Category Archives: tax cuts

No More Filibuster?

There are some very legitimate questions being asking right now, but the one that has me stunned is, how has the Senate managed to get so much done after an election cycle where the party in power received a shellacking? I guess we forgot that mache eventually dries.

First, there was the infamous tax cuts. When President Obama made a deal with the Republicans three things were said 1) Obama gave up again 2) Obama won the political battle and 3) the tax cuts amounted to another stimulus. The first argument was made by the left who were upset that the people who earned the most will have their taxes further reduced. That money could have been used to subsidize the cost from the Social Security cut that was also made in the deal.

Pundits believe Obama won the political battle because he appeased the middle. The tax cuts were not a left, or right issue. Opinion polls repeatedly showed that the vast majority of people wanted to see the cuts go through, and because it was an issue the White House pushed, Obama won.

Now, everyone knows what I think about the stimulus argument. The short answer is that they will help, for the short term (but barely), but a lot more could have been done.

What made the extensions even more surprising was that it didn’t look like they would pass. The White House did not want to extend those cuts for the rich. But the Republicans insisted on it, and would not have voted for the bill otherwise. The area that put the victory in Obama’s corner though was the deficit. After all the talk about reigning in government spending and the wind at their backs, the GOP did not insist on one policy that would reduce the deficit, in fact, they only insisted on increasing it.

More importantly, Obama owned the issue. Maybe it was because he gave Bill Clinton the mic. But in the past Obama has always been trying to explain and level with people on why he made his decision. This time, he blamed the Republicans of holding the middle class hostage in favor of the rich. All the democrats were saying this, every time, they went on television. And it worked.

I wasn’t going to say anything, and you have to promise not to tell anyone, but another victory also came when the Don’t Ask Don’t Tell law was repealed. Those who have been pushing for the repeal were wondering what happened to the guy who said he would repeal the law. After all the challenges in the courts, those hard core Obama supporters were wondering why they had to do so much more work after the 2008 election. For the people on the left that were upset about the tax deal, this may have made up for it. Two years from now Obama can go straight to his base and say he got this done. Unlike the tax cuts, which may or may not help the economy, the repeal of don’t ask don’t tell is a substantial change that a lot of people wanted out of him.

Also now thanks to the Senate, we can eat meat without fear of mad cow disease. In a late night sessions the Food Safety and Modernization Act was passed. You would think after we had so many close calls with food imports the last couple of years this is something that would have been done. But this is the first time food safety regulations has been improved in almost one-hundred years.

One of the bigger items which looks like it will be passed this week is the START Treaty. A post Cold War agreement between the U.S. and Russia that every Secretary of State (Republican and Democrat), says needs to be passed, and Senator Kyle is holding it up. This was the wrong issue to try and score political points with. This treaty has always had bipartisan support and has reduced the number of nuclear weapons around the world. The situation has become so bad that Russia is weighing in on the Senate. This did not have to be a political victory for Obama, it will only become one because some members of the GOP were so outspoken against it.

One piece of legislation that did fail was the Dream Act. It is a shame because it made the process for immigrants to come into this country easier and they would have had less of an excuse to try and sneak in. It’s also a way to reduce the deficit. The new immigrants coming in could have been taxed, and there were provisions making it easier for current illegal immigrants to get green cards. Now billions of dollars will be sent back to countries of immigrant families. Just more proof no one really cares about the deficit.

And it looks like the federal government will shut down this year! After the House passed a short extension for the start of the new year, Senator Reid announced the Senate will do the same. I’m OK with this, I loved the 90’s.

What has helped get these pieces of legislation passed is the election being over. There is a full two years before the next election, and most public officials figure what they do now won’t hurt them down the road. Especially if you are a Senator who only runs every six years. The rest of the time you are looking out for your state and helping your colleagues when you can.

Most of the legislation being passed this week was held up because the Republicans were filibustering it. When you hold up one piece of legislation it takes a longer time for others to come up and dealt with, especially in the Senate. But with a divided Congress next year it is hard to tell if compromises will be made.

