Democrat vs Republican Tax Cuts

Very interesting. I enjoyed reading this. I would be most happy if you read some of my writings.

Flat tax of 10%, then the poor man / woman who makes only $20,000 will only pay $2,000 and the rich man making $2,000,000 will pay 200,000. Wouldn't that make the rich man pay enough? Wouldn't the poor man be glad he didn't have to pay that much? Maybe the rich should pay $200 for a loaf of bread instead of $2 like the rest of us???? Idiots are always wanting someone else to pay their way.

First, it must be stated that supply-side economics was only floated to make the position of the proponents of starve the beast philosophy palatable to the American people. Starve the beast is a program to reduce the scale and scope of the federal government by reducing revenues via tax cuts, which causes massive deficits. The increasing debt would eventually reach a crisis level forcing a reduction in the size of the federal government. Proponents believe that only a crisis will accomplish their goal of shrinking government. Supply-siders claimed that government revenue would increase do to the tax cuts and would eliminate the deficit. In other words, the supply-siders argued that because the tax cuts would be revenue neutral there is no need to cut spending.

Laffer didn't discover anything new when he developed the Laffer curve. In the 1680s, the English crown cut the rates on tariffs and duties and found that revenues increased. However, there is no evidence that trade increased. The evidence points to less smuggling. So, the tax cuts reduced the incentive to evade the taxes. Another instance of this is the real trigger of the Boston Tea Party. The British had a three cent tax on tea and banned the import of tea from the Dutch colonies. However, Dutch tea could be purchased, smuggled and sold at one cent below the cost of the taxed British tea. The British cut the tax from 3 cents to one cent, which made it cheaper than smuggled Dutch tea. This triggered the dumping of the British tea into Boston Harbor. So, lower tax rates reduce the reward to evade taxation relative to the risk and thus revenue increased.

The idea that people work less if they are paying higher marginal tax rates violates a primary assumption in economics. It is a necessary assumption in economics that more is preferred to less. The argument that I will choose not to make another million because I cannot keep the lions share of it violates this assumption. The only valid reason that I would not work is if my compensation doesn't exceed what I value my leisure time at. In fact lower marginal tax rates are just as likely to reduce effort because the tax is lowered on the high income that I already receive, meaning that I can expend less effort and live just as comfortably. Of course, the reality is that the wealthy expend the same effort and the pocket the increase.

Keynes "said it" 80 years ago?? Where? I can't find any passage in The General Theory where Keynes said "that tax cuts lead to deficits." Are taxes at 60 year lows? Merely looking at official, posted tax rates is little help, since one must first take into account the bewildering variety of deductions. Are payroll taxes really at any kind of low, 60 year or otherwise?

The overall job rate is determined by many things, including luck. The effect of low tax rates is "at the margin,' as economists use that phrase. Low tax rates operate, as most social forces do, only ceteris paribus. There is no way to say "supply side has failed", never mind "clearly."

It's quite a shame to see us make the same mistakes year after year. One thing that never changes is that tax cuts lead to deficits. It was true when Keynes said it 80 years ago, but where are the jobs? Taxes are at 60 year lows shouldn't we be swimming in jobs. Clearly supply side has failed. Demand is the king of job creation. How much more historical evidence do we need? Our anemic recovery is caused by lack of demand, until we create more pay checks through government spending (because the rich aren't creating jobs with their extra $) we will continue with a weak recovery.

President Obama has announced he is caving into the Republicans on the issue of tax cuts for the rich, even though it will increase the deficit by $700 billion every year into the future and speed the day when America goes bankrupt, which some might argue is a Good Thing™.

Tax cuts are like borrowing money to buy a big pie for a picnic. Then you cut it up in varying size pieces and hand them out to the guests. Both Democrats and Republicans agree that the richer/fatter you are, the bigger slice of pie you need/deserve. The difference is the Republicans think the super rich need really really big pieces, where the Democrat think they deserve only really big pieces. It may not be immediately obvious, but this is a wealth transfer scheme from the poor to the rich, supposedly an anathema to Republicans. However, Republicans only oppose government-aided wealth transfer from rich to poor, not the reverse.

See the comparison chart of two plans at http://politicaltruths.info/

oops. I am saddened when I hear such Darwinian responses to wealth. Its mine, I worked(even though often at the expense of lower workers), I want more...gggrrrr..stay away frm MINE. I understand and can agree with the basic tenets of Capitalism, but every thing can go to far. Power corrupts, absolute power corrupts absolutely....the need for money corrupts, the LUST for money corrupts absolutely! My faith says bare one anothers burden which one blogger said they agree with...the but the implication is "ass long as it do0esnt cause me discomfort! Im all for a socialism in which all were equal and all worked their beswt for the benefit of the community as opposed to ones own sef interst. But alas, as many have shown here..unless "I" can get more for being smarter or stronger then why work for the greater good? Darwinian at its finest (this is also why this is NOT a Christian nation and never will be--read the NT, Acts 4$5--CLEARLY socialist/communist). beyond this hopr for our better natures, one thing "supply-siders" and their like is failing to address is looking LONG TERM(50-300 YEAR). Disparities of not only income, but "assets" is increasing exponentially. Not even the robber barren era compares. What histiry has shown is when the fewer have more and more, they tend to become apathetic to those with less. what happens when we put the idol of capitalism on an unrestrained course(Bill Gates and Warren Buffet GET this and have said so) of greed is good at all costs. I'll answer with a feww examples historically of wealth inequality. venezuala (Chavez elected on prommise the MAJORITY poor will share in the wealth TOO)--Contra-Sandinista conflict of the 80's (oligarch of very few families controling 90% of resources)--Cabans revelution opposed to batistas "upper class"--Bolshevics overturning the apathic and oligarcical Czars(gave us "godless" communism---french revolution (citizens overthrow of the greedy nobels....I could go on quite a ways. 50 years is my guess before we fall apart under unrestrainedand INEQUITABLE capitalism. I could be wrong...but history is a pretty stable indicator. So you guys get what you can and offer your crumbs to the poorest to alieve your ocnscience. If you only believe in this life you are probably right to resort to Darwism...Id hate to hear your defense if there is a creator. Viva la Capitalism...

I find this quite interesting

Here's a link to an article from a "saltwater economist" which should be mandatory reading for "freshwater" economists like Chuck as well as the students in his economics classes and the others in universities across the land, especially University of Chicago!

http://www.nytimes.com/2009/09/06/magazine/06Econo...

If all the Supply side economics of the bush era was supposed to generate JOBS. Where are they? I worked at a private company for the last 13 years and saw the owners getting all the supply side breaks. And the theory says they will be inspired to spend and invest more right? They did !!! Only problem is they spent more investing and building their business over in India while laying off people like me here in the states! That my friends does not help anyone. The inherent problem with the supply theory is that people are by nature GREEDY. And Greed needs to be controlled by the big R word that all the supply siders hate to hear... REGULATIONS....Btw, I am well educated, motivated to work, BUT NO JOBS !!!

this is a great hub!

but i fear that all this healthy debating is no use...the US is a country that has been evolving into a more socialist society, and i don't think the trend is going to slow down anytime soon. Its hard to find a true republican in washington today. they have compromised themselves because its hard to get their views across in a country that is becoming more liberal.

http://www.washingtonpost.com/wp-dyn/articles/A842...

an article to show you the ratio of conservative professors to liberal professors. many college students are accepting a more liberal state of mind and its not a suprirse. students are taught with a biased point of view by institutions that are supposed to promote diversity (not just race, gender, and religion)

liberals are quick to point out the rise in inequality and rise in poverty, but never discuss what might be the REAL cause.

a free market economy at its purist state is enough to sustain an economy and more. different choices and preferences among people are what cause inequality to burgeon...capitalism is far from blame. the amount of work you do, if you decide to go to college, what major you choose, having unprotected sex leading to teenage mothers, how much to study, and etc. the list goes on. one can't blame the govt. for inequality.

its no secret that higher educated people make more money. that's where inequality saw a sharp increase. technology boom caused a demand for higher skilled/higher educated workers, which in turn drove their wages up. at the same time, these technological advances replaced many jobs that were done manually. not saying that the unskilled workers are doomed forever....they have the opportunity to go to school and "make of oneself what one can". even Obama emphasizes the fact that higher education "is no longer just a pathway to opportunity. its a prerequisite."

