Geithner Says Tax Breaks Don’t Pay for Themselves as Expiration Considered – Bloomberg
Geithner said overseas investors would view even a short- term extension of tax cuts for top earners as a sign that permanent tax breaks were on the way. That could hurt the economy in the long run by suggesting the U.S. government is not committed to bringing down its deficits over time, he said.
Households affected by the top-end tax breaks earn an average of $800,000 per year, Geithner said. Less than 3 percent of small-business owners would see any impact if tax breaks expire, he said.
“Borrowing to finance tax cuts for the top 2 percent would be a $700-billion fiscal mistake,” Geithner said, adding that the Treasury would have to borrow an extra $30 billion to extend the tax cuts for the wealthiest for even one year.
That first point up there re: foreign investment is a big one. One of the greater fears in the international community is that the U.S. can’t make hard decisions about fiscal responsibility. There is a real danger here, as the continued role of the dollar as the reserve currency of the world is in real danger. Were we to lose that huge “natural” advantage, the results would likely be quite dire.
So it will interesting to see if the Democrats can take the political hit, end the giveaway to the wealthiest among us, and overcome the inevitable Republican opposition to being fiscally responsible.
BTW, if any future world leaders are reading, please learn from Bush. Cutting taxes and going to war simultaneously is a proven recipe for economic disaster. Let’s go ahead and end that ongoing mistake, post-haste.
UPDATE: Greenspan called for this same thing here…
Meanwhile on NBC’s Meet the Press, Alan Greenspan, the former Federal Reserve chairman who famously idolized libertarian Ayn Rand, echoed Stockman’s sentiments. “I’m very much in favor of tax cuts, but not with borrowed money, and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money,” said Greenspan. “And at the end of the day that proves disastrous.”
The “end of the day” was literally the end of the Bush Administration, and it did.
The article also mentions that Reagan’s Office of Management and Budget Director David Stockman has noticed the end result of modern Republican “tax” policy.
The Bush era that followed the tax cuts had a mixed economic record and a massive increase in the structural budget deficit, which is more attributable to the tax cuts than any other single factor.With that record—and the traditional conservative concerns about deficits causing inflation—in mind, leading former Republican administration economic experts have been calling on Congress not to extend to the Bush tax cuts for the wealthiest Americans, as Democrats propose. On Sunday it reached fevor pitch with former Reagan Office of Management and Budget Director David Stockman declaring in a New York Times op-ed that the current deficit is primarily the fault of Republican policies, and that the GOP must return to its fiscally responsible roots.
The funny thing for me is, well, those Republican fiscally responsible roots go back to before my lifetime. During my whole lifetime, the GOP has been hellbent on running up on the debt (or as they call it, “cutting taxes”). They do this under the rhetoric that the Democrats are the party of “tax and spend”. Given that the Republican policy could be accurately categorized as “borrow and spend” (and they’ve racked up the debt to prove it) the choice here seems pretty obvious.
And of that is before you look at real wages over the last 20 years and how, for those same people who got the Bush Giveaway, wages have risen tremendously while remaining stagnant for the other 80% of the population.
The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.
As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”
[full story, from back in 2005]
So the plebes work longer and harder for the same amount of money, and all that profit-cream rises right to the top.
Bonus tidbit from that story, Frank Luntz projecting (recall this was *before* the 2006 election…)
“Some people who aren’t partisans say, ‘Yes, the economy’s pretty good, so why are people so agitated and anxious?’ ” said Frank Luntz, a Republican campaign consultant. “The answer is they don’t feel it in their weekly paychecks.”
But Mr. Luntz predicted that the economic mood would not do significant damage to Republicans this fall because voters blamed corporate America, not the government, for their problems.
Sorry Franky, but “Corporate America” and “Republicans” are pretty much synonymous, and the 2006 results illustrated that. This November we’ll get to see how that blame game plays out. In the primary season we’ve seen a backlash mainly against *incumbents*, not a particular party, and the D’s have won pretty much every actual special election during the past couple years.