It is a fundamental difference over the role and purpose of government:
Somewhat surprisingly, Mr. Cantor was in fact prepared to bargain on about $20 billion in higher taxes on “the shiny balls of the millionaires, billionaires, jet owners and oil companies” that Mr. Obama so often mentioned in public. “If they wanted to be able to claim the win on that,” Mr. Cantor says, he wanted net revenue neutrality in return, by lowering the corporate income tax rate or perhaps enacting an even larger tax reform. In effect, he was calling Mr. Obama’s bluff on “cheap politics.”
In private, however, the debate always returned to the status of the top marginal rate for individuals earning over $200,000 and $250,000 for couples—aka the Bush tax cuts for people who do not own private aircraft. Mr. Cantor argued that some large portion of the income that flows through the top bracket comes from “pass-through entities”—that is, businesses—and “to me, that strikes at the core of what I believe should be the policy, and that is to provide incentives for entrepreneurs to grow.”
By contrast, he says, “Never was there ever an underlying economic argument” from Democrats. “It was all about social justice. Honestly, one of them said to me, ‘Some people just make too much money.'”
We need at least one more election to remove enough of the Marxists from government to turn things around.
[Evening update]
Obama won’t escape part of the blame for the downgrade:
Defenders of Obama will attempt to pin the blame on his predecessor, President Bush, and on intransigent Tea Party radicals in the current Congress. But that would leave out the part in between. For his first two years in office, Obama’s party controlled both chambers of Congress – for part of that period, he had a filibuster proof majority in the Senate. During that time period, he and his fellow Democrats could have passed his supposedly ideal, long-term, deficit-reduction package — one that represented a “balanced approach” between spending cuts and tax increases. It also could have delayed the deficit reduction for several years, so it wouldn’t have affected the current weak economy or the “investments” he considers crucial. Forget about actually accomplishing serious deficit reduction — he didn’t even attempt it.
Of course he didn’t. Despite all his demagoguery over the last few weeks, he’s never favored a “balanced approach,” if that meant cutting anything other than defense. He, and his Marxist attitude (along with that of the rest of his party) is certainly one of the main perps.
Leland,
Nope, the Republicans refused to do what was right demanding instead cuts or else they would destroy the economy. Looks like the Republicans achieved both goals, massive cuts and a destroyed economy.
Hi All,
I know Tea Party folks hate data since it interfers with their philosophical debates, but here is some very key data in terms of the question of raising taxes and the Laffer Curve.
Since tax rates are now the lowest since 1950, and the ratio of the national debt to GDP is the highest since 1950 I though I would show you this increasing table showing historic U.S. tax rates.
http://ntu.org/tax-basics/history-of-federal-individual-1.html
And although I don’t like Wikipedia as a soruce this graph constructed from data from the U.S. Office of Management and Budget shows clearly the impact of those tax rate increases.
http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
It included a like to the original M.S. Excel file if you wish to do verify the data.
Note how after the tax rates went up substanitally in 1950 the U.S. debt declined quickly as a percent of GDP? And how a major expansion of the economy followed, even with marginal rates at 91%?
Kinda blows the Tea Party/Republicans arguments about the need to lower taxes to improve the economy out of the water…
So, if the U.S. tax rate was too low in 1950, as would seem to be indicated by both the boost in the economy and reduction of the nationl debt that followed raising it, wouldn’t seem to also imply the tax rate is too low now in terms of the Laffer Curve?
And isn’t the Tea Party all about returning America to the golden years of yesterday 🙂
That should be link, not like. The auto speller check strikes again.
Hey, now Matula is quoting wikipedia but don’t call him a hypocrit.
The first chart shows that the tax rates were lower from 1987-90.
The second chart seems to show that debt as a % of gdp was very similar under Clinton and BushII, despite higher taxes and a roaring economy under Clinton.
The most telling chart would be one on spending and tax revenue.
Thomas, nobody paid 91%. Rich people aren’t stupid. You could make the top rate 5,000% and feel good about social justice, but it won’t bring in a dime in revenues. During the 1950’s when the top rate was 91%, federal revenues were 18% of GDP. During the 1980’s when the top rate was 28%, federal revenues were 18% of GDP. The reason the debt dropped in the 1950’s wasn’t that they got more than 18% of GDP in taxes, it’s because they blew much less than 18% of GDP in expenditures.
One of the results of creating such a progressive tax structure is that everybody drops down a few brackets when the economy tanks. Raising taxes on the top earners won’t help, because the top earners are posting losses and their companies are struggling for survival. They might as well be drawing unemployment like everybody else. It’s Obamanomics.