Of course one can argue that immigration and global outsourcing has decreased domestic jobs and wages and although true, they are nominal. forever evolving technology that demands high skilled/high educated workers and provide high premiums is the main cause of inequality. its no coincidence that a higher percentage of lower/middle class students are continuing on to college. they understand the market. (personal choices!)

In survey done in 2005, nonworking poor adults were asked the reason they weren't working. only 6.2% said they couldn't find work! again we see here that personal choice is a major factor.

inequality did increase but that doesn't mean the lower quintile suffered. compared to 1970, the lower quintile's average real income (adjusted for inflation) is 11% higher. meaning everyone's standard of living got better. its just that the rich got richer, and the poor got richer but at a slower rate.

so why all this talk about redistributing wealth? to fight poverty?

from 1950 to 1970 poverty rates declined from an estimated 30% to 12.6%. this was solely due to economic growth and not because of welfare. in 1960, both european economies and the US had similar percentages of their GDP devoted to welfare (27%). In 1980, the US increased their welfare program to roughly 31% of their GDP, but European economies doubled their welfare program (i.e. belgium 60.1%, Sweden 57.8% of their respective GDPs).

Yet these countries are still considered wealthy countries, so egalitarians have been pushing for a more socialists govt in the US. Yes these countries are still well off, but when compared to the US, they don't fare too well. In 1980, per capita income in France was 84.9% of that in the US; by 2004 it dropped to 74.3%. Italy went from 78.7% to 69.4%, Germany from 87.9% to 71.9%, and Sweden from 84.5% to 76.4%.

When asked how satisfied they are with their lives, 58% of Americans said they were satisfied. Only 18% of the French, 21% of the Germans and 16% of the Italians said they were satisfied.

Redistributing wealth causes the size of the economic pie to shrink. Even though a country is able to maintain its wealth, everyone suffers. The low income sector of the US is far better off than the low income sector of the european countries. I guess you can say that in the US, the poor do get a smaller piece but from a BIGGER PIE.

I'm not an economists and not overly knowledgeable in the subject, but I know that redistribution of wealth is not healthy for an economy. I got these stats from a book called "Stealing from Each Other" by Edgar K. Browning.

The basic premise of Communism is that all should work to their ability and be paid to their need, contributing their work to the good of the whole. This creates a system of need: everybody needs, but no one wants to work. Why do people work? So they can experience all the joys of success, including buying stuff, traveling, eating delicious food, and sharing the wealth with those less fortunate, if they choose.

If it comes to taking away 90% of my pay after $70,000, why should I work to make any more than $69,999? Why would I want to be promoted? For my own personal gratification? Because I'm generous and care for my fellow man? I could quit, get paid by the government, and do whatever I want: buy stuff, travel, eat delicious food. I just have to convince the government that I need it. Which shouldn't be too hard if I don't have a job.

Without eternally selfless and generous people, the system doesn't work. If you want what your neighbor has, you shouldn't have to just prove that you need it. You should work for it. You shouldn't look at the guy down the street who can afford a BMW instead of a Toyota and seek to limit his ability to drive a nice car, just because you can't. Demonizing the wealthy is ridiculous. They got that way for a reason. Learn from them! Work for them! Preventing them from doing what they do well... no one wins. Taking away their ability to grow capital, intelligently invest their money in new ventures, and grow successful businesses is counterproductive. Giving that money instead to a government that has proved itself inefficient is counterproductive. CREATING MONEY by borrowing from our future selves doesn't solve the problem. It's not even the amount of money. It's what is done with it. Squabbling over percentages and dollars isn't going to make anyone happy. The real issue is what the government does with the money, and why they need more. Warren Buffet knows what he would do with that kind of money. He'd pump it into the most promising businesses, run by the most brilliant businessmen, and make a heck of a return on it, that the government will then tax to finance all the stuff that it does. That's the point of the Supply Side economics. If people are working, producing, and investing successfully, then the tax revenues will grow regardless of the percentages or dollars. The problem is that everyone sees it in relative terms. We have what we have, and any change from that seems so monumental.

Read Altas Shrugged. One day, the rich will stop being so selfless. They'll get tired of being called evil and getting all of their hard-won success denied them and having other people arguing about what to do with their money, as if it belonged to them and they had a right to it. That is what our country was built on. Property rights. If it's mine, it's mine, and no one--not even the government--has the right to take it.

Side Note: I want to be totally and completely clear that I fully support the intent of most government programs. I believe that no one should go without shelter, food, or clothing. I believe that everyone deserves to be cared for medically and in old age. I just disagree that the government has the capacity to do so successfully and in the best way for all. And taking all of my theoretical money that I don't make just makes me resent it--I give both time and money, and I believe everyone should to the best of their ability. Letting the government do it for me just removes me from the situation and absolves me of any responsibility (someone else will take care of it--not my problem).

problem is that once government gets a tax in place they will rarely undo or reduce unless its gop in control.

Democrats since the 60's have always been for tax increases or unrestrained spending (up till bush's time).

CTC, that whole rant you just said made absolutely zero sense. You talk about not refuting other peoples arguments, but you fail to address any of the crucial arguments that were just made. Fortunatly, it looks like America wont have to endure any more of the same policies that Bush, Mccain, and obviously you endorse. Please in the future just keep your comments to yourself.

Mr. Deeds:

I loved your response regarding kameron's brilliant example of liberal economics, which you so lovingly espouse. You could not logically refute this "Vivid example of truth and certitude" about the system you embrace, so you attacked the source and gave absolutely "0" reasonable response. Your response is the classical liberal response, when they are confronted with truth and that is "Denial". Sadly, the same kind of denial has infected our political system and is currently and continuously deny facts and destort history, they ultimately contribute to the ongoing demise of a society, who has given them the liberty to dissagree. When people fail to take responsibility for their behaviour, actions and unsubstantiated theories of life, they have and will always consider the truth as a threat to their existence and will result to every form of denial, accusation and refutation of facts. After all, it's allot harder on the ego to acknowledge truth and change than to accept falsehood and live in denial. CTC

Sorry...Forgot to do a spell check (Should be serving at the end)

Mr Deeds:

