In surprise move, GOP leaders admit defeat in payroll tax battle

cpwill said:

yes. just as there is an even huger difference in dollar terms between the average 20% of GDP that Bush spent, and the average 24.5% of GDP that Obama is spending.



indeed. so, now that we have agreed we prefer to collect in revenue closer to the 20% side than the 17% side... under which tax conditions do we historically see revenues coming in at closer to the 20% side? when marginal rates were higher? or lower?


(i'll give you a hint - 1983 is sort of a big year).





however, even that isn't as critical as it seems - because what the graph indicates is that revenues are not a direct function of tax rates. rates can fluctuate wildly without producing a comparable fluctuation in revenues - indicating that they are not controlling. but revenue does seem to generally be a direct function of GDP. If you want more revenue, therefore, you need economic growth. which you won't get by dramatically hiking marginal tax rates.

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Again, you really can't tell much from that graph because of the scale used for the tax line. Here's a better view:



So in fact revenue as a percentage of GDP plunged in '83 as a result of the Reagan tax cuts. Then it gradually rose in the 90s as a result of the Clinton tax hikes, and it plunged again in the 00s due to Bush's tax cuts. Obviously other factors also play a part. There has to be a balance in tax rates keep the economy strong while maximizing revenue (Laffer curve). Presently, taxation is at a low not seen since the 1950s. It is too low.

I benefit from this tax cut.

I don't want it. Not at the expense of further deficit issues for the longterm health of this country.

Just my typical "greedy republican" self I guess. I don't want a payroll tax deduction, i don't want a ****ing right to birth control, I want government to CUT ITS OWN GODDAMN SPENDING.

Is that so much to ask? Stop telling me that government is going to "live within its means" and then go out and try and buy votes with empty temporary cash giveaways or attempt to "live within your means" by not changing how YOU (the government) live at all but rather just by taking more means from everyone else.

When a family has to "live within its means" it doesn't magically grant itself an additional job or a pay raise...IT STOPS SPENDING SO MUCH. How about you stop with the idiotic rhetoric that you understand the American people wants the government to live within its means like American families do and actually...I don't know...DO IT.

It's sad to see the Republicans caved on this for political pressure. Taxes, right now, are secondary...both cutting and raising. Cut the ****ing gluttony of government, then deal with this kind of stuff.

Zyphlin said:

I benefit from this tax cut.

I don't want it. Not at the expense of further deficit issues for the longterm health of this country.

Just my typical "greedy republican" self I guess. I don't want a payroll tax deduction, i don't want a ****ing right to birth control, I want government to CUT ITS OWN GODDAMN SPENDING.

Is that so much to ask? Stop telling me that government is going to "live within its means" and then go out and try and buy votes with empty temporary cash giveaways or attempt to "live within your means" by not changing how YOU (the government) live at all but rather just by taking more means from everyone else.

When a family has to "live within its means" it doesn't magically grant itself an additional job or a pay raise...IT STOPS SPENDING SO MUCH. How about you stop with the idiotic rhetoric that you understand the American people wants the government to live within its means like American families do and actually...I don't know...DO IT.

It's sad to see the Republicans caved on this for political pressure. Taxes, right now, are secondary...both cutting and raising. Cut the ****ing gluttony of government, then deal with this kind of stuff.

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One thing is clear, and that is that is that recessions cause deficits to rise due to lower revenue and increased safety net spending. It is sensible from a fiscal standpoint to provide short-term stimulus in order to avoid a double-dip recession, or a prolonged period of stagnation. For obvious reasons, the only form of stimulus presently available is a tax cut. Clearly we will have to cut spending and raise taxes in the mid to long term.

AdamT said:

One thing is clear, and that is that is that recessions cause deficits to rise due to lower revenue and increased safety net spending. It is sensible from a fiscal standpoint to provide short-term stimulus in order to avoid a double-dip recession, or a prolonged period of stagnation. For obvious reasons, the only form of stimulus presently available is a tax cut. Clearly we will have to cut spending and raise taxes in the mid to long term.

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Even if we accept all of that as true, here is the problem. We are now almost three years out from the end of the last recession. It is quite possible that were are closer to the next recession than we are from the last one. I know you support Obama, but you have to realize that he not only has not addressed the deficit, but he has no real plan to do so. That should trouble you. He can and should, at the minimum, embrace the findings of the debt commission that he, himself, set up. The guy should lead on the issue. He is, after all, president.

