There is no such thing as a regular “tax rebate”. You are thinking about a “tax refund”. I haven’t seen anything that suggests that this “rebate” is really an advance of your 2008 refund. Everything I read suggests that it’s just free money the government is sending to those who qualify. Nobody has said that you will have to deduct it from your 2008 tax refund or add it to the amount you owe for 2008.
Well, there is a lot of talk there about people who pay little or no federal income taxes there but it is not clear about what they pay in payroll taxes. Not seeing the details of the final decision they made, it is not clear to me if the rebates will go to anyone who did not pay any payroll taxes…and, in fact, I thought I heard something about some income minimum (like $3000?) in order to receive the rebate.
There is no law that says that a “refund” must be given to everybody in equal amounts.
First of all, I don’t see how your idea of stimulating investment instead of demand avoids the issue of flat screen TVs that end up in the landfill. What do you think the investments will lead to? More goods for people to buy. In some sense, I agree with you on a larger critique of our economy being based on materialism and constant growth in materialism but I think that is a topic in and of itself and largely independent of how we choose to stimulate the economy (although if I were dictator, I would probably choose to stimulate the economy largely by making a large investment in pushing for solutions to energy / environmental problems such as global warming).
The fact is that most economists believe that in order to stave off recession, you have to try to increase demand. Giving money to people who will invest it does not do any good if the companies don’t see the necessary demand for the output of their investment. (One could argue that the government itself should make infrastructure investments by spending money on upgrading our highway bridges and the like, but that is a different issue since the government can make decisions to invest independent of the expected demand.)
Well, I am referring to the tax rebate that you want to extend to the wealthy.
This is just the sort of simplistic either-or black-and-white logic that gets us into trouble in all sorts of situations. The market is not some perfect magical entity that can do no wrong…nor do we have an idealized market free from any interference or externalities. The fact is that who the winners and losers in the economy are depend on lots of factors other than the market, including infrastructure that the government provides that allows people to become extraordinarily wealthy. Do you think Bill Gates alone on a desert island could have amassed his fortune? It is pretty clear that the wealthy have benefitted inordinately from our society relative to the poor and it is they who owe the most back.
Furthermore, even if some of the extremely skewed distribution of wealth is due to the market itself, it is not at all clear that a society is best off and most stable with a “winner-take all” market system that is not regulated in any way to prevent such extremes from occurring. The market is not the Will of God; it is a useful tool that nonetheless has certain limitations.
If anyone who is not a “free market fundamentalist” is a “communist” then I guess we are all communists except for a few libertarian extremists.
Exactly. It’s not an advance on your refund. It’s a rebate that will be paid now (instead of after you file your return).
And the arguments about redistribution and making tax cuts permanent and the AMT are somewhat beside the point. It’s not a tax reform package, it’s a stimulus package. Pure Keynesian deficit spending. As such, it’s a reasonable compromise - get cash, now, to people who are most likely to spend it. There is some argument that an extension of unemployment benefits and an increase in food stamps would be more effective. But those just reek of helping poor people, so they were a non-starter.
How have they benefited more? Essentially our government has set some basic rules that allow people to buy and sell goods with relative freedom. People who are rich generally are those who offer goods and services that are popular with consumers. They “benefit” from freedom in the sense that it allows them to offer these goods and services. But society did not create their wealth and society did not take wealth from the poor. How do the rich “owe” society any more than anyone else? Because they have more? Having more money does not mean that “society” has somehow given you extra benefits.
The market is people interacting, that’s it. Some people offer goods and services that a lot of people want. Why should the government step in and stop them from offering those goods and services (or punish them from doing so by taking away the rewards of their efforts) because you somehow think an arbitrary standard of fairness has been violated?
To be fair, there is a good reason to exclude food stamp increases from an ecomomic stimulus package, and it could just as easily be claimed that the other side was simply trying to sneak in an increase in welfare payments.
Unemployment is a bit tricker, and maybe that should be part of the package. But it’s paid mostly by the states anyway, and it would make sense for it to stay that way-- unemployment rates vary considerably from state to state.
