And this is the point .....

.... Of calling the Democrats' stimulus package A Stimulus for Tomorrow (Part 11)

by von

Andrew Sullivan mentions a piece by Daniel Gross, which purportedly reminds "conservatives"* that it's too early to label the stimulus a failure because most of the money hasn't been spent yet.

Here is my hand.  Here is my forehead.  Here is my hand smacking my forehead.  (Ouch!)

Gross' article isn't a "reminder"; it's an admission that critics of the stimulus package were right.  A principle argument against the Democrats' stimulus package was that it was misdesigned and too back-heavy.  The Democrats designed a stimulus package that would have its greatest impact in 2010 and 2011 -- not 2009.  Consequently, as designed by the Democrats, money from the stimulus would not enter the economy when it was needed:  at the start of the recession, not at (what appears to be) the recession's end.  In my words -- and why be humble about this now since I have never been before -- the Democrats designed a "Stimulus for Tomorrow."  Not today.   

I suppose that I should take some comfort in the fact that defenders of the Democratic stimulus package are now acknowledging its central design flaw.  And I'm certainly impressed with the fluidity of David Gross' arguments.  It takes a deft hand to argue that critics of the stimulus package are currently wrong because they were previously right.  Or to label as "rash" the conclusion that a stimulus package that costs $787 billion isn't much of a stimulus package if it doesn't take effect until after the recession is (probably) over. 

Despite being impressed by Gross' writing, however, Gross' article isn't an answer to the critics.  It's an admission that the critics were right.

Prior installments of "A Stimulus for Tomorrow": Parts 1, 2, Hilzoy's response, 3, 4, 5, 6, 7, 8, 9, 10.

*Notably, "conservatives" were not the only critics of the stimulus package.  I'm a critic of the Democrat's stimulus package and, 'tho not a democrat, I'm also not a conservative. 

Comments

[TheBadness]

Something to keep in mind:

The recession may technically be over, but the practical impact is not. Unemployment is projected to remain above historical norms for roughly the same timeframe as stimulus outlay (or far longer, for the more pessimistic of prognosticators).

There may be significant political benefit to having a number of ongoing projects during the run-up to the next election cycles.

Similarly, there is a real benefit to (marginally) increasing employment levels during a period when unemployment otherwise would remain a real-life burden.

Building on this point, boosing hiring at a time when the unemployed are being reminded that they have yet to realize a practical benefit from the end of the recession (gee whiz, the Dow's up again! But I'm still fired!) may have a positive impact on the national discourse.

[Irrumator]

TheBadness is absolutely right. Everyone knows that unemployment is a lagging indicator. Demand is still weak. Von's complaint amounts to saying how terrible it is that the government will still be spending money at a time when unemployment is hovering at 10%. If we return to full employment, and money is still being spent, then make your complaint. But right now you're as premature as a virgin on prom night.

[El Cid]

I certainly would have preferred both (a) a larger stimulus, (b) one acting more quickly, and (c) being all crazy and New Deal-y and actually favoring primarily employment, but I'm pretty sure my real world options were either (a) no stimulus, (b) something no more than a bullshit tax cut giveaway, and (c) what we got.

But I'm a crazy fringe leftist anyway, so whaddoiknow?

[MockTurtle]

It's interesting that you cite as a flaw the way spending is patterned (a highly debateable point btw) and fail to go after the obvious problem - namely the largely wasted tax cuts that the GOP demanded. On your larger point: it makes sense to spread the stimulus over time, and ensure that the recovery (which ain't happening quite yet) doesn't lose steam when the stimulus expires. Obviously, you can cheer-lead for your view as much as you like, but your case is hardly as convincing as you like to think. Perhaps you should rethink the post and delete the gratuitous self-praise. A little arrogance is a good thing, but taken in excess it produces a swollen head, hasty opinions, and public humiliation.

[Point]

The Badness and (weird to say) Irrumator seem to be right -- on top of which there's a certain paradox to spending the stimulus too early.

[John Miller]

von, sometimes your logic escapes me. How this shows the critics were right also escapes me.

Unless you have a specific program that would have handled this differently with better employment results, which I have not yet seen you produce, that was not already handled by the original stimulus package, i.e. extended unemployment benefits and tax cuts, then you have nothing.

The payroll tax "holiday" idea was pretty much disabused in the prior thread on the subject, so please don't bring that up again.

The reason much of the money hasn't been spent yet is that it takes a while to get a lot of projects into motion. How that money would have been dumped into the economy earlier, with increased hiring as a result, and with better prospects of longer term recovery, is beyond me. Perhaps you can convince me differently, but your efforts so far have not been very convincing.

[dnfree]

My main argument with the stimulus is not the timing, because as almost everyone above points out, the effects of this recession are long-lasting. Mine is with the lack of impact on jobs.

Construction jobs in our area are about to shut down for the winter, and current employees are working a lot of overtime, but new people have not been hired. Extending unemployment benefits is fine but doesn't help people find jobs (and encourages some people not to bother looking).

It bothers me that while banks and investment firms seem to be doing fine and are able to pay big bonuses again, too many people have lost jobs and can't find a new one.

[These Two Go Well Together]

"A little arrogance is a good thing, but taken in excess it produces a swollen head, hasty opinions, and public humiliation."

"Here is my hand. Here is my forehead. Here is my hand smacking my forehead. (Ouch!)"

[Nate]

So far, I agree with almost everybody on this thread. Which is kinda weird. I do think it's important to have stimulus designed to get people jobs, even if the nominal "GDP is growing! The stock market's up!" 'end' of the recession has happened, but unemployment is ~10%. I also think the options were pretty much those El Cid said, of nothing, useless tax giveaways, and something close to what we got. Bigger, with more direct employment stuff like the WPA or CCC and less useless tax cuts would have been more effective and faster, but wasn't in the cards.

I'd also like to point out, once again, that the "moderate" senators cut out some of the most stimulative parts of the bill, the aid to states. Which would also have included things like being able to hire enough people for the unemployment comissions to handle all of the demands on them now, rather than laying people off (speaking from direct second hand experience).

What would you have preferred, Von? The payroll tax idea has been discussed to death, and most of the other tax cuts that were proposed would have been slower or much less effective than most of what ended up in the bill. There's things that could have been faster and better, but tax cuts weren't it.

[von]

The recession may technically be over, but the practical impact is not. Unemployment is projected to remain above historical norms for roughly the same timeframe as stimulus outlay (or far longer, for the more pessimistic of prognosticators).

There may be significant political benefit to having a number of ongoing projects during the run-up to the next election cycles.

Regarding the first point: infrastructure projects were never going to have a substantial impact on employment, particularly given that they were phased in over a long period of time and focused on only one industry (construction). The goal of the stimulus should not have been to provide long-term infrastructure projects, but to provide incentives that effect both the short and long term for private employers to higher more workers or keep the workers that that they have.

The second point may be correct for the Democrats, but it's highly debatable. The headline during 2010 will probably be the jobs picture; assuming that it's bad, pointing at ongoing projects will only highlight the fact that the stimulus hasn't worked.

von, sometimes your logic escapes me. How this shows the critics were right also escapes me.

Unless you have a specific program that would have handled this differently with better employment results, which I have not yet seen you produce, that was not already handled by the original stimulus package, i.e. extended unemployment benefits and tax cuts, then you have nothing.

John, I've recently mentioned payroll tax cuts as having a positive effect on employment (by shifting incentives towards keeping/hiring employees) and also being immediate. I've mentioned many, many alternative stimulus packages -- some larger than that passed by the Democrats -- that would have more immediate effects.

As for my logic escaping you: Can't help that; sorry.

[von]

Sorry; that penultimate sentence should read:

"I've mentioned many, many alternative stimulus packages in my ten prior posts on this topic -- some larger than that passed by the Democrats -- that would have more immediate effects."

