Time to ‘turn the page’ to new tax cuts?
“It’s time to turn the page,” President Obama said last night, shifting our focus from overseas wars to repairing America. Writing in the New York Times, David Leonhardt suggests that the best way to go forward, politically and economically, is through tax cuts. That’s the kind of proposal that could actually get passed in Congress, and it’s the kind of proposal likely to have an effect.
But not all tax cuts are equal, Leonhardt notes as he walks us through some history:
“Mr. Bush signed his original tax cut in June 2001, when the economy had been losing jobs for four months. It then shed jobs for two more years. In the decade that followed the tax cut, economic growth was slower than in any decade since World War II.
If the goal is short-term stimulus, even Ronald Reagan’s much-lauded 1981 tax cut doesn’t appear to have worked. After he signed it, the economy lost jobs for 16 straight months. It didn’t start gaining jobs until after he had raised taxes, to reduce the deficit, in late 1982.
What explains this pattern? Tax rates matter, but people don’t make most decisions based primarily on their marginal tax rates. Mr. Bush’s and Mr. Reagan’s tax cuts were just not powerful enough to overcome the economic headwinds at the time.”
Those cuts didn’t have the desired effect in part because so many of the benefits went to upper-income Americans, who simply added the money to their savings rather than spend it, he argues.
So again, what kind of tax cuts work best?
Citing work by Moody’s Analytics, Leonhardt suggests a one-time, lump-sum tax rebate check, which Moody says would stimulate $1.22 in new economic activity for every dollar lost in federal revenue. (By comparison, making the Bush tax cuts permanent would generate just $0.35 cents in new economic activity per dollar.)
He also suggests a tax credit for employers who hire new workers, which would generate $1.29 in new GDP for each dollar lost in revenue. A suspension of the payroll tax on employers also carries a lot of bang for the buck, at $1.23 in new GDP per dollar revenue lost.
He concludes:
“Either way, a couple of tax cuts along these lines could make good additions to a bill extending the Bush tax cuts for households making less than $250,000 a year. Economically, the extra cuts would have a bigger impact than an extension of all the Bush cuts. Politically, this kind of bill would force opponents to explain why they instead wanted smaller tax cuts for middle-class families and businesses and a bigger one for the affluent.”
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245 comments Add your comment
USinUK
September 1st, 2010
9:57 am
“Leonhardt suggests a one-time, lump-sum tax rebate check, which Moody says would stimulate $1.22 in new economic activity for every dollar lost in federal revenue. ”
yeah. it stimulates economic activity for about 6 weeks, then the effect of the one-time-lump-sum check is pretty much doneski.
Normal
September 1st, 2010
9:58 am
Read my lips, no new taxes, er cuts, er…never mind.
Bosch
September 1st, 2010
10:00 am
“Leonhardt suggests a one-time, lump-sum tax rebate check”
What? Is this the same “rebate” checks we all got during the Bush years? Haven’t we seen this before? Haven’t we seen that this doesn’t work?
godless heathen
September 1st, 2010
10:01 am
Someone has hijacked Bookman’s blog!
Bosch
September 1st, 2010
10:01 am
Are these people just completely stuck on stoopid?
Doggone/GA
September 1st, 2010
10:01 am
USinUK – AMEN!
USinUK
September 1st, 2010
10:02 am
Bosch – I’m with ya. been there. done that. like peeing in your wet suit, it keeps you warm for a little while, but not so good for long-term impact.
Doggone/GA
September 1st, 2010
10:03 am
I can tell you, for a fact, that if they tried a “rebate” that I, for one, would not be spending it. I would use it to pay down some of my existing debt.
godless heathen
September 1st, 2010
10:03 am
What growth stimulus does Moody’s Analytics give to each dollar spent in the current stimulus?
The Leg Lamp is a "major award", much like Cynthia Tucker's Pulitzer and Obama's Nobel
September 1st, 2010
10:04 am
The page will be turned in November.
The Leg Lamp is a "major award", much like Cynthia Tucker's Pulitzer and Obama's Nobel
September 1st, 2010
10:05 am
John Cusack Calls for ‘Satanic Death’ of FOXNEWS, GOP Leaders…
Nothing quite like the level headed eloquence of a liberal.
Union
September 1st, 2010
10:06 am
gee.. i said this yesterday.. go figure.. its called vote buying?
Jay
September 1st, 2010
10:06 am
Doggone, Bosch, USnUK, what alternatives would YOU propose?
