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Obama Administration Will Not Cut Taxes For The Wealthy

By Big Tent Democrat, Section Obama Administration
Posted on Thu Jul 22, 2010 at 07:16:34 PM EST
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This is good news:

The Obama administration will allow tax cuts for the wealthiest Americans to expire on schedule, Treasury Secretary Timothy Geithner said Thursday, setting up a clash with Republicans and a small but vocal group of Democrats who want to delay the looming tax increases.[Geithner] said the White House would let taxes on top earners increase as part of an effort to cut the deficit.

Geithner [. . .] said the White House plans to extend expiring tax cuts for middle- and lower-income Americans, and expects to undertake a broader revision of the tax code next year. "We believe it is appropriate to let those tax cuts that go to the most fortunate expire," Mr. Geithner said at a breakfast with reporters.

Good job Obama Administration.

Speaking for me only

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    Obama Administration Will Not Cut Taxes For The Wealthy | 65 comments (65 topical)

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    Hooray! (5.00 / 2) (#1)
    by Militarytracy on Thu Jul 22, 2010 at 07:24:32 PM EST
    Yes yes yes yes yes yes!

    Great News (5.00 / 2) (#2)
    by squeaky on Thu Jul 22, 2010 at 07:40:33 PM EST
    And this is not surprising:
    Sen. Joseph Lieberman, a Connecticut independent, added his voice on Thursday, saying through a spokesman that he was "concerned about the impact of allowing the tax cuts to expire during our fragile economic recovery."....

    Many economists say raising rates on top earners could prompt consumers to rein in spending. A Goldman Sachs research report projects the expiration of the tax cuts could shave just under 0.5 percentage points off growth in 2011.

    OK, let's say someone is earning $1,000,000. They would pay  $350,000 as opposed to $390,600.

    I find it extremely hard to believe that an extremely wealthy individual would spend less money in any given year because they paid and extra $40,600.

    In the art world many of these folks won't even look at an artwork below 100k.  $40,600 could easily be spent on a night out with friends at a fancy restaurant.

    The arguments against letting the tax cuts expire are pathetic imo.

    Goldman Sachs (5.00 / 2) (#3)
    by Big Tent Democrat on Thu Jul 22, 2010 at 07:46:58 PM EST
    did not say that NOT cutting taxes for the wealthy will decrease GDP.

    The Bush tax cuts included across the board tax cuts.

    Obama wants to extend tax cuts for everyone except the wealthy. This plan will not have any effect on the GDP. It will help close the deficit, if anyone actually cares about that.

    Parent

    From the July 7 GS report (5.00 / 2) (#5)
    by Big Tent Democrat on Thu Jul 22, 2010 at 07:52:11 PM EST
    "Our recently released Global Economics Paper No. 200 entitled "No Rush for the Exit" argues that policymakers should react to the combination of a sluggish recovery and declining inflation with additional policy easing, either via a return to unconventional monetary policy or via further fiscal stimulus. The obvious counterargument is that monetary and fiscal easing carries long-term costs in the form of, respectively, a risk of a renewed asset bubble and a higher public debt burden. But our study shows that these costs look far from prohibitive at present. On the monetary side, US financial markets are nowhere close to bubble territory. On the fiscal side, it is difficult to argue that the US government has reached the limits of its debt capacity when long-term bond yields are low and falling, and when federal interest payments stand at just 1½% of GDP. When compared with the risk of a renewed economic downturn and/or a descent into deflation, the cost of additional stimulus seems to be well worth paying."

    Funny how that never is reported.

    Parent

    WSJ Needs To Cherry Pick (5.00 / 1) (#10)
    by squeaky on Thu Jul 22, 2010 at 07:58:15 PM EST
    What a sham. It would have been good to see that reported widely,  although I guess that Goldman is not the most popular company from a populist viewpoint these days.

    I really do not get it..

    At least Obama did not listen to Bernake.. Wonder if now, since he is not getting his tax cut extension, he will argue for more stimulus money..

    Parent

    Not Surpised (5.00 / 1) (#7)
    by squeaky on Thu Jul 22, 2010 at 07:53:35 PM EST
    What dishonest reporting, but the WSJ, needs to generate GOP talking points.

