The Hill: “Senate rejects million-dollar tax-cut compromise in Saturday session”

Or more clearly, all Senate Republicans plus one four Democrats reject a tax cut for incomes below one million dollars. From The Hill:

Republicans had held firm in recent weeks that the tax cuts — designed to benefit the wealthiest Americans — should be permanently extended as a whole. Democrats had argued that only the cuts for the middle class should be extended, also blasting Republicans for failing to propose any spending cuts or revenue increases to pay for all of the cuts.

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57 thoughts on “The Hill: “Senate rejects million-dollar tax-cut compromise in Saturday session”

  1. Craig

    I think you’re wrong on the number of Democrats that voted no. I count five, including Lieberman. If you don’t want to count him, four.

  2. W.C. Varones

    Or, more clearly, they’ll hold out for a better bill that won’t raise taxes on small business owners with incomes over $250,000, who, rumor has it, are supposed to be responsible for a big chunk of job creation.
    If House Democrats refuse to help small businesses, House Republicans will certainly do it in January with bipartisan support in the Senate.

  3. Joseph

    Actually this could be a good thing. None of the Bush tax cuts should be extended. Instead a trillion dollars or two should be spent on immediate stimulus — unemployment insurance, grants to state governments to keep state employees on the job, infrastructure projects, or even a cash rebate check to every household. This would still be much cheaper than making any tax cuts.
    However, none of those things will ever happen so the tax cut for the middle class would have been second best. Even so, the middle class cut extension should have been temporary, two or three years, tops.

  4. Steven Kopits

    I thought the vote in the Congress would be riskless for the Democrats, but with a handful of Democrats defecting in the Senate, the whole thing went up in flames. If they didn’t have a united front in the Senate, the PR fallout was going to be bad, I think.
    And where’s the President? Seemingly out to lunch on the matter. Pro or contra, he should be leading here.
    The Dems need to take a time-out. They should all relax and avoid touching any of the dials until Congress reconvenes next year.
    In the meanwhile, they have to ask themselves whether they want to be an egalitarian (“benefit analysis”) or liberal (“cost/benefit analysis”) party. If the former, the three ideology model (yes,that again!) suggests that the Tea Party supplants them as the opposition party. If the latter, the Tea Party goes away and the Republicans are back on their heels in 2012.

  5. don

    I gave up on expecting voters to recognize their own interests after seeing the results of the ‘death tax’ debate. The Senators will easily get away with these new actions.

  6. Menzie Chinn

    Craig: I checked The Hill article, and I mis-read. They indicate 4 Democrats (3 Democrats for the tax cut extension for under $250K, and 1 additional Democrat for the tax cut extension for under $1 million), so the original post was wrong. I have amended the text according to the article’s count. Thanks for flagging the error.

  7. jerry

    W.C. Varones, they rejected a tax cut, not a tax hike. Everyone gets a tax cut on the first 250K of income.

  8. Jake M.

    Fine. Let the GOPs shut er down. Let’s see how much they and the “fiscally conservative” newcomers really do care about the deficit, because we know the biggest and quickest way to cut the deficit is to let the tax rates return to the level of the ’90s…just like the GOPs and lame-o Blue Dogs voted to do in 2001 and 2003.
    I’ll survive paying a couple off extra pennies on the dollars I make….because I like my chances of making more of those dollars under that system, and my investments have paid off a heckuva lot under the borrowed money of the last 2 years (especially opposed to the previous 2). I’m comfortable with the possibility of paying higher taxes because I read the actual results of history instead of clinging to econ theories that justify greed and self-absorption.

  9. Rich Berger

    Clearly the Democrats prefer to screw everyone if they can’t screw the “rich”. I think this is a winning issue for the Republicans if they hold firm.

  10. C Thomson

    Isn’t this fun?
    Keeps so many folks happy and busy – just babbling and posturing.
    And it postpones Professor Chinn bumbling into his inevitable Irving Fisher moment as a forecaster.

