tax cuts

by  Lance Thompson

Many people I respect believe that conservatives cannot appeal to a majority of voters simply by saying “no” to the socialist agenda now guiding our government.  They say we must have an alternate positive plan, rather than simply obstructing the rush to totalitarianism.  I disagree.

A train headed for a washed-out bridge benefits immensely from anything that safely halts its headlong rush toward destruction.  If the passengers realize the danger, they would also perceive the value of halting forward progress.

But for those who require a positive plan, one is available and easily understood.  As so many profound ideas these days, it comes from the source of much modern wisdom–half-hour network comedy classics.  In the NBC series Seinfeld, the character of George Castanza suffered week after week from the results of his chronically poor judgment–lost jobs, broken relationships, public humiliation and personal embarrassment.  In one episode, George realizes that the source of his troubles is his own warped instinct to always make the wrong decision.  He further decides that he will, from that moment on, always do exactly the opposite what his instincts tell him to do.  Instantly, he finds success and happiness — all because he decided to “do the opposite.”

This is the positive alternative conservatives have been looking for.  Obama spends trillions of dollars we don’t have, and plunges the nation into debt we can never repay.  Saying no to this is certainly sane and responsible, but doing the opposite would be even better.  Instead of increasing spending, how about reducing it?  Would reducing spending play well with the electorate?   In a recent poll, Californians faced with a massive state deficit preferred the solution of reducing spending to raising taxes by a 3 to 1 margin.

Obama has abandoned long-time allies to their fates by canceling defense programs and dismissing vital relationships, gone hat in hand to our sworn enemies to apologize for America’s foreign policy, and demonstrated tolerance for outrages committed by rogue regimes.  Certainly ceasing these self-defeating behaviors would be a positive step.  But how much better to do the opposite–install missile defense systems in Poland because it strengthens a stalwart ally, support Israel in defending itself against terrorists on all sides and a nuclear-ready Iran, acknowledge and strengthen our special relationship with the United Kingdom, and show pride in and demand respect for the sacrifices generations of Americans have made to defend freedom and liberty throughout the world.

Obama has vastly increased government control of private industry.  The current executive branch is now in the executive suites of banks and lending institutions, automobile manufacturers, and soon health care providers.  Obama has bought a majority share of Chrysler with taxpayer money, then handed it over to union bosses.  Clearly, simply saying no to all of this Marxist nationalization of private industry would be a demonstration of sanity.  But doing the opposite would qualify as insightful and visionary.   Allow the ruthlessly fair free market to pick winners and losers rather than government bureaucrats.  If companies cannot compete, then they must fail and make room for those that offer what the public wants.  Artificially propping up inefficient companies rewards incompetence and punishes competitors who are actually doing things correctly.  Taking government out of private industry energizes, enables and encourages investment, innovation and success. 

Obama promises to raise taxes on the rich, on businesses, on the most successful entities in our society and economy.  This is a policy that, again, punishes success.  Not punishing success, and refusing to raise taxes, is a definite improvement.  But doing the opposite–reducing taxes on successful individuals and enterprises–is infinitely better.  Encourage and reward success with lower taxes, and we shall certainly have more of it.  Our economy will expand, employment will grow, revenues will increase, just as it did under Ronald Reagan, and in response to George W. Bush’s tax cuts.

I do not agree with those who say conservatives cannot simply be the Party of No.  A few administrations ago, “Just say no” was First Lady Nancy Reagan’s advice to kids to avoid drugs.  It was widely ridiculed by the Left and the media.  Yet drug abuse undeniably begins voluntarily, which requires an affirmative response, not to mention a substantial investment.  Just saying “no” when drugs are offered effectively eliminates the problem.

But for those who believe conservatives need a specific plan to counter the tide of socialism sweeping across the country, the solution is clear and simple.  Take any policy of the current administration and the Democrat-controlled Congress and just do the opposite.  In every case, such a course will result in greater success, expanded liberty, and a brighter future for Americans.

On the other hand, continuing in the current direction will result in America becoming a pitiful minor character in a show about nothing.

This is a repost of an entry I wrote for QandO a few days ago. I'm reposting it here, for a different audience to get a look at it.