    Parent
    The WSJ (5.00 / 1) (#9)
    by Big Tent Democrat on Thu Jul 22, 2010 at 07:56:59 PM EST
    did not report that GS recommended more stimulus.

    Parent
    Oh Well (none / 0) (#15)
    by squeaky on Thu Jul 22, 2010 at 08:11:53 PM EST
    Poor Deborah Soloman must have had the complete story but her "just the facts" objective reporting was hacked away by a nasty editor... lol

    Parent
    Also (5.00 / 4) (#4)
    by Big Tent Democrat on Thu Jul 22, 2010 at 07:48:26 PM EST
    Goldman Sachs also reports that not continuing high paced government stimulus spending will shave 1.5% off the GDP. See anyone reporting that?

    Parent
    Nope, not sexy enough (none / 0) (#21)
    by NYShooter on Thu Jul 22, 2010 at 10:11:12 PM EST
    but "GDP," like "tax cuts" is too broad a term to mean much. It's the distribution, or targetting that most people will feel.

    Parent
    40,600 (none / 0) (#47)
    by efm on Fri Jul 23, 2010 at 08:20:39 PM EST
    That sounds like just about enough to employ someone.  Sure not the best paying job in the world, but in a time when you need people to be creating jobs to lower the unemployment. I know not all of the people who have to start paying more taxes would have used this money to create a job, but I bet a lot of people are using it for that purpose, and I believe that this will cause a lot of people to loose their job.

    Parent
    Huh? (none / 0) (#48)
    by squeaky on Fri Jul 23, 2010 at 08:40:54 PM EST
    When someone can spend $40,600 in an evening entertaining, as if it is a sneeze,  there are guaranteed to be employing several low end personnel starting at $25/hr.

    Parent
    $25/hr??? (none / 0) (#54)
    by jbindc on Sat Jul 24, 2010 at 08:56:17 AM EST
    Is not quite "low end". While it isn't a ton of money, that comes out to $52,000 for a 40 hour week, with 2 weeks off during the year.  Since the median household income in America (2008) is $52,029, and since things have gotten worse since then, $52 K wouldn't be a bad paycheck.

    Parent
    Yes (none / 0) (#55)
    by squeaky on Sat Jul 24, 2010 at 09:14:00 AM EST
    My point exactly.

    Parent
    Huh? (none / 0) (#60)
    by jbindc on Sat Jul 24, 2010 at 05:14:27 PM EST
    ... there are guaranteed to be employing several low end personnel starting at $25/hr.


    Parent
    Yeah (none / 0) (#61)
    by squeaky on Sat Jul 24, 2010 at 05:22:43 PM EST
    $25/hr is low end for these employers.

    Parent
    Who is going to writing the paychecks (none / 0) (#56)
    by BTAL on Sat Jul 24, 2010 at 11:42:05 AM EST
    out of that $40K?   The govt?  For what?

    And out of curiosity, how often do you see people dropping $40K on an evening's entertainment?  Yes, it does happen, but don't see it being an everyday event, even in NYC.

    Parent

    40,600 (none / 0) (#57)
    by efm on Sat Jul 24, 2010 at 12:06:45 PM EST
    I don't think the person making 1 mil is paying 40,600 for one evening of entertainment. I'm just saying a lot of small and medium business owners are going to have to lay people off because of this.
    And even the super rich, who spend that much in an evening out, are not going to have that to blow on entertainment making those jobs cease to exist as well.

    Parent
    Fantasy Land? (none / 0) (#58)
    by squeaky on Sat Jul 24, 2010 at 02:42:05 PM EST
    When you have anywhere from $500,000,000 to $20,000,000,000, dropping $40,600 in an evening to entertain guests, is not so special. Trust me.

    Of course there are billionaires who do not spend a penny, but I am not talking about them.

    Parent

    jobs (none / 0) (#62)
    by efm on Sat Jul 24, 2010 at 06:31:00 PM EST
    I just don't think its a good idea to let the tax cuts expire for anyone, especially the only people who are the ones making the jobs and employing people.  I think the unemployment rate is going to go up because of this.

