Tuesday, August 23, 2011

Republicans Want Tax Increase

Really don't understand Republicans on this one...

Why would you fight so virulently against closing tax loopholes for the wealthy to reduce the deficit (which is a dumb idea to begin with...reducing the deficit that is) but be okay with what is essentially a tax hike for very much less wealthy employees by ending the payroll tax break?

Their reasoning?:
Republicans say their stand is consistent with their goal of long-term tax policies that will spur employment and lend greater certainty to the economy.

"It's always a net positive to let taxpayers keep more of what they earn," says Rep. Jeb Hensarling, "but not all tax relief is created equal for the purposes of helping to get the economy moving again." The Texas lawmaker is on the House GOP leadership team.

Many Republicans are adamant about not raising taxes but largely silent on what it would mean to let the payroll tax break expire.

Republicans cite key differences between the two "temporary" taxes, starting with the fact that the Bush measure had a 10-year life from the start. To stimulate job growth, these lawmakers say, it's better to reduce income tax rates for people and for companies than to extend the payroll tax break.

"We don't need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on," said Sen. Lamar Alexander, R-Tenn., when asked about the payroll tax matter.

House Majority Leader Eric Cantor, R-Va., "has never believed that this type of temporary tax relief is the best way to grow the economy," said spokesman Brad Dayspring.

Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he "would prefer to see the payroll tax cut on the employer side" to spur job growth, his campaign said.

Former House speaker Newt Gingrich said Republicans will fall under increasing pressure to extend the payroll tax cut. If they refuse, he said in a recent speech, "we're going to end up in a position where we're going to raise taxes on the lowest-income Americans the day they go to work."
It seems pretty simple to me: businesses won't expand until sales increase. Sales won't increase until people have more money. Why would taking money away from people who buy things help sales? Why would giving more money to businessmen help them expand their business if they won't be able to sell their added production?

They have the line of causation backwards. Money won't 'trickle down' to employees until it 'trickles up' to employers. Even then I'm not sure it will get to the employees...record profits are still being made despite historically low wages and very high unemployment.

I say a complete payroll tax holiday for both employees and employers would be good, but deficit hawks would cry 'foul' (pun intended) because they think deficits are the reason for our bad economy. If you are in this camp I recommend checking out my 'Modern Money Factsheet'.

As for it being too 'temporary', are they worried it won't be spent? If so, say you'll suspend the tax UNTIL we reach full employment. The Central Bank said it would keep rates where they are until the economy is growing again and unemployment goes down. Let's do the same for the payroll tax cut.

But again, this is more about 'people who create jobs'. Those 'people who create jobs' rely on 'people who buy their product'. Just ask small business owners, they'll say that they are in tough positions right now because sales are low not because their taxes are too high or that their regulations are too tough. It doesn't matter how high taxes are or tight regulations are if nobody buys your product. If you want them to increase jobs increase their sales.

This seems to be a major stand in favor of the wealthy. If it isn't can someone please elucidate?


Full story here.

7 comments:

  1. I would agree this is not necessarily a great time to let payroll taxes pop back to their normal levels. At the same time, I'm not sure the appealingly wonkish idea of giving people a payroll tax holiday to stimulate demand is a good idea. (I didn't even support the current reduction.) The reason is that there will be a strong incentive to keep the holiday permanently, since when the payroll taxes are applied again what people will experience is an immediate wage cut. For lower wage workers, it could be a wage cut that it takes them a couple years worth of normal raises to make up.

    However much it makes sense on paper to give people more money when we want more demand, and then ratchet it back when we don't, I think that whipping around people's paychecks is probably going to create more trouble in the long run. And since politicians get elected by not making people angry, their incentive will be to try to not re-apply a tax that we don't really have a good way to fund Social Security right now without.

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  2. I agree, but doesn't an income tax do the same thing to wages? The only difference I see is that the income tax break is once a year, the payroll tax break is every paycheck.

    And wouldn't you agree that it's inconsistent to say 'no tax hikes' including closing loopholes the wealthy use and refusing to end the Bush tax cuts for the highest brackets, but then turn around and say no to extending a payroll tax break? The only consistency I see in that is favoring the wealthy who don't spend their money like poorer people do, they invest it in stocks, bonds, etc. which further drives down interest rates and increases their wealth in stocks, but does nothing for the economy.

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  3. Well, I wouldn't support cutting income taxes right now either. As progressives are fond of pointing out, income taxes are at historic lows and we're running some of the highest deficits we've ever done outside wartime. Indeed, progressives have mostly been arguing for _increasing_ taxes.

    I'd be against decreasing income taxes or payroll taxes temporarily for individuals. If anything, one could consider decreasing payroll taxes for businesses in an attempt to stimulate hiring.