It is a lengthy think piece, and it may be completely off base. But the fundamental point I think we should be looking at is this: We are, quite possibly, watching the collapse of the Post-WWII global financial system. The first collapse in the 1930s saw off the Gold Standard. This collapse will probably see off the concept of government-backed fiat currencies.

So, what happens then?

Reps should be pushing Tax Cuts first, immediately.  With separate debates and considerations for all other major spending programs.  People know what they would do with 'more money' -- whatever helps them the most, right now (including better preparation for the future).

The best help for the banks: huge Tax Cuts, now, for people and companies, so that there can be more savings flowing into the banks while at the same time reducing the indebtedness of people and firms. It's insane that an argument against Tax Cuts is that not enough will be spent, because too much will be saved -- while at the same time arguing for special gov't cash to go into the banks

The Atlantic's Rober Barro interview had him pushing tax cuts for the income effect, and the incentive effect.  Barro specifically doesn't like shovelling money at people.

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But I do.  The country is better off if the gov't shovels money at people, now, and let's them decide how to spend it, or save it.  The stimulus is going to have gov't decide, and gov't be full of corruption and waste.

What is curious is that Barro does admit the Financial System has a problem, and sort of supports the gov't helping out that problem.  But I see two obvious options, a) direct gov't bailout to banks, and b) indirect support for banks by REDUCING personal debt.

 Tax cuts now, giving folks more cash, will result in many of them saving / paying off their credit card debt.  This is good, even if it's not immediate stimulus.  It means the long term indebtedness of the taxpayer goes down. AND it helps the banks, by them having fewer loans outstanding / more savings (tier 1 capital).

More recently, Tyler lists

#1, but we need Pre-Packaged Chapter 11 bankruptcy for ALL the Big Banks with toxic assets they've poisoned themselves with.  Bankruptcy, not nationalization.The 40% share of corporate profits being made in 2006 by the financial industry was Ponzi scheme betting on bets made by betters who didn't know they were betting -- except everybody knew "house prices never go down".Like not needing newspapers, the internet means the future USA doesn't need nearly as many bankers for taking saver's cash and allocating it to good production / distribution / service businesses.The growth of 'finance' was huge mal-investment; even worse than over-building residential houses.The best help for the banks: huge Tax Cuts, now, for people and companies, so that there can be more savings flowing into the banks while at the same time reducing the indebtedness of people and firms.It's insane that an argument against Tax Cuts is that not enough will be spent, because too much will be saved -- while at the same time arguing for special gov't cash to go into the banks.

 Greg Mankiw has been following and participating in this debate as well, and notes that Keynes favored a cut in SS payroll taxes in bad times.

Tyler Cowen of Marginal Revolution notes how the pro-stimulus folks are much bigger on insulting the critics, than in producing evidence that stimulus will work.

 There are also theories of TARP evolution which are amusing.

The banks ARE insolvent. We need Pre-Packaged Chapter 11 bankruptcy for ALL the Big Banks with toxic assets they've poisoned themselves with. Bankruptcy, not nationalization. The 40% share of corporate profits being made in 2006 by the financial industry was Ponzi scheme betting on bets made by betters who didn't know they were betting -- except everybody knew "house prices never go down".

Like not needing newspapers, the internet means the future USA doesn't need nearly as many bankers for taking saver's cash and allocating it to good production / distribution / service businesses.

The growth of 'finance' was huge mal-investment; even worse than over-building residential houses.

The best help for the banks: huge Tax Cuts, now, for people and companies, so that there can be more savings flowing into the banks while at the same time reducing the indebtedness of people and firms.

It's insane that an argument against Tax Cuts is that not enough will be spent, because too much will be saved -- while at the same time arguing for special gov't cash to go into the banks.

Tax Holiday, or Payroll Tax Cuts would, over the current and next month, current and next quarter, and even over the whole year, be a better policy than the gov't spending stimulus.

One key measure of any anti-depression policy should be the % of the total policy $ that is spent in the immediate time period (month, quarter, year).  Via Fabius Maximus, one anti-tax cut article analyzes the 2008 tax rebate: “The Economic Outlook and Stimulus Options”, Mark Zandi ( Chief Economist of Moody’s Economy.com), Senate Budget Committee, 19 November 2008 (see  Table #1 on page 10.)

