Everyone Has This Tax Argument Wrong

Sadly, Obama (and the nation) have been fleeced.

Easy Mark
How the Republicans fleeced President Obama in tax-cut poker.
By Jacob WeisbergPosted Wednesday, Dec. 8, 2010, at 3:29 PM ET

During his days as an Illinois state legislator, Barack Obama was a regular poker player. Based on recent evidence, I suspect he wasn't a very good one. In trying to negotiate a tax deal, he has made a series of amateur mistakes.

Betting timidly on a strong hand. It should have been obvious back in the fall that the Democrats were not going to get a better deal by keeping the game going until after the election. Yes, they were a few Senate votes shy of the 60 needed for a floor vote on a bill extending the Bush tax cuts only for those earning less than $250,000 a year. But after the election, they were surely going to be in a much weaker position, with Republicans ready either to assume control of both houses or to come much closer to that point. Before the election, Republicans were afraid of being forced to filibuster to block a vote on the issue and ostensibly willing to compromise. On Sept. 12, John Boehner told Bob Schieffer on Face the Nation that he'd vote for a bill only if faced with no other choice. That was the time for Obama to crack heads, rein in Democratic defectors, and cut the best deal he could with the GOP.

Letting the game clock work against him. Republicans, who knew they had reinforcements coming, were happy to keep dealing cards all night. They knew they'd come back with a bigger pile of chips after the midterm election. After that, the timing favored them even more decisively. Democrats weren't willing to let unemployment benefits or the lower rates for middle-class earners expire. Republicans were willing to take that risk, knowing that after January they'd have a real majority to restore lower rates. With every day that passed, Obama and the Democrats needed a deal more, while Republicans needed it less.

Telegraphing his hand. Oy, Ax, what were you thinking when you went on the Sunday shows right after the midterm and said that Obama wouldn't agree to "permanent" tax cuts for the wealthy? By saying that, David Axelrod may have thought he was drawing a line in the sand. Instead, he signaled that the president was prepared to accept a temporary extension of tax cuts for the wealthy. At that point, Republicans knew that the deal they couldn't get in September was now available. They would have to have been terrible players to settle for anything less than the two-year extension they got. So they demanded a further cut in the estate tax, too, and got it.
Letting tougher players bulldog him. "I think it's tempting not to negotiate with hostage-takers, unless the hostage gets harmed," Obama said in yesterday's press conference. "Then people will question the wisdom of that strategy. In this case, the hostage was the American people, and I was not willing to see them get harmed." If you want to lose consistently at poker, showing this kind of weakness is pretty good way to do it. The more your opponents see that you're unwilling to let something bad happen to you (or, in this case, to poor people and the economy as a whole), the easier it is for them to intimidate you into surrendering.

Folding a winning hand. Obama had a lot on his side in the tax-cut debate: the fairness argument, the deficit argument, populist outrage, and the legitimate case that Republicans were holding working people hostage so that millionaires could get a tax break. What did the GOP have going for it? Mainly the potential to confuse the issue so badly that middle-class people thought higher taxes for the rich would somehow apply to them. In his Springfield days, Obama was known as a conservative player who would only bet big on a decent hand. But if ever there was an opportunity for Obama to bluff, this was it. Republicans cutting off unemployment benefits and raising taxes on working people could have been another version of the government shutdown. He could have won big by simply saying no to a raw deal and putting the blame on the other side.

There's an old poker adage that if you don't see the mark at the table, you're it. Bad news, Mr. President. You're the mark.

Fark's take on the Dems defying Obama: House Democrats discover vestigial spines.

Fighting Obama's bill is clearly a no-winner for the Dems. Before Obama stepped in, a united Democratic front to allow the tax cuts to expire might have been an effective tactic. But now it is too late...the Repubs and Obama have worked together to craft a bipartisan bill. Fighting against that now will ironically establish the Dems as "the party of no". Furthermore, if people see their paychecks reduced come Jan 1 they will quite reasonably lay the blame squarely on Dems.

If the Dems know what is good for them, they will quit this silly posturing and simply accept the President's lead.

Scoring political points is not everything. Let's ocassionally do what is best for the country. This deal is detrimental to that.

Here is a very good piece that is truly the truth of the matter.