Given that Congress has entirely lost its appetite for stimulus through more spending, the options at this point would seem to be:
1.) Do nothing and let the economy play out.
2.) Try tax cuts.
If you think we have other politically plausible options, please air them.
I'm Here From The Government And I'm Here To Help
September 1st, 2010
10:07 am
History Lesson maybe 1 in 10,000 know…..
Watch and learn the facts!
http://www.youtube.com/watch?v=dlfEdJNn15E
Doggone/GA
September 1st, 2010
10:08 am
“its called vote buying?”
Was it vote buying when Bush did it?
Jay
September 1st, 2010
10:09 am
Again, Union, if it’s vote buying when Dems do it, what’s it called when Republicans such as Bush and Reagan do it? In fact, I’d argue that support for tax cuts always and foreever amen has become the single defining feature of the modern conservative movement. Is that vote-buying too?
Doggone/GA
September 1st, 2010
10:10 am
Jay, I’m not against tax cuts, per se. I’m against a “tax rebate.” If tax cuts are to stimulate the economy (not necessarily a give, but go with it) then they need to be sustained. To again use myself as an example, I’m much more likely to actually spend the money if I get a little more in each paycheck than I am if I get a lump sum.
The Leg Lamp is a "major award", much like Cynthia Tucker's Pulitzer and Obama's Nobel
September 1st, 2010
10:11 am
USinUK
September 1st, 2010
9:57 am
But if you have no food in the house and someone offers you a 6-week supply, would you turn it down?
I don’t have all the answers, but a tax cut, or a “stimulus” plan that will be paid for (eventually) by my tax dollars are somewhat similar. The biggest difference in my mind is that a tax cut allows ME to decide how to use the money.
Bosch
September 1st, 2010
10:12 am
Jay,
Actually cut spending for one thing, and let the Bush tax cuts expire for two, and raise taxes on everybody a fraction of a percent three. Would that be politically popular? No, but sometimes you got to tell the kids, “no.”
As Doggone said, me, her and most everybody else would spend that money on existing debt, or maybe, splurge and buy a pound of shrimp and good cheese to go with our grits.
Bosch
September 1st, 2010
10:16 am
And let’s call a spade a spade, isn’t a tax rebate check a stimulus plan? Albeit a stoopid one?
Jefferson
September 1st, 2010
10:17 am
What is debt ?
AmVet
September 1st, 2010
10:18 am
If you think we have other *politically* plausible options, please air them.
Aye, and there’s the rub, Jay. That word politically.
These minuscule “tax cuts” aren’t going to do much of anything for people who can no longer pay their insurance premiums or afford to eat out but once a fortnight. And has been noted, that $600 I got was not unappreciated, but all in all, pretty laughable.
Until the root causes of the income redistribution UP the ladder and welfare for the wealthy are addressed in a meaningful way, the working class American family is going to continue to fall further and further behind the curve.
And the gap between the American haves and have nots will widen even more dramatically.
Like it has for the past thirty years.
And this current crop of lackeys in Washington are not ever going to stand up TO the their corporate paymasters and FOR we the people.
The answer is there is too much power and too much wealth in too few hands and the few control our government and the few create the problems and the injustices for the many and have less and less interest in doing anything about it because they can get away with it. ~Ralph Nader 1996
harvey
September 1st, 2010
10:18 am
yeah, rebates to people who didn’t pay taxes in the first place. Whew, what a solution.
TaxPayer
September 1st, 2010
10:21 am
If the Dems would simply learn a key lesson from the Republicans, they could offer a tax cut strategy to boost the economy while simultaneously getting those votes for November. All they have to do is extend all of the Bush tax cuts but for different time frames. The estate tax cut could be extended until March, the cuts for the upper crust could extend until January and the cuts for folks making less than maybe $100k could be extended until such time as Obama is out of office, another six years. It’s a win-win.
USinUK
September 1st, 2010
10:22 am
Jay – sorry – conference call delay … my proposal would be as follows:
1) business tax cuts for jobs created WITHIN the US – with an extra bump for jobs filled before the end of the year.
2) expiration of the Bush tax cuts for households making more than $200K/year
3) federal government budget cuts (with particular attention to projects which haven’t yet launched)
4) reinvesting some of that money into small business grants / loans
Normal
September 1st, 2010
10:23 am
Jay,
I agree with Bosch at 10:12. Cut the fat out of “doing business” too.
But I would rather see a jobs program that would put our people to work and do this country’s infrastructure some some good.
