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Discussion: (27 comments)

  1. Max Planck

    “Nothing — other than exacerbate the current tax code bias against savings and investment, not to mention other distortions.”

    Note to Pethoukoukis: we raised taxes twice in the post war era- the ensuing result was powerful job growth.

    Secondly, just placing capital in closed end funds and taxing it at 15% does nothing for the economy, nothing for job growth, and nothing to cure the deficit.
    The canard against “savings and investment” is your usual twaddle. REAL investment comes from opportunity. No genuinely successful entrepreneur or business person in US history was either dissuaded or encouraged by tax policy. EVER.

    And the truth of that is in front of your face.

    1. MacDaddyWatch

      Hahahahaha….

      Pent-up demand and scarce resources works every time.

      1. Max Planck

        Another stupid response by someone who flatters themself as “educated.”

        1. Thomas Sullivan

          Another pointless slur.

  2. The preference reduces three important distortions: the lock-in effect, the tax bias against equity-financed investment by C corporations, and the tax penalty on savings. In each case, the preference plays a beneficial role, even though it is not ideally suited to achieving the purpose in question“…

    How do any of these supposed preferences mitigate the extortion effect?

  3. SeattleSam

    The President made it clear in an interview on ABC in 2008 that his interest in raising capital gains taxes has nothing to do with economics.

  4. MacDaddyWatch

    But its a great vote grabber…

    YOU VOTE FOR ME…

    I’LL GIVE YOU THIS…

    AND HE’LL PAY FOR IT!

    Santa Clause always wins…and Santa Clause using someone else’s money never loses. And taxing capital always shrinks economic activity, jobs, incomes, the standard of living and prosperity.

    1. Max Planck

      “And taxing capital always shrinks economic activity, jobs, incomes, the standard of living and prosperity.”

      Precisely- and since it taxes on capital are the lowest in the post-war era, we can all rejoice in the booming prosperity it has so obviously delivered to our country since they were enacted.

      Dope.

      1. MacDaddyWatch

        And spending is at an all-time record high and surging higher.

        1. Max Planck

          “Spending” has increased every single year since 1954.

          Try to throw in a few more unneccessary wars- maybe you’ll get a seizure.

          1. MacDaddyWatch

            AND HOW MANY OF THOSE INCREASES PUT SPENDING AT OR ABOVE 20% OF GDP?

            DO YOU HAVE ANY CLUE WHAT SPENDING AS A PERCENT OF GDP AVERAGED SINCE 1954?

            I’LL WAIT FOR YOUR RESPONSE… TIC, TOC, TIC, TOC….

          2. Max Planck

            Who cares? Welcome to the 21st century. Go pay your doctor what you paid him in 1954.

  5. I would eliminate the cap gains rate.

    First, it is social engineering through the tax code, the same as with the mortgage interest deduction, credits for buying electric cars, etc. If you object to using the tax code to push policy, you need to object to all such programs, not just the ones you don’t like.

    Second, the lion’s share of capital gains comes NOT from real investment, at least not the way I define investment but rather from betting on stocks of companies that were started long ago. My buying shares of Apple does nothing to stimulate investment, it is simply paying someone who already owns the stock. Why should I get a tax break than someone who bets his money on the Super Bowl? Both are bets and should be treated the same.

    Third, the tax rate paid on ‘real’ investment (for example, investing in a start up) have very little to do with whether the investment gets made. The bigger concern is whether the company will ever be profitable.

    Fourth, income is income and should be taxed at the same rate. You claim to dislike the distortions in the tax code, yet giving a tax break to someone who invests money in a business disfavors those who invest their time and energy. I invested in my education years ago, yet I have to pay ordinary rates on the money I’m making on that investment, those investing cash in a stock certificate should pay at the same rate.

    1. Max Planck

      Good points, all.

  6. MacDaddyWatch

    Perfect time for a tax hike that will produce lower economic growth:

    Personal Income was unchanged in October and Personal Consumption Declined 0.2%. Meanwhile, industrial activity continues to shrink with 4 of the past 6 monthly ISM reports below 50 (contraction). As a result, Q4 GDP growth expectations have been slashed to about 1.5%, down some 45% from Q3′s growth. We are rapidly entering 2013 in reverse.

    Meanwhile, the dems are holding out for tax hikes and spending hikes. The want to catapult their all-time record deficits. The last stimulus was sold to America as having a 1,5X multiplier that turned out to be actually less than 0.5X including transfer payments–the promised multiplier actually urned out to be a divisor.

    Yep, the same crowd of fiscal geniuses that engineered the last 4 years of 2% growth failure now want more spending and more tax hikes.

