How will Obama v. Democrats v. Republican Battle Play Out?

[backtoschool]

But I think your missing the point, the government has a marginal affect on the economy in the first place. Government (at least a government with sufficient resources) can prevent a crisis, and can create an environment for growth, but for the most part, the government has little impact on the economy. So arguing that the upwardly mobile should pay higher taxes because it won't lead to an economic benefit is disingenuous because the government cannot really affect the economy. Also, let's keep in mine, the poor don't actually pay tax. So let's dispel that myth right here. So its not a question of should the rich pay more tax than the poor, the poor pay zero tax. No one has yet addressed the fundamental question as to WHY the upwardly mobile SHOULD pay the majority of their income in taxes. I critique both sides on this issue that tax policy is about the economy, it is not. I am equally critically of both sides. But giving money to the government never made the economy better.

Europe has finally figured this out, what do you think all those austerity programs are for. They have learned that you cannot keep raising taxes and be economically viable. They have FINALLY learned that a government care taker system doesn't work.

Europe's austerity programs still offer far more benefits (paid for by far higher tax rates) than the US. The austerity programs are to keep from defaulting on loans, not to keep taxes down. (Think Ireland here...)

But I do agree with you that the government cannot really affect the economy except for providing cheap money to banks (that supposedly they will lend out to businesses and consumers thereby creating growth). The government can also calm its citizens in a fiscal crisis by offering "insurance" that their money is safe (think fdic here). In order to provide that cheap money to banks and to provide the insurance to depositors, the government needs to have money, which requires taxes. The fdic and the fed absorbed a huge amount of bank defaults and pumped a huge amount of money in into the economy in the last three years. If that money was not being at least partially covered by tax dollars we would have printed so much money that the currency would have collapsed like Weinmar Germany. (I am not saying that this still may not happen. If we keep printing money it will...)

I totally agree with you HHM that we cannot keep raising taxes and have a healthy, growing economy. I am just not sure where the line should be drawn. We need to pay the deficit down a bit and we need to collect some tax money. I am unsure of what is the "fairest" and most economically sound policy here.

Interesting discussion.

[WhatMoney]

But it is those people, in the $200K-$600K that are the small business owners (The doctors with a small medical practice with 10 employees, the general contractor, the roofing company), they employee 70% of the nations workers, and they are the ones most hurt by income tax increases.

I am going to repeat once again that 98% of small businesses do not net $250,000/yr, and would not have their taxes raised if the bush tax cuts were only extended to those netting less than $250,000.

The inheritance tax break for the ultra-rich is even more damaging to the economy and the deficit:

Van Hollen, appearing on "Fox News Sunday," indicated that Democrats would like to get a separate vote on the inheritance tax, a provision that he said would cost $25 billion for just 6,600 people.

"That doesn't help the economy," Van Hollen said. "It hurts the deficit."

How does sending an extra $25 Billion to only 6,600 already wealthy heirs help the economy? That is an average of an extra $3.8 Million each to only 6,600 heirs. Is that the best way to distribute government revenue to stimulate the economy?

http://news.yahoo.com/s/nm/20101213/pl_nm/us_usa_taxes

[HHM]

But I think your missing the point, the government has a marginal affect on the economy in the first place. Government (at least a government with sufficient resources) can prevent a crisis, and can create an environment for growth, but for the most part, the government has little impact on the economy. So arguing that the upwardly mobile should pay higher taxes because it won't lead to an economic benefit is disingenuous because the government cannot really affect the economy. Also, let's keep in mine, the poor don't actually pay tax. So let's dispel that myth right here. So its not a question of should the rich pay more tax than the poor, the poor pay zero tax. No one has yet addressed the fundamental question as to WHY the upwardly mobile SHOULD pay the majority of their income in taxes. I critique both sides on this issue that tax policy is about the economy, it is not. I am equally critically of both sides. But giving money to the government never made the economy better.

Europe has finally figured this out, what do you think all those austerity programs are for. They have learned that you cannot keep raising taxes and be economically viable. They have FINALLY learned that a government care taker system doesn't work.

[backtoschool]

I agree that there is a huge government bureaucracy that is paid for by taxes and that for the most part is unneeded. If we get rid of all of those government jobs, and kick the bureaucrats to the street and take that money that we are saving by not paying them salaries, and pay down the deficit or lower the tax rate on the "upwardly mobile", will we help the economy?

I don't think so.