    The reason, however, why I think that the payroll tax holiday is particularly corrosive is precisely what you point out: it messes with people's paycheck amounts rather than giving them an extra large refund at the end of the year. For people living paycheck to paycheck, an extra large tax refund will let them pay off debt or go do some extra spending, either one of which will help with the economic hang over. However, if you temporarily increase their paycheck, people living check to check will generally increase their spending -- however much they're trying not to. (Definitely been there, not so many years ago.) Then when their paycheck suddenly goes down again, they're going to go through a painful readjustment. I really don't think it's doing people any favors to put them through that.

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  4. Okay, I agree with your "readjustment" argument. I think that part of the reason there was such a large run up of PRIVATE debt before the crisis was because wages weren't growing and people were trying to maintain or even better their standard of living.

    Progressives are also fond of pointing out the nonexistent growth in wages for the bottom 60% over the past 4 decades. So in after-tax terms, the bottom 60% are worse off.

    Many progressives still don't understand government finances either.

    But come on Darwin! You say "If anything, one could consider decreasing payroll taxes for businesses in an attempt to stimulate hiring."

    Why would they hire?! They won't if they aren't selling their products! Who would expand business no matter how much cash you had when the outlook for sales is terrible?

    And you still didn't answer my questions about Republicans' inconsistency. Either they consistently favor the wealthy or they are inconsistent on their stand on tax increases.

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  5. Progressives are also fond of pointing out the nonexistent growth in wages for the bottom 60% over the past 4 decades. So in after-tax terms, the bottom 60% are worse off.

    Yes, they are fond of pointing that out, but to be honest it's a claim I don't buy. It's based on a number of assumptions about how to index prices, whose wages to look at, etc. and of course it ignores the fact that we're looking at wages only here and not benefits: Most people would rather get circa 2011 health care than circa 1970 health care, even if the result is higher costs.

    Plus, those crazy Republicans have brought it to the point where the bottom 60% pay virtually no income taxes (unlike in 1970) so even with "flat" wages people take more home.

    Why would they hire?! They won't if they aren't selling their products! Who would expand business no matter how much cash you had when the outlook for sales is terrible?

    They are selling their products, though. Not as much as they might like, perhaps, but they are. Like anything else, it's something that gets decided at the margins. Take a few percent out of the cost of labor and there are products that can be sold profitably and businesses that can be run profitably which can't be now.

    The QSR chain that I work for, for instance, has been launching new products, growing market share, and thus putting out "Now Hiring" signs at new and expanding locations.

    And you still didn't answer my questions about Republicans' inconsistency. Either they consistently favor the wealthy or they are inconsistent on their stand on tax increases.

    Can't say that I have mind reading abilities for all GOP policy actions -- I'm not always an orthodox Republican myself, but I imagine a lot here is just political expediency. The GOP has fought hard to preserve the "Bush tax cuts" because they were their tax cuts, and keeping them thus counts as a GOP victory and an Obama defeat. This is Obama's tax cut, so they don't care so much about it.

    On the flip side of that cynical approach: Obama has kept blasting the GOP for wanting to keep the top rate cut out of the Bush tax cuts, and the administration has put out all sorts of charts showing the huge "cost" of the whole Bush tax cut package. What they haven't been clear on is the fact that Obama himself wants to keep the vast majority of the cost of the Bush tax cuts -- rolling back just the top rate doesn't net nearly as much money as rolling back the cuts for the middle class would.

    Both sides are more out to score points on this than they are to form good policy.

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  6. I agree with your political expediency comments...I wish politics weren't so political...

    As for wages, I do think there has been a trend toward inequality, which is okay as long as justice is being met. So if the demands of both commutative and distributive justice are being met then I would have no issue with lack of growth in wages, but I don't think those demands are being met in our country and especially not worldwide.

    Im glad to hear your firm is doing well, I do not claim that there aren't others out there. It seems that there are many more firms out there suffering from sales low enough they won't hire despite having access to historically cheap funds. I'm a critic of marginal analysis and don't think decisions are made at the margin, but that's a much larger argument.

    So I don't think cash will help businesses hire if they don't see higher sales. A noticeably Keynesian demand driven view as opposed to a Say's law 'supply creates its own demand' view.

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  7. It seems that there are many more firms out there suffering from sales low enough they won't hire despite having access to historically cheap funds.

    Though typically businesses don't borrow in order to meet basic operating expenses (such as labor) except perhaps during an initial expansion. Lower labor costs (even temporary ones) make it possible to extent hours, reduce prices to drive demand, etc. in ways that low borrowing costs would not necessarily lead to.


    I'm a critic of marginal analysis and don't think decisions are made at the margin, but that's a much larger argument.

    Ah, see, this is probably the big divergence. I'm a pricer -- the very existence of my job is based on the ability to make highly profitable improvements in a business by driving decisions made at the margins. Since I know of areas in which it's very applicable, I tend to lean heavily on "at the margins" explanations.

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