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  • Morning Bell: Permanent Tax Cuts Only Please

    There are still plenty of terrible economic stimulus ideas coming out of President-elect Barack Obama’s transition team, but there were some encouraging admissions from Obama senior adviser David Axelrod this Sunday on Meet the Press. Asked by NBC’s David Gregory if Obama would break his promise to the American people to lower taxes, Axelrod said:

    Look, we feel it’s important that, that middle-class people get some relief now. He’s promised a middle-class tax cut. This package will include a, a portion of that tax cut that will become part of the permanent tax cut he’ll have in his, his upcoming budget. It’s, it’s, it’s vital people are, are–need money in their pockets to, to spend. That’ll help get our economy going again.

    We hope that this statement by Axelrod signals the acceptance by the Obama administration of a long held conservative belief, namely: that temporary tax cuts are ineffective at stimulating the economy while permanent tax cuts are the best way to encourage both short and long term economic growth. As former Treasury undersecretary John Taylor recently explained:

    According to the permanent-income theory of Milton Friedman, or the life-cycle theory of Franco Modigliani, temporary increases in income will not lead to significant increases in consumption. However, if increases are longer-term, as in the case of permanent tax cut, then consumption is increased, and by a significant amount.

    The Washington Post reports that the incoming Obama administration has not yet determined what form these permanent tax cuts will take, but to maximize effectiveness the cuts should be as broad as possible and not limited to narrow tax loopholes restricted to only those families who engage in activities that Washington decides are worthy.

    As encouraging as Axelrod’s commitment to permanent middle-class tax cuts was, his blind devotion to tax increases on the most productive Americans was equally discouraging. Asked by Gregory if Obama still planned to raise taxes Axelrod said:

    Well, look, the question is on the Bush tax cuts for the very wealthiest Americans, and it’s something that we plainly can’t afford moving forward. And whether it, it, it expires or whether we repeal it a little bit early we’ll determine later, but it’s going to go. It has to go.

    At a time when the Obama team is proposing $775 billion in new spending, calling tax cuts “something that we plainly can’t afford” is laughable. We hope that before Obama pursues this course he consults with his Council of Economic Advisers chairman Christina Romer, who has published economic studies concluding that: 1) tax increases harm economic growth; 2) tax cuts lead to greater economic activity; and 3) government spending has at best a small effect on stimulating economic activity.

    Furthermore, we hope that the President-elect’s team isn’t falling back into their dangerous idea of “major” redistribution of wealth.  Axelrod went on to say:

    In other words, when you add up the tax cuts and the change–the expiration or the repeal of, of the tax cut for the wealthy, it’ll amount to a net tax cut for the American people.  It’ll just restore some balance, David, which we badly need.

    “Balance” can only mean redistribution, which will inevitably lead to lower levels of entrepreneurial activity, reduced investment and lower wages for all workers, especially those in lower-skilled jobs.  We hope that President-elect Obama recognizes the needs for permanent tax cuts across the board, for all Americans.

    Quick Hits:

    Posted in Ongoing Priorities [slideshow_deploy]

    15 Responses to Morning Bell: Permanent Tax Cuts Only Please

    1. Barry E Lerner, Rye says:

      Understand a few facts. Obama is a leftist. The Congress, essentially a scurvy lot to begin with, is controlled by Democrats, basically leftists. The fundamental aim of politicians on both sides of the aisle is to increase their power and income. The mainstream media are leftists. The majority of voters are frightened, ignorant and uninformed. The country is currently in an economic crisis. We are facing an external enemy that most are afraid to even acknowledge, let alone confront. Underfunded entitlements, the biggest Ponzi schemes of all, are about to collapse all around us.

      From this unsavory stew, how can you possibly expect anything positive? Do you feel that as the Heritage Foundation you must be upbeat and hopeful? Would it not be more productive to (reasonably) assume the worst, and evaluate how best to prepare for it? Am I being paranoid or are you being Pollyanna?

    2. Mark, Houston says:

      Barry , you are exactly right . why are we scared to call a socialist a socialist , afterall wouldn,t that be more "politically correct". As americans we,re getting the shaft and we are told by those MORONS in congress that we have to like . Well we don,t . WAKE UP AMERICA!.

    3. Frank J Schuh says:

      The WSJ published a detail analysis of the Kennedy, Regan, and Bush tax cuts by Art Laffer during the last year. It showed that the tax revenues of all but the top bracket were decreased by the same ammount as the rates were cut. The tax revenue from the top bracket was increased by more than the total cut.

      If the dems decrease the lower brackets and increse the top bracket enough to offset loss from the from the lower brackets the combined effect will be a loss in revenue of about 2 or 3 times the lower bracket cuts. It will take more than a year before this shows up but before the 2010 congressional elections.

      How do you help our country the most

    4. LVKen7@Gmail.com - says:

      HF – "The number of people caught trying to sneak into the USA from Mexico is at its lowest level since the mid-1970s."

      But, HF left off the REASON.

      They have started JAILING THOSE THAT EMPOLYEE ILLEGALS.

    5. Wolfgang Spendel, Ci says:

      Tax cut policy, more or less amount paid, is way oversimplistic for what we face. The real issue is value for tax dollars spent and delineation of personal and government responsibility. There are not enough resources to do everything. Hence, it is most improtant to set expectations and stick with them. People can compensate, plan and look out for themselves when the rules of the game are clearly understood and in place for an extended period of time.