If we get rid of government agencies that are not critical, we will now have hundreds of thousands of unemployed bureaucrats. The money we were paying the bureaucrats will go to paying off our deficit I assume. (otherwise why bother adding hundreds of thousands of bureaucrats to the unemployment lines) The lower deficit will stabilize the dollar, which will make our exports more expensive, which will cause a trade imbalance, which will lead to more jobs lost. Net improvement to the economy? None.

The tax savings of the "upwardly mobile" might lead to marginal growth in consumer spending, which could lead to economic growth, or it may not. The "upwardly mobile" may just save the money and that will lead to no net growth for the economy.

When I look at possible outcomes of lowering taxes, I don't see any clear path to those lower taxes leading to economic growth.

If it is a question of "fairness", those who are "upwardly mobile" could always go live in a place that doesn't tax their earnings. Perhaps Europe? Nope their taxes would be much higher in Europe. How about Central America? Again, they would be taxed at a much higher rate in Central America. They could move to China I suppose, but it is hard to tell if one is being taxed or not when the currency is regulated and its value changes by central control.

So I suppose the upwardly mobile will have to make due with 2/3 of their 450k a year for now. With home prices lower, and food prices stable and deflation the norm, they are getting more for their money and can hire some of the downwardly mobile to do their menial tasks for them. This is what the upwardly mobile do in other third world countries where there is a huge income disparity between the rich and the poor.

[HHM]

HHM, you make some good points here. As for the wealthy who are supporting a higher rate for the rich, not giving their taxes, they are stating that the law should be passed, but of course would not be foolish enough to donate their percentage to the government if the law isn't passed. I had this wish that we could have a charity fund called "Eliminate the Deficit" whereby people could donate their funds to the eliminate the deficit fund. But of course we know that would never work because our country is one of always creating a deficit, so it would simply be run back up again. Just like if we tried to put a fund in for social security to be increased, when we all know it will be spent.

I understand the argument about how it isn't fair to tax the rich more than the poor, kind of an anti-robin hood belief, and I would be all for this if we weren't in the situation we are in with the recession and in my opinion an unfair rise with many wealthy at the expense of the poor, especially with Bush policies. I was ok with the Bush tax cuts when he first introduced them, thinking, this is fine as long as we can grow our economy at a rate to cover them. Since this didn't happen and we went into a recession and taking into account what China is going to do to us, I believe its time to rethink our strategy. I think we have had a wealth shift to a very minute percentage getting a massive wealth increase, while massively increasing the bottom of the poor. Look at the massive amount of foreclosures and BK's going on. Look at the record unemployment numbers. Sometimes government has to step in when the wealth distribution goes beyond what is reasonable or in my opinion moral. I am even for a compromise, if 250,000 is too low, then bump it to 500,000 or 600,000, but somewhere, we should draw the line and give back to help society that is suffering.

I also am for some social programs and for unemployment extensions because many of these people were the middle class that are now in poverty and I want these people to get the help they need from a system they paid into, until they can get back into that middle class again.

The problem is, the money collected in taxes is not really redistributed except for social security, and those living on social security are POOR and receiving social security doesn't keep them from being poor.

The government can only act as a safety net, it really can't level the income division. If you really want to boost the economy, Take the next 5 years, 10 trillion dollars and pay off the mortgage of anyone with a mortgage of $250,000 or less. But that won't happen, the government is too bloated, too wasteful, and no one really has the will to change it.

[WhatMoney]

The people hurt by the tax burden are not the super wealthy. But it is the up and coming wealthy. A professional couple in Los Angeles, earning combined income of $450,000 a year, that 35%, or 38% tax hit (and that is JUST INCOME TAX, that is not social security and Medicare), Realistically, their effective tax burden is HALF their income. If someone making $3MM per year, half there income may not be as noticeable. But it is those people, in the $200K-$600K that are the small business owners (The doctors with a small medical practice with 10 employees, the general contractor, the roofing company), they employee 70% of the nations workers, and they are the ones most hurt by income tax increases. Why is it RIGHT for the government to TAKE half of someones income? I am not saying there should be no tax, there are services that the government provides that no other entity can do, but punishing success is not the way to do it.

As I pointed out in a earlier post, my largest monthly expense, by far, is income tax, social security, and Medicare. It really shouldn't be that way.

The Federal tax rate for a couple making $450,000 plus SS and Medicare is not half your income. The 35% is a marginal bracket, not the tax on your entire income.

This couple would pay 26.1% of their net 450,000 income in Federal income taxes in 2010. Add in SS and Medicare, with the present top rate limit, and your taxes including the FICA taxes would be about 28% of your income, nowhere close to 50%.