I don’t disagree (although what is the “good reason” to exclude increases in food stamps, if it’s a one-time stimulus?). My point is two-fold. One is that the economic studies of stimulation seem to indicate that food stamp increases and extending unemployment give the most “bang for the buck”. The number I remember hearing was $1.73 for every dollar spent. The second point is that they are much narrowly focused (exclusively on those that are unemployed or qualify for food stamps). By broadening the pool receiving the benefits Congress dilutes the impact, but significantly increases support for the proposal.
Here’s a cite:
http://www.usatoday.com/news/washington/2008-01-23-economicstimulus_N.htm
Well there is some connection between who pays taxes and who gets the rebate but I agree the connection is tenuous but I don’t see why it is so important what we call it, you wouldn’t get it in any event. Would it make you feel better if we had a tax rebate with a phase out and a flat out giveaway to the poor?
No, they are not always good things but they are good things right now. It is a terrible idea to use deficit spending when the economy is doing fine (see, deficits for every year of this adminsitration).
Not during a recession unless the recession is due to a commodity crunch (see, oil shock and stagflation).
The capital gains rate and the qualified dividend rate. The average household with an income of 100K earns less than 1% of its income from capital gains or dividends. the average household with an income of 500K earns less than 10% of its income from capital gains or dividends. the average household with $10 Million income earns more than half its income from capital gains or dividends.
Everyone agrees that AMT needs to be repealed (and by your statement, I don’t think you fully understand how AMT works) but as long as we are cutting taxes for the ultra wealthy, it is hard to find the money to cut the taxes that really need cutting (phase outs are another stupid revenue raiser, they create 27 pages of worksheets for very little additional revenue).
People seem to think that the the market is somehow better at allocating wealth than any other system. The "market is good at allocating capital but not necessarily wealth (at least not reltative to each individual’s contribution to society). I think the notion that everything that you earn is “yours” and that taxes are a form of robbery is silliness. We shouldn’t tax so much that it provides a significant disincentive to production and we should’t provide too much of a safety net that the safety net becomes a hammock but pay your taxes and just be grateful that you make so much money.
"I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you find out how much this talent is going to produce in the wrong kind of soil… I work in a market system that happens to reward what I do very well—disproportionately well. Mike Tyson, too. If you can knock a guy out in 10 seconds and earn $10 million for it, this world will pay a lot for that. If you can bat .360, this world will pay a lot for that. If you’re a marvelous teacher, this world won’t pay a lot for it. If you are a terrific nurse, this world will not pay a lot for it. Now, am I going to try to come up with some comparable worth system that somehow (re)distributes that? No, I don’t think you can do that. But I do think that when you’re treated enormously well by this market system, where in effect the market system showers the ability to buy goods and services on you because of some peculiar talent—maybe your adenoids are a certain way, so you can sing and everybody will pay you enormous sums to be on television or whatever—I think society has a big claim on that. -Warren Buffett
Taxes are the price we pay for civilization-Oliver Wendell Holmes
I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you find out how much this talent is going to produce in the wrong kind of soil… I work in a market system that happens to reward what I do very well—disproportionately well. Mike Tyson, too. If you can knock a guy out in 10 seconds and earn $10 million for it, this world will pay a lot for that. If you can bat .360, this world will pay a lot for that. If you’re a marvelous teacher, this world won’t pay a lot for it. If you are a terrific nurse, this world will not pay a lot for it. Now, am I going to try to come up with some comparable worth system that somehow (re)distributes that? No, I don’t think you can do that. But I do think that when you’re treated enormously well by this market system, where in effect the market system showers the ability to buy goods and services on you because of some peculiar talent—maybe your adenoids are a certain way, so you can sing and everybody will pay you enormous sums to be on television or whatever—I think society has a big claim on that.-Warren Buffett
Thanks for your very eloquent posts, Damuri Ajashi. You said exactly what I wanted to say but much better than I could have said it.
And, welcome to the SDMB!! Glad to have you here.
One could characterize what has been said here via the following hypothetical dialogue:
A: I can do something you like.
B: If you do it, I’ll give you money.
A: Okay. I’m doing it.
B: Okay, here’s money.