Wooden,
Have forgotten already the “No new taxes” pledge President Bush broke?
George,
Yes, I guess all the Cold War spending and the Korea War which triggered the 1950 tax hike were non-spending events.
No, few paid the 91% rate, but they did pay substantial capital gains taxes while other incorporated to lower taxes.
Pretty much. The entire cost of the Korean war was about $400 billion in today’s dollars, a third or a fourth of Obama’s yearly budget deficit. We used draftees and a bunch of WW-II surplus equipment. Add in the general defense buildup and the cost rises to about $700 billion in total (in today’s dollars). Still less than half of Obama’s deficit.
And even with the tax hike, they still didn’t get as much revenue as a percentage of GDP than Bush was getting after his tax cuts.
I am glad you support increasing taxes to return to that level.
Stop this BS Thomas or clean out your ears. Tax rates and revenue are two different things. You know it, but are unable to resist the fictional talking point. Thomas, I believe you are capable of upping your game. When are you going to defend truth before ideology?
I thought Glenn Beck was out as an example of Tea Party positions.
AFAIK, GB is not a member of any tea party group. Fellow traveler yes.
Republicans … would destroy the economy. Yeah, many of them have done their part. What part of S P E N D I N G are you having difficulty hearing? So, is their no guilt to be shared with democrats?
I know Tea Party folks hate data… Only when it’s selective and incomplete for the purpose of lying.
Even if you grant Thomas’s vapid claims that the Tea Party is an ideological chameleon of sorts, and that the S&P downgraded US debt because of the congresspeople associated with the Tea Party, there is still one unanswered question. What should we do? Whether the Tea Party is Koch brothers’ astroturf or a real movement, there is still the obvious glaring problem that the US spends too much to catastrophic levels in the past few years for the revenue it takes in. You have yet to explain why it benefits us that the US spends about 25% of GDP (or why they should tax enough to mostly cover that spending). They could instead spend 16% of GDP, for example.
As I see it, a default now when the US is fairly healthy economically is far better outcome than a default in the future when the US has been run into the ground first. And by raising the cost of borrowing, we’ve limited the options of the people who want to continue to borrow money to pay for extravagant spending.
Thomas Matula Says:
“ahh, the Teflon Tea Party. I am sure if you look hard enough you find a card carry communist claiming to belong to the Tea Party, but again, name a Democrat Representative who identifies with the Tea Party.”
Tom for the third and VERY LAST TIME:
My comments were about the populace who have common fiscal beliefs and not congresscritters.
But here answer this:
You claim the Tea Party held the proceedings hostage by refusing to pass something they didn’t like.
Obama did exactly the same thing: He said he would veto any bill that didn’t take it out to 2013.
Where’s your castigation of Obama?
George,
Here are a couple of charts of tax revenues as a percentage of GDP. The actually increased when the higher rates were in effect.
http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/
If you want more detailed table here is a link to the Office of Management and the Budget in the form of MS Excel files
http://www.whitehouse.gov/omb/budget/Historicals
Ken,
Yes, but as the links about show they are related and you do tend to increase tax revenue when you increase tax rates.
Karl,
One thing the S&P report was clear on, listing it twice, was not extending the tax cuts that President Bush passed in 2002. I expect additional increases in tax revenue would also make them more optimist about the willingness of Congress to paid the debt.
Reduction in future spending would also be good and it will be interesting to see what the Super Committee proposes.
Gregg,
But its the “congesscritters” who vote.
President Obama’s request was reasonable since it enables stability and predictability for the economy versus having a debt ceiling fight scaring the markets every few months. And the need for more policy stability was one of the things discussed in the S&P report.
It is also what Congresses did for other Presidents, but then those Congresses didn’t want those presidents to fail as the Republican House wants President Obama to.
Thomas Matula Says:
“Wooden,
Have forgotten already the “No new taxes” pledge President Bush broke?”
Well you seemed to be implying that higher tax rates went hand in hand with lower spending in relation to GDP. This was not the case.
If you want to say the economy under Clinton did well because of raising taxes, I would disagree but if you wanted to say the economy did well despite increasing taxes I would agree.
… show they are related and you do tend to increase tax revenue when you increase tax rates.
They show exactly the opposite Thomas. From that link…
The federal government has collected between 15%-20% of the nation’s Gross Domestic Product every year since 1960.
Over a period where rates varied considerably, revenue stayed at around 18%. Which this blog has pointed out before.
Change rates and you change behavior which tends to keep revenue very stable over time. The only way to raise revenue is to raise GDP. Let me repeat… The ONLY way to raise revenue is to raise GDP.
