The tax cut debate

Posted at 11:09 AM on September 17, 2010 by Bob Collins (8 Comments)
Filed under: Economy

For the most part, there's no middle ground on the question of tax cuts and allowing the so-called "Bush tax cuts" to expire. People are either on one side or the other, especially since the theory of whether lower tax cut spurs economic growth remains a hotly debated point.

Daniel Gross, writing on Slate, raises five points to consider during the ongoing debate. One is that the people who were in charge at the time the tax cuts were enacted, are many of the same people who are clamoring for them to be made permanent, but they're also the ones who made them temporary in the first place. Welcome to the exciting world of Congress!

But it's on the question of economic growth that Gross, who certainly has a point of view, launches his more vigorous attack against conventional wisdom:

The bold and confident assertions made about the links between tax rates and economic growth, market performance, and prosperity are almost certainly wrong. Turn on CNBC or look at the Wall Street Journal op-ed page these days, and you'll learn that we must keep tax rates on capital gains, dividends, and income precisely where they are because shifting them to different levels will retard economic growth. Keep this in mind: The people who designed the current, unsustainable tax system promised us that lower marginal rates, and lower taxes on capital and dividends, would boost the economy, promote investment, create jobs, spur market performance, and raise everybody's income. They were wrong. (It's no coincidence that these same people also warned us that raising taxes in 1993 would kill market returns and the economy. They were wrong then, too. They're pretty much always wrong.) As I've pointed out, the years under the current tax regime have been a lost decade. Pick your metric--median income, employment, stock market returns, economic growth--the low-tax '00s sucked. Yet proponents of keeping the tax cuts persist in making the argument: To avoid a repeat of the past decade, we must have the exact same tax policies as we did for the past decade.

The Wall St. community had a response. Appearing on CNBC today, Bernie Marcus, the guy who started Home Depot, launched an unusually strident attack on Obama administration policies:

"My solution is that you take a guy like Timothy Geithner and put him in a new reality show. It's called 'Timothy Geithner Does Small Business', something like [the porn movie] 'Debbie Does Dallas', and it ends up the same way," said Marcus. "Basically, what they're doing to small business is very similar in this case [to what 'Debbie' did to Dallas.]"

Later, Marcus said the tea party movement is "a good thing," because "we should throw everybody out who's stupid."

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Comments (8)

Hmmm ... The guy who founded Home Depot speaks for small business? Now I have another store to avoid.

Posted by John P | September 17, 2010 12:05 PM

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What the Slate article fails to point out is in the 1990s we had brisk economic growth becuase of the creation of new weather (software, hardware, and e-commerce all exploded) which negated the effects of higher taxes. Also the 1990s had shrinking deficits. In the 2000s, the over-zealous investments burst, further coupled by 9/11, a war, and massive deficit spending over-ruled any positive effect the tax cuts had on the economy.

I would agree to letting the cuts expire if the feds also balanced their budget. Cut spending, raise a little more money, pay down our debt, and you will see the economy move forward. It would grow faster with both the tax cuts extended AND balancing the budget, but you can't get everything all at once.

Posted by Eric | September 17, 2010 12:08 PM

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Let's not pretend there's some mystery as to why these tax cuts were temporary. The current debate and mudslinging is all the explanation needed.

They WANT and NEED this debate. Just like if abortion were finally made illegal, they couldn't use it as a wedge anymore. Pick your wedge issue, the same logic follows.

Posted by Disco | September 17, 2010 12:11 PM

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@Disco - how does abortion relate to tax cuts and the economy?

And you've made a presumtion that abortion will someday be illegal. Without raising too much debate off topic - you realize at this point the only way to make it illegal would be a constitutional amendment or a dramatic shift on the Supreme Court (both Hurculean tasks).

The debate here is a question of economic theory and economic principles and ideas the different elected officials carry. It has been that way since governments were formed. It is part of the democratic process. I do wish these leaders would lead and admit they need the revenue AND we need to cut spending. Don't believe me? Go to www.usdebtclock.org and tell me those numbers are not a recipe for disaster.

Posted by Eric | September 17, 2010 12:20 PM

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Actually, the reason that they were temporary in the first place was to reduce the sticker price and make them look more palatable, with an already large deficit and growing debt. There was also the assumption by certain Republican leaders (Rove and DeLay, especially) that they had entered an era of permanent Republican majority, so the expiration wouldn't matter, because they'd be around to extend them again. Whoops.

Posted by MR | September 17, 2010 1:03 PM

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I think the assumption that this is simply a debate about legitimate economic policy (if there is such a thing) is mistaken. It's political strategy. It doesn't matter what the tax burden is on any given election year, conservatives (and some liberals) will always campaign on tax cuts. And Americans, who treat tax policy as an end rather than a means, fall for it every time.

Posted by Zebulun | September 17, 2010 1:11 PM

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I am very pleased that so many people here have figured out that this "issue" has absolutely nothing to do with economy, taxes, or anything in reality - it is only an attempt to create a new "wedge issue".

While it's always hard to attach motives to people who raise issues and propagate them, the way this particular "debate" has gone down shows the truth. Those who are participating have absolutely no regard for reality whatsoever. Many are the same people who railed against "ivory tower theories" when they were proposed by the left - and rightfully so.

There is nothing to this "debate" at all. It is simply election year strategy at its worst. I predict that nothing will happen before the election and that the new Congress will quietly allow the higher end tax cuts to expire.

Posted by Erik Hare | September 17, 2010 2:19 PM

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MR writes
"Actually, the reason that they were temporary in the first place was to reduce the sticker price and make them look more palatable, with an already large deficit and growing debt."

Actually the reason they were made temporary in the first place was because the Repubs couldn't overcome a Dem filibuster & used the reconciliation process. Due to congressional rules, you only need a majority to pass reconciliation, but you cannot add to the long term debt using that process. So - the cuts were temporary because they had to use reconciliation to pass them; they had to use reconciliation to outmaneuver the Dems who were going to filibuster the cuts.

We saw the flip side to that process this year with health care reform. Dems had the 60 votes they needed to overcome the GOP filibuster, until TK died. When Brown (R) won the special election, Dems couldn't overcome the filibuster threat & used reconciliation to pass a bill that didn't have 60 votes in the Senate.

Posted by bsimon | September 17, 2010 2:35 PM

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