Well, it's Christmas Eve (or so), which means it's time to check the headlines for any "Keep This Under Your Hat, Boys" announcements from the Bushes at 1600. Ten years ago, you may recall, Bush the Elder pardoned Caspar Weinberger and 5 others (including new Bush II employee Elliott Abrams) on December 24th -- the darkest hole of news coverage of the entire year -- thus sparing himself and several Republican heavyweights the embarrassment of testifying about their role in the Iran-Contra affair and effectively ending the investigation by Special prosecutor (and Republican) Larry Walsh. The Clinton quote in that first article is pretty ripe; the Clinton-haters will pounce on it, but we can always go a couple rounds on the relative moralities of circumventing Congress versus circumventing Hillary.
For the record, Walsh was considering indicting Bush for withholding his notes from the relevant time period; the Wee Bush has since made it harder to get to his dad's records, via executive order. Check out Bob Dole's unbelievable hatchet job on Walsh at the end of that story and his subsequent high dudgeon at Walsh's outrageous 5.6 million dollar investigation. Kids' stuff, of course, as we would later learn.
Anyway, I'm excited about tomorrow morning, naturally, so I'm up listening for reindeer paws on the roof (paws or hoofs... or hooves? the traditional songs are all over the map on this issue). Thinking back to '92, I decided to check the headlines. And sure enough, there's some exciting news from Team Bush. Not as scandalous or underhanded as dad's little lump of coal (the stakes were pretty high back then and this is just timing spin).
But still: depending on how you choose to read between these lines, this could be a bold move to level the taxation playing field (rewarding those who, by dint of hard work and tenacity, have put themselves in a position to benefit)... OR, on the other hand, it could be a further jiggering of rules to benefit an upper echelon of wealthy elites (at the expense of those who, by dint of hard work and tenacity, struggle to get by). As you read, you might also consider the word going round that a half a million low-income families are losing their home-heating subsidies on Bush's watch. I highlighted a few phrases in the article that leapt out at me.
White House Aides Push for 50% Cut in Dividend Taxes
WASHINGTON, Dec. 24 - White House officials are urging President Bush to propose cutting taxes on corporate dividends for shareholders by about half, according to administration officials and Republicans close to the White House. The proposal, likely to be a crucial part of the tax-cutting plan Mr. Bush will announce in January, is intended to stimulate the economy and reduce what many economists say is an incentive in the current law for companies to avoid paying dividends and to run up debt. While many economists think it would do little to bolster the economy quickly, they say the proposal would give a boost to the stock market.
The 50 percent cut would cost the Treasury more than $100 billion over 10 years, and the tax benefits would overwhelmingly flow to the nation's very wealthiest taxpayers. Mr. Bush is in favor of some kind of reduction in the tax on dividends, a White House official said, but has not settled on an amount.
President Bush's entire tax package is expected to provide as much as $300 billion in reductions over 10 years. It is almost certain to speed up both tax cuts that were supposed to take effect over the next several years and corporate write-offs for investment in new equipment. Officials are also considering measures that benefit middle- or lower-income families, like a more rapid increase in the child-care tax credit.
Administration officials contend that reducing dividend taxes would immediately increase the underlying value of companies and lower their cost of capital. The short-term political appeal is its potential effect on the stock market, because it would instantly make shares of any company that pays dividends more valuable than before.
The long-term benefit of a cut in the dividend tax, the officials say, would be to greatly reduce the market distortions of taxing dividends twice - once as corporate profits and once as dividend income to shareholders - while granting tax deductions on debt interest payments. For shareholders, dividends are now taxed as ordinary income at rates of up to 38.6 percent. By comparison, the maximum tax rate on capital gains - the profit made from the increase in value of shares or other kinds of property - is 20 percent.
Many economists are skeptical that a cut in dividend taxes would provide much immediate stimulus to the economy, which has been Mr. Bush's most important justification for new tax cuts. It would be at least a year before shareholders see any extra money, and the measure would not leave extra money in corporate coffers.
"One wouldn't think of this as the first or second or even third measure to stimulate consumption or investment," said Alan Auerbach, an economist at the University of California at Berkeley who has studied the issue for years....
