but would've cut the deficit by taxing energy. Only the stimulus funding and the war-spending authorizations have needed deficit dollars -- and not as many of them as Part D, or the wars, or the tax cuts.

The basic story here is that Henderson got a tax cut that the government could never actually afford, and it still can't. That situation predated Obama and has nothing to do with his agenda.

Photo credit: Saul Loeb/Getty.

By Ezra Klein  | September 20, 2010; 5:38 PM ET
Categories:  Taxes  
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Comments

We need to go back to pre-Reagan tax rates. The day the marginal rate became a free ride for the rich was the last day we build an airport, a dam, a freeway. http://www.truthandpolitics.org/top-rates.php

Posted by: TeriSzucs | September 20, 2010 6:03 PM | Report abuse

We need to go back to pre-Reagan tax rates. The day the marginal rate became a free ride for the rich was the last day we build an airport, a dam, a freeway. http://www.truthandpolitics.org/top-rates.php

Posted by: TeriSzucs | September 20, 2010 6:04 PM | Report abuse

So why doesn't Obama end the wars and repeal Medicare Part D?

And the Bush tax cuts expire this year. Obama extends them indefinitely and they're all his. The Obama Tax Cuts and The Obama Deficit and The Obama Debt.

Posted by: bgmma50 | September 20, 2010 6:12 PM | Report abuse

When you say that Medicare Part D around Bush's neck ad infinitum, you also need to include the revenue gains after the Bush tax cuts were scheduled to expire. :)

Posted by: bgmma50 | September 20, 2010 6:15 PM | Report abuse

Obama = Socialism!

Just because! Ok?

Posted by: mezcalero | September 20, 2010 6:32 PM | Report abuse

We are at a crossroads...pay for our deficits now, or grow the economy and pay later....


QUESTIONS!

1. Will an increase in taxes charged by the government to American corporations result in an increase in price on the goods and services they sell?

2. Will an increase in the cost of goods and services lead to a lower demand of goods and services sold by American corporations?

3. Will a lower demand for American goods and services result in higher unemployment?

4. Will middle class families pushed into poverty by perpetually high unemployment lead to more power for Obama, Pelosi, and all their Maoist Progressives.

Posted by: FastEddieO007 | September 20, 2010 6:51 PM | Report abuse

Well put Ezra. Too bad no one else frames the debate on tax policy and the deficit this clearly.

Posted by: saratogian | September 20, 2010 6:52 PM | Report abuse

Regarding some of the conservative comments here.
I find solice in my Econ 101 class:
- Economies do better when more money is spent more quickly purchasing goods and services.
- Conversely, Economies do worse when large amounts are accumulated in ANY part of the system.
- If those large accumulations of money is redistributed by ANY means, the Economy does better.

I await some reliable source to refute what I learned in Econ 101.
Please provide a link.

Posted by: gratis11 | September 20, 2010 7:42 PM | Report abuse

The Party of Personal Responsibility ran up these debts.

When is the Party of Personal Responsibility going to take... um... Personal Responsibility to pay back these debts?

Posted by: gratis11 | September 20, 2010 7:44 PM | Report abuse

Whuh? Huh! It's all that commu-nazi Barry Osama's fault! starve the beast!

*wipes away froth around mouth*

Posted by: will12 | September 20, 2010 7:45 PM | Report abuse

Economies do better when more money is spent more quickly purchasing goods and services.

AGREE.

The second a tax cut law is signed, businesses begin spending this extra money to hire more employees.....much much faster than this kind of wasteful spending:

"A half million dollars for new windows at the Mt. St. Helens visitors center in Amboy, Washington. The building has been closed since 2007 and there are no immediate plans to reopen it."

Among other waste:

--$6.9 million dollars for repairs to an 1846 brick fort marooned on Dry Tortuga at the end the Florida Keys. Few people can visit this remote national park unless they hire a seaplane or take a four-hour round-trip boat ride.