[von]

I'd also like to point out, once again, that the "moderate" senators cut out some of the most stimulative parts of the bill, the aid to states. Which would also have included things like being able to hire enough people for the unemployment comissions to handle all of the demands on them now, rather than laying people off (speaking from direct second hand experience).

I agree with this point, Nate: moderate Democrats and Republicans took a bad stimulus package and made it worse.

What would you have preferred, Von? The payroll tax idea has been discussed to death, and most of the other tax cuts that were proposed would have been slower or much less effective than most of what ended up in the bill. There's things that could have been faster and better, but tax cuts weren't it.

No, not true: Tax cuts and credits would not have been "slower"; as most conceded during the "stimulus" debates, tax cuts and credits were among the fasting acting components of the stimulus package. The argument against tax cuts and credits was that they puportedly failed to have the same "multiplier" effect as infrastructure projects -- i.e., they gave less bang for the buck.

Whether that's true or not is debatable: economists have some data suggesting a higher multiplier for some infrastructure projects, but (a) the data isn't great; (b) it's not for all (or any) infrastructure projects; and (c) the multiplier is spread over a long period of time, diminishing its impact. (Indeed, that's how the multiplier purportedly works -- it "flows" through the economy over time.)

[Irrumator]

Regarding the first point: infrastructure projects were never going to have a substantial impact on employment, particularly given that they were phased in over a long period of time and focused on only one industry (construction).

This is false. Any form of government spending increases aggregate demand and lowers unemployment. Do you think the construction workers would just cash their paychecks and stuff it under a mattress?

[Irrumator]

The argument against tax cuts and credits was that they puportedly failed to have the same "multiplier" effect as infrastructure projects -- i.e., they gave less bang for the buck.

Whether that's true or not is debatable

No. It's not debatable. Or if it is debatable then debate it. Any form of spending will have a higher multiplier than a tax cut. It's the difference between paying people to build crap and just giving away free money.

[von]

The Badness and (weird to say) Irrumator seem to be right -- on top of which there's a certain paradox to spending the stimulus too early.

That paradox has little to do with my point, Point. This paper explains that a short-term stimulus has negative consequences. It says nothing about an early stimulus.

As I've said elsewhere, I would have prefered an immediate, lasting payroll tax holiday as a key component to a stimulus package, along with direct payments to the states (including for some infrastructure payments) and an extension of unemployment benefits. A two-month payroll tax holiday is a terrible idea, and a strawman* argument against a genuine payroll tax holiday.

*Indeed, as I pointed out on the prior thread mentioned by John, the sole study that I've seen thus far strongly opposing a payroll tax cut was based on an analysis of a two-month holiday; it had nothing to do with the genuine payroll tax holiday that I advocate.

[von]

This is false. Any form of government spending increases aggregate demand and lowers unemployment. Do you think the construction workers would just cash their paychecks and stuff it under a mattress?

Actually, what's false is your broad claim that "[a]ny form of government spending increases aggregate demand and lowers unemployment[.]" One example: unemployment insurance. Unemployment insurance increases short-term demand but tends to raise unemployment while it is in effect. (I hasten to add that it generally raises unemployment for the greater good, in that it allows unemployed workers time to find a good job rather than to become underemployed workers by taking the first job they can find.)

In any event, my claim was that "infrastructure projects were never going to have a substantial impact on employment". I didn't say that they had no impact on employment. To the contrary, I pointed out that they would positively impact construction employment.

No. It's not debatable. Or if it is debatable then debate it. Any form of spending will have a higher multiplier than a tax cut. It's the difference between paying people to build crap and just giving away free money.

Irrumator, I am beginning to suspect that you don't know much about economics -- or what a multiplier measures. A multipler gets assigned to a infrastructure project because the infrastructure project, over time, increases commercial activity. Better roads, for instance, lead to better distribution, more commercial opportunities, and new companies.

By comparison, paying someone to dig ditches and fill them back in has a multiplier that's far less than most tax cut. It basically pays someone to exist, but, instead of paying someone to exist while they do something productive -- like some tax cuts do -- it forces someone to do work that's completely unproductive.
.

[Irrumator]

Actually, what's false is your broad claim that "[a]ny form of government spending increases aggregate demand and lowers unemployment[.]

I was talking about actual spending, not transfer payments. Bringing up unemployment compensation misses the point.

Irrumator, I am beginning to suspect that you don't know much about economics -- or what a multiplier measures.

Really, I have the same suspicion about you. Because this is wrong:

A multipler gets assigned to a infrastructure project because the infrastructure project, over time, increases commercial activity. Better roads, for instance, lead to better distribution, more commercial opportunities, and new companies.

When calculating a multiplier you just figure the marginal propensity to consume and do a Taylor expansion. The multiplier has nothing--absolutely nothing--to do with the long-term value of the projects. Government spending is always added to GDP at cost.

[jack lecou]

*COUGH* aid to states *COUGH*.

[Irrumator]

To elaborate:

If the government spends $1 million on a project, that spending itself adds $1 million to GDP. To figure out the multiplier you need to figure out what percent of that $1 million will itself be spent. If the marginal propensity to consume is 80%, then that adds another $800,000. Then you take 80% of the $800,000, etc.

You're right that it's better to spend on projects that do have long-term value, but that's irrelevant in calculating the fiscal multiplier.

[jack lecou]

And yeah, Irrumator is right: the multiplier is strictly about the ripple outward as workers and suppliers spend their wages and payments.

The long term value of the new infrastructure is a bonus over and above that.

[Sebastian]

"Any form of government spending increases aggregate demand and lowers unemployment."

This is way too broad a statement, and even most economists on the left wouldn't say anything like that. All sorts of government spending neither increases aggregate demand (see crowding out) nor lowers unemployment (see umm, most government programs).

[Sebastian]

"To elaborate:

If the government spends $1 million on a project, that spending itself adds $1 million to GDP. To figure out the multiplier you need to figure out what percent of that $1 million will itself be spent. If the marginal propensity to consume is 80%, then that adds another $800,000. Then you take 80% of the $800,000, etc."

Which is why a laser-like focus on the GDP statistic is stupid. This is the same kind of thinking that suggests hurricanes are fantastic for the cities that get hit because their local GDP activity goes way up in the rebuilding phase.

[Kent]

This is a weird post, because most of the people who I'm aware of who made the argument that the stimulus was too little and badly targeted were on the left. Von's agreeing with Brad DeLong, Paul Krugman, and associates, and disagreeing with the right-leaning economists who said that all stimulus will fail by definition (see DeLong for more on this group).

Put more simply: "critics" of the stimulus fall into two main groups: (A) those who wanted more of it and better targeted (primarily on the left); (B) those who wanted less or none of it (primarily on the right). You're right that critics type A were correct. But it's critics type B whom Gross is targeting.

[Irrumator]

Good points, Sebastian.

All sorts of government spending neither increases aggregate demand (see crowding out)

Crowding out is real, but it's inapplicable at the moment. If we were funding the stimulus with tax increases, we'd have to look at their effect. I was assuming we were talking about deficit spending in a liquidity trap, i.e. fiscal stimulus.

And yeah, GDP is stupid in a lot of ways. GDP isn't trying to measure accumulated wealth or capital depreciation. In the hurricane example, the GDP would be great, but the NDP would suck hairy balls. The real problem, from Von's perspective, is that every $1 of government spending is automatically counted as $1 of GDP. So while Von has a real-world point about efficient vs. inefficient spending, that point can't be expressed in terms of GDP. I'm very far from being on the left, and I'm not advocating for permanent, high levels of government spending. Von, however, attacked me for allegedly not knowing what a multiplier was when he was the mistaken one.

[Nate]

von: "The argument against tax cuts and credits was that they puportedly failed to have the same "multiplier" effect as infrastructure projects -- i.e., they gave less bang for the buck."

