Again With the Trickle Down!?!
If your only tool is a hammer, everything looks like a nail. That's what came to mind this AM when I read that John McCain's plan to address the ailing economy includes a big cut in the capital gains tax rate, from 15% to 7.5% for the next two years.
How wrongheaded is this? Let me count the ways.
First, the McCain folks may have missed this, but asset values have been falling, big time. Remember, John?... That whole financial mess that folks have been talking about? When capital assets, like stocks or bonds, lose value, that's a capital loss, and it's already deductible from your taxes.
OK, but there's probably a few folks out there who've realized some capital gains, or will do so at some point in the next couple of years. What's the point of giving them a tax break? What itch does that scratch?
The vast majority of realized capital gains--that's the money you make, for example, when you sell a stock for more than you paid for it--go the richest families, so they're the ones who benefit from this. The good number crunchers at the Tax Policy Center examined who would benefit from the McCain proposal. The middle fifth of families end up with all of 0.2% of the benefits. That's not a typo. The tax break would lower their annual tax bill by $4.00. OK, that is a gallon of gas, but it's not what you'd call a game-changer.
The top 20% end up with 98.3% of the benefits of the cut, and the top 1%, with income above $600,000 get 75% of the gains, for an average benefit of $37,600. The average tax savings for the top 0.1%--income above $3 mil--is $244,000. In other words, this isn't a recipe for helping families hurt by the financial crisis and the recession. It's a recipe for more income inequality.
So why do it...why cut the rate? You guessed it: good old trickle down. It's yet another example of that supply-side fairy dust that worked so well for Bush that McCain and Co. want to see the Bushies and raise them.
If cutting taxes for the wealthiest households boosted job creation, we'd know it. The Bush cuts, originally opposed by John McCain by the way, were sold on this premise. Yet before we began to shed jobs this year, employment growth in the Bush years was the worst on record.
If you want to provide income and job opportunities to people who are hurting, your best bet is to do so directly, through tax cuts targeted at them, and through infrastructure investment designed to create new, quality jobs. That's what Obama aims for in his recently announced package.
Finally, and this is important, does anyone really believe that this allegedly temporary cut will really sunset in two years? Like Dr. Phil says, "this ain't my first rodeo!" That's the tripwire in the Bush cuts. They end in 2011, but anyone who wants to let them do so is accused of supporting the "largest tax increase in history."
If we're foolish enough to sign onto this cut in the capital gains tax rate based on our understanding that the rate will reset in two years...well, as Bush himself put it, "fool me once, shame on...shame on you. Fool me...you can't get fooled again." In fact, here's a quote from a straight-talking Republican Senator back in 2003 when he opposed Bush's capital gain and dividend tax cuts based on these illusory sunsets: "...the problem with that is it's gimmickry. It makes a mockery out of the whole budgetary process..." Listen to yourself, Senator McCain.
So we are yet again left with John McCain getting it wrong on economic policy. There is absolutely a need to help struggling families right now, but if this is the best he can come up with, we'd all be much better off if he put the hammer back in the tool shed and left the policy construction to others.
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I generally agree with all this except the part where you say capital losses can be deducted from your taxes. This is true, but only $3000 can be deducted unless you have more than that in capital gains that can be offset (unlikely these days). A $3000 deduction (you save $840 in the 28% bracket) is not much for people who've lost much more than that this year.
That is why there should be no capital gains tax at all unless there is a corresponding deduction for losses.
Which would completely negate the point of having the tax....... Nice try though!
We have had 30 years of "trickle down". It doesn't trickle. If it did we would have all had decent jobs considering all the big bucks at the top. It seems to me when greed at the top takes everything from average people through usury and manipulation of the credit market etc., the only thing left is to tax those who do not play right. The theory that business would share their profits with employees is now proven to be a farse. The bailout will help the banks and investment corporations. The promise to us is that will eventually help us. But, if it is anything like the previous trickle, we are surely doomed. The only way to turn it around is to tax more heavily those who are hanging onto all they can get, and passing some breaks on to those whose incomes have fallen by $2,000 over the past few years. I see that tax readjustment as a "market correction" for the middle class.
One thing, MTgramma, which supports you and amplifies your statement - It's not just about the income that has fallen, which it has dramatically, it's the reduced buying power of that remaining income. When a dozen eggs goes from $1 to $4 and a gallon of milk costs as much as (or more than) a gallon of gas, that makes for some hard choices. When you have to, I mean HAVE TO, fix that ancient car one more time and then choose between paying for that repair or paying your mortgage payment with that reduced income and further reduced buying power, it's a "No Can Do" situation. "Trickle Down" has gone way past failure. It feels a lot like getting sprayed on by dogs who are marking their territory, if you know what I mean.
