Bush's Tax Cut: Effective?

[tasty]

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Voodoo Dividends

This Washington Post article by Warren Buffet perfectly explains in simple, capitalist terms why Bush's proposed removal of dividend taxes is a bad idea. His tax cut, which is fortunately getting continually cut down in the senate, is a blatant attempt to appease the rich and place a greater tax burden on the poor. He argues that it is unfair to tax dividends because it is unfair to tax money twice, yet fails to take into account that almost all money gets taxed twice at some point. He also believes that we should continue to increase our deficit in hopes that it will cause the government to decrease spending and therefore shrink. After examining the state of Texas post-Bush's governorship, this possibility scares me. Texas offers almost no government services. Its schools are ranked as one of the worst three in the nation (in good company with his brother's state, Florida, which is continually ranked in the bottom 3 as well). The poverty rate in Texas has risen, the environment has worsened, and the state is facing one of the worst budget problems in US History, owing a debt larger than most countries. Clearly, shrinking the Texas government has had an adverse effect on the state as a whole.

In addition, the wealth gap in this country has risen at an alarming rate since 1980 and is now one of the world's highest. An extremely small investor/CEO class holds over half of America's wealth. I don't understand why anyone would want to enact a policy that would work to increase that difference, especially when the world's leading economists including nobel prize winners George Akerlof, Kenneth Arrow, Daniel McFadden, Paul Samuelson, Robert Solow, Douglass North and William Sharpe, Joseph Stiglitz, Franco Modigliani and Lawrence Klein all have spoken out in opposition to the Bush tax cuts, particularly the dividend cut (BBC article here).

In my opinion this tax cut is a blatant affront to all social classes except the very richest bracket. An upper-middle class family like mine will get a tax cut, but it will be unsubstantial compared to the tax cut received by the rich. The tax burden in this country will be shifted even further onto the already suffering poor and middle class. As Buffet said:

"When you listen to tax-cut rhetoric, remember that giving one class of taxpayer a "break" requires -- now or down the line -- that an equivalent burden be imposed on other parties. In other words, if I get a break, someone else pays. Government can't deliver a free lunch to the country as a whole. It can, however, determine who pays for lunch. And last week the Senate handed the bill to the wrong party."

This chart prepared by congressman Henry Waxman (D-CA) also helps illustrate exactly how regressive the Bush tax cuts are:



(Mods: this image is black and white and takes up only about 2k, please let it stay)

What is your opinion?

[PsYcO aSsAsSiN]

I don't have the time to read about this, but by looing at the picture this is a perfect example of liberal bullshit. If you look at who pays the taxes, I can guarantee you that the upper 1% contribute a higher percentage of their incomes and a higher dollar total of their incomes to Federal and State (where applicable) taxes.

All that graph is trying to show is that it is somehow unfair that the rich get more money back, even though they are paying a larger sum than most of the people on that graph. (It is statistical fact that the poorest 20% of Americans pay a grand total 0f 3.5% of all taxes, while many of them actually receieve moeny from the Federal Government)

Maybe in a couple of days when I am done with exams, I will have to chastise use of such graphs.

[tasty]

Sin, pretty much everything you said is right (except the part about it being bullshit). The US has a progressive tax system, and the rich pay a considerably higher percentage in taxes than the poor. Most would argue that the current progressive tax system is, despite its faults and complications, relatively fair. Bush is attempting to change that, and that's what the graph is protesting.

[Brain]

i would prefer to see  presentages instead of numbers

after all if you have 20,000,000 in the bank 11,000 is a drop in the bucket

[alaric]

Voodoo Economics was bad in the 80's and it's bad now. There is no "trickle down" effect, it's lie, and a bad one at that. Rich people don't stay rich by spending money.

[Cossack]

According to polls from a few American news sources, most Americans do not want this tax cut, many would prefer the money that would be cut was spent on health care.

[Supernatural Pie]

Coss, that's the difference between republicans and democrats.

[jn.loudnotes]

Kind of makes you wonder about poor republicans then.  Are they just uneducated and stupid?  Or is the GOP the party of the rich and powerful that ignores the common man?

[tasty]

snipe, does this mean you are saying that there are more democrats than republicans? i generally find poor republicans to be people that wish they were rich, but dont have the talent/connections to gain the level of material wealth they wish they had. either that or they are social conservatives who want to enforce their vision of morality on others.