Your inundation of of subjective or carefully chosen data affirms Chuck's Keynesian economic theory, The irony is that this theory is primarily embraced by liberal government representatives, welfare recipients, undocumented illegal aliens, union workers, media and very much supported by educators (Professors, teachers and others paid on the basis of tenure rather than a system to evaluate the quality of their teaching). Redistribution of wealth, a concept that you and Mr. Biden may call charity and humanitarian virtue, destroys the very incentive that makes America different than any country on earth. The views espoused by you and our liberal representatives is the very reason why small business owners (The backbone of America) have been going out of business and will do so at an accelerated rate now and in the ongoing future. It is the reason why brilliant doctors, scientists, inventors and entreprenauers have immigrated to this country with the enthusiasm, understanding and vision that they will no longer receive the same salaries as those who have been less motivated to fill the cup of opportunity that God has generously bestowed upon them. If you claim that you will tax only those, who make 250k or more per year, you are guilty through either omission or ignorance on the inevitable outcome of this proposition. A proposition which will inevitably lead to employee lay offs and terminations, reduction of wages, removal of the very premise of free market "Supply and demand", because business will not be able to supply and the majority of citizens will have to dramatically change what they consider demand, even to the point of providing an basic living for their family. It's tragic that people who work in institutions most their lives often fail to understand the reality of the kind of liberty that are ancestors fought for in this country. I call it intellectual apathy....Mr Deeds I would suggest you read some of the literature from Alexander Soltynetsin (Nobel prize winner) or other brillian individuals who escaped communist societies. When you conviently destroy the incentive for the creativity and hard work through wealth distribution, you foster the continuing evolution towards socialism and even communism? Right wing extremist?? Don't ask me ..Just talk to any LEGAL IMMIGRANT, who has escaped the opression of communist dictatorship and why they are echoing the words of a great president of the past.."There you (Us Government) go again! When we fail to understand the words of George Santana: "Those who fail to remember the past are condemned to relive it" , we inevitably and naively move in the direction of the oppressive Governments of past countries. Countries, whose citizens have desperately fled to the USA to make phenomenal contributions as unique and celebrated Americans.....Yes, real successful americans, who understand suffering and can appreciate liberty and and beauty of the Economic theory of Jean Baptiste; an economic theory commensurate with the vision of the great men who wrote the constitution and the declaration of independance, which have established the criteria for freedom and growth in this country. Who am I to state these views? Upper middle class, rich, Republican, libertarian, democrat??

No, I am a simply an unemployed college graduate, who has spent several years severing his country through the military and living in a post communist country for 7 years...CTC

Republican tax cuts--Most U.S. Corporations pay no federal income taxes:

http://dealbook.blogs.nytimes.com/2008/08/13/study...

Some words of wisdom on taxes from Republican economist/entertainer Ben Stein:

A Familiar Tax Tune But its Not Mine

A few days ago I saw Senator John McCain on television saying something I had heard a few times before. Basically, he said that if you want to have your taxes raised, don't vote for him.

Let me start by saying that I am a huge fan of Senator McCain...and I do not want my taxes raised...I would like to pay no tax at all...

But the unhappy fact is that it's necessary to raise my taxes and the taxes of all upper-income Americans...

The sad truth of the last two two-term Republican presidents is that their economic premise, the key part of their economic game plan, simply has not done what it's supposed to do.

That is, cutting taxes, especially on upper-income Americans, does not generate so much economic activity that it replaces all the lost I.. S. take and then some. At least those have been the results so far. When Reagan lowered taxes, personal income tax

revenue stagnated from 1982 to 1984. Now, you may say that revenue rose sharply after than. So maybe that was a mixed result.

But when President Bush drastically cut taxes after he was first elected, the IRS take from individual income taxes fell and did not recover its 2001 level until 2006. A conservative purist might rejoin here that it would be fine if income tax receipts fell, because we would then have a smaller government and a freer society.

That would be nice, but far from true Instead, government just keeps growing. Government spending grew dramatically under President Reagan, very nearly doubling, and leaving us with a federal deficit vastly bigger than the one he inherited. I know that a large chunk of that increase was to rebuild the military. I heartily approved of it.

But if you want to have a military buildup--and we need one now, desperately--that's usually a reason to raise taxes, not cut them.

Under the current president, we have had the same story. As income tax receipts fell, military and other spending rose rapidly. Again, this spending was justified as far as I'm concerned. But we have been left with immense deficits and a doubled national debt as President Bush enters his final months in office.

Mr. McCain wants to extend many of President Bush's income tax cuts and to reduce taxes on corporations. But the facts of life are that we have a large budget deficit, even though some other nations have even larger deficits as percentages of gross domestic product. We have to pay interest on it. As a people and as a nation, we owe this money in large part to foreigners...The facts of life are that federal spending is almost all untouchable: the military, Social Security, Medicare,interest on the debt, pensions. The discretionary part is tiny.

Every category of federal spending is likely to grow. This means that if we don't raise taxes, if we keep doing what we're doing, the immense deficits and debt will not go away--and will probably grow.

The question is simply this: do we want to step up to the plate like responsible people--I hate to say this, but the last responsible people who actually did this were named Bill and Bob (Clinton and Rubin)--and shoulder our responsibilities? Or do we just kick the can down the road and leave the mess for our children and their children...Do we pay it or make our children pay it? Dwight Eisenhower--and Bill Clinton--knew the answer: You behave responsibly and balance the budget except in rare circumstances.

Somehow, Republicans (and I am a Republican) have forgotten this basic lesson of adulthood. Maybe Senator McCain is grown up enough to remind us of the real urgency of personal and national responsibility. Or maybe not. ????

The New York Times 8-10-08

Great Hub you have here :) please read my new hub about getting free online car quotes...

Nobody said the profits or their repatriation were illegal. The issue is whether the tax break was in the public interest at a time of huge Bush deficits.

Here's a typical GOP tax cut:

A One-Time Tax Break Saved 843 U.S. Corporations $265 Billion .nytimes.com/2008/06/24/business/24tax.html By LYNNLEY BROWNING Published: June 24, 2008 More than 840 of the largest American corporations reaped a $265 billion windfall thanks to a one-time tax break aimed at bringing home profits stashed overseas, according to recent government data.

The windfall resulted from a temporary tax deduction for big corporations, which were keeping billions of dollars in profits in overseas subsidiaries and out of the hands of the Internal Revenue Service.

The total amount brought back to the United States was far above some estimates, according to the data, which provides new details on the tax break.

American companies can typically defer paying taxes on foreign profits as long as they keep that money outside the United States. When companies bring the money back, they usually pay the top corporate tax rate of 35 percent.

In recent years, the biggest and wealthiest companies in the United States have increasingly set up foreign subsidiaries and used them either as foreign operations or offshore repositories.

The subsidiaries, many in offshore tax havens like the Netherlands, Ireland and the Cayman Islands, collectively held about $804 billion in foreign profits on which their American corporate parents had yet to pay any United States taxes, according to the I.R.S.

A one-time tax holiday enacted by Congress in 2004 offered companies the chance to bring that money back at a reduced tax rate of 5.25 percent.

Some of the biggest names in corporate America decided to take advantage, in particular those in the pharmaceutical and technology industries. Pfizer brought back $37 billion, while Hewlett-Packard repatriated $14.5 billion.

In all, 843 corporations took advantage of the offer, according to recent I.R.S. statistics of income data, bringing back $362 billion in foreign profits, paid to the parent corporations as dividends. Of that amount, $312 billion qualified for the tax break, giving those companies total tax deductions of $265 billion claimed from 2004 through 2006.

Put another way, the tax break gave each company claiming it an average $370 million in tax deductions.

Supporters of the tax break say it was a success because it brought about $18 billion into Treasury coffers that otherwise would have stayed overseas. The nonpartisan Joint Committee on Taxation, a Congressional agency, had estimated that the tax break would bring in only $2.8 billion, a sixth the actual amount.

“The provision was generally successful in prompting the repatriation of vast sums of foreign profits,” wrote Joseph Calianno, a tax partner at Grant Thornton, in a recent analysis of the data.