Maybe we should rename it. Occasionally drip down economy. The fruits of Saint Ron's seeds of economic ruin have rotted. Of course anyone could have told you they would. But by gum the wealthy wanted more more more. And they got it. The GOP is the Royalist Party and has been for quite some time. And there are plenty of Democratic fellow travelers-like my own Senator Feinstein.
why are the middleclass supposed to be satisfied with a "trickle"???
how about the rich be satisfied with a trickle??
HuffPost's Pick
as a small restaurant owner trickle down is losey. I dont know exactly why, but my business dries up with this economic plan. I think it is because trickle down seems to make my poorer customers stop spending. My richer customers keep coming in but the base I need to keep going isnt there. Its not just my place but all the merchants in my center. Reagenomics was a disaster for me and my fellow merchants. we got busy during clintons administration but now forget it. I cant believe how bad it is. half the shops are vacant and we are dying on the vine. Why? I cant spew out a bunch stats or economic figures, but I do have 40 years of retail trench warfare experience. TRICKLE DOWN SUCKS!
Here you go, lletaa, evidence that Democratic adminstrations (AND a thriving middle class) are better for the overall economy than Republican administrations.
http://www
Hard to argue with the numbers. 8-]
So can you tell when tickle down economics was actually in force? Like what years (was it a deceranable policy?)
If I remember correctly JFK cut taxes it the early 60's and the decade boomed. That never seems to be mentioned here.
The other point I would make is that major economic policy changes can take years to show an impact. How do know that the economic changes a sitting president presided over were a result of his own economic plans or that of his predesessor?
Everyone is so simplistic in their thinking on this board.
WAR BOOM. A large percentage of the young male population (myself included) were in the military and people had jobs replacing all the stuff used up in Vietnam, plus certain idiots hadn't sent all the manufacturing overseas.
JFK cut taxes from more than 90% to more than 70%...... How, exactly, is that like the CURRENT situation.
See comment below, the cutting taxes sent the economy into a boom and crash cycle.
"So can you tell when tickle down economics was actually in force? Like what years (was it a deceranable policy?)"
That's EASY! From 1981 until the present, with a slight decrease during the Clinton years. That WHOLE time has been the "trickle down" era!
McCain's tax cut bill is so UPPER CLASS driven, that it makes me ill. I have been raging against the Capital Gains tax cut ever since it raised its ugly head about a week or so ago...but no one in MSM has hardly send a word...I am guessing that most of them make >$250,000. The rest of his tax plan is SO NOT NEW - IRA withdrawl if you are 701/2...yo
Confusing: decrease tax on early withdrawl from 401k and IRA...so that you can invest money???? Just more DOUBLE SPEAK, which in case everyone missed it....HE IS REALLY GOOD AT THAT!
Don't let this tax stuff confuse you, it is just more smoke and mirror benefits for the wealthy...
I noticed that too. Plus many of the poorer retirees need to withdraw some of those investments, or they'll be eating dog food. Only the rich can afford to keep the money in. So who gets the benefit?
Hey....don
Supply-side economics only works as advertised in limited circumstances. When demand is high, and companies are constrained by a lack of capital, it works great. Easing the constraint allows for the purchase of more materials, and the hiring of more workers to meet the demand.
I don't see a lot of demand right now, except for the last few pennies from my pocket.
If we want to get the economy going, we need to get money into the hands of the largest number of people that will go out and spend it. Considering the state of our physical infrastructure, and the need to get away from carbon-emitting fuels, some New Deal style programs are looking pretty good.
bingo bluemoose.
When they say "trickle", they mean it.
Here are few REAL spending cuts and REAL tax cuts (for the most deserving) that we could try.
Cut the WAR budget by at least 75% from $1 Trillion to 250 Billion - for a start.
Cut Health Care Costs by about $500 BILLION by putting in place a Universal Single Payer system as the Civilized world has already chosen to do!!
Cut subsidies to Oil, Gas, Coal and Nuclear -- Big money there!
Cut the Criminal-I
Cut taxes for the lowest classes by removing regressive taxes like sales tax, property tax for homeowners, etc. and place high marginal tax rates with minimal loopholes for the richest classes to pay for them. The lower classes are taxed MUCH more heavily in terms of percentage of income than the rich!!