A: Thanks!
B: Now give some of that money back.
A: What?
B: You only got that money because I happen to appreciate what you did. That means I get some of the responsibility for your having got the money. That means you owe me. Pay up!
-FrL–
You are grossly oversimplifying.
Does your customers or boss ask for money back because they are the ones that gave it to you?
This seems to be saying precisely “When society at large is willing to pay you lots of money for some peculiar talent of yours, then you really owe a large proportion of that money back to society at large”, as illustrated in Frylock’s dialogue.
No, but that’s my very point. My claim was that what you said can be construed as being roughly equivalent to just such a situation: someone asking for money back because they are the ones that gave it to you.
My first reaction to your argument was to feel there was something compelling about it. Then, after a little reflection, I thought, “But wait a minute, that’s like (insert my dialogue here).” But I still felt like there was something right about what you said. I just wasn’t entirely sure in what that rightness consisted. So I posted the dialoge, in hopes that you might be able to say something about how the state of affairs you described in your post relevantly and significantly differs from the dialogue I posted.
Here’s something. Suppose A has a talent, B has a need, A’s talent fulfills B’s need, and C knows both A and B (and they don’t know each other). It doesn’t sound crazy to think C would be acting perfectly reasonably if he introduced A and B together for a fee. Call it a finder’s fee.
In my dialogue, I made B and C out to be the same person. As though B were charging A a “finder’s fee” for “finding” himself.*
But in your own description of things, is it really true that the consumer of the talent and the “finder” (or more accurately to your description, the provider of the opportunity for the expression and consumption of the talent) are the same agent? Maybe not. Individual members of society are the consumers. But society as a whole is the provider of opportunity. These are different agents.*** For example, society as a whole includes a whole lot of individuals who may never have consumed the particular talent in question. But all those other individuals cooperate together to make for a social structure which creates the opportunity for the consuming individuals to consume the talent in question (sales tax!) and for the talented to express their talent (income tax!)**
Maybe something like that works, I don’t know. I wish you had said it, because then it would be easier for me to evaluate it as though it weren’t my own argument. 
-FrL-
*This in itself is not necessarily absurd, I suppose!
A: I need someone who does X
B: I know someone who does X
A: I’ll pay you to introduce me to them.
B: Okay. Pay me.
A: Okay, here you go.
B: Okay, guess what, it’s me!
Not necessarily unreasonable!
But in my original dialogue, B’s argument relies on the idea that he’s the provider of opportunity by virtue of the very fact that he paid A money. As my argument in this post suggests, that’s where the analogy goes wrong. You are (or may be) arguing that the provider of opportunity is different than the consumer (i.e. different than the one who actually does the paying for the actual service).
**So is it okay to have both?
Is society an agent?*
****Is it okay for footnotes to be inserted out of order? And for footnotes to have footnotes? No to both questions.
Paul Krugman posts some tables from the Tax Policy Center which show that only about 21% of the ‘stimulus’ will go to the folks in the bottom two quintiles, who are the folks most likely to spend it (thus stimulating the economy) and 58% will go to those in the top two quintiles, who will mostly just save it, which will have zero effect.
Let’s say that of the 21% that goes to the middle quintile, half gets spent and half gets saved, that’s still less than 1/3 of the ‘stimulus’ package that acts as an actual stimulus.
For now, I’ll stay out of the debate over the rightness or wrongness of an efficacious stimulus package. But this one’s not particularly efficacious.
Let me add that in all likelihood, this package will shut the door to the possibility of a more efficacious package - e.g. increasing food stamps, extending unemployment benefits past 26 weeks. Once this one passes and Bush signs it, he can say, “No, I already OK’d $150B of stimulus, and that’s enough,” and that’ll be the end of it. So this bill will co-opt more targeted and effective approaches, at least for 2008.
But if the real problem is a credit crunch, with banks not having enough money to lend out because they’ve had to write down so much bad debt, then you WANT the people to save the money. Then essentially what you’re doing is feeding money into the financial system through the back door.
And if the root problem is a credit crunch, giving money to people who will use it to buy TVs and iPods isn’t going to do a damned thing.
