President's Economic Stimulus Plan

JavaFox

Well, folks, the President of the United States has just announced his plan for an economic stimulus package. I wanted to go over a few of its main points, and I encourage crtiques of it. However, I do ask that you refrain from saying "These only benefit the rich!" because I think the members of DriverHeaven are far more intelligent than that, and deserve a more cogent, factual criticism. If you actually do believe that, please back it up, and refute my points. But I think that I'll be able to show pretty conclusively how the White House's plan benefits all of America.

Also, if this debate goes well, expect to see me post a critique on the Democratic stimulus package, which they are expected to detail in the coming days.

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Income Tax Relief
President Bush's tax cut plan was passed in 2001. But rate cuts don't go into effect until 2004 and 2006. Currently, federal income tax rates are 15%, 27.5%, 30.5%, 35.5%, and 39.1%. The President's plan reduces these rates to 15%, 25%, 28%, 33%, and 35%, and creates a new, 10% rate. Clearly, the group that most benefits, percentage-wise, are the several million Americans that get moved from the 15% rate of today, to the new 10% rate that would be created by this plan (this is already slated to occur in 2008!).

Furthermore, the President's plan increases the child tax credit from $600 to $1000 this year, instead of in 2010. This benefits 34 million families. Oh, and by the way, Digital, this means you would be elligible, if I am not mistaken, for a $3000 credit, rather than an $1800 one.

"But," cry Democrats, "this tax plan only favors the rich!" Not really. If this package were adopted right now, 92 million taxpayers would be pay, on average, $1,083 less in taxes in 2003. 46 million married couples would see an even more impressive $1,716 in tax cuts. Not to mention the benefits that the poor and the elderly would see.

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Elimination of the Double Taxation of Dividends
Allow me to explain what a dividend is. A dividend is, basically, a share in the earnings of a company. It is paid to shareholders. Stocks like Eastman Kodak or Philip Morris, for example, pay $1.80 or $2.56 per share (per quarter, I think), respectively. It's a good deal. You get a cut of the profits (holding stock makes you partial owner, after all) merely by holding onto a stock. Dividends are an incentive to keep your money in a stock, even if it isn't experiencing that much growth. Sounds like a good deal, right? And it is. 35 million American households take advantage of dividends as income; more half of dividend income goes to the elderly. And why wouldn't Americans take advantage of high-dividend stocks? They provide stable income.

So what is the "double taxation of dividends," you ask? Well, look, dividends are basically a shareholder's cut of corporate profits, right? But when you receive your dividends, they are taxed. But aren't corporate profits already taxed? Bingo! Double taxation. It's a problem in the tax code, and President Bush's plan fixes it. Remember, dividends are taxed at a rate of 40%! That means that almost 10 million senior citizens pay a higher rate on their dividend income THAN BILL GATES PAYS ON HIS YEARLY INCOME (the current highest income tax rate being 39.1%). If the double-taxation is eliminated, it helps not only the 35 million Americans that receive dividend income, it also would save the average dividend-receiving senior citizen $936 a year.

Also, dividends are an incentive for long term investment. Even if a stock is not soaring in share price, for example, you might hold onto it since the dividends you receive supplement your income. In this way, eliminating the double-taxation of dividends would also encourage investment.

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Unemployment Benefits
Bush's plan helps the unemployed. Unemployment benfits expired on the 28th of December. Under Bush's stimulus plan, those benefits would be reinstated. Also, Bush plans to create Personal Re-employment Accounts, which are accounts that provide "unemployed workers with up to $3,000 to use for job training, child care, transportation, moving costs, or other expenses associated with finding a new job." And, get this -- once people FIND said job, they get to keep the remainder of the $3000! 1.2 million Americans are elligible for these accounts.

This is the only part of the Bush economic stimulus package that I find to be a little shaky. Yes, the Re-employment Accounts would provide an incentive for people to find a job, but doesn't NOT HAVING a job also provide a pretty potent incentive? But, at any rate, this plan is relatively small in scope, and I think most Americans would want to extend unemployment benefits, although I am not throughly convinced as to their effectiveness. Anyone want to shed some light on this issue?

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Small Business Growth
Small businesses are extremely important. Under the current tax code, businesses can write off up to $25,000 in expenses worth of equipment purchases. Bush's plan expands this to $75,000. This allows companies to buy more of the stuff they need: scanners, computer, copiers, etc. It helps businesses grow, and encourages spending.

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So there you have it. Anybody else want to crtique it?

ToshiroOC

All righty then. Lets get down to business Now first off, your first statement: THANK YOU! I first read that and missed that second part, and thought "geez, this isn't going to work", but careful reading shows that there might be a chance that we can make you budge on this one! And now for the stimulus package...

