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Tax and Stimulate
- LATEST COMMENTS
- Re-reading the last of my post - that I shortened because ... - dirtguy
- I listened to the show last night, and could not ... - pdxdevo
- Thank you for noting the extreme bias of the guest ... - fox
The proposed federal economic stimulus package passed by the US House is roughly two thirds spending and one third tax cuts. On Thursday we talked about the two billion dollars Oregon might get to repair roads, fix public housing, wisen up the electric grid and more. Monday we'll look at how the variety of tax changes might play out in the Northwest.
First off, there's a basic fight about whether spending or tax breaks work better to spur the economy. Then there's just a heck of a lot of tax cut proposals in the stimulus bill. There are credits for workers, new homeowners could benefit, and income tax cuts would depend on your income. Some families paying for college would get a break. Businesses may get tax savings aimed at increasing capital and renewable energy investments.
The state legislature is also turning to spending and tax cuts as a way to stimulate the economy. What tax changes would help you or your business most — and ripple fastest through the Northwest economy?
Tagged as: recession · stimulus · tax
Photo credit: pixieclipx / Flicker / Creative Commons
COMMENTS: (22 total)
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How are tax cuts supposed to help people who do not have jobs, or do not feel secure in their jobs, or businesses that do not have customers?
As long as people do not feel secure about their INCOME they will not spend, no matter how much "extra" money they have.
Also, we are already hugely in debt and cannot adequately fund even the programs and services we agree we need./ Why are we cutting taxes at all?
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I' m being completely self serving here, i think, as a stay at home mom, they could find a way tax wise or otherwise to encourage one parent to stay at home. voila-- more jobs in the market and less stress for those of us trying to live on one income. thanks! Elizabeth
salem or
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There is a discussion whether or not the tax cut as planned would stimulate the economy - For me it's very simple - I will spend the approximately $20 because it will hardly be "noticed", but I would save a lump sum payment because it is "noticeable"
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Can we please get away from this idea that only construction projects are stimulating for the economy. Pell grants mean that students can go to college, and colleges can hire staff. Smoking cessation programs hire counselors. World Bank research shows that Education and health projects provide a short-term stimulus, and long-term benefits in more productive workers, and less economic drag caused by expensive health care costs.
Tax-cuts don't put money in the pockets of people who need it, and don't build bridges, schools, windfarms or any of the things we need for a better future. It puts more money in the pockets of the same people who brought us to this point with money chasing unproductive investments at a time we need to get ready for the future.
Peter Noordijk
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I don't understand the argument against providing tax credits to low income people. I agree that they shouldn't be getting money back if they didn't pay out in the first place, so why not make them normal tax credits instead of the refundable kind? If they fall into the bracket of not paying taxes, then they don't get money back, so what's the problem? If they are paying taxes but making very little money, then most of that money will go straight into the economy.
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Tax reform to assist small landlords would help our family. We have two rentals that are going into foreclosure due to their decreased in value and we will face huge tax implications on the debt that is discharged.
Mortgage forgiveness tax benefits are only extended to owner occupied properties and this is going to force us into bankruptcy even though we have no other debt.
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Wisdom and its obverse.
The reason for speed in the current stimulus area is to save many small businesses that will have to shut because no one is spending money.
Effective stimulus must be directed at the "retail" level, namely to folks, not big institutions. A flat tax cut would be effective this way, say a $5,000 tax cut to everyone. (this is coming up in April.)
We must get state banks to lend Short Term, and make other banks compete. Have Huge penalties for lending long.
But to fix the economy, people need to have a long enough horizon to feel they can actually afford their mortgage. This will require an New economy, one not based on petroleum. (Otherwise Climate Instability will invalidate our agriculture resulting in famine and conflict.)
Thus short term money is critical and the 'where' so long as the money is among folks at ground level, is unimportant. But for long term prosperity, there must be a vision. That will not come in two weeks.
I write as an economist. Economics is not politics, any more than a public discussion of when to remove your gallbladder constitutes medicine.
What alarms me, is that the voices that lead us into this mess, the American Heritage Institute, The Enterprise Institute, et all still are part of the discussion. Would let the bus driver that took us over the cliff back behind the wheel?
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"What alarms me, is that the voices that lead us into this mess, the American Heritage Institute, The Enterprise Institute, et all still are part of the discussion. Would let the bus driver that took us over the cliff back behind the wheel?"
Remember that when Bush/Cheney made their way into office, the Conservative Republicans put their people into running the CPB, Corporation for Public Broadcasting, and NPR, National Public radio?
That has not yet been changed and so we are still getting spammed with Conservative Republican economic propaganda, including their revisionist history of the Great Depression and Reagans "Voodoo" "Trickle Down" economics.
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Your guest economist just made the trickle-down claim that cutting taxes makes revenue greater because the economy grows. While it is good theory, we have never seen that happen. This is the claim that was made about the 2001 Bush tax cuts. Often we are told that capital gains cuts have shown this, but that is merely rent-seeking that occurs as people cash-out their capital gains in a low tax year, but then rates have returned to normal trends shortly thereafter.
