Tax Cuts December 14, 2010March 19, 2017 Yesterday, in pointing out their collective support for the tax compromise, I asked: “Who are smarter, better informed, more capable, or better-intentioned than President Obama, President Clinton, and Mayor Bloomberg?” “Paul Krugman!” Several of you replied, linking me to his most recent op-ed. Tom Roth: “He’s at least as smart and he’s not so convinced.” ☞ I am a huge Krugman fan, as most of you know, and agree entirely that it’s infrastructure spending (broadly defined) not tax cuts that are the right kind of stimulus. I believe the Administration agrees as well. The reality, however, is that the Republicans, who have veto power in the Senate, block most of it. And the further reality is that we probably don’t want unemployment benefits to stop and taxes to go up for everyone January 1. So in the short term, this compromise should be accepted. But we all need to do everything we can to help get Krugman’s message out: deficits should be incurred to spur demand for things that will make us more efficient and competitive as a nation – not to spur demand for Frappuccinos and Xboxes, wonderful as both are. To which Tom replied: “I live in Ohio. We’re getting a new Governor in January, John Kasich. One of the original bomb throwers. First thing he’s done, even before his inauguration, is send back the $400 million Ohio got from the stimulus for high speed rail. Doesn’t believe in it. Pray for Ohio.” Kevin Knopf: “Who’s smarter than Obama/Clinton/Bloomberg? Is that a real question? Why don’t we start with Paul Krugman, winner of the Nobel prize in Economics? Professor of Economics at Princeton. He clearly opposed the government handout to the uber-rich, as do I.” ☞ As do I, too! As does President Obama! I think he’s said that 100 times. As does President Clinton! Kevin continues: “I would hope that if only 26% of the country want something our President would honor the 74% overwhelming majority.” Absolutely. But do we think that 74% are okay with seeing their tax cuts expire and unemployment benefits end in order to keep from extending the cuts over $250,000? That’s the choice the Republicans have given us. “No,” Kevin replied, “I was saying call the Republicans’ bluff. Let the public know WHY unemployment was held up – it’s a Faustian bargain; to continue unemployment we have to give outrageous tax breaks to the rich. Oy vey.” ☞ And what if, having had their bluff called, the Republicans had not have caved? The President didn’t want to play Russian roulette with millions of struggling families’ lives. Especially knowing that, come January 5, he’d face an even more truculent, majority-controlled Republican Congress. TAX HIKES INCREASE SMALL BUSINESS SPENDING Glenn Justice: “I used to be ‘banana Republican’ but finally saw the light. It was actually simply a matter of seeing the last decade of a totally right-wing government that I stopped drinking that Kool-Aid. I’d like to relate a story that I see repeated over and over with my small business clients, that on the surface defies logic, but is the way people actually act. Businesses spend more when tax rates are higher! As a small-business tax preparer, I can tell you they look at the after-tax cost of an investment. Here is a conversation that I had with a small business client just the other day: ‘I need to reduce my tax bill. What should I do?’ she asked. She was thinking about a $20,000 equipment purchase. Since she has been in the 15% tax bracket, I told her that a $20,000 investment would probably save her $3,000 in taxes. She was not impressed. However, after working out her current year numbers, I saw she had a good year and jumped into the 25% bracket, so the savings would now be $5,000 in taxes. She decided to make the purchase. This is the reality that I see that goes unmentioned in the debate. Small business owners are more apt to spend money when the after-tax cost goes down. Maybe that’s one of the reasons we had a much better economy in the 90’s under Clinton.” ☞ This behavior will not apply to everyone, but it doesn’t defy logic at all – the higher the tax brackets, the lower the after-tax cost of taking a risk. Why else would so many of us have gone into the nutty tax shelter deals we did in the 70s? (Bull semen, anyone?) The same with charity: at high rates, it costs people little to be generous.