Fletch said:

Even if we accept all of that as true, here is the problem. We are now almost three years out from the end of the last recession. It is quite possible that were are closer to the next recession than we are from the last one. I know you support Obama, but you have to realize that he not only has not addressed the deficit, but he has no real plan to do so. That should trouble you. He can and should, at the minimum, embrace the findings of the debt commission that he, himself, set up. The guy should lead on the issue. He is, after all, president.

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His plan calls for gradually lower deficits, but I agree that it's too little. In my opinion all of the Bush tax cuts should be phased out over the next 3-5 years and we desperately need major Medicare reform.

OTOH, Obama's plan is a model of sanity compared to any of the plans proposed by the GOP candidates. If you look at what Romney has proposed, it would require an across-the-board spending cut of about 36%, which would clearly cripple the government and send the economy plummeting back into recession or worse.

AdamT said:

Again, you really can't tell much from that graph because of the scale used for the tax line. Here's a better view:

So in fact revenue as a percentage of GDP plunged in '83 as a result of the Reagan tax cuts. Then it gradually rose in the 90s as a result of the Clinton tax hikes, and it plunged again in the 00s due to Bush's tax cuts. Obviously other factors also play a part. There has to be a balance in tax rates keep the economy strong while maximizing revenue (Laffer curve). Presently, taxation is at a low not seen since the 1950s. It is too low.

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Two issues with that.

First, in regards to the Bush Tax cuts. Saying it plumted in the 00's is kind of a dishonest statement since yes, it did take a nose dive...it also took a solid climb...followed by another dive. To blame those dives, and those raises, on the tax cuts alone (or even PRIMARILY) we'd need to assume that somehow, magically, mostly on its own, the tax cuts both significantly reduced, then raised, then reduced revenues. Or, we could suggest something occured around 2001 and 08'ish, the points where drops happened. Now, I may be crazy, but I remember two significant issues that occured had an effect on the economy. On the flip side, I don't remember any significant changes to the Bush Tax Cuts happening in '03, when the revenue began to tick up again, or '08 when it started going down again. So its it possible that rather than the Bush Tax cuts being the primary cause that it was rather exterior factors?

Second issue...

You're using percent of GDP. This has a few issues with regards to your logic that is implying that lower taxes are bad because it brings in less revenue. One such issue is that you're making a pure speculative assumptions that the significant negative trend of GDP growth that had been occuring for the 2 years prior to Reagan taking office wouldn't have continued. Indeed, aside from the spike in 81 (The year the tax cuts were passed), it seemed like the trend was a significant downward growth of GDP. When your GDP is lower, the ability to bring in a higher per centage of that GDP tends to be higher but that doesn't necessarily mean you're bringing in the the most revenue possible.

What's interesting, if you view the Percentage Change of GDP, as the GDP begins an uptick in 1974 you see a downtrend in Percentage of GDP in your graph. As it falls in 78 through 80, the percentage of GDP actually rises in your graph. With the higher tax rates it seems the less money that the governent took in as a percentage of said GDP.

Ultimately, looking at the rate of growth, looking at the actual GDP, looking at the total monetary values we bring in, and also looking at the relatively static state of between 15-20% of GPD, I'm unsure really that tax rates significantly in either directly provide the primary driving force that determines revenue. Outside world events affecting the economy, other government laws and regulations, and the general economic environment of the time (Such as the housing and internet boom) all I think contribute as much if not more than that. Looking back throughout your graph and the graphs on GDP and GDP growth, there's plenty examples where despite high tax rates we still saw decrease in revenue as a percent of GDP and also examples, such as part of the 80's and mid 00's where the numbers did rise year to year. I think you're exceedingly incorrect in jumping to an assumption that the tax rates in these instances were the primary driving factor.

cpwill said:

ah. and at a time when we are desperately attempting to attract capital to invest in a struggling manufacturing renaissance in our shores... do you think that that will make people more likely to send their money here? or less likely to send our money here? when most small businesses that are left are surviving because they have balanced on a knife edge for three or more years now, do you think that increasing their costs while decreasing their available pool of investors will make them more likely to succeed and survive? or less likely to succeed and survive?

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Our economic mess is the result of consumers not consuming -- not our struggling manufacturing renaissance. I know I'm probably way too simplistic here, yet it's not far off. If I'm making $200,000 and the government asks me to pay another $2,500 a year, that's not going to make any difference at all in my lifestyle.