But the tax break would not produce income for the I.R.S. in later years in part because of associated foreign tax credit provisions set to kick in later, and in part because of the need to replenish capital in foreign subsidiaries.

Edward D. Kleinbard, chief of staff of the committee and a tax authority, said that the government had privately estimated that companies would bring back only $200 billion, or a third less than the $312 billion that qualified.

Private-sector estimates from Wall Street investment banks, including Bank of America and JPMorgan Chase, were closer to the mark.

The tax break was included in a larger piece of legislation called the American Jobs Creation Act of 2004, with the intention that the repatriated money would prompt investment in the United States economy and spur job growth. Companies had to promise to use the money to invest in their domestic operations. They could not use it to pay dividends, or compensate executives.

But the provision had wide definitions of the term investment and allowed corporations to use repatriated profits to shore up their domestic finances, pay legal bills and even bankroll advertising.

Critics of the legislation say there is little convincing evidence that companies put the money into creating jobs or investing in United States operations and deride the tax break as corporate welfare.

“It basically worked out to be one big giveaway,” said Robert Willens, a tax and accounting authority in New York. “The law never took into account the fact that money is fungible.”

Mr. Willens said while companies did make investments in their domestic operations, the repatriated money also freed up a corresponding amount of cash to pay out to shareholders or buy back stock — moves that do not generate job growth or investments. “We know that a lot of stock was retired during this time,” he said.

A 2007 academic study by Roy Clemons, then a graduate student at Texas A&M University, that was based on earlier data, found that the tax break did not stimulate investment in the United States economy and that repatriated money was often used for disallowed purposes, like stock repurchases.

According to I.R.S. data and Grant Thornton, pharmaceutical manufacturers alone accounted for more than 30 percent of the repatriated total, with 29 corporations each claiming an average tax deduction of almost $3 billion on foreign profits brought home.

Some 9,700 United States corporations had foreign subsidiaries in 2004, the latest year for which data is available. While only 843 corporations took advantage of the tax break, those companies are the biggest and wealthiest in America, Mr. Willens said.

Martin A. Sullivan, an economist and former member of the Joint Committee on Taxation, said, “just use common sense.”

“If I’m going to give you $100 to buy lunch,” he said “but you spend $500 a year anyway on lunch, you then bring receipts showing you bought $100 in lunch — it’s a ridiculous fig leaf.”

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Here's the real truth about tax cuts:

Fiscal Poison Pill

By PAUL KRUGMAN Published: June 16, 2008 A poison pill, in corporate jargon, is a financial arrangement designed to protect current management by crippling the company if someone else takes over.

As I read the nonpartisan Tax Policy Center’s analysis of the presidential candidates’ tax proposals, I realized that the tax cuts enacted by the Bush administration are, in effect, a fiscal poison pill aimed at future administrations.

True, the tax cuts won’t prevent a change in management — the Constitution sees to that. But they will make it hard for the next president to change the country’s direction.

Exhibit A of the poison pill in action is the sad case of John McCain, part of whose lingering image as a maverick rests on his early opposition to the Bush tax cuts, which he declared excessive and too tilted toward the rich.

Since then the budget surpluses of the Clinton years have given way to persistent deficits, and income inequality has risen to new heights, vindicating his opposition.

But instead of pointing this out, Mr. McCain now promises to make those tax cuts permanent — and proposes further cuts that are, if anything, tilted even more toward the wealthy. And how is the loss of revenue to be made up? Mr. McCain hasn’t offered a realistic answer.

You can explain though not excuse Mr. McCain’s behavior by his need to shore up relations with the Republican base, which suspects him of being a closet moderate. But he’s not the only one seemingly trapped by the Bush fiscal legacy.

Barack Obama’s tax plan is more responsible than Mr. McCain’s: relative to current policy, the Tax Policy Center estimates, the Obama plan would raise revenue by $700 billion over the next decade, compared with a $600 billion loss for Mr. McCain.

The Obama plan is also far more progressive, sharply reducing after-tax incomes for the richest 1 percent of Americans while raising incomes for the bottom 80 percent.

But while $700 billion may sound like a lot of money, it’s probably not enough to pay for universal health care, which was supposed to be the overriding progressive priority in this election.

Why doesn’t Mr. Obama propose raising more money? Blame the Bush poison pill.

First of all, Mr. Obama — like, to be fair, his main rivals for the Democratic nomination — isn’t willing to challenge the Bush tax cuts as a whole. He only proposes rolling back tax cuts for those making more than $250,000 a year.

Second, Mr. Obama proposes giving back a substantial part of the revenue raised by this partial tax-cut rollback in the form of new tax cuts.

These tax cuts would mainly benefit lower- and-middle-income families, although this can’t be said of Mr. Obama’s plan to eliminate income taxes on seniors with incomes under $50,000: since most seniors already pay no income taxes, this would do nothing for those most in need. And one wonders why we should create the precedent of exempting particular demographic groups from taxes.

But the big question is, are these tax cuts, however appealing, a top priority? The most expensive proposal, under the title Making Work Pay, would give most workers $500 in tax credits, at a 10-year cost of more than $700 billion. Isn’t it more important that workers be assured of health care?

The problem, I believe, is that even Democrats have bought into the underlying premise of the Bush years — that the best thing you can do for American families, or at least the only thing that can win their votes, is to give them a tax break.

One more thing: on Friday Mr. Obama declared that he would “extend the promise” of Social Security by imposing a payroll-tax surcharge on people making more than $250,000 a year. The Tax Policy Center estimates that this would raise an additional $629 billion over the next decade.

But if the revenue from this tax hike really would be reserved for the Social Security trust fund, it wouldn’t be available for current initiatives. Again, one wonders about priorities. Whatever would-be privatizers may say, Social Security isn’t in crisis: the Congressional Budget Office says that the trust fund is good until 2046, and a number of analysts think that even this estimate is overly pessimistic. So is adding to the trust fund the best use a progressive can find for scarce additional revenue?

Anyway, back to my main theme: looking at the tax proposals of the two presidential candidates, it’s remarkable and disheartening to see how effective President Bush’s fiscal poison pill has been in restricting the terms of debate.

Progressives, in particular, have to hope that Mr. Obama will be more willing to challenge the Bush legacy in office than he has been in the campaign.

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Great discussion. It is hard to look a gift horse in the mouth as they say, but long term it can create more problems. You just hope that it does more good today than harm tomorrow.

Interesting subject. Great hub.

Very interesting information. Great hub!

Let's look at this very simply. We as the people have to make hard decisions regarding our budget. When our family demands more goods than we have income to provide, we must cut back or make more money. When the government wants more money to provide more "goods" it taxes those whom they decide will pay for it. This is the simple difference. Wake Up, this is not a complicated concept. Our politicians don't have the guts to make tough decisions about cutting expenses that they require us to make. Very simple!

Yes, there is a big difference between Republican and Democrat tax cuts AND economics!

INEQUALITIES by Larry Bartels, NYTimes Magazine4-27-08

E-MailPrint Save Share DiggFacebookMixxYahoo! BuzzPermalinkBy LARRY M. BARTELSPublished: April 27, 2008

The past three decades have seen a momentous shift: The rich became vastly richer while working-class wages stagnated. Economists say 80 percent of net income gains since 1980 went to people in the top 1 percent of the income distribution, boosting their share of total income to levels unseen since before the Great Depression.