    Parent
    OK (none / 0) (#63)
    by squeaky on Sat Jul 24, 2010 at 06:41:14 PM EST
    Glad to hear that you are for trickle down economics and that the current Administration is not.

    I guess you are going to have to vote GOP, in order to continue the mess BushCo got us into.

    Good luck!

    Parent

    Better than the alt. (none / 0) (#64)
    by efm on Sat Jul 24, 2010 at 10:05:27 PM EST
      It almost sounded like you were arguing my point for me with a few of your posts. Saying that they spend that much on an evening of entertainment creates jobs in the entertaining industry, now those jobs will go away.
      Thats the way our economy works, people make more money and then expand, hiring more workers, or for individuals they have more money then pay people to mow their lawn or paint their house instead of doing it themselves, creating jobs. Take money away from them and they lay workers off. Sure the government will hire people with the money they are going to be getting from these taxes, but the government is way too inefficient and I'm guessing they will create half if not less of the jobs they loose from this.  

    Parent
    lol... (none / 0) (#65)
    by squeaky on Sat Jul 24, 2010 at 11:36:46 PM EST
    I guess we will see. It is ludicrous to think that those earning over $250,000/ year will be in any way harmed by a 4.6% increase in their taxes.  

    But I am happy that your fantasy of economics is now just a bad memory.

    Parent

    economics (none / 0) (#66)
    by efm on Sat Jul 24, 2010 at 11:51:39 PM EST
    They will have to cut back just like everyone else would have to do when they have less money.  They might not lose their house over the increase in taxes, not like the people who may lose their job because of it.

    So what is your idea of good economics?


    Parent

    Taxing The Rich (none / 0) (#67)
    by squeaky on Sun Jul 25, 2010 at 12:18:54 AM EST
    And stimulus to the rest.

    The Bush years are what got us into this mess, why would you ever want to go back there.

    Of course if your goal is to destroy the economy enough so that you gut social security and medicare....  eliminate the middle class and have more super rich and more super poor.

    Great idea, if you believe in oligarchy.

    Parent

    unemployment (none / 0) (#68)
    by efm on Sun Jul 25, 2010 at 01:33:42 AM EST
     Right now, I think, most people agree that our unemployment rate should be our top priority to fix. I don't see how taxing the job creators more is going to help the unemployment rate go down, I believe it will make it go up.

     And this mess was caused by a lot of factors, not just because of Bush. Yes, Bush should have provided more oversight to the mortgage industry.
    But, also, Clinton pushed for less stringent credit requirements for home buyers.  Home buyers themselves for buying houses that they couldn't afford. Mortgage brokers with the sub-prime loans.  There are many other factors that contributed to this recession. Sure its continent to just blame Bush for everything though.

    Parent

    Worth Reposting (5.00 / 1) (#69)
    by squeaky on Sun Jul 25, 2010 at 01:55:28 AM EST
    The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last fifteen years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest-paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record....

    Warren Buffett, one of the richest people on earth, has often commented that he pays a lower effective tax rate than his secretary.

    The Nation

    It is insane to continue the Bush Tax policies, the rich have been getting a ride on the backs of everyone else, and we still have high unemployment.

    Time to try something that has a shot at working, rather than repeat failed policies.


    Parent

    "Taxing the job creators" is a (none / 0) (#70)
    by Jack E Lope on Sun Jul 25, 2010 at 01:54:18 PM EST
    convenient meme that has little bearing on what is proposed.  But the word "creator" may conjure images of a savior - whichever hairy thunderer or cosmic muffin one might worship.

    Small businesses create more jobs per unit of capital investment, and few of those earn enough to put the owner in the top income tax bracket.

    When the capital gains tax maxes out at 15%, and high-income earners are paying a real, after-loopholes rate of 16.5% on ordinary income, there's not much incentive to invest (for those who can most afford to invest).

    When the capital gains tax goes to 20% (in 2011), what do you expect those high earners to do?