I'm sure there are a lot more expenses driven by the paranoia and fundamentalist b*llshit of the two "conservative" wings of the Big Business Party that could be eliminated
I totally agree!
Good list. I would add, that we must use massive debt spending as well on Government funded public works program for wind, solar and infrastructure. FDR style. That's is, WE MUST NOT CUT SPENDING, WE MUST INCREASE IT. But we must also stop wasting it on war.
We SHOULD NOT: dramatically increase: capital gains tax, import duties or corporate taxes,
if I read the Great Depression sequence right.
Only Personal Top income rates should be raised. It's is the lowest it's been since 1925 leading to the bubble and the great depression.
http://www
Wow. This is a very good post. Interesting stuff. CB
I agree with some of your suggestions.
Decriminalizing drugs would be a good start. I would also add cutting much of the welfare state that encourages people not to work and be self sufficient. Our 2 most costly failures of war:
- The war on drugs
- The war on poverty
Each one has cost us many trilions but has not produced any result at all.
But you advocate a huge wealth redistribution. How do you think that will impact the future growth of our economy?
It will save it. see the timeline below. dropping the top income tax to 25% in 1925 lead to the bubble and the crash. FDR raised it to 75% and the economy recovered by 1934. Prosperity continued before and after the war, with top income tax increasing to 92% by 1950.
http://www
the industrial revolution multiplied the power of capitol to the point where is sucked all the money out of the system to clot in the top .1%.
Government spending on Public works programs are universally recognized the the solution to depression.
http://en.
*APPLAUSE*
...I'm not advocating an unfair burden on the wealthy- but it's high time they paid their fair share.
The only tool in their limited and ignorant toolbox: TAX CUTS. How did these last 8 years of tax cuts work for America? Pretty successful, eh? Oh please, no matter how much froth you get out of this s--t shake, it is still s--t and it still stinks.
The only thing that trickles down is the leftovers and the refuse. I am an economist that does NOT believe in trickle down, I believe in building up.
Decreasing capital gains taxes is a continuation of trying to increase money for investment. Not a good gamble right now. As things "stabilize", tax policy will have to address the budget deficits that we have increased with the $1 trillion bailout and other moves. Beware of the economic "stimulation" packages that Nancy Pelosi is selling. More promises, more debt.
Tlak about wrong this column takes the cake. This should have been titled facts be damned.
You wrongly state "When capital assets, like stocks or bonds, lose value, that's a capital loss, and it's already deductible from your taxes." It is only a capital loss if you sell it for less than the pruchase price. If the price doubled than you lost 20% off of the high you would still be ahead of the game. Not to mention you assume that every asset has lost vlaue. Which again is false. Not even all bank stocks have gone down.
CUTS IN MEDICARE AND MEIDCARE !!!!!!!!!!
THAT IS THE ONLY WAY MC CRAZY CAN CUT TAXES..
THE UNEMPLOYEMENT RATE OF 14 % AND NO INSURNACE !!!!!!!!!!
PEOPLE ARE GOING TO NEED MEDICARE!!!!!!!!!!
What I love is the crazy logic that we can cut spending in Medicare and Social Security, and that will solve our woes. People forget that there is a SEPARATE TAX STRUCTURE for BOTH of those programs. In other words, cut SS spending, that means that you don't need the 12.4% from me and my employer! Cut Medicare spending and you don't need the 2.9% from me and my employer!
Basically he is saying that he will keep our taxes just as high as they are right now (especially for the middle class!!!) and then cut the spending that the govt is OBLIGATED to do BECAUSE of that taxation!
McCain Versus Obama on Taxes
If you make 38-66K a year:
Obama: -$1,042 (tax decrease)
McCain: -$319 (Decrease)
If you make 66-112K a year:
Obama: -$1,290 (decrease)
McCain: -$1,009 (decrease)
If you make 227-603K a year:
Obama: +12.00 (Yes that’s a twelve dollar increase)
McCain: -$7,871 (decrease)
If you make 803K a year or higher:
Obama: +115,974 (increase)
McCain: -45,361 (decrease yes that DECREASE)
A better perspective??
Nice. Please provide your source.
I am curious how an income RANGE can be represented by a SINGLE tax liability change.