If you have a thick skull I suggest using a drill to the forehead because it’s very important for this truth to sink in. So if you want more revenue, focus on raising GDP. How do tax rate effect GDP? That’s an exercise for the reader.
An intelligent person only needs to be acquainted with facts just once to get it. To help (because that’s what I’m all about) anytime you make the false claim that raising tax rates raises revenue I (and I encourage others) will respond with…
[UP your GDP] Feel free to respond [Up yours] so I know you get it.
Somehow I feel we will have plenty of opportunity to reinforce this message. Let’s all play.
Thomas, every state that has instituted an income tax or created a very progressive tax system has seen personal income, revenues, and growth rates decline relative to other states that didn’t. The states that did so (to try and raise revenues and create “fairness”) shot themselves in the foot. Perhaps you can extrapolate from that and figure out that if the US raises tax rates and moves to a more progressive rate structure, average personal incomes will be lower than otherwise, as will government revenues. Perhaps you prefer having working people living in poverty and unemployment, supporting a broke government, but most of us do not.
Currently the Democrats have largely detroyed economic activity, and with government coffers drying up they’re desperate to find anything still moving in the private sector – and then shoot it till it stops twitching. Many other countries have tried the socialist model of punative tax rates and massively expanding government, and the world still awaits anything but disaster stories about chronic unemployment, dependency, poverty, stagnation, and often enough mass graves. If high tax rates and massive benefits were the answer, all our consumer electronics, cars, and industrial equipment would be coming from Cuba. They’re not. So if you want American workers to thrive instead of standing in bread lines waving worthless scraps of US currency, perhaps you should consider spending cuts instead of tax increases.
Comparing the effect of tax rates in various states. Why that’s crazy talk.
Ken,
Yes, a raising tide lifts all ships, but the key is are you maximizing government revenue? One of the problems with income tax is that increases in rates are also accompanied by increases in loopholes, so folks have more ways to hide their income. That is why a national sales tax of 20% would be far better solution then income tax. But in the interim raising rates and closing loopholes will help reduce the national debt. At least restoring them to the Clinton Era rates would be a start.
George,
There is a difference between moving from one state to another to avoid taxes versus giving up your U.S. citizenship to do so, especially given most industrial nations have far higher tax rates then the U.S.
There are always two parts to taxes. First is establishing the rates, then the seconding it minimizing ways to avoid paying it. If you are not going to increase the rates then at least close the loopholes that are used to avoid paying them.
Thomas, the simplest way to avoid paying taxes is to avoid making money in the legal economy, supplementing government benefits like unemployment, welfare, and SS with cash-only side jobs. The more people that figure this out, the more money the government has to pay out in benefits and the less revenue it takes in. The system will inevitably collapse at some point, which is what we’re beginning to see.
As for people leaving the US, they don’t have to. They just have to move their money overseas and leave it overseas. US corporations (and many individuals) already do that to avoid double taxation, and several trillion dollars that could be brought back to the US are left elsewhere just to avoid the tax penalty.
The philosophical question is why you believe US workers should be financially punished to the maximum extent they can bear (using all the tools of science and modern accounting to verify that the pound of flesh the government extracts is, in fact, maximized). During the last few rounds of extracting hundreds of billions from us, the government used the money to prop up foreign banks. I’m sure the elite, ultra-rich foreign bankers were grateful, but what did anyone else get out of the deal? All the money seems to go to political croanies, bankers, hedge fund managers, and other financial elites, with a scattering used to try and buy off the masses of unemployed and retired folks who are watching their life savings and real estate spiral down the toilet.
If Bush had actually raised tax rates, and given all the extra trillions to Exxon and Haliburton, would you be cheering him on?
The Left’s solution is to inflate the currency and spend forever, minting trillion-dollar coins if they must.
No, I’m not joking.
To so much as question that is to be an uncivil birch-bagging racist terrorist.
George,
The problem is not making the U.S. workers pay more but creating a system that makes it easier for everyone to pay their share. A flat 20% sales tax, with a refund of $150 or so a month to everyone with a Social Security number would go a long way in accomplishing it.
Thomas, you’re describing an approximation of the fair tax.
raising rates and closing loopholes
Well there’s your problem Thomas… you think you know what a loophole is. What’s that you say? No, that’s not it. Loophole is the natural change in behavior that happens when somebody is stupid enough to thing they can control the behavior of someone that has taken responsibility for their own life (and usually employs others as well.)
Ken,
Nope, loopholes are the reward industries and rich donors get for supporting a Representative or Senator for Congress. Which is why the Tax Code is so complicated.