  11. 2slugbaits

    w.c. varones “…a better bill that won’t raise taxes on small business owners with incomes over $250,000, who, rumor has it, are supposed to be responsible for a big chunk of job creation.”
    “Rumor.” Good choice of words, because that’s exactly what it is…a rumor. Or, if you prefer, an urban legend. There is simply no evidence for the often heard claim that small businesses generate jobs at a rate greater than large businesses. If you’re into facts, then perhaps you will want to read this recent working paper:
    http://www.nber.org/papers/w16300
    “Who Creates Jobs? Small vs. Large vs. Young”
    From the abstract:
    There’s been a long, sometimes heated, debate on the role of firm size in employment growth. Despite skepticism in the academic community, the notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses. Using data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database, we explore the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, we find an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.
    In other words, the empirical evidence shows that the kinds of policies advocated by many Democrats (think pump priming of new “green” businesses) are more likely to lead to job creation than are the tired old remedies advocated by many Republicans.
    Let’s face it, Republicans are just idiots. Can’t do math. Don’t understand economics. Never read a serious history book. Confused about science and evolution. Cretins in the art world. Get their news from Fox. God help us.

  12. Menzie Chinn

    W.C. Varones: 2slugbaits had a substantive point, namely that the characterization that small businesses were the biggest net job creators was incorrect. Do you have a rejoinder?

  13. CoRev

    2slugs has used this same report previously. The abstract makes one key point: “Our findings highlight the important role of business startups and young businesses in U.S. job creation.”
    2slugs, and regrettably Menzie want us to believe that young firms/startups originate as LARGE businesses and not small. C’mon guys are you so desperate to rely on such (fill in your own definition here.)

  14. Menzie Chinn

    CoRev: You don’t seem to get the idea that while most new firms are small, not all small firms are new. There are clear public policy implications — a blunderbuss approach to encouraging all small firms essentially gives rents to small firms that might not generate lots of net jobs.

    But, let me just quote the paper (since you appear unable to read the paper yourself):

    Controlling for firm age, however, has a dramatic impact on these patterns (columns 4
    and 5 of Table 2). Regardless of the size classification methodology, once we control for firm age we observe no systematic relationship between net growth and firm size.

    From page 22. Here is an ungated version of the paper.

  15. W.C. Varones

    Menzie,
    Yes, I have a rejoinder. Big business has been 1) outsourcing overseas and 2) choosing technology over labor.
    As I pointed out in my Rise of the Machines posts, why would any rational enterprise take on huge payroll taxes, unemployment insurance, and ObamaCare liabilities, when they can automate or outsource instead?
    Small business faces huge hurdles, including productivity- and globalization- based competitiveness issues, but big business will not produce the millions of jobs needed to get our economy back on track.
    And how about those centrally planned, federally subsidized “green jobs?” Let’s ask Solyndra:
    Solyndra Inc., the high-flying solar panel maker once touted by President Barack Obama as a model for a green energy future, said Wednesday it has scuttled its factory expansion in Fremont, a move that will stop the company’s plans to hire 1,000 workers.
    Solyndra said it will also close an existing factory in the East Bay. That will leave the company with one Fremont factory, a new plant visible from Interstate 880.
    The moves mean that instead of having 2,000 workers in Fremont, Solyndra will cap its work force at 1,000, which is about the current level. Solyndra also will, over the next several weeks, eliminate 155 to 175 jobs in Fremont. That includes 135 contract employees and 20 to 40 full-time workers, said David Miller, a Solyndra spokesman.

    That’s after getting a $535 million taxpayer loan.
    How’s that political allocation of capital working for you now?

  16. W.C. Varones

    Menzie,
    Enough anecdotes become data. I think the California and U.S. economies speak for themselves.
    If you have statistics that show central planning is superior to free-market innovation in generating job growth, I would be very interested to evaluate them.