[Cossack]

They support the Republican Party because it is supposed to represent smaller government and greater financial freedom in your small buissness. But no party fufils its desired image.

[kami]

I really feel like your economy is going to get a serious blow from whatever Bush wants.

[The Ghost of Bondo]

The greatest signs I see that Bush's tax cuts are a bad idea is that there is a significant amount of Republicans who are protesting it, as well as Alan Greenspan who is seemingly given the title of economic guru who would know better than others what is good for the economy.

And the biggest problem is that the rich will get money from federal tax cuts, meanwhile the state and local governments need to pay the bills so they raise the taxes, but they don't tax the rich specifically, they raise everyone's taxes.  So the rich lose some of the money the got from the federal government, while the middle and lower classes just end up losing from what they have, so in the end the middle and lower classes are giving money to the rich with no significant improvement in services offered to them.

[|MP|Buccaneer]

Voodoo Economics was bad in the 80's and it's bad now. There is no "trickle down" effect, it's lie, and a bad one at that. Rich people don't stay rich by spending money.

Alaric, it's much more complicated then that, and it actually did have some of it's desired effects the first time around.  Clinton didn't dig us out from the recession of the 80's all by himself.  Major point is, if you don't keep money in your customers pockets, they can't buy what you are selling.  

Just to trow in my two cents.  

Flat tax - not the best idea, but more equal.  Why should people that have more shoulder more of the burden?  You don't get charged admission to the movies based on what you have in the bank, you don't get billed more for dinner, or your phone, based upon your TRW.  Why is the price of being an American based upon it?  It would be a shake up, but I think it would also lead to more equalized earning as well.  Plus, with a flat tax, the IRS can be scaled down and that money used to either bring better services or give a tax cut (I leave that to our representatives).

Federal Sales Tax - best solution in my opinion.  Many states have proven this can work.  Tax levels can be set by the type of item, just like it already is (ie food isn't taxed, so everyone can eat).  So you don't tax the three basics, but everything else is (maybe exclude things that the government requires you to buy, like child safety seats for example).  The rich get taxed by what they spend.  They want that 500,000 boat, they pay the tax on it.  But they pay the same tax % that I pay on the boat I buy.  This would also almost eliminate the need for the IRS, which is the biggest black hole of funds in the US government (was the biggest government agency last time I checked).  

But, for those that think today's system is good, think again.  Anyone that said that ever look at the tax code?  Look at the exceptions and deductions you can make?  It's a bloody mess.  And what is fair about making one person pay more then another (at least with sales, it's their choice, they don't have to buy luxury items).  And yes, I am in the fucking high-ass tax bracket, so I have room to bitch about 38% of my pay going to various taxes.  And that doesn't include State sales tax or property tax.

Ok Tasty, there you go, there's the target you asked for.

[The Ghost of Bondo]

Bucc, I think the Department of Defense is the highest budgeted section of the government...they said that on O'Reilly last night talking about how 1 trillion dollars were not properly accounted for.

Although I'm not sure you were talking about actual budget (certainly the IRS wouldn't get more than the DoD)  I am actually a fan of federal sales tax or a VAT as they call it in many countries.

One problem I see with the current system is that the rich don't pay their share as intended.  The rich disproportionately are the ones getting tax write-offs while middle and lower class tend not to have all the fancy write-offs as they don't pay for accountants to work the tricks.  This results in the taxes falling most heavily on the middle class.  Now, this of course is subject to questioning if the share the rich are supposed to pay is right, but there is no doubt that they are taking advantage of the write-offs the most and if there were no write-offs available, more taxes would be collected.

As for justifying the rich paying a higher percentage.  That is a touch of socialism, trying to balance out earnings.  I find it perfectly acceptable to expect those making a million a year to pay a greater percent than those making 30k.  They can afford to pay more without it depriving them of livelihood while the poor can't afford to lose as much or they won't be able to have a home or other such things.  Then again, being a social democrat, socialism doesn't bother me as much as economic libertarians.