--Creating a museum in an abandoned train station in Glasboro, NJ, at the cost of $1.2 million.

--$2 million dollars to send researchers from the California Academy of Sciences to islands in the Indian Ocean to study exotic ants.

--A study of dog domestication at Cornell University with a price tag of $296-thousand dollars.

--$141-thousand dollars to send students from Montana State University to China to study dinosaur eggs.

--$762-thousand dollars to create interactive choreography programs at the University of North Carolina. Dancers would wear electronic monitors to analyze their movements.

--$89-thousand dollars to replace sidewalks in Boynton, Oklahoma that were just replaced five years ago. One of them goes nowhere near any houses or businesses and leads directly into a ditch.

As for political fraud:

Hillary Clinton pollster Mark Penn is looking at some pretty sweet numbers - namely $6 million in federal stimulus dollars awarded to two firms he controls.

The Hill newspaper reported Wednesday that $5.97 million from the $787 billion stimulus package helped preserve three jobs at Burson-Marsteller, the global PR firm headed by Penn.

http://www.nydailynews.com/news/politics/2009/12/09/2009-12-09_hillary_clinton_pollster_mark_penn_.html

"Federal records show that $5.97 million from the $787 billion stimulus helped preserve three jobs at Burson-Marsteller, the global public-relations and communications firm headed by Penn"

http://thehill.com/homenews/administration/71353-mark-penn-got-6-million-from-stimulus

Posted by: FastEddieO007 | September 20, 2010 7:55 PM | Report abuse

That depends.

If we are using the Bush standard that any deficit is unacceptable? Nope.

If we are using the Orszag standard that a deficit of 3% of GDP is 'sustainable'? Yep.

Shifting goalposts.

Posted by: krazen1211 | September 20, 2010 9:17 PM | Report abuse

"Health Care reform" as written does not decrease the deficit- it's new spending *and* new taxes that reduce the deficit. Why mince words?

Why not also admit that we tried stimulus with Bush, and it failed? It should make you happy because it was a Republican failure. We kept low interest rates, we cut taxes, and we increased government spending, but all we got was an asset bubble.

Why try that nonsense again? Just let ALL of the cuts expire, and then start trimming everything that's left.

Posted by: staticvars | September 20, 2010 10:33 PM | Report abuse

FastEddieO007: good questions, but I lost all respect for where you're coming from the second I saw the "Maoist Progressives" comment. Do you really see no difference between Democratic Socialism of European nations and Maoist China? How do you feel when people call conservatives like Bush fascists? Doesn't really add much to having an intellectual conversation.

Posted by: SnowleopardNZ | September 21, 2010 12:22 AM | Report abuse

It has never ceased to amaze me how Republicans can claim to be the party of fiscal responsibility. Reagan and W. both ran the deficit up - Clinton had to address Reagan's deficits, and now Obama is cleaning up W's economic mess. We should keep this in mind as we go to vote this November.

www.winningprogressive.org

Posted by: WinningProgressive | September 21, 2010 12:50 AM | Report abuse

Just a layman's opinion, but I think we need to change the capital gains tax rate back to simply income tax.

A CEO authorizes 1.5 million (Or however many zero's you feel comfortable with) dollars to pay stockholders $x/share. He (With apologies for the personalized pronoun) authorizes an equal amount to pay/set interest on bonds he intends to use to raise capital.

And at last he authorizes at last an equal amount to hire workers - 1 VP, 1000 Janitors, it does not matter.

On the face of it, he is expecting an equal return on each of these three investments - the workers, the stock, the bonds - if he expected a better investment in one or the other, he would adjust the spending accordingly.

But the Capital Gains tax undercuts the income tax on the specific rationale that these investment are inherently better for the economy. An obviously untrue rationalization since, obviously, if it *were* true our CEO would, as is his duty, prioritize the rewards of investing in his companies stocks and bonds.

As a layman, this makes not the slightest sense on any conceptual level - save the one where the rich make a large percentage of their income from capital gains.

