The New York Times asked yesterday: What if a president cut Americans’ income taxes by $116 billion and nobody noticed? the author Michael Cooper goes on to report:
In a troubling sign for Democrats as they head into the midterm elections, their signature tax cut of the past two years, which decreased income taxes by up to $400 a year for individuals and $800 for married couples, has gone largely unnoticed.
In a New York Times/CBS News Poll last month, fewer than one in 10 respondents knew that the Obama administration had lowered taxes for most Americans. Half of those polled said they thought that their taxes had stayed the same, a third thought that their taxes had gone up, and about a tenth said they did not know.
But who can blame them? The Obama tax cuts were not productive tax cuts. While Cooper does mention that Americans were allowed to take home slightly higher paychecks, he also completely fails to mention that the policy is temporary. Heritage analyst Rea Hederman explained why this matters before the stimulus even became law:
Most people know that this tax cut will last only two years, just as they knew that last year’s rebate check was a one-time event. They know that in future years, the deficit will have to be repaid via higher tax rates. This makes workers even less likely to spend the additional money, because individuals prefer to have a constant consumption path. The permanent income and life cycle theories developed by Milton Friedman and Franco Modigliani respectively say that permanent increases in income increase consumption considerably more than a temporary increase does, because the decision to consume depends on an individual’s real wealth, not current real disposable income.
Temporary reductions in the amount the government takes from paychecks and tax rebates are not productive tax cuts. Real tax cuts permanently change marginal tax rates thus encouraging new labor supply or productivity. Even the federal government acknowledges this. Heritage analyst Brian Riedl explains:
Tax rebates fail to increase economic growth because they are not associated with productivity or work effort. No new income is created because no one is required to work, save, or invest more in order to receive a rebate. In that sense, rebates that write each American a check are economically indistinguishable from government spending programs. In fact, the federal government treats rebate checks as a “social benefit payment to persons.” They represent another feeble attempt at creating new purchasing power out of thin air rather than focusing on productivity.
Tax rebates in 1975, 2001, and 2008 all failed to create economic growth. By contrast, large reductions in marginal tax rates in the 1920s, 1960s, and 1980s were each followed by large surges in economic growth. More recently, the 2003 tax-rate reductions immediately reversed the job losses, sinking stock market, declining business investment, and sluggish economic growth rates that had followed the 2000 recession. These gains continued until unrelated economic developments brought the most recent recession in December 2007.
So the reason, why no one has ever heard of the Obama tax cuts is because they were small, temporary, and failed to produce economic growth. Instead, Americans are now suffering under the threat of the largest tax hike in American history: the Obama tax hikes.
Uh, that would be BUSH tax hikes. These are Bush tax breaks that will expire. So, if you must classify it as a HIKE, at least attribute it to the Admin. that enacted it.
That's because Conn and Heritage would rather not lay out that the republcian congress passed them using reconcilliation (the very process they all slammed this past year for Democrats using for for health reform). What's good for goose, is apparently not good for gander. The Repub controlled Congress also passed the trillion dollar deficit financed Medicare bill.
I think they also want to avoid talking about CBO's findings – 'Calculations by the nonpartisan Congressional Budget Office and other independent fiscal experts show that the $1.1 trillion cost over the next 10 years of the Medicare prescription drug program, which the Republican-controlled Congress adopted in 2003, by itself would add more to the deficit than the combined costs of the bailout, the stimulus and the health care law'
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So can you explain to us why the Bush tax cuts, enacted by the Republican Congress and signed by a Republican president, were designed to expire? What was the purpose of that?
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The Obama administration didn't cut any taxes. They merely took the money out of our hides in other ways.
If, as a result of all the new laws this evil and wayward administration has passed, I'm paying more for health insurance, gas, groceries, banking fees, school tuition, and so forth, ad nauseam, I didn't get a tax cut. My cost of living is skyrocketing. My net income is plummeting.
If this administration truly gave us a tax cut, I'd have more money in my pocket. But it's not a cut if they merely rename it a fee. It's not a cut if big business takes the hit instead, then passes the higher costs on to me.
Kev, I do not know for sure whether I am a goose or a gander by your definition, but I am certain that, if the Obama administration and the Reid/Pelosi Congress allows these tax hikes to occur, I will feel their effects.
I will probably not blame those who do not have the power to pass measures that would prevent this from happening.
You know in my heart, though, that everything bad is George W. Bush's fault, and hence it shall remain.
Kev H and Anonymous,
Tax cuts need to be permanent. That is the point of the article. I don't think Conn is taking any sides, just pointing out that real and lasting tax cuts stimulate growth, not fake ones that "simulate" increases in your disposable income. Most families don't notice an extra $40 a month in their paycheck and it certainly is not enough to make them change their spending habits especially if they know it is going to go from $40/month more to $200/month less after January (almost $250/month swing) when the Bush tax cuts expire. Now we are talking real money. (Using taxable income of $50,000 for a family of four).
Also, you can't have it both ways complaining about the increases to Medicare expenditures that the Republicans enacted (which no one here is condoning) and then in the next minute, bashing them for not "helping" out the citizens of this country. Also, try to inject facts into your arguments occasionally – The stimulus itself was $0.86 T, Obamacare's tab is projected at $1.1 T per year (and growing), so those 2 alone blow up that argument. It is ignorant and just plain hypocritical.
Go post your comments on the Huffington Post.
It's not so much that the tax cuts were designed to expire at end of this year, it's that they were required to expire at end of 10 years since the legislation was passed using reconcilliation.
Budget reconciliation had never been used to increase the deficit. In fact, it specifically existed to decrease the deficit. That's why one of its rules was that you couldn't use it to increase the deficit outside the budget window. Republicans realized they could take that very literally: The budget window was 10 years. So if the tax cuts expired after 10 years, they wouldn't increase the deficit outside the budget window. They'd also have the added benefit of appearing less costly in the Congressional Budget Office's estimates, as the CBO duly scored them as expiring after 10 years, which kept the long-range budget picture from exploding.
Kev – the Bush tax cuts resulted in over $600 billion increase in tax receipts to IRS. Deficits result from spending more than the IRS can collect. If the rates revert to the pre-Bush levels next year, we will experience what is know in common English as a tax hike. Care to predict how much additional revenue the IRS will take in? Unless they plan to increase the rates to rake in over $1.3 TRILLION, we will continue to have major deficits. Unless of course, by some strange process (otherwise known as elections) Congress starts to reduce spending next year.
One can hope, or one can vote. But you can't tax your way to surplus. With or w/o reconciliation.
ATB – your statement seems to imply that tax cuts pay for themselves. This is folly – the consensus among economists not on the Heritage or Cato payroll is that they most certainly do not. This consensus includes, by the way, the key members of George W Bush's economic team. It would be incredibly convenient for us all if it were reality instead of fantasy, but alas.
I find it interesting that your article shows no facts about the lack of an effect of the tax cuts on the economy. I believe Bush's tax cuts are also temporary. You seem not to mention that in your article. Does Glen Beck use Conn Carrol as a pen name? Conn Carrol can't possible be a real name.
Scott-
Carroll has two 'l's in it. And I am very real!
Thanks.
-Conn
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Yeah I'm sure the Reagan tax cuts had everything to do with the boom on Wall Street in the 80s. You conveniently ignore the deficit he left, and how the economy flourished at the higher rates under Clinton (i won't conveniently ignore that the Internet boom was mainly responsible), and how the Bush tax cuts didn't create more jobs, and how even if we give the wealthy these tax breaks, they will continue to ship jobs overseas and do all they can to increase their pocketbook, and that a Republican president hasn't presided over a balanced budget in my lifetime.