[tasty]

About time bucc  . As I see it, you addressed two crucial concerns with our tax system, fairness and utility. Our tax system is one of the few moderate policies I agree with. I don't support regressive taxes that choke the poor, but I also don't want to have to deal with a government any more massive than ours already is. Yes, the tax code is far too complicated and needs badly to be simplified. It has more loopholes than swiss cheese and screws more people than Ron Jeremy. While my family is not extremely wealthy, we get screwed by taxes just as much as anyone else. When my father sold his business a year ago, the government ate up about half of the profit from the sale. He also owns real estate, and property taxes screw him out of so much profit that he barely manages to break even on the properties he manages.

The loopholes are another annoying thing. Just last week before a congressional subcommittee, Rupert Murdoch admitted that last year News Corporation (aka FOX) did not pay any taxes last year. Numerous other corporations are allowed to hide their money in foreign banks and use esoteric rhetoric rules to their advantage in managing to pay little to no taxes. If we are to have a fair tax system, the government must ensure that all citizens and companies pay the amount they are meant to under the law.

I do not think that your suggestions will improve upon anything however. Businesses are conscious of how much people make - my friends and I pay 8.00 to watch a movie here in the suburbs, but if we make the 30 minute trek over to the east side of town we can see one for 5.50 at a theatre owned by the same company. Only the government knows how much specifically each person makes, so only they can ask people to pay accordingly. Other institutions merely assume how much people can pay and try to siphon out the maximum amount they can possibly get. I am interested in this idea of a flat tax evening out salaries, but know very little about it. I would appreciate some explanation.

A federal income tax is typically viewed as the most regressive type of tax. Obviously everyone has to buy stuff like clothing, furniture, transportation, etc. Poor people spend a much, much higher percentage of their yearly income on these items than rich people do. You can see then that introducing a federal income tax will literally reverse the current tax system: the poorest fifth of America will pay the highest percentage of their income in tax, while the richest fifth will pay an obscenely low percentage of their income. You point out that the rich will have to pay taxes on luxury items like expensive boats and cars. But the federal government already has a luxury tax, so how will this be any change in the tax burden?

The tax system is imperfect. In fact, it is highly flawed. But now as flawed as most of the alternative systems that are suggested to replace it. The question of fairness comes into play when you compare the salary of a janitor to that of a CEO. Say the janitor makes 10.00 an hour and works full time, 51 weeks a year. That would work out to be about 24,000 a year before taxes. Compare with Dick Grasso, the New York Stock Exchange chairman who makes 10 million a year. Mr. Grasso has a bachelor's degree and MBA from top colleges, is experienced, does a good job, is a public figure, and encounters high levels of stress in his workplace. He deserves to be compensated for these additional responsibilities that he takes on in his work. But does he deserve to be paid 417 times as much as this janitor? I don't think there is any reasonable way that one can argue that he isn't getting a pretty sweet deal as far as his income. He probably gets lots of time off and benefits up the wazoo, and he probably has a multimillion dollar pension waiting for him when he chooses to retire. My argument is that upper level salaries have soared beyond any reasonable level into the upper stratosphere, and the only way to redistribute the money that these workers are unfairly getting is through a progressive tax system. Capitalism is not perfect, and  contrary to what many believe it does not naturally solve problems itself. It is neither fair nor utilitarian for our economic system to be so heavily stratified. Progressive taxes must stay.

[The Ghost of Bondo]

I agree with tasty that with the salaries being what they are, a progressive tax system is needed.

I however think we should strive to make the salaries be reasonable so that they can in turn change the tax system to a more flat tax style.

I've suggested it here before that there be some sort of top to bottom earner ratio, that the CEO (who we assume is payed the most) can only be paid something like 10 times what the lowest paid employee is paid.  There can be some alterations in this perhaps based on difficulty, demand, and risk of a job.  For example, nurses are in demand so the salaries for the job should be higher, that would seem to be common economics yet nurses aren't paid much so it remains an in demand job.  Professional atheletes are often criticized for how much they make, and they do make too much, but certainly they deserve significant amounts still due, especially in sports like hockey, to be paid well.  I would consider having a ratio within the players to be ok.  Say the minimum is 500k/year, make the max 5 million a year.  By having salaries in this manner, it doesn't really affect a company's bottom line, it merely distributes the salaries more equally within the company.  There is still incentive to be making the 10 rather than the 1 in the ratio so it doesn't remove that like true socialism does.

[|MP|Buccaneer]

If we are to have a fair tax system, the government must ensure that all citizens and companies pay the amount they are meant to under the law.