Otherwise let the economy do what it’s going to do. It will hurt, but it will wake up the folks on the Hill and perhaps even pull together to fix it.
jm
September 1st, 2010
10:23 am
Greenspan supports letting the tax cuts set. I’m in his camp. The deficit is worse than the tax increases. But all the tax increases have to sunset, not just those on the rich. The hole is too big and without middle class tax increases, the US economy will blow up.
Of course, we could cut spending, but apparently that’s a bad idea these days in the US despite the fact that Germany, Latvia / Estonia, and Ireland have proven its a great idea.
USinUK
September 1st, 2010
10:23 am
Leg – “But if you have no food in the house and someone offers you a 6-week supply, would you turn it down?”
that’s not the question. the question is what is going to truly stimulate the economy. as I said, the rebate has no lasting impact – it just feeds people for a couple of weeks – it doesn’t encourage companies / businesses to hire.
Road Scholar
September 1st, 2010
10:24 am
USinUK: I learned something about you in your second blog! Not exactly flattering!
Jay: You ask what should be done: Let the Bush tax cuts expire, but have a new tax cut bill passed that mirrors the Bush plan except for those over $250K. That way we can prove that the GOP doesn’t give a damn about Americans, but only the rich.
Also pass a new Transportation bill. The old one has expired. It is funded from gas tax revenues which I contend need a jump, but that is politically infeasible. At least with infrastructure funding we have something to show for it when the projects are done. NO ENHANCEMENTS! Let the state’s planning personnel decide where their biggest needs are. NO NEW PROGRAMS! In 92 they supposedly passed a bill that consolidated spending categories. Then proceeded to add new programs w/o additional revnues, short changing already eatablish programs, priorities etc. Ensure that projects undertaken have been evaluated against others and are selected based on need.
Finally, look at how federal tax dollars are sent to the states. Ensure that states like Alaska get the same, not additional, monies when compared to other states. Those folks want accountability…give it to them!
Paul
September 1st, 2010
10:24 am
I like the nuance. There are tax cuts, and then, there are tax cuts.
Wonder what the immediate effect would’ve been if we’d had this $800 Billion program instead of the stim package…
Bosch – don’t forget the guy’s other point; “He also suggests a tax credit for employers who hire new workers, which would generate $1.29 in new GDP for each dollar lost in revenue. ”
But I like your suggestions. Here again we have people saying ‘cut’ and politicians saying “ummm… I can’t hear you!”
I wouldn’t let all the Bush cuts expire. As Democrats realized, some of the provisions benefit an awful lot of low to middle income households.
I wouldn’t raise taxes on all, although I see the philosophical point. Even though the Obama Administration has said the tax rate changes will not go into effect for under a quarter of a million dollars a year households.
I’m still pondering the idea of lowering existing rates across the board, spreading out the income bands at which new marginal rates occur, then adding a whole bunch of bands about $330,000 a year at which new rates take effect. Maybe have it at 25% at $330,000, up a couple at 400, few more at 500, then up it to about 95% at a billion for those hedge fund guys. After the law gets changed to charge them income tax in the first place -
USinUK
September 1st, 2010
10:24 am
Normal – “But I would rather see a jobs program that would put our people to work and do this country’s infrastructure some some good.”
we were talking about that very issue this morning … bring back the CCC … revitalize the App Trail and other major parks …
USinUK
September 1st, 2010
10:26 am
Road –
– I’m not a diver (have issues about swimming with things that bite and sting), but I’ve heard that’s what you’re supposed to do if you get cold.
getalife
September 1st, 2010
10:27 am
I am for tax cuts and small government because they waste our tax money and hand out corporate welfare.
jm
September 1st, 2010
10:27 am
This plan is really about, unfortunately, redistributing the wealth, assuming those not paying taxes also get the tax rebates. This is radically progressive tax design. Resulting in negative tax rates (ie, get money from gov’t), for the least fortunate (or just the rich but retired not earning income).
This is all too stupid and has to stop at some point. The government needs to stop playing games, everyone needs to pay taxes to support the government, and while it can be progressive, it needs to be pro-business which is pro-jobs.
Eliminate the corporate income tax, I say.
TaxPayer
September 1st, 2010
10:28 am
Increase taxes on all businesses that do not add value. That should take care of most of the wall street scum that are too busy doing God’s work to notice all the little people that they squish under foot along the way.