But why should anyone think twice about a wealthy politician changing government regulations to benefit the wealthy regulated who put him in office? Isn't that what government is for? Isn't that the American Dream after all? Isn't it just liberal class warfare to keep bringing this up, over and over again? Isn't taking care of rich, powerful Christian golf buddies just as valid as looking out for the impoverished, the voiceless, or the differently spiritual?
As the fat man says: Ho, ho, ho!
Peaceful holidays to all, even (or maybe especially) to those with friends in high places. May everyone find happiness, and freedom from the causes of suffering.
| George W. Bush | Wadministration |
The connection between the links is that the Bush economic policy seems continually to be directed at benefitting people who make six-figure salaries (and benefitting them more, the more they make) while the situations of people who are more dependent upon state services like fire fighting and police protection, to say nothing of food stamps and unemployment benefits, seem to be getting continually worse. And this, while claiming to be looking out for working Americans. It just galls. If one cares about such things.
On the other hand, Team W is now saying they can bomb the crap out of Iraq at bargain basement prices, so we should be glad they're tightening their belts.
As to the Gubers (natorial), it might prove interesting to see where the creative economic problem-solving takes place, since it could come from anywhere (except, perhaps, D.C.). It remains fascinating to me that W, et al, want to control an Oregonian's right to die and a gay Texan's right to have sex, but when it comes to people going hungry, man, you states are on your own. Turns out, "states' rights" is not a double-edged sword, after all.
By all means, HBS experts, let 'er rip. I'm interested to hear answers to Jimpy's questions. But I reserve the right to post in broad strokes and big pictures, as well.
It seems to me that any tax cut other than intentionally regressive benefits targeting ordinary income are likely to disproportionally benefit "the rich." "The poor" just don't invest the way they used to. Bad poor people! Bad!
But I confess, as a member of neither class, this proposal didn't bother me the way certain other ones have in the past (cough, cough . . . estate tax repeal?).
Even as a modest investor (401k-type stuff), I currently prefer investing in more speculative stocks because of the huge tax disparity between capital gains and dividend income (nearly double!). I certainly understand why Auerbach would say this cut would have only minor effects on consumption or investment - in my own case, I would increase neither. But I would think it would have a significant effect on distribution, by decreasing the relative value of a Microsoft (who never pays dividends), and increasing the value of things like REITS, and income/growth companies that pay them regularly. I would probably rearrange my insignificant portfolio significantly. Since, like many people, most of my investements are 401k-based mutual funds, I would think the aggregate effect of this distributive change would be significant. I believe the hoped-for effect is to increase the appeal of stable investments to decrease the appeal of the wild speculation that fueled the Internet bubble.
I don't have the intellectual/economic firepower to either fully castigate or exonorate the proposal - like I said, it just didn't leap off the page at me the way other tax cuts have lately. Any of you HBS-types have some cutting edge insight to add? Is this as bad as selling elderly people's drugs to buy Jaguars for the rich?
There may be a number of reasons to execute this kind of economic policy, but Bush shouldn't be passing it off as a stimulus package. Whatever it may be, it isn't a gift he's giving to the country. But these guys are past a) caring about telling the truth or b) caring enough to lie well. I haven't heard any more recently about the plan to shift more of the tax burden to lower- and middle-income families, while simultaneously lowering the rates for upper brackets -- which is being seriously debated within the administration -- but that may be because I was busy eating pumpkin pie. Meanwhile....
"Under the Bush proposal, the promises made to older workers about pension plans that increase retirement benefits based on longevity would be undermined. While corporations would save billions in pension expenditures, some 8 million older workers could see their benefits reduced by 30-50 percent."
And Paul Krugman hopes he's wrong, as we all do.
"...one thing that's clear is that the apparent centerpiece Â- lower taxes on dividends Â- has nothing to do with stimulus. The administration clearly still believes that problems aren't challenges to be met, they're opportunities to push a pre-existing agenda.
Finally, there's the desperate plight of the states. New estimates by the Center on Budget and Policy Priorities show that state governments are facing their worst fiscal crisis since the 1930's. Since Washington shows no interest in helping, states will be forced into desperate expedients. Taxes, mainly taxes that fall most heavily on the poor and the middle class, will go up. Spending on education and, especially, health care will be slashed, with the heaviest toll falling on struggling low-wage workers and their children. (Leave no child behind!)"