It is a good sign that legislation is finally moving through. We just learned today that one of every seven Americans is now on food stamps. Needless to say, people need government to work. But as soon as the new year starts, the next election cycle will begin, making it important to pick battles carefully.

 

 

 

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Filed under Don't Ask Don't Tell, Filibuster, President Obama, Senate, START Treaty, tax cuts

Tax Cuts Don’t Stimulate The Economy

I hate leaving things for the last minute. Having something hanging over my head just bothers me to no end it always get to the point where I can’t sleep until it’s done. The political problem for the tax cuts was that the White House waited until the last minute to deal with it, but probably for the right reasons. President Obama has had major legislative victories which will help a lot of people. Making sure women are paid equally, allowing students to stay on their parents insurance after college, and expanding scholarship opportunities to pay for college, just to name a few. As we’ve all seen those victories didn’t just come over night, and unfortunately for Mr. Obama, there was still one last thing he had to get done.

The latest round of tax cuts which will soon be passed by the Senate is being sold so that it will help everybody, the middle class, working class, and of course the rich. The Center for American Progress is defending the tax cuts and claim it will create 2.2 million jobs. What their analysis assumes though is that businesses will spend money and there will be a demand for their products. But if you look at recent experiences, you should know there is no guarantee that businesses will spend more money just because they have it. In these uncertain times, they are more likely to keep it in case the economy goes even more down hill, just like the banks are doing since they received the bailout money. The business cuts aren’t even targeted anywhere which proves there is no strong demand for anything right now. Otherwise, policies could be enacted to create more of a demand to help a strong area grow even more, which could help overall growth. That absence is just more proof the economy is really up in the air.

The Center got these numbers from the Congressional Budget Office (CBO) and used their numbers to create their analysis. The CBO however, assumes that the tax cuts will be offset by increasing taxes later so we won’t have to worry about deflation. And it does not even take into account that Social Security taxes are being lowered.

But then there are some analyses I just don’t get at all. The Heritage Foundation argues that only tax cuts can stimulate the economy. They try and differentiate between “Disposable Personal Income” and “Personal Spending.” Now if you’re a middle income family earning $150,000 a year, you have enough to go out to dinner, a movie, and keep up with your mortgage payments. But this family is not going to spend money on anything extravagant. They will not be buying a new house, car, or plan a expensive vacation in this time of uncertainty. So when they receive a tax cut, they will not be spending in the areas where it MIGHT help the businesses feel a demand for their products. And if you are working class family, you are more worried about feeding your children and keeping a roof over your head, and that’s where they will spend the money. Again, not creating a huge demand for anything, and not beneficial to helping the economy. Families don’t think of their money as “disposable” or “personal,” and neither should economists.

Instead, programs should have been created to help families cope with the new economic realities. The best part of the package was getting unemployment benefits extended for a year. For middle class families though, there should have been money spent to pay for their children’s college, or help lower their payments if the banks unexpectedly raised the interest rates. But if you don’t believe me, you can listen to President Reagan’s former budget director David Stockman, who helped invent trickle down economics.

The problem with both of these analyses is that they argue broadly about policies that need to be looked at in a more specific design. As I’ve argued in the past, current economic models do not allow economists to take into account what really matters to families. The tax cuts families receive will be spent on areas that will ensure the families stability. President Obama could have made a strong argument to raise taxes on the wealthy to ensure programs like Social Security and Medicare stay intact. Many people rely on these programs, especially the baby boomers. Who, by the way, will be retiring soon and who will vote in 2012. But by waiting this long to deal with the Bush tax cuts he had no time. The consequences, politically and economically, would have been worse if he allowed everyone’s taxes to be raised. He had to let high income earners taxes stay low. It was a classic no win scenario.

All in all, no harm was done, but unfortunately not a lot of good was done either. So lesson learned, don’t wait for the last minute to get your ducks in a row.

 

 

 

 

 

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Filed under Economics, economy, lame duck, President Obama, stimulus, tax cuts, taxes