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  • WEDNESDAY DECEMBER 20 2006 11:00 PM

A Tax Increase Under Bush?

Submitted by legionnaire

Edited by legionnaire

Tags: Bush, taxes, social security

Bush's election made a lot of very wealthy people happy. His 2001 tax cuts (if you're ever wondering what happened to the post-Clinton budget surplus, that's where it went - there and Iraq) started out with the measly $300 check everyone got sent, but the top 1% did a lot better than that, particularly with the estate tax repeal. His plan to privatize social security was the supposed way to keep the system solvent without raising taxes. It failed to pass in the house, however, and we were left with a system set to get less money while paying out more benefits. Now the time to address social security again, but this time the Democrats are holding the purse strings. And for the first time in memory, George W. Bush is not ruling out raising taxes.

Administration officials have said the White House is willing to listen to other ideas, including personal savings accounts that do not involve diverting Social Security payroll taxes, as well as higher payroll taxes to help cover the expected growth in the program's costs. Still, Bush emphasized that young workers should be allowed to divert a portion of their Social Security taxes into private retirement accounts, a proposal that went nowhere in Congress last year.

"I will tell you this: In an issue like this, unless the president tries, nothing is going to happen," Bush said. "Without presidential involvement, nothing will happen. So we have a chance, and I'm going to work it."

While Bush touted prospects for compromise with Democrats, his chief economic adviser warned yesterday that the new Congress poses the "biggest risk," potentially, to the nation's robust economy. Edward P. Lazear, chairman of Bush's Council of Economic Advisers, told reporters that he is worried that Democratic lawmakers may try to raise taxes or enact "isolationist" trade policies that could steer the country toward recession.

"The president, of course, as you know, is very strongly opposed to any tax increases and will be effective in holding the line on any tax increases," Lazear said.


Of course, it all comes down to semantics, as always. "Tax increases" sounds scary and nasty, and riles up people who enjoy stroking guns and complaining about the government taking what's theirs. But a return to pre-2001 taxation levels would only be a relative increase, taxation rates would still be considerably less than they were 20 years prior. Lowering taxes is perfectly acceptable during a recession in order to try and increase spending to stimulate the economy. But in order to offset whatever shortfalls are incurred during that time, taxes need to be raised again when the economy improves, or the debt is never erased. Supply-siders maintain that a decreased tax rate will result in increased federal dollars because lower taxes means more money is available for investment and other tax generating purposes. And that is certainly true, to a point. The problem is that the relationship between income based and non-income based tax receipts is not necessarily directly proportional, as increased government revenue from higher taxation can also be reinvested in the economy (though again, this only works to a point, seeing as the situation taken to its logical extreme, communism, was a more or less abject economic failure). All of this is grossly oversimplified, and much of it remains theoretical. It does continue to influence discussion of marginal taxation rates, however, as supply-side economics supporters remain a strong contingent of both the Republican and Democratic party representatives, though are traditionally more often Republicans. These individuals have an immediate and viscerally negative response to even the slightest notion of "increased" taxation (even if the "increase" is just a return to normal after a temporary decrease as part of a planned economic stimulus,) and the nuances of economic theory rarely make their way into the media long enough to keep the debate from becoming "MORE TAXES BAD" NY Post-style headlines.

Despite assurances that the president will be "holding the line" against any tax raises, the fact is that he really is going to have to work with Congress to get a budget passed, and if he wants to try and bring back some version of his social security plan and get it past a Democratic house, a return to pre-2001 rax rates may be something he has to hold his nose and accept.

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Comments
Vestril

Vestril

Coronado, CA
February 2003

DEC 20, 2006 11:04 PM

Lowering taxes is perfectly acceptable during a recession in order to try and increase spending to stimulate the economy.



Oh, not exactly; certainly not in this case, where it helped to create a budget deficit.

Not to say there is anything wrong with the article; I just don't like Bush tongue

legionnaire

legionnaire

Belgium
November 2003

DEC 20, 2006 11:46 PM

Vestril said:

Lowering taxes is perfectly acceptable during a recession in order to try and increase spending to stimulate the economy.



Oh, not exactly; certainly not in this case, where it helped to create a budget deficit.

Not to say there is anything wrong with the article; I just don't like Bush tongue



The theory anyway is that a short term budget deficit isn't necessarily a bad thing, because you can make up for the deficit by bringing taxation rates back to where they were before when the economy recovers. The problem with Bush's "stimulus package" is that it was never intended to be a short term stimulus the way it was sold, it was just a convenient way for him to justify implementing long term tax cuts that create deficits that, as you point out, never go away.

Vestril

Vestril

Coronado, CA
February 2003

DEC 21, 2006 12:02 AM

I guess I could buy into that, except that I've spent the last ten weeks having it drilled into my head that fiscal policy is ineffective and more likely to harm an economy than help it (I admit, my professor is in love with the Fed). I mean yeah, the theory is interesting--but I'm guessing it requires responsive and coherent management to operate effectively, and congress and the white-house under even good circumstances don't represent that (I don't think they're meant to). Money supply management just seems like a more coherent economic tool, though it isn't without failings. If you'll excuse me I'll be in a corner gritting my teeth while I wait for someone smarter to either point out why I'm completely wrong or worse--why what I said was completely irrelevant.

ninjatoes

ninjatoes

Newport, KY
August 2005

DEC 21, 2006 01:05 AM

Vestril said:
I guess I could buy into that, except that I've spent the last ten weeks having it drilled into my head that fiscal policy is ineffective and more likely to harm an economy than help it (I admit, my professor is in love with the Fed). I mean yeah, the theory is interesting--but I'm guessing it requires responsive and coherent management to operate effectively, and congress and the white-house under even good circumstances don't represent that (I don't think they're meant to). Money supply management just seems like a more coherent economic tool, though it isn't without failings. If you'll excuse me I'll be in a corner gritting my teeth while I wait for someone smarter to either point out why I'm completely wrong or worse--why what I said was completely irrelevant.



