framing economics

Krugman is is on fire today, as he has been for a while, this time talking about the tax cuts.

But, even he makes an essential error that all the democrats seem to be making.

It is not about Bush’s tax cuts, or keeping Bush’s tax cuts or Obama raising taxes.

Bush, for whatever reasons, proposed and got passed tax cuts that expire this year.
That is it.
They will be no more. Any changes in the tax code beyond that are not Bush’s.

So, at the end of this year, there will BUSH’S TAX INCREASES.

That is the status quo, as set in law and signed by President Bush.
If your tax increases next year, it is because of President Bush’s law.

Obama is proposing new, massive TAX CUTS.

They will not be the same as the Bush tax cuts, they are new.
Some of the scheduled BUSH TAX INCREASES will go ahead, as planned by President Bush and the Republican Congress.
So be it. They own it.

I would also like anyone who complains about BUSH’S TAX INCREASES to first convince the rest of us that they know the difference between gross revenue, gross income and gross taxable income.
They should also understand what a marginal tax rate is, and know that FICA is capped.
Then they can explain why the BUSH TAX INCREASES are such a bad idea.

Comments

  1. #1 AMW
    September 17, 2010

    “for whatever reasons” = he wasn’t going to be in office anymore one way or another.

  2. #2 JasonTD
    September 17, 2010

    Bush, for whatever reasons, proposed and got passed tax cuts that expire this year.

    They were passed using rules of Congress called ‘reconciliation’. That procedure bypasses usual rules of debate, particularly in the Senate, where a determined minority of 41+ Senators can filibuster and prevent an up or down vote. The Democrats weren’t going to go for Bush’s proposal and were likely to filibuster it, so they went with reconciliation.

    But the rules of reconciliation require that any bill passed using it not add to the budget deficit beyond a 10-year window. That is why the cuts had to expire after 10 years. I’m sure Bush and the Republicans in Congress would have preferred for the cuts to be permanent absent any further action. Whether it was Republicans being stubborn and unwilling to compromise or Democrats just not wanting any tax cuts that led to reconciliation being used is something that will depend on who is doing the talking.

    What you are saying is a mischaracterization of the situation in any case. The bottom line is that taxes are scheduled to go up, and the Democrats have the power to change that.

    I know what marginal tax rates are (the first X dollars are taxed at the lowest rate, the next Y dollars are taxed at the second lowest rate, etc.), what adjusted gross income is (gross income after all deductions), and that FICA (the Social Security payroll tax) is capped. Although, I don’t know what FICA has to do with this discussion since it isn’t going to change under the Bush law.

    I don’t know that letting the tax cuts expire on schedule is necessarily a bad idea, but one thing Krugman didn’t address in his commentary about the tax breaks for the ‘wealthy’ is how small businesses that file as individuals will be affected and what that might do to job creation. That’s a common theme conservatives bring up, so is there anything to that or not?

  3. #3 Steinn Sigurdsson
    September 21, 2010

    “for whatever reasons” – it doesn’t matter if Bush capped the tax cut duration for political expediency, procedural reasons or plain meanness to his successor – the law he signed raises our taxes next year.
    This is the BUSH TAX INCREASE.
    It is a matter of framing the debate.

    Bush, btw, had plenty of time to fix this, if it was of any importance.

    FICA matters because it is a general, regressive, federal tax on income. The accountancy fiction that it is set aside for social security or medicare/medicaid is cute, but irrelevant, it is general federal fund income.
    The net effect of FICA plus progressive federal income taxes is that the marginal federal tax rate on income is HIGHER for middle income, roughly $40-100k than for higher incomes.
    Even at the higher rates scheduled for next year by President Bush.

    The small business thing is a red herring: it confuses people who think their business grossing $250+k will be affected because they have a deep non-understanding of the difference between their business gross and their personal take home taxable income.
    It affects a very small percentage of businesses.

    Oh, and if your business is doing so well, and you hire people with the surplus it reduces your taxable income!
    Paying people salaries out of the gross leaves less taxable income. Go hire your cousin and avoid the higher marginal tax rate.