    FORWARD!!

    1. Max Planck

      “Perfect time for a tax hike that will produce lower economic growth”

      Tax cuts did nothing for “economic growth.” And tax hikes did nothing to hinder it. Stop playing with yourself.

      1. MacDaddyWatch

        YOU ARE AN ECONOMIC AND FINANCIAL ILLITERATE…

        You are proposing that we can tax our way into growth and prosperity. And you know nothing about American economic history and taxation.

        1. Max Planck

          “YOU ARE AN ECONOMIC AND FINANCIAL ILLITERATE…

          You are proposing that we can tax our way into growth and prosperity. And you know nothing about American economic history and taxation.”

          Oh, shut up, you stupid parrot. Who the hell do you think you’re accusing of being “economically and financially illiterate” since you don’t even have the history on your side?

          You flatter your dumbed down understanding by visiting this site, convinced you’re visiting a place with “analysis” written by “scholars” and “fellows” who are nothing more than third rate hacks bought and paid for by firms like Proctor and Gamble. Who do you think pays these morons? People who give a rat’s ass about their country or themselves?

          We lived with higher cap gains rates and income taxes paid no economic price.

          THAT’S THE REALITY. And the other reality is that in a modern economy, taxation, by itself, is one of the most inconsequential levers on an economy. This whole narrative has been constructed for dupes like you so they can benefit by it.

          You scream about deficits with your phony moral certitude. Well buddy guess what? You ain’t gonna eliminate one without raising the other, and if you think its gonna be done by cuts alone, you have no business calling anyone else “economically illiterate.”

          Tell me, genius: if the deficit were eliminated at a stroke tomorrow, what would change? You would still have a decimated McWorkforce working for crap wages and no benefits while it all accrues to the brass who take it all- and the numbers prove it.

          Let Kudlow, Hubbard, that mental dwarf Laffer, and Pethokoukis prattle on. These people have lost their credibility in the economic world and rightly so.

          Failure has it’s price.

          1. Max: sorry, I disagree.

            Raising taxes doesn’t mean we will have no growth, only that we will have less growth than with lower rates and taxes. Raise the after tax cost of anything and you’ll get less of it. Now if the economy was chugging along at a 6% growth rate, you could live with something less by raising taxes. With the economy running at close to zero growth, raising taxes now is just not a good idea.

            Second, the examples of raising taxes you’ve referred to can’t be looked at in isolation. Yes, Clinton raised taxes, but the economy also grew as a result of the 2005 budget accord and it certainly grew as a result of what turned out to be tech bubble. I’d argue that the latter two were far more responsible for the growth than the tax hikes. The same holds for the growth post-WWII. There were higher taxes but other economic conditions were so strong that the country grew at a good rate even with higher income taxes.

            Finally, the point you make that eliminating the deficit won’t help Joe Sixpack can also be used to argue against raising taxes. Raising taxes on the boss isn’t going to help the average worker, it isn’t as if they’re going to get a raise because the boss has to pay more in tax.

            My view is that those calling for higher taxes are motivated more by envy and bitterness towards certain segments of the well off than by any sound economic or fiscal theory. Balancing the budget can be done with cuts (to future spending levels) and additional revenue through economic growth. No one’s taxes needs to go up, just as no one who is now receiving federal support needs to get less than what they’re now getting.

          2. Max Planck

            “Raising taxes doesn’t mean we will have no growth, only that we will have less growth than with lower rates and taxes.”

            Not neccessarily, and this obsession, if not outright fantasy, of looking at one dynamic in isolation and predicting an outcome has got to stop. It’s not even an IMITATION of analysis. And the second part is, the proposed increases don’t amount to a hill of sh*t. Raising the top rate to 39.6% doesn’t even affect the wage earner who falls into that bracket until they actually earn $350,000 thanks to the way our tax code is structured.

            Don’t tell me with a straight face that this is a killer for the economy. Its not. Not by a long shot. Secondly, if you want to talk about distortion, consider the low taxes on capital that is just sitting there for dividend collectors. This does nothing for growth, and the fact is with the Average American still in the over leveraged position he’s in, taxing the top 2% will have ZERO effect on consumption.

            “Now if the economy was chugging along at a 6% growth rate, you could live with something less by raising taxes. With the economy running at close to zero growth, raising taxes now is just not a good idea.”

            This is the same circular logic that got us into this mess. GDP slowing down? OK, cut taxes. Deficits growing? Sorry, can’t raise taxes, that might “hurt” the economy. Deficits even higher? Sorry, we have two wars to fight and we can’t pay for them. Tax cuts didn’t increase revenues enough to pay for themselves? (EARTH TO AEI: THEY ALMOST NEVER DO) Sorry, can’t help you.