The point is that the Dems want to argue that Tax Cuts aren't good enough for stimulating the economy, relative to some other alternatives like more for Food Stamps and extending Unemployment Benefits (which Reps should support in these times).

My point is that, using the same measure of effectiveness, Payroll Tax Holiday is far, far better than what Obama has.  And the difference should be estimated and publicized.

The MAIN problem is that Republicans want workers to decide how to spend any stimulus, and Dems want elite, tax-cheaters to decide. 

This is also clear in the comments to Matthew Yglesias reasonable discussion of The Paradox of Thrift.  However, the main idea seems to be to oppose Tax cuts ... because they support too much savings.

Personal consumption will help the economy now -- personal savings will help allow the future economy to grow, as would reduced debt.

Paying later for gov't directed half-mal-investment will certainly reduce growth later.

There are huge problems in the economy right now, it is politically required (by voters, the boss) that gov't do something.

Big temporary deficits, thru a Big Tax Cut (Tax holiday), is what Reps should be proposing.  The money should not be borrowed, it should be printed, created by fiat.

Which, usually, would cause inflation.  But not now.  The tax holiday should continue until employment is positive for a month or a quarter.

The argument against tax cuts/ rebates is that they are not efficient enough, because many folk do not spend the extra, but save it.  Only spening 17-33%, for instance.

This is double silly bogus.  First, for the mid and long term, reducing household debt is great, and will mean more growth in the future.  Second, as compared to other programs, like the pork-stimulus, tax cuts increase cash for people FAST.  Most of the pork won't be paid for in the first month, nor even quarter; nor even year 2009!

The big Bush/ Rep failure was failure to reduce spending in the post-tax cut 'good years'. 

But the real failure is that of voters.  Voters have been consistently voting for spending more of Other People's Money, which is always less efficient and more wasteful than spending one's one money.

(Via Fiscal Irresponsibility)

Rep leaders must attack the culture of irresponsible greed--greed for spending & controlling Other People's Money.

In fact, it's the OPM that the voter is addicted to, and which must stop.  Only then can gov't realistically reduce spending, when voters accept it.

Could it be that the truth about the porkulus bill is actually getting out?  Rasmussen reports that public support for the "economic stimulus bill" a.k.a. the Generational Theft Act of 2009 is slipping.  Of course support falls predictably along partisan lines, but the mushy middle is starting to oppose it as well. Here is the key quote:

However, support among unaffiliated voters has fallen. A week ago, unaffiliateds were evenly divided on the plan, with 37% in favor and 36% opposed. Now, 50% of unaffiliated voters oppose the plan while only 27% favor it.

It seems that people were initially supportive of the plan because they were gripped with fear, demanding that government "do something", and because they thought the plan would actually be, you know, fiscal stimulus.  Now that the truth is emerging that the plan is really nothing more than Democratic Party giveaways, people aren't liking it so much.

Furthermore, people are starting to warm up to the idea of tax-cuts-as-stimulus.  To wit:

While support for the plan has slipped, support for a recovery plan that includes only tax cuts - like the one proposed by House Republicans - has grown during the past week. Forty-three percent (43%) of voters support that approach while 39% are opposed. Though the topline numbers are virtually the same as support for the president’s plan, the partisan demographics are distinctly different. Republicans solidly support a tax-cutting recovery plan while Democrats are solidly opposed. Forty-eight percent (48%) of unaffiliated voters like the idea while 33% do not.

And:

Voters continue to soundly reject a recovery plan that includes only new government spending without any tax cuts. Just 15% support such a plan while 70% are opposed.

My faith in the people is slowly being renewed. 

And, this is coming on top of a poll from last week showing that people are nervous about the avalanche of spending that is sure to come.

Senate Republicans have to stand strong against this monstrosity.  There is nothing politically to be gained by compromising and going along with it.  Stick to your guns and force a vote on the Republican tax cut stimulus proposal.

"Obama Won't Compromise on Tax Cuts"

These would be the "tax cuts" that aren't really tax cuts, but transfer payments.  And why won't he compromise?  Because he's now suddenly worried about the deficit!  What a guy.