A Federal Sales Tax helps to accomplish this without having to pay for more government oversight.  Fox news has to purchase quite a few things to make it function, and it's just much harder to hide that.

Obviously everyone has to buy stuff like clothing, furniture, transportation, etc. Poor people spend a much, much higher percentage of their yearly income on these items than rich people do. You can see then that introducing a federal income tax will literally reverse the current tax system: the poorest fifth of America will pay the highest percentage of their income in tax, while the richest fifth will pay an obscenely low percentage of their income. You point out that the rich will have to pay taxes on luxury items like expensive boats and cars. But the federal government already has a luxury tax, so how will this be any change in the tax burden?

Two parter.

First, I don't agree that to poor will be spending that much of a lower percentage then the rich.  The rich buy more, and buy more expensive items.  And if you don't tax the absolute necessities of life, then I don't see it as a reversal.  I see it as a leveling.  The only people that won't be paying out as much are those that don't purchase as much.  So, if the rich absolutely sit on their money, and don't buy anything, yes, they could pay a lower percentage.  But let's face it, they buy a shit load of stuff.  I'm considered rich by the government standards, and I sure as hell spend a very high percentage of my income.

Second, the luxury tax isn't set up right in so very many ways.  First, look at the cap.  It's too easy to fall right under it.  Second, look at how easy it is to get around.  I know people that actually get a tax break on their cars, because they pay for them with a home equity loan (very common).  

What I'm talking about here is a 10% or so sales tax on everything but the essentials.  Some things would be tax free, just like today, only maybe expanded a little.  Everything else would be taxed at a fixed rate.  Car, boat, mink coat, nintendo, xbox, computer, software.  You name it, all the same rate.  

Under this model, the only people that don't pay as high a percentage is those who sit on their money and save it.  And let's face it, even the rich don't want to do that.  They don't have any fun without spending it.  And you'd probably get more hard dollars out of the insanely rich this way, since they wouldn't have all the hiding places and loop holes.  And if that's the case, the actual percentage goes down for everyone.  

You need to remember, it's not about punishing the people that earn more.  If you want that, find yourselves a nice little socialist state.  

The question of fairness comes into play when you compare the salary of a janitor to that of a CEO. Say the janitor makes 10.00 an hour and works full time, 51 weeks a year. That would work out to be about 24,000 a year before taxes. Compare with Dick Grasso, the New York Stock Exchange chairman who makes 10 million a year.

Ah, and where does that fit in with taxes I ask?  

First of all, what is stopping that janitor from going to school and stepping out of the $10 an hour job?  There is a reason it pays what it pays, same as the CEO positions.  Many CEO's make their money based on how well the company does under them.  So if the CEO steers the company in the right direction, to record profits, he's done a wonderful job for both the employees and shareholders.  And has earned his pay.  A CEO can make or break the company.  Look at Apple for example.  Does Steve Jobs not earn every cent he makes?  And I'm talking with the bonus, not just the one dollar a year salary he has.  Apple would have folded without him, instead, they are again one of the most profitable computer companies there is.  Tell me a janitor at Apple can have that kind of effect?  Tell me there aren't a million people that could clean floors as well as that janitor.  Then tell me how many people could have saved Apple.  Just like our economy, it's supply and demand.  The good CEO's have a very special skill, that's short on supply and big on demand.  

Second, we don't need to get in the discussion about socialism vs capitalism mixed in with taxes, do we?

Oh, and Bondo, your analogy about sports and salary caps was tried back long ago (you really need to learn some more history).  Problem is, it just made it the owners that got all the money.  Because it is a business, and business are there to make money.  So they try to make more every year.  So who should this money go to?  Players or owners?  And then what do you do about the teams that are more successful then others?  It's unmanageable.  That's the same sort of pipe dream as a true democracy.  It just can't exist in anything approaching a large society.  

So again, if you want to live in a socialist country, do so, but why do you want to make America into another one of those?  We'd lose all the technical innovation that comes hand in hand with capitalism.  The promise of great wealth is a great motivation.  You can't remove or prune one without doing the same to the other, there is a balance in the universe.

[|MP|Buccaneer]

Although I'm not sure you were talking about actual budget (certainly the IRS wouldn't get more than the DoD)  I am actually a fan of federal sales tax or a VAT as they call it in many countries.

