We Don't Need a Middle Class Tax Cut

[iguanaman]

From 1945 to 1975 (roughly) US firms could pay lush wages because the rest of the world was out of business from WW2. By about 1975 international competition resumed, and the US holiday from economics ended. Your problem is economics.

That is just complete nonsense. Our GDP grew exponentially and we were the envy of the world because of the purchasing power of our own great middle class not exports or imports. Our growth has slowed since profits are no longer shared and the middle class is tapped out. Your problem is believing the supply side BS the right wing has cooked up to cover their destruction of our middle class to suit their wealthy donors who were too greedy to accept shared prosperity.

 

[Jack Hays]

That is just complete nonsense. Our GDP grew exponentially and we were the envy of the world because of the purchasing power of our own great middle class not exports or imports. Our growth has slowed since profits are no longer shared and the middle class is tapped out. Your problem is believing the supply side BS the right wing has cooked up to cover their destruction of our middle class to suit their wealthy donors who were too greedy to accept shared prosperity.

Sorry, but the data simply don't support your claim. It's no coincidence, for example, that Japanese automakers began making serious inroads in the 1970's and began exerting severe pressure on Detroit by 1975.

 

[MTAtech]

Keep showing just how jealous you are over what someone else earns. CEO's are responsible to shareholders, many of which are seniors who require more income than SS but that fact escapes you. How does any rich person affect you and your family and prevents the govt. from printing or spending more money?

Raising taxes is destructive behavior but that is something that doesn't even cross your mind or is of any concern as it promotes bigger Federal Govt.

Oh yes, the little old lady living on her dividends. That's why we need to keep taxes on CEOs low and on dividends. However, Conservative's argument is baloney. According to Forbes, The Top 0.1% Of The Nation Earn Half Of All Capital Gains.

Income and wealth disparities become even more absurd if we look at the top 0.1% of the nation's earners-- rather than the more common 1%. The top 0.1%-- about 315,000 individuals out of 315 million-- are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.

It's crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs.

 

[MTAtech]

From 1945 to 1975 (roughly) US firms could pay lush wages because the rest of the world was out of business from WW2. By about 1975 international competition resumed, and the US holiday from economics ended. Your problem is economics.

Paul Krugman calls this The Europe-in-Rubble Excuse

Whenever I point out how well America did with strong unions and highly progressive taxation after World War II, I can count on conservatives trying to resolve their cognitive dissonance by saying “but it was easy then — all our competitors were in ruins!” You can see this all over the comments on today’s column.

Sorry, guys, but that’s bad history and very bad economics.

On the history: the great postwar boom wasn’t just a few years after the war; it was a whole generation long, from 1947 to 1973 — well into an era in which Europe had very much recovered. Here’s West German GDP per capita as a share of US GDP per capita:

The Europe-in-ruins era was long over while the US boom was still going strong.

But the bad history is incidental; the really key point is that this is nonsense economics. Yes, our competitors were in ruins for a while; so were our customers (who were more or less the same countries). Basically, we had nobody to trade with. Here’s exports and imports as a percentage of US GDP:

...
And anyone who reflexively reaches for the idea that we were actually better off because Europe was in ruins as a way to explain the postwar economy should take a hard look in the mirror. Did you think this through? Or were you just grabbing for something, anything, to explain away a fact that your ideology says can’t have been true?

 

[Jack Hays]

Paul Krugman calls this The Europe-in-Rubble Excuse

Sorry, but Krugman is making my point. Please note my timeline and his are quite similar. For some time after Europe and Japan were no longer rubble, they were still not in a position to export or compete effectively in international markets. And they purchased much capital equipment from the US. Caterpillar, for example, was a huge exporter in those years. Krugman is blinded by his ideology.

 

[MTAtech]

Sorry, but Krugman is making my point. Please note my timeline and his are quite similar. For some time after Europe and Japan were no longer rubble, they were still not in a position to export or compete effectively in international markets. And they purchased much capital equipment from the US. Caterpillar, for example, was a huge exporter in those years. Krugman is blinded by his ideology.

I think you need to read it again. Dr. K. said, "the great postwar boom wasn’t just a few years after the war; it was a whole generation long, from 1947 to 1973 — well into an era in which Europe had very much recovered." He also made the point, "our competitors were in ruins for a while; so were our customers." This is confirmed by the Trade graph -- exports and imports are relatively equal over time. We weren't selling Europe stuff and importing nothing.