Skip to next paragraph Enlarge This Image Photograph by Erick Hartman/www.magnumphotos.com

Despite the historic magnitude of this shift, inequality has thus far had little traction as a political issue. Many Americans seem to accept the conservative view that escalating inequality reflects “free market” forces immune to amelioration through public policy. As Treasury Secretary Henry Paulson put it, perhaps a bit defensively, the growing income gap “is simply an economic reality, and it is neither fair nor useful to blame any political party.” Paulson’s assertion, however, is strongly contradicted by the historical record. While technology, demographic trends and globalization are clearly important, purely economic accounts ignore what may be the most important influence on changing U.S. income distribution — the contrasting policy choices of Republican and Democratic presidents.

The Census Bureau has tracked the economic fortunes of affluent, middle-class and poor American families for six decades. According to my analysis, these tabulations reveal a wide partisan disparity in income growth. The real incomes of middle-class families grew more than twice as fast under Democratic presidents as they did under Republican presidents. Even more remarkable, the real incomes of working-poor families (at the 20th percentile of the income distribution) grew six times as fast when Democrats held the White House. Only the incomes of affluent families were relatively impervious to partisan politics, growing robustly under Democrats and Republicans alike.

The cumulative effect of these partisan differences is enormous. If the pattern of income growth under postwar Republican presidents had matched the pattern under Democrats, incomes would be more equal now than they were in 1950 — a far cry from the contemporary reality of what some observers are calling a New Gilded Age.

It might be tempting to suppose that these partisan differences in income growth are a coincidence of timing, merely reflecting the fact that Republicans held the White House through most of the past three decades of slow, unequal growth. The partisan pattern, however, is remarkably consistent throughout the postwar period. Every Republican president since Dwight Eisenhower presided over increasing economic inequality, while only one Democrat — Jimmy Carter — did so. (I allow one year for each president’s economic policies to take effect, so the recession of 2001 is counted against Clinton, not Bush.)

If middle-class and poor people do so much better under Democratic presidents than under Republican presidents, why do so many of them vote for Republicans? One popular answer, advanced by Thomas Frank and others, is that they are alienated by Democratic liberalism on cultural issues like abortion, gay marriage and gender roles. This does not appear to be the case. In recent presidential elections, affluent voters, who tend to be liberal on cultural matters, are about twice as likely as middle-class and poor voters to make their decisions on the basis of their cultural concerns.

A better explanation for Republican electoral successes may be that while most voters, rich and poor alike, do vote with their economic interests in mind, they construe those interests in a curiously myopic way. Their choices at the polls are strongly influenced by election-year income growth but only weakly related to economic performance earlier in the president’s term. And while Republicans have presided over dismal income growth for middle-class and poor families in most years, they have, remarkably enough, produced robust growth in election years.

Why have Republican administrations typically presided over strong election-year growth? The pattern probably reflects the fact that presidents have more clout early in their terms than at election time. Republicans have often used that clout to rein in inflation and social spending, producing or prolonging economic contractions that then wear off by the time of the next election. New or newly re-elected Democrats, for their part, have frequently stimulated the economy and expanded employment, producing economic booms that raise all boats in their second and third years but trail off as the next election approaches. As a result, even working-poor families have experienced stronger income growth under Republicans (1.8 percent) than under Democrats (1 percent) in election years.

This year looks unusual in this respect, with slow growth likely despite the infusion of substantial tax rebates from an election-year stimulus plan. If that slow growth produces a Republican defeat in November, it will be a rare instance of economic accountability for a party with a long history of delivering meager income gains for most American families.

Larry M. Bartels, a professor of politics at Princeton, is the author of “Unequal Democracy: The Political Economy of the New Gilded Age.”

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A Republican's view of the state of our economy and the nation: In his recently published book, "Bad Money" Kevin Phillips diagnoses our ailing economy as follows:

1. The Current Debt Debacle--"The 1980s were the start of three profligate decades when the expansion of mortgage credit and the invention of financial instruments like collateralized debt obligaions led to an orgy of leveraging and speculation. The Federal Reserve kept the bubble afloat with easy money, while regulators and rating agencies looked the other way.

"By 2007 total indebtedness was three times the size of the GDP, a ratio that surpassed the record set in the Great Depression. From 2001 to 2007 alone, domestic financial debt grew to $14.5 trillion from $8.5 trillion and home mortgage debt ballooned to almost $10 trillion from $4.9 trillion, an increase of `102 percent.

2. Oil industry Upheaval--The second componenet of the perfect storm is the upheaval in the oil industry. Domestic production peaked in 1971, and there are signs that production worldwide is also peaking. And with the emergence of new economic powers like China and India, demand has risen dramatically.

3. America's "calcified" Political System--We may need new regulations to deal with the debt mess, along with an energy policy to address the changing world of oil, but Washington, Phillips says, has become dedicated to the "politics of evasion."....Instead of a "vital center" in Washington, we now have a "venal center."

The above comment was taken from a review of Kevin Phillips book by Barry Gewen in the NYTimes 4-21-07.

http://www.nytimes.com/2008/04/21/books/21gewen.ht...

There is sooo much reference to the wonderful Bill Clinton economy and the perceived surplus accumulated as the house of cards continued to build. Little discussion, if any, includes the enormous amount of venture capital in the markets during Clinton's presidency, most of which supported .com growth. All things considered it looked like a time of prosperity and market growth. However, as one would expect, when the cork was put back on the genie bottle the markets retraced to predictable levels blame was placed on everyone but Clinton. In reality, Bill Clinton and his staff should have been warning consumers about inflated markets, the pitfalls of leveraged investing, and the risk of following venture capital into the market. Clinton stayed remarkably silent and watched as many people lost their personal fortune. I am not faulting all his policies but c'mon the 90's were a time of artificial prosperity.

Nowadays everyone is more worried discussing the gender and race of presidential candidates, the sexual scandals of governors and delegates... This is a great hub! People should be engage in dscussion this issues.

http://www.salon.com/tech/htww/2008/03/28/supply_s... A conundrum for Chuck: If tax cuts increase government revenues and tax incerases reduce government revenues, in order to "starve the beast" why not raise taxes and thus reduce government revenues, thus "starving the beast?"

This is another great work of yours! I have seen your hub on how to become a commercial pilot and I have noticed you have a very long list of commetns from the readers. That means you are doing a great job! Congratulations! I want to share another lens to you that may help you too http://www.privatejetscenter.com/BusinessJetCharte... with so much informations on business jet charters from its cost to its features. I find it as great as yours. You can check it out!

Continued:

current worldwide system is often derided as making American firms uncompetitive relative to their foreign competition. So, there are easy ways to take political potshots at the current system from both sides.

Q: Do any of these taxes really influence how corporations work?

A: It's now quite clear that these rules significantly influence how investors diversify their portfolios; the organizational and ownership decisions firms make; firm investment[PDF] decisions; and myriad financing decisions, including capital structure and repatriation. Perhaps, the biggest single sign of how these rules matter is the little experiment that the United States ran in 2004. As part of the American Jobs Creation Act, firms were allowed a "one-time" reduced tax on any profits repatriated back to the United States. Predictions varied at the time, but I don't think anyone expected the approximately $350 billion that was repatriated to the United States to take advantage of that incentive. This really woke people up about the importance of these rules.

Q: So, what is the right way to tax global corporations on their overseas profits?

A: Fortunately, economic theory can help us think through what the right way to do this is.