Actually, I was talking about actual budget, but this was 1) during the Clinton years and 2) they may have excluded DoD, like I said, it was a while ago and working from memory.

As for justifying the rich paying a higher percentage.  That is a touch of socialism, trying to balance out earnings.  I find it perfectly acceptable to expect those making a million a year to pay a greater percent than those making 30k.  They can afford to pay more without it depriving them of livelihood while the poor can't afford to lose as much or they won't be able to have a home or other such things.  Then again, being a social democrat, socialism doesn't bother me as much as economic libertarians.

Screw socialism.  Funny how socialism ignores equality in the name of it.  They should shoulder an equal burden for equal protection.  The main job of the Federal Government is defense.  I don't think anyone here would argue that (and do so at your own risk).  Well, is the life of the guy making 30k a year worth less then that of the guy making 130k?  So why is the guy making 130k forking out such a higher percentage?  And lets not talk millions here, I'm in that high ass tax bracket, so let's compare me to the 30k guy.  What is it that makes it so I should have to pay such a higher percentage?  I breath more air then the other guy?  Takes more guns and tanks and ships and planes to protect my ass?  Ok, how about looking at the second most important thing for Government to do, state security.  Do I need more protecting by police then the guy making 30k?  I doubt it.  I may have a little more to lose, but I also make enough to not be in a high crime area.  And I make enough to have everything insured.  

There is nothing stopping that guy from getting more education, more qualifications, and going after more money, is there?  And there is nothing stopping people that don't want to live in a competitive economy from moving to a more socialist one, is there?  If someone doesn't want to work to get ahead, then they shouldn't complain that someone has that much more then them.

So what is it that makes it more important for me to pay that much more?  I'll accept paying more hard dollars in the name of a flat percentage, just to make things that much easier to manage, but why should I pay an even higher percentage?  What is fair about that or equal about that?  Equal rights should mean equal responsibility.  Most people here believe in equal rights (with some noted exceptions), but those equal rights should come with equal responsibilities, shouldn't they?  

The way it is today, I pay more in taxes than the guy makes.  And that's no lie.  How is that fair?  He had every chance I did to make the money I make.  It's not like anyone paid for my education other then me.  I earn that money, every bit and more then someone that didn't go into serious debt to get an education.  If that guy didn't want to do what it takes, good for him.  I did.  I shouldn't have to pay for their mistakes the rest of my life.

[The Ghost of Bondo]

Bucc, my salary ratio suggestion has nothing to do with socialism really.  It is just about paying people for the amount, the quality, the risk, the demand, etc of the job and not just paying the people at the top big bucks because they are the people at the top.  While there are some influencial CEOs there are others who have no real effect on their company and are merely just talking heads at the top.  The point isn't trying to make everyone have the same amount as would be socialism, it is just trying to pay more fairly.

And my salary ratio concept would have no affect on technological innovation, like I said, it doesn't affect the bottom line of companies so they are free to re-invest the money to develop new things just as much as before.  And Inventors can still strive to be at the top of the ratio so there is still individual motivation.

When you say socialism ignores equality to achieve it, you ignore the type of equality socialism sets out to achieve, specifically equality of quality of life, for everyone to have the same things.  True socialism does have an equal tax rate though...100%.  All is redistributed through the government.

Hehe, I'll take the bait, I think the most important thing government does is the legal system...making, enforcing, and judging laws, the three branches.  I'd rank that above defense.  Of course, I'm a fan of a weak federal government (and less defense spendings), and putting more money through state governments.

The one thing about urging the guy to seek to move up rather than expect to be paid more for being a janitor...if he does move up, there will still be a janitor who will still be paid very little.  The point is to improve the life of people in the bottom rung simply by having a higher standard of what the bottom rung is.  Once again, it is a matter of paying people fairly (why should a company making millions or billions in profit be laying off people or just employing people for below a decent standard of living?)

About the sports thing...who said I want the owners to keep the money.  They would also be paying the other employees more, the field crew, the concessions people, all the people in the corporation's bottom would have increased salaries...that would take some of the owner's profit.  Secondly, in the case where the stadium isn't selling out, a sign of weak demand, economics would state that ticket prices should drop, so if there is more profit, it should go to the consumers by not having as expensive of tickets/food/etc.  Finally, the owner as the person taking the risk of investment deserves a profit of his own.  The point being, your criticism assumes the players are paid less and the owner pockets the rest.  My version assumes that the owner uses the extra money to trickle down if you will (more forcibly trickled down than Bush and Regan economics) to raise the quality of life for many.