If you live in a high income tax state you might add about 8% income tax, but you can always move to a state that has no state income tax.

Also, 98% of small businesses do not NET $250,000/yr, and would not be affected by a 3% marginal increase in income above $250,000. A business with a net profit of $250,000 would pay about 25.8% in income tax, ignoring any business tax credits.

A "small business" earning a net taxable income of $500,000 would be taxed at 29.9% with the Bush tax cuts in place, and would be taxed at about 32% if the tax cuts for over 250,000 were eliminated - that's the per cent tax rate on the entire income.
(This would be 3% increase on net income between $212,600 and $379,650, and a 4.6% increase on income over $379,650, if the pre-Bush tax rates were restored.)

If the rich are not taxed progressively, most will hoard and invest overseas to become even richer, at the expense of the middle class. They will not create American jobs when they can build factories and employ cheaper labor overseas. This has been the case for trickle down economics since the 1980's. The only trickle down you get from the super rich is a warm yellow liquid on your head.

2010 tax calculator:
http://www.dinkytown.net/java/TaxMargin.html

[helpme2010]

HHM, you make some good points here. As for the wealthy who are supporting a higher rate for the rich, not giving their taxes, they are stating that the law should be passed, but of course would not be foolish enough to donate their percentage to the government if the law isn't passed. I had this wish that we could have a charity fund called "Eliminate the Deficit" whereby people could donate their funds to the eliminate the deficit fund. But of course we know that would never work because our country is one of always creating a deficit, so it would simply be run back up again. Just like if we tried to put a fund in for social security to be increased, when we all know it will be spent.

I understand the argument about how it isn't fair to tax the rich more than the poor, kind of an anti-robin hood belief, and I would be all for this if we weren't in the situation we are in with the recession and in my opinion an unfair rise with many wealthy at the expense of the poor, especially with Bush policies. I was ok with the Bush tax cuts when he first introduced them, thinking, this is fine as long as we can grow our economy at a rate to cover them. Since this didn't happen and we went into a recession and taking into account what China is going to do to us, I believe its time to rethink our strategy. I think we have had a wealth shift to a very minute percentage getting a massive wealth increase, while massively increasing the bottom of the poor. Look at the massive amount of foreclosures and BK's going on. Look at the record unemployment numbers. Sometimes government has to step in when the wealth distribution goes beyond what is reasonable or in my opinion moral. I am even for a compromise, if 250,000 is too low, then bump it to 500,000 or 600,000, but somewhere, we should draw the line and give back to help society that is suffering.

I also am for some social programs and for unemployment extensions because many of these people were the middle class that are now in poverty and I want these people to get the help they need from a system they paid into, until they can get back into that middle class again.

[HHM]

My point is more to the over all philosophical issue of WHY should the rich pay more in tax. Why do we punish success with an increased tax burden. This is where I think Warren Buffet is a hypocrite. He has come out and said that rich people should pay more in taxes. Yet, do you see him "giving" his billions to the government. NO, he is giving it to private charities. If limousine liberals want to pay more in taxes, by all means, do so. Do you know any that actually DONATE their money to the government....<insert cricket sounds> The people hurt by the tax burden are not the super wealthy. But it is the up and coming wealthy. A professional couple in Los Angeles, earning combined income of $450,000 a year, that 35%, or 38% tax hit (and that is JUST INCOME TAX, that is not social security and Medicare), Realistically, their effective tax burden is HALF their income. If someone making $3MM per year, half there income may not be as noticeable. But it is those people, in the $200K-$600K that are the small business owners (The doctors with a small medical practice with 10 employees, the general contractor, the roofing company), they employee 70% of the nations workers, and they are the ones most hurt by income tax increases. Why is it RIGHT for the government to TAKE half of someones income? I am not saying there should be no tax, there are services that the government provides that no other entity can do, but punishing success is not the way to do it.

As I pointed out in a earlier post, my largest monthly expense, by far, is income tax, social security, and Medicare. It really shouldn't be that way.

Someone pointed this out too me the other day, we punish people for working by taxing them, yet, if they don't work, we pay them unemployment.

[helpme2010]

Oh stop the BS.. The nation was running up huge deficits after Bush took office when he cut taxes, signed Medicaid Part D into law and expanded the defense/intelligence budget by three fold over the years.

We need to start paying for the services again.

