Keith Devens .com

Tax cuts

Great info from the Wall Street Journal on the double taxation of dividends, which it seems is very unfortunately not in the current legislation making its way through congress.

The disappointment is that Mr. Thomas has refused to budge on ever getting to a zero tax rate on dividends. He never did warm to Mr. Bush's proposal, in part because he wasn't consulted on its design. Instead he has consented only to cutting the top dividend tax rate to 15% from 38.6% and the top capital-gains rate to 15% from 20%. This is a lot better than nothing, and certainly better than what we'd get if today's Democrats were running Congress.

But it is missing an opportunity because it is so rare that a President is willing to invest his own political capital on behalf of cutting taxes on economic capital. Even Nebraska's Ben Nelson says that he prefers the zero rate on dividends, putting the Senate Democrat to the right of the chief House Republican tax writer. Mr. Thomas appears to us to be leaving some tax money on the political table.

The zero rate would also establish an important principle that all income should be taxed only once, a precedent that could be applied to tax reform in the future. As a political matter, it is also harder to reimpose a tax that has been eliminated than it is to raise the rate of a tax that still exists. By leaving the dividend tax in place, even at a lower rate, Mr. Thomas is all but guaranteeing that some Congress will raise it in the future.

The article says there's still a chance that the cut can make it in, so... here's hoping.

Update: An even better article from Representative Ron Paul, MD, via Oliver, The False Tax Cut Debate:

The truth is, government officials can't know what consumers and investors will do if they get a tax cut. Plugging tax cut data into a computer and expecting an accurate projection of the economic outcome is about as reliable as asking Congress to project government surpluses.

Two important points are purposely ignored:

1. The money people earn is their own and they have a moral right to keep as much of it as possible. It is not Congress' money to spend.
2. Government spending is the problem! Taking a big chunk of the people's earnings out of the economy, whether through taxes or borrowing, is always harmful.

Two points to remember:

1. Whether or not people can keep what they earn is first a moral issue and second an economic issue. Tax cuts should never be referred to as a "cost to government." Tax cuts should be much bigger and come much sooner for everyone.
2. The real issue is total spending by government, yet this issue is ignored or politicized by both sides of the aisle in Congress.

The political discussion about whether to cut taxes avoids the real issues and instead degenerates into charges of class and party warfare, with both sides lusting for power.

Of course the real issue for the ages, namely, "What is the proper role for government in a constitutional republic?" is totally ignored. And yet the bigger question is: "Are the American people determined they still wish to have a constitutional republic?"

Freaking awesome.

Permalink | 7 Comments | Tags: Opinions/Politics | id 3899

08:21 (utc-4)
edited: 09:09 (utc-4)

Comments

The debt belongs to everybody. Both parties are to blame. For instance, while Bush is fighting for the tax relief, which I support, he also wants to give like 70 BILLION to Africa and like another 15 billion to Central American countries to help fight AIDS. It's a total money pit, but it appeases the Democrats. So I'm not too happy with Bush for that.

But, it goes far beyond the AIDS dollars. Neither party seems to care about reducing the size of government, which is particularly maddening with regard to the Republican party, because smaller government is supposed to be one of the party's core principles.

However, an overwhelming part of any spending increases in the past year are due to "homeland security" spending, which we have to do. It's important to keep in mind that military spending is a far smaller percentage of our economy even now than it was 40 years ago. The problem is that the focus of our economy has shifted more and more in accordance with liberal principles of big government and social programs.

I would certainly place the blame for our debt on said liberalism, which of course is predominantly found within the Democratic party, and therefore that means that I'm more angry with the Democrats than the Republicans about the out of control spending and unweildy size of our government. The Republicans say they want to do things like tort reform and tax reform -- financially responsible things which I support. But somehow I get the feeling that even should the Republicans come to control an even larger portion of the senate and house (say, like 75%), I doubt that they'd do much to reign in government spending.

When Clinton left office we were at a surplus. The numbers indicate that the current debt was largely created by homeland security and our various wars (we've spend 200 BILLION on Iraq - with no end in sight).

While there are correct times to decrease taxes, I don't see how now this is not economically shooting ourselves in the foot. Homeland security measures are being cut due to lack of funds (right now programs to monitor seaports in NY and NJ are being cut back). States are so massively short on cash (as federal monies are drying up) that its looking like state increases in taxes (such as in NY and CA) are looking to overtake the federal decreases.

With the wars we're waging, and the additional costs of homeland security, government will cost more to run.

With increased costs, we're decreasing revenue. The debt the GOP is creating with this tax cut will eventually need to be handled.

-also-

Warren Buffet's comments on the tax cut -
http://www.washingtonpost.com/wp-dyn/articles/A13113-2003May19.html

-also-

Before you blame our debt increase on liberals, consider the following -

http://story.news.yahoo.com/news?tmpl=st...usatoday/20030519/pl_usatoday/5168660

Not by much, but the Dems are recently looking more like the fiscally conservative party.

When Clinton left office we were at a surplus

Correction. When Clinton left office we had a "projected" surplus. There's a big difference. He also left us with a recession. When the stock market bubble burst, and when the corporate corruption and accounting scandals that proliferated during the Clinton years with examples like Enron and MCI/Worldcom finally caught up with them, the "surplus" never materialized.