(h/t AoSHQ)

More and more of the details about the proposed $825 billion stimulus from President Barack Obama and the Democrat Congressional majorities are surfacing and it appears more and more that the proposition’s goals are not to stimulate the economy, but rather to reshape it in to socialism on steroids. By the spending proposed in the bill, the United States is going to start looking more and more like Sweden and France and less like the United States that we knew just two or three years ago.

First, let’s start with the tax cuts proposed in the bill. Business is struggling to borrow money from banks, like other private citizens are, and the value of their stock is in decline. All of this is thanks to economic conditions that have made business go from expanding and hiring more employees to consolidations and layoffs. Just today, 75,000 job cuts were expected from Caterpillar, Sprint, and Home Depot just to name a few.

For all of these pains where the highest taxes on sole proprietors, partnerships, and Chapter S corporations are going to remain at 35 percent. As for Chapter C corporations, they will still pay a 31 percent rate and their dividends will still be taxed again at the same income tax rate as paid by the shareholder. In other words, someone who has pre-tax earnings per share of $2.00 would end up seeing only anywhere from less than $0.90 to $1.17 (using the lowest tax rate of ten percent) per share that could be taken home after corporate and income taxes! That is an end tax rate for a shareholder ranging from 41.5 percent to over 55 percent! No wonder some people are hesitant to buy stock.

Instead, tax cuts are going to be given via Social Security payroll deductions at $1,000 for families and $500 for individuals. Let’s go back to last year when Americans received tax rebate checks for $600 (individuals) and $1,200 (families). Economists have concluded that less than 25 percent of the money from the tax rebate checks of 2008 was spent on goods and services (mostly Chinese made) while the remainder was used to pay down debt. We all know how well that worked out with the current recession.

Where tax cuts work is what Ronald Reagan, Bill Clinton, and George W. Bush did. Reagan dropped the lower rate from 70 percent when he took office to 28 when he left and the economy grew dramatically. Bill Clinton cut the capital gains rate from 28 percent to 20 percent which led to the late-1990’s stock market boom. George W. Bush cut taxes on income, capital gains, and in other places and it led to an economic boom from 2003 to 2006. In every instance, tax revenues and America’s standard of living grew because of the increased economic activity by reducing the barriers of taxes.

What makes matters worse on the tax relief front is that the tax code changes won’t take hold until next year. If we are in such an urgent crisis, let’s do something from a tax standpoint that works and reduce rates going forward and make the tax cuts from the George W. Bush years permanent. However, as you read later, that will not be the motivation.

Next comes the infrastructure spending programs that sound good, but more will lead you to believe that this is not the right way to go forward. We have a nostalgic view about Franklin D. Roosevelt not because of the manner in which he ran the economy, but how he managed the war, mostly thanks to the great generalship of Dwight Eisenhower, Douglas MacArthur, George Patton, and others.

The New Deal that Roosevelt implemented twice government spending programs on infrastructure and blue-collar jobs. It’s “twice” because the first program failed and only government is insane enough to try a sequel (unless you voted Democrat for governor in Michigan and Illinois in 2006). As it turned out, economists at the University of California-Los Angeles (UCLA) determined that the New Deal actually delayed a full economic recovery by seven years.

The result was World War II and around-the-clock mass production for the war effort that ended the Great Depression in 1943. Think about that. The Great Depression, had the New Deal not been pursued, could have ended in 1936, on the eve of FDR’s reelection.

In total, there will be $90 billion in the $825 billion package spent on infrastructure alongside the $275 billion in tax cuts that won’t be realized until 2010. That’s a grand total of $365 billion, or just more than 44 percent of the package being spent to “stimulate” the economy.

The reality is that infrastructure spending programs don’t do the job and the tax cuts are insufficient. In total, the government is putting together a program designed to give window dressing with this package to make us feel as if President Obama and the Congressional Democrats are actually doing something. The reality is that if that something doesn’t do what we have the expectations are (reviving a stagnant economy), they’re toast.

So what happens with the remaining money? The remaining money will go to other projects that won’t be realized until long after Obama is out of office. Education spending, health care spending, and cover state shortfalls on Medicaid are nice, but the purpose of the bill is lost. The purpose is to jump-start the economy and to jump-start it now.

In the end, the American people will be more than $800 billion deeper in debt with no chance of either reviving the economy, creating jobs, or ending the current recession. Instead, the plan is to have enough debt on the books to where Obama and the Democrats can actually terminate all, if not most, of the Bush tax cuts.