Low Taxes Are the Problem, Not the Solution


Posted on Dec 11, 2010
truthdig.org


By Moshe Adler

“Every economist that I’ve talked to … acknowledges that this [tax] agreement would boost economic growth in the coming years and has the potential to create millions of jobs,” President Barack Obama said this week. But if low taxes are the solution, this must mean that high taxes are the problem. Yet the Bush tax cuts are already in effect; taxes are therefore low already, and the unemployment rate is nevertheless close to the same level that it was at a year ago and has risen in the last month. Nor did the Bush tax cuts boost the economy after they were passed in 2003, their name—“The Jobs and Growth Tax Relief Act”—notwithstanding. In fact, the evidence shows that tax policies alone have no effect on the state of the economy. What is the problem, then?

The problem is that the level of uncertainty in the economy is so high that investors and entrepreneurs—not buyers and sellers of stocks on Wall Street but actual investors who build or expand places of work and install new pieces of equipment and machinery in them—have lost confidence in their own ability to predict what a good investment will be. With such uncertainty, it is no wonder that investors are not borrowing and that banks are not lending.

If uncertainty and a low level of investment are the problem, what is the solution? The current uncertainty in the economy was brought about by the subprime crisis, and there is little that the government can do to decrease it. But there is a lot that the government can do to increase uncertainty, and President Obama and the Republicans are doing it all.

At exactly the same time that the President’s Deficit Commission announced its recommendations about how to reduce our deficits, including the projected deficit within the Social Security system, Obama has announced an agreement for the continuation of the Bush-era tax cuts for the rich and a reduction of 2 percent in the Social Security tax for all. Only a fool would invest in an economy with deficits that are not only huge but are being increased deliberately at exactly the time that Obama himself has said that they must be reduced.

But reducing the deficits without increasing taxes will require increases in the prices of all government-provided goods and services, including university education, public transportation and parks, and services that were until now free will no longer be. (In several cities people now have to pay a “crash tax” for ambulance and firefighting if they are in a car accident to which such emergency units respond.) The result will be a significant decrease in the purchasing power of middle-income families that calls for decreasing, instead of increasing, production capacity and investment.



It is not inconceivable that 13 months from now, after the extension of unemployment benefits expires, the Obama/Republican plan will result in the kind of street riots we’ve begun to see across Europe, led here by the unemployed. The larger-than-ever deficit will make renewing the extension of unemployment benefits unacceptable, particularly to a Republican-dominated House. University students fed up with higher tuitions and employed workers fed up with the high prices for government services could even join in. In an economy with an impoverished middle class and political instability, investors will become even harder to find.

The only way to reduce the uncertainty in our economy right now is to increase taxes. During the Eisenhower years the top tax rate was 91 percent, and there is every reason to return to this rate now. Nevertheless, even after taxes are raised it will take some time for investments to flow. This is because in addition to the uncertainty, the damage that the subprime crisis inflicted—not on banks, but on homeowners and other victims—remains very real.

How might investments be increased in the meantime, then? Private investors are not the only ones capable of investing. When it comes to the government, there is no uncertainty about what good investments are. Our needs are self-evident and the list is long. We need more schools and more teachers. We need more universities and more medical schools. We need to repair our roads and fix our bridges. Practically all our public services are in dire need of investments, and the number of jobs these investments could create would far exceed the number of the unemployed.

Extending the Bush tax cuts and reducing the Social Security tax will only increase the level of uncertainty in the economy and discourage investment. Only by taxing the rich can we close the deficit, reduce uncertainty and begin to make public investments, both because we desperately need them and because we desperately need the jobs that they will create.

Moshe Adler teaches economics at Columbia University. This piece is based on his book “Economics for the Rest of Us: Debunking the Science That Makes Life Dismal” (The New Press).

Why, exactly, wouldn't they blame it on the Republicans who wrote the bill in the first place, and then blocked the Dem's attempts to extend the tax cuts by filibustering it in the Senate?

It's like you just don't give a **** about facts at all. I mean, you know that's exactly what happened, right?

Cycloptichorn

The ratings agency Moody's warned that the U.S. " will put its top level credit rating at risk if Congress extends a sweeping package of tax cuts and unemployment spending." "Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government's AAA rating during the next two years," said Moody's Steven Hess.

