I've been away from this space for nearly a month now. Partly this was for the reasons I discussed in my previous post, and partly it was because it's been crunch time at work. We're in the process of releasing the software I've been working on since I started there, and time pressure has had all of us burning the candle at both ends to get our baby feature-complete and reasonably bug free.
I'm laid up sick with a nasty cold today, and when I read this amusing note from the excellent (Nobel Prize winner) Paul Krugman, I thought I'd share the chuckle with you all.
Back in 2001, the Bush Administration orchestrated a set of tax cuts. Because these cuts weren't matched by spending reductions, they would have (and have in fact) exploded the deficit, which would have allowed them to be blocked under the Byrd Rule. Since the Byrd Rule only applies to bills that significantly raise the deficit ten years out though, and since our president was a very clever man, the administration simply wrote the tax cuts to expire at the end of 2010. Poof, ten years out the deficit is completely untouched!
The very best of these cuts, in terms of its unintentional comedy, was the repeal of the estate tax. In 2001, half of the money you inherited above $675,000 was taxed. This was increased by steps: a million dollars in 2002, a million and a half in 2004, two million in 2006, 3.5 million in 2009 and unlimited in 2010. Thus was struck a powerful blow in defense of the right of rich people's grandchildren to never have to work a day in their lives. At least as long as Grandpa kicks it in 2010, because the law will repeal itself at the end of the year and the estate tax cap will return to a mere half a million dollars.
What a bizarrely perverse economic incentive Congress and the Bush Administration, in their wisdom, chose to bequeath us. If your obscenely wealthy mom dies on December 31, 2010, you get everything, but if she survives past midnight, you can kiss half the estate goodbye. If I were Warren Buffet or Bill Gates, I'd be celebrating Christmas next year in an undisclosed location.
Thursday, December 17, 2009
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Was there an actual reason for these tax cuts? Except making rich people happy? Maybe my economic knowledge does not suffice to reveal this mystery?
ReplyDeleteAmerican conservatives generally are in favor of low taxes based on a number of principles. One is that they wish for the federal government to be smaller. Another is that they feel a person should have the right to determine how to spend the wealth that he or she has accumulated through his or her labor.
ReplyDeleteThere's also a viewpoint that argues that lower taxes are good for the economy. Taken to the extreme, this is called supply-side economics (or, by its opponents, Reaganomics), which argues that lowering taxes will actually stimulate the economy so much that it will increase tax revenues.
I have ideological problems with the first viewpoint, and mathematical problems with the second one, which I'd be more than willing to hash out in person or in a later post. To some extent they're both reasonable positions that can be held by thoughtful people. The detail that stands out in the Bush tax cuts is that they did a lot more for the rich than for the poor. Eliminating the estate tax is a huge subsidy to the wealthy, and the cuts to the middle class were made temporary in order to make the cuts' price tag smaller.
There's definitely a longer conversation to have about tax cuts in general. There were good economics arguments for lowering taxes drastically during the Reagan administration, and there are good arguments for the government subsidizing the US economy now, though I don't think straight-up tax breaks are a very efficient way to invest that subsidy. So tax breaks themselves aren't necessarily only for 'making rich people happy.' Bush's tax breaks, on the other hand, seem not to have accomplished much else.
Coming from a contry which some of the American conservatives would be calling socialistic due to numerous reasons, most in public wellfare and health care, I must say that to my opinion, this was a gift by GWB to his friends in high places, and have worked in this way as well. So I copy your ideological issues I think..:-) But things are not so simple I agree, and there are not in Germany as well for sure. But if we can solve this to the better of all, we should be in politics.... but would not be let in....
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