Why were the Dems so ineffective in stopping the Bush tax cuts?

Great Debates
41

I’ve looked all through **Sam Stone{/b]'s above neo-anti-Bolshevik tracts, and find no mention of the national debt, or its effect on the economy, or its effect on inflationary pressures and “letting people keep more of their own money”. Traditional notions of conservatism involve paying what you owe. Is there any place in the Reaganite world-view for accepting simple responsibility for the results of previous fiscal years, or is only the present year’s budget reality? Do they advocate that we simply ignore the debt (most of which is the result of Reagan’s own fiscal policy, which might help explain that reticence)?

On a semi-related note, this is the first time I’ve ever seen Collounsbury, noteworthy for his extreme patience and tact even more than for his insight and articulateness, actually curse out a fellow poster. That should be a significant statement to that poster, one might think.

42

Right, no substantiation is possible, since this is a prediction of the future.

FWIW evidence may be found in last year’s spending increase of 8%, as compared with a 4% increase in the GNP. And this was a Congress controlled by pubbies. Imagine what spending will be like when the dems get back in power.

Also, in 10 to 20 years social security and medicare will start to become a drain on the rest of the budget, rather than adding income. At that time Congress will have 3 choices:

  1. Cut government services and benefits
  2. Raise taxes
  3. Deficit Spending

Which choice will they make? I’d say #3 will be a part.

43

Sam Stone: *Frankly, I think people are getting tired of the class envy card the Democrats keep playing. That might have worked 20 years ago, but it’s hard to get a real class-struggle frenzy going when truck drivers and union workers have big stock holdings in their own portfolios and pension plans. *

The idea that the lower and lower-middle classes have made big strides towards joining the “investment classes” in the recent stock-market boom is one of the favorite assertions current among “market populists”, but where is the evidence to support it? The bottom 40% of households still own no monetary assets beyond their cash in hand, according to this 1999 article, which also comments:

So where are all those “truck drivers and union workers” who “have big stock holdings”? (And don’t forget that the percentage of American workers who are union members is currently at its lowest level since the end of WWII, so those union pension plans are actually benefiting a smaller segment of American workers than they were 20 years ago.) The idea that there is less support for wealth redistribution now because even many of the non-wealthy are sitting on fat stock investments just is not backed up by the numbers.

Anti-tax types are unconsciously acknowledging that fact, it seems to me, when they make assertions like “people are tired of playing the class envy card.” Labeling concerns about growing wealth inequality and the decline of economic democracy as mere “class envy” sounds like basically just a ploy to avoid discussing the real problems with extreme wealth inequality and the real advantages of progressive taxation. There doesn’t seem to be empirical support for the assertion that “people” actually are tired of these issues, although it makes sense that wealthy people and libertarian ideologues are tired of being vulnerable to criticism about them. Complaining that these concerns are just “class envy” is a pretty feeble substitute for actually addressing them, so I don’t think you’re going to see the issue go away any time soon.

44

I think Kimstu is right, but don’t like it. Envy is a powerful emotion, especially when applied to a group. Envy of minorities for their job preferences, class envy, envy of male power, envy of “lazy” welfare recipients – these are all unhealthy emotions, which are used by demogogues.

45

december: *Originally posted by Kimstu:
I don’t think you’re going to see the issue [class envy] go away any time soon. *

Not to get into an argument about your statements on this issue, december, but just to correct your misunderstanding of what I said: the “issue” I was referring to was not “class envy”, but the issue of wealth redistribution and wealth inequality. The whole point of my post was that I think it’s inaccurate just to paint all concerns about this issue with the broad brush of “class envy”. You’re perfectly free to have a different opinion about it, of course, but your editorial insertion into a quotation from my remarks is inadvertently misrepresenting what I was actually saying.

46

Kimstu, I don’t blame you for not liking the phrase “class envy.” It’s a pejorative term assigned by the other side.

But, I think “class envy” is a name given to “the issue of wealth redistribution and wealth inequality.” Since you disagree, can you tell us how to distinguish between the two concepts?

47

I actually liked december’s response, because it didn’t assert that tax cuts obviously and invariably led to lower spending. Rather, his evidence was focussed on the current situation.

He notes that the budget numbers turn ugly in 10 years. Yup, I agree. And I agree that deficits will play a role at that point.

The policy issue involves the extent to which an extra dollar of lowered tax revenue is divided between a greater budget deficit (or lowered surplus) and lowered spending via changes in Congressional behavior. *

This is an empirical issue with no immediate answer. I concede that the tax cut is likely to lead to lowered spending on new programs such as drug benefits for seniors (for better or worse). It will also restrain military spending (ditto).

