Democratic Senators Not Fond of Obama's Tax Cuts ...
... though it's not the questionably valuable business tax benefits that are catching the most flak. Before Democrats ducked into a private briefing with Obama's White House economic adviser-in-waiting, Larry Summers, those on the Senate finance committee had a closed-door session to talk shop on the stimulus. They came out decidedly unimpressed by Obama's proposed payroll tax cuts -- which amount to $500 per person, distributed in small amounts over several paychecks.
The Democratic senators were equally doubtful about Obama's proffered $3,000 tax credit to business that hire new workers. As Sen. Kent Conrad (D-ND), a bellwether centrist, told CNN:
I think it's unlikely to be effective. If you think about it, business people are not going to hire people to produce products that are not selling. Who is going to hire in the auto industry if you give them a $3,000 credit to make cars that people are not buying?
No one's saying this will bring down the bill. In fact, the House ways and means committee is already said to be scheduling drafting sessions. But stepping back to look at the timeframe, the stimulus will still need to be cleared by as many as three committees on each side of the Capitol by the end of Inauguration week, which leaves three more weeks for simultaneous debate in both houses of Congress as well as a conference committee to produce a unified final product.
The old question about deadline pressure still applies.
This mythbusting of conservative economic propaganda hits the tax issue in a couple different ways, very good:
http://www.ourfuture.org/blog-entry/2009010208/firing-back-mythbusting-obama-recovery-package
January 8, 2009 4:07 PM | Reply | Permalink
Tax cuts -- particularly for those who are very inclined to spend the money -- work. Tax cuts just don't increase aggregate demand as well as government spending does.
January 8, 2009 5:34 PM | Reply | Permalink
Hey, I am thrilled to think that Congress members of either party are willing to ask whether tax cuts actually do any good. I do rather have to wonder, however, why they have chosen this precise moment to finally get serious about such matters. Where was this sort of healthy skepticism 7 years ago?
January 8, 2009 4:08 PM | Reply | Permalink
No doubt, the same goes for criticizing executive appointments. Gupta comes around and suddenly people question qualifications. I would have liked to have seen that in the last 8 years.
January 8, 2009 4:13 PM | Reply | Permalink
And this just illustrates the misery that the Bush Administration and the complicit Congress has thrust upon our political scene.
We should question appointments, and tax cuts, and whatever Obama plans on doing. However, after the Bush years, I tend to want to say "STFU, Congress. You didn't stand up to Bush; you have no place to be an obstacle to someone who is infinitely more concerned with the country than you." In other words, I'm behaving just like the members of Congress that I'm criticizing.
January 8, 2009 4:20 PM | Reply | Permalink
If I might make bold to disagree, I actually think that there is (or at least could be) an important distinction between your stand and that of these Congress members. It seems to me that when the country is facing a real crisis (as at present) need to be relaxed. It will do us no good if we spend so long hammering out the perfect stimulus package that the economy dives into another great depression in the meanwhile.
On the other hand, when the country is on essentially sound footing (as it was at the time when the second round of Bush tax cuts were being debated) then there is no excuse not to employ the sort of healthy skepticism we are suddenly seeing emerge. In other words, the Congress is being reckless at the times when caution is in order and cautious at the times that call for more bold approaches. I think that you are entirely right to find yourself thinking annoyed thoughts when faced with such Congressional behavior.
January 8, 2009 4:26 PM | Reply | Permalink
You are amazingly articulate, bagpiper, and you've put your finger precisely on the problem. Thanks.
January 8, 2009 4:39 PM | Reply | Permalink
Ha Ha -- Yes, Congressional Democrats may start to show some back-bone, now that they're up against a Democratic administration!
January 8, 2009 4:17 PM | Reply | Permalink
Democrats were in the minority at that time, and therefore lacked relevance. The only way for a minority party to be relevant is to work with the majority party.
Now that Democrats are in the majority, and are therefore relevant. If they criticize the President, their criticism is relevant.
Keep this in mind.
January 8, 2009 5:39 PM | Reply | Permalink
The "they were in the minority at that time" argument seems like an apology for the Democrats failure to be an actual opposition party.
If they weren't relevant when they were in the minority, it wasn't because they were in the minority. It was because they were doing a bad job of being in that minority.
