Bush Tax Cuts
Yesterday afternoon, the House of Representatives adopted an adjournment resolution, by a vote of 210 to 209 (Speaker Nancy Pelosi cast the tie-breaking vote), that will send them home without taking a vote on extending tax cuts set to expire at the end of the year.
Republicans claimed to have the votes to extend the tax cuts and the numbers would suggest that is likely. Eight Republicans missed the vote, that’s 217 assuming the caucus is together on this issue and the 39 Democrats that voted against their leadership stick around.
There are a couple of Democrats that voted for the resolution that are on record supporting extension of the tax cuts. However, that is now, whether or not they will hold true to their word in a lame duck session, when the pressure is off, is a completely different story.
To add a new wrinkle for Democrats, the Congressional Budget Office warns that increases in taxes will not help our struggling economy:
The Economic Outlook released by the Congressional Budget Office (CBO) on Tuesday states that coming tax hikes will hinder spending and hurt recovery efforts.
With President Obama set to unveil his new economic plan this week, there is sure to be much talk about the “cost” of tax cuts. The premise, albeit false, is that a tax cut is equivalent to a spending program.
Don’t be fooled.
As the debate over whether to extend the Bush Tax Cuts heats up, look for the Democrats to try to paint the Republicans as big spenders as the GOP continues to advocate an extension. The idea being that the Democrats can try to beat the Republicans at their own game (Spend Less) all the while stoking the fires of class envy and divisiveness.
The problem with all of this is that tax cuts are not spending programs. And Mr. Obama’s effort to focus tax cuts towards Research and Development is yet another example of how the Federal Government is trying to use the tax code as a social engineering tool.
Tax cuts are simply allowing the tax payer to keep more of their own money to spend how they see fit. It costs the government nothing because they are not collecting that money at the time it is earned and then redistributing it.
In 1776, Thomas Jefferson penned the Declaration of Independence, in which he engraved into our national consciousness the concept that “all men are created equal…endowed by their Creator with certain unalienable rights…among these are life, liberty and the pursuit of happiness”. Those words provided an earth-shattering salvo which would blast a gaping hole in the world’s understanding of the nature of government. No longer would men be servants, mere subjects bound to obedience by the Divine Right of Kings. Men would now be free; sovereign individuals free to live as they so chose, answerable only to God for the conduct of their life provided they did not infringe upon the rights of others.
After years of abuse at the hands of King George, under whom they were taxed without representation in Parliament, forced to quarter the very soldiers who would punish disobedience to the Crown, unable to pass laws of self-governance and in general being treated as slaves rather than fellow citizens with rights, the American colonists declared that they would no longer be subject to such abuse, but would form a new government in which every man was bestowed the same rights and no man was favored above another in the eyes of the law.
For nearly a decade war was waged upon the American continent. Mangled, broken and torn bodies littered the battlefields along the eastern seaboard. Families were separated; husbands and brothers lost…all because the people of this nation decided to rise up against tyranny and oppression. When the sounds of cannon and musket-fire were silenced, when the smoke cleared and the soldiers returned home, a new era had begun.
Taxes were very high, but no real revenue was coming in. That’s because the system of taxes at that time was an early form of income tax that centered on the government taking a large percentage of a farmer’s crops.
So Ching Ti did something bold and innovative: he cut taxes.
Overnight, taxes went from over 50% down to about 3%. Farmers, who had fled to the hills to escape draconian tax rates, now came home and began farming again. To make a long story short, Ching Ti’s greatest problem while governing was trying to keep all the grain in his barns from spoiling.
It seems that ancient Chinese history is good for more than just cutesy script on a fortune cookie.
The on-going debate on the “fiscal cliff,” automatic tax hikes and spending cuts that will take place at the beginning of the year, has constantly been at the forefront of the news over the last several months.
Last week, 180 economists signed a letter to members of Congress explaining why a tax hike would hurt the economy. They instead call on Congress to take up tax reform — a simplified tax code with lower rates — reduce spending and take up enetitlement reform:
Some in Congress have advocated allowing the 2001 and 2003 taxpayer relief laws to expire for some or all taxpayers. Such an action would have a significant, negative impact on the economy. Low taxes can have a constructive economic effect by keeping money in the private sector, where it is far more likely to be utilized for efficient purposes. By contrast, raising taxes would divert resources into the relatively inefficient public sector, thereby curbing potential job creation and economic growth. This effect would be even more pronounced during a persistent slump.
In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.