Which they do, by far. Especially the tax cuts favored by the Republicans, such as lowering the corporate tax rate, or getting rid of the estate tax. Those tax cuts would have done next to nothing for the economy, or unemployment, and would simply have represented a massive giveaway to people who are already well-off. If they wouldn't actually stimulate the economy, does it matter how fast they would act?

"infrastructure projects were never going to have a substantial impact on employment, particularly given that they were phased in over a long period of time and focused on only one industry (construction)"

The construction industry was the first and hardest hit by the housing bubble popping, focusing on creating new jobs that the displaced construction wokers could move to immediately is not a bad idea. It would have been better if the bill had been passed six months earlier than it was, but that was not going to happen with Bush in office. And yes, residential construction differs in many ways than most infrastructure construction, but a lot of the same things are involved too.

"I've recently mentioned payroll tax cuts as having a positive effect on employment (by shifting incentives towards keeping/hiring employees) and also being immediate."

I'm still skeptical of how much of an incentive a payroll tax holiday would provide for employers to keep or hire new employees, given the lack of demand in many industries. That's leaving aside the whole Social Secuirty scare tactics that I'm sure a payroll tax holiday would be used for.

The stimulus plan you say you would have preferred doesn't sound bad to me, von, but I think direct employment via a WPA or CCC type program would have been more productive than a payroll tax holiday. Extra aid to states, beyond just their budget shortfalls, would probably have been better than a payroll tax holiday I suspect, as well.

I agree completely with Sebastian on the stupidity of focusing on GDP as a sign of economic health. I'm not sure if we'd agree on what would be a better measure, but just focusing on GDP leaves out way too much.

[hairshirthedonist]

I'm glad Irrumator wrote that. My notion of the multiplier was a bit vague, but von's explanation seemed off to me. The only quibble I (may) have is whether or not the series expansion involved is actually a Taylor Series expansion. It's like one, at least. But is it one?

[Marty]

I suppose I may be the only one here who doesn't give two twits about what kind of stimulus there was or wasn't. The reality is that the economy would have and will recover with no stimulus. The stimulus bill was dubbed economic recovery because that is what it was meant for, making sure there was accelerated recovery before the next Presidential election.

The financial bailout was prudent, the stimulus was a joke. Any bill that spent less than 2 or 3% (from memory not checked) of annual GDP over the life of the stimulus wasn't going to touch the 5% personal savings rate increase negative impact and stimulate the economy. Bernanke has printed 2.2 trillion dollars trying to stimulate the economy and it has had some positive effect.

This is all about who gets to take credit for the inevitable business cycle, Reagan got some, Bush I got screwed, Clinton rode it into the next recession, Bush II did ok if his term had ended a year earlier and Obama looks like a winner so far.

[Sebastian]

I don't want to leave the impression that I think GDP is useless. It is a better indicator than many. But on the margins it (like all generalizing statistics) has problems. One of the key problems are that it doesn't differentiate between new activity and replacement activity (thus it measures disaster replacement as if it as just as good as regular activity). Another is that it counts deficit spending as if it were the same as saved-money spending or earned-money spending. Sometimes these flaws don't matter. Sometimes they do. In this case, focusing too much on GDP can lead to bad policy.

For example: cash-for-clunkers. This focused exclusively on a very short term effect on GDP. It destroyed actual wealth (functioning cars) without a large increase in the environmental impact which was a large part of its justification. The other part of its justification was to sell more new cars for GDP purposes. This made for two months of increased activity but they were stolen from the later months.

Another example: Having the government hire people to do useless things. The formulation used would suggest that hiring people to dig and refill ditches would be stimulative. And GDP analysis would agree. But again, GDP-focus is in the way of obviously better policies. If you are going to spend X on useless tasks (say trying to save Chrysler) this will indeed stimulate the GDP, but other options would be better. Since you are borrowing the money anyway, you might as well just pay those very same people to quit their useless job and look for another one. GDP effect, apparently negative. Stimulative effect, exactly the same as paying them to do something useless. Overall economic effect, better.

[Carleton Wu]

Gross' article isn't a "reminder"; it's an admission that critics of the stimulus package were right. A principle argument against the Democrats' stimulus package was that it was misdesigned and too back-heavy.

I don't know why you write post after post making this ludicrous claim- you have not been proven right, and just saying it over and over again is childish.
There was a stimulus. You had an alternative proposal. As did many, many other people all over the political spectrum. Perhaps your plan would've worked wonders. Perhaps your plan would've made things worse.
But playing this game where you twist others' statements into proclamations of victory for yourself, it's just getting old.

I suppose that I should take some comfort in the fact that defenders of the Democratic stimulus package are now acknowledging its central design flaw.

False. Perhaps you'd like to maybe cite some of those defenders doing so? That is, saying it was a flaw, not agreeing with the obvious fact that it spreads spending out over a longer period of time than you would've preferred.

And your lack of understanding about multipliers- that's pretty basic stuff when talking about the economics of the stimulus. Perhaps your time would be better spent reading up on the subject rather than giving us another proclamation of victory.

[Jay Jerome]

John Miller, to Von: "Unless you have a specific program that would have handled this differently with better employment results, which I have not yet seen you produce, that was not already handled by the original stimulus package, i.e. extended unemployment benefits and tax cuts, then you have nothing."

And as far as a 'specific program' to handle everything better, I present the JJ Economic Stimulus Plan:

Instead of handing over billions of dollars for low 'multiplier' programs that will end up in the hands of corporate executives who will squander it on trophy wives, or avaricious mistresses/gigolos and foreign sports cars built by non-American auto manufactures, let's pay every American over 40 years of age in the workforce (about 40 million currently employed) $1 million in severance pay, to take early retirement, but with the following stipulations:

They MUST retire - which will create 40 million job openings.
Unemployment: fixed.

They MUST buy a new American CAR.
Forty million new cars ordered.
Domestic Auto Industry: recovered.
Auto Insurance Industry: revived.

They MUST either purchase a house, or pay off their mortgage-
Housing Crisis: ended.
Engineers, Construction Workers: reemployed.
Home Furnishings Market: energized.

They MUST all send me $1, a good-will commission (which I will share with the anonymous emailer who first suggested the idea to me -- as well as the $1.5 million for my Nobel Prize in Economics).

All employed workers over 40, if you're in favor of this solution, raise your hands.

[John Miller]

JJ, I'll take it. I'll even send you the $1.

[Sasha]

Is there same law that says someone has to be trolling here at all times? Irrumator cleans up his act and starts making sense, so JJ has to take up the slack.

[mckinneytexas]

I have a substantive issue with characterizing a tax cut as "a massive giveaway to people who are already well-off." I admit to being relatively well-off, but the government does not give me anything, it takes my money. Lot's of it, especially when you throw in state and local taxes.

I have no idea whether a marginal tax rate reduction would have near or mid term stimulative effects, my sense of the current situation being suppressed demand and unsold inventories.

Administratively, if the goal was to pump money into the economy to generate consumer spending, create or preserve jobs, etc. then the quickest, most administratively efficient mechanism was and still is an employee-side payroll tax cut.

The hubris I see is the notion, largely on the left, that Pelosi, Reid et al really are smart enough to draft spending legislation that will actually do what it is advertised to do. Looked then and still looks like pork-city to me. But then again, I'm not an economist.

[jack lecou]

The reality is that the economy would have and will recover with no stimulus. The stimulus bill was dubbed economic recovery because that is what it was meant for, making sure there was accelerated recovery before the next Presidential election.

I probably shouldn't bite, but I must be missing something. This statement seems really bizarre.

I agree that stimulus is about accelerated recovery, rather than recovery per se (which, yes, would happen regardless... eventually).

But that's the point. Accelerating the recovery means reducing the period of time where people are, you know, suffering. In what sense is that not a good thing in it's own right?

[matttbastard]

mckinney: [B]ut the government does not give me anything, it takes my money.