I have to say DH's quote about the rich will be giving us jobs when we cut the taxes for them. This is simply not true. Maybe a small percentage, but this has been proven not to be true over the last decade. I have noticed CEO's will cut your job to make themselves more profit, even when times are good. They will be the first to try to get someone much cheaper to take over your job (even when that person isn't qualified to do the job).

Many of the wealthy simply hoard the money or invest it into the most lucrative returns for themselves which often include offshore investments. This money barely trickles down. And is that how we want our system to work? The richest people trickling down crumbs to the poor?

[jacko]

Oh stop the BS.. The nation was running up huge deficits after Bush took office when he cut taxes, signed Medicaid Part D into law and expanded the defense/intelligence budget by three fold over the years.

We need to start paying for the services again.

The thing that most people seem to forget is the economy only really started to tank the last 2 years of the Bush presidency. The years after 9-11 were some of the best years ever. Unemployment was below 5%, people seem to forget that. The economy was growing. Then something happened in 2006. Anyone remember? The Democrats took over Congress. Starting in 2006, the market dropped, the housing market started to criash. Bush actually tried to get Congress to rein in Freddie and Fannie, but the Democrats refused. Barney Frank and his buddies said they were fine. They weren't. That being said, I think most of our representatives are crooks and only out for themselves.

As far as taxes go, people really need to stop with the "rich against poor" retoric. The rich got that way by acting a certain way. The poor stay that way by acting the same way. Think about this. That "rich" guy who owns a small business will see his taxes increase. That is less money for his business which means he can't grow his business. Which means he can't hire more. The "rich" people you want to pay more taxes are the same ones who will be giving you a job!

[HHM]

Not sure how you can say we had a great economy - with record deficits. http://www.scribd.com/doc/3015540/US...us-1960present. And tell me exactly what law did the democrats pass that contributed to the problem after 2006?

To be fair, having deficits and measuring the growth of the economy are different things. The economy was actually quite good from 2002-2006, the deficits only kept it from being better. Deficits are not a good a thing, but in point of fact, the economy was doing very well notwithstanding, unemployment was below 6% and and things were doing quite well.

[msm859]

The thing that most people seem to forget is the economy only really started to tank the last 2 years of the Bush presidency. The years after 9-11 were some of the best years ever. Unemployment was below 5%, people seem to forget that. The economy was growing. Then something happened in 2006. Anyone remember? The Democrats took over Congress. Starting in 2006, the market dropped, the housing market started to criash. Bush actually tried to get Congress to rein in Freddie and Fannie, but the Democrats refused. Barney Frank and his buddies said they were fine. They weren't. That being said, I think most of our representatives are crooks and only out for themselves.

As far as taxes go, people really need to stop with the "rich against poor" retoric. The rich got that way by acting a certain way. The poor stay that way by acting the same way. Think about this. That "rich" guy who owns a small business will see his taxes increase. That is less money for his business which means he can't grow his business. Which means he can't hire more. The "rich" people you want to pay more taxes are the same ones who will be giving you a job!

Not sure how you can say we had a great economy - with record deficits. http://www.scribd.com/doc/3015540/US...us-1960present. And tell me exactly what law did the democrats pass that contributed to the problem after 2006?

[helpme2010]

By the way, I want to thank all of you for a professional exchange of ideas, including when we may have disagreements with each other. I end up taking some ideas from some of you that come from the other side of the debate and I feel like some on the other side see a perspective from my side.

I truly wish we could get our government to act like this. I kind of wish we really didn't have political parties and everyone could just vote based on what they believe was right for the country and not based on supporting a party line.

[helpme2010]

It really doesn't matter. All the entire lot of them are doing is playing a shell game in order to keep the sheeple distracted so they won't see just how broke and corrupt our country really is.

I agree with frogger (and you are bringing back memories of that game to me). I actually supported the idea of Bush tax cuts back a decade ago, but assumed like many that the economy would continue to grow and be able to support them, but now it's a different world. Just like bk changes the way we have to think and spend, so does a major recession.

I keep seeing additional items coming out of the compromise that is going to kill our nation, including the estate tax moving from 1 million to 5 million for exemption, then from 55% down to 35%. They estimate another trillion tacked to the budget. I am all for people passing an inheritance to their children, but at what price. If you are watching the news about the EU planning on tripling the cost of education in 2012, just another of many bad expenses that will be coming our way. Add to that people will have to work longer years, social security will continue to be cut, it's going to get worse and worse, with the poor suffering the most.

[frogger]

It really doesn't matter. All the entire lot of them are doing is playing a shell game in order to keep the sheeple distracted so they won't see just how broke and corrupt our country really is.