Last night, Shelly made a good comment and left a link to a very good article by Roger Lowenstein that appeared in Newsweek. This is worth reading itself.
The title is arresting enough: 'Stop the Panic. It's not 2008.' It;s arresting in that it seems pretty counter intuitive. Just yesterday we got some more bad economic numbers in some manufacturing indexes and another increase in jobless claims. The market fell sharply again. Housing still is depressed. How can Lowenstein be so sanguine? He opens with some analysis by the economist Mark Zandi:
"Mark Zandi, an economist, called from the airport in Orlando with news: “The fundamentals of the U.S. economy are better than they have been in 15 to 20 years.”
This no doubt gives us a feeling of rather pervasive dissonance. As Lowenstein notes, Zandi made this assertion on August 14 just as the market was dropping 520 points. Yet Zandi's bullishness is due to the fact that "American households have pared their debt—significantly. Corporations are rolling in cash. Banks are profitable and far better capitalized. "
Of coursers one hopes this is true but it's hard to wrap you head around...
Lowenstein then talks about S&P. He feels that their actions are legitimate and don't deserve the criticism they have received from the Administration and elsewhere. I don't follow him there but it is true that the concern over the Bush tax cuts are legitimate.
Of the cuts he says, "Ever since the Bush-era tax cuts of 2001 and 2003, the government has suffered from self-induced anorexia. Those oft-debated but never rescinded tax breaks have steadily drained the Treasury and added to its borrowings."
"It’s hard to overstate the extent to which these cuts have been, and continue to be, the worm in Uncle Sam’s apple. They have cost the U.S. $3 trillion; the stimulus, by contrast, cost $1 trillion. If the cuts are extended, over the next decade they will bleed the Treasury of $5.4 trillion more."
Of Obama he says,
"Obama had a chance to let them expire in 2010; he blew it. He has another chance after the 2012 election. This time Obama should let them expire; indeed, he should campaign on a platform of achieving budgetary sanity via adjustments on both taxes and spending. The Republicans will repeat their pledge of no taxes. Let’s see who wins."
The reason Obama didn't let them expire is the Republicans refused to extend the cuts for the middle class and poor and allow just those on the wealthy to expire-both the top rate returning to 39.6 and the capital gains and dividends returning from the much lower current level to the same.
Yet Lowenstein's point is significant. He's arguing that we should let them all expire not just the top rates. Technically this is a point worth considering. The trouble is that no politician-not Obama and not the Congressional Democrats would dare risk being attacked for raising taxes on the middle class and the poor. Most Americans want the top rate cuts to expire. How many would be willing to see their rate go up?
I guess the fair question is, and this is where some focus group polling would be helpful, what would the average American say if the question is posed as to which would the prefer the to keep their Bush era somewhat lower tax rates and maybe a few extra tax credits but with the depressed economy and job growth we have seen over the last 10 years or slightly higher rates on income and maybe a couple fewer or lower tax credits but a much more healthy economy with the kind of employment, rising standard of living, and public services we saw in the 90s?
Overall I would probably like to see some of the tax credits for the poor and middle class retained: child tax credit, expanded earned income credit. Overall on of the many things I hated about the tax cuts is they focused so much on income taxes while most Americans-4 out of 5-pay most of their taxes in payroll taxes. Another thing which made the Bush cuts even more regressive is that as the US income tax has marginal rates, while the lowest rate saw it's taxes go down from 15 to 10 the highest rate saw it drop from 39.6 to 35 but as these are marginal rates those in the top rates also enjoyed a drop from 15 to 10 on the level of their income in this bottom rate, and the same applies at each tax level so that the top rate got not one but 5 cuts, the 2nd got 4, the third 3, the forth 2, the bottom only 1.
Ideally then it would be a good thing to see not only top rates go back to 39.6 but maybe eliminate the marginal rates for them or at least raise them. In additon I'd like to see the payroll tax become progressive-right now it's the most regressive tax, flat 16.5% for everyone and even worse, capped at $106,800 of income. Finally we should lift this cap.
This would give us a sharp increase in revenue. So I would probaly prefer this to allowing all the rates to go up on those with lower incomes as well. In a way this shows how brilliant the Bush budget team was as even liberals find it difficult to call for the entire cut to expire, so all they have to do is what the GOP did last year and refuse to vote on the middle and poor tax cuts separately.
So Lowenstein and I agree that the Bush tax cuts are the fly in the fiscal US ointment. Where we might disagree is where he says
"Deficit doves will say the economy still needs stimulus. They are right that anti-recession measures such as the reduced payroll tax should be extended. If employment doesn’t pick up, I would favor a targeted jobs program, too. But a little patience is in order. The economy is sluggish because consumers have been repaying their debts. That always takes time after a financial crisis. The good news is, the typical household’s debt service, as a percentage of income, is now nearing record lows. Mortgage debt is still falling, but credit-card borrowing is ticking up. Translation: spending should pick up soon. (And note: letting the tax cuts expire will not mean Hoover-style prudence; we would still be running big deficits.)"
I am something of a "deficit dove" myself and do feel like we need more stimulus. And the reduced payroll tax doesn't seem enough-like small beer plus it could also be used to defund SS I worry. He does however allow that if employment doesn't pick up he would favor a targeted jobs program too, perhaps like what Obama will announce in September.
Perhaps he's right about things taking a little time. Certainly hope he's right about this.
However I agree about the Bush tax cuts. A new movement-like Recall Walker, or Pink Slip Rick-should be started EXPIRE THE BUSH TAX CUTS! Can see the website already.