That being the case, since the decoupling of capital gains has had no verifiable advantage to the economy, and the rationale makes no appreciable sense. and we need the money - recouple it. Make it once again simple income tax, taxed at the rate anyone working for a living would pay.

Jonnan West

Posted by: Jonnan | September 21, 2010 2:01 AM | Report abuse

"Reagan and W. both ran the deficit up - Clinton had to address Reagan's deficits, and now Obama is cleaning up W's economic mess. We should keep this in mind as we go to vote this November."

Nope. Under his own numbers, for the duration of his Presidency, the deficit is higher under Obama than Bush.

Posted by: krazen1211 | September 21, 2010 6:41 AM | Report abuse

OK. How are we gonna pay for President Obama's spending?

:: crickets ::

uhhh . . . anyone?

Posted by: mgyoung | September 21, 2010 6:50 AM | Report abuse

You misunderstood.

I was praising Obama & Pelosi as Maoist Progressives.

Mao Tse Tung is one of my favorite political philosopher and one who I follow most.

http://www.youtube.com/watch?v=Fi1zg2NOCn8

Posted by: FastEddieO007 | September 21, 2010 6:57 AM | Report abuse

What is it about irresponsible and even lunatic GOP politicians that ordinary Americans are willing to lie for them, or overlook their huge and many blunders, or avoid basic logic and recent history, or alas, vote for them?

When these sad GOP supporters read their own comments here, for example, does it occur to them how disconnected to reality they sound?

Posted by: Lomillialor | September 21, 2010 7:01 AM | Report abuse

jonann, capital gains are "decoupled" because the progressive income tax structure treats a gain over time as income in the year of disposition of the asset. Hold a rent house for fifteen years and when you sell it fifteen years of small gains untaxed at a lower rate would be cumulatively taxed at the top rate in the year of the sale, were it not for CG treatment.

However, CG rates should be higher for assets held for shorter terms, say 1-5 years, and should probably flat line at the current relatively low rate for assets held more than five years.

Posted by: mark_in_austin | September 21, 2010 7:37 AM | Report abuse

bgmma50 @ September 20, 2010 6:12 PM asked:

1. "So why doesn't Obama end the wars" - Because after 9 years (yes! we ave been at war for that long), there are strong vested interests in staying at war. It also takes just a fool (with a cheering throng of idiots) to go to war; it is difficult to end it.

2. "and repeal Medicare Part D" - An alternative is t find ways to finance it. Besides, if MediCare is touched, all those Tea Partiers will have a fit that the government is getting involved in their MediCare, won't they? Do you suppose that ANY of them will support it?

Posted by: AMviennaVA | September 21, 2010 7:58 AM | Report abuse

In a truly classy move, Prof Henderson deleted his post. Brad DeLong looked it up in the Google Cache http://tinyurl.com/36sua98

The link should be updated.

All I can say is that it's a good thing that Prof Henderson is an academic. If he practiced law, his total lack of courage and intellectual integrity would make him a menace to his clients.

Of course, when taking exams, his students will have to try to guess which parts of his lectures are, in Ron Ziegler's immortal words, "no longer operative."

From his income, I guess he has tenure, so there is nothing to be done. The Law School made a bad mistake, but hey, they hired Obama once so it's OK.

Posted by: rjw88 | September 21, 2010 9:14 AM | Report abuse

I was going to note that the link appeared to be bad as well.

One thing that I believe is overlooked about all the commentary about "fairness" with regard to Henderson is that he was making a point about the effects of the tax increases on consumption at his level of income. I.e. a lot of the commentary you read in support of the tax increases on the wealthy is that they won't have a significant effect on their consumption level and thus won't dampen demand at a time when the economy is still weak. Henderson is stating that, at least for him, this isn't true. You can either buy it or not.