And, during times of economic expansion, the higher deficits (lower surpluses) will crowd out a certain amount of investment, via higher interest rates. (Although, this effect isn’t necessarily huge: IIRC, Krugman calculated that the Reagan deficits may have shaved somewhat less than a third of a percentage point from GDP growth per year. Not trivial. But not a calamity. The S&L imbroglio is another story.)

Unfortunately, I don’t really have a good idea of how these various forces tend to play out. Or at least I can’t come up with a rough share that I could substantiate. (That is, I don’t know the extent to which the tax cut will repress spending. I seriously doubt whether it is a 1:1 effect though.)

*[sub](The policy issue is not whether deficits will or will not exist per se of course.)[/sub]

48

[QUOTE]
*Originally posted by december *

I’ve never seen the progressive income tax (one with higher rates applied to higher incomes) justified on the basis of “eating the rich”. Although I trust that it’s happened.

Rather, I’ve heard it justified on the basis of “ability to pay” or the declining marginal utility of income. More concretely, one could also justify it in terms of health outcomes, to the extent that an extra dollar transfered to a poorer person enhances longevity more than an extra dollar enjoyed by those in, say, the $350,000 + tax bracket.

I suppose criticisms of the massive increases in US executive pay during the 1990s may also have some envious elements, although the words “privledge”, “leverage” and “fairness” also come to mind.

49

"But, I think “class envy” is a name given to “the issue of wealth redistribution and wealth inequality.” Since you disagree, can you tell us how to distinguish between the two concepts? "
That’s easy: inequality is an issue ,as you say ,whereas class envy is a motive for being concerned about that issue. By equating the two you are in effect saying that class envy is the only possible motive for being concerned about inequality, something which is demonstrably false. For instance rich people who worry about inequality (there are quite a few) are presumably not motivated by class envy.

50

I must admit that my wife is one instance of what CP describes.

51

december: But, I think “class envy” is a name given to “the issue of wealth redistribution and wealth inequality.” Since you disagree, can you tell us how to distinguish between the two concepts?

Sure, although it kind of surprises me that you’re not familiar with aspects of wealth redistribution and wealth inequality that are more than mere “class envy”: many of the posters in this very thread have actually mentioned them. Here are some quotes:

Scylla: …the person that earns a lot of money and pays taxes on it, is a good thing for this country. Those dollars enable worthwhile programs.

CyberPundit: *As for long-term incentives I don’t think there is any sound economics that says that investment or entrepreneurship are significantly higher with a top rate of 35% as compared to say 39%. For instance the very large decreases in the top rate in the 80’s didn’t lead to a significant increase in productivity growth. On the other hand there was a significant increase in productivity growth during the latter part of the 90’s when the top rate was higher than in the 80’s. […]
[quoting you:] “Lowering taxes tends to increase investment and entrpreneurship”: Theoretically there are two effects which pull in opposite directions: a substitution effect which tends to increase investment like you said and an income effect which tends to do the opposite so you have to examine the question empirically. *

december (!): Why tax the rich? As Willie Sutton the notorious bank robber once said when asked why he robbed banks, “because that’s where the money is.”

China Guy: Remember that the rich have a lot more avenues to legitimately or otherwise avoid paying taxes. Tax breaks, unreported offshore investments, etc etc.

jshore: *By the way, receipts as % of GDP are rising rather gradually and steadily since 1993 which suggests to me that it is not purely a direct jump from taxing people at higher rates (since the higher rates were put into effect right away and not gradually, unless I am mistaken), but rather because the economy was doing quite well and there are more wealthy people falling into the higher tax brackets! Now, is that something you really want to argue is a bad thing?!? […] I do think Americans try to be fair-minded and don’t simply want to “soak the rich”. But I think they do want the burden proportioned with some accounting of who can afford it the most. […] maybe those who have benefitted the most from the booming economy might be able to live with getting less of their contribution back. *

Collounsbury: *…empirically income distribution issues present some serious development issues. There are in fact clear economic gains to equilibriated distribution of wealth. *

In other words, here are a number of highly intelligent people, most if not all of them probably in the upper or upper-middle classes themselves and certainly not opposed to the very existence of rich people, who are relying on the following economic facts:

  1. The necessary and desired expenses of government are paid for by contributions from its citizens via taxation. (So is a bunch of waste and junk, of course, but as in any very large organization, it’s hard to get what you need of the former without getting some of the latter.)

  2. Rich people can better afford to contribute a larger share of what they earn than the non-rich.

  3. Hi Opal!

  4. Empirical results don’t indicate that progressive taxation is bad for the economy or that reducing progressivity is good for it: on the contrary, there are, as C’bury said, “clear economic gains to equilibriated distribution of wealth”.