  17. Darren

    WC
    Outsourcing is a problem but not in the way you describe it. Outsourcing occurs in industries where labor costs are the primary concern instead of innovation. The US will never be able to compete with developing countries short of accepting $0.50/hr wages. Growing businesses in competitive markets like the US succeed based on non-price differentiation and innovation, irrespective of size. Last time I checked, Boeing, Google, and hospitals weren’t sending jobs overseas.
    None of these structural factors can be substantially changed through domestic policy so try for a second to get over the fact that a Democrats the president. And lets not forget that for every regulation that makes it difficult to do business here, there are 10 in China. A rational CEO will realize that ObamaCare is first and foremost political demagoguery. The US is by far the most deregulated major economy already. So let’s end this fetish with small businesses already. It’s factually baseless and completely mischaracterized.

  18. Heterosexual

    I find it funny that the leftos that want to return to Clinton-era tax levels of the 90s have no interest in returning to Clinton-era spending levels.
    I am perfectly fine with letting the Bush tax cuts expire if we also return to the spending levels of the 90s.
    Somehow, the leftos are quite unwilling to return to what things really were like in the 90s, they just want to be selective. What else is new?

  19. Heterosexual

    Let’s face it, Republicans Democrats are just idiots. Can’t do math. Don’t understand economics. Never read a serious history book. Confused about science and evolution. Cretins in the art world.
    Corrected that for you.

  20. MarkOhio

    I think it is obvious that young start-up firms generate the most net job creation. And it is also obvious that these firms typically start out as small businesses. But it is not obvious that these facts have any implication for public policy. The statistical evidence needed is an estimated relationship between government policy (e.g., preferential tax treatment) and the rate of firm births. More to the point, what is the marginal impact of fiscal policy variables on firm births, net job creation and economic growth? We all tend to assume that lower taxes will automatically generate economic growth, or higher taxes will automatically retard growth. I think that assumption could use some testing. Maybe Professor Chinn could summarize the research in a future post.

  21. CoRev

    Menzie, I agree, it is young firms, most of which are small, that are the primary source for new jobs/growth in jobs. After maturing, 10 Yrs in the report, both large and small businesses grow at similar rates and change, depicted in job destruction, at rates not even evident in the young firms.
    You have challenged WCV for a statistical rejoinder that is not needed, as your own referenced report makes the case that SMALL BUSINESSES, young and old, are still where the net job growth resides.
    You’re just splitting political hairs, and trying to obfuscate a clear point. Stop tilting at faux windmills. If you want to make it a policy issue then propose a jobs policy framework that makes sense in accordance with 2slugs and your referenced data.
    Here’s a free policy hint: Tax policy that gives mature businesses an incentive to assist young/small businesses to take over their “not profitable enough” or unprofitable business lines (destroyed jobs) as they are identified and shut downs planned. Couple this with tax and loan policies that incentivizes the creation of young/small business growth in those marginally profitable areas. Instead of job destruction/unemployment we reduce unemployment.
    Cheaper than UI? Dunno, could be. It is at the very least better than quibbling over semantics by adding a new qualifier (young) to a concept that still proves the original argument. Most new jobs are created in small businesses, which also happen to be young businesses.

