Romney whacks tax deal
By D.J. McGuire | Monday, December 13th, 2010 | Policy
I must admit, when I saw that Mitt Romney took aim at the tax compromise (NRO – The Corner), I was initially encouraged to support it.
Then I read Romney’s column (USA Today), and I must admit, I think – finally – he understands supply-side economics.
Here’s the money quote (emphasis added):
In many cases, lowering taxes can actually increase government revenues. If new businesses, new investments and new hiring are spurred by the prospects of better after-tax returns, the taxes paid by these new or growing businesses and employees can more than make up for the lower rates of taxation. But once again, because the tax deal is temporary, a large portion of this beneficent effect is missing. What some are calling a grand compromise is not grand at all, except in its price tag. The total package will cost nearly $1 trillion, resulting in substantial new borrowing at a time when we are already drowning in red ink.
In other words, tax cuts that focus on encouraging businesses to form or expand can grow the economy in a way demand-based tax cuts cannot, but only if they are permanent; otherwise, businesses won’t see the long-run benefit, and will hold back expansion (or entrepreneurs will hold back from starting up firms).
Now, whether these tax cuts can “pay for themselves” is a question that has clouded their actual importance (history, BTW, says they can, but they’re usually asked to pay for themselves plus additional spending sprees, which they certainly can not do). In fact, tax cuts like these, because they affect supply and not demand, can be couple with spending cuts and still bring economic growth (without inflation).
Romney doesn’t go into that detail, but he does note that the expiration date on the tax cuts drains them of their economic value. Meaning they won’t grow the economy, to say nothing of government revenues.
Like Romney and Jim DeMint, I’d rather these tax cuts were permanent. Like them, I’d prefer the unemployment extensions were covered with spending reductions elsewhere. I certainly have no use for the ethanol subsidies and other ornaments that decorate this.
The more I think about it, the less I like it.
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19 Responses to "Romney whacks tax deal"
I think Obama is counting on the temporary extension of the tax rates to weaken its economic effect without actually tanking the economy. Then he and the Dems will blame the Repubs for tax cuts to the rich that created all of the deficits from George Washington to Obama and didn’t even benefit the economy. He and the media of course won’t apply that logic to his various pork bills. If it is argued that as president he would want the best for the country we have to remember what he and the leftists regard as good for the country. He has repeatedly gone around the world proclaiming the end to the American economic engine. Leftists in Europe have no problem with double digit unemployment and sluggish growth and government unions ripping off the country. If it is argued that his political survival is at stake, Obama will point to Harry Reid who got reelected with union and corporate thuggery despite 15% unemployment and general economic devastation.
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You do understand the currently debated tax cuts have been inplace for nearly a decade without any real evidence to show they have created new jobs in America.
If we need to extend the tax cuts for two more years, please show me the historical data including the real jobs created by the current cuts. I’ve looked and listened as folks say we have to do this now to create new jobs and get new investment in business. I do not believe that is true. Facts are enough to get my support but I don’t see the numbers to prove it has worked.
Sure I like to keep my money just like the next guy but please show me the facts as we do not have any for the investment we’ve had since these were approved in 2001.
I’ll wait while you hunt down that data…
William Bailey says:
“You do understand the currently debated tax cuts have been inplace for nearly a decade without any real evidence to show they have created new jobs in America.”
No William, I don’t understand but the prospect of losing the tax cuts is killing old jobs. What do I know, I’m just a dummy.
William,
I assume your question is playful since you are aware that the unemployment rate fell to very low levels after the Bush tax cuts. Not that tax rates alone can do everything (And financial panics are not caused by tax rates whether high or low.) Govt borrowing, regulations and political stability/corruption also play a role.
Anyway, Leftists whether here or in Europe or elsewhere don’t care about high unemployment so why would you change your mind if shown the connection between tax rates and economic activity? Your friends in Congress have argued that unemployment checks are the best stimulus and printing money is the best route to wealth creation. So you are correct in opposing anything that would lead to more jobs being created. To a leftist, job creation is depressing. I know that sounds paradoxical. The only exception would be a govt job because that is the only pure job as the Soviet Union understood so well. Whatever happened to that paradise?
The unemployment extension does nothing for the long term jobless. They will still celebrate New Years and Easter on the street instead of in their home. The extension keeps other Americans from competing with them for choice tent city real estate.
The tax cut will do nothing for business. However it just might allow someone to keep their house out of foreclosure as local government ramps up their collection plate to pay their own overspending.
According to the Heritage Foundation, who’d taken the affects of the 2003 Bush tax cuts. The six quarters before netted -267,000 jobs; after gained 307,000 jobs. The GDP was 1.7% before and 4.1% after and gross private domestic investment went from -0.6% to 9.8%.
In a free market, the government can only influence the market but as we’re moving into this socialist environment, the jobs will continue to dwindle. It’s about confidence people have to innovate wealth, the government must borrow or tax wealth.
William is correct in that the tax cut has been in place for too long to create jobs . Any reduction in unemployment will only be a result of budget triggers after Business learns they won’t be damaged by losing the tax cut. In fact, it will not create jobs because expiration will in effect be a tax increase. Saving the cuts will be a neutral and new jobs will only come from some businesses spending cash reserves held back in fear of possible tax increases.