Spending cuts....revenue increases by higher taxes on the wealthy. That's the only way I see it working. Ya' know why? Because that's what would happen at my house if I were in this mess. I'd cut back on spending...and get a part-time job.

MaggieD said:

Our economic mess is the result of consumers not consuming -- not our struggling manufacturing renaissance. I know I'm probably way too simplistic here, yet it's not far off. If I'm making $200,000 and the government asks me to pay another $2,500 a year, that's not going to make any difference at all in my lifestyle.

Spending cuts....revenue increases by higher taxes on the wealthy. That's the only way I see it working. Ya' know why? Because that's what would happen at my house if I were in this mess. I'd cut back on spending...and get a part-time job.

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The problem with government is that it doesn't want to cut back on spending... and its part-time job is raising taxes on ALL of us to support it in the style to which it has become accustomed.

MaggieD said:

Our economic mess is the result of consumers not consuming

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that is incorrect. if we had (say) a 40% savings rate, then you would have a point. but we have a savings rate that bounces off zero. our problem is not that consumers are not consuming. it is that we have consumed far more than we have produced. not in a physical-working-at-the-plant way, but in terms of simple wealth. no society has ever gotten rich by buying things -you get rich by making things and shifting resources to more productive functions.

not our struggling manufacturing renaissance. I know I'm probably way too simplistic here, yet it's not far off. If I'm making $200,000 and the government asks me to pay another $2,500 a year, that's not going to make any difference at all in my lifestyle.

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but that is not what you posited. you argued in favor of jacking up the capital gains tax. so the real question is, since capital flows to where the returns are best, when government artificially reduces the returns available from investing in the US, does that help, or hinder our attempts to attract it? remember that in investment you own 100% of the loss, but (currently) you only get to keep 85% of the gain. you are suggesting we decrease that amount to.... 70%?

I suggest we play a game. we shall flip a quarter. every time it lands on heads, I shall send you a check for $500. And every time it lands on tails, you shall send me $750. do you think that you have a strong incentive to play this game?

no, you do not. because you are smarter than that, and you respond to relative incentives. and so does capital.

Spending cuts....revenue increases by higher taxes on the wealthy. That's the only way I see it working. Ya' know why? Because that's what would happen at my house if I were in this mess. I'd cut back on spending...and get a part-time job.

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excellent. except that you are middle class. the United States of America currently has the most progressive income tax of any industrialized nation. It's not because we tax our wealthy more than, say, Germany. It's because we don't, by and large, tax the middle class. The Bush Tax Cuts For The Wealthy (those much maligned things), for example, are estimated (in a static model, which is to say hopelessly optimistic) to bring in if they go away $800 Bn over the next ten years. The same cuts for the middle class would bring in $3.2 Trillion. You could confiscate 100% of the earnings of everyone making $250K and over and still not come even close to closing the deficit.

The money is in the middle class. If you intend to raise revenues, that's who you have to tax. That's the dirty little secret that nobody seems willing to talk about.

Zyphlin said:

Two issues with that.

First, in regards to the Bush Tax cuts. Saying it plumted in the 00's is kind of a dishonest statement since yes, it did take a nose dive...it also took a solid climb...followed by another dive. To blame those dives, and those raises, on the tax cuts alone (or even PRIMARILY) we'd need to assume that somehow, magically, mostly on its own, the tax cuts both significantly reduced, then raised, then reduced revenues. Or, we could suggest something occured around 2001 and 08'ish, the points where drops happened. Now, I may be crazy, but I remember two significant issues that occured had an effect on the economy. On the flip side, I don't remember any significant changes to the Bush Tax Cuts happening in '03, when the revenue began to tick up again, or '08 when it started going down again. So its it possible that rather than the Bush Tax cuts being the primary cause that it was rather exterior factors?

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Yes, that's why I said, "Obviously other factors also play a part." Nonetheless, revenue/GDP did plummet in the 00s. Clearly the early drop was compounded by the dotcom bust, the the later rise (though never to pre-Bush levels) was influenced by the real estate bubble, and the next drop was influenced by the bubble bursting. If you look at the three big tax cuts in the last 50 years, however (Kennedy, Reagan, Bush), each was followed by a decline in revenue/GDP.

Second issue...

