Wednesday, December 8, 2010

Drama in High Places

President Obama, in attempting to curry favor with the Republican bloc, has made his own party just a tad angry. The President finally reached some sort of compromise with the Republicans on the issue of tax cuts. To give you the short story- they're being extended. Again. And economists are predicting we'll be $900 billion deeper into our deficit before they expire again.

Of course, the one thing everybody is forgetting is that, if we didn't have so much darn spending on our plate, to the tune of some 3,500 billion, we might not have to levy so many taxes. But since that logic is soooo fourth grade, we're not going to go that route. No siree. It's so much more fun to dig ourselves deeper into debt, but hey, at least we'll be happy while we do it! Sort of.

On another note, I thought I'd say something about the drama surrounding the Wikileaks fiasco.

Heh. I find it ridiculous, the furor that's arising over all this. Our government is paralyzed with fear that, horror of horrors, we'll figure out what backroom deals they've been negotiating, where our money is being sent, and what they've been doing in other countries all these years.

In any case, I don't understand why some people are calling for Assange to be either thrown in jail to rot for all eternity, or, alternately, to be hunted down like an al Qaeda operative. Meh. If we're going to hunt him down like we do the leaders of al Qaeda and the Taliban, Mrs. Palin, he's quite safe. Trust me on this one. Of course, if we're going to hunt down Assange that way, then it would also make sense to hunt down some New York Times writer or editor or somebody. Yes, indeed.

In any case, I think much of the blustering is just attempted distraction. Our government doesn't want the rest of the world to suddenly realize that we've been total junior-highers and have been saying bad things about them behind their backs, not to mention trying to pull all sorts of shenanigans. That would be bad. v.v


suntzusays said...

My understanding was that we will be another 600 - 900 billion in debt when they expire again, not a mere 9 billion. Though not all of that is due to the Bush tax cuts being extended (payroll tax cuts, etc).

Though we may certainly long for the days when 9 billion was indeed a large increase in the deficit...

Liberty said...

It was indeed $900 billion. Thank you for noticing my error Sun Tzu. :)))

Teresa said...

I know you did mention about our overspending, but I will emphasize that a majority of our deficit woes are due to our overspending and not tax cuts.

Here is an article:

Maybe all of the news outlets who endangered lives by leaking classified information or information that was kept secret for security reasons should be charged under the espionage act?

Or is releasing numerous documents a little bit more dangerous for the U.S. than only a couple?

While I agree that some of the information is harmless in the sense that the facts were speculated and presumed by some to be correct even before the Wikileaks release occurred do you think that it is right for a citizen, who had legal access to the documents but did not own them, to steal them and pass the documents off to a noncitizen whom he knew would use this information to hurt the United States both militarily and in our foreign relations with other countries?

Charlene said...

Our President Barack Obama is the only sane person in this melee. The Democrats are haranging the President and the Republicans think they have pulled the great train robbery. The tax cuts will extend and a trillion dollars will be borrowed and when the new Congress is in January 1 the Republicans will go after every single social program currently in effect. This will finally piss off even the non-Tea drinkers and the GOP will loose Congress and further loose Senators in 2012. Mr. Obama will be re-elected and the GOP will be left standing out in the field alone.

My saying all this stuff is as likely to happen as anything the talking heads tell you now.

Liberty said...

For once, Charlene, I would tend to agree that President Obama is quite sane. v.v He, at least, seems to have some sort of reasoning ability in this least, ability to compromise, which is something that is sorely needed. ^.^

I think your prediction is quite profound. Though, I don't believe the Republicans will really go after the social programs...they've effectively proven they don't have the guts to do anything about out-of-control government spending. They had eight years, and they did nothing. >.<

Liberty said...

Well then, Teresa, it comes down to a question of whether or not the documents that were leaked actually have the capability to harm our defensive capabilities. From what I understand, these documents are mostly about how we've infiltrated other countries and tried to buy off their people. v.v If that harms us, then it's our own fault for going in and trying to mess in their business.

suntzusays said...