    Most of the big incomes are not scaled to the size of a workforce employed by the high earner - the financial "industry", for one, uses a share of the workforce much smaller than the share of GDP it scams, um, gets for itself.

    Is this the month for coining new terms?  Can we now call Bush defenders "incontinent"?

    Parent

    I'm glad that I made (5.00 / 5) (#6)
    by andgarden on Thu Jul 22, 2010 at 07:53:19 PM EST
    an incorrect prediction on this subject.

    Now we need to find 145 Democratic members of the House (or 34 of the Senate) willing to sustain President Obama's promised veto of any bill extending George Bush's tax cuts for the wealthy.

    good (5.00 / 1) (#8)
    by The Addams Family on Thu Jul 22, 2010 at 07:56:46 PM EST
    credit where credit is due

    great news

    We'll see (5.00 / 1) (#17)
    by Yman on Thu Jul 22, 2010 at 08:21:25 PM EST
    Hopefully, they'll do it, but given this administration's track record, I'd hold off on the kudos for now.

    Adding that it is an effort to cut the deficit (5.00 / 1) (#18)
    by ruffian on Thu Jul 22, 2010 at 08:27:14 PM EST
    is a nice touch, aimed at those deficit concern trolls, most of whom also support tax cuts as a cure for all ills.

    This was always the upside (5.00 / 2) (#19)
    by Big Tent Democrat on Thu Jul 22, 2010 at 08:28:50 PM EST
    to the "deficit concern" from the Obama Administration.

    The downside is no more stimulus.

    Parent

    True- and I'd have to say the downside (none / 0) (#26)
    by ruffian on Fri Jul 23, 2010 at 05:55:47 AM EST
    outweighs the upside since they have not been very good at explaining that stimulus will improve revenues and at least pay for part of itself in the long run.

    Parent
    I'll believe it when I see it (5.00 / 5) (#24)
    by scribe on Fri Jul 23, 2010 at 05:45:07 AM EST
    This was the same Administration that was going to close Gitmo and loved the public option so much they campaigned on it.  Oh, yeah, and they were going to give us EFCA, too.

    Still waiting on that.

    it appears (5.00 / 2) (#27)
    by cpinva on Fri Jul 23, 2010 at 05:59:26 AM EST
    some foolish democrats in the house actually believed obama, on the public option, as they have raised the issue again.

    no doubt rahm will suggest they not do it, so as not to upset the republicans, and glenn beck.

    Parent

    My thought exactly... (5.00 / 3) (#28)
    by lentinel on Fri Jul 23, 2010 at 06:28:03 AM EST
    I'll believe it when I see it.

    If it happens, the rich and powerful might begin to realize that they will have to chip in to pay for the wars that they embrace. Two billion a week for Iraq and Afghanistan. I wonder how they'll feel about having constructed the largest embassy in the world in Baghdad when a few bucks are taken from their Goldman/Sachs accounts.

    Opposition to the war in Afghanistan is beginning to emerge from the Republicans. The Democrats are comatose as usual.
    So it will be interesting if the people who are really pulling the strings for these fiascos will have to begin to pay for them.

    Parent

    true (none / 0) (#37)
    by CST on Fri Jul 23, 2010 at 09:17:03 AM EST
    but I would say the difference in this case is that it is a matter in his control more.  It's about doing nothing rather than doing something.  It's always easier to do nothing.  And while a "veto" is kind of "something" it's something he doesn't need congress for.  And I don't see congress over-riding the veto.

    This is significantly more in his control than either HCR or any other legislation is.  It will happen just by sitting back and letting it.

    That being said, your skepticism is certainly warranted at this point.

    Parent

    Ben Bernanke now says that (5.00 / 5) (#29)
    by Militarytracy on Fri Jul 23, 2010 at 07:04:49 AM EST
    extending the Bush tax cuts would maintain economic stimulus.  I simply cannot stand Bernanke, Geithner, or Summers.

    Ben Bernanke is also Mr. Austerity and has been someone who has trial ballooned much debate about THE GIANT NEED to cut entitlements.

    So can't help noticing once again that the only people who can "afford" to suffer at this time with those economic a-holes on the Hill are the middle and lower middle classes even though most of those people can no longer even "afford" their own homes.