  22. 2slugbaits

    W.C. Varones You can’t even get the Solandra story right. The govt provided a loan guarantee that was conditioned upon Solandra obtaining matching equity from private capital markets, which it did. So if “political allocation of working capital” led to a bad result, what does that say about the private allocation of working capital given that private capital was double the amount of the government loan guarantee? The investment issue was whether or not Solandra could get its production costs down, and given both the rather sharp drop-off in demand for electricity (http://www.eia.doe.gov/emeu/steo/pub/cf_tables/steotables.cfm?tableNumber=19) and the defeat of cap & trade, driving down production costs with higher volume would be hard to do over the short run.
    But you really didn’t address the findings in the study. The study recognized that there was a high “up or out” factor with young businesses, but even after taking that into account there is still no evidence that small businesses generate jobs at a higher rate than do large businesses. As with so many things in life, youth counts more than size.
    And in a further pique of irrelevance, you asked, “…why would any rational enterprise take on huge payroll taxes, unemployment insurance, and ObamaCare liabilities, when they can automate or outsource instead?” Are you saying that only large businesses are rational enterprises that look at payroll taxes, unemployment insurance and ObamaCare liabilities and that small businesses ignore those costs? Is that what you’re saying? Because if you’re not saying that, then how is this comment at all responsive to the issue of whether or not small businesses generate more jobs than large businesses?
    So I guess I’m still waiting for an actual rejoinder that addresses the question head-on. Remember, you’re the one who initiated this exchange by claiming (apparently without evidence) that small business is what generates job growth. I linked to a recent academic study that flatly contradicts your claim. So where’s your quantitative evidence to support your view?

  23. 2slugbaits

    Heterosexual During the Clinton years we didn’t need countercyclical spending because the economy was humming along at potential GDP. There was strong aggregate demand for goods and services. Doesn’t exactly compare with today’s situation.
    MarkOhio The immediate issue at hand was W.C. Varones’ claim that failure to extend the Bush tax cuts will strongly affect small businesses, and that this would have an especially negative effect on job growth because (according to Varones) small businesses are the main generators of job growth. His claim is simply false. I’ve no doubt that the role between govt policies and job growth is very complicated, but not according to W.C. Varones. In his world it’s all very simple; just hand out tax cuts to small businesses and voila! Of course, this is a world in which there’s no such thing as an aggregate demand curve. Just cut taxes and small businesses will expand even if they cannot sell what they produce. This is the world of Ersatz economics, where anecdotal stories, urban legends and “studies” from the Heritage Foundation and Club for Growth are taken seriously.

  24. CoRev

    2slugs, your cognitive dissonance is showing. Fisrst you say: “there is still no evidence that small businesses generate jobs at a higher rate than do large businesses. As with so many things in life, youth counts more than size.”
    Then you claim: “that small business is what generates job growth. I linked to a recent academic study that flatly contradicts your claim.”
    Redolent in your statements is a belief that young are born sized as adults. Not in nature and also not in business.
    SMALL/young businesses are the net creators of jobs!

  25. Jake M.

    Hey, I got a good idea on getting spending back to the Clinton era. How about ending the military adventures that didn’t exist 10 years ago? Think that might put a bit of a cut into things?
    And what about ending all those farm subisidies to the Monsantos of the world. If they’re so big and tough, they can get by without em, right?
    Oh, but the GOPpers don’t want to touch that, nor do they admit social services have a few more needs at 9.8% UE than 4.8%. They’d instead give the generation that has little to no money left in their 401K’s and pensions 2 hits by cutting Medicare and Social Security. I’m sure that’ll help demand in a consumer-based economy.
    And anyone who thinks that corporations making high profits = jobs is kidding themselves. Creating items of valiue don’t get you stock options and bonuses in the boardroom- but great “numbers” sure do. Of course, those incentives should be changed, and raising the rates on these people starts to change those incentives.
    People who cling to Congressional GOPs’ backwards mentality need to be forcefully countered at every step. It is wrong, and should not be given creedence. But if you raised taxes on the rich, they’d be less likely to give millions of dollars in donations to campaigns, and we can’t have that, now can we?

  26. Joseph

    Regardless of whether small businesses generate jobs or not, how does giving a small businessman a $5000 tax cut on his personal income translate to more jobs. What evidence do you have that the $5000 goes to a new employee?
    The businessman can avoid paying any taxes at all by investing in his company and hiring more employees rather than taking out personal income. Higher personal taxes encourage more employment rather than less.