The marginal tax rate would have to be much higher than it is in order for the revenues from taxes to increase in response to a tax-cut.
Also, that theory requires that private investment be more productive than public investment, and I'm pretty sure we haven't seen that recently. Instead investing in education or renewables, we've been investing in overpriced real-estate, and the companies servicing that bubble.
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I know there are many theories about what stimulates the economy. But it's a twisted society that rewards the very wealthy who pay tax rates in the teens on the majority of their weath (investments) while the wage-earning stiff pays a tax rate in the 30s.
And the argument that corporations should pay lower tax rates because they can then afford to hire people seems thin these days. As we already know, CEOs are looking out of themselves.
I don't need my taxes lowered. But I do think fair is fair. Corporations and the wealthy should be paying their fair share. It will never happen because they have a voice and the people don't.
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I have a job, which hopefully will continue for a long time. I also have a cash reserve in case I lose my job. I could probably survive for a year at least if I lost my job.
I have a mortgage I can afford. I have no credit card balances. I have no car payment. I ride my bike for all in-town transportation, which only costs me the occasional flat repair. I live well within my means.
I already save any extra money I have. So if I had more money to save, I'd probably save that money too. Or perhaps I'd use the money to make double mortgage payments, which saves me more money than I'd ever make on investments right now. Or perhaps I'd buy a nice new commuter bike.
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Emily or David,
Love the program!
The problem with this discussion is people look at the taxes they pay and they simply want more money in their pocket rather then considering the larger society as a whole. Why are we having a conversation about tax cuts when we are borrowing record amounts of money for the Federal deficient?
The self employed folks that keep calling in, saying in effect that the extra taxes they pay keep them from expanding is a fallacy. Taxes are part of doing business, like buying supplies, and as such get passed on to their customers. If you lower taxes the prices we pay for their services would remain the same but they would pocket more money.
PS. This a little pet peeve of mine, the Democratic Party should not be referred to as“democrat” ie. a “democrat idea” when using it as a noun.
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I would like to have a definition of what exactly qualifies a business as small. Republicans can't be talking about the "small" businesses in my neighborhood.
Secondly, didn't Google, Microsoft, and many others of the boom thrive during the Clinton years when taxes were supposedly higher?
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I work for a firm with offices world wide. The firm is healthy though they have had a few projects put on hold, plenty of other projects are continuing. They are laying off people in anticipation of losing more work, not because they are in any danger of going bankrupt. Give them a tax break and are they going to hire more people? What for? They don't have the work for those people to do. It may be that when there is a buyer, there is a seller. But the corrollary is even more true - if there are no buyers, there are no sellers.
Give me a tax break of $20 a payday and I won't notice it. Give me a tax refund of $1000 and I'll pay down my credit cards.
I have a single-mom friend who makes less than $10,000 a year. Give her any kind of a tax credit and she will spend it - she has to. You want tax breaks to stimulate the economy? Give it to the poorest - they will spend it.
I read the article in the Orogonian Sunday about where the stimulus money would go in Oregon. How is upgrading HVAC systems and school restrooms not infrastructure improvements?
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Paul Krugman at http://krugman.blogs.nytimes.com/2009/01/19/getting-fiscal/ explains why Randall Pozdena is confused when he says Romer and others would like only monetary policy now.
Simply put, with "Today, however, with expected inflation roughly zero and a recession that is the fruit of past irrational exuberance, conventional monetary policy has run out of room." As Krugman notes in the column and his talk last week in Portland, if you run the monetary policy calculation we'd need a negative interest rate.
Just as Randall Pozdena was (and is) wrong to argue that social security ought to have been privatized, he's wrong to oppose fiscal policy at this time. He's not credible and its an insult to your listeners to rely upon him. There's a reason ECONorthwest does not allow him to use ECO's name when he publishes trash for Cascade Policy Institute, and that's because it is not credible and would directly tarnish their reputation.
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Thank you for noting the extreme bias of the guest. His ideas are not the minority in the field but neither are they the consensus. He is a devout and practicing professional monetarist. Having him on as the only expert opinion did a major disservice to the listeners. There's no point in even asking him questions about the current fiscal policy. We may as well go to a Baptist preacher for direction to enlightenment or for advice on the true nature of the Norse god Oden.
Many monetary policies do work--sometimes. Fiscal policies also work--sometimes. What Pozdena purposely skirted was that the Fed has already attempted a fix. They've been trying since the start. Yet they requested help from the government and the criminals went unpunished. Typical tax cuts and the policies that Pozdena believes in send money straight to those who have already stolen from the American people. They've shown that, unregulated, they will do the most damage they can get away with in order to make profits for themselves. Reinvestment looks quite out of their nature at this point. If they do it again, shame on us.
Our government is our business. Yes, it could be more efficient but we are already as a society invested in it. Our infrastructure is falling apart and not moving forward with the rest of the world; we need to stop neglecting our country, our community, our people--and in the interim save us all from hyperinflation and double-digit unemployment!