January 8, 2009 5:55 PM | Reply | Permalink
Many Democrats teamed up with Republicans to support practically all the Bush policies, so it's not surprising that they will team up with the Republicans to oppose Obama's policies.
Makes sense.
January 8, 2009 4:36 PM | Reply | Permalink
It will be interesting to see what they say after the private meeting with Larry Summers.
I am sure that Obama isn't wedded to the tax cut idea and he seems to be all about getting things done.
If the Dem Senators have a better idea that can be passed by a good size portion of the House and Senate that will stimulate the economy, I am sure that Obama will be open to that idea.
Obama hasn't given that much specifics so it will be interesting to see what the FINAL bill looks like.
January 8, 2009 4:42 PM | Reply | Permalink
Hey all
Let's get a life. Let's not begin attacking "motives" (Kent Conrad's motives specifically or "Democrats" in general) just because they might not be marching to your own drum. Let's deal with the substance issues Conrad is raising. You know, he might be right. Is that possible?
January 8, 2009 4:44 PM | Reply | Permalink
Let me get this straight. These guys voted for tax cuts for rich people with reckless abandon for eight years, but when Obama asks them to enact precisely his campaign pledge to give middle class workers precisely these tax cuts, they balk? At the same time they're talking about how dangerous it would be to let Bush's tax cuts sunset? Are you effing kidding me?
And yeah, these would be precisely the middle class tax cuts that he specified in every version of his stump speech and that he mentioned in every debate. I don't give a damn if people just pay off debt with them. They were perfectly willing to have the Federal Government buy consumer debt from Wall Street. Why not buy some of it from the other end and, in the process, get the folks on Main Street out from under a little of it?
January 8, 2009 4:46 PM | Reply | Permalink
A teency $500 spread over multiple pay checks? You call that a middle class tax cut? I call it chump change.
January 8, 2009 5:56 PM | Reply | Permalink
2/3rds of the economy is consumption: i.e. demand. 1/3 is supply. As a result, supply side policies are basically pushing on a string.
For the last 30 years we've fed the supply side. In the last 8 years as much as $10 trillion, with a t, has made its way from the demand side to the supply side. Not only has that not worked, there is no history of it ever working (though there's a logical case for it in times of inflation or stagflation).
Furthermore there is a long history, from the current mess, to the Great Depression to the Fall of Rome (and even further back) that suggest that most of history's epic disasters are the result of concentrated wealth.
Conversely, From the early 1940s to the early 1960s the highest income tiers were taxed at 95% and those were the years of some of the highest economic growth in history of history, both here and globally. And everyone benefited - the poor, middle class and wealthy - this is not a heads the poor lose, tails the rich lose, demand side economics benefits everybody.
In essence, Obama can tax the sh*t out of the wealthy and the rich and it will have no negative effects on the economy. That's just money that is on the sidelines doing nothing for the economy.
We've had 30 year of "Feed the Rich, Starve the Poor". It's high time for reversal of that. As FDR said, not only is Supply Side economics bad morals, it's also bad economics.
Oh, and the idea that stimulus didn't work in the 1930s is false: England, Germany and Japan did it and it worked. Japan did it first in 1932 and was out of the depression by 1933 - by 1939 their industrial production had grown 100%. Germany did it in 1933 and was out of the depression by 1934, and had a labor shortage in 1936. England did it in 1934 and was out of the Depression in 1935.
Not only did the Republican party give us the great depression, they wanted to keep us there. Not oony did they give us the great depression once, but now theyve given it to us twice, and once again they want to keep us there. They prefer to "Feed the Rich, by Starving the Poor." It never ends.
January 8, 2009 4:54 PM | Reply | Permalink
Kent Conrad nailed it. The $500 tax "incentives" under discussion are no incentive at all, but are simply supply-side voodoo-economics and a giveaway to those who would have created the jobs anyway (it only covers about two weeks of wages for minimum wage employees).
The best incentive for business to create jobs is to create demand for their products and services either through government spending or through tax cuts or tax credits (e.g. Earned Income Tax Credit) limited to those who are most likely to spend it (the unemployed, the poor and the lower middle class).
January 8, 2009 4:58 PM | Reply | Permalink
Oops. Correction. $3,000 tax credit to employers that hire new employees, not $500. Even worse.