    Once again, the kings of the financial industry believe they are the engine of the economy when all they have ever been or can ever hope to be is the grease.

    And his plans for economic easing if the economy continues to erode are useless.  They have zero teeth and zero ability to ease much of anything.

    Yeah (5.00 / 1) (#43)
    by squeaky on Fri Jul 23, 2010 at 04:01:23 PM EST
    Federal Reserve Chairman Ben Bernanke told lawmakers Thursday the U.S. "should maintain our stimulus in the short term." Extending the Bush tax cuts "is one way" of doing that, he said. "There are other ways as well."

    Trickle down Reagan BS makes me cringe too. But, at least Bernanke is onboard with more stimulus, instead of GOP cries for deficit reduction.

    He just has to shift his elitist view of stimulus to the middle class, and he will be golden.

    Parent

    I don't know which Ben Bernanke you are (5.00 / 2) (#51)
    by Militarytracy on Fri Jul 23, 2010 at 10:07:05 PM EST
    talking about.  The only one I know of was blatantly saying that entitlements must be cut and the deficit reined in in April.

    Now he is truly lying his A$$ off as of June 10th, claiming that entitlements aren't self funded.  They are too if he would quit borrowing from them and then have to have it on the books that he has to pay them back.

    And saying this is nothing more than avoiding the buzz words that everyone is googling for in a panic trying to figure out when they will find another job again...

    Bernanke said the economy still needed fiscal support now and it did not make sense to try to rein in this year's deficit. However, he stressed that the current fiscal path was unsustainable, and said Congress should shoot for a deficit equal to 3 percent or less of gross domestic product two to three years from now. This year's deficit is expected to be around 10 percent of GDP.

    This is no ringing endorsement of further vigorous stimulus.  This is mostly about trying to reassure the markets while avoiding saying deficit reduction at my earliest convenience, sometime after the midterm elections probably if the President doesn't end up firing all who are overseeing the economy because they have been nothing but a miscalculating Wall Street genuflecting freakshow.

    Parent

    OK (none / 0) (#52)
    by squeaky on Fri Jul 23, 2010 at 11:40:17 PM EST
    I don't know which Ben Bernanke you are talking about.

    It's a quote from the Ben Bernanke in the linked article. Seems pretty direct and clear, as  does my comment regarding the quote.

     

    Parent

    I would wait to celebrate (5.00 / 3) (#34)
    by Slado on Fri Jul 23, 2010 at 08:46:13 AM EST
    Since the FED chairman said that raising taxes wasn't a good idea.

    I can see it now..."After much deliberation I had to make a decision that would....blah blah blah".

    I'm amazed progressives would take the administration at their word way before the fight really starts.

    How'd that work out on Gitmo, Afghanistan, Iraq, healthcare reform, financial reform, climate change etc... need I go on?

    If true, first great news in a while. (5.00 / 2) (#41)
    by Dr Molly on Fri Jul 23, 2010 at 12:01:19 PM EST
    As frustrated as I am with Obama and all the Dems for their timorous and pusillanimous behavior, letting these ridiculous tax cuts expire and the two SC court appointments made are two things that I can applaud loudly about during this first term, and even just these two things make me very glad that the repubs are not in charge right now (when one thinks of the alternative).

    Bernie Sanders (5.00 / 1) (#59)
    by squeaky on Sat Jul 24, 2010 at 05:04:03 PM EST
    The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last fifteen years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest-paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record.

    C&L

    Just symbolism (1.00 / 1) (#11)
    by diogenes on Thu Jul 22, 2010 at 07:58:27 PM EST
    Letting the Bush tax cuts expire for only high, high earners won't bring in much revenue with which to cut the looming deficit.  You can only cut deficits by cutting spending or taxing the middle classes too.

    OK, let's start by uncapping (5.00 / 6) (#12)
    by andgarden on Thu Jul 22, 2010 at 08:04:34 PM EST
    the Social Security payroll tax.

