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Congressional Research Service: Tax cuts less stimulative than spending

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Remember the Bush tax cut plan?

How’s that working out for us?

In case the last eight years haven’t left you skeptical about the effectiveness of  tax cutting as a business stimulus, the non-partisan Congressional Research Service provided its bosses (the Congress) with these sentences in its report of January 23 entitled Economic Stimulus: Issues and Policies (pdf):

clipped from www.motherjones.com

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“Economists generally agree that spending proposals are somewhat more stimulative than tax cuts since part of a tax cut may be saved by the recipients […] The primary way to achieve the most bang for the buck is by choosing policies that result in spending, not saving. Direct government spending on goods and services would therefore lead to the most bang for the buck since none of it would be saved.” […]

“The effectiveness of tax cuts also depends on their nature… tax cuts received by lower income individuals are more likely to be spent.” […]

Most evidence does not suggest that business tax cuts would provide significant short-term stimulus […]

This lack of effectiveness may occur because […] stimulus is generally provided during economic slowdowns when excess capacity may already exist. […]

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Hmm, interesting thought!

It’s a recession. Manufacturers aren’t selling much. Plants are running at partial-capacity. Employees are laid-off. Are they going to want a tax cut to help them expand capacity, when they can’t fully use what they have?

I’m no economist, but it sure seems like the tax cut approach is more doctrinaire than effective.


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Written by Monte

February 10, 2009 at 9:19 pm

Posted in Politics

400 richest Americans’ incomes doubled under Bush tax cuts; economy collapsed

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clipped from thinkprogress.org
Bloomberg reports that, according to recently released IRS data, “the average tax rate paid by the richest 400 Americans fell by a third to 17.2 percent through the first six years of the Bush administration and their average income doubled to $263.3 million.” Much of their income came from capital gains resulting from the Bush tax cuts:
The drop from 2001’s tax rate of 22.9 percent was due largely to ex-President George W. Bush’s push to cut tax rates on most capital gains to 15 percent in 2003
Capital gains made up 63 percent of the richest 400 Americans’ adjusted gross income in 2006, or a combined $66.1 billion, according to the data. In all, the 400 wealthiest Americans reported a combined $105.3 billion of adjusted gross income in 2006, the most recent year for which the IRS has data.
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Observe the present economy. Like what you see?

O'Pari Luxury Yacht
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Certainly the tide has risen for the very wealthy: their fortunes have doubled. But has this “rising tide” lifted “all boats?” Has trickle-down affected your income? Can we say that business has been stimulated?

Perhaps it’s a good time to wonder why tax cuts for the rich did not result in national prosperity as promised.

Mired on the shore in our jonboats, most of us look on as the yachts head for the open sea.


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January 31, 2009 at 12:39 pm

Senators Kyl and Lincoln propose cuts in multi-millionaires’ estate taxes

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UPDATE, April 4: “As the New York Times explained, under Obama’s budget, ‘99.8 percent of estates will never — ever — pay a penny of estate tax.'”


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Jesus’ take on things includes the idea that the rich can help themselves and the poor deserve the help of all of us. That view, espoused by many teachers, has become Government Morality 101 for Christian and non-Christian alike through the centuries: hence, most Americans today believe in progressive tax rates.

The rich have their champions, too. Two senators—one a retirement-state Republican and one a Wal-Mart-headquarters-state Democrat—have proposed relieving the nation of $250 billion to help adult kids of the very rich enjoy wealth without work:

clipped from thinkprogress.org
Sens. Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) have offered a $250 billion proposal to cut estate taxes for the children of multi-millionaires
Kyl and Lincoln’s “most pressing issue is clear: America’s wealthiest families need help. Now.”
“only 0.2 percent of the additional cost of the proposal, relative to [the Obama proposal], would go toward tax cuts for small businesses and farms.”
The rest of the cost, approximately $249.5 billion, would go to the inheritors of estates worth over $7 million. Paris Hilton, get excited.
The Waltons — the Arkansas-based family that founded Wal-Mart — are one of the key groups financing the campaign
“With all the serious work before Congress, it is a colossal waste of time to have to rebut the false claims and warped premises of ardent estate-tax cutters,” the NYT writes. “Ms. Lincoln’s and Mr. Kyl’s colleagues in the Senate should make short work of it and move on to urgent matters.”
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I’m sure this will be pitched as a valiant, virtuous war of liberation against the “death tax,” but we’re talking about $7 million estates and up, here, not Grandpa’s 120 acres. And the years of Bush have given us the greatest disparity between rich and poor since the Great Depression.