So, there's no taxpayer-funded fire service, law enforcement, sewer system, water purification/distribution, public transit, highways, urban infrastructure, etc in your region, then? I thought you were from Texas, not Coventry.

;)

[Marty]

"Accelerating the recovery means reducing the period of time where people are, you know, suffering. In what sense is that not a good thing in it's own right?"

There is a difference between a stimulus to ease a recession and accelerating threate of that business cycle recovery when it is politically convenient.

Accelerating an already underway recovery is something we could have discussed next year, not under the guise of the world ending if it isn't signed tomorrow. One is actual caring, the other is purely political.

[jack lecou]

but the government does not give me anything,

I'm hoping you don't really mean that. It's largely invisible, I suppose, but I daresay you'd notice if government actually stopped giving you things. Kind of like a fish doesn't notice the water until it disappears.

(Doubtless there are various things the government should be doing that it's not, or should not be doing that it is, but that's very different from saying it's not doing anything that benefits you at all...)

The hubris I see is the notion, largely on the left, that Pelosi, Reid et al really are smart enough to draft spending legislation that will actually do what it is advertised to do.

That looks like a naked straw man.

[Nate]

mckinneytexas: I wasn't talking about tax cuts in general, I was talking about the specific tax cuts that the Republicans were touting as "stimulus" and had been touting as solutions to every other problem for years. To whit, repealing the estate tax, and cutting the corporate tax rate. Both of those would be nothing more than a giant giveaway to corporations and the families of the extremely wealthy. Neither one would be stimulative at all.

A marginal tax cut on the individual income tax rate is a different beastie. Not necessarilly the best beastie for stimulus, though, especially if the Republicans in Congress were writing it and wrote it like the Bush tax cuts, which were also merely a giant giveaway to those who are already extremely wealthy.

Would it be possible to create a tax cut that was stimulative? Sure. One that's as stimulative as something that actually gives people jobs? Probably not. High taxes are not the economy is having trouble, the economy is having trouble because people don't have jobs. And the jobs thing is actually a lot more serious than just this recession, because the vast majority of the economic "growth" we've had over the past while (at least a decade) has been in the form of "financial innovation" and hasn't really affected regular people very much. And most of that "financial innovation" sure looks like it was just fancy mathematical ways of dressing up fraud.

[jack lecou]

There is a difference between a stimulus to ease a recession and accelerating threate of that business cycle recovery when it is politically convenient.

What's the difference, exactly?

[Sasha]

So, there's no taxpayer-funded fire service, law enforcement, sewer system, water purification/distribution, public transit, highways, urban infrastructure, etc in your region, then? I thought you were from Texas, not Coventry.

Mattt, your snark is ridiculous. Why don't you actually read what he wrote. McKinney was saying that a tax cut should not be characterized as a "gift."
He did not say he received no government services. Your post could be a case study in mindless partisanship. That kind of deliberate, sarcastic misreading is functionally equivalent to trolling.

[Marty]

Jack,

I should be more specific. The stimulus was purported to do two things, create immediate impact to stop the slide into a deeper recession and then to "rebuild" the economy. None of the money spent will substantially do either one. Pumping money into large government projects has a larger effect when the economy has stabilized and started to grow,but what we will be putting n will still be miniscule from a GDP perspective.

The bill was designed to have lots of projects underway so the President (and local Dems) can be seen at work sites and interviewing workers who are pleased to have a job during the 2012 election cycle. On a micro scale that will be great, on any other scale it is like starting your car with the battery from your camera, it just isn't reality.

[Noise Machine]

The bill was designed to have lots of projects underway so the President (and local Dems) can be seen at work sites and interviewing workers who are pleased to have a job during the 2012 election cycle.

Brought to you by Tommy Carcetti and the citizens of Baltimore.

[mckinneytexas]

"So, there's no taxpayer-funded fire service (locally supplied and I pay for it, it isn't given to me), law enforcement (ditto), sewer system (ditto), water purification/distribution (ditto), public transit (what little we have is paid for locally), highways (blended Federal and State, I pay for it, not a gift), urban infrastructure (local stuff, see above), etc in your region, then? I thought you were from Texas, not Coventry.

You're right, MB, I live in Texas and I pay a lot of money for my locally supplied government services. I also pay a lot of money for my federally supplied government services. Not taking more of my money isn't giving me anything because it was mine in the first place. ;)

[jack lecou]

I should be more specific. The stimulus was purported to do two things, create immediate impact to stop the slide into a deeper recession and then to "rebuild" the economy. None of the money spent will substantially do either one.

That's rather open to debate. My own estimation is that not enough was spent, and certainly I would have liked to see somewhat more front loading - aid to states was a particularly glaring omission that's led to some real pain over the last few months.

But then, it was Republicans and Blue Dogs that were responsible for cutting those elements. The plan favored by the administration was rather more ambitious. So it's a bit rich to turn around and claim that it was all a political calculation from the beginning, that somehow what the administration really wanted all along was a weak plan that wouldn't take effect until 2012.

Pumping money into large government projects has a larger effect when the economy has stabilized and started to grow,but what we will be putting n will still be miniscule from a GDP perspective.

I don't think there's a lot of evidence for either of those assertions. Or at least there are plenty of good economists who I believe might disagree.

[NS]

Sure the stimulus had lots of critics. But it was the CONSERVATIVE critics who argued that it was way too big and too "socialist." The parts to which you object -- its slowness and prioritizing of pork over highly-stimulating aid to state & local governments -- are a direct result of the "moderate" compromise to make it palatable to this group. The Gross piece seems pretty clearly aimed at those, yeah, CONSERVATIVE critics who continue to argue that the concessions they forced now hobble the bill's implementation.

[Nate]

mckinneytexas: a) I wasn't talking about general income taxes, I was talking about two specific hobby horses the Republicans in Congress keep proposing, repealing the estate tax and cutting the corporate tax rate, both of which would be nothing more than huge giveaways to people (and the families of people) who are already extremely wealthy, and would have very very little stimulative effect.

And I don't know about Texas, but in many places, local infrastructure is funded by a mix of local, state, and federal funds, often funneled through state revolving funds and the like. Also, I'm pretty sure you're covered by federal law enforcement in addition to local.

And the larger argument about it being "your" money, regardless of the government and society's roles in creating the markets and systems that you can work in, get paid in, buy things in, etc, is slightly off the topic of this thread, so I'll leave it be.

[CharlesWT]

"..., (b) something no more than a bullshit tax cut giveaway,..."

"..., useless tax giveaways, ..."

"...would simply have represented a massive giveaway to people who are already well-off."

"Both of those would be nothing more than a giant giveaway to corporations and the families of the extremely wealthy."

"..., which were also merely a giant giveaway to those who are already extremely wealthy."

How is allowing people to keep their own money a "giveaway?" Or is it that all wealth belongs to the government and the wealth we, as individuals, have is whatever the government gives us or allows us to keep?

[Marty]

"I don't think there's a lot of evidence for either of those assertions. Or at least there are plenty of good economists who I believe might disagree."

I agree that many economists would disagree. Nor do I have the evidence at hand. The opinion I have is based on the effect on business hiring and growth I have seen over a number of these cycles. I will add that from an pure economics calculation I am not an economist, from an experience standpoint it is the reason the Fed moves to slow the economy during higher growth periods. During those cycles whatever extra gets put in tends to create increasingly rapid inflation.

[Marty]

">>>,but what we will be putting n will still be miniscule from a GDP perspective."

This I stand by period. It just didn't and won't matter to the economy overall. It is just not enough money. Consumer savings has gone up almost 500B a year, it isn't even an offset.

[Shygetz]

I'm glad Irrumator corrected the record about the nature of multipliers. I find it deliciously ironic that von tried to chide him for having no clue what multipliers are. I also would like to point out that, once someone has been shown to have such a deep fundamental flaw in his understanding of a topic (like having zero concept of how Keynesian economics work on even a layman's level), that person should shift his/her mode from speaking to listening.