I’m not a fan of the stimulus package - I think it’s a craven attempt to buy votes and for Washington to look like they are ‘doing something’. I think it’s small enough that it will have little effect one way or the other, but if it does have an effect, in the long run it will be a negative one.
The problem with your original analogy is that noone should ever pay any taxes. There are societal costs that need to be paid for and we have to decide who and how those cots are paid for.
How’s this for an imperfect analogy:
We are all sharecroppers in a cooperative owned by all the farmers. We are all born with different abilities, some of us are good farmers, some of us are good ranchers, some of us are good at making or repairing farm equipment, some of us are good at training other people to farm, and some inherit a lot of farm equipment that they lend out to other farmers etc.
Society pays more for some activity than others and keeps more from those who produce more. But, each of those elements are important to the operation of the farm.
Basically, I am saying that those who produce much do not do so purely by their own efforts but also by the existence of that farm and the cooperation of all the farmers.
Society uses that money to maintain the farm, ensure the welfare of the farmers, defend that farm and to make sure that you can keep producing whatever it is you produce.
The question is whether those who produce more should pay a larger portion of their poduce to society (progressive tax) and if the farmers who own farm equipment should be tax more or less on the rents than those who actually do the farming (preferential taxaxtion of investment income).
I beleve that there are pretty strong argument for progresive taxation (to a point) and I don’t believe that there is nearly as strong an argument for giving investment income preferential treatment (especially when you own a LOT of farm equipment).
We all start off as farmers and we save up engouh money so that we can buy farm equipment to lend out when we are no longer strong enough to till the soil ourselves. When we die, we leave the farm equipment and seed grain to our children but if you leave them a LOT of stuff (I believe your estate has to exceed $3.5million dollars before the estate tax kicks in), then society taxes some of it.
The Fed’s already dealing with the credit crunch by lowering interest rates.
But it’s silly for the government to reduce its savings to increase someone else’s. That really doesn’t change the equation any.
But there are multiple problems here. One of them is that with a bust in the construction trades, we’re probably slipping into a standard-issue recession, completely aside from the credit crunch. And the textbook response to that is to put money in the hands of people who will spend it because they have to. And the people they spend it with will spend most of that, etc., giving us the well-known multiplier effect, which is what stimulates the economy.
If you don’t like it, take it up with John Maynard Keynes. Or with Ben Bernanke, who was pretty specific regarding the sort of stimulus package that would best complement what the Fed is doing.
Don’t forget faanie mae, fredde mac and FHA reform.
What do you think the tax cuts on the rich amounts to? Anytime tax cuts result in deficits at least some part of that deficit is financed by borrowing money from taxpayers who would otherwise have paid that money in taxes. When the tax cuts so overwhelmingly target the rich, you are basically borrowing most of the cost of the tax cut from the same people who got the tax break. You have basically converted tax revenue into national debt and from the same people.
[quoteBut there are multiple problems here. One of them is that with a bust in the construction trades, we’re probably slipping into a standard-issue recession, completely aside from the credit crunch. And the textbook response to that is to put money in the hands of people who will spend it because they have to. And the people they spend it with will spend most of that, etc., giving us the well-known multiplier effect, which is what stimulates the economy.[/quote]
Our economy isn’t nearly as insulaated as it used to be. A lot of money leaks out of the sytem in the form of foriegn production and foreign investments in domestic production.
FHA reform? You mean the FHA reform that includes lowering the down payment requirement for purchasing a new home? Gee, that’s certainly going to make people more responsible about borrowing…
Another part of the stimulus package is to raise the cap on mortgages that Fannie Mae and Freddie Mac can hold. This has the effect of reducing the risk banks carry on mortgages, and will encourage more of the same behaviour that got everyone into this mess in the first place.
This reminds me of the first ‘bailout’ of the Savings and Loan industry by increasing the federal loan protection amount. All that did in the long run was increase the size of the check the government had to cut when the S&Ls went belly-up.
Never reward bad behaviour by adding protections and guarantees for the downside of that behaviour.
This stimulus package went from being inconsequential to dangerous when they added this crap.