      Therefore, the most critical problem is to make the tax code simple and transparent. We need to take away the politicians ability hide, subsidize, sell and allocate tax dollars via the back door and slight of hand. Once we have done this we can decide how best to spend tax dollars and at what level. A version of the flat or fair tax is a good place to start. And, yes changing the tax code will change how we do business. Hence, the discussions over which policies will be impacted are irrelevant and a distraction. The discussion needs to focus on what we will or will not do as part of government. We will need a transition period to acclimate to the tax new system.

      Wolf

    6. Pingback: Conservative Thoughts and Profundity

    7. mike hutchings texas says:

      we are in for a long haul down a gravel road.make that a drag down a gravel road.

      the left does not want a solution and the rhinos want to be loveed. not going to happen. the republicans should adorn themselves with grease paint mustacheses(SIC)it will be clearer who to hiss at.it is hard to tell the difference, as in animal farm when the pigs start walking on thier hind legs.if one republican will stand up aganst the bailout nonsense it could start there if not settle back and be the opposition and watch it rumble off a cliff. show some guts and some will follow.

    8. Wolfgang Spendel, Ci says:

      Regan tax cut is misunderstood. Bush tried it and it did not work. What is not commonly considered is that Regan's mission was to starve government and try to force government to shrink. He was goignto do this by limiting government money availablity. He was not successful in reversing or stopping government growth. He did slow government growth. The reason Regan's tax cut was so successful is that the personal computer dramatically increased productivity. Thus the economy was provided a growth mode by allowing investment, tax cut, and productivity growth, computer. The second effect far outweighed the first. This is why Bush's tax cut did not work and just ran up the debt. Tax cut without compensating decreases in government spending, or compensating economic growth, just put off the day of reckoning, as we are experiencing. As I mentioned previously tax policy alone, no matter what it is, won't solve our systemic problems.

    9. Dennis Aderholt Soci says:

      Taxes are a necessary to run this country, I think all will agree with this. The only way to stop this tax mess is to go to the "Flat Tax". If you spend you pay, this makes it fair to all people, and will not put a burden on anyone. Why can the politicans not see this????

    10. Alex, Coral Springs, says:

      Very well said Bary,

      If people think that Bush was bad.. They haven't seen nothing yet when the freak show takes over. I just don't understand the crazy mindset of the leftly looney tunes. How is punishing the job creators is a good thing?

      The Bush tax cuts generated huge revenues for this corrupt government.. It was the irresponsible spending of this corrupt government that caused more bankruptcy. Like a lot of them on wall street, this government is corrupt and greedy. Wolfgang Spendel needs a lot more enlightment and less MSNBC.

    11. Wolfgang Spendel, Ci says:

      I don't watch MSNBC. I do model and analyze and try to determine the forces in play. Greed and incompetence is rampant. As a consequence, and rightfully so, we have lost trust in government and the financial sector. Our instituions are not functioning for the average citizen. My enlightenment is simple. Printing money takes us all down no matter how we get there. Conservative or Liberal. The only real difference is the excuse we use to print money and redistribute wealth. How Bush goes down in history will be determined. However, I would point out that no government intervention (conservative stance) unregulated free markets were not responsible or effective. We could also let everything collapse on principle. Unfortunately, there is no real good data and unbiased analysis that indicates how close or not close we are/were to financial collapse. The books will come out in ten years.

      Hence, it is easy to turn to dogma and espouse the accepted mantra from either side. However, the key is not belief. The key and most pressing problem is coming up with something that works to get us from here to there. We will go on from here. I for one would like to take our lumps and wind up in a better more enlightened place. Alex's statement makes my point. Bush's tax cut alone didn't compensate for government corruption and unleashed, greedy financial system. Case made, tax cuts alone will not fix it.

      I am a conservative and for capitalism. But taking the position that we need tax cuts and everything else will take care of itself, just gives the liberals the fuel they need. Conservatives need to propose solutions for issues the country faces and make the case for why the proposals will be effective.

    12. Hector, Georgia says:

      Flat tax is good, but The FairTax is a better alternative and EVERYONE will pay their fair share. EVERYONE gets a pre-bate and 100% of their paycheck. Completely eliminate the payroll tax and replace it with a consumption tax. The rich who spend more will pay more the poor who spend less will literally "zero" taxes.

      It's time to REVOLT. Name the date and time and I'll be there!

    13. Pingback: America’s Next Generation » Blog Archive » We can’t afford Tax Cuts?

    14. James Wolbert, Garf says:

      While Axelrod may be paying lip service to the permanent tax cut concept, in fact he and Obama dont believe the entire concept that is they are keeping their pledge taxes on the "rich". I think it wrong to believe one and not the other. To me, it shows that Obama remains a leftist but seeks to use the "anything that works" approach while promoting the radical agenda in degrees or under the cover of darkness.

    15. frankz, brewster, ny says:

      We need to re-invest in what America great. We need to bring back blue collar jobs, fine tune the tax system to eliminate the unfairness and fine tune to social security system to deal with the problems of today and tomorro. We must break up large companies and regionalize them again, especially the banks. No one should be in business who loses 40 billion a year. Reaganomics just doesn't work, these past few years are absolute proof.

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