I don't think what you said is irrelevant at all. But the problem here is that even the best of theories come off like joke when being implemented by a bunch of mental midgets. Anything that requires long term planning is botched horribly by Bush and the boys. They're like children who haven't yet grasped the concept of cause and effect. That why the Bush tax cuts were never going to work. Gotta love the "shoot now, ask questions later" mentality of that administration. Just my humble opinion.

TheFuckOffKid

TheFuckOffKid

NEWSWIRE

Australia

DEC 21, 2006 01:56 AM

Vestril said:
I guess I could buy into that, except that I've spent the last ten weeks having it drilled into my head that fiscal policy is ineffective and more likely to harm an economy than help it (I admit, my professor is in love with the Fed).



By what logic? Ricardian equivalence? Who's your professor?

I don't think there's much argument that tax cuts increase aggregate demand. Granted, there are Ricardian expectations effects, but I don't think too many people believe that they completely crowd out the extra private income through extra saving.

I think it's fair to say that there's a current consensus that fiscal policy settings ought to be more medium-to-long term, and monetary policy (via the Fed) should be used in a more short-term manner, which may be the point your professor is trying to highlight.

thefreak

thefreak

NEWSWIRE

Gardner, MA

DEC 21, 2006 06:22 AM

I'm guessing he was too coked-up to remember Daddy's whole "Read My Lips" fiasco.

-TM

ChristmasJones

ChristmasJones

New London, CT
July 2004

DEC 21, 2006 07:34 AM

The folks that make the decisions aren't financially literate enough to make such decision. They have always harmed the economy with various wayward fiscal policy. Anyone with millions of dollars should be smart enough to shelter their money from taxes by re-investments, or they deserve to get it taken away.

Vestril

Vestril

Coronado, CA
February 2003

DEC 21, 2006 09:17 AM

TheFuckOffKid said:

Vestril said:
I guess I could buy into that, except that I've spent the last ten weeks having it drilled into my head that fiscal policy is ineffective and more likely to harm an economy than help it (I admit, my professor is in love with the Fed).



By what logic? Ricardian equivalence? Who's your professor?

I don't think there's much argument that tax cuts increase aggregate demand. Granted, there are Ricardian expectations effects, but I don't think too many people believe that they completely crowd out the extra private income through extra saving.

I think it's fair to say that there's a current consensus that fiscal policy settings ought to be more medium-to-long term, and monetary policy (via the Fed) should be used in a more short-term manner, which may be the point your professor is trying to highlight.



No, not at all; although it made for interesting reading. I'm sure you're right about the point he was trying to make; he just never actually came out and said it like that. Probably one of those things that was supposed to be obvious frown

And no, we definitely didn't cover Ricardian equivalence.

Adroitbeing

Adroitbeing

I'm lost
September 2003

DEC 21, 2006 10:04 AM

legionnaire said:

Vestril said:

Lowering taxes is perfectly acceptable during a recession in order to try and increase spending to stimulate the economy.



Oh, not exactly; certainly not in this case, where it helped to create a budget deficit.

Not to say there is anything wrong with the article; I just don't like Bush tongue



The theory anyway is that a short term budget deficit isn't necessarily a bad thing, because you can make up for the deficit by bringing taxation rates back to where they were before when the economy recovers. The problem with Bush's "stimulus package" is that it was never intended to be a short term stimulus the way it was sold, it was just a convenient way for him to justify implementing long term tax cuts that create deficits that, as you point out, never go away.



It may be important to remember that approximately half of the current deficit will be inflated away over the next 10 years, or at least historically, this has been true; which goes some distance in managing the increase in taxes.

This is not an endorsement of Bush fiscal policy, which is both fiscally and physically nauseating.

NickFaust

NickFaust

USA
April 2004

DEC 21, 2006 10:23 AM

The economic controveries aside, the issue of deficits is complicated in this case because the deficits were not caused entirely by the tax cut, but by the 350 billion spent on the Iraq and Afghanistan wars - leaving aside the immense costs associated with ramping up the domestic "security" apparatus. There has been no investment in the society, as was the case when Keynes's work had so much influence on Roosevelt. Thus the deficit - and any potential benefit from it - is squandered.

But, to be clear, by "Payroll tax" Bush is probably referring to FICA, not to income taxes (per se.)

The biggest reform I would like to see is to force the government to stop including the SS trust fund in its deficit reports - the surplus in that fund masks the true size of the deficit which is - in reality - frighteningly huge.

s5

s5

San Francisco, CA
OLD SKOOL

DEC 21, 2006 01:11 PM

Ridiculous. Taxes should be cut further, and his war budget should be slashed to 1% of what it is now.

MrCrisp

MrCrisp

I'm lost
August 2004

DEC 21, 2006 01:15 PM

thefreak said:
I'm guessing he was too coked-up to remember Daddy's whole "Read My Lips" fiasco.

-TM



like daddy, like son.

SirPsychoSexy

SirPsychoSexy

Ridgewood, NJ
January 2004

DEC 21, 2006 01:45 PM

"I will tell you this: In an issue like this, unless the president tries, nothing is going to happen," Bush said. "Without presidential involvement, nothing will happen. So we have a chance, and I'm going to work it."


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