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Tag "taxes"

Greg Mankiw thinks he’s really clever:

I have a plan to reduce the budget deficit.  The essence of the plan is the federal government writing me a check for $1 billion.  The plan will be financed by $3 billion of tax increases.  According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit.  Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit.  But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

I’m not going to attack this particular point about PPACA, because others have done it already.

I do think, however, it needs to be pointed out that this is indicative of the alternate universe in which most of the mainstream GOP resides.  In this alternate universe, tax increases are not a means to reduce the deficit.  They point this out as if it’s some sort of joke that you don’t get.  From Michele Bachmann’s “tax cuts shouldn’t be considered a deficit,” to CUTGO, to the new slash-and-burn budget plan straight out of Paul Ryan’s wet dream, it is clear that, in the mind of the modern GOP, the only path to a balanced budget is with spending cuts.

This is horribly unrealistic.

Any serious plan to take control of our budget situation must include an increase in our average tax rates.  And that’s no joke.

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Sometimes I wonder if I’ve just drunk too much of the Kool-Aid because I seem to always find myself agreeing with Barack Obama.  I’m not exactly a my team/your team kind of guy (I’m always the one that admits a bad call in my favor in sports, for example), so I don’t really think this is what’s happening.  I just think my political disposition is squarely in line with this President, which apparently is something of a rarity among Democrats lately.

When I checked in on the blogs late last night and saw the tax deal that was struck, I stuck out my lip, slowly nodded my head, and said, “Hmm.  Not bad.”  Which is not to say that I was necessarily excited about the deal, but it had a little more “sugar” in it than I had expected. 2% payroll tax cut?  Sounds good to me.  UI extension for 13 months?  Not bad.  Temp extension of Bush tax cuts for 2 more years?  Could be worse.

I think thats the key phrase.  It could be worse.  But could it be better?  The kids over at DailyKos would have you think so.

But what is this magical solution that our President has so stupidly failed to see?

Is it to have a staring contest with a emboldened political party that will clearly not back down, while raising taxes on lower to middle class families during a sluggish recovery that is still posting 9.8% unemployment?  Is that the solution America is craving?

Is it the likely death of unemployment insurance for people who are out of work through no fault of their own?

How about a guarantee of zero fiscal stimulus for 2011?  Is that the silver bullet to economic recovery?

Do people honestly believe that anyone will remember this in 2012?  Or that they’ll even blame Republicans for it?  That ship has sailed.  The only real chance of using this issue as an electoral bludgeon was before the midterms, not after, which I will remind everyone is exactly what Obama wanted to do, but the Democrats in Congress punted.

So now the tricks and gimmicks are over.  It comes down to what’s best for the economy today.  Middle class tax hikes, or temporary extension of tax cuts for the rich?  Extended unemployment benefits, or an expiration?  Fiscal stimulus, however modest, or pro-cyclical contraction?

I’ll take the deal.

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One thing that I’ve learned working in a data-intensive field is that people don’t understand what you’re talking about unless you have a graph.  One good graph is worth about an hour of explanation.  This is why it always baffles me how little political media, and politicians themselves, utilize graphs as an effective means of communication, especially when talking about number-based issues, like tax rates for instance.

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Ezra Klein:

“I reject the notion that they key to future prosperity is the top marginal tax rate,” [Orszag] shot back. It’s a good line, and conceptually, an important statement of what separates the Obama administration’s economic philosophy from the Bush administration’s. If you think the drivers of growth are in the top one percent, and that top one percent is exquisitely sensitive to small changes in marginal tax rates, your policy proposals will be rather different than if you think prosperity and security for the broad middle is a more sustainable approach to growth.

I really like this framing.

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I’m with Nate:

I’d call this the law of unintended consequences — except that the consequences are explicitly written into the bill. The bonus tax, which passed the House earlier today, applies not only to AIG but also to some 12 other firms that received substantial levels of government assistance. This includes both financial institutions like AIG and nonfinancial ones like General Motors; it includes banks that are preforming poorly, like Citibank, and those that are holding up fairly well, like JPMorgan Chase and PNC. The government has dictated that nobody at anybody of these companies is deserving of incentive-based compensation, unless their household income is less than $250,000 per year. [...]

As written, I’m not even certain that the bill will reduce compensation for these bailed-out firms at all. It will just shift it from incentive-based compensation, which is subject to the levy, to salary-based compensation, which isn’t. But in so doing, it will make it harder for the companies to align performance and rewards.

I understand why the bill was written this way — it had to be broad enough to fend off a constitutional challenge — but the cure is worse than the disease. Much worse. I can’t imagine a credible defense of it along economic lines, and so far as I’ve seen nobody has even attempted one.

And with hilzoy:

Besides all that, it’s spooking the banks needlessly. I want to emphasize the word ‘needlessly’ here. There are a lot of things I think we ought to do that would spook the banks. Nationalizing several of the large banks, for starters. Putting in place regulations that ensure that no company is “too big to fail”, that depository banks and investment banks are different companies, that liquidity requirements are bigger and (preferably) countercyclical, etc. Regulating all types of financial services firms, including hedge funds, and all financial instruments, including derivatives. Setting up procedures to liquidate any companies that manage to become systemically important despite these regulations, procedures that ensure that their investors take a very serious haircut. Unless someone can explain to me why off-balance entities serve some useful purpose, I think they should be banned. So I am fine with spooking banks.

That said, no business does well when the rules are constantly changing all around them. A lot of the reforms I favor are aimed not just at making the rules better, but establishing predictable rules where none exist. The fact that we have been improvising ever since this crisis hit is a tremendous indictment of every preceding administration that could have set up mechanisms to deal with these sorts of problems but did not.

If we want to spook the banks, then, I think we ought to do it in some way that actually solves a genuine and serious problem, and does it in an intelligent and targeted way. This bill is neither intelligent nor targeted. Moreover, while the bonuses are outrageous, they are not on my list of the top 100 things we need to worry about right now.

I’d rather save my fury and use it to force serious, lasting reform of the entire financial industry, and save spooking the banks for something really worthwhile, like nationalizing Citi.

This is angry mob politics at its worst.  Zero brains, all pitchforks and torches.

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I was attempting to complete my taxes today, and I was cruising through IRS Publication 17, to see if my state income tax refund will be considered taxable income, when I happened across this:

So, make sure all of your crack slangin’ buddies fill in their income on line 21 of their 1040′s this year.  Wouldn’t want them to get audited…

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