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March 29, 2007

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They were trying to make the tax increases seem less fiscally ruinous than they were, so they made them last only so long before they expired.

Actually it's not really as benign as that. The Republicans knew that they couldn't get the tax cuts passed in the Senate under normal rules, so they fashioned them under the Budget Reconciliation rules - which only need a majority vote in the Senate to pass (originally fashioned as an emerengency measure to allow last-minute budgets to get passed when they'd run out of time to keep the government open)but severely limits debate and amendments (sort of like a Congress in a Communist country). The restriction on Budget Reconciliation measures is that anything that is passed under this method can only be in effect as long as the current official budget estimates ran (which in 2001 played out for 10 years - since then official budget estimates have been reduced to 5).

The 10 year expiration wasn't so much to make it appear less ruinous as it was to use legislative trickery to ram it down our throats. The thought at the time was, with the emerging permanent Republican majority, they would at some point in Bush's 8 years easily get the 60 Senate seats to assure passage of the bills making it permanent. The funny thing is, they were scheduled to take up the bills to make them permanent the first working day after Labor Day in 2005 (you know, Bush still had his "political capital", the idea of new marketing after Labor Day, and all that) - but then Katrina hit and the agenda and vote got postponed.

It's particularly disingenuous to listen to Republicans make the argument that the tax cuts need to made permanent simply because of the inconvenience in effect on "financial planning" of having them temporary - when they are the ones responsible for making them temporary in the first place.

Ethel-to-Tilly -- thanks; I didn't know that.

Sheesh.

Sorry – I acknowledge the Republican shenanigans on this - but if my taxes go up from one year to the next it is an increase. If you come in my store and for a few years I give you a discount, then one day take the discount away – did my prices go up? Do you perceive my prices as having gone up?

As I said in the other thread – it would not bother me as much if they were not also increasing spending. If they said they were looking to eliminate the deficit and cut spending at the same time I would be (grumpily) on board. Those 5 million people going back on the rolls (if true) are their constituency for the most part. But rolling back tax cuts while increasing entitlement programs won’t do it for me. And as far as PAYGO – there is a footnote about “finding” $900 million to balance it out.

Novak seems to have gone from Republican cheerleader to senile tool. Doesn't he remember anything since he was writing with Evans? Doesn't he remember when he decried irresponsible deficits or irresponsible tax cuts? What caused him to change his mind? Is he now on the payroll of the RNC?

OCSteve: You're missing the point. The people to blame for your tax bill "going up" in 2010 are Republicans. They set this up.

Blaming the Democrats for it is dishonest. They didn't design or vote for a tax cut that sunsets in 2010.

What Novak is doing here is called "lying".

SteveOC,

So what if it feels like a tax increase, it was an increase that was part of the law that the Republicans passed. The Republicans have been utterly irresponsible with our country's finances ever since they decided to cut taxes but not cut spending when Reagan decided to pursue voodoo ecomonics. No citizen who cares about our economy or our government has any need to listen to the Republicans about taxes or spending, they have proven themselves to be nothing but self-enriching hypocrites who don't care about our government at all.

OCSteve, there may be a legitimate argument that it's a tax increase, but there's no legitimate argument for saying the Democrats did it -- that's simply a lie. The tax increase, if that's what it is, was in the legislation passed by the Republicans in 2001.

"Come to think of it, it would be even worse if it turns out that this isn't confined to the tax code, and all sorts of laws could be passed automatically."

Not to rain on your parade, but Congress arranged for it's pay to be automatically raised, in order to circumvent a constitutional amendment. So, yeah, all sorts of changes in the law can happen automatically, if Congress arranges for it.

But I agree, you can't really pin a lot of the blame for this on Democrats. At most, they're to blame for letting it happen. They didn't act to cause it.

At most, they're to blame for letting it happen.

How could they have stopped letting it happen Brett?

OCSteve wrote:

As I said in the other thread – it would not bother me as much if they were not also increasing spending. If they said they were looking to eliminate the deficit and cut spending at the same time I would be (grumpily) on board. Those 5 million people going back on the rolls (if true) are their constituency for the most part. But rolling back tax cuts while increasing entitlement programs won’t do it for me.

That´s understandable.
Personally - I´m not an American :) - I am amazed! :)
You´ve got blogs back in 2005 warning that the difference might be close to $200 billion per year. Did the Democrats increase "entitlement programs" by that much?

If not, you might, just might entertain the thought that tax cuts financed by China, Japan and the Gulf States might not be in the best interest of the USA?

Simply put, financing tax cuts with foreign debts is simply a way to get politicians reelected and pushing repayments of the debts into the future?