I'm not sure that I see the connection between the Sanders memo, the states' desparate plight, and the proposed dividend tax cut.
As to Sanders, his column was more of a rant than a persuasive piece - I can't even figure out the proposal, it is so buried in hyperbole (another war? don't we have enough of them?).
As to the states, let's just hope the 24 Democratic governers fare better than the 24 Rebuplican govererns at getting their respective houses in order. Though if the Democratic governers are also raising "taxes that fall most heavily on the poor and the middle class" and slashing "spending on education and, especially, health care," then I'm not sure how that will make them better than their Rebuplican counterparts. I'm cheering for the two independants to figure it out.
But back to the dividend tax cut. Why is it bad again? It seems to me that dividend and capital gain taxes should be consistent. Whether to raise capital gains or cut dividend taxes is more of a legitimate policy issue (though, frankly, I'm not sure that increased federal revenue at this point means more social spending - maybe more missle shield spending though). But other than the typical left cry of "raise taxes" and the typical right cry of "cut taxes," I'm not sure I understand what is bad about the dividend tax cut.
Frankly, my sense is that the inconsistency is not great economic policy, but I'd love to hear if my intuition is wrong. Is there a good reason to favor capital gains over dividends from a tax perspective?
This discussion is interesting - on a few different counts:
1. Re capital gains/dividend taxes, I see one person making a specific, inductive, empirical argument that the proposed cuts are not necessarily a bad idea and may be a good one. Meanwhile, I see the other doing a rant-style ideological broadside against the proposed cuts, specific merits or demerits be damned. I know it's the party line - evil Republicans just want to enrich their country club kin - but it ignores the many tax cuts favoring six-figure earners that were signed into law by Bubba C. Speaking for myself, if dividend taxes are reduced, I will most definitely "pump more into the economy". Multiplied, this means more jobs at Fairway and the local Curcuit City for those who want them. I thought that was a good thing?
2. The big picture here is an ongoing effort by the Bushies to reduce the size of government by reducing its revenue. Of course, it's all philosophical at that level.
3. Preceding in the original post, it is interesting to see an admitted liberal smack Daddy Bush for the "Contra" pardons. Again, Colin, where's the outrage over Bubba/Hillary's pardons of billionaire tax cheats, millionaire cocaine dealers, and wealthy public-funds swindlers? Where's the outrage over these quid-pro-quo, midnight deals that deliberately circumvented DOJ's procedures? Where's the principle here? I see only double-standards and selective morality. (No, I'm not "trolling" you to defend the New Square pardons all over again - once was fascinating enough.)
mas....
continuar...
4. Re most anything Paul Krugman says: This is a guy who in late 2001 wrote "I predict that, in the long run, Enron will be a bigger story than the 9/11 attacks." But then, bunkered in his professor's cubicle at Princeton, how reality-connected can we expect him to be? Me, I can predict what Krugman's going to say about Bush and tax policy before I even read him. He's that boring. It's sad to see the NYT keep giving space to this moron. But then it's fitting evidence of a once-relevant newspaper's abject demise.
5. Mike and "Tk" take note: into this discussion of dividend tax policy, one of yours has injected topics such as the right-to-die in Oregon and fudge-packing in Texas. When I was previously raked for allegedly "changing the subject" and, worst of all, "trolling", I noted to you that it happens all the time here. I know, you're going to say I'm doing it right now. But is it still trolling and subject-changing when it's one of your friends and someone you generally agree with? Per my experience, maybe Colin needs a friendly "rules reminder" to do a separate anal-sex-in-Texas post if he wants to bring it up - though I personally still have no problem with desultory gab here. In fact, I enjoy it. Just get your standards straight, boys.
1. The point of the original post was the general sway of Bush family announcements on Christmas eve. As part of the subsequent economics thread, I responded to Jim's question about linkage, pointed out that the states might have some interesting answers, and invited more comment on the tax question.
2. Yep. And who suffers more.
3. A) Post all day and night about Clinton's pardons, if you want to; this wasn't that and, as you know, Iran-Contra was a much, much, much bigger deal. B) "Selective morality." That's rich. C) "Where's the outrage?" You're hogging it all.