Historically, the idea was that multinational firms were looking at after-tax rates of return around the world and choosing to invest their capital eitherat home or abroad up to the point that those returns were equalized. If you believe that, economic theory tells you that a tax system should effectively neutralize tax differences around the world so that firms would make the decisions based on pretax rates of return. More specifically, the United States should, under this view, operate a worldwide system without deferral and with unlimited foreign tax credits so that, effectively, Cummins would pay the U.S. statutory rate no matter where it invested and would make the decision on purely pretax rates of return. The goal of that regime is to leave the distribution of capital undistorted. Indeed, this path of thinking has been highly influential in shaping how U.S. taxation has evolved.

Recently, the underpinnings of this historic view have been questioned. In particular, the historic view assumes that what multinational firms do is choose between investing at home and abroad and effectively arbitrage any differences in returns in the process. Scholars of multinational firms, however, don't really think about these firms in that way; that characterization would seem more apt for a hedge fund than Cummins. In reality, increased foreign activity by Cummins need not be associated with reduced domestic activity; and much of what these firms do is not to ship capital around the world but to take ownership of assets and run them more productively. If productivity differences are central to what these firms do and outbound investment does not reduce firms' domestic investment, then a completely different prescription emerges. In this case, it makes sense for countries to exempt foreign income from taxation.

The intuition for this is that tax rules should leave "who owns what" undistorted. If countries impose worldwide taxation, then the highest-productivity buyers may be handicapped by their tax systems, and the gains from having the right owner of those assets are lost. Concretely, imagine that Cummins is bidding on that operation in Germany and so is Mitsubishi. If Cummins is the higher productivity owner, it should win that auction in order to maximize social welfare. But tax systems can distort that, so Cummins might not win that auction.

In order to make sure that the highest-productivity owner wins, countries should typically adopt exemption of foreign income so that overall productivity is as high as it could be. Said another way, it may well be more important to leave who owns what undistorted rather than leaving the capital flows undistorted.

So, we're in the middle of a changing understanding of what these firms do and how they should be taxed. As I mentioned, most of the world has moved to exemption systems, which is consistent with this emphasis on ownership as being central to multinational firm activity.We've also come to understand that the current system is highly distortionary and, yet, raises very little revenue. As such, the rationale for the current rules is increasingly outdated, and the current rules don't appear to function very well.

Q: You mentioned that one critical assumption underlying the historic rationale for taxing corporations on foreign profits was that firms choose to invest either at home or abroad. Do we know if the activities abroad of U.S. firms really reduce their activities at home in the way that many people have suggested?

A: This intuition that firms substitute between domestic and foreign activity is the basis of much of tax policy and also of the rising concern over the global activities of American multinational firms. While a popular belief, it doesn't seem to hold up to closer scrutiny. Indeed, if anything, the opposite appears to be the case. Recent research indicates that firms that grow abroad are also more likely to grow domestically; this relationship is robust to a variety of alternative explanations. As such, the rationale for current tax policy might have the relationship between foreign and domestic activity exactly wrong.

Q: Will there be a significant change in these rules in the coming years? And if there is a change, what direction will it take?

A: I think there will be a change soon, but it's unclear which direction we will go in.

One possibility is that we move toward a greater tax burden on foreign operations. This could take the form of a repeal of deferral or the selective repeal of deferral with respect to a "blacklist" of countries that are deemed to be tax havens. Or we could try to define what a "patriotic" firm is and base the tax system on that. Some have even called for a system similar to what U.S. states do, which is a "formulary apportionment" system whereby profits would be allocated around the world on the basis of a formula. Any of these possibilities would likely result in a greater tax burden on foreign income.

Alternatively, we could move to where much of the rest of world is, which is effectively exempting foreign income from U.S. taxation. This could be accompanied by some bells and whistles to ensure that American firms didn't react to exemption by trying to shift profits offshore more so than they do now. Depending on these bells and whistles, this could result in an increase or decrease in the tax burden on foreign profits.

It's also possible that the entire corporate tax system should be rethought, given a variety of very serious problems associated with it—including the gap between profits reported to capital markets and tax authorities and the treatment of corporate capital gains.

Change is afoot, but the direction in which we move will be a function of the election and the prevailing sense of Americans toward globalization and the foreign activities of their firms. It should be interesting.

Q: What do you think should happen?

A: I think we should consider a broader restructuring of the corporate tax, and with respect to foreign income, we should consider exemption with some safeguards against an overly aggressive use of tax havens. I fear that alternative paths will lead to much more harm than good and won't raise much revenue, either. I'm in the middle of detailing some of these ideas for a proposal and will share them as soon as I have it fully cooked!

About the author

Sean Silverthorne is the editor of HBS Working Knowledge.

For more of Mihir Desai's research on this topic, visit his Web page: www.people.hbs.edu/mdesai. For a variety of research on these topics, he also recommends the International Tax Policy Forum

Research & Ideas

The Debate over Taxing Foreign Profits Q&A with:Mihir A. DesaiPublished:April 7, 2008Author:Sean Silverthorne Executive Summary:

Corporate tax policy has suddenly become a hot topic in the U.S. presidential debate, including the issue of whether tax laws encourage American firms to outsource jobs to other countries. Harvard Business School professor Mihir Desai makes a case for exempting foreign profit from taxes if proper safeguards are put in place. Key concepts include:

The United States is increasingly an outlier in its taxation of corporate income earned on foreign soil.Critics argue the ability to defer U.S. taxation until profits are repatriated provides an incentive to ship jobs overseas. On the other hand, the current worldwide system is often derided as making American firms uncompetitive relative to their foreign competition.An alternative may be to exempt foreign income from taxes paired with safeguards against an overly aggressive use of tax havens. <p>Corporate tax policy has suddenly become a hot topic in the U.S. presidential debate, including the issue of whether tax laws encourage American firms to outsource jobs to other countries. Harvard Business School professor <b>Mihir Desai</b> makes a case for exempting foreign profit from taxes if proper safeguards are put in place.</p> About Faculty in this Article:

Mihir A. Desai is a Professor of Business Administration at Harvard Business School.

More Working Knowledge from Mihir A. DesaiMihir A. Desai - Faculty Research Page E-mail Mihir A. Desai: mdesai@hbs.edu

Congress and the next president of the United States will be under pressure to make major changes to U.S. corporate tax policy, the consequences of which could have significant impact on profit and competitiveness of American companies on the global stage.

One heated issue is the charge that the U.S. tax code provides incentives for companies to ship jobs overseas. It's nothing new. In the 2004 presidential race, then-candidate John Kerry blasted "Benedict Arnold CEOs" for using tax advantages to do exactly that.

We asked Harvard Business School professor Mihir Desai, an expert on international and corporate finance, to guide us through the complicated U.S. tax law on foreign profits, and to explain why this system is so different from those found in other countries.

Sean Silverthorne: Why has this issue on taxing foreign profit become so central?

Mihir Desai: I think there are several reasons for these developments. First, the integrated, global nature of firm operations has increased to such a degree that it's hard to think about taxing corporations without figuring out what to do with their foreign profits. As one example, more than half of GE's assets are not in the United States now, and close to half of GE's profits are abroad as well. Foreign operations are growing very quickly and can be more profitable than domestic operations. There's also a growing awareness that not all countries tax their corporations in the same way, and that American firms have to compete with firms that face very different tax regimes, many of which also feature a much lower tax rate.

Second, Americans are coming to question whether globalization broadly and the foreign activities of American firms specifically are really fostering their welfare. As such, we've seen a dramatic increase in the importance of foreign activities, and this has given rise to increased scrutiny of how we should tax these operations.