  27. tj

    2slugs, calling people stupid because their political views differ from your views fits perfectly with the definition of a bigot – “a prejudiced person who is intolerant of any opinions differing from his own”.
    Well done.

  28. Joseph

    Joseph- Absoltuely correct, and the experience of the high rates of the 1940s-1960s vs. the low rates of the 2000s proves it.
    In addition, when cap. gains taxes are at lower rates than income taxes, what action do you think will be more likely to happen? Production and actual WORK (i.e. income taxes), or gambling on assets and stocks (cap. gains). No wonder these “job creators” choose instead to plunge the dollars into stocks, bribing legislators, and other forms of betting instead of hiring people.
    If we flattened the disparity between cap. gains and income taxes, you wouldn’t have to raise the income tax rates on the rich or anyone else, and I think you’d make up a whole lot of that revenue, particularly since job creation (and therefore, more incomes to be taxed) would not be as discouraged.

  29. tj

    Regarding the Haltiwanger paper,
    In terms of policy – the term small business is essentially irrelevant. The focus should be on start-ups and young firms. We need a tax policy that incents some of our 17%+ unemployed to open their own business. We need a tax policy that does not punish them during their first few years following start-up.
    It seems likely that owners of the youngest firms will have incomes that are the closest to 200K for individuals. Do we really want to raise taxes on these people who are risking their own capital to create jobs for the rest of society. This concept seems to elude most progressives. There must be a reward for bearing risk, be it in business ownership, or venture capital, etc. It seems progressives want to reduce the reward for bearing risk in our economy and give to the “less fortunate”.
    Knock it up to $1 million if you want to have a realistic conversation. $250K income for an individual in a large city with a family of 4 is not “rich”.
    I don’t have time to look through the entire paper but these facts popped out after a quick skim.
    The top
    panel of Figure 4 shows the results for firm age from columns 3 to 5 in Table 2. Note in the
    figure that we omit the estimated coefficient for startups since it is much higher (essentially 2).

    However, in the lower
    panel of Figure 4, we find that conditional on survival, young firms exhibit substantially higher growth than more mature firms.21 This pattern is robust to controlling for firm size and it clearly indicates that the fastest growing continuing firms are young firms under the age of five.

  30. Lord

    This never created any jobs in 2001 and its expiration won’t cost any now, but it is too good an opportunity to pass up for our millionaire’s club.

  31. 2slugbaits

    CoRev When advocates for small business get on television and argue that small businesses are the generators of job growth, they are not arguing for restricting tax and fiscal policies to just the subset of small businesses that are also new firms. They are making the argument that somehow “smallness” itself is what drives job creation. That’s the argument the W.C. Varones was trying to peddle. And many firms are born large. Varones’ own example was of a company that was both large and had been in business less than 5 years.

  32. Lord

    Amusing how proponents of Ricardian Equivalence suddenly become skeptics when the result would conflict with their prejudices.

  33. don

    A lot of my sympathy for ‘small business’ disappeared when I learned their share of ‘taxayer diddles’ (they are the biggest part of the ‘tax gap’) and that their owners are, for the most part, quite wealthy.
    The ‘small business,’ like ‘widows and orphans’ is trotted out to support all sorts of bad policies – such as bailouts of the TBTF’s (we have to keep credit flowing to the small businesses), and the demise of the death tax (the poor relatives of the deceased is unable to keep the small business in the family) …
    There may be good arguments for subsidizing start ups. One might be that they take on high risk ventures with high potential returns that cannot be diversified owing to information costs (although the subsidies might better go to so-called ‘angel’ investment groups for funding such ventures). But in geneal, I doubt economic efficiency is served by any such subsidies.

  34. CoRev

    2slugs, you’re spinning yourself into the ground. Your reference actually supported the “core” of WCV’s point, and stretching the interpretation of his point and the finding in the report is going no where.