  5. Empirical results don’t indicate that progressive taxation is bad for the wealthy themselves, either: for instance, the number of rich people has grown enormously in recent years, as has the wealth of those who were already rich, despite the increase in the top tax rates.

  6. The wealthy are often able to benefit disproportionately from economic good times and to shelter disproportionate amounts of their wealth from taxation, which are also sensible reasons for taxing them at higher-than-proportional rates.

This isn’t rabble-rousing demagoguery. This is economic reality. It is possible to be very much in favor of the existence and prosperity of rich people, or even to be rich oneself, and still recognize the overall advantages to everyone of requiring some redistribution of wealth and maintaining some limits on economic inequality. Dismissing these crucial matters as nothing but “class envy” is IMHO so distorted and oversimplistic as to be flat-out delusional.

(Note added in preview: Yeah, what CyberPundit said. :))

52

Yes…I am not so sure that envy is the major player at all. I for one am not envious of the money they make; I have absolutely no desire to make that amount of money and, if I suddently did, I doubt it would change my spending habits very much since I could already be spending a substantially larger part of my current income without being at all financially wreckless. I just think it is immoral to have people amassing these amounts of wealth while others starve, without making more of an attempt as a society to do something about it. (Worse yet, at this point, we are moving backwards!) I also think most of the arguments that they are paid this much because that is what they are worth it is probably poppycock! CEO compensation is set in the backrooms of those corporation board meetings where everyone is sitting on everyone else’s board. You pat my back, I’ll pat yours.

I also don’t know how the former CEO of Xerox can sleep at night knowing that he did his job worse than shit for the few years he was there and is now getting $800,000 a year for the rest of his life…The guy must have no pride to take all that money; I’d be embarassed as all hell…Talk about a welfare handout!

53

(As well as what flowbark said. And I notice I seem to have two 5’s in that sequentially numbered list…oops. :))

54

kimstu, in a simul-post, makes the case for redistribution of wealth much more eloquently and objectively than I do in my little hot-headed rant.

And, just to add a point that gets forgotten: Those who study whether the overall tax system is really progressive (and thus downwardly redistributional) in the sense that the rich pay a higher percentage of the taxes, find that it is at best mildly so; at worst, not at all. (And, after the Reagan tax cuts, I think it was actually regressive or neutral depending on how you look at it.) I can look up the details and cites in the book I have if anybody really wants it.

This doesn’t include direct transfer payments, like welfare and food stamps. But, of course, it also doesn’t include lots of “corporate welfare” types of things either.

The sum total of all this is that the idea that in the U.S. we actually have very much (downward) “wealth redistribution” is largely a myth. In places like Sweden, Denmark, … sure they do; Here, it is not at all so clear.

I won’t even bring in here the issue of how one defines “wealth redistribution”; here, I just assume that neutral is the same percentage of income taken from everyone. Others have pointed out that the real definition would involve not only accounting for how much each person puts in to the government but how much in services they effectively use, and thus take out. Needless to say, such a calculation is impossible.

By the way, I think this all gets back to an important point: Conservatives often complain that liberals want to try to ensure “equality of outcomes” rather than simply “equality of opportunity”. Really, this is sort of a canard. One can never completely figure out when there is really equality of opportunity. This is why I think you are left taking outcomes into consideration. That certainly doesn’t mean you try to equalize outcomes. But, you sometimes need to push a little in that direction, to say “well this current outcome does not look to good to me.” [And, to argue with those who disagree. :wink: ] How much to push? Well, I don’t think there is any hard-and-fast way to determine that, which is why this kind of admittedly seat-of-your-pants approach is poo-pooed by those who really think they can have some overarching principle of equality fo opportunity and then just let the chips fall where they may. (Their approach just hides the sins of subjectivity better.) And, well, I’ve got this really cool perpetual motion machine to sell these folks, right next to this bridge which I’ll sell them for a wing and a prayer!

55

Kimtsu: I don’t dispute that 44% of so of the wealth in the market is held by the top 1% of the people. But if you do your numbers again considering stock market investment as a percentage of personal wealth, I think you’ll find a much different picture, and a great increase in the last 20 years. And psychologically, that’s what really matters. If you’re a truck driver earning $30,000 a year, and you have $15,000 in a 401(k) or other investments, that feels like a lot of money. And it makes people feel like perhaps they have upward mobility. That is going to affect how they think about the ‘rich’.

56

While we’re ranting, the Sunbeam case comes to mind as well.