The $500 payroll tax credit is also a bad idea too.
Again, all tax cuts/credits should be limited to those most likely to spend (Google "marginal propensity to consume" and "multiplier effect").
January 8, 2009 5:07 PM | Reply | Permalink
Isn't a payroll tax cut geared towards those most likely to spend it? Even those who pay no income tax pay payroll taxes, so this is a tax cut geared towards the lower income brackets - precisely the sort of folks most likely to use the money to buy groceries or pay rent (as opposed to parking it in a Thai hedge fund, or some such).
In any event, I agree with you about Conrad being right about the $3000 credit. It seems to me, however, that this is a time when being right is perhaps less important than being speedy.
January 8, 2009 5:11 PM | Reply | Permalink
It's an extra $20 in the paycheck per week. It's not that really effective.
January 8, 2009 5:36 PM | Reply | Permalink
I disagree. $20/wk. every week makes a big difference. I noticed that when my government paycheck increased by $40/biweekly. $20 doesn't seem like much at first, but when it comes in week after week, it makes a big difference.
January 8, 2009 5:43 PM | Reply | Permalink
YES! Somebody gets it. The reason helicopter money is ineffective is that people know it's a one-time thing. They don't change their spending habits based on a one-time check - they're more likely to pay off bills or save it. OTOH, $20/week doesn't sound like much, which is precisely the point - people will spend it without paying attention to it, but multiplied over millions of people, that's a lot of spending, which is to say a large increase in aggregate demand. Someone has to make all that extra stuff, so you create jobs.
January 8, 2009 6:21 PM | Reply | Permalink
Sounds like 'Regan Voodoo economics' to me.
January 8, 2009 5:46 PM | Reply | Permalink
Unless the original post is leaving something out, the payroll tax cut would be $500 per person...period. Meaning that persons compensated $20,000 per year would get the tax cut and persons compensated $10 million per year would get the tax cut. The former is likely to spend it. The latter? Not so much.
Again, tax cuts should be limited to those at the bottom of the economic ladder where they're more likely to create immediate demand in the economy.
January 8, 2009 6:11 PM | Reply | Permalink
You misread the article. It is a 500 dollar tax CUT FOR INDIVIDUALS. A 3000 tax incentive for BUSINESSES.
January 8, 2009 5:10 PM | Reply | Permalink
What's the difference between Obama's "Making Work Pay" tax credit and expanding the Earned Income Tax Credit? Income qualifications?
Also, the Obama tax cut is not a one-time rebate like the stimulus bill that passed last year; the Obama "Making Work Pay" tax credit is permanent. The permanence of the tax credit -- while not as effective as government spending measures -- should be more effective in getting consumers to spend.
I agree with you on the $3,000 tax credit for hiring an additional worker. It's a bad idea, and ripe for abuse. Should a company that lays off 2,000 workers, and then hires 300 be deserving of the tax credit for those 300 people they hire?
January 8, 2009 5:32 PM | Reply | Permalink
I think you're right. The EITC has income limits. Obama's payroll tax credit has no such limitation that I know of.
And yes, given our rapidly growing national debt, tax cuts of any kind that don't have a immediate and direct stimulant effect on the economy are irresponsible--doubly so if they're permanent.
January 8, 2009 6:37 PM | Reply | Permalink
Can someone please explain to me how giving money to the unemployed, poor and lower middle class will help to rev up the economy? I belong in that group and if I were to get a check in the mail I would not be running to Macy's or buying a car. I'd be paying rent and catching up on bills. The day I was let go, my boss and his wife felt so bad that they gave me a $300 gift card to Macy's. That was back in August and I still have a lot of money on the card. I could have run wild with it over Christmas but I'm holding on to it just in case I need an outfit for an interview, or if an appliance breaks down or my shows wear out beyond repair - necessities. Obama promised tax cuts for the middle class and they should get it. With the exception of the rich - WE ALL deserve a break of some kind. If Dem senators or any of you had a problem with this then it should have been brought to his attention over the 1 million times Obama said it over the campaign. Seriously, where was this balking during the campaign? He didn't give specifics then but he said tax cuts and he meant tax cuts and I didn't see this many articles or questions about this.