Moving government income sourcing away from those who can effortlessly afford it and onto the backs of those who earn less is ethically questionable, especially in times like these. And inviting the very rich to create a generation that need not work while those who work for them can’t afford healthcare (with the Waltons, ironically—heirs of America’s largest low-benefit employer—leading the charge) ought to offend us.

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Why cutting rich folks’ taxes doesn’t stimulate the economy

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And what does.

Another fascinating post comes from the ever-excellent True Conservative.

Consider: In 2007, only 9% of privately-held U.S. businesses … cited a “shortage of long-term finance” as a constraint on expansion. “Shortage of skilled workers” is No. 1.

So how do you increase the number of skilled workers? Here’s the story:

clipped from trueconservative.typepad.com
Here’s the central tenet of supply-side/trickle-down/voodoo Reaganomics:
If rich people get (and keep) more money, they will invest it and promote economic growth, so everyone will prosper.
That would (perhaps) be true if a shortage of investment were an important constraint on businesses […]
But availability of investment money is the least important constraint […]
[I]t ranks dead last on the list of business constraints. […]
A shortage of skilled workers in now the #1 constraint […]

Constraint 2
[This is the] economic view so ably explicated by James Livingston, which I summarize and link to here […]
The fact is that wealthy people can’t find truly productive investments offering sufficient returns, so they turn instead to investments that don’t have anything to do with production or productivity. (Think: MBSes, CDOs, CDSes, etc.)[…]
Since the greatest constraint on growth is currently a shortage of skilled workers, the best path to prosperity seems to be taxing those unproductive dollars and investing them in the thing that … is prosperity-producing: education.
Making sure that wealthy people have plenty of money is not the way to produce prosperity. That’s a self-serving myth […]
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Provocative, eh?


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Written by Monte

November 21, 2008 at 10:50 pm

Low income Iowans pay higher tax rates

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Hmm—and we thought taxation in America was progressive. None such here in my state. In fact, it’s tilted against those who have the least.

If you’re poor, you pay a higher net rate—especially in states that shift the burden away from income tax and onto sales tax. Details:[h/t Lori, via the newspaper of our youth, the Burlington Hawk-Eye.]

clipped from www.thehawkeye.com

Study finds low-income Iowans pay higher taxes

the bottom 60 percent of Iowa taxpayers pay roughly 10 percent of their income in state and local taxes.
Those in the top 1 percent, making more than $320,000 a year, pay 6.3 percent of their income in state and local taxes, the study said.

“The state sales tax has doubled in the last 25 years while we have made big cuts in income tax,” Ralston said. “This is not a good tradeoff if we want a tax system that better reflects a household’s ability to pay.”

For low-income families making less than $16,000 a year, 7.3 percent of the household income goes for sales and excise taxes. Those taxes consume 2 percent of those with household incomes about $127,000.

The report recommended that lawmakers once again expand the earned income tax credit that goes to the working poor, as well as allow local option income taxes to augment or replace local option sales taxes.
warned against any additional increases in the sales tax
the most regressive of taxes
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Now suppose you make $16,000 a year.  When you pay taxes, you pay them instead of something you need.  You don’t fill your prescriptions.  You hold off repairing your car.  You don’t even think about going to the dentist or paying for a haircut, or getting your kid’s teeth straightened.

And you make it.  Until one thing goes seriously wrong.

Say, the car’s transmission fails.  No chance Read the rest of this entry »

Written by Monte

November 12, 2008 at 1:55 pm