Romney is wrong because the temporary tax cut was in place for too long and budgeted in. Of course, William is wrong about the cuts in first place not being a benefit, but at this point it doesn’t matter. We are not in effect talking about a tax cut we are effectively talking about not getting a tax increase.
So all the compromise was given for not increasing taxes. The Democrats framed the question and got something for next to nothing. No wonder Clinton was pushing it. Some of the Democrats were upset with the “compromise” because they and their constituents ended up believing their own hype.
The numbers just aren’t there to claim the Bush tax credits created jobs, since more jobs were created in ten years before they were enacted than have been created in the ten years since. That would be true even if we factored out the recession. The Bush administration simply did not have a good record of job creation.
The numbers aren’t there to prove that the Bush tax cuts didn’t create jobs, either, because there’s no way to know what would have happened in their absence.
No one, in my opinion, is honestly arguing that extending the current tax rates will stimulate the economy. That’s not the point. Any stimulus they would have had would have happened years ago. The point is to ensure that taxes don’t go up on anybody, because the potential damage a tax hike could do is unknown given the fragility of the economy right now. We just don’t know what kind of an impact raising taxes on those making more than $250k a year will do. Better to leave well enough alone and revisit the issue when the economy is in better shape.
I agree with Romney that making the cuts permanent would be a better solution, but that’s just not politically possible now, so we shouldn’t waste time arguing about it.
Given the lack of facts to support the cuts creating jobs, I’d rather see our millionaires pay more and bring down the deficit. Somebody has to pay so why not those who can best deal with that problem? And I’m not opposed to cuts in spending to also bring down the deficit. However cuts must include defense. It is a matter of priorities…
Targeted tax cuts can help this country achieve long term budget success but it is likely we’ll just have more politics instead of real solutions.
Policy aside – why did Romney wait until the day of the Senate vote to chime in on a deal more than a week old? Is that leadersip?
Tax rates, govt borrowing, regulations and political stability/corruption together play a role in permitting a given level of economic activity and employment. Like any equation, changes to any or all the factors will affect the result.
Can anyone honestly argue that the Left is known for improving any of these factors? Clinton was forced by the Republican Congress to reduce govt borrowing and slow down on govt regs. This lessened the impact of some of the tax hikes he earlier passed.
@ William,
Let’s be honest. Politicians simply spend whatever money they take in. Taxing the “millionaires” earning $250k or $80k will not lessen the deficit unless you impose a balanced budget. If you want to punish the top 5% or 2% wage earners, then say that. Most rich people don’t even get much in salary anyway. Good grief!
@JR,
I’m no Romney enthusiast either. But which prospective GOP pres candidates are showing even his low level of initiative on anything?
@valentinus,
Let’s not forget bubbles like the technology bubble. Clinton owes his legacy to Gore’s invention of the internet.
Bush’s legancy will be tainted by the housing bubble that was highly influenced by the Frank and Dodd duet.
And as put on this site, Obama will be known for his government bubble.
Keeping the tax cut won’t help. However, raising taxes by letting them expire definitely will hurt the economy.
Will, there is no proof, but there is circumstantial evidence that the recession would have been worse without them. Personnally, I was absolutely happy with Bush’s first term. Some stimulus was helpful. The problem is he and Congress became addicts and never stopped. The 2nd term was horrific. What was the GOP offering to replace Bush? McCain? Bush, McCain, and Obama. No matter who we picked – still in an economic mess with big government policies and still losing lives in Iraq & Afghanistan. I wonder sometimes if we are only given the illusion of choice.
Back to the topic though, Will, you more than many, are aware of the substantial cash reserves the Business community and banks are hoarding for an economic winter. A tax increase is not going to solve that. They will however, at least be able to act after they know their taxes are going up for sure. Hard to invest intelligently without certainty. I am hoping the evil rich don’t get taxed more at least until the economy improves.
Brian: I agree with you that now isn’t a great time to raise taxes on anybody. The wealthy are the people who’ve gone back to the stores, according to most reports. We don’t want to curb that right now.
That’s why I proposed we make the tax cut everybody gets permanent and extend the one that only applies to those over $250,000 for two years. Then they can be voted on on their own merits. But I’m not that unhappy with the deal that was struck.
Romney, of course, is trying to gain credibility with a segment of the GOP that doesn’t have much use for him. I predict it won’t work.
Steve,
$250K for a couple is not alot of money in some geographical areas, but that is not the point either.
I can spend my hard earned money on more useful things than the government can. You have only to look at what’s in the Omnibus spending bill to understand what I’m saying. (401k, food, mortgage,fixing up my house….goes on and on.) I should not be required to pay for the habits and poor decisions of govt spenders.
Just like the State of VA–there is incredible amounts of fluff, waste and govt employees and agencies not needed. Until the Federal Govt can prove to me that this is cut out and not the case…NOT ONE MORE PENNY of my hard earned money.
Go Britt!
Finally somebody that does not talk about this in terms of a tax cut, because it is not. It is only a stopgap measure to keep things from getting any worse and help Obama have a semblance of hope for reelection.
Republicans should vote NO on the Tax Compromise.
If everyone is paying more in taxes in 2 weeks, perhaps citizens might decide to discuss fiscal policy more.
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