    Parent
    This seems like such a no-brainer, (5.00 / 5) (#13)
    by Anne on Thu Jul 22, 2010 at 08:08:57 PM EST
    I can't believe it wasn't done a long time ago.

    Parent
    But then the rich will be paying in more (5.00 / 2) (#40)
    by Militarytracy on Fri Jul 23, 2010 at 11:24:55 AM EST
    and not receiving more.  That can't be okay.  andgarden, if we did something like this the next thing that would happen is that the rich would then demand that a person could live comfortably on Social Security or something completely outrageous like that.  You just demand to spiral down the rabbit hole of as many people being middle class as you can get.  How many people do you really think you can stuff into that hole? :) :)

    Parent
    Estate taxand return to (5.00 / 11) (#14)
    by Big Tent Democrat on Thu Jul 22, 2010 at 08:09:27 PM EST
    Clinton tax rate on the wealthy will raise about 100 billion dollars a year.

    That seems worth doing imo.

    Parent

    That ought to come in handy (5.00 / 2) (#16)
    by andgarden on Thu Jul 22, 2010 at 08:14:23 PM EST
    as aide to state government.

    Heck, bundle that with a bill extending the tax cuts for sub-$250k earners.

    Parent

    So that will make up about 1/20th (5.00 / 1) (#38)
    by Slado on Fri Jul 23, 2010 at 10:59:41 AM EST
    of what Obama's added to the deficit since taking office.

    CBS

    Awesome!

    You keep saying Repububs are being hypocritical but as with every argument if you make that claim your arguement is equally hypociritcal.

    Dems say that we need more spending to get the economy moving so in essense you're saying the only way to get the economy moving is to not let people keep their own money but instead give people's money to other people through a middle man.

    As a professional middle man I can say that the only purpose of a middle man is if they can some how bring value to a transaction.

    I would argue that the government controlling a transaction while sometiems necessary does not bring value.   It brings waste fraud and general boondogery.

    Let people keep their money.  Cut spending.  Fix the tax code, stop adding regulation and this economy will begin to pay off it's massive debt load.

    Raising taxes as well as spending is a net loss.   We take money out of the hands of investors, filter it through an inefficient government sytem and we all loose.

    Bush tried it before, Obama's stimulus is a bust.   The definition of insanity is trying the same thing over and over and expecting different results.

    Why stimulus doesn't work.

    The key to the tax cuts is not what we move them up to and down to.  It's consistency.

    Right now the market is used to the current tax level.   Changing it and the uncertainty that will bring by letting them expire will hurt the market as a whole.

    It's hard in my view to believe that raising taxes starting in January is going to be good for the economy in the short term.  It will be very bad for the economy in 2011.  Businesses and rich people will have less money to spend and the economy will suffer.   The government can' spend and collect the taxes fast enough to make a difference in the short term.   The immediate difference will be a let down in the economy and that is exactly what the Fed chairman was referring to.

    What is arguable and where I agree with BTD in some way is that each side can't have it all.   What is the goal?  If the goal is to reduce the deficit then we need major changes to our spending and our taxation to dig out of the hole both parties have dug.

    Simply letting the tax cuts expire accomplishes nothing.  

    We need to either keep the tax system we have now and drastically reduce spending (which won't happen) or we need to reform the tax system we have to make it fairer to people who actually create jobs and also work on spending.

    Parent

    Middle men (5.00 / 1) (#44)
    by reslez on Fri Jul 23, 2010 at 06:33:02 PM EST
    The government is not a middle man. The true middle man is the financial sector. All they can do is shuffle money around and extract rent.

    The government is very different. The government creates dollars at will. If factories are idle and workers are unemployed because there is no demand, the government can create demand by spending. The spending need not be backed by debt. There's a shortage of money in the economy but plenty of work that needs to be done and plenty of people who would be happy to do it, if only someone had money to pay them. Inflation is not a risk.

    Friedmanites like the one you link to have ravaged nation after nation from their lairs in the IMF. How many times must they be proven wrong for you to stop listening? Monetarists think stocking a shelf with lots of apples magically increases the demand for apples. Non sequitur.