[CharlesWT]

"..., repealing the estate tax and cutting the corporate tax rate, both of which would be nothing more than huge giveaways to people (and the families of people) who are already extremely wealthy, ..."

Since corporate taxes are just another cost of doing business, a corporate tax cut would also be a "giveaway" to employees, consumers, stock holders(like teacher pension plans), etc. A tax, no matter where it starts, ends by coming out of some individual's pocket somewhere.

[mckinneytexas]

Nate--the issue of whether a tax cut is a 'give away' or simply letting someone keep what they've made is at the edge of the larger issue raised by Von's post, which is how to stimulate the economy.

The last stimulus plan involved taking money from citizens via tax revenue, with the costs attendant to that endeavor, passing a law with the attendant horse-trading and pork barreling, spreading the money through myriad federal agencies followed by distribution to the government selected winners, all with attendant administrative costs that hardly seem stimulative.

With an employee-side only FICA holiday or reduction, the administrative cost is minimal, no person or constituency is favored over another and it goes into immediate effect. But, it isn't the government doing something for someone, it is simply government not doing something. My sense is progressives are happiest when government is helping people, not letting people muddle by on their own, making their own spending and saving decisions.

[Free Lunch]

Since corporate taxes are just another cost of doing business, a corporate tax cut would also be a "giveaway" to employees, consumers, stock holders(like teacher pension plans), etc. A tax, no matter where it starts, ends by coming out of some individual's pocket somewhere.

Partially true, but since the biggest pockets pay the biggest share of a nominally allocated tax, not terribly meaningful. Companies cannot pass on all of their taxes in price increases.

Would you be willing to swap all payroll taxes, the most regressive, and corporate taxes for VAT?

[Nate]

CharlesWT: Strawman. Seriously.

How much money would Bill Gates have made without the government? A giant corporation like Microsoft is entirely dependent on things like mostly stable and trustworthy financial markets, commercial markets, import and export markets, plust the work of millions of people in the supply chains of computers and electricity and offices and the entire rest of society. I don't have the time or the patience to dig through and calculate what percentages are of the different contributions, but money isn't made in a vaccuum. It's an arbitrary representation of value, created and valued by society. Without the rules and expectations of society, it's just paper. And those rules are set up and enforced in society through government.

The extremely wealthy, above all, owe most of their income to the presence and exploitation of the rules of society and government. And, not least, they owe the prevention of pitchfork and torch wielding mobs to things like the social contract, and expectations that people will pay something equitable for the benefits they recieve from society. So yes, something like getting rid of the estate tax (which only affects a tiny fraction of a fraction of a fraction of estates) IS a giveaway to the families of extremely wealthy people. They did nothing to earn that money other than carry the genes of somebody else who had many many millions of dollars at the time of their death.

You can't have it both ways. The extremely wealthy get a LOT of benefits from civil society, and they should pay for them. Try telling a movie theater "It's my money, I should keep it" when you don't want to pay for watching a movie.

[Nate]

Damnit, I said I wasn't going to go off on that tanget, and look what I just did.

Maybe what the IRS should do is institute a process to determine what the net value of government services is for each person, and print that on their tax returns each year, both for that year and over a lifetime. It might stop the "But it's MY money!" cries, but probably not.

[jack lecou]

This I stand by period. It just didn't and won't matter to the economy overall. It is just not enough money. Consumer savings has gone up almost 500B a year, it isn't even an offset.

I don't know where you're getting this. GDP is only about 14 or 15 trillion a year, so even spread over a few years, a 1 or 2 trillion dollar stimulus is a lot more than just a blip. And you're not comparing it to GDP overall, but to the magnitude of the slack in aggregate demand. The administration's economic team recommended something like 1.2 trillion.

That might well have been off by a couple hundred billion one way or the other, but I haven't seen you point to anything but personal incredulity to back up your assertion that it's not even in the ballpark.

[Free Lunch]

No, Nate, the folks who whine the most about taxes are so self-absorbed, so narcissistic, that they are completely unable to give credit to anyone for the money they have, even if it was a trust fund from daddy.

[Nate]

mckinneytexas: Actually, the last stimulus involved borrowing money from investors here and abroad, at a very low interest rate, because Treasury bonds are considered very safe. That borrowing will have to be paid back eventually, through inflation, tax increases, or cutting government spending, most likely some combination of all three.

As for administrative costs, I'm not sure there are signifigant administrative costs to say, extending unemployment benefits, or giving aid to states. Some of the infrastructure money was targeted at specific projects, some of it was simply given to state revolving funds and the like, the entities that currently help fund lots of local infrastructure.

Besides that, money going to some administrator who gets to keep their job is stimulative, though not as ideal as going to somebody actually making something. Sadly, layers of administration are pretty much required for an organization as large and complex as a country.

An employee side only payroll tax reduction (which, as google shows, was included in the current plan in the form of a tax credit) has its upsides, but does little for those who are out of work, and doesn't even give any monetary incentive to employers to keep people on.

I'm not sure how you expect any stimulus tax cut to have not involved horse trading or picking winners, those are parts of politics. Heck, picking winners is going to inevitably be part of any bill of any kind, there will be those who benefit more and less from any bill, and those who feel they lost out, even if only because others gained more.

[mckinneytexas]

Nate: you wrote, with respect to the estate tax, "They did nothing to earn that money other than carry the genes of somebody else who had many many millions of dollars at the time of their death." The flaw in this argument--several actually--is that the estate tax is simply a way of getting the money the government won't let me give away during my lifetime other than to certain government approved recipients. If I make a gift to a child or a friend, it's taxed if above (i think) $10,000. Any money I might have and might want to give away has already been taxed once. The idea that I cannot give what is mine, after tax, away is, quite frankly, infuriating. One would think, as a free person, I would be free to do with my money what I wish. I cannot. It's called the gift tax, which precedes the death tax. They are both huge impositions on personal freedom.

[Sebastian]

"I don't have the time or the patience to dig through and calculate what percentages are of the different contributions, but money isn't made in a vaccuum. It's an arbitrary representation of value, created and valued by society. Without the rules and expectations of society, it's just paper. And those rules are set up and enforced in society through government."

This is a major misconception about money. Money is a shorthand we use to exchange for scarce goods and services. Its value isn't made by the government or the society which is why you can't print lots of it and be rich. Unless you eliminate the underlying scarcity (of time or resources) you can't largely change the value of money.

[Irrumator]

The flaw in this argument--several actually--is that the estate tax is simply a way of getting the money the government won't let me give away during my lifetime other than to certain government approved recipients.

No, you have this backwards. The gift tax exists solely to keep people from evading the inheritance tax.

But on a deeper level, why would abolishing inheritance taxes be a form of stimulus? How would that help the economy, by providing an incentive for people to die?

[Irrumator]

Money is a shorthand we use to exchange for scarce goods and services.

Money is more than a medium of exchange, as I'm sure you know. It also functions as a store of value. I bring this up solely to head off any discussion of Say's law. The fact that money can be hoarded is what creates liquidity traps and the need for stimulus.

[Jesurgislac]

Italics begone?

If I make a gift to a child or a friend, it's taxed if above (i think) $10,000.

I have no idea what the taxable limit is, but you know that you're only taxed on the money you receive over the threshold?

The idea that I cannot give what is mine, after tax, away is, quite frankly, infuriating.

It certainly is. But nothing prevents you from doing so. You are not being taxed. The person to whom you give $10,001 is being taxed on the money they receive over the tax-free limit.

If you are infuriated because you hate the idea of paying taxes so much that your hatred of taxes stops you from giving large amounts of money away, well, that's kinda sad. But it's nobody's problem but yours. Deal with your hatred of taxes, and then you won't find anger standing in the way of generosity.

