Obama aides signal bigger tax cuts?

I'm disappointed to read that Barack Obama might let a Bush tax cut for the wealthy expire in 2011, instead of repealing it sooner:

WASHINGTON — President-elect Barack Obama has signaled that he will pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail — a plan "big enough to deal with the huge problem we face,” a top adviser said Sunday — setting the tone for a recovery effort that could absorb and define much of his term.

A member of the Obama economic advisory team, William M. Daley, acknowledged that because of the gravity of the situation, Mr. Obama was leaning toward letting a Bush tax cut for the wealthy expire on schedule in 2011 rather than repealing it sooner. [NYT]

The wealthiest taxpayers should start paying their share of the bailout and the promised economic stimulus package immediately. 

Comments

[Fin Fang Foom]

If you are going to try to spend your way out of a recession, you don't do any good by decreasing spending elsewhere.

[Eric Jaffa]

When Clinton raised taxes on the rich during a recession, shortly after he took office, Republicans said it would cause a catastrophe.

Instead, paying down the debt led the way to a great period of economic growth.

[Eric Jaffa]

Eight years of Bush tax policies and a lousy economy, and the Obama Administration may continue Bush's tax policies on the theory that it would be bad for the economy to change them.

[Fin Fang Foom]

The recession was already over by the time Clinton took office.

[Lesley]

So what if the top 1% or 10% lose one of their many monster houses or one of their precious autos or that vacation in Monaco or the visit to the botox doc. This isn't even remotely close to toughing it out.

[Alon Levy]

Eric, the 1991 recession was less severe than the current one. It didn't involve a liquidity trap, so monetary policy could still work. Right now, there is a liquidity trap, in which case standard Keynesian policy is to cut taxes and/or raise spending. Obama's doing just that, in a way that conserves political capital.

[Matt Austern]

I'm mildly disappointed, but only mildly. First, it's not a matter of repealing or not repealing the tax cuts for the rich; it's a matter of getting rid of them in 2009 or in 2011. There are some issues where I can get worked up over a matter of timetable, but this isn't one of them. Second, repealing the cuts in '09 would require getting a law through Congress, and that's hard. If Obama keeps his campaign promises, if his priorities when he takes office are what he said they will be (and so far I see no reason to think otherwise), then he's going to have more important Congressional fights on his hands. Global warming, for example, is an area where it's very important to act sooner instead of later.

If Obama manages to do the four or five things that he said were his top priorities, then he'll have a very successful first term and he'll be the best President we've had in at least 40 years. More than that is lagniappe.

[The Phantom]

Lesley

You very much misread how that evil top 10% lives. Especially in the Northeast, where salaries but also costs, including all taxes, are much higher.

If you make $200,000 a year in Florida or Texas ( with no state income tax and lower costs ) you're approaching "rich". If have the same income in New York City, with a crushing state and city tax and higher real estate and other expenses. you most certainly are not.

I may be in that top 10% ( surely not the top 1% ) but I have one modest house and one modest [ American and UAW built ] car and though I travel a lot for fun, it's always in the back of the bus. The hotel I stayed at in Israel two weeks ago cost $150 a night.

Most successful people I know do the same. An incredibly small amount of the "top ten percent" people live the "lifestyles of the rich and famous" life you describe. They can't afford to. Not if they ever want to save money as they enjoy a few good things.

And by the way- the Alternative Minimum Tax means that many of us never saw the " Bush Tax Cuts ". Its a dirty little secret.

If you want bipartisan support for tax increases, get them done in conjunction with repeal or fundamental reform /inflation indexing of the AMT.

[El Cid]

Britain just announced it planned increasing its tax rate on the wealthiest to 45%.

Given that Britain's bank bailout was much better designed than ours -- i.e., including strict conditions on banks and changing out the failed leadership -- I don't think the UK will feel kindly about being lectured on this by their more conservative colleagues in the U.S.

http://www.guardian.co.uk/business/2008/nov/24/pre-budget-report-alistairdarling>Darling to unveil 45p tax on rich to fund recession package
guardian.co.uk, Monday November 24 2008 13.37 GMT

Alistair Darling will announce today that income tax for those earning more than £150,000 a year will rise to 45p in the pound during the next parliament to help pay for Labour's £15bn anti-recession emergency package.

Faced with the challenge of reducing state borrowing from an expected £120bn next year, the chancellor will use today's pre-budget report to break New Labour's 15-year taboo on raising income tax on the wealthy. Darling will also unveil a one-year cut in standard-rate VAT from 17.5% to 15%, in the hope consumers bring forward spending and shorten the recession.

The government hopes that, by targeting the rich, people on low and middle incomes will be reassured that they are not to be the victims of an aggressive spend-now-tax-later strategy. It is expected the measure will raise £2bn.

[Count Zero]

Phantom, I think the people she's referring to are the top .1% of earners. I'm just making up the percentage, but they're the sports stars, movie stars, and CEO's of the US that make a ridiculous amount of money.