It's ironic that you charge "Krugman is blinded by his ideology," because that's what I'd say about you. You previously said, "It's no coincidence, for example, that Japanese automakers began making serious inroads in the 1970's and began exerting severe pressure on Detroit by 1975." What you ignore is that both German and Japanese workers are well-paid jobs. You might want to read this article from the Commie rag, Forbes: How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much

 

[iguanaman]

Sorry, but the data simply don't support your claim. It's no coincidence, for example, that Japanese automakers began making serious inroads in the 1970's and began exerting severe pressure on Detroit by 1975.

If you want to make the point that Detroit got fat and lazy because of their captive market I would not argue. But we talking about the reasons for wages not keeping up with productivity and Japan was not the reason.

 

[Jack Hays]

I think you need to read it again. Dr. K. said, "the great postwar boom wasn’t just a few years after the war; it was a whole generation long, from 1947 to 1973 — well into an era in which Europe had very much recovered." He also made the point, "our competitors were in ruins for a while; so were our customers." This is confirmed by the Trade graph -- exports and imports are relatively equal over time. We weren't selling Europe stuff and importing nothing.

It's ironic that you charge "Krugman is blinded by his ideology," because that's what I'd say about you. You previously said, "It's no coincidence, for example, that Japanese automakers began making serious inroads in the 1970's and began exerting severe pressure on Detroit by 1975." What you ignore is that both German and Japanese workers are well-paid jobs. You might want to read this article from the Commie rag, Forbes: How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much

As I already said, lush conditions continued after the "rubble countries" had rebuilt because they were still a long way from being competitive internationally. They were rebuilding their domestic economies. And the foreign car invasion was led by the Japanese, not the Germans (with the exception of the cheap VW Bug).

 

[Jack Hays]

If you want to make the point that Detroit got fat and lazy because of their captive market I would not argue. But we talking about the reasons for wages not keeping up with productivity and Japan was not the reason.

Don't mistake a single example for the entire argument. International competition is indeed why wage restraint was imposed after about 1975.

 

[radcen]

Utter and complete nonsense. "We haven't done it, therefore, it's impossible." That's your take.

Don't hold your breath.

 

[shrubnose]

Wastes? yes, I agree in defending people like you who don't appreciate it. Socialism is something that spends other people's money which in our case is in your defense so you can waste it on social programs and expanding your GDP through govt. spending on everything else other than defense

Believe whatever you want to believe.It will have no effect on reality.

 

[radcen]

Fair enough, big spending cuts are, despite decades of real world experience, still theoretically possible. But what is irrefutable is we've been dealing with deficits for decades and those big spending cuts have not happened. So until the country demonstrates the political will to cut spending, and DOES in fact cut spending, the only solution is more revenue if we care about deficits (which we actually do not, but that's not the topic.)

People want stuff. Stuff buys votes. Lobbyists buy their stuff from politicians with money. Politicians buy their offices from the people with stuff to the people. As long as the people want their stuff, nothing will ever change. Change has to come from the people in the form of the people stop demanding so much stuff.

 

[Cordelier]

But it is clear that in the 1950's to 1970's wages grew more or less equally in all wage groups. t was not until tax rates on the top were slashed that CEO's began to take multimillion $ salaries while their workers wages stagnated. This is because corporations would rather pay their workers than the Govt. and salaries are tax deductible. As soon as they could keep the money for themselves they decided not to share profit growth with their employees. Look how wages tracked productivity until Reagan changed the game.

I'm curious about your chart.... if Reagan's supply-side tax cuts were to blame for the divergence between productivity and wage growth, then why is it that wage growth seems to have peaked during the mid-70's, almost a half decade before Reagan came into office?

Don't you think it's more likely that higher commodity prices were to blame for the divergence? If OPEC raises the price of oil and so it costs more to make gidgets, it's not exactly an incentive to increase the wages of your gidget makers, is it?

 

[iguanaman]

I'm curious about your chart.... if Reagan's supply-side tax cuts were to blame for the divergence between productivity and wage growth, then why is it that wage growth seems to have peaked during the mid-70's, almost a half decade before Reagan came into office?

Don't you think it's more likely that higher commodity prices were to blame for the divergence? If OPEC raises the price of oil and so it costs more to make gidgets, it's not exactly an incentive to increase the wages of your gidget makers, is it?

The increased costs were passed on to the consumer so I don't see your point.
The OPEC Oil crisis caused the price of crude to triple overnight and supplies were cut. It threw the economy into a tailspin and as the increased energy cost and supply restraints rippled thru the system prices rose dramatically. Then the Fed started raising interest rates to quell the oil price cost "inflation". That of course threw us into recession and "stagflation" (Since the price increases were not caused by demand they continued despite the recession) . It wasn't until Reagan lowered interest rates and spent record amounts of Govt. money that we recovered. And then "Voodoo economics" was born. That is why the wage increases never returned to earlier norms. Once the price increases were figured in and supply returned to normal there is no reason for it to be still a factor.