In a way, right now, foreign countries are paying for your defense budget. Or, said in another way, your defense budget right now is financed in a large part by foreign countries. :)

How could they have stopped letting it happen Brett?

I suppose the Dems could have voted against the Bush tax cuts in the first place. (As 38 of them did in 2001, and 46 of them did in 2003.)

Or, said in another way, your defense budget right now is financed in a large part by foreign countries.

I'm not sure if it concerns me more that we're becoming so heavily indebted to countries with whom our interests may or may not align in the future, or that it's my kids and grandkids who will have to pay for all this. Either way, it's distressing.

I said I understand the Republican’s part in this. So let’s say that they are 100% to blame for setting up the cuts to expire. So the potential rollback is 100% Republican.

But… Democrats can do that later, incrementally, extend cuts, parts of them, whatever. In this approach:
-Nothing for the middle class on AMT.
-Increase in the marriage penalty.
-Reduction in child tax credit.
-5 million lower-class folks back on the tax rolls.

Paygo: Billions to make up that will be “found” somewhere…

Decrease spending or stabilize? No – Increase it. That is not Republicans (for a change!)

What about the economic impact? Is it a complete myth that the economy is in as good a shape as it is due to those tax cuts?

Ms. Pelosi – Jan:
"What we're saying is Democrats propose tax cuts for middle-income families. And we want to have 'pay-go,' no new deficit spending. We're not going to start with repealing tax cuts, but they certainly are not off the table for people making over half a million dollars a year," Pelosi said.

Maybe I’m over-reacting. By the time it hashes out and passes it may be something completely different. I hope.

In any case I'm leaving for the night so maybe more tomorrow.

So if this is "the largest tax increase in U.S. history," can we finally say out loud that the absence of those taxes for the last few years might have something to do with the largest national debt increase in U.S. history? And the largest deficit, and the biggest trade gap?

OCSteve: They are, I think, going to pass another one-year patch for the AMT (and, I expect, another the year after that.)

For the rest: personally, I think the tax cuts have done us a lot of harm, economically, in the following way.

It is of course true that other things equal, tax cuts tend to stimulate the economy. However, these tax cuts were pretty badly targeted, as far as getting value for money. They went largely to the wealthiest people, who are not as likely to spend what they get as people who are poorer, and so they (the tax cuts) don't do as much to stimulate demand as tax cuts to the wealthy.

More importantly, other things are not equal. Specifically, the debt is not equal. It skyrocketed as a result of these tax cuts. And that will be a drag on our economy for generations, even leaving aside the problems caused by the fact that other countries acquired a lot of power over us by financing our debt.

I mean: if it wasn't bad for the country to do so, we could just cut taxes to zero and be done with it. That would cause a great big economic stimulus. Likewise, buying everything you ever wanted on credit cards would cause your standard of living to rise a whole lot in the short term. But there's a reason you (probably) don't do this.

What Trilo said.

So let me get this straight: During the time we're fighting two hot wars, and the larger, neverending GWOT, we passed such massive tax cuts that to let them expire would equal the largest tax increase in our history?

Amazing. The incompetence and rapaciousness is literally unprecedented.

they're to blame for letting it happen.

the Republicans had 6 years to make the cuts permanent, but didn't. so sure, let's blame the Dems, who didn't want them in the first place.

Re OCSteve's initial analogy.

If the local store has a sale on something and then the sale ends no one in their right mind would say the store raised their prices.

This is nothing but throughly dishonest spin.

And a "good economy" all depends on what your metric. see the sen Webb's response to the SoTU address.

allow me to quote the NYT, via John Cole:

    While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

    The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

    The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

yes, the rich need tax cuts.

I said I understand the Republican’s part in this. So let’s say that they are 100% to blame for setting up the cuts to expire. So the potential rollback is 100% Republican.

Do you? Really?
Looking at this graph seems to indicate that Republican Presidents are pretty good at adding to the federal debts (3. The National Debt). Reagan and Bush 41 almost tripled your debts, even with the Social security surpluses.
And Bush 43 added another 25% to that debt.


OCSteve -

Pelosi said they're not repealing tax cuts - and they're not. They're letting tax cuts expire in accordance with the way Republicans designed them.

The Bush tax cuts are set to expire automatically. They were written that way. What the Democrats are proposing to do is simply not to change this.

Calling this a "tax increase" is an old, old Republican tactic.

One of the most salutory effects of the 2006 retaking of both houses of Congress is the possibility of having these massive transfers of wealth to the already wealthy expire (as they were not really intended to do).