Bosch
September 1st, 2010
10:29 am
““He also suggests a tax credit for employers who hire new workers, which would generate $1.29 in new GDP for each dollar lost in revenue. ””
“some of the provisions benefit an awful lot of low to middle income households.”
Well, yeah, I flew off the cuff a little there.
But I would raise taxes a fraction on everybody — the more you make, the higher your fraction (like say, you make 10,000 – say 50,000 — you pay .02% more – 50,000-150,000, you pay .05% more — that kind of thing, and a chart and numbers people much more smarter than I) . We all got in this mess together, we all need to get out of it together too.
Doggone/GA
September 1st, 2010
10:30 am
“and other major parks ”
Not just major parks. There are a lot of facilities on forest service lands, for instance, and here in GA many of the forest service gravel roads are in PITIFUL shape after this past winter. It would be relatively inexpensive to get them regraded and graveled, which would put some people to work and make it easier for the public to actually USE (and pay for using) those facilities.
ByteMe
September 1st, 2010
10:31 am
Jay, the issue is being framed as “tax cut” vs. “rebate” vs. …?
The stimulus was only a moderate success because of headwinds and the states really weren’t in position to spend it properly. And half was a tax cut that just made the deficit worse, but didn’t really add to the employment rolls.
We likely never got out of the 2008 recession, according to the data. Spending money we didn’t have hasn’t improved the velocity of money. We need to get projects going that put people to work instead of tax cuts that just sit in corporate coffers. Specifically, we should have kept the stimulus for exactly what it was for: infrastructure projects. Since the stimulus money is mostly gone, let’s do this instead and solve several problems:
Raise the Federal gasoline tax by $0.50 starting this fall. All money from this increase goes to infrastructure grants back to the state for any project that can be shown to reduce gasoline consumption for people who use it. That could mean bus service, rail, improved roads or traffic lights, whatever can be shown to work.
Oh, off topic, but you’ll appreciate this: http://news.yahoo.com/s/livescience/cluestoobamasmuslimproblem
Union
September 1st, 2010
10:31 am
@ bookman.. really??? if i give you money and you give it back.. there is no favoritism there.. if i give you money and you never gave me any.. then what is that?
jm
September 1st, 2010
10:31 am
Taxpayer – I like your idea. In my book, that includes all advertising and marketing companies, politicians, fast food restaurants, Coke, Pepsi, etc etc.
retired early
September 1st, 2010
10:32 am
Cut the HELL out of the DEFENSE BUDGET. I mean IN HALF !!
WE CANNOT AFFORD TO POLICE THE ENTIRE FREE WORLD… IT IS BANKRUPTING THIS COUNTRY. Universal Health Care is nothing compared to what we’ve paid for in these 2 wars.
But no, Don’t close the base in MY CONGRESSIONAL DISTRICT!! Dems and Reps do share some opinions.
USinUK
September 1st, 2010
10:32 am
jm – “Eliminate the corporate income tax, I say.”
while I understand your position, corporations benefit from the government – from clean air and water, from military protection, from fire and police protection … not to mention, they benefit from tax deductions that regular people don’t (which ends up meaning that many companies don’t pay taxes despite billions in revenue).
elimate corporate welfare, definitely, for companies that create jobs overseas. reduce corporate taxes, fine. but eliminate them all together? I just can’t support that.
Normal
September 1st, 2010
10:33 am
USinUK,
I have been a proponent of a CCC type program and I would especially like to see high speed rail developed and improvement of the rail system, in general. Roads, bridges, parks, the need is there.
jm
September 1st, 2010
10:33 am
retired early – actually the war and the health care bill are about he same size, ironically.
USinUK
September 1st, 2010
10:34 am
what Doggone said at 10:30.
jm
September 1st, 2010
10:34 am
USinUK – ok, I’ll meet you half way. Cut them to 10% and eliminate all loopholes and all business subsidies. How’s that?
TaxPayer
September 1st, 2010
10:34 am
jm @ 10:31,
Amen and a hearty hallelujah.
Union
September 1st, 2010
10:34 am
usinuk.. have you been to spain yet?
USinUK
September 1st, 2010
10:34 am
Okay, that’s normal, doggone and me … who else is with us to relaunch the CCC???
Doggone/GA
September 1st, 2010
10:35 am
“but eliminate them all together? I just can’t support that.”
I could. The companies don’t pay those taxes anyway, their customers do. So eliminate the corporate income taxes, which lowers the price of their goods at the cash register and that gives the public more money to spend and pay sales taxes on.