            This disaster- this corner we painted ourselves into was because we just COULDN’T bear the thought of just getting through the shallowest recession of the post war ear by blowing out our budget. Unfortunately, capitalism means living with up and downs, and if your first reaction to a slowdown is to up end the entire revenue system, you’re going to f**k up everything. And so we have. Hence, the repeated need to blame housing policy on our misfortunes. It serves as the anti-Semitism of the faux economist.

            “Second, the examples of raising taxes you’ve referred to can’t be looked at in isolation.”

            An intellectual construct you conveniently abandon when it COMES TO LOWERING THEM. How do you accomplish these mental gymnastics?

            Yes, Clinton raised taxes, but the economy also grew as a result of the 2005 budget accord and it certainly grew as a result of what turned out to be tech bubble.”

            This is a common meme- but a false one. Tech jobs only accounted for 8% of the job creation at that time. I remember that fast food restaurants had to practically double their wages at that time due to labor shortages- you can’t hang that kind of growth on the tech bubble.

            More important, it means you can’t accuse people of being lazy. You pay them well, and have job demand, and you’ll find people are more than happy to hold down productive jobs. The hatred and contempt Romney and his Party showed with his “47%” comments show what a pathetic and morally defective person he is. Small wonder given that he treats workers like kindling for a fireplace.

            “The same holds for the growth post-WWII. There were higher taxes but other economic conditions were so strong that the country grew at a good rate even with higher income taxes.”

            You’re defeating your own argument by introducing the outliers you think determine the outcome you need to satisfy your prejudices.

            “Finally, the point you make that eliminating the deficit won’t help Joe Sixpack can also be used to argue against raising taxes. Raising taxes on the boss isn’t going to help the average worker, it isn’t as if they’re going to get a raise because the boss has to pay more in tax.”

            The very idea that “the boss” gives his workers raises on the basis of his after tax income is tragically naive. Labor is priced at a market, unless unions or other controls are introduced. The boss gets away with what he can- he doesn’t hand out raises because he’s doing better. I can only imagine what your work experience is like.

            “My view is that those calling for higher taxes are motivated more by envy and bitterness towards certain segments of the well off than by any sound economic or fiscal theory.”

            Nonsense. There is too much of a consensus, even among the wealthy, that things have gone too far. They know it. Everyone knows it.

            Balancing the budget can be done with cuts (to future spending levels) and additional revenue through economic growth.”

            No it cannot. This is ideological, not practical. The “cuts” you want to make are those your fellow citizens don’t want to make. So that leaves raising revenue on those who can afford to pay it the decent, if not moral, thing to do, instead of screwing the people who can’t afford it.

          3. Not neccessarily, and this obsession, if not outright fantasy, of looking at one dynamic in isolation and predicting an outcome has got to stop.

            ** You ought to stop reading into comments only which advances your narrative. I say that, all things being equal, raising taxes will result in less growth. Another way of putting that is, that no matter what other factors are present, higher taxes will result in less growth than would otherwise exist. Pretty simple and straightforward economics 101.

            And the second part is, the proposed increases don’t amount to a hill of sh*t.

            ** So… assuming for a moment that they don’t amount to a _____, what’s the purpose in raising them? Other than jealousy and bitterness on the part of those who won’t have their taxes raised?

            Tax cuts didn’t increase revenues enough to pay for themselves? (EARTH TO AEI: THEY ALMOST NEVER DO) Sorry, can’t help you.

            ** And yet overall tax revenues are higher than when Bush cut taxes in his first term… and they’re close to back to where they were pre-recession. Since one would think the more important number was the total amount of taxes collected, I restate my earlier comment that only the bitter and jealous will complain that some people aren’t paying a high enough rate.

            Hence, the repeated need to blame housing policy on our misfortunes. It serves as the anti-Semitism of the faux economist.

            ** If you’re denying the extension of credit to unworthy borrowers and the resulting bubble and crash aren’t largely responsible for the recession, then you’ve clearly identified yourself as someone who ignores the facts in favor of make believe arguments.

            This is a common meme- but a false one. Tech jobs only accounted for 8% of the job creation at that time.

            ** Again with the misreading and/or misunderstanding of the economy. What created the bubble wasn’t the number of people employed in the tech sector but rather the ‘irrational exuberance’ associated with the stock market gains driven by the tech sector, including such winners as Pets.com. The same holds for the housing bubble, it wasn’t just the number of people employed building houses but also the people buying and selling houses and refinancing homes in the expectation that housing prices would keep going up.