Just today a rightist House member from Wisconsin put forward an amendment to the 2008 budget that would have 1 - removed tax cuts from the paygo rules and 2 - removed any budget restrictions on defense spending.
My "lean government" Rep voted for it; wish I thought he'd pay at the ballot box.

For my part, I accept the phrasing "tax increase". Novak's claim that "House Democrats will adopt a budget resolution containing the largest tax increase in U.S. history" is still false, for the simple reason that the resolution under question does not contain the increase. If the budget resolution contained a tax increase, we could prevent the tax increase by removing it from the budget resolution. But there's nothing there to remove.

Bizarrely, I come down squarely on the side of that this has absolutely no blame in it for Democrats. And I kind of reflexively blame Democrats when my breakfast cereal starts to go stale, so this is saying quite a bit.

OCSteve: on this, you're wrong. I urge you to rethink.

Oh, and: Novak's an idiot.

Awfercryinoutloud. No, it isn't a tax increase, and this isn't rocket science.

You live in a rent-controlled apartment. You unexpectedly lose your job. Your landlord takes pity on you and agrees to let you pay half rent for a couple of months till you recover. When you eventually get a job and he asks for the full amount again you complain that your rent is being raised and take him to court.

Does that make you the kind of friend that you would want your children to have? Does it make you the kind of tenant (or landlord) that you would want living on your property (or owning your residence)? Well if you do stuff like that then don't be surprised when people shun you for being a ____.

Or doesn't plain speaking have any value any more?

Nell: Was that Sensenbrenner?

What a stupid posting.

Taxes are going to rise.

The Democrats control congress.

And that's it.

Oww...Slarti you owe me one non-coke stained monitor. "Cereal goes stale" indeed.

Oww...Slarti you owe me one non-coke stained monitor. "Cereal goes stale" indeed.

Now something more useful. This is the name of the public perception game, something the Republican Party as a whole has played exteremely well, and something the Democrats don't.

I don't know if it is the quality of the advisors each sides hires, or a preference for nuance, with caveat upon caveat, versus simple straightforward statements; but I can only think of a few handful of times when the Dem's have controlled the dialogue; they haven't lost the battle, but they most often play defense.

Taxes are going to rise.

The Democrats control congress.

And that's it.

The Republicans spent it.

The Democrats are forced to pay for it.

Again.

@Anarch: No, it was a Rep. Ryan. Even Sensenbrenner's not so tone-deaf as to remove DoD from budget restraints at this moment in history, is he?

I get annoyed at the analogies being put forth (eg sales ending) not because I disagree with them, but because what's going on here is so plain and obvious, at least, I think, to the people commenting here that they should be unnecessary. It is what it is regardless of the subjective characterizations people use to dress it up as. The problem is that a lot of people will believe the spin that supports whatever notions of democrats or republicans they had before any of this came to light, and most of them aren't reading any of this.

Tax policy under the Republican controlled congress and Bush has been, for the most part, one unbelievable clown show, with give aways to industry and the wealthy up and down the line. The idea that they are trying to blame the Democrats for allowing the tax law to play out the way the Republicans enacted it is ludicrous.

Republicans gambled on the "temporary and expiring tax breaks" game with the hope that when things were due to expire K street would return and shower them with money to extend the temporary breaks -- and they lost. F*ck em.

I wouldn't be too hard on OCSteve. He has already said he can deal with the increase in taxes and not blames the Dems for that.

What he really complained about, I think, is that there is no indication of a decrease or even keeping level of spending. And looking at the budget figures would on one level tend to support that. However, taking into account inflation and other factors, the federal expenditure increases yearly anyway. Under Bush's watch is has increased at a far higher rate than indicated in the chart accompanying this post.

In essence, I think (not know, but think) that the increases in spending indicated are pretty much maintaining a level spending.

On the whole I am with OCSteve in that I woudl like to see spending go down, although I am pretty sure that he and I might disagree as to where the cuts would be made.

BTW, HSH and DFS are both correct that this is a public perception game. Novak is sending the first alarm flare into the sky with this, and it is probably specifically directed toward the election of 2008.

The primary claim of Republicans is that the Dems, being the tax and spend crwod that they are are going to raise taxes, whereas the Republicans, being the "fiscally conservative" (what a joke) people they are will extend the cuts.

And due to the long history of this meme being present, despite its obvious falsehood, it will resonate with a lot of people.

I suppose that my taxes may increase a little, but not much based upon how little they went down, and that is the scenario that most people would face. But most people don't pay enough attention to really see this.