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The thing about Reagans "trickle down" economics is that giving tax cuts to the wealthy prevents investment in building and repairing the public infrastructure.
It is useful to think of Conservatism as being like a Malignant Cancer in our "Body Politic" that diverts needed nutrients and resources away from building and maintaining our Political Body, our Nation, away from our Constitutional duty to "Promote The General Welfare" and into the pockets of the wealthy instead of The People in general.
We ought to return to Progressive Taxes and a more fair form of economics.
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This economic decline is more like the Great Depression, (than a recession), in that, in both cases a failure in one part of the economy starts a domino effect that potentially works its' way through the whole economy. One segment of the economy not being able to do their job effects whether some other part of the economy can do their job, which effect some other parts of the economy, etc.. Left to run its' coarse it will eventually find a bottom and start to rebuild starting with the most essential sectors first.
The problem in this scenario is that people starve in the process. Plus, it even takes down parts of the economy that were truly essential and not part of the original bubble.
An example of how bank liquidity may have been one of the first domino to fall, but is no longer the primary concern, is the manufacturing sector. Consider a small business owner who manufactures something useful - say pots and pans. If their credit is good, Banks, via government pressure, 'want' to loan them money at a low interest rate. This to help stimulate production/jobs. But they no longer want to borrow money, for the same reason banks don't really want to lend it i.e., they may not be able to pay it back - even at 0%. They looks at their customers and know they are going to be selling less pots and pans. Going into debt makes no sense.
For the ecomomy to work 'everybody' needs money/work.
Producers need credit but will not use it if their potential customers are out of work or cash insecure. The producers biggest need is for more money in the hands of their customers.
The customers, who have lost their jobs, need more money/work.
Fortunately, society needs infrastructure and other work done.
The best strategy from this perspective would be for Government to spend money in the short run on the people who have lost jobs, i.e., enough for them to buy essentials, while encouraging them to try to supliment their situation with work. This would keep the most essential producers producing.
This while government gets busy on job creation and training for the infrastructure needs of the future.
Taxs as usual should be calibrated on abilty to pay, on the low end. On the high end, we should use tax breaks to incentivise benefits to society. -
I keep hearing that tax cuts will stimulate the economy. I have to say that this is the lamest excuse I have ever heard. Investing in the economy by hiring new employees and creating new businesses are both deductible. The only thing that gets taxed is the money that is kept. This country is home to half the world's billionaires. Obviously the tax rate is not prohibitively high. To those whom much is given much is expected. Why is the group most capable of supporting the society that gave them the opportunities in which they succeeded not more obligated to support it? The last time I checked $50 million jets and houses were not a significant part of the economy.
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Re-reading the last of my post - that I shortened because of space - I could see how it might be construed to mean that I thought tax cuts to the rich would stimulate the economy. I do not.
The quote: "To whom much is given, much is required." is one of my favorite. I have used it often, for many decades.
Entrepreneurs in general - rich or not - will often be able to do more ( hopefully good) if their taxes are reduced. So tying tax breaks to job creation, (you point out we already do), and other social benefits seems resonable. My underlying principle is one of always assessing the effectiveness of the 'carrots and sticks' we are using, and readjusting as we go. These people are like Stallions, they may need a strong hand now and then, but it is a waste of energy to skimp on their feed, (unless that is the only way you can control them).
For the 'idle' rich, we can only present them with ever more options to help, that they might feel good about. One negative consequence of polarized debates is that in the heat of the battle the combatants have less and less surplus energy to look for areas of agreement. An example would be a pro-choice combatant and an anti-abortion combatant becoming blind to the fact that they both are in agreement about the need for good adoptions.
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I listened to the show last night, and could not believe the guy who suggested the government should guarantee private loans so businesses like his can get capital "for new projects". I also could not believe neither the host nor Randall Pozdena questioned this in any way.
What the caller was suggesting was that private investors be able to collect their interest on these loans WITHOUT ANY RISK since Uncle Sam would back them up if these "projects", started during a recession, happened to fail and the loan was not repaid. In other words, he would like to borrow the logic of the investment banks who took on exhorbitant risk, only to have we, the taxpayers, keep them from failing.
Um, no thanks. I've have enough subsidizing other peoples profits and bonuses, thank you very much. While I am all for seeking efficient ways to stimulate the economy, and not opposed to tax incentives, I am not interested in giveaways. And I am interested in providing something of value to the public (the taxpayers), such as improved highways, bridges, railways, energy grids, schools, parks -- all those things that we keep reading are falling behind in repairs.
Also, part of the reason capital may be hard to come by is that new ventures seeking capital look very risky in this economy. If thats really the case, should we be throwing public money at them?
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Mark Zandi, chief economist at Moody's economy.com has calculated the "bang for the buck" of different strategies (tax cuts and spending choices).
See chart on page 8 of http://www.economy.com/mark-zandi/documents/The_Economic_Impact_of_a_$750_Billion_Fiscal_Stimulus_Package.pdf.
You will see that spending increases that get money flowing into the economy work better than each of the tax cuts.