[Nate]

mckinneytexas: The estate tax only kicks in on estates of more than a $1,000,000 (in 2011, currently, as part of the Bush Tax Giveaway, it only kicks in at like $3,750,000 dollars). The top rate it kicks in at is 55% (in 2011, again, now it's like 48%) Things like family businesses are also valued differently under the estate tax. (see the dkosipedia or Wikipedia for more.)

The point is, unless you're Michael Jackson, the estate tax doesn't affect you when you die. Something of a quarter of a percent of all estates are affected by the tax at all. (cite) You can do whatever you want with your money without worrying about the estate tax (at least on the federal level, I didn't look up Texas's state estate tax)

Arguing, as the Republicans in Congress did, that getting rid of the estate tax would be stimulative, is ludicrous.

And arguing that this is a great moral crime, or "infuriating" that people who have already reaped great wealth and advantage from society, and given their children a huge variety of benefits unavailable to at least 99% of those of us in society, then cannot proceede to give those children even MORE money and privlidge in addition when they die, is not very convincing. In fact, it's the exact opposite of convincing. The federal estate tax came about in 1916, and was supported by some of the robber barons themselves. (Wikipedia history of the Estate tax)

Frankly, I think it's far more infuriating that those who have already recieved great benefits and privlidges from their wise choice of parents could recieve even more to put them above the rest of us, at the direct expense of society. The children of the wealthy can already easily live a life of leisure and contribute nothing to society, I'd rather they be required to contribute something. I don't mind people making a lot of money if they earn it doing something useful for society, but accidents of birth aren't that.

[Nate]

Italics Begone!

[Sebastian]

The gift tax is paid by the gift giver.

"Money is more than a medium of exchange, as I'm sure you know. It also functions as a store of value."

But the value isn't functionally set by the government. The value is set by its scarcity and the scarcity of the things you try to buy with it.

So, that doesn't justify Nate's "It's an arbitrary representation of value, created and valued by society."

[Sebastian]

Irrumator, maybe you shouldn't use italics. You seem to have problems with them every single time.

[mckinneytexas]

Jes, you are mistaken: under US tax law, the donor pays the tax, not the recipient. Always been that way. So, it angers me greatly that, after I pay my income tax I cannot then give the after-tax money away to my children without paying additional and substantial tax.

Irrumator--I can't imagine how eliminating the estate tax would be stimulative other than in those cases where small, closely held businesses don't have to go into debt to pay tax on the transfer from parents to children. That wasn't may point and my point regarding estate tax is way off topic. Bad me. ;)

[Nate]

Sebastian: Where is that value set, who evaluates that scarcity? Money, as an intermediate method of exchange IS created by society. In particular, in the US, the money is printed by the government, and valued by society at large. Otherwise how are there markets in currencies? Those markets reflect the underlying economies of the currencies, (well, as much as speculative markets reflect actual value in any case).

Without a dollar being backed by "the full faith and credit of the United States", it would just be a little rectangle of cloth.

[Nate]

mckinneytexas: I don't know how much your business is worth, and I'm not going to speculate, especially since I'm not a lawyer and am not up to digging through the legalese of the bills in question, but most small businesses aren't affected by the estate tax.

And, again, you can give the money away to your children, the estate tax only kicks in on estates over a certain size, and only the portion that's above that limit. Which even after the taxes is plenty to leave children VERY well off.

[Larv]

mckinney,

One would think, as a free person, I would be free to do with my money what I wish. I cannot.

This is hyperbole. You can give away as much of your money as you want, and to whoever you want. Yes, you've already paid your taxes, but then you're not the one being taxed by the gift/inheritance/estate taxes - the recipients of your largesse are.
What you're complaining about is not your ability to give away your money, it's that those you give it to can't just pocket the cash without the government getting it's grubby hands on it. I'm less than sympathetic.

[Scott P.]

Actually, the last stimulus involved borrowing money from investors here and abroad, at a very low interest rate, because Treasury bonds are considered very safe. That borrowing will have to be paid back eventually, through inflation, tax increases, or cutting government spending, most likely some combination of all three.

Well, some inflation happens in a normal economy no matter what, say 2%. Then you forgot to take into account economic growth, say 2.5% per year. Put together that equals a 4.5% annual increase in nominal GDP, which will cover most of the extra expenditures (though probably not all).

[Jay Jerome]

mckinneytexas: "One would think, as a free person, I would be free to do with my money what I wish. I cannot. It's called the gift tax, which precedes the death tax. They are both huge impositions on personal freedom. "

If you're dead, how is the death tax an imposition? It might be a circumscription of your intentions while alive, but unless there is an afterlife, and your spirit maintains it's earthbound greediness, and you can summon John Edwards to do his crossing over thing to make your displeasure manifest, I don't think your view is going to hold up to IRS scrutiny.

Bye the bye, if you live in McKinney, Texas, you recently received $1 million in FTC grants to make the rural transportation system safer. Ditto federal highway grants for US Route 380. Ditto the McKinney, Texas Fire Department which received $25,751.00 in federal grants for Fire fighting related expenses. Also McKinney received Federal Watershed Protection and Flood Prevention grants from the Federal Government. Double Ditto local law enforcement grants from the Federal Govt, through the US Department of Justice...

I know you said you were paying your fair share for those Federal dollars, but since I live in California, and we get a much lower percentage of federal tax dollars back then you guys in Texas, I think you should reimburse me some of that money, and wire me about fifty bucks, so I can buy a round of drinks at the bar tonight, for other short-changed Californians, at the start of the Dodger-Phillies game.

Thanking you in advance for your tax refund...

JJ

[jack lecou]

The idea that I cannot give what is mine, after tax, away is, quite frankly, infuriating.

I don't particularly see why this should be more infuriating than say, paying sales tax, gas tax, property tax, capital gains tax, or any other tax after you've "already" paid income taxes. Similarly, is it outrageous that someone will have to start paying taxes on the "same" money all over again if you use it to pay someone a wage or something? Quelle horreur?

We have a variety of different taxes imposed on a variety of different actions and transactions. So what? You find them irrationally infuriating? That's supposed to be a basis for policy?

I find people being wrong on the internets infuriating. I wonder what should be done about that?

[Carleton Wu]

So, it angers me greatly that, after I pay my income tax I cannot then give the after-tax money away to my children without paying additional and substantial tax.

And if you buy stuff you pay a tax. If you invest and make cap gains you pay a tax (as do the businesses you invest in), or on interest. Import stuff, pay a tax. Fly on a plane, pay a tax. Drink scotch, pay a tax.
So, yeah, you pay taxes all over the place. And that's true pretty much everywhere.

There's a reason for that saying about death and taxes.

[matttbastard]

Sasha: Mattt, your snark is ridiculous. Why don't you actually read what he wrote. McKinney was saying that a tax cut should not be characterized as a "gift."
He did not say he received no government services. Your post could be a case study in mindless partisanship. That kind of deliberate, sarcastic misreading is functionally equivalent to trolling.

Sasha, honestly, do you have anything else to contribute, other than constantly reducing the term "trolling" to utter meaninglessness? All you seem to do is chide others for daring to post in a manner that you don't approve of. It is growing quite tiresome.

And yes, I am seriously holding back out of respect for the New Spirit of Cooperation @ ObWi.

My apologies to mckinney for (genuinely) misreading his point. But calling my gentle rib "a case study in mindless partisanship" is ridiculous and, quite frankly, insulting. I didn't realize supporting representative government was an explicitly partisan position, unless one is reflexively anti-statist -- and I don't recall mckinney ever self-identifying as an anarchist.

(BTW, would someone fix Irrumator's broken HTML? He seems to do that a lot...)

[Nate]

I apologize for getting this whole thread derail started and continuing it as much as I did.

[Jay Jerome]

Nate: "I apologize for getting this whole thread derail started and continuing it as much as I did."

That's how we envisioned the discussion boards when we started them back in the old newsgroup days: as improvised 'threads' to weave an evolving tapestry... (think John Coltrane's My Favorite Things; and not a strictly constructed Minuet by Paderewski).