I do agree that if you live in the Northeast that 200K family incomes aren't anything special, especially if both partners are working. I sure don't have the same cost of living as someone in the Midwest or Southwest, though I wish I did. I can imagine it's even worse in Hawaii, where I've heard the cost of living is ginormous.

I think it would be nice if they took the cost of living for a particular area into account when taxing, but then they'd probably see the nice area as deserving higher taxes in the first place.

I think it would be nice if they took the cost of living for a particular area into account when taxing, but then they'd probably see the a nice area as deserving higher taxes in the first place.

[The Phantom]

The entire system is messed up. And the worst part is that the Democratic Monopoly Party here in NY appears just fine with a system that, via the AMT and with no cost of living or inflation adjustments, disproportionately affects those who live here.

[Alon Levy]

I think it would be nice if they took the cost of living for a particular area into account when taxing, but then they'd probably see the nice area as deserving higher taxes in the first place.

It definitely would be - it's probably the largest source of tax imbalance between red and blue areas. The problem is that low-cost, low-wage parts of the US like the system as it is; their Senators are as capable of blocking this tax correction as they are of directing exorbitant federal spending to their states.

The entire system is messed up. And the worst part is that the Democratic Monopoly Party here in NY appears just fine with a system that, via the AMT and with no cost of living or inflation adjustments, disproportionately affects those who live here.

The AMT is actually the most pro-NY part of the tax system, because it's immune to the mortgage tax deduction. It isn't indexed to the cost of living, but neither is the regular income tax; the difference is that the income tax brackets change with changes in the national cost of living, while the AMT doesn't.

[Alon Levy]

It is expected the measure will raise £2bn.

This sounds about right. The increase is exactly the same as the one Obama proposed - 5 percentage points on people making more than about $250,000 a year. Labour is candid about its proposal's generating about $3 billion. The Democrats pretend theirs will generate $100 billion.

[Tom Grommell]

I do not follow the logic that AMT is pro NY in any conceivable way. It means that I pay a lot more tax.

And like many NYers I make more than the norm but also pay way more than the norm just to live.

I will re read the comment later today, but I think that NY and NYers would benefit greatly if the AMT were inflation indexed as per the year it first was created or eliminated outright.

The AMT is actually the most pro-NY part of the tax system, because it's immune to the mortgage tax deduction.

How in the world does this help someone in NY who has a big mortage expense? It kills them, and does not help them.

[Alon Levy]

How in the world does this help someone in NY who has a big mortage expense? It kills them, and does not help them.

New York has the lowest home ownership of all fifty states. A Texan can deduct his mortgage from his income for income tax purposes, but not for AMT purposes. I can't deduct my rent from either.

Another way the AMT helps New York is that it's immune to deductions for business expenses, which include commute costs. Again, compare a Texan who spends $200 a month on gas and another $300 on car payments, or a Long Islander who spends $200 a month on the LIRR, to a New Yorker who pays $81 a month.

[affluent member of society]

you are obviously a socialist. you are also bitter and resentful because you did not have the brains to get into a decent college, attend graduate school and earn the well deserved incomes associated with higher education. why should the intelligent, productive and responsible citizens be responsible for supporting the dregs of society (yourself included obviously)? or have you forgotten? this is the land of opportunity (and the opportunistic -- yourself included!!!). go back to school, get an education and get yourself a REAL job.

[affluent member of society]

you are obviously a socialist. you are also bitter and resentful because you did not have the brains to get into a decent college, attend graduate school and earn the well deserved incomes associated with higher education. why should the intelligent, productive and responsible citizens be responsible for supporting the dregs of society (yourself included obviously)? or have you forgotten? this is the land of opportunity (and the opportunistic -- yourself included!!!). go back to school, get an education and get yourself a REAL job.

[The Phantom]

Alon

You're nuts.

Many, many New York City residents ( like me ) own buildings, while many others own condos or coops. Yes, more New Yorkers than Texans rent ( not bothering to look it up, but I am sure it is true ) but most of those who have good jobs over time will own a house/apartment/co-op.

Unless they're rent control leeches, but they're dying breeds now anyway.

Perhaps the single best way to help middle class New Yorkers would be to get rid of the AMT, which for the most part would not effect people in the lower wage / lower cost of living areas.

You're usually dead on with the facts, but you could not be more hopelessly wrong on this one. It's simply not a debatable point.

[Alon Levy]

New York City's home ownership rate is 33%. Those 33% are often affected by the AMT, but only because of their above average incomes. Maloney and Nadler's districts, which seem to have the highest per capita AMT burden, also have high income tax burden. Maloney's district is possibly the richest in the country; people who live on Fifth Avenue in the 60s can afford to pay high taxes.

The more outrageous thing here is that Rangel's district's per capita federal tax burden is only about 10% below average, and far above the median district. This, I presume, comes from being unaffected by income tax exemptions: Upper Manhattan has a home ownership rate in the single digits.

[Marci]

Interesting blog.