In a previous post, I had mentioned that the four stages of the Great Depression were a credit crunch, a stock market crash, price destabilization, and tax increases. As it will turn out, the economic plan of Obama’s will generate more inflation either by increasing debt or the need to print more money (both of which are inflationary) and repealing the Bush tax cuts to result in the largest tax increase in American history.

I am not alone on a looming depression. There are a number of other economists, including Harry Dent, who accurately predicted the 1990’s economic boom. I guarantee that the Obama program will fail. I wish it weren’t true for the sake of this country because we need help. However, this isn’t the help we need but rather a shell game disguised as a push towards socialism that has been proven to fail in every instance it has been tried.

Jon is right. The addition of some $300 billion in temporary tax cuts to the massive $775 billion Obama stimulus is a risk politically and Bushonomics (e.g. tax-cut-and-spend) on steroids policywise.

What's the main reason Republicans are dispirited right now? Because the Republican Party no longer represented less spending and limited government. What do we propose to do to fix it? Why... double down on this strategy by throwing in with the biggest spending bill in U.S. history if does enough tax cutting! As Jon infers, if the GOP accepts massive stimulus spending of any kind, it will sever the GOP from its base for years, and keep Republicans from rallying around a unifying limited government message in 2010. Instead of a peaceful 1994-style revolution, this will likely trigger a bloody Goldwater-style takeover of the GOP from the outside which may take 2 or 3 presidential cycles to fully play out. Ugly, but it may turn out, necessary.

There is broad consensus in the country right now that we need to "do something" about the economy. The economy will probably recover on its own by early 2010, but we must nonetheless "do something." Republicans should accept this fact and move on.

But there are different ways to "do something." A stimulus primarily composed of permanent tax cuts is a perfectly legitimate and defensive version of "doing something" both from a policy and public opinion perspective -- one that we can go to the country with and not appear like Hooverites or know-nothings. For one thing, past (successful) stimuli have been composed primarily of tax relief. Obama's own economist says the economic multiplier effect from tax relief is greater than than the general consensus of the multiplier from spending (allowing the GOP to paint larding up the bill with spending as primarily ideologically -- not economically -- driven). The American people are not economists, and likely have no inherent preference between tax cuts and spending increases so long as the plan is of a certain magnitude. So, let's educate them.

Right now, I yearn for the legislative acumen -- and in this case, the spine -- of Bob Dole, who rallied even John Chafee -- Lincoln's father -- to oppose the 1993 Clinton stimulus. With the GOP officially reaching rock bottom today, the Republican leadership in Congress has to recognize that number one political priority is not to give voters warm and fuzzies by angling into photo ops with Obama. Yes, he's popular, but his popularity can only redound to the benefit of one party, and that's not Republicans. For a cautionary tale on what happens when a party tries this strategy, see the 2002 midterm elections.

The GOP's number one priority politically is to set into motion a series of events that will make Obama look more ineffective, partisan, and unpopular than he is today. Playing hard-to-get on the stimulus is one way to do it. And we need to set the stage for a unified and effective Republican opposition that will actually fight from top to bottom. Even if Democrats did some truly stupid things these last two years, it was always impossible to rally grassroots Republicans in opposition because the party had zero credibility. Closing that credibility gap -- not beating Obama in popularity contest right now -- must be job one in order to rebuild the GOP. Newt Gingrich and Bob Dole (!) did it, and Boehner and McConnell must do the same. Not neutering our principles in search of short-term headlines would be a good start. 

Let's see what happens when we combine Supply Side with Web 2.0:   http://reagan2petition.ning.com/ ... The Petition...  To the Congress of the United States of America: Cutting marginal tax rates across the board lofted America from austerity to prosperity. Reagan understood this, we understand this, and we appeal to you to take a stand for it. By joining Reagan2Petition.ning.com, we sign this petition demanding your support * for using the "bailout" funds to cut marginal tax rates by 30% AND * to cut the payroll tax back to its original "pay as you go" rates. Put America back on the road to Prosperity. Sign the Petition today.....

Just click on a hyperlink above.  ;  )

Ralph Benko

www.thewebstersdictionary.com