  35. Jake M.

    Sorry, that 9:26 am comment is mine, not Joseph’s. The point about flattening cap. gains vs. income tax rates remains.
    And TJ- Your point about encouraging start-ups makes sense, but let’s not kid ourselves. 250K is five times the median household income in this country. You are pretty well off if you’re at that level, and I think a couple of extra cents on the dollar is not a killer (if it is, you’ve got other issues that tax cuts don’t solve).

  36. permabear

    It’s amazing that people like CoRev and W.C. cannot read and comprehend a simple economic study. Apparently some people lack deductive skills altogether. They spend all their effort trying to discredit the “other side” by looking for minutia to pick apart – rather than learn something.

  37. Anonymous

    CoRev Your reference actually supported the “core” of WCV’s point…
    I have no idea how you managed to come to that conclusion. The “core” of W.C. Varones’ argument was that small businesses with incomes over $250K “are supposed to be responsible for a big chunk of job creation.” The study shows that the size of the firm is not determinative in terms of job creation; it’s the age of the firm. WCV’s model of job growth is misspecified. It may be the case that many new companies are also small companies, but your model is misspecified if you try to reduce two variables (age and size) into one variable (just size).
    BTW, it would take some digging up, but somewhere I came across a study that looked at “small businesses” with incomes over $250K and who would be affected by not extending the Bush tax cuts. It turns out that very few businesses impacted are what we normally think of as small businessmen. Virtually all are professional associates, like dentists, doctors, and (especially) lawyers. Those are not the kinds of businesses that one normally thinks of as big job creators. And I never knew that the GOP held such a soft spot for the incomes of lawyers.

  38. Ricardo

    Democrats had argued that only the cuts for the middle class should be extended, also blasting Republicans for failing to propose any spending cuts or revenue increases to pay for all of the cuts.
    What a sick hypocritical joke. The Democrats scream at the Republicans for not proposing “spending cuts or revenue increases” for keeping things just as they are right now, but then the Democrats refuse to fund unemployment benefits when they have most slush funds than they can spend all the way back to the stupidity of the Bush/Paulson TARP. It is not hard to understand why they stopped teaching logic in public schools.

  39. 2slugbaits

    Ricardo Most thoughtful Democrats have a pretty clear preference ranking. The best choice would be to end the Bush tax cuts today and then increase spending in high multiplier ways in order to offset the drop in aggregate demand. This is the balanced budget multiplier approach. The second best choice is to temporarily extend the tax cuts for those marginal incomes less than (say) $250K. The worst possible option would be to permanently extend the tax cuts for all income groups. This would blow an even bigger hole in the structural deficit and would provide zilch in the way of demand stimulus. Of course, that’s the option preferred by clueless Republicans. What we’ll end up with is the usual not-quite-worst-case-but-damn-near-as-bad-compromise that we’ve come to expect from politicians. So we’ll get an extension of the tax cuts for everyone and a one year extension of unemployment insurance. Our politicians bring two things to the table; the Democrats bring cowardice and the Republicans bring idiocy. In the end nitwit voters get what they deserve.

  40. CoRev

    Anon/2slugs said: “It turns out that very few businesses impacted are what we normally think of as small businessmen.” C’mon now, small is a size not a product/service issue.
    You also said: “It may be the case that many new companies are also small companies, but your model is misspecified if you try to reduce two variables (age and size) into one variable (just size).” The whole statement is redolent of the cognitive dissonance I mentioned earlier. You in fact are ignoring the a simple fact of nature that births are small creations and relying on an unnatural assumptions that some births MAY actually be LARGE.
    Give us all a break and stop the desperate spinning.

  41. Anonymous

    CoRev I’ve got a better idea. Why don’t you take some graduate courses in quantitative model building, then perhaps you’ll learn the difference between a correctly specified model and a misspecified model.

  42. Anonymous

    WC, 2S, and Everyone Else,
    I fail to see the purpose in dedicating all of this energy to arguing over whether small or large businesses drive job creation. Is anyone suggesting that the proposed tax increases at the higher levels are not detrimental to big businesses as well?
    I apologize if someone’s already made this point. I grew a little weary of reading through the repitition in the comments.