I almost hate to bring this up, but there’s a minor point I feel the need to address, and that is that cutting taxes for lower-income people cannot be said with certainty to provide a greater economic stimulus than cutting taxes for the wealthy. While poorer people may be more likely to spend more by, say, buying more clothes or fruit juice or DVD players or whatever, wealthier people are more likely to invest and provide more capital. Investment has an arguably larger economic impact than consumerism on some dollar-for-dollar basis. The other thing that needs to be said is that the wealthy do pay most of the taxes in this country (as I think they should).

But, some of the data presented in the post suggest, the economic stimulus that some would attribute to the recent tax cuts has benefited the wealthy far more than lower-income people. The point is that there is a bit of a trap when discussing tax cuts (or increases) purely, or even primarily, in terms of economic stimulus. Sometimes taxes should be cut because the people paying those taxes need more of their money to live better lives. And sometimes taxes need to be increased because the government needs to spend more money to improve or secure the lives of its citizens. And sometimes those considerations outweigh whatever minor economic impact tax rates on this or that group will have.

Even Sensenbrenner's not so tone-deaf as to remove DoD from budget restraints at this moment in history, is he?

I wouldn't put it past him, to be honest.

Even Sensenbrenner's not so tone-deaf as to remove DoD from budget restraints at this moment in history, is he?

I wouldn't put it past him, to be honest.

oops! Should read "But, as some of the data presented in the post suggest,..."

And apparently I wouldn't put it past me either...

Hairshirthedonist, your thinking is outdated.

Here's how it goes today: If somehow the poor get more money, they're likely to spend it on clothes or DVD players etc that come from china etc. The money goes straight out of the country and doesn't particularly benefit the US economy.

And if somehow the rich get more money, they're likely to invest it in factories to produce clothes or DVDs in china etc. The money goes straight out of the coutnry and doesn't particularly benefit the US economy.

How we should arrange taxes to benefit the US economy is left as an exercise for the reader.

on this, you're wrong. I urge you to rethink.

I’ve been wrong many times so it would not surprise me. I will rethink – or at least I’ll hold my tongue until I see the final package.

I tried to acknowledge the Republican’s role in getting us into this mess. They have been spending like drunken sailors for years – you know it’s pretty bad when I look to the Democrats for fiscal responsibility…

That is why I’m upset over this. I did not expect spending increases. I’m sorry but I’m skeptical that you can increase spending by $150 billion and not only balance the budget but produce a surplus by closing the “tax gap”. I applauded them for PAYGO – but now they have a hefty gap that we’re supposed to believe will get filled in. It reminds me of a lot of project plans I have seen: you get to the most critical step and it pretty much says “and now a miracle occurs”.

It seems ironic to me, that as a conservative, traditionally not known for giving a crap about the poor, I seem to be the only one concerned with those 5 million low-income people being added back to the tax rolls and that single mother who will lose half of their current child tax credit.

Why not roll back the cuts only for that wealthy 1%? I would applaud that. Why not resist any increases beyond COLA for critical entitlement programs until the budget is balanced and the deficit is eliminated?

As promised, I’ll shut up now.

J Thomas,

You completely ignored my point about fruit juices. FRUIT JUICES!!!

OCSteve: don't shut up.

Spending is bound to go up to some extent, because of inflation. Revenue will also go up (without tax increases), for the same reason. I very much hope we manage to cut some things, but at the same time I also think that we are bound to increase spending in other areas that badly need it.

Veterans' care, for instance: it's pretty obvious that the Republicans haven't begun to budget for the care that will be needed as a result of the war. I believe that we will. That's spending, and it will rise. Good, I say: we owe it to veterans. But it's spending nonetheless.

Likewise, the Republicans have also pretty spectacularly failed to budget for the task of re-equipping the armed forces, and replacing all the stuff we used up in Iraq and Afghanistan. This will cost a lot of money. Personally, I would rather we hadn't gone into Iraq to begin with, but we did, and we have to deal with that.

If we do manage to extricate ourselves from Iraq, then we will save money on that score, which is good. But we have already spent a ton of money on that, which mysteriously doesn't seem to count as "increasing spending" to some people. (I'm not talking about you.) We'd be in a much smaller hole without that, but, again, there we are.

Why not roll back the cuts only for that wealthy 1%?

perhaps they will. hopefully, they'll roll out a middle-class tax-cut come election time.

if i was a congressman, i'd be more than happy to show the country that the Republican are stomping their feet about something they couldn't be bothered to do themselves when they had the chance - and then i'd whip out my Awesome New Middle Class Tax Cut and slap 'em across the faces with it. "Take that, you friggin losers!"

vote cleek '08

Veterans' care, for instance

Now here is a place I hope I am wrong. I understand the increases to be mainly non-defense related. I’m not sure if the VA falls under the DOD budget or not. If the VA budget is separate from DOD and they are increasing that then Yay.