 

[Jack Hays]

The increased costs were passed on to the consumer so I don't see your point.
The OPEC Oil crisis caused the price of crude to triple overnight and supplies were cut. It threw the economy into a tailspin and as the increased energy cost and supply restraints rippled thru the system prices rose dramatically. Then the Fed started raising interest rates to quell the oil price cost "inflation". That of course threw us into recession and "stagflation" (Since the price increases were not caused by demand they continued despite the recession) . It wasn't until Reagan lowered interest rates and spent record amounts of Govt. money that we recovered. And then "Voodoo economics" was born. That is why the wage increases never returned to earlier norms. Once the price increases were figured in and supply returned to normal there is no reason for it to be still a factor.

You still haven't worked your way out of the corner. Wage growth stagnated while productivity growth continued nearly a decade before RWR took office.

 

[Cordelier]

The increased costs were passed on to the consumer so I don't see your point.
The OPEC Oil crisis caused the price of crude to triple overnight and supplies were cut. It threw the economy into a tailspin and as the increased energy cost and supply restraints rippled thru the system prices rose dramatically. Then the Fed started raising interest rates to quell the oil price cost "inflation". That of course threw us into recession and "stagflation" (Since the price increases were not caused by demand they continued despite the recession) . It wasn't until Reagan lowered interest rates and spent record amounts of Govt. money that we recovered. And then "Voodoo economics" was born. That is why the wage increases never returned to earlier norms. Once the price increases were figured in and supply returned to normal there is no reason for it to be still a factor.

Alright, lets assume the increased commodity costs were passed on to the consumer... have a look at the label on the y-axis of your graph - the wage figures are inflation-adjusted. Whether their pay gets cut or they end up paying more at the till, the workers are going to feel the burden of increased commodity prices either way, are they not?

As far as the Federal Reserve goes, I'd argue that the Burns Fed (and the Miller Fed after him) has too dovish on interest rates through much of the 70's and that exasperated the problem of rising commodity prices (not just oil). It took Volcker becoming Fed Chair with his hardline approach (relying more on direct control of the money supply instead of manipulating short-term rates) to finally break the inflationary cycle and start lowering interest rates.

I've got my differences with Reagan, but I think he was correct in cutting taxes in his first term - they were too high and choking off investment. Where I think we went wrong was in his second-term overhaul of the tax code that put too much money into the hands of the wealthy, and we've been living with the consequences of that for the last 30 years now. We've had to massive run-up in investment and insufficient demand to sustain it due to the wage stagnation of the middle class.

 

[MTAtech]

I think we went off on tangents. This is from The Tax Policy Center's analysis of Trump's framework. "Middle Class tax-cut," my eye.

Table shows the distributional effects of the Unified Framework as released 9/27/2017 by Expanded Cash Income Percentile in 2027. Proposal would repeal individual and corporate AMT; personal exemptions; itemized deductions (except charitable and mortgage interest)and Pease limitation; certain business deductions and credits; and estate tax. Proposal would enact 3 individual tax rates of 12, 25, and 35 percent; increase standard deduction to $24,000 married ($12,000 single/$18,000 head of household), indexed for inflation after 2018; increase non-refundable portion of child tax credit to $1,500 (unindexed) and phaseout threshold for married couples to $150,000 (unindexed); enact $500 (unindexed) credit for non-child dependents; max tax rate of 25 percent on pass-through income;20 percent corporate tax rate; expensing of equipment put in service through 12/31/22; territorial system with global reduced rate tax on foreign profits of U.S. multinationals; deemed repatriation over 8 years of accumulated untaxed pre-2018 earnings of CFCs, with reduced rates; index tax system using chain-weighted CPI.

 

[Jack Hays]

I think we went off on tangents. This is from The Tax Policy Center's analysis of Trump's framework. "Middle Class tax-cut," my eye.

In shift, GOP proposal won’t lower rate for the wealthiestBy Damian Paletta and Mike DeBonis

 

[MTAtech]

In shift, GOP proposal won’t lower rate for the wealthiest
By Damian Paletta and Mike DeBonis

The referenced article had two pieces of relevant material:

1) GOP leaders had planned to collapse the seven existing income tax brackets into three brackets, lowering the top rate from 39.6 percent to 35 percent, but now will retain the top bracket for people earning more than a certain threshold, perhaps $1,000,000, the people said.