The above should scare the hell out of everyone, whether on the left or the right.

Why We Need A High Estate Tax
By Dave Johnson

December 8, 2010 - 2:42pm ET


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Until this week here is what we heard over and over (and over and over and over and over): Because of budget deficits (caused by tax cuts for the rich and huge increases in military spending) we have to cut spending, not invest in the American People, put off investing in the infrastructure that makes the country competitive, cut jobs programs, cut education, cut rail projects, freeze pay, cut hiring, lay off teachers, and generally cut back and cut back and cut back. We mustn't stimulate the economy. We have to cut Social Security and Medicare. We have to cut and gut everything for the middle class.

That was so last week. This week it’s a different story. Now it's tax cuts for the rich. The same old story: foreclosures, layoffs and cutbacks for us; bailouts, bonuses and tax cuts for them.

Not mentioned so much in the stories you are reading: the "tax deal" includes a big, big cut in the estate tax rate. The estate tax is a tax on the income of kids of millionaires and billionaires. (The millionaires and billionaires call it the "death tax" and say it taxes "small businesses and farms" to divert us from understanding that.)

I know it's hard to spot, but gosh, it looks like the terrible inequality gap between the rich and the rest of us -- the concentration of wealth and resulting concentration of power -- is lower when the estate tax is higher, and vice versa. Why would that be?

When we revolted against the British aristocracy and formed this country, we decided this would be a country of the people, by the people and for the people. We decided it would be a one-person-one-vote society rather than a one-dollar-one-vote society. We decided it would be a country of equal opportunity with equal rights and equal access.

But today, maybe not so much. Something new has appeared on the scene: plutocracy. Plutocracy is government of, by and for the rich. It is a society where the wealthy make the decisions and reap the benefits of the economy and We, the People are "the help," serving the wealthy few at the top, doing what we're told -- by the wealthy few at the top.

Please visit Americans for a Fair Estate Tax - a coalition fighting to preserve a fair estate tax.

United For A Fair Economy has an estate tax FAQ page here and a Statement of Principles on Estate Tax Legislation here, including:

The estate tax raises revenue that we need to invest in the American people.
The estate tax ensures that families who have benefited the most from public goods pay their fair share to maintain them.
The federal estate tax provides a check on the concentration of power in the hands of those born into great wealth.
The estate tax corrects a feature of our tax system that would otherwise allow certain income to escape taxation entirely.
The estate tax encourages charitable giving.
OMB Watch has a page of information about the estate tax here but it is from 2002.

A law school professor, in the New York Times, opines that the USA should tax inheritances as income, dropping the federal estate tax.


http://www.nytimes.com/2010/12/15/opinion/15madoff.html?_r=1&nl=todaysheadlines&emc=a212

"MADRID—Moody's Investors Service warned it may downgrade its ratings on Spanish government debt, in a further sign that Europe's debt worries are spreading from small, financially stressed euro-zone members such as Greece to bigger economies closer to the euro-zone core. "

The world economy is on the brink...Ireland, Italy, Spain, Portugal...Belgium next?

We by far have not seen the worst of it...and not because this stoopid tax bill will be passed.

That is a reasonable position. It already taxes gifts greater than $10k, so why wouldn't it just consider a bequeath as a large gift?

like + 100

I guess I should point out that this would constitute a very large tax CUT for these people, and a large net loss for the treasury; based on what? The idea that rich people's kids need to be richer, that familial wealth needs to grow to even a greater extent than it already does?

Cycloptichorn

That is true. I guess you'd have to have a higher upper bracket for those with over $1 million in income, something I don't have a problem with either. The other part is that current inheritance laws have lots of loopholes that allow those with great wealth to escape much of the tax anyway, so if you could close the loopholes, a 25%-35% hit probably yields the same result.

Yeah, but I'm not actually against those 'loopholes.' What they really do is encourage the rich to have end-of-life planning, and especially to donate to charities near the end of their lives.

The families of the rich don't like the current system, because it encourages a certain level of dilution of the fortune - they'd rather see it ALL go to them, then to see the lawyers of their dying grammy or whatever figure out ways to spread the money out amongst the extended family and charities.

Cycloptichorn