    From your link:

    [T]he economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift

    A frightening display of illogic caused by examining factors in isolation. If there's no demand a company has no reason to buy a forklift. They don't want to borrow money and you don't want to lend it because they can't pay it back.

    [P]eople must ignore the fact that the government will raise future taxes to pay back the debt

    Government need do nothing. Government can always pay back debt. And a growing economy increases tax revenue by itself, so the problem is self-moderating. The government could raise taxes if it wanted to regulate inflation caused by an overheating economy. We're far from that situation.

    If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment.

    This assumes the private sector has any desire to spend or invest. If there's no demand the rational decision is to pay down debt and put money in savings. They may end up in government securities, which are free of default risk. The government can use those funds to stimulate demand.

    As an aside, I wish these writers wouldn't use scare words like "printing" in the face of wholesale demand destruction. People have enough to worry about with widespread unemployment, which is an actual evil not an imaginary one. Given the private sector's desire to pay down debt the government is the only force in the economy capable of generating demand. If the government abandons its duty the result is a loss of real productive capacity. Idle factories rust. Idle labor deteriorates. Consequences which monetarists ignore but voters do not.

    Raising taxes in a recession is generally a lousy idea, which is why I support a payroll tax holiday. Raising taxes on the wealthy will decrease social inequality, a good thing in a democratic society. Higher taxes on wealth also seems to reduce the incentives for cheating -- and if you don't think that's a problem you haven't been paying attention.

    Parent

    Not really (5.00 / 4) (#20)
    by reslez on Thu Jul 22, 2010 at 09:43:35 PM EST
    You can only cut deficits by cutting spending or taxing the middle classes too.

    Actually, cutting spending and taxing the middle class in this situation would worsen the deficit.

    If the government were to cut spending its purchases of goods and services from the private sector would decrease. With all other factors equal this means lower GDP. A lower level of economic activity means tax revenue plummets. Effect: larger deficit. As the economy worsens automatic stabilizers kick in, like unemployment and food stamps. Effect: larger deficit. Raising taxes on the middle class, similarly, reduces aggregate demand for goods and services.  GDP plummets... tax revenue falls... the deficit worsens. For those of you concerned about the debt ratio, it gets uglier when GDP decreases.

    Experience bears this out. Every time Japan hiked taxes during its lost decades the economy fell off a cliff and the deficit worsened. If we care about reducing the deficit we should focus on improving the economy by restoring jobs.

    Parent

    Actually, you're (5.00 / 1) (#22)
    by gyrfalcon on Thu Jul 22, 2010 at 11:14:15 PM EST
    preaching to the converted on that.  Nobody here that I've ever seen has advocated doing such a thing any time soon.

    However, a return to normalcy of the economy-- if and when that ever happens-- will not solve the debt problem.

    Parent

    No problem (5.00 / 2) (#23)
    by reslez on Fri Jul 23, 2010 at 03:35:45 AM EST
    I'm always happy to preach to the converted :) It's much better than suffering the slings and arrows of outraged wingnuts. I'm not sure about this statement however:

    [A] return to normalcy of the economy-- if and when that ever happens-- will not solve the debt problem.

    What debt problem? The government is the source of currency. It always has the ability to repay its own debt, which it issues voluntarily anyway. Inflation is not a factor now or in the foreseeable future. Debt in itself isn't really a problem.

    But maybe you're referring to the budget deficit, the fact the government spends more than it receives in revenue as taxes. That's not really a problem either -- in fact it's extremely necessary.

    The U.S. as a whole runs a trade deficit with the world. Because of this, mathematically, the public and private sector must be in deficit. If the government does not run a deficit that means the private sector must be in deficit. This is an accounting identity, not a matter of opinion. Unless you postulate a reversal of the trade deficit -- something that would take a long time to effect given its size -- the government must necessarily run a deficit so long as we import more than we export. Otherwise it means the private sector is wracking up debts. We've seen where that leads -- we're still trying to clean up the mess.

    Throughout history the U.S. government has always run a deficit except for a few brief periods. All were followed by severe recessions. The boom of the 90s caused Clinton's budget surplus, but the entire time the private sector was accumulating massive debt. It didn't end well.