Finally, there is a growing sense that firms are increasingly savvy with respect to tax planning and that profits are easily reallocated through the movement of intangible property or otherwise. As a result, the fairness of the overall system has come into question. When a number of firms tried to "expatriate" from the United States and reincorporate in tax havens in the Caribbean several years ago to avoid the U.S. tax system, their chief executives were labeled "Benedict Arnold CEOs." As such, this topic has evolved into quite a heated area.

Q: Rhetoric aside, how do the U.S. tax rules for corporations work? And how do U.S. rules compare to how other countries tax their corporations on foreign profits?

A: While the overall picture is somewhat complex, there are several underlying principles that help explain it.

First, every country must decide whether it wants to tax its citizens, including its corporations, on their domestic or worldwide income. The United States taxes its citizens and corporations on worldwide income. As a result, when engine maker Cummins, for example, makes profits in Germany, its subsidiary pays German taxes, and the U.S. government retains the right to tax those profits as well.

Second, when the United States imposes its taxes on Cummins's German activity, the government provides some relief for the foreign taxes paid by Cummins to avoid double taxation of overseas profits. In particular, Cummins would receive credits for foreign income taxes paid, up to the U.S. statutory rate. In effect, this means that Cummins will ultimately pay a total of the U.S. statutory rate on its overseas activities in lower tax countries and pay the local rate in higher tax countries. One way to understand this is to say that the United States tries to top up the tax bill on lower tax country profits to the U.S. statutory rate and doesn't do this for profits earned in higher tax countries. This system is known as the foreign tax credit system.

Third, the United States only imposes this additional tax on foreign profits when those profits are returned to the United States, not when those profits are earned. This resembles the treatment of capital gains for individuals where capital gains taxes are only due when gains are realized rather than when they're accrued. As with individual capital gains, there is value in this ability to defer taxes, and this effectively reduces the tax burden on foreign profits. But, to receive the benefits of deferral, Cummins must reinvest the profits in active businesses as opposed to passive portfolio assets.

Finally, a number of significant corporate expenses that Cummins undertakes in the United States and that might otherwise offset its U.S. tax liability—such as interest expenses and some HQ expense—are allocated abroad so that they cannot be used to lower the firm's U.S. taxes. Because foreign governments, unsurprisingly, don't recognize these expenses, these deductions are effectively lost to Cummins. One way to analogize this is to imagine if a fraction of your mortgage interest deduction was disallowed, and that fraction reflected the number of days you spent abroad. Such a disallowance would increase your taxes and effectively puts a tax on you going abroad.

So, in effect, the United States operates a mishmash of a system that taxes worldwide income, provides partial relief for foreign taxes paid, imposes those taxes only upon repatriation, and forces firms to allocate expenses on a worldwide basis.

The major other alternative out there is to simply exempt foreign income from taxation or, said another way, simply tax corporations on their domestic income. Interestingly, the United States is increasingly an outlier in the way it tries to tax overseas income of corporations. The United Kingdom was the only really other significant country that tried so hard to impose taxes on foreign income; it is undertaking a serious reexamination of that now.

In terms of the political debate, the ability to defer U.S. taxation until profits are repatriated is often framed as providing an incentive to ship jobs overseas. On the other hand, the curren

My problem with the present tax system is:

!. All taxes are too high!2. Too many people don't pay taxes;causing too much burden on too few; this stiifles jobs, growth and incentive.3. It leads to politicians buying votes through IRS manipulation; causing social engineering and political demagoguery.4. If they raise taxes a dollar, both parties want to spend a buck fifty!5. It gives rise to multiple streams of government tax stream along with multiple layers, compound and hidden fees driving costs.6. It leads to deficit manipulation and burdens passed to future generations.7. It leads to massive invasion of privacy and civil liberties.

We need something like a "fair tax" which wouldn't solve all our problems but would make a step in a better way.

Just my thoughts

Here's some advice on tax cuts from Ben Stein, an honest and informed Republican:

Everybody’s Business

What McCain Could Do About Taxes

By BEN STEINPublished: March 9, 2008DEAR John McCain:

Skip to next paragraph Philip AndersonCongratulations. The nomination of the Grand Old Party is yours. Now comes the hard part, winning, and the almost impossible part, governing sensibly. Since you were, in your usual modest way, genial enough to acknowledge recently that you know little about economics, may I offer you some thoughts on a big part of economics, namely tax policy, bearing in mind that no one knows much about it?

Let’s start with the obvious. Almost everyone dislikes taxes. No sane person enjoys writing out a big check to Uncle Sam when he could spend that money or bank it for retirement. By the same token, almost everyone likes the phrase “tax cuts” for the same reason.

The problem, and it’s a killer, is that over the years we have obligated ourselves as a nation to spend truly staggering sums. These sums are growing rapidly. They consist mostly of entitlements, like Social Security and Medicare; fixed obligations like interest on the national debt, pensions for federal and military employees and various subsidies that have already been enacted; and morally mandatory expenses like those for national security.

All politicians campaign on the promise to cut federal spending by identifying hitherto unfound waste, fraud and corruption. None of them ever do so in a meaningful way. Total federal spending has not once fallen noticeably since 1954, no matter the party or the promises of the incoming chief executive.

That is the first thing you need to know. The next thing is that the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting.

This would be a lovely thing if true, and the best of all ideas, the “something for nothing” idea. In fact, tax cuts lower federal revenue and generate federal deficits. It is also true that they do stimulate the economy and after a long period of years, federal tax receipts go back to where they were before the tax cuts.

For example, when President Bush enacted his tax cuts in the early 2000s, income tax receipts fell dramatically. It took almost six years for them to reach the level they had been in the last year of the Clinton administration, while G.D.P. in that period rose by roughly 30 percent. In the eight years Ronald Reagan was president (and I love and worship him), tax receipts did not fall anywhere near as much, but they rose more slowly, on a percentage basis, than they did in any other comparable eight-year period after World War II.

In other words, tax cuts do not pay for themselves, at least not on any basis I can see. Certainly, they are not worthless. They make taxpayers feel good and they generate growth. But basically, they shift the tax burden from us to our progeny and add immense amounts of interest expense to the federal budget. At this point, taxpayers shell out about $1 billion a day just for that item.

Moreover, immense federal deficits in modern life are financed largely by foreign buyers of our debt. This means that the American taxpayer must work a good chunk of the year to send money to China, Japan, the petro-states and other buyers of United States debt. In effect, we become their peons.

By flooding the world with debt, we in effect beg foreigners to take our dollars, and this leads to a lower value of the dollar and a higher cost of imports, including oil. If you feel pain filling up the tank, you can partly thank those tax cuts. If you feel the sting of inflation, you can partly thank the supply siders. Deficits matter.

What to do? You appear to have changed your mind over time and have recently shown more support for the Bush tax cuts than in the past. If you become president, you can just keep up the (latter-day) Republican game of make-believe. You can propose still more tax cuts, create still more deficits and add to the debt, and say to yourself, like Louis XV, “Après moi, le déluge.”

Or, you can raise taxes. But whom to tax? The poor are, well, poor. The middle class is struggling to pay for its middle-class life. That leaves the rich. It would be lovely if we did not have to tax them. Many have worked hard for their money. Many have created useful businesses. Many of them are fine people.

But as Willie Sutton said when asked why he robbed banks, “Because that’s where the money is.” By definition, the truly rich have a lot more money than they need. If they don’t, then they are not rich by my standards. The first step toward putting our house in order, once we are past the seemingly looming recession, is much higher taxes on the truly rich and serious enforcement to prevent offshore tax evasion.