Though personally, I’m a lot more sympathetic to Welsh of GE and Warren Buffet (and his faithful associate Charlie Munger). Not to mention certain high tech capitalists who actually started their own business. The problem is that there are lot of CEO value-subtractors who made their fortune based primarily on the rise of the broader stock market. [Hm. This looks like a hijack. Sorry.]

57

Sam Stone: If you’re a truck driver earning $30,000 a year, and you have $15,000 in a 401(k) or other investments, that feels like a lot of money. And it makes people feel like perhaps they have upward mobility. That is going to affect how they think about the ‘rich’.

? Cite? A truck driver may not earn much, but that doesn’t mean he’s dumb; I think most people who make $30,000 a year know that they’re not “the rich”, even if they’ve got half a year’s salary saved. And don’t forget that, as Alan Greenspan pointed out, economic insecurity is significantly higher now than it was 20 years ago, so there are apparently quite a few more people who aren’t yet feeling confident about their “upward mobility”. I still want to see some hard data supporting your hypothesis of growing numbers of economically optimistic non-wealthy workers before I’ll buy it.

After all, recent polls indicate that 60% of Americans think that the tax cut will either not help them or actually hurt them, while another 20% think it will help them only a little. Over half think it will cause a budget deficit and take away money from Social Security, and about 75% think it will mostly help the rich.

So it seems to me that most Americans, far from identifying themselves with the wealthy beneficiaries of the tax cut, are simply prepared to put up with the consequences out of a principled conviction that tax cuts in general are necessarily good and fair. As has been noted, tax cuts are political catnip; pretty much everybody instinctively hates taxes, no matter whose they are. I think it’s perfectly legitimate for tax cut opponents to try to change people’s minds about that short-sighted view. And I think that the recent posts here have done a pretty thorough job of explaining why arguments for the benefits of increasing (or at least not diminishing) tax progressivity are not reducible to mere “class envy”.

58

Nice post, Kimstu. I was surprised to see progressive income tax equated with redistribution of wealth (if I understood you correctly.) I have no objection to a progressive income tax, nor does Bush. In a sense the Bush tax cut made the income tax more progressive, because his percentage cuts were greater at the lower brackets. (More precisely, W’s plan made the income tax more progressive if one ignores his doing away with the estate tax.)

I think of re-distribution as taking away my money and giving it to poorer Americans. Caps on income go beyond re-distribution. Should we prohibit Barbra Steisand from singing past Jan 15 and break Alex Rodriguez’s legs because they’re each earning so many million?

In summary, I see 3 quite different concepts:

  1. graduated income tax
  2. redistritution of income
  3. caps on wealth or caps on income

I’m in favor of #1, favor a modest amount of #2 (welfare) and adamantly oppose #3.

59

Does it bother anybody else that the only people not invited to our giddy little party are the very people most in need? The people who are too poor to pay taxes will get what they have always gotten, diddly squat. And the guy who needs it least gets great slobbering gobs of cash.

Imagine you’re walking down the street. A homeless man asks , no, begs, you for a dollar. In response, you flag down a BMW, bang on the window until the occupant rolls it down, and then throw a handful of money at him.

“Landslide” George has never missed a meal in his life, has never faced a choice like having two children and having enough money for one pair of shoes. It shows.

But succinctly: what the hell’s the matter with us? If they aren’t our people, whose are they? If we don’t care, who will?

60

The phrase “progressive tax” is a technical one. So let me provide some definitions from my introductory economics text.

Progressive tax - a tax that takes a higher percentage of income the higher the level of income.

Proportional tax - a tax that takes a constant percentage of income at all levels of income and is thus neither progressive or regressive.

Regressive tax - a tax that takes a lower percentage of income the higher the level of income.

Sales taxes are regressive to the extent that lower income groups tend to save a smaller share of their income. Bush’s tax plan, by lowering the top rate and leaving the alternative minimum tax in place is still progressive, but less so than the previous scheme, at higher levels of income. Ignoring that,

Now…2006…change
—…----…------
39.6…35%…4.6
36…33…3
31…28…3
28…25…3

15…15…0
…New 10…5

So for the first $6000 of income, the tax plan becomes more progressive at the very bottom of the distribution (where the new 10% rate is in place). For the middle vs the top it probably becomes somewhat more regressive (0 vs 3%) and at the very top it becomes more regressive (3 vs 4.6%).

Caveat: The above are marginal tax rates, while the definition of progressivity technically applies to average tax rates. And we are also ignoring estate tax changes, of course.

cap on wealth or income
…or a tax rate of 100%. Very few advocate that. I don’t, and I doubt whether jshore, kimstu, Cyberpundit or Coullounsbury do either. Nor does any living national US politician that I know of. (I won’t speak for Scylla or Sam Stone. :wink: )