If we do manage to extricate ourselves from Iraq, then we will save money on that score

Now I had not considered that. Maybe that is the “miracle” I mentioned. If they are assuming that shortfalls will be made up due to the war ending next year I can cut them a little more slack. As you mentioned, it’s going to cost a fortune to reequip the military, but that is still not nearly as expensive as the war itself.

OCSteve: I was looking for quick figures, so I went to Nancy Pelosi's blog, which I figure is, on the one hand, not exactly a nonpartisan source, but on the other hand unlikely to lie. (I mean: I assume that if I get actual numbers, they will be right, but I would not use this source to say: hey, it doesn't mention dreadful thing X, so I guess they must not be doing dreadful thing X!)

In any case, it says that the budget: "Increases funding above the President by $3.5 billion for veterans’ health care and benefits, and to reduce huge backlogs in claims processing." (cite)

I will attempt to come up with more impartial sources in a bit, when time permits.

Also, quickly: Veterans' Affairs is its own department, so it's not within DoD.

Investment has an arguably larger economic impact than consumerism on some dollar-for-dollar basis.

I agree that it's very hard to argue that any more. In addition to what J. Thomas pointed out, interest payments and the trading of complex financial instruments can have an enormous impact on GDP, but a negligible impact on efficiency or durable assets. That's grown increasingly significant over the past twenty years. We tend to forget that "the markets" today are not mere stock exchanges.

And as I understand it this is entirely typical of "imperial" economies. Purely financial transactions (i.e. those which do not result in some durable asset or an improvement in efficiency) represent a larger and larger percentage of GDP over time, while things actually purchased tend to originate more and more outside the country.

And sometimes those considerations outweigh whatever minor economic impact tax rates on this or that group will have.

Indeed. Sometimes they even outweigh the major economic impact. Heck, sometimes the economic impact is the whole point of the exercise. It's odd how whenever Republicans are in charge the economy... aw never mind.

OCSteve: Another consideration in looking at future budgets is how much will have to be paid for again to get it done right. I know that you've seen the same kinds of story I have (thanks in part to us both being smart enough to pay attention to Hilzoy) about things like the completely unusable Iraqi police station that'll basically have to be built over because Parsons screwed it up so badly, and of course about how much turned out to simply not be ready in any useful way in the wake of Hurricane Katrina. Congressional investigation can contribute to some trials and the recover of some of the many billions wasted that way, but most of it's effectively gone as far as taxpayers are concerned; Democrats will have to find more money to pay someone else to do the job right.

Taxes are going to rise.
The Democrats control congress.
And that's it.

Taxes are going to rise.
Bush is President.
And that's it.

I can't help thinking that syllogisms do require at least some semblence of a plausible causal connection between premises and conclusion, though.

Bruce: Right you are. When I think of the billions wasted/lost/stolen/defrauded…

When I think of the billions wasted/lost/stolen/defrauded

on the bright side, a lot of that money will end up back in the US economy because a lot of it was stolen by American contractors.

"on the bright side, a lot of that money will end up back in the US economy because a lot of it was stolen by American contractors."

Halliburton is moving to Dubai. I wonder why.

Thanks cleek: That was good for a chuckle.

Investment has an arguably larger economic impact than consumerism on some dollar-for-dollar basis.

I agree that it's very hard to argue that any more.

I think so too. Although I don't have numbers to back this up, it seems that right now there is too much capital chasing too few domestic devlopment opportunities. So investors are just buying up private equity funds or investing in commodities.

Fledermaus: I agree, based on the completely unscientific thought that there have been just too many bubbles now for me to think that we face a shortage of investment capital. It seems to me that it's just running around looking for somewhere to put itself.

Consumption not paid for by credit cards: that's the ticket.

Let's start with wars not paid for by credit cards.

OCSteve wrote, Increase in the marriage penalty.

On net, there's a marriage benefit, not a marriage penalty, last time I looked at the numbers.

No, not for all particular couples. But if you add up the dollar amounts for those who benefit taxwise from being married, those numbers are (or were, last time I looked) bigger than the sum of the penalties.

hairshirthedonist wrote, The other thing that needs to be said is that the wealthy do pay most of the taxes in this country (as I think they should).

Are you figuring in state and local taxes, and payroll taxes?

Furthermore, what's your definition of "wealthy"?

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