With regard to "fairness", it's always going to be next to impossible to convince some group of people on one side of an arbitrary line (in this case $250k income per year) that they should pay more and others on the other side of the line shouldn't. The country would be better served if EVERYONE'S taxes were going up by some amount to help reduce the deficit. Yes, taxes on the upper incomes should go up more, but if these are truly national priorities that are being funded then everyone at all income levels should have to contribute something more.

Or to put it another way, if a government program can only be justified by raising someone else's taxes but not your own, then it's probably not worth doing.

Posted by: jnc4p | September 21, 2010 10:47 AM | Report abuse

Fast Eddie:

Nice chain mail talking points. My conservative aunt sent me the exact same one you cut and pasted up here.LOL

Posted by: nickthap | September 21, 2010 11:26 AM | Report abuse

One thing that bugs me about these tax cuts is, why didn't Bush (with his majority in both houses) makes these tax cuts permanent? I mean, if they're so danged important, why didn't Lord Bush make them permanent? And do you really think that having them expire in a mid-term year was an accident? Pretty astoungingly good politics

Posted by: nickthap | September 21, 2010 11:54 AM | Report abuse

nickthap - I take pride in the fact that your grandmother must've gotten that chain email by copying me directly from here, as this was where I WROTE it.

I also would like to offer my dissent to the idea of permanent tax cuts.

Our nation should adopt an automated policy that lowers taxes during a recession and raises them, i.e. next years tax rates will be set based up GDP growth; a drop in GDP growth triggers a proportional drop in tax rates and an increase in GDP growth triggers a proportional tax increase.

It is the prinicple of the negative feedback.

There is absolutely NO BETTER STIMULUS than providing money immediately & directly to private firms based on their contribution to GDP, as tax cuts do. The automated increase in tax rates would have a stabilizing effect that would mitigate the risk of economic bubbles.

Posted by: FastEddieO007 | September 21, 2010 12:23 PM | Report abuse

The biggest GEORGE SOROS LIE out there as repeated again and again by Obama is that

Bush tax cuts trigggered the economic meltdown.

OR

Failure to regulate capitalism triggered an economic meltdown.


BIG LIE BIG LIE BIG LIE.

The federal government forced USA's small banks to make bad home loans (under the Community Reinvestment Act) which were passed off to bigger banks where they contaminated USA's most valuable asset portfolios and THAT triggered a global economic meltdown

Posted by: FastEddieO007 | September 21, 2010 12:26 PM | Report abuse

Ezra, you need to talk to Jamie Galbraith again.

There is no need to "pay for" the Bush tax cuts. There is no necessary connection between the level of spending of currency issuing government and it's level of taxation. Taxes do not "finance" anything. Google Abba Lerner or "functional finance". Or simply peruse Warren Mosler's website at http://www.moslereconomics.com.

Jim Baird

Posted by: jlbaird3 | September 21, 2010 1:16 PM | Report abuse

Actually Fast Eddie, there are standard candles for the expected return on investment for economic stimulus - both theoretically and practically tested.

Not only are tax cuts not the 'Best' method of stimulus, they are very nearly the worst - the nature of them means that the majority of money received goes to people that, had they the impulse to spend money (And thus accelerate the money supply) would already be spending it prior to the cut.

Mark, although I am willing to grant that amortizing the tax over a number of years makes a degree of sense for those that keep and hold investments -

A) 'Long term' Capital gains starts at . . . 1 year, 1 day, at which point the tax rate effectively halves ( or more) compared to the income earned over a fiscal year.

B) In point of fact, having read a number of texts on the subject, you are the first to submit that as the underlying logic. I have an inherent distrust of even intuitively useful theories regarding a decision that have never been posited in any economics textbook I have acquired.

I am willing to grant some form of legitimate amortization, but as of this moment day 366 results in a tax advantage of 10%-20% (lowering to a 'mere' 5% to 19.6% advantage in 2011). Even given that every day past that reduces the advantage, it hardly seem rooted in the logic of 'evening' it out versus standard income tax.

Posted by: Jonnan | September 21, 2010 8:19 PM | Report abuse

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