January 8, 2009 5:36 PM | Reply | Permalink
And before anyone asks, I got severance pay not just the gift card. Also, I'm not against tax cuts for the poor but we are not the only ones who should get a break. In addition, why are some acting like the tax cuts is all that the stimulus is about?
January 8, 2009 5:54 PM | Reply | Permalink
You answered your own question..."If I were to get a check in the mail...I'd be paying rent and catching up on bills." That's the difference between you and those higher up the economic ladder. In your case, the money goes right back into the economy, benefiting all of us. That's not necessarily true for those higher up the scale.
January 8, 2009 6:19 PM | Reply | Permalink
anew08: Re: getting let go... I've been there. Good luck during this time. Read http://www.daveramsey.com/ and employ some of his techniques to help you batton down the hatches (I did the same for most of the last year). He's the real deal. Good luck! :)
PS - Macy's just closed a bunch of stores (""Stores slated to close include locations in Los Angeles, West Palm Beach, Fla., Nashville, Tenn., and St. Louis, among others.""). Check your area to make sure your local one isn't going out of business...
http://www.huffingtonpost.com/2009/01/08/macys-closing-11-stores-n_n_156187.html
January 8, 2009 8:34 PM | Reply | Permalink
I'm in NYC. Herald Square should be safe.
January 9, 2009 1:11 AM | Reply | Permalink
Kent Conrad is right. This is where i part with Obama. Obama's tax cuts will do nothing to help the poor and middle class nor business. Before he consider additional tax cuts he needs to repeal Bush's disastrous tax cuts.
January 8, 2009 5:19 PM | Reply | Permalink
I think this misses the point. It's true that businesses will not hire people based on a tax credit, however, when the economy begins to recover and people begin spending again, this tax credit will certainly speed the hiring process up.
January 8, 2009 6:10 PM | Reply | Permalink
$750 should be sent to individuals in the form of a rebate. And they need to get the checks out much faster than they did last year. Then they should add about $1,000 gradually in the form of the payroll tax break. They need to work language into it, however, that addresses the issue of people getting laid off before they can collect the payroll tax. So if people get laid off, they can still collect the $1,000. Subsequent to the tax breaks, they need to follow through with heavy infrastructure spending that has the greatest potential for job creation.
At any rate, it's discouraging to see the senate Dems losing their way already. Obama talked about tax breaks on the campaign trail all year. Every day at the office, my Republican associates have been telling me that Obama and the Dems won't go through with the tax breaks for the middle class when they get in office.
Were they right?
January 8, 2009 6:29 PM | Reply | Permalink
A) How do cuts in payroll taxes help the unemployed? The retirees?
B) Has anyone examined the proposition that people are not buying stuff because they already have a lot of stuff and don't need any more?
C) Maybe they need health care, or child care, or care for their parents.
D) How about pushing for re-unification of Korea, pulling our troops out of Korea, Japan, the Middle East, and Europe, and using the savings to pay for health care, day care, education? What's wrong with that?
E) They are never going to put this economy back together the way it was. They can spend $10,000,000,000, and they won't get it back. It is gone!
F) They talk about Japan's lost decade in the 90's, when the country was fighting deflation, and they ask whether we will face the same thing. Hey, guys, we already lost this decade. We spent $5,000,000,000 on a stupid war when we could have spent that money on mass transit, education, a smart grid, alternative energy sources.
January 8, 2009 9:51 PM | Reply | Permalink
HA! People not buying stuff because they already have a lot of stuff - yeah I don't think so. They may have a lot of stuff but when they see a commercial for stuff 2.0 - they have to have it. People aren't buying because they are scared.
January 9, 2009 1:16 AM | Reply | Permalink
Voodoo economics? How about Voodoo Intelligence Advisor! After all, didn't the nominee do all he could to assist the genocide in East Timor?
This particular nomination is beyond disgusting.
January 8, 2009 10:11 PM | Reply | Permalink
In a way, this can play into Obama's hands. He said the real cost could be up to $1.3 trillion (*much* higher than now). If he starts with small tax cuts being a big portion (which I agree with many is stupid on its own), that pleases Republicans, catches some populist appeal, and then Dems and porkers can start adding what other job-creation schemes they'd like to see in the bill. (Maybe some prominent legislator needs a new train line to his home town, etc.)
January 9, 2009 2:31 AM | Reply | Permalink