            You pay them well, and have job demand, and you’ll find people are more than happy to hold down productive jobs.

            ** What’s with the strawman? Who’s arguing to the contrary? The problem today is that companies don’t want to hire anybody right now, they’re pretty apprehensive about the economy and the impact of Obama’s policies and have logically decided the prudent thing to do is sit on their hands and cash.

            The very idea that “the boss” gives his workers raises on the basis of his after tax income is tragically naive.

            ** Again, you’re misreading arguments in order to fit your mindset. My point, repeated for those who are slow on the uptake, is that raising taxes will not lead to a single job being created nor a single raise for any worker, and as such, there’s no reason to raise taxes other than, as I’ve said, out of jealousy and bitterness.

          4. Max Planck

            You can set your watch to one fact: ANYONE who uses the term “Economics 101″ is in fact utterly wrong on the economics. Retire the use of it since it marks you as a piker. Let us begin:

            Me: “Not neccessarily, and this obsession, if not outright fantasy, of looking at one dynamic in isolation and predicting an outcome has got to stop.

            You: ** You ought to stop reading into comments only which advances your narrative. I say that, all things being equal, raising taxes will result in less growth. Another way of putting that is, that no matter what other factors are present, higher taxes will result in less growth than would otherwise exist. Pretty simple and straightforward economics 101.”

            Except the real economic world doesn’t work by being affected by ONE solitary input and then seeing ONE solitary result from it. It’s this simplistic mindset- swallowed by millions of gullible people- that gets us into trouble and makes financial illiterates out of an entire country. And besides: DON’T TELL ME THAT A TAX INCREASE THAT AMOUNTS TO ALL OF $38 A WEEK ON SOMEONE WHO EARNS OVER 300K A YEAR IS GOING TO HAVE A MATERIAL EFFECT ON THE ECONOMY. PUT THE BONG DOWN- NOW.

            ** So… assuming for a moment that they don’t amount to a _____, what’s the purpose in raising them? Other than jealousy and bitterness on the part of those who won’t have their taxes raised?”

            Again, the same meme, repeated by Polly and his singing chorus. Of course, since revenue enhancement doesn’t cure the ENTIRE DEFICIT, than don’t do it at all. The proper way to look at it is this: we have choices, and we have priorities, and we’re not going to give millionaires a better break than paupers when it comes to dealing with this issue. Although in the end, almost everyone gets a haircut of some kind.

            Tax cuts didn’t increase revenues enough to pay for themselves? (EARTH TO AEI: THEY ALMOST NEVER DO) Sorry, can’t help you.

            ** And yet overall tax revenues are higher than when Bush cut taxes in his first term… and they’re close to
            back to where they were pre-recession.”

            Without getting into the historical weeds on the matter, once again, you claim causality when it suits you, and deny it when it does not. That is intellectual dishonesty in its highest form. Again: tax cuts do NOT pay for themselves. Taking your own example, it is preposterous to take in less money to run an enterprise, public or private, and increase the holdings of your coffers. Its total nonsense.

            “Since one would think the more important number was the total amount of taxes collected, I restate my earlier comment that only the bitter and jealous will complain that some people aren’t paying a high enough rate.”

            Your assigning bitterness and jealosy to others is a bit much. Even WITH a tax evading slimeball like Romney paying an effective 9% tax rate.

            “** If you’re denying the extension of credit to unworthy borrowers and the resulting bubble and crash aren’t largely responsible for the recession, then you’ve clearly identified yourself as someone who ignores the facts in favor of make believe arguments.”

            As I have pointed out on these forums a 1000 times, and backed it up with hard data- government policy did not cause the bubble, and the GSEs didn’t write the dirtbag loans. Stay awake.

            “** Again with the misreading and/or misunderstanding of the economy. What created the bubble wasn’t the number of people employed in the tech sector but rather the ‘irrational exuberance’ associated with the stock market gains driven by the tech sector, including such winners as Pets.com.”

            Is that right? Your understanding of the economic environment of that time was that we acheived an unemployment rate fo 4.2% because of speculation in stocks like Pets.com? Seeing you’re such an expert, I want you to translate the performance of these stocks to the employment and factory utilization rates of that era.

            GO AHEAD. IMPRESS ME.

            “** What’s with the strawman? Who’s arguing to the contrary? The problem today is that companies don’t want to hire anybody right now, they’re pretty apprehensive about the economy and the impact of Obama’s policies and have logically decided the prudent thing to do is sit on their hands and cash.”