  43. W.C. Varones

    Anon,
    It was myopic Ph.D.s with complete and completely unwarranted faith in their models that created the crisis. From the idiots at the Fed to the idiots in Lehman and Bear Stearns to the idiots at Countrywide and the monolines and the rating agencies.
    The last thing we need is more idiots running around with Ph.D.s thinking that they have a model that can forecast the economic behavior of millions of independent actors and prescribe the optimal policy solution.

  44. Anonymous

    “The best choice would be to end the Bush tax cuts today and then increase spending in high multiplier ways in order to offset the drop in aggregate demand.”
    If the second approach had worked, the Democrats would not have been shellacked last month. I guess hope springs eternal for “thoughtful Democrats”.

  45. 2slugbaits

    The stimulus did have a positive effect, but it was way too small and didn’t have enough punch to get beyond 2009. After subtracting AMT relief, the stimulus package was only a little over $700B mostly spread out over three years, with 40 percent coming in the way of tax cuts with a multiplier of less than 1.00. So if you think the Obama stimulus package represented the kind of thing that thoughtful Democrats supported, then you are sadly mistaken. To avoid a shellacking in Nov 2010 the stimulus package needed to be at least $1.3T. We got half that.
    Anonymous Is anyone suggesting that the proposed tax increases at the higher levels are not detrimental to big businesses as well?
    The discussion is about extending personal income taxes beyond those making $250K; we’re not talking about corporate tax rates for large businesses. That’s a separate discussion, although it’s worth noting that corporate profits are doing quite nicely as things are. It’s not at all obvious that reducing corporate tax rates would stimulate investment and increase hiring. The problem today is weak aggregate demand, not high tax rates.

  46. jonathan

    Let’s presume that some S corp and other “small” businesses, where the profit is directly reflected on an individual’s return and not passed through, create jobs. They create some jobs. A tax increase we can assume might discourage creating some jobs and might cause the loss of some other jobs.
    Against that we have to weigh the effects of the revenue collected. That revenue decreases the need for borrowing and for future tax hikes and for current and future cuts in programs. If you believe in Ricardo Equivalence, that means more money available for consumption now – because you plan for future taxes, right? – partly offsetting the cost to you of the taxes paid. You may not like government programs but they do pay people and that means jobs and money in the economy as well.
    These are basic, rational things of the type taught in elementary economics.
    What is not rational, what is irrational, is thinking that the numbers are different than they are. How many actual small businesses are affected rather than lawyers, etc.? How many will actually change behavior, since a marginal tax rate is only one part of a business’ decision process? So how many jobs are not created? How many are lost? Talking about the “cost” of a tax increase in generalities implies huge numbers but if we go through all the numbers, we could literally be talking about a few thousand for the entire country.

  47. Joseph

    jonathan: Let’s presume that some S corp and other “small” businesses, where the profit is directly reflected on an individual’s return and not passed through, create jobs. They create some jobs. A tax increase we can assume might discourage creating some jobs and might cause the loss of some other jobs.
    Actually you have that backwards. Small businessmen can avoid paying personal taxes by investing their income in business expansion and more employees. Higher personal tax rates encourage more job creation by small businesses, not less. Lower tax rates encourage businessmen to withdraw money from their businesses for personal income.

  48. Rich Berger

    It’s fascinating to watch the various excuses made for the failure of the stimulus: it wasn’t big enough, things were worse than we thought, etc. In the minds of its proponents there was no way it could it be judged a mistake. The models said it would help! How could spending borrowed money on things that people would not willingly pay for fail to work? The government is a much better spender than those low-multiplier taxpayers.
    Freedom and the ability to keep what you earn – those are such quaint concepts here in our modern world where government technicians make the economy dance to their tune.