Meaning you don't have anything to apologize about.

[Bernard Yomtov]

Any money I might have and might want to give away has already been taxed once.

Not necessarily so. Fortunes big enough to face significant estate taxes often consist heavily of assets whose value has grown dramatically, untaxed, because lots of the gains were never realized. Bill Gates has not paid taxes on any Microsoft stock that has held from the beginning.

[Marty]

"I don't know where you're getting this. GDP is only about 14 or 15 trillion a year, so even spread over a few years, a 1 or 2 trillion dollar stimulus is a lot more than just a blip. And you're not comparing it to GDP overall, but to the magnitude of the slack in aggregate demand. The administration's economic team recommended something like 1.2 trillion."

Well, as I recall the stimulus was around 900B over at least three years. So around 300B a year, out of 14 trillion. Again, the change in consumer savings is around 500b this year. Aggregate demand is meaningless because it wasn't provided as tax cuts or other means allowing choice, it focused on targeted spending. So it is a small percentage focused on a small subset of the overall economy.

So we just kind of acted like it was stimulus and made sure it would be there at the right time. Then we blamed conservatives for doing away with an even less meaningful amount.

[mckinneytexas]

There seems to be a lot of confusion about gift and estate tax. Here is the deal: if I give away my money, I have to pay a tax on the gift above $12,000. The tax rate starts at around 18% and goes up in 2% increments for every 10K or so in amount. The express purpose of the gift tax is to prevent avoidance of estate taxes.

The tax is paid by the one making the gift, not the receiver.

Nate writes, "people who have already reaped great wealth and advantage from society, and given their children a huge variety of benefits unavailable to at least 99% of those of us in society, then cannot proceede to give those children even MORE money and privlidge in addition when they die, is not very convincing. In fact, it's the exact opposite of convincing."

In tone and tenor, Nate seems to see life as a situation in which those who do well have taken something from others, and who, having done so, are rightly taxed (penalized) for wanting to pass on what they have earned and already paid taxes on once to their children (or whoever).

I see it differently: I worked hard, took risks, etc. and have done reasonably well. No one has any business judging me or the results of my work. My kids have worked hard, and will in many ways do better than my wife and i. But they are still in the 'starting out' phase and my wife and I would like to help. If we want to give them money for a down payment on a house, for example, say $30,000, we have to pay the government $6,000 for the privilege of doing so.

People who think they have the right and are justified, through government coercion, to require that we pay a tax on money already taxed are free to hold that view. In fact, they are taking for themselves the right to expropriate another's earned income for no better reason than they disapprove of how the other person chooses to spend it. They are imposing their own moral code others, something they would never stand for in any other context. You can call it whatever you like, but it is antithetical to the notion of individual liberty.

[Andy]

The recession may appear to be over... but only because businesses have been preparing for the coming government contracts. If we had pushed the stimulus any sooner, we may have ended a recession earlier, but with much less bang for the buck.

[Sebastian]

"Where is that value set, who evaluates that scarcity?"

Either I don't understand the question or you don't. The value isn't set in any particular place. The whole point of having money rather than barter is that the equilibrium doesn't have to be figured out by a central authority.

"Without a dollar being backed by "the full faith and credit of the United States", it would just be a little rectangle of cloth."

That is only true as to money insofar as the government prints it to cover government debts. As far as an intermediary of exchange, it doesn't actually need to be backed by the full faith and credit of the United States. In fact I suspect most of your dollars don't say any such thing. They are probably just computer entries in a bank tracked by computer entries or checks from your work.

[Jon H]

CharlesWT wrote: "Since corporate taxes are just another cost of doing business, a corporate tax cut would also be a "giveaway" to employees, consumers, stock holders(like teacher pension plans), etc"

Most likely it would go to executives or used for share buybacks. That's what companies did with the ~$300 billion in profits they were allowed to repatriate at the special tax rate of 5.25%, on the condition that it be reinvested in new plant, R&D, or employment in the US.

92% of the profits repatriated went to dividends and share buybacks, rather than the intended use.

So, no. Reducing corporate taxes doesn't necessarily get passed on to consumers as lower prices or to employees as higher wages or additional jobs.

[Jon H]

"If we want to give them money for a down payment on a house, for example, say $30,000, we have to pay the government $6,000 for the privilege of doing so."

Well, for people not in the position to get $30,000 from Daddy, who have to work for it, they'd have to work, what, 30 months to save that up? Maybe more, maybe less.

Seems like a pretty fair trade. They save 30 months of work and scrimping, for just $6,000.

[MockTurtle]

I see it differently: I worked hard, took risks, etc. and have done reasonably well. No one has any business judging me or the results of my work. My kids have worked hard, and will in many ways do better than my wife and i. But they are still in the 'starting out' phase and my wife and I would like to help. If we want to give them money for a down payment on a house, for example, say $30,000, we have to pay the government $6,000 for the privilege of doing so.

I really can't approve of this sort of income redistribution. Why, it's practically socialism! Government is just restraining those evil Communist impulses, and you ought to be suitably grateful. Honestly, McKinney, next you'll be advocating universal healthcare and purging the kulaks! Have you no decency?

[Jon H]

mckinneytexas, do you hate the gift tax so much that you'd rather be too poor to give away large sums of money?

[John Miller]

mckinney, you math is a little off. I am going to assume that you are speaking of say a son and daughter-in-law or a daughter and son-in-law. As of this year, you and your wife could give them 52K before any tax hits. For one child, you and your wife could give them 26K before there is any tax. So even if you wanted to give 30K, you would only pay tax on the 4K which would amount to $720. I realize that may seem still too high, bugt I am sure, if yopu gave them that much money and they are as wonderful as you say they are, they would be willing to give you the $720.

[Bernard Yomtov]

The value isn't set in any particular place. The whole point of having money rather than barter is that the equilibrium doesn't have to be figured out by a central authority.

For money to have value its users must have reasonable confidence that the supply is limited to some extent. At one time this was accomplished by use of the gold standard. These days, it's done by central bank operations. Of course central bank objectives are not limited to price stability, but it's hardly far-fetched to say that, in a broad sense, the value of the dollar in terms of other goods is in fact set by a central authority - the Fed.

[yevgeny]

Consequently, as designed by the Democrats, money from the stimulus would not enter the economy when it was needed: at the start of the recession, not at (what appears to be) the recession's end

The recession, as you may remember, began in December 2007. If money from the stimulus was going to enter the economy at the start of the recession, it would have to have entered the economy when the economy was controlled by Republicans. What do you think the odds of that happening are? We know what the odds are, zero.

If money from the stimulus was going to enter the economy any time before the recession was nearing the longest post-war recession, it would have taken either a bipartisan effort or a Senate that did not require 60 votes to pass anything. What do you think the odds of that happening are? We know what the odds are, zero.

Money from the stimulus did not enter the economy until the recession was nearing the longest running postwar recession for one reason: ignorant country-hating pig-f*cking Republican politicians. You may think I have overstated my case or am being rude. I have not and I am not. I am giving all due respect.

In my words -- and why be humble about this now since I have never been before -- the Democrats designed a "Stimulus for Tomorrow." Not today.

While the decrease in GDP may be over, unemployment is the worst since a short stretch under the Republican Reagan and the worst after that since the Republican Depression of the 1930s. Unemployment is expected to get worse (if you are a worker - employers love this stuff) for quite a while, a full recovery for employment is not expected until 2014 or so. Capacity utilization in the economy is dismal. Given historical measures, the appropriate Fed interest rate right now would be negative 6%, according to those economists who have won Nobel prizes rather than bankrupting their companies or working for government owned companies which they attempted to destroy.

And you think the need for stimulus is over?

That is, in a word and without any doubt, insane.

You don't know anything. You refuse to learn anything. But you love to talk about how great you are.

Have a nice day.