4. Right, I forgot. There's nothing wrong with the economy and anyone who thinks so is a moron.
5. Oregon and Texas come into play in the context of Republican hypocrisy on "states rights." It's not irrelevant, nor is it misdirection, nor is it an argument that ends the conversation.
6. "I see only double-standards." Because that's all you look for, M.
7. 2003 is too short for this kind of twaddle. Let's talk issues instead of smack:
"Speaking for myself, if dividend taxes are reduced, I will most definitely 'pump more into the economy'. Multiplied, this means more jobs at Fairway and the local Curcuit City for those who want them. I thought that was a good thing?"
Anyone? Anyone?
As I may have mentioned in another post or comment (or it may just be in my head), I’m not really that much of a consumer, except compared to the vast majority of the world’s population. But this is the US of A, and I don’t really rate.
That said, it would seem to me that this is a stimulus package only in the trickle-down sense. A vague encouragement to the economy rather than a cattle prod packin’ several D cell batteries worth of umph. What’s wrong with a little WPA or CCC?
As to its goodness or badness, I would agree an implied corollary to Rebecca Blood’s comments about wealth redistribution. Presuming that Greed (that thing that Capitalism is supposed to be so good at harnessing) is an unstoppable force, why give it incentives? IOW, reducing dividend taxes may not in and of itself be a Bad Idea, but that there are other ideas that are Good Ideas that are more worth the government’s time (that is, time not being spent on Iraq or worrying about how to get re-elected).
I'm not sure who Rebecca Blood is, but I can't say her arguments impress me. She starts by suggesting that it is perfectly fine for the top 5% of all earners to pay 56% of all taxes, because they probably make 56% of all income. When she is told that, actually, they only make 22.4% of all income, she changes her tune - not only does 56% suddenly strike her as just fine, but she can't imagine high taxes ever discouraging earning - an odd notion that tax policy cannot affect human behavior (in which case, why bother with deductions for silly things like home mortgages, charitable contributions, etc.?)
Greed is no more an unstoppable force than kindness. We motivate both when we allow a deduction for charitable giving - I would argue the deduction neither trivializes giving, nor condemns those who claim it as selfish bastards.
An unspoken pair of assumptions also interest me. First, is meaningful short-term economic stimulus through tax policy good? Second, is short-term economic stimulus through tax policy possible? Tomorrow we are going to see both sides trot out tax packages, both of which will be full of silly ideas. But implicit in them all will be the thought that passing a law can "kick-start" the economy in the next three to six months. Frankly, I'm not sure that is true or, if true, good. We could really try to kick start the economy by just printing and handing out free money, but the long term consequences may not be so nifty.
By the way, I'm a total tax geek, so I may revisit this issue with a posting when the actual plans emerge . . .
I've put my thoughts on the dividend tax into a new post. Too long for commenting.
M-----: Colin can't be accused of changing the subject -- it's his subject. I never said that every comment had to only relate to the subject at hand (and Colin's does relate, and the use of "fudgepacking" is boorish, but whatever.) I said it was rude to say that a subject wasn't worth talking about at all. But I'm rather tired of hearing about it, and I suppose everyone else is too. However, if you want to continue to blather on about how horribly inconsistent we are, go ahead. Here's a shovel.
The tax geek in me is very interested in seeing Mike's new post. C'mon! When? When? When? :-)
So, Colin, what do you think now? NO dividend tax at all. Acceleration of 2004 -2006 tax cuts. See that? It wasn't as bad as you thought on Christmas Eve. It is around 2 1/2 times worse.
I gotta say, ol' George has moxie. That is quite a package he is being put out there. I'm still not sure where I fall on the dividend tax, but there is a whole lotta swag being handed out to the rich in this bad boy. Though I am relatively shocked at the lack of corporate swag.
Also - I have to agree with Mike: Colin was neither trolling nor getting off topic. He is right to criticize the Bush administration for being very selective on when they choose to wave the "states rights" flag (as is the left). And I think it is equally fair to suggest that the tax cut isn't much of a short-term stimulus package (though, interestingly, the Bush Admin is increasingly backing off the position that it is, probably at least in part because it so very, very isn't). Its more fun to quibble than bash - let the man speak!