  49. Anonymous

    Freedom and the ability to keep what you earn – those are such quaint concepts here in our modern world where government technicians make the economy dance to their tune.
    Which splains the increasing disparity?
    Didn’t the Bernank even admit on his latest 60Min that this was a problem and that we needed to make the tax code “more efficient”? All the marbles piling up in one corner, the Free one, yes?
    Of course The Bernank might not be “the most powerful economist” on the planet like the CBSer said and maybe Rich is right that he is a mere technician doin his best with the tools at hand.
    That at least was an effort designed to address/placate/inform a growing resentment fostered by a belief that the Fed does not care about working people…it does look like someone drew that to Ben’s attention, yes?
    And how about you Rich? How quaint is the world in which you live with those ragged cliches (Freedom and Keeping what you Earn)?

  50. Ricardo

    Slug wrote:
    Our politicians bring two things to the table; the Democrats bring cowardice and the Republicans bring idiocy.
    Finally, something we can agree on, though I would add that the Democrats do not lack in idiocy nor the Republicans in cowardice.
    But you may not realize what you are saying. This is the heart of much of my economic philosophy. There is a political class, both big business and in big government, that colludes to protect and grow both at the expense of the productive people who make this county run. The collusion of big business and big government is mercantilism, foundational to Keynesian thought, see chapter 23 of the General Theory.
    Here Keynes does pull his mercantilist punches a little, but his candid admission of the mercantilist roots of his theory are somewhat surprising. Of course the new Keynesians deny the mercantilist roots while pushing “Keynesianism” deeper into mercantilist policy, far beyond JMK’s wildest imagination.

  51. Rich Berger

    There is a fundamental flaw in Keynesian economics inasmuch as “demand” is some undifferentiated mass. As if it didn’t matter what was demanded, and that people would be indifferent to whether they get to direct spending or the government does. People produce to earn money that they can spend on the things they want.
    BTW, I had forgotten that Our President had admitted that there weren’t enough “shovel-ready” projects for the stimulus that was passed, let alone a larger one.
    Freedom is an irrelevant concept for the macroeconomist, who is focused on big abstract concepts. I think many people share my belief that freedom is essential and freedom includes the guarantee that I can reap the fruits of my labor. I thank Our President for bringing this into sharper focus.

  52. jonathan

    1. To put some numbers on job creation, CBO estimates extending all of the tax cuts adds 300k jobs over 24 months. We can’t assume that is weighted toward the top because most small business owners make less than $250k – only 2% report incomes over that amount. This means the number of jobs created by extending tax cuts for >$250k incomes may add literally a hundred jobs a month over the entire USA. That’s not even a pebble in the pond, especially if you even pretend to care about deficits and the debt.
    2. Any objector to stimulus needs to remember it was arguably the largest tax cut in US history – $224B compressed over about 24 months. If tax cuts don’t stimulate the economy, then what the heck is the GOP’s ideology? Of the remainder, about $240B was sent to the states so they would not have to raise their taxes and cut their programs, so only $275B was actual “spending” of the sort pointed at as rebuilding America. This was spread over 2+ years so it really isn’t much more than normal spending in big highway bills plus a little, just stuck in one bill rather than 3.
    3. Joseph, the effect on S corps of tax increases is kind of weird. I sort of agree with you but I’m not sure there’s solid data. My experience and my observations are that actual businesses run as S corps do increase their investment activity – lots of section 179 write-offs. But the real point is that you hire based on your business, meaning your sales level and your margins. What you take home at the end of the day is less important than the health of your business and any small business owner who hurts his business by laying off an employee so he can take home a little bit more is an idiot. Small business owners know the business is what counts and they spend their lives investing in them, not stripping them of money.

  53. Anonymous

    Ricardo: From the context of your comments, I’m not sure you even understand what mercantilism is. You seem to use it as a catch-all term of derision like marxism or fascism applied to economists you don’t like.

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