[Jesurgislac]

Jes, you are mistaken: under US tax law, the donor pays the tax, not the recipient.

Thanks for correcting me. Let me in turn correct you: there is a lifetime exclusion on gifts up to $1M, and gifts can be split between spouses (if you are fortunate enough to be allowed legal marriage) and of course between recipients. I found this out in a tolerably swift and easy google: if you had ever actually been in the position of being able to give away $30K, I'm sure you would have checked it for yourself. for example

And claiming that: I see it differently: I worked hard, took risks, etc. and have done reasonably well. No one has any business judging me or the results of my work. My kids have worked hard, and will in many ways do better than my wife and i. But they are still in the 'starting out' phase and my wife and I would like to help. If we want to give them money for a down payment on a house, for example, say $30,000, we have to pay the government $6,000 for the privilege of doing so.

If you and your wife have already given away $2M, yes, this is true.

Would you rather be so poor you can't afford to give away $2 030 000?

Why are you confusing "being taxed on your wealth" with "being judged on your wealth"?

Do you make this much fuss over buying the $5 special from a breakfast menu, and then paying $5.75 to include tax (well, $7 to include the tip)?

The main difference between this tax on breakfast and this tax on money given, is that everyone pays the tax on breakfast - no matter how little money they have, if they want to eat they've got to find the extra 75c, and if they want to eat at that restaurant again they'd better find the extra $1.25 to pay their share of the server's wages.

Whereas you only have to pay the gift tax if you are so wealthy that in your lifetime you can afford to give away over a million dollars.

Rich people are just more meanspirited about paying their fair share?

[Carleton Wu]

People who think they have the right and are justified, through government coercion, to require that we pay a tax on money already taxed are free to hold that view.

I dont know where you get the odd idea that money should be taxed once, ever. Things are not like that anywhere, nor have they ever been like that. Money is taxed as it moves- income, capital gains, interest, inheritance, gifts, purchases, payroll, etc.

In fact, they are taking for themselves the right to expropriate another's earned income for no better reason than they disapprove of how the other person chooses to spend it. They are imposing their own moral code others, something they would never stand for in any other context. You can call it whatever you like, but it is antithetical to the notion of individual liberty.

So you think all taxes are illegitimate? Since everyone disagrees with some government spending, ergo all taxation is the imposition of one's moral code on others. Phrases such as "government coercion" suggest this...
Or is it that you get to impose your moral code on others, but it's antithetical to liberty for others to impose on you?

[publius]

I think my general response to this line of argument is that (1) it's an interesting debate; but (2) it doesn't really reflect the actual fight that happened earlier this year.

The real fight was about whether or not to have a stimulus period. So if THIS the question, i assume -- based on your argument -- that even this stimulus is better than no stimulus.

But also -- i think you can't discount the immediate effect of PROMISING money "on the way."

[publius]

Also -- @Irr.

It would much appreciated if you would get a new handle. I feel like I've been very fair toward you and haven't been on your case. And I"m not requiring it or anything.

But it is upsetting a lot of people, and it would be a nice gesture.

[Jay Jerome]

Carleton Wu: "Or is it that you get to impose your moral code on others, but it's antithetical to liberty for others to impose on you?"

Enough with the sanctimonious theatrics ....
It's Un-American NOT to bitch about taxes. We were founded as a nation to avoid taxation. Right or wrong, logical or not, it's our BIRTHRIGHT to complain about them:

I'm proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money. ~Arthur Godfrey

If you make any money, the government shoves you in the creek once a year with it in your pockets, and all that don't get wet you can keep. ~Will Rogers

Be wary of strong drink. It can make you shoot at tax collectors... and miss. ~Robert Heinlein

People who complain about taxes can be divided into two classes: men and women. ~Author Unknown

What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin. ~Mark Twain

The more you earn, the less you keep,
And now I lay me down to sleep.
I pray the Lord my soul to take,
If the tax-collector hasn't got it before I wake.
~Ogden Nash

[Jay Jerome]

yevgeny: "Money from the stimulus did not enter the economy until the recession was nearing the longest running postwar recession for one reason: ignorant country-hating pig-f*cking Republican politicians..."

My uncle Roderick, who is a farmer in upstate New York, is a Republican, and hangs around with other Republicans, some of them politicians, and I can assure you neither he, or any of his politician friends, have had, or entertained intimate relations with male or females of the porcine family (however I do remember a story about a Republican councilman from a rural district outside Syracuse having been extremely fond of one of the prize sheep he showed at the State Fair each year).

The problem with the Democratic Stimulus is that it isn't stimulating. Meaning it isn't stimulating the economy (certainly not the job market) and it isn't stimulating the national imagination. It may be a wonk's delight (some of the allocations are just plain goofy), but it's been a flat tire for creating jobs, and a lead balloon for elevating the national spirit. Which keeps plunging. Public confidence in the Government's handling of the economy is abysmally low. Today's Gallup Poll shows only 26% of Americans are satisfied with the way things are going -- 71% are dissatisfied.

Who can blame them. When the stimulus act passed the unemployment rate was 8.5% And after about $200 billion in stimulus dollars spent, the national unemployment rate is 9.8%. In transportation and construction related industries it's 17.1%

So, why are stimulus stimulated jobs stymied (say that five times fast!)?

Can it be that who ever created the stimulus package de-emphasized job creation in it? Could it be they earmarked most of the money to status-quo non-job allocations?

Why, by George, I think that's it! Most of the money is earmarked for earmarks!!! (That's earmarks, Yevgeny, not pigsears. But still, not creating jobs that will engender positive upward ticks in the public consciousness.

[Carleton Wu]

Enough with the sanctimonious theatrics

Sanctimonious theatrics was exactly what I was complaining about. Every government in history that I can think of raised money via taxes. Complaining about them may be fun for some people, but until they can come up with a reasonable alternative it's exactly that- a stage show.

It's Un-American NOT to bitch about taxes. We were founded as a nation to avoid taxation.

I think we were founded as a nation to avoid taxes- and government in general- not sustained by the will of the people. And the Constitution embraces taxes- The Congress shall have Power To lay and collect Taxes.

[Carleton Wu]

When the stimulus act passed the unemployment rate was 8.5% And after about $200 billion in stimulus dollars spent, the national unemployment rate is 9.8%.

I suppose you also avoid all medical treatment- receiving medical care is frequently followed by disability or even death.
The death rate is much lower among those who havent recently received medical care, after all.

[Jeff Eaton]

A principle argument against the Democrats' stimulus package was that it was misdesigned and too back-heavy.

I actually agree with most of Von's criticisms of the stimulus package as it was passed. I think it was too small, and didn't focus on the areas that (IMO at least) needed it the most: support for state budgets, for example, would have prevented a lot of pain that is just now hitting home in some areas.

But to say that "It's not big enough" was the principal argument? That's just... bizarre. It's almost as if von forgets that the very existence of the stimulus package was opposed by conservatives, and that the size of the plan was regarded as a compromise.

Debates about where and how the money was to be spent occurred only on the margins, with policy wonks tweaking numbers or conservatives waving around scare-stats to prove that it was all a giant boondoggle. Remember "Porkulous?"

[Nate]

And I had a huge long post here, which IE ate (hate IE on these computers), but the gist of it was:

JJ: I know about thread drift, but the estate tax was just an example of a completely non-stimulative tax to cut, this is way too far in the weeds to be relevant to the post.

mckinneytexas: You're making a false characterization of my arguments, the gift tax you're so infuriated by wouldn't affect your hypothetical, and the estate tax only affects a tiny fraction of the wealthiest estates in the country, it's one of the smallest moral outrages in the tax code, and if you're so outraged by the methods we have chosen, as a society, to pay for running our civlization, do you have any better suggestions on how to pay for a large industrial civlization that allows access to stuff like the internet, law schools, and relatively trustworthy markets?

I'll try and rewrite the rest later.