            No straw man- companies won’t spend because there is no aggregate demand and this is well known by normal, well adjusted economists.

            “** Again, you’re misreading arguments in order to fit your mindset. My point, repeated for those who are slow on the uptake, is that raising taxes will not lead to a single job being created nor a single raise for any worker, and as such, there’s no reason to raise taxes other than, as I’ve said, out of jealousy and bitterness.”

            Sir, we’re not raising taxes with the policy endpoint of “creating jobs.” No one ever said they would. What raising taxes does is pay down the massive deficit the Bush administration created, and then magnified by cratering tax receipts. We ran up a bill- it has to be paid down. OK? And the ones who have the ability to pay it, and have used the tax code to rape everyone else will now foot the bill. That is what your fellow Americans want, and that is what we shall get.

  7. MacDaddyWatch

    DOUBLE DIP? TIME FOR A TAX HIKE !!!

    Based on the very latest consensus estimates of this A.M.…Q4 GDP LOOKS LIKE 0% GROWTH. That’s ZERO percent. ZILCH%.

    If the weeks ahead show a sudden surge and rebound, then the consensus looks more like a flaccid 0.5% GDP gain–down some 80% from Q3.

    At best, we enter 2013 with massively negative momentum–like a train reck. At worst, we could have our first quarter of negative GDP growth–on out way to the dreaded double- dip, catapulting deficits and borrowing, 9-10% unemployment and the Fed with NO remaining ammo.

    Time for a tax hike…??????????????

    FORWARD !!

  8. MacDaddyWatch

    THE FISCAL CLIFF…

    ….HAS ALREADY ARRIVED!!

    Just look at the latest economic data and most recent economic projections (of this A.M.)–THE CLIFF IS HERE. We are IN. Its not a question of IF or WHEN…its now a question of HOW DEEP and HOW BAD.

    The change in the rate of change is accelerating negatively. Watch out libs, Santa Claus is about to stuff some “DD” into your stockings. Obama’s war against coal is going to wind-up in your stocking.

    Q4 GDP: up 0.5% at best (down 80% from Q3)…but 0% if there is no sudden surge.

  9. MacDaddyWatch

    ECON 101: That means you too, Einstein.

    Versus GDP, big government pending is still far above its post-War average (23% vs. 19.3%), whereas revenues are only slightly below their post-War average (16% vs. 17.3%). If you assume that post-War averages are the norm, then 72% of the current budget deficit of 7% of GDP is due to excess spending, and 28% is due to a revenue shortfall. That’s an overwhelming 2.6:1 for overspending being the culprit. And also the reason why any tax hikes, particularly at this tapioca moment for our flagging economy, are dangerous.

    And guess what else. Federal revenues exceeded their post-War average from 2005 to 2008 despite the Bush tax cuts. Those very same tax rates are now delivering disappointing tax revenues today because of a shortfall of jobs and underemployment, the abysmal labor non participation rate and the fact that our economy is about 12-13% below its potential output. It’s the shrunken tax base, not lower tax rates, which is responsible for today’s revenue shortfall. Any prolonged subprime 2% growth rate will do that every time. A healthier economy and faster jobs growth would do much more to close the GDP and tax deficit than any amount of higher tax rates on the rich.

    Bottom line…continued class warfare will only prolong record poverty, record bankruptcies, record food stamps and record deficits. Tax hikes on the “rich” would be a prime example. Those very same tax filings are small business tax filings–the very folks who create jobs, incomes and tax revenues.

  10. You will never get prosperity taking something from someone and giving it to someone else who did nothing for it….that includes beggar politicians. Pethokoukis is awesome and I recommend routine reading.
    I am in the financial field and wish I had $5 for every sad call I heard over the last 5 years of people pulling money out of their retirement plans early, where there is an additional tax penalty. Along with divorces, these are always the saddest of calls. The hope of these people is destroyed and it is unreasonably difficult to start saving all over again due to the valued loss of time. Nothing changes until investment and business building is welcomed again….jobs will be the only solution and we just took a pass on the better men–Romney and Ryan–to get that done.

    1. Max Planck

      “I am in the financial field and wish I had $5 for every sad call I heard over the last 5 years of people pulling money out of their retirement plans early, where there is an additional tax penalty. Along with divorces, these are always the saddest of calls. The hope of these people is destroyed and it is unreasonably difficult to start saving all over again due to the valued loss of time.”

      I’m in the financial field too. And those tragedies you mentioned were due to precisely the kind of financial “engineering” Messrs. Romney and Ryan would have continued, unfettered.

      I think this election actually saved the country.

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