This one is simple. A man buys a building 40 years ago, makes a capital gain when he sold it(he had cancer) and was taxes 47% on his life's work? This is America? This was back in '89 but same logic applies today. This was no day trader just another mom and pop shop but they did not deserve even Obamas recommended increase. Oh, you get a tax break on your POS house that isn't worth the loan, what suckers. Ask the Walker why they are no taking advantage of this wonderful opportunity instead of walking away? I bought recently and saved a pile that's called timing and the loser who bought before 08 should have rented. Everybody knows if you are making over 100k in salary next year to get stuck with a monster bill. Maybe that helps the market tank? Nice going Barak.
Since he paid x dollars for it, and got y dollars for it, and since during that time frame the price more than doubled, even after accounting for inflation, YES, he should pay a gain on it!
Excuse me 70% of Americans are invested in the market. But the real problem is the
corporate taxes that Obama wants to raise. Whether you like it or not, those
rich corporations employ a lot of people. They have been laying people off on a steady
basis for some time. If you increase their taxes they will be laying even more people off.
This business of," lets get the rich", is like cutting off you nose to spite your face. Who gives a
crap about the rich, as long as there are good jobs and opportunities out there.But Obama and
especially Michelle have been nurtured on hate for many years now. Hate the rich, hate the whites,
hate the Jews "God damn America". That's just not constructive.
Excuse me, less than 10% of Americans are directly invested in the market. 70% may be an accurate figure if you include things like IRA's and 401(k)'s, NEITHER of which is taxed as Capital Gains. Those are COMPLETELY tax free until you withdraw from them, and then they are taxed as INCOME, not as Capital Gains!
Oh my goodness, even Miami Cuban Republicans (please go to Off the Bus and read about Sen. Bob Menendez) are supporting Obama and you are still waving that "Cuba Libre" flag? Give it up cubiche, were you even born in Cuba (I was) or have you been raised on the stale right wing Republican Anti Castro pablum ?
Perhaps a job with the "rich people" such as Lehman Brothers, Bear Sterans, Goldman Sachs, et al. would have treated you well? Take it from an ex-Wall Streeter, you are only as good as the last dollar you made and they could not give a rat's ass about you or your wellbeing. Move on Cubiche, lift up the 45 years of your mental embargo.
You are confusing the effective tax with the statutory tax rate for corpotations. The US does not have the highest effective tax rate on corporations, and Obama's plan has many ways to provide savings for corporations that work in a way that benefits jobs here in America. Wouldn't it be nice if things were all so simple as a one step analysis? They aren't.
Where did you get the idea that Michelle and Barack Obama "have been nurtured on hate for many years now. Hate the rich, hate the whites, hate the jews..." It is in all likelihood you who feel this fire of hate, who looks over your shoulder to see if people are whispering about you. Chill out. Anger, envy, jealousy and resentment will burn up whatever wisdom you have. This bigotry and its primal energy will consume your life. I can assure you that Michelle and Barack do not hate anyone.
Well, they got some rather large tax cuts from GWB and yes, they proceeded to lay people off. Why should we conclude that they aren't going to lay off more people anyway (regardless of tax increase or cut). But hey, anything to make the stock price rise and make the shareholders happy, right?
I'm sure most of these big businesses would tell you that it's not their tax rate that's hurting them, it's employee health care.
Repubs have been trying this trickle down/supply side crap for over 25 years, it's done nothing but increase the gap/chasm between the rich and poor.
We should be taxing the hell out of the grossly over paid Executives of these big companies too.
So do the math on Obama's plan....ho
How does this get paid for.......
Just a probing question..
Just doubling the top marginal tax rate to about 50% would completely pay our budget.
Low top income taxes cause bubbles and crashes. Top taxes were lowered to a record low 25% in 1925. Bubbles ensued. Depression resulted.
http://www
Top Tax rate were raise to 75% during FDR's time, and later to 92% till 1962. The 50's were prosperous, weren't they?
Government spe3dning on Public works programs are universally recognized the the solution to depression.
http://en.
FDR increases taxes while using debt spending to rebuild infrastructure.
IT WORKED.
Just a probing answer. Bill Gates makes how much money every year? Around 200 million dollars sound good? Out of that 200 million dollars, less than 1 million is salary. The rest is from CAPITAL GAINS that he makes on his stock options. So lets say that he pays the maximum tax rate (with no deductions, not a reasonable assumption, but bear with me!) of 35%. That means that on his $1,000,000 salary he pays around $350,000. On the remaining 199 Million dollars, he pays the long term capital gains tax, since it's stock that he's held since the 1980s. That means that on that $199,000,000 he pays $29,850,000. Looks like a lot, doesn't it? Those two numbers add up to a total of $30,200,000, or a total percentage of 15.1%.