However, people who earn over $1,000,000, typically earn their income from capital gains, not wages and aren't subject to the 39.6% rate. As an example, Warren Buffett would pay 39.6% on his $100,000 salary and the lower capital gains rate on the rest.

2) The tax package is expected to reduce revenue by more than $4 trillion over 10 years. Republicans hope to recoup some of that lost revenue by eliminating a number of tax breaks, but they have been careful not to identify all of these changes, in part because they expect a revolt from interest groups that would be affected.

So, it lowers taxes overall enough to blow a debt hole. Also, recouping some of that lost revenue by eliminating a number of tax breaks, means some people's taxes are going to rise. One of those tax breaks is deducting state and local taxes. For people who argue against double-taxation, they'll being huge hypocrites.

 

[Jack Hays]

The referenced article had two pieces of relevant material:

However, people who earn over $1,000,000, typically earn their income from capital gains, not wages and aren't subject to the 39.6% rate. As an example, Warren Buffett would pay 39.6% on his $100,000 salary and the lower capital gains rate on the rest.

So, it lowers taxes overall enough to blow a debt hole. Also, recouping some of that lost revenue by eliminating a number of tax breaks, means some people's taxes are going to rise. One of those tax breaks is deducting state and local taxes. For people who argue against double-taxation, they'll being huge hypocrites.

There's no reason for the federal government to subsidize high tax states.

 

[MTAtech]

There's no reason for the federal government to subsidize high tax states.

Yes, I know that's the official talking point but that logic applies to all kinds of things that conservatives want. Capital gains losses are deductible from taxes. There's no reason for the federal government to subsidize bad investment choices.

While discussing capital gains, there's no reason for the federal government to subsidize, at a lower rate, investment over wages. Why does billionaire Warren Buffett pay a lower income tax rate than his secretary?

Real estate corporations, like the Trump Org, are able to depreciate buildings that they own, even though they generally appreciate in value. There's no reason for the federal government to subsidize make-believe depreciation.

The step-up in basis rule in the U.S. tax code allows the wealthy to pass along assets that have grown in value to their heirs without ever paying a dime of taxes on it. Under special Internal Revenue Service inheritance rules, when you inherit assets such as stock, real estate or a closely held business, you are allowed to step up their basis -- what the deceased originally paid for them -- to their current fair market value. Therefore, when you sell the assets, you would only be taxed on their gain in value from the time you inherited them. There's no reason for the federal government to subsidize rich people inheriting assets from other rich people.

So, if we're going to cut middle-class deductions, we should cut tax-breaks for the rich too.

 

[Jack Hays]

Yes, I know that's the official talking point but that logic applies to all kinds of things that conservatives want. Capital gains losses are deductible from taxes. There's no reason for the federal government to subsidize bad investment choices.

While discussing capital gains, there's no reason for the federal government to subsidize, at a lower rate, investment over wages. Why does billionaire Warren Buffett pay a lower income tax rate than his secretary?

Real estate corporations, like the Trump Org, are able to depreciate buildings that they own, even though they generally appreciate in value. There's no reason for the federal government to subsidize make-believe depreciation.

The step-up in basis rule in the U.S. tax code allows the wealthy to pass along assets that have grown in value to their heirs without ever paying a dime of taxes on it. Under special Internal Revenue Service inheritance rules, when you inherit assets such as stock, real estate or a closely held business, you are allowed to step up their basis -- what the deceased originally paid for them -- to their current fair market value. Therefore, when you sell the assets, you would only be taxed on their gain in value from the time you inherited them. There's no reason for the federal government to subsidize rich people inheriting assets from other rich people.

So, if we're going to cut middle-class deductions, we should cut tax-breaks for the rich too.

In a capitalist economy the federal government has an interest in encouraging investment and entrepreneurship. We can debate the nature and extent of that encouragement, but the principle is sound.
The federal government has no similar interest in encouraging high state and local taxes.

 

[MTAtech]

In a capitalist economy the federal government has an interest in encouraging investment and entrepreneurship. We can debate the nature and extent of that encouragement, but the principle is sound.
The federal government has no similar interest in encouraging high state and local taxes.

I disagree. The deduction is most valuable to high-income people in high-tax states, and thus provides a direct federal incentive for states to raise taxes on high-income people.

 

[Jack Hays]

I disagree. The deduction is most valuable to high-income people in high-tax states, and thus provides a direct federal incentive for states to raise taxes on high-income people.

If the deduction were eliminated those high income people would pay more in federal taxes.

 

[MTAtech]

If the deduction were eliminated those high income people would pay more in federal taxes.

...and may encourage states to lower state taxes, reducing progressivity.