These are just possibilities though, I'm not an economic expert who could have a real idea the effect of all these different strategies.  But I do think salary fairness as I've suggested substantially raise the quality of life for many people, maintain a high quality of life for the top, just not obscenely so.  It keep motivation to move up, to invent, and leaves room for companies to invest in new innovations.  Basically it has some of the fairness of socialism without the major shortcomings of socialism.

[tasty]

First, I don't agree that to poor will be spending that much of a lower percentage then the rich.  The rich buy more, and buy more expensive items.  

The rich will buy much more, but I don't think they could ever spend a higher percentage. Rich people invest their money, and poor people don't usually have enough left over at the end of the month to invest. Rich people are usually smarter with their money too. If anything, I think this income tax will cause people (especially the rich) to buy less. dddddIt also really depends on what type of items are going to count as "bare necessities". It seems like you are defining them pretty loosely. The tax you have proposed at the rate you have proposed will bring in miniscule revenues. It will also greatly favor the rich over the poor in my opinion. What about state sales taxes too? Will we tax things twice?

Under this model, the only people that don't pay as high a percentage is those who sit on their money and save it.  And let's face it, even the rich don't want to do that.  

The exact problem with this though is not the rich (six figured salaries) but the extremely rich, the ones with seven figure salaries or above. If you're Ted Turner or Bill Gates, there is a certain point where you just can't spend any more money because you've already bought everything there is to buy. The obscenely rich sit on more money than anyone else. I think that a sales tax alone would need to be augmented by other provisions - it sounds lovely, but its just too simplistic to get the job done.

You need to remember, it's not about punishing the people that earn more.  If you want that, find yourselves a nice little socialist state.  

But its also not about punishing the people that earn less, which is what your proposal does. You have stated again and again your beliefs in concepts like meritocracy and social darwinism. Yet many people are NOT capitalists and do not use money as their motivation in their final career goals. People should not be forced to pursue material wealth just to get by. Everyone that is working deserves at least subsistence level salary. You continually bring up the fact that Joe Janitor can go back to school and try to work his way up through the corporate ladder, but no matter what Joe Janitor does someone is going to have to do his job. Not everyone can be a skilled worker, not everyone can get advanced degrees. Society has a continual need for people to clean, people to cook, people to cashier. These people, whether they chose their line of work or whether its simply the best they can do, do not deserve to live below the poverty level. A federal sales tax will punish these people for their life choices, and unlike the rich, they won't have leftover money to make up the difference.

So if the CEO steers the company in the right direction, to record profits, he's done a wonderful job for both the employees and shareholders.  And has earned his pay.  A CEO can make or break the company. Then tell me how many people could have saved Apple.  Just like our economy, it's supply and demand.  The good CEO's have a very special skill, that's short on supply and big on demand.  

First of all, I don't agree that Steve Jobs is the only person that could have saved Apple. There may not be 10 million people who can be as good of a CEO, but I bet there are at least a thousand. I also believe that it is impossible to "earn" 10 million dollars. There is nothing that one person can do that is deserving of that much money, short of singlehandedly saving all of mankind or something like that. It is true that supply and demand is the law of capitalism, but it also creates absurd prices and absurd salary differences. And CEO salaries ARE absurd. In 1980, the top CEOs were barely making a million dollars. Inflation has not gone up that much since 1980 to account for the differences in salary then and now.

We'd lose all the technical innovation that comes hand in hand with capitalism.  The promise of great wealth is a great motivation.  You can't remove or prune one without doing the same to the other, there is a balance in the universe.

It is a folly that all of America's greatness is resultant from capitalism. There are plenty of motivating factors besides money. I argue that technological innovations would happen with or without capitalism. According to the World Economic Forum's Global Competitiveness Report, Finland ranks number one in innovation. Obviously they don't need capitalism to motivate them to be innovative or invent new things, since they are doing it at a higher rate than the United States. Money is not what motivates me to succeed in school, and most of the intelligent people I know are not motivated by money either. It's a poor excuse to make up for a system that creates inumerable injustices.