By contrast, this year my wife and I will make just around $100,000. We will deduct the maximum amount that we can, but we will still end up paying more than $23,000 in taxes this year, for a percentage of around 23%.
Who's paying more here????
Have you thought of printing up some business flyers and cards and marketing your painting services?
Tax the rich to death? Yeah, like that would ever happen. Maybe when they start paying their fair share and stop slipping through loopholes I'll have some sympathy for them. In the meantime, I'm just a member of the hardworking middle class carrying everyone on my back -- at least until President Obama takes over!
First the rich became so because of what? Perhaps they were born into. Well that doesn't count.
Second without the middle class their riches disappear. Who would pay for the roads they travel on, the buildings they walk into, the clothes they buy, on and on. We're tied together in this economy.
Where is the work that the rich do? Where is their productivity especially when they are gambling with money not their own as in these corporate schemes we hear about. Real work where productivity is rewarded by compensation. A business is failing and the rich tax a bonus. Pretty good to be rich seems like no down side that is if you are morally bankrupt.
Trickle down is ridiculous in a society where the rich want it all for themselves and why should they care about anyone else but themselves? They would take their capital gains and gamble it away like they've always done and not on businesses that employ the middle class either.
The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.
-- President John F. Kennedy, 1963
You're looking at a poor man who thinks the capital gains tax [cut] is the best thing that could happen to this country, because that's when the work will come back. People say capital gains are for the rich, but I've never been hired by a poor man.
-- New Jersey painting contractor
If the middle class is too poor to buy your product, how successful will you business likely be?
Middle class can't afford paint? Its called college, without a degree you are at the whims of the contracting market. They don't have enough baby boomer care? Where is the program taking the painting contractors and putting them on elder poop patrol? Drywallers should get bedpan duty.
One of things that prolonged the depression is that taxes were actually INCREASED. Not just cap gains taxes. Couple that with the uncertainty in the business sector caused by FDR's constant meddling in the economy...
Could there be anything more uncertain than the bank intervention just implemented by the Bush administration. Are you watching the market today?
How have the tax cuts of the last 8 years worked for ya??!! You must be making over $250,000 a year right? Come on, this bullcrap invented by Reaganomics (supply side economics and trickle down nonsense) is exactly what put us on top of this rubble heap known as what is left of our economy. Have you been living in an undisclosed location along with Cheney over the last 8 years and still locked up in there?
Giving more cash to the richest of the rich will produce jobs. Jobs in India and China. The cutting edge economic thought of the 1960s no longer applies. The last 8 years of tax cuts have trickled to foreign shores. The richest get richer and richer and everyone else is either static or losing ground. That's just fact. But don't confuse conservatives with facts.
New Jersey painting contractor clearly is confused by the difference between corporate taxes, and capital gains taxes. Or... the only job he aspires to is house painter to the uber-rich.
35% to 39% is such a huge increase. YEAH right, my heart bleeds for these people. As for lowering taxes on money earned on invested money. Why shouldn't it be taxed just like regular income. It is another way of earning money but without having to drive to work, have a work wardrobe, pay for a babysitter or spend any of thier valuable time. The trolls here must be all people who make over 250,000 a year or they are paid by some of those rich with thier excess disposable cash. They are totally ignoring charts showing that the wealth of the richest has increased by 800 billion, that under Dems you actually have earned higher returns and that the national debt climbs under republican 'Don't tax the rich but spend like crazy anyway' policiies.
In the last 28 years the safety net has been savaged by the right and now is at levels that are lower than before the depression. But we spend over a trillion a year on Defense and the Defense department wants another 450 billion next year. ANd that does not include veterans department which McCain votes against consistently. So like a republican use someone and pat them on head while they are useful and then toss them to side of road when they cease to be useable. Just the same as they feel about those fundamental workers.
What about the retired community which relies on capital gains to live? I know many retired people who are not rich and who may not be so "retired" if the markets don't recover and the capital gains tax is raised substantially!
We can only hope for some gains in the next 2 years!!
I hate to say it, but I would prefer the capital gains tax to be on a sliding scale also.
And yet how many of those retired people are living off of their IRA and 401(k) or corporate pension? Since NONE of those are taxed as capital gains, your argument falls apart!
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