    Parent

    Right (none / 0) (#33)
    by gyrfalcon on Fri Jul 23, 2010 at 08:28:04 AM EST
    The question is the size (never mind whether it's politically sustainable).  I'm no budget expert by any means, but I very much doubt it can be brought back to a tolerable level without an increase in taxes of some kind and/or some budget cutting we're not going to be happy about.  That's especially true because our entire economy is desperately out of whack and unlikely to get fixed in my lifetime anyway, if ever.

    We'll have to just wait and see how it goes over the next few years and hope the smarter people can fight off the pressure for budget-cutting in the short term that would make everything so much worse.

    Parent

    They intend on increasing the GDP (none / 0) (#32)
    by Untold Story on Fri Jul 23, 2010 at 08:10:58 AM EST
    and, thereby, depreciation of the dollar.  Actually by 2015 there may be a new monetary world system.  Oil countries, particularly Russia, are already urging for oil to be no longer connected to the dollar.

    With increased GDP the employment rate should improve greatly.  

    Also, if we could get out of the wars, and stop subsidizing countries that knife us in the back every chance they get, then we would be in great shape.

    Obama will do right by the people - I have full confidence in his sincerity and intelligence.  He just needs another term to get the job done.  Many seem to forget what he inherited from Bush.  This country was a diaster and, perhaps, he didn't get everything done as planned, but he will in time.

    Parent

    I didn't forget what he inherited from Bush (5.00 / 2) (#35)
    by Militarytracy on Fri Jul 23, 2010 at 08:51:01 AM EST
    He did, and then he insisted that I do it too.

    Parent
    Moving the goalposts again? (none / 0) (#36)
    by jbindc on Fri Jul 23, 2010 at 08:58:06 AM EST


    Parent
    no, that isn't true at all. (5.00 / 1) (#25)
    by cpinva on Fri Jul 23, 2010 at 05:55:35 AM EST
    You can only cut deficits by cutting spending or taxing the middle classes too.

    with appropriate economic stimulous, the "ripple effect" of spending would, over the long-term, generate sufficient tax revenues to pay for itself, while providing a surplus, which can then be used to reduce the deficit.

    remember, our's is a demand economy, business revenues are only generated when people have cash to spend. people like those who will now get unemployment checks. pretty much 100% of those will be spent.

    bear in mind, the lower through middle-class tend, as a group, to spend a far higher % of their income, than do the wealthiest. as a consequence, they (the lower to middle-class) are the true basic generators of demand, not the wealthy.

    Parent

    The ripple effect is economic jargon (1.00 / 1) (#39)
    by Slado on Fri Jul 23, 2010 at 11:04:30 AM EST
    for a fantasy.

    See link above.

    The government is a lousy middle man and a dollar is a dollar.  Just because a bureaucrat collects it and passes it out doesn't make it worth more money.

    Parent

    All that link really says (5.00 / 1) (#42)
    by Dadler on Fri Jul 23, 2010 at 12:18:14 PM EST
    To me anyway, is that stimulus doesn't work if it is INADEQUATE. Further, and thinking beyond the immediate, the obvious remedy is an economy that is overgenerous to those who need it most. After all, we don't fear a nation in the grips of mass rioting by the wealthy. And for good reason. They have none.

    Also, just my opinion, but almost ALL middlemen are lousy.

    Parent

    I'd still like to see (none / 0) (#30)
    by jimakaPPJ on Fri Jul 23, 2010 at 07:27:41 AM EST
    the tax rates he wants for 2011.

    I know. Details details.

    Did I just step into a time warp? (none / 0) (#31)
    by BTAL on Fri Jul 23, 2010 at 08:02:49 AM EST
    GS is now the goto and trusted source for economics?

    As for Geitner's prophesy, does that mean they know they have enough votes to sustain a veto (if the cuts are extended)?  Alternatively, does Geitner know they have enough votes to pass eliminating the high end rate cuts?  Since, it is not the WH nor Treasury that writes the tax code.

    Obama Administration Will Not Cut Taxes For The Wealthy | 65 comments (65 topical)

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