States are so massively short on cash (as federal monies are drying up) that its looking like state increases in taxes (such as in NY and CA) are looking to overtake the federal decreases.

It's unfortunate, but you're very right. State economies have been mismanaged as well.

With increased costs, we're decreasing revenue. The debt the GOP is creating with this tax cut will eventually need to be handled.

As I understand it there's real economics which says that revenue should go up when we reduce taxes. The Laffer curve and all that. Exactly that happened in the eighties with Reagan when he lowered taxes, so far as I know.

Not by much, but the Dems are recently looking more like the fiscally conservative party.

I can't really take that comment seriously when one of the most promising candidates for the Democratic nomination for Presidential candidacy, who also just happens to be the (recently) former house minority leader, and who is strongly endorsed by the current one, supports one of the most fiscally irresponsible proposals I can think of, government provided "universal health care".

we've spend 200 BILLION on Iraq - with no end in sight

I have to ask you to provide proof of this, because that's far off from the numbers I've heard. I heard that we spent $20 billion on Iraq, and expect to spend only $10 billion more by September to total $30 billion. Far below the $100 billion predicted by Democrats like Pelosi.

The only reason the US got away with the suicidal fiscal policies of the Reagan administration is the fact that the US was able to borrow against the dollars held as reserve currency. A significantly weakened dollar (note the dollars current price vs. the euro) and exacerbated current accounts deficit for the US will drastically weaken the country.

"The US government's finances are set to head sharply into deficit and stay there 'for the foreseeable future,' the White House budget director said yesterday. Mitchell Daniels, director of the Office of Management and Budget (OMB), said he expected federal deficits equivalent to 2-3 per cent of gross domestic product for this fiscal year and next, and could not say when the budget would return to surplus." ("US Finances Set to Head 'Sharply into Deficit'' - Alan Beattie; Financial Times; January 16, 2003; p. 2.)

You said, "As I understand it there's real economics which says that revenue should go up when we reduce taxes."

Then I must be misunderstand something. What other ways does the government have of procuring capital other than taxation and borrowing? Wars and homeland securty need to be paid for.

What can't you take seriously the documented fact that Democratically led states spent less than Republican states over the last 5 years? You agree that states economies have been horribly mis-managed. Who's done more of the mismanaging? It just a question of the lesser of 2 evils...

Regarding the Iraq war cost - the first installment is $70 billion (sorry - I was operating off an earlier number). Given that we're now in Iraq indefinitely, I would expect that number to grow.

http://news.bbc.co.uk/2/hi/business/2943337.stm

Re: the cost of the Iraq war: The number you cite, $70 billion (I thought it was like $72, but whatever), was the total that Bush asked congress for. Some of that was earmarked for other things, but the bulk of it was allocated to cover war costs and homeland security. However, last I heard, the war only actually wound up costing $20 billion.

You said, "As I understand it there's real economics which says that revenue should go up when we reduce taxes."

Then I must be misunderstand something. What other ways does the government have of procuring capital other than taxation and borrowing? Wars and homeland securty need to be paid for.

I'm not sure I understand what you're saying. Of course the government needs to have taxes. The point is that often when you lower taxes, you'll actually wind up increasing revenue to the government. Obviously, if you lower taxes to zero revenue goes to zero, and if you raise taxes to 100% revenue goes to zero too because no one would work. The Laffer Curve explicates the theory that if taxes are past a certain point, lowering taxes will actually raise revenue. The theory makes sense to me on the surface of it, though IANAE (I am not an economist).

What can't you take seriously the documented fact that Democratically led states spent less than Republican states over the last 5 years? ... Who's done more of the mismanaging?

I dunno, I'd have to look at the states in detail. I know that California and New Jersey are in pretty bad shape, at least. Well, California is in very bad shape from what I understand. New York's not in great shape either, but I don't want to use that as an example because I want to give them the benefit of the doubt, since a lot of NY's problems could be because of September 11th. But if you could provide some of that documentation that'd be neat, I'd be interested to see.

However, what I do know is that I don't see Republicans doing things like wanting to increase the amount the government pays people not to work (Democrats are fighting to have unemployment increased by half a year), and I don't see Republicans fighting for the disaster that would be socialized health care. And most of the financial policies that the Republican party puts forward that I don't like are just watered down Democratic proposals (case in point, Republicans want to "compromise" and only want to extend unemployment for 13 weeks), or are primarily there to appease liberals (like the AIDS thing I mentioned).

BTW, I haven't gotten to read any of the articles you've linked to. I just got home after being away for the past week. I'll try to look at them tomorrow.

Take a look at Buffet's specifically, along with the Concord Coalistion's testimony at the House Financial Services Committee.

http://www.concordcoalition.org/federal_budget/030430petersontestimonyfull.htm

Quoted - "Economically, the problem with deficits is that they soak up national savings and crowd out productive investment. They do so by raising interest rates, probably by 25 to 50 basis points for each one percent increase in the long-term federal deficit as a share of GDP. The former figure appears in a just-released study by the Federal Reserve Board; the latter figure was cited in a recent report by the Center for Economic Development.
...
This brings us to history’s bottom line, as insisted on by one economic luminary after another, from Adam Smith to Karl Marx to Alfred Marshall to John Maynard Keynes: No country can enjoy sustained living standard growth without investing, and no country can sustain high investment for long without saving."

Thursday, May 22, 2003

Tax cuts

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