As sure as the sun rises in the east and sets in the west, President Barack Obama wants to raise taxes. At the White House yesterday, Obama again repeated his call to extend current tax rates for anyone making under $250,000, but taxpayers making over that amount would, under his proposal, see their taxes go up to pre-2001 levels:
In a White House statement delivered while people described as working Americans stood behind him, Obama said his proposal would provide the certainty of no tax increase next year for 98% of Americans.
Noting that Republicans seek to maintain all of the Bush tax cuts enacted in 2001 and 2003, Obama said both sides therefore agree on extending the lower rates for middle-class families.
“Let’s agree to do what we agree on, right?” Obama said to laughter and applause in the East Room. “That’s what compromise is all about.”
The White House also let it be known that President Obama would veto an extension of all current tax rates, which is what House Republicans prefer and will likely pass in the coming weeks. Sorry, but the White House is not compromising. And while Obama is determined to raise taxes, some Senate Democrats, particularly those in tough bids for re-election, may not be willing to go along with his plan. Obama is essentially hanging them out to dry here.
On Monday, the Washington Post reported that negotiations had begun in Congress to deal with what has become known as “Taxmageddon,” when the 2001 and 2003 tax cuts expire. Even though it seems that the larger focus is tax reform, Conn Carroll notes that no one should bank on President Barack Obama going along with extending current tax rates, even temporarily:
If American voters reelect President Obama, they have no right to complain when their taxes go up by $494 billion on January 1st. That is the total amount taxes are set to increase, automatically if Congress does not pass, and Obama does not sign, tax relief before December 31st of this year.
In the current edition of The New Yorker, Ryan Lizza reports that unlike 2010 and 2011, Obama is prepared to follow through on his threat to let taxes go up after he no longer has to face voters ever again: “Several White House officials I talked to made it clear that if a deal, or at least the framework of a deal, is not reached before December 31st Obama would allow all the Bush tax cuts to expire – a tactic that would achieve huge deficit reduction, but in a particularly painful and ill-conceived fashion.”
On January 1st, taxpayers will see a heavy tax increase, which some are calling “Taxmageddon.” This significant contraction could have negative effects on our economy. In fact, the Congressional Budget Office (CBO) said last week that raising taxes would send the economy back into a recession. And now even former President Bill Clinton says that the tax cuts should be extended, at least temporarily:
Former President Bill Clinton on Tuesday jumped into the debate over how to handle the looming expiration of historically low tax rates paid by nearly every American, putting him somewhat at odds with fellow Democratic President Barack Obama.
Clinton, speaking on the cable television program CNBC, said Congress may have to temporarily extend all of the low tax rates that expire at the end of the year to give lawmakers more time to come up with a plan to cut deficits.
The remarks came as the Obama campaign was trying to raise doubts about Romney’s record in the private sector.
The tax cuts were first put in place under former President George W. Bush. Obama extended the rates for two years at the end of 2010, after Democrats suffered huge losses in congressional elections.
Now, Obama and Democrats want to let some of the lower tax rates expire for the wealthiest Americans. Clinton’s comments could undercut that position.
“They will probably have to put everything off until early next year,” Clinton said on Tuesday.
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During a speech on National Prayer Breakfast at the National Cathedral, President Barack Obama went partisan (shocker!) in what is usually a bipartisan event by invoking Jesus Christ to justify his push for higher taxes:
President Obama offered a new line of reasoning for hiking taxes on the rich on Thursday, saying at the National Prayer Breakfast that his policy proposals are shaped by his religious beliefs.
Obama said that as a person who has been “extraordinarily blessed,” he is willing to give up some of the tax breaks he enjoys because doing so makes economic, and religious sense.
“For me as a Christian, it also coincides with Jesus’s teaching that for unto whom much is given, much shall be required,” Obama said, quoting the Gospel of Luke.
I’ll admit upfront that I believe raising taxes is a terrible idea. It’s even worse of an idea in economy that just now seems recovering from an severe downturn, a point that the Congressional Budget Office recently echoed. But President Obama’s invocation of Jesus and religion to push tax hikes is sickening and it makes him no different from someone like Rick Santorum, who frequently uses his faith to justify authoritarian social policies.
This chart from the New York Times has been making its way around the internet, most recently over at Cafe Hayek, where Russ Roberts makes a few really great points. Notice that the largest contributor listed is the Bush tax cuts, coming in at $1.8 trillion:
Time and time again I’ve tried to dispel the notion that tax cuts are expenditures. It is simple – you cannot spend what you do not have. Claiming as such is akin to stating that someone is running a $50k deficit because their employer only pays them $35k per year.
Adhering to such a philosophy – that tax cuts are the key contributor to our debt – is to believe that our entire debt is due merely to a failure to raise taxes. It’s not an income problem, it’s a spending problem.