You're using percent of GDP. This has a few issues with regards to your logic that is implying that lower taxes are bad because it brings in less revenue. One such issue is that you're making a pure speculative assumptions that the significant negative trend of GDP growth that had been occuring for the 2 years prior to Reagan taking office wouldn't have continued. Indeed, aside from the spike in 81 (The year the tax cuts were passed), it seemed like the trend was a significant downward growth of GDP. When your GDP is lower, the ability to bring in a higher per centage of that GDP tends to be higher but that doesn't necessarily mean you're bringing in the the most revenue possible.

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You're putting words in my mouth again. I wish you'd cut that out. I didn't say that lower taxes are bad. What I said was, "[t]here has to be a balance in tax rates keep the economy strong while maximizing revenue (Laffer curve)."

What's interesting, if you view the Percentage Change of GDP, as the GDP begins an uptick in 1974 you see a downtrend in Percentage of GDP in your graph. As it falls in 78 through 80, the percentage of GDP actually rises in your graph. With the higher tax rates it seems the less money that the governent took in as a percentage of said GDP.

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Sure, raw tax receipts depend on the size of GDP. Obviously the recessions in the late 70s and early 80s threw a lot of the numbers out of whack, and they were accompanied by crazy interest rates. Throughout most of the 90s, however, GDP grew and revenue as a percentage of GDP also grew. That is the stand out period in terms of a raw revenue growth, which might suggest that the Clinton-era tax rates struck a pretty good balance.

Ultimately, looking at the rate of growth, looking at the actual GDP, looking at the total monetary values we bring in, and also looking at the relatively static state of between 15-20% of GPD, I'm unsure really that tax rates significantly in either directly provide the primary driving force that determines revenue. Outside world events affecting the economy, other government laws and regulations, and the general economic environment of the time (Such as the housing and internet boom) all I think contribute as much if not more than that. Looking back throughout your graph and the graphs on GDP and GDP growth, there's plenty examples where despite high tax rates we still saw decrease in revenue as a percent of GDP and also examples, such as part of the 80's and mid 00's where the numbers did rise year to year. I think you're exceedingly incorrect in jumping to an assumption that the tax rates in these instances were the primary driving factor.

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Again, I think that a range of 15-20% really isn't static at all, when you look at the amount of dollars involved. It translates to a swing of nearly half a trillion dollars per year given recent GDP numbers. As I said, tax rates aren't the only factor, and in some years (recessions, bubbles) they are relatively less important, but over time I think that they are a significant factor.

cpwill said:

but that is not what you posited. you argued in favor of jacking up the capital gains tax. so the real question is, since capital flows to where the returns are best, when government artificially reduces the returns available from investing in the US, does that help, or hinder our attempts to attract it? remember that in investment you own 100% of the loss, but (currently) you only get to keep 85% of the gain. you are suggesting we decrease that amount to.... 70%?

I suggest we play a game. we shall flip a quarter. every time it lands on heads, I shall send you a check for $500. And every time it lands on tails, you shall send me $750. do you think that you have a strong incentive to play this game?

no, you do not. because you are smarter than that, and you respond to relative incentives. and so does capital.

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Those are some really flawed examples.

Capital losses and gains are calculated first, then the net gain (if any) is counted as income. It's not like someone who lost $100k but gained $150k owes taxes on $150k, they only owe taxes on the $50k net capital gain. Of course, selling at a loss is kinda' silly unless a stock has no positive outlook at all, not even long-range.
(BTW - You should probably file an amended tax return. If you haven't been deducting those losses first then you've been overpaying Uncle Sam.)

Someone who averaged as much of a loss as a gain - your coin toss outcome - wouldn't be paying any capital gains tax because there would be no gain. Remember, we subtract our losses from our gains first, then we figure the tax. Of course, if you just hang on to your stock or use the proceeds from sale of stock to invest in other stock you also pay no tax.

Capital gains is NOT a tax on investment, that's the Great Republican Lie. It's a tax on income, not investment. You can invest $100k in stock but even if that stock goes up and has a market value of $1M (one million dollars) you have no tax obligation on it. If you sell $500k of that and invest it in other stock you still have no tax obligation. You only have to pay when you decide to take money OUT of the stock market. At that point, and that point only, you pay taxes on your whatever gains you put in your pocket - your income.

If your income is all capital gains then Joe Nextdoor will pay more taxes on his $50k salary from working 2080 hours than you do on your $50k in stock sales.