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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The "trickle-down theory" killed the Roman Empire. It has failed 98% of America every time an Administration has used it and has landed us in the current quagmire. McCain gets an "F" in both history and economics. No wonder he graduated near the bottom of his class.
Well, the Roman's had lead in their water pipes. Hey wait a minute, maybe that's why Bush gutted the EPA?
The Roman Empire never died. It just became what you think of as "The Western World".
WHAT???? Is this history of the rise of the zombies? OMG this is the funniest thing I have ever read. The remnants of the dead roman empire were preserved by the humans who did not perish but lived on in a much reduced and uglier world then they had enjoyed. The Roman Empire died was shredded and consumed.
Yeah, that's why we all go around speaking Latin and calling out to Ceasar!!
Oh wait, I'm sorry, the Empire itself is LONG gone, and what we have now simply BORROWS some stuff from it??? Wow, I guess that we were BOTH wrong!!
No, it became the roman catholic church [read a book, will ya], and that's far from a good example.
McCain just doesn't get it! Its over for those who would keep expecting the majority to stand by while the upper classes loot America.
McSame's economic policy proposals are just an extention of his Henry-Kiss
Here's the way it works: Kissinger believes the only reason we lost in Vietnam, was b/c we didn't stay there long enuf!!! So, HK recommended that our policy in Iraq vindicate his theory, and advocate, instead, for an open-ended committment to stay in Iraq . . . for-F-ing-ever, if that's what it takes to prove him right.
And, according to John Insane's "brain trust," it's the same with the economy -- the last 8 years haven't been long enuf to prove that the Neocon(victs) trickle down theory really will work . . . if just given more time!
And the definition of insanity is . . .
I'd rather elect someone who says he's going to stay as long as it takes, and then pulls out in 2 years than someone who says they're going to pull out as soon as possible, and then stays 2 years.
Obama said he wanted all troops out by March 2008. Now that he's successfully snookered the Dems in their primary, he's planning to leave 80,000 troops in Iraq INDEFINITELY. That costs a lot of money, but don't ask him how much or how long, because he won't talk about it. In August he said he needed to talk to Petraeus first. Now he's talked to Petraeus, and still won't answer questions.
He said he was for a hard and fast timetable. Now he's basing everything on "conditions on the ground", which is the exact same thing that Bush and McCain has been arguing for years.
He's dishonest, and has been for the last 9 months. He bashed Hillary as a warmonger for supporting "conditions" based decisions. My how things have changed...
Nice lies, got any more?
I guess it's better to tax more and create a failed social program.
Yep, we (the middle class) are cashing in on the huge IOU that the top 1% have been flaunting in front of our faces for the past 8 years.
You mean like the one Bush is leaving us?
Yes. Bush is the greatest spender in the history of the world, to the detriment of us all.
no.... let's just spend more,.... make gov't spying and the military budget bigger,...
Trickle down economics should be renamed to tinkle down economics. I wonder when the
American people are going to catch on.
"trickle down"...th
Perhaps the author is ignorant of what's going on in the capital markets, but if so, he should at least be smart enough to know when not to spout nonsense. Our capital markets are DESPERATE for capital - the whole point of the $700 billion bailout was to "unfreeze" the markets - a cut in the capital gains rate would incentivize people to make NEW investments in the market. Our economy cannot recover if we don't realize that we need to be an investing nation - not a consuming - and we can't do that if we don't stop this idiocy of sending people checks and encouraging them to go shopping.
What we really need is to become a nation who pays off our bills and gets out of debt. I know it'll make the credit card companies cry, but they are crooks anyway. I cut mine up years ago after I paid myself out from under the "being a good american" debt. Now I operate on a total cash basis. My only credit debt is my house payment. I pay myself a car payment monthly, and every 5 years, I buy myself a new car. Cash. It's paid for, it's mine when I drive it off the lot.
More americans need to understand personal fiscal responsibility and start living within their means instead of 30 days away from bankruptcy.
It's amazing how, when you are financially independent, this credit crisis is really a non-issue.
The wealthy in this country, according to a poll taken about a month back as we edged toward recession, think that a bad economy is a "buying opportunity!" And that's an exact quote. Less competition from the nouveau riche, everything is for sale cheap, and the cream rises to the top.
Anyone who believes that the super wealthy need further tax cuts to be able to afford anything is either a fool or a shill.
wow, I am getting into a position where I have a fairly decent car that will be paid off shortly, I think I will start a car account and try this, it really makes sense. I think that people will be and should be looking at newer ways of doing things. after I declared bankrupt 3 years ago (my mom almost died, we have good coverage but after 3 months of not working due to illness, they cut her benifits, and we had to pay 500$ pm cobra to keep coverage) anyway, i only have one credit card of 300$ and I pay balance everymonth to help build credit, I think its funny they dont get any $$$ out of me for using card and I get to build my credit. good post above, thanks for new idea.
OF COURSE!!!! Why didn't *I* think of that!!! I will just have to cut my spending and I will be FINE! First I will cut my gasoline budget, since I currently only drive to work. Then I will cut my food budget, since my children and I don't need to eat. Then I will cut my housing budget, since my landlord will only be able to kick us out on the street in six months or so! THEN everything will be GREAT!!!!