TO put it even more starkly, the government — which is us — needs the money to keep old people alive, to pay for their dialysis, to build fighter jets and to pay our troops and pay interest on the debt. We can get it by indenturing our children, selling ourselves into peonage to foreigners, making ourselves a colony again, generating inflation — or we can have some integrity and levy taxes equal to what we spend.

You are probably the bravest man to have a chance at being elected president in my lifetime. Do you have the guts to stand up to the myth makers and tax cutters and the rich? Or will you just kick the can down the road?

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.

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I guess no explanation is possible.

How wealthy is too wealthy and how poor is too poor? And how big a deficit can our country stand before the Chinese own all our debt? And how many potholes can we stand in our roads and how many bridges must collapse before we decide to repair them?

Rich people pay more taxes because they make more money. Unemployed people whose jobs have been sacrificed on the altar of free trade pay no taxes. What's your point? Are you saying everybody should pay the same amount of taxes, or the same percentage regardless of income? No developed country in the world levies taxes that way. U.S. taxes, last time I checked, are the lowest of all industrialized countries, and we have more holes in our roads, trash in our streets, more people who go without adequate health care and more infant malnutrition.

 BTW. Kamerschen has denied writing the silly parable. Snopes classifies it as an urban legend re-cycled gleefully among right-wingers, supply siders and libertarians. http://www.snopes.com/business/taxes/howtaxes.asp

Ralph

Please read the following:

Suppose that every day, ten men go out for Ice Cream and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men ate in the Ice Cream Parlor every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily Ice Cream by $20. Ice Cream for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still eat for free, but what about the other six men - the paying customers?

How could they divide the $20 windfall so that everyone would get his fair share? They realized that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat his Ice Cream. So, the parlor owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay!

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33%savings).

The seventh now pay $5 instead of $7 (28%savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth man,' but he got $10!'

'Yeah, that's right,' exclaimed the fifth man. 'I only saved a $1 - it's unfair that he got ten times more than I!'

'That's true!!' shouted the seventh man. 'Why should he get $10 back when I got only two? The wealthy get all the breaks!'

'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!'

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for Ice Cream, so the nine sat down and had Ice Cream without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax deduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating Ice Cream overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.

Professor of Economics, University of Georgia

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

Bush started a foolish three trillion dollar war, added drug benefits to Medicare and enacted a big tax cut for the top 2%. Bad combination. If those are Republican tax cuts you can have them. Taxes are the lowest in the U.S. of any industrialized country and our crumbling infrastructure and decaying inner cities show it. We are looking more and more like a bananna republic every day.

Always had my doubts about Keynesian school of thought. The fact that WWII happened when it did threw a wrench into the so called "proof". When I was in MBA school I heard arguments both ways, I tend to see the "supply side" arguments as slightly more convincing, but the true needed blend may lay somewere in the middle as is usually the case.

-e-

Interesting conversation here. I'd like to chime in. No one here is asking the question of what kind of model of taxing and spending is sustainable. For example, the US (I'm an American) likes to be the world's policeman. I don't think this is a sustainable policy. Take Iraq for example. By going in unilaterally, we only reassured the world that we would gladdy step in and foot the bill whenever a world crisis occurs. This is baloney! It's no wonder that NATO countries, or any others for that matter, don't agree to go to war with us. They know we will do it. I'm not a pacifist, but one country fighting all the wars for this world is not sustainable policy. I can't believe that there is talk of unilateral military force with Iran.

Who's the slow learner here?

I work for an urban school district here in the states that is considering getting those $200 laptops, originally made for children in developing countries, for all it's $1300 teachers because the district has no money to buy 'real' laptops. Can't find $1,300,000 for laptops for teachers. The taxpayers would scream if we spent that on laptops. But no one seems to care about the billions and billions we are spending in Iraq and Afganistan.

Anyway, my point is, it is not only spending policy, it's what we choose to spend the money on. Education spending is sustainable and eventually raises our tax base by graduating more kids with higher educations.

I agree, in the end they both have to generate deficit spending in order to stimulate the economy. It just a question of what we call the deficit.

Kane above makes a good point. Both tax pretty much the same its only difference is where they put it. Although going from a huge surplus to a 5-6x negative deficit is horrendous, and exacly what Bush has done, not only ruined the country but his party as well. I for one dont think he should be bashing another party but working with them. Uniter my ass. 2009 cant come soon enough.

Very interesting read! :)

Definitely an edifying hub..

PK.

X

its very infomational!

David Brooks on supply-side tax policy in the NYTimes 1-11-08:

"Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy. The demographics have changed. The U.S. is an aging society. We have made expensive promises to our seniors. We can't keep those promises at the current tax levels, let alone at reduced ones. As David Frum (of "axis of evil" fame) writes in 'Comeback,' his indispensable new wook: 'In the face of such a huge fiscal gap, the days of broad across-the-board middle class tax cutting are over.'"

Chuck, have you never met a tax cut you didn't like? What programs are you prepared to cut or eliminate? Medicare? Social Security? FDA? SEC? EPA? Homeland Security? DEA? OSHA? NASA? Unemployment compensation? Or what?

I thought Republicans believed in fiscal discipline....that is, don't spend what you haven't raised in taxes. The Republicans, starting with Reagan have been on spending binges and relied on Democrats to save our national bacon. Republicans accuse democrats of being "Tax and Spenders" the absurd irony is now it is Republicans who are "Borrow and Spenders". Any idiot knows what the ultimate result is of Borrow and Spend. This kind of policy is the height of irresponsibility. Republicans give lipservice to limiting government spending and then far outspend what democrats ever dreamed of spending.

Isn't it true though that there is really no such thing as tax cuts? the money just gets shuffled around depending on political beliefs. For instance, Dems are tagged as taxers and Reps are supposedly not, but in reality neither spend "bigger" or "smaller," nor tax more or less. The only difference is where dems put the money versus where reps put the money ie. programs vs defense, health vs. corporat investment.

The other side of the story here, by economist Robert H. Frank of the Cornell Business School:

http://www.nytimes.com/2007/12/09/business/09view....

Chuck, with all due respect your explanation of a deficit is a new version of Voodoo Economics. Bush inherited a surplus, not a deficit. When you cut taxes on the wealthiest of Americans you're inevitably going to spend more than you collect in taxes. On top of that, you drive up the cost of government when you spend vast sums of money "off budget" and lose billions of dollars to private contractors -- funds that aren't even accounted for, i.e., "lost." On top of that you don't save money by "privatizing" huge government operations, rather that just reduces or even eliminates needed services to taxpayers. Just compare Bush's horrendous record to that of Bill Clinton's: Clinton "achieved" a surplus; Bush "promises" to reduce the deficit after he leaves office.

Political theory is fine, but as a practical matter, a deficit is nothing more than a tax increase in which the taxes will be paid by our grandchildren. Don't you think Bush was aware of the fact that Congress would be unlikely to put through "tax reform"?

i enjoyed your piece on differing approaches to tax cuts. in contrast, the commentary on your piece illustrates what we see on most op-ed pages---political cant. it's sad that so many people are unable to think about public issues without parroting partisan myths.

Unfortunately, deficits are nowhere close to disappearing, as they did under Clinton, which just goes to show you that today's Democrats are the real fiscal conservatives, while "Bush's son", who has never seen a piece of spending that he didn't like, is deficit-spending like no other previous administration, Democrat or Republican.

AMT was set up to extract tax revenue from tax-dodgers. I have a feeling it will eventually replace our existing tax code, which, with its countless writeoffs and loopholes, distorts business, public and personal spending.