The problem with tax cuts is that they do three things:
1) If they aren't on the "right" side of the Laffer curve, then they don't actually result in additional revenues. The Bush tax cuts were in this boat, the Reagan/JFK tax cuts were not. That study up there is empirically flawed and it is obviously false that "all tax cuts will increase tax revenues", both in the short or long term. This isn't to say that there weren't other good (political) reasons to extend the Bush tax cuts for all brackets, but it doesn't actually close the deficit to keep them. It ADDS about 1 trillion over two years. That figure is accurate and doesn't go away simply by applying "magical" economics.
2) Tax cuts reduce the appetite for the public to actually cut spending. In fact, they will tend to INCREASE demand for spending. This is a behavioral economics problem, but it repeats every time there's a major tax cut. People perceive that if they are being taxed heavily that the government is clearly wasting their tax dollars. If taxes are "lower" then less attention is paid. This results in the deficit going up even if the tax cuts actually increased revenues (see Reagan deficits in the 80s both peacetime records until now, see also the massive increase in spending during the Bushv2 era). Considering I already have a VERY low opinion of GOP leadership and Tea Partiers for actually proposing and stomaching real and meaningful budget cuts (to entitlements or defense especially), this is not a helpful situation since it is spending that needs to be reigned in and battled over rather than top marginal rates anyway.
3) Tax cuts reduce the political appetite to actually reform the tax code, flattening it or reducing numerous expensive and distorting deductions (HMI for instance). Which is what we should actually be doing and not fussing over 35% or 38.5% top marginal rates regarding taxes. I'd rather have ~28% top marginal rates and be taxing capital gains as income instead of giving it a tax break (and abolishing the corporate income tax along the way). We'd make more money in taxes by broadening the tax base and taking less time and energy to avoid paying them.

Teresa said...


I will respond to you in more detail soon but what is your opinion of both the fair tax and the flat tax? Wouldn't they generate more taxes overall since more (all) of the population would be contributing and paying taxes?

"all tax cuts will increase tax revenues" People tend to spend more when their taxes are cut and aren't penalized for success so I doubt your assertion holds true. Now, I agree that spending was too high under Bush and that could either reduce or eliminate the beneficial affect that it has on reducing the deficit but that doesn't prove that the tax cuts wouldn't increase revenues. If there weren't any increased tax revenues in the first place then our deficit would cause us to be deeper in the hole.

suntzusays said...

Fair tax is fine, but I find it a little strange that people who back it oppose a VAT usually. The major problem with it is that it's not actually revenue neutral. It is not high enough even if it is a broader tax base. And if you make it high enough, you probably succeed in pissing off the middle class. Alternatively, we could pass it in a dream universe where the government actually cuts its size and operations and the fair tax would be sufficient to fund it. Also, I'd be very suspicious that the government would have both a national sales tax and the income tax anyway (ie, fail to repeal the 16th amendment in the process). Which makes me favor just passing a VAT if we're going that route.

Flat tax would be fine if it was a negative income tax. Essentially allowing us to abolish or consolidate most of the social safety net. Neither of these would increase revenues necessarily. Both would be stimulative, but only through tax simplification.

I'm not sure what your issue with "(all) of the population would be contributing and paying taxes". All of population already is. Most of it is obfuscated by talking about only personal income taxes, while ignoring corporate income taxes and the incidence payments we all make to them through higher prices, excise taxes, payroll taxes, etc (to say nothing of sales, local, state or property taxes). The actual principle with a broader tax base is not having more people paying taxes but that you are now taxing more money. That it might tax more people is incidental.

Most tax cuts at the current taxation levels (which are historically low) will not result in increased revenues unless they are accompanied by a broader tax base. Reagan's tax cuts for example were accompanied by two things:
1) Major tax reform of the tax base resulting in much broader tax code. (This was the same thing Coolidge did in the 20s).
2) Minor tax increases shortly after they were passed in the mid-80s which sucked up some additional revenues. If we went through and axed a bunch of deductions in exchange for lower marginal brackets, I'd be a lot happier than simply renewing the Bush tax cuts.

Tax cuts have some stimulative effects, but they are not nearly as high as supply siders would have us believe, especially at the higher end of the tax brackets. There are ways we should be taxing, for example, small business owners less, but these are not through worrying about a couple percentage points on marginal income brackets. The biggest stimulative things they could do with the tax code
1) Simplify it. There's a lot of dead weight drag from tax avoidance and cost of compliance.
2) Lower the payroll tax on the employer side (this would stimulate higher). They did the opposite in this deal.
3) Remove the corporate income tax and remove the capital gains distinction to tax that as regular income. This would encourage spending (particularly corporate spending) rather than investment in the short term. The lack of corporate income taxes would also be a tremendous boon to hiring and should lower consumer costs. It would also result in a more progressive income tax (which you could then flatten out or lower).

The most stimulative thing I think they could do is cut a lot of spending programmes and do a fair amount of quantitative easing through the Fed. I'm not sure that mucking around with the tax code on the margins like the GOP has been doing the last month is going to matter at all (the increase in taxes would have been barely noticeable for most Americans), and looks to mostly just add to the deficit.