The conservative tax cuts will fix everything ideology is 20th century thinking. It is time for some new conservative ideas that are geared for a 21st century world.
Agreed. How about tax cuts and real spending cuts.
Is 1996 the year you were BORN??? That's the only factor I can think of that justifies this level of cluelessne
Er, why should I invest in a financial institution who is taking a cram-down on their preferred stock from the federal government? Is that a good personal investment? What are the chances of a capital gain in that scenario?
You're not confusing capital markets with stock markets, are you?
You don't understand. The market doesn't work if there are no consumers. Why do you think the stock market is down? Nobody is buying. What are you going to invest in? A company that can't sell anything?
Seriously: What is the difference between economic Communism and Trickle-Down theory???
..Is there any difference???
Unless I have it all wrong, The Few end up with The Most -and the rest hope for more and are promise pie in the sky, which never happens.
I'm almost certain that Most millionaires didn't get to be So Rich by being generous..
(and some of them even get their money by marrying into it)
Most were born into it...
Your kidding, right? Wow, now McCain wants to give his 100 million dollar trophy wife a tax-cut; THAT'S supposed to be his plan for helping US?
McCain knows less about economics than he did about flying his plane safely back to the carrier. And with him in charge we'll all suffer the same result as he did then because of that incompetence. Peace
Capital gains? No one has any capital gains.
I am not even an economist and could see right away that it would only benefit the rich, as nobody I know has been making money on their few hundred shares of stock they might own, and most I know do not own any....
I mean who has enough stocks that selling them, and saving 7.5% on your taxes is enough to make you go from the poorhouse to the "just getting by" house??
This break is designed for those near or in retirement with Natural (non IRA) accounts, as well as normal people with the same types of accounts. If you have a year where your stocks worth $50,000 gain twenty percent, your savings is approx $3700 that year.
Still think it's worthless?
Yeah, because the poor (and middle class) don't have an account that even HAS $50,000 in it, or if they do it's in an IRA or 401(k) which is NEVER taxed like capital gains, ONLY as INCOME when you retire!
Obviously he has left the policy construction to others. If you happened to see his economic speech yesterday, he was smiling and winking throughout, as if saying to himself, "Wow, some of this mumbo jumbo sounds pretty impressive. I think they're falling for it, whatever it means."
"the money you make, for example, when you sell a stock for more than you paid for it--go the richest families"
It's not the tax break that helps the economy, it's the activity encouraged by that break. If you lower the profit on capital gains with taxation, it discourages capital investment. Freely moving capital is vital for economic health, since new businesses and business expansion rely on capital investment. If such investment isn't lucrative, the owners will take their money elsewhere. (Like China).
The capital gains tax cut is what took us out of the 2000 recession.
Meanwhile the stock market plunge is being caused by investors who assume Obama has won, and they're getting out of the market ahead of his inevitable capital gains tax hike.
Little Timmy, wrong again! Sorry! Took us out of what recession to enjoy the BOOM times of today just a few years later??? Bwahahhaha
Timmy,
You expose yourself. There was plenty of capital available for the dot.com boom and the revenues that sprang into the treasury were sufficient to balance the budget and, indeed, permit neutral projections for the eventual retirement of all the debt. Little George comes in and with negative real interest rates (that did not exist for slick willie) spawn a flood of liquidity that fund ipo's and secruitizations along with the willingness of communist China monetizing our debt to accomodate our trade deficits. Can you understand this? Our trade deficits (in the trillions) were actually turned into the "liquidity" that you state actually came from "freely moving capital". It was indeed the liberal, rather foolish, monetary policy of Greenspan that flooded with market with "free" money that fueled this mess we are currently in. Lower cap gains taxes indeed fattened the already fat cats, but had little to do with supply of "liquidity" which happens to be the "mobile" form of "capital" to which you refer.
good explanatio
Of course George inherited a recession from Billy Bob. He made the mistake of trying to prevent recession instead of just enduring it. Every time they try to stop the business cycle, it just builds up to a bigger collapse in the future.
Hey Timmy, nice try, but we all know what discourages captial investment, its GREED!!! The only reason the stock market is plunging is because of the GREED of those rich few who know that the days of protectionism is coming to an end. Meanwhile, the rest of middle income Americans are stuck. We can do nothing but leave our 401K's alone and hope that by the time we need them they will be there.
The middle class make this country what it is, it is on our backs, we give more, do more and have less and less. McCain policies do nothing to help those who really make this country run. He just doesn't get it.
GREED drives capital investment.
People with money, want to put it where it grows (because they are GREEDY).
So it gets invested.
Timmy, spare all of is that tripe. You make it sound as if the Bush policies of the last eight years left us with nothing but milk and honey and now that those dang libruls are taking over, it's all going to pot. Trickle down is a myth - period.
Actually, the economy was great before 2006.
What happened in 2006?
You can't expand business if there is no business.
There is ALWAYS business.
It is how humans survive.
Great post, Jared...ke
Trickle Down Economics should have been discredited when it didn't work under Regan. But no, our societal memory is about 6 months long, so most people don't remember what a sham it really is. It is either 1) a blatant money-grabbing effort for the rich and/or 2) a fairy tale that some people just can't help but believe in. It is not based on reality - the key to it actually working is that the people the tax cuts benefit actually have to put those savings back into the economy, which will never happen.
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