Income Tax Relief:

The cry, "But it favors the rich!" does apply here, you know - but it is a purely subjective thing. Why do we need to lower taxes across the board? While these tax cuts may help the poor, the rich are still getting enormous benefits, and since these are percentages of higher numbers, reducing the taxation of the rich by one percent reduces federal income more than reducing the taxation of the poor by one percent. Then the highest tax bracket gets 4.1% taken off, and the lowest one gets 5% taken off? Why not just leave the higher bracket taxes at where they are, as the richer people in those brackets can afford to help support their country and their less fortunate citizens financially*, and then use the money that would have been lost by reducing their taxes and give even more tax cuts to the poor? Or use those tax cuts for more programs such as education improvement, scientific research, or other things? I am a great proponent of capitalism, but I also think that shared social responsibility is a great part of being in a civilized country, and that while the rich may already be doing a lot financially to keep this country (somewhat) solvent, they don't need their burdens reduced at the expense of more substantial help for lower classes in less fortunate circumstances. This plan doesn't "only" favor the rich, but I feel that it is skewed too far towards the rich (though not necesarily away from the poor...).

Double Taxation of Dividends:

Can you elaborate more? I don't get where Bush is stopping things - stopping the taxation on the stockholder's side, or the corporate's side. If Bush is eliminating the tax on corporate profit to prevent double taxation of dividends, it calls for a very different arguement compared to the elimination of the taxation of dividends on the stockholder's end... however, either way, I see problems and good sides to this. One thing that skews this slightly towards the rich is that the rich tend to have a much greater percentage of their net wealth in stocks, and the richer you are the more likely you are to have stock, and the richer you are the more you are likely to have, so helping eliminate taxation on stocks skews towards the rich... while the money gained from the taxation of the rich could be put to better use than tax cuts for the rich, if you ask me...

Unemployment Issues:

I see this as a mere ploy by Bush to get votes from the currently unemployed - nothing else. I do not see how promoting joblessness and letting people know that their lack of a job will be rewarded and eased significantly will help the economy... I feel that in instances like that, when someone is unemployed, they should recieve a very minimal amount of money from the government, then food stamps galore - that way we can guarantee that the unemployed are fed and do not need to worry about starving, while not needing to cover their bills for unrelated expenses... I don't know much about this either, and until I do, I won't say more...

Small Business Growth:

I really don't have a problem with this at all, provided that the definition of small business doesn't allow rich taxpayers to declare their assets part of their privately owned business, then write off significant purchases of electronics, etc.... I feel that, properly enforced, this is a good thing overall, especially as I am helping a friend start a small business, and even before incorporation he was spending more than the write-off limit... (which says a lot for a 17 year old's side business... once it gets up and running I'll post links here to his website)...

ToshiroOC

Javafox, thanks for the interesting opportunity to debate Oh, and avatar time comes soon methinks So I'm starting to think about that sort of thing... have any ideas? cause I sure don't... yet.


*please, don't attack this - whether we should support the poor or not is really a whole different topic, and if someone wants to talk about it, start a new thread and PM me

EDIT: I decreased the size of the quote to make it less bulky.. it just bugged me for some reason.

lovswr

Ok JF, I'll byte

Income Tax Relief
I agree.



Elimination of the Double Taxation of Dividends
I disagree.

Virtually all of the companies that pay dividends are mature companies in mature industries. Think Coca-Cola. This will bring pressure onto more companies to start paying dividends instead of plowing that money back into R&D, capital expenditures, etc. Yes it will have a positive stock market effect becasue more people will start to buy stock of dividend paying companies but this will be offset by a decline in speculative stock purchases. In other words, "Income" transactions will increase, but "Growth" transactions will decrease.


Unemployment Benefits

JF. If memory serves, in another thread you mentioned that you were not quite voting age yet. You are to be commended on your maturity level, but I think in this case (& partially in the Liberal thread, vis a vis the minimum wage) your few years undo you. What may motivate you (getting a good education, so you get & keep a good job; spiritual & financial growth & just being a well rounded good citizen et al) may not & in fact may explicitly (in their minds) prohibit some small portion of working age adults to do the "right" thing. Furthermure the more you try to incentatize them to do the "right" thing the more they will resist.

Since I would think no one wants to see them starving in the streets, we pay them, essentially hush money. Most of them eventually see the wrong in their ways, but sometimes "shit happens" too.


Small Business Growth
Fully agree.

Even though it's the Enron's/Worlcoms in the news, small businesses account for 80% of the jobs in this country. Anything that helps them, truly helps America.

digitalwanderer

Yeah, it's gonna help "all americans". I'll save a whopping $5.84 on me dividends earnings and Prez Shrub will save 1.6 mil on his, but the averages will look good on paper.

I'm only surprised that he'd be this blatant, or that he'd really expect to put it past the sheep....cause this is one sheep who just ain't buying it and I'm happy to say that the liberally-biased media is gonna have a field day over this one.

JavaFox

You are a supreme partisan, DW. Really, YOU won't benefit from an increase in the child tax credit, with your three kids? Really? YOU don't benefit from a drop in the tax rate? Wow, I had no idea that in your bizarre liberal world, a tax credit increase from $600 to $1000 somehow equals nothing (in the conservative world of pragmatism and fact, that's an an increase of $400)!

And by the way, DW, I'm sorry to say, but I can't see how you'd only save $5.84 on dividends. You must own all technology stocks. Because, look, say I invest $4000. That gets me about 100 shares of Philip Morris, which pays $2.56 per share per quarter. That's $1024 of income per year. For the sake of argument, let's say you make what the average American family household makes: $50,000. Now, assuming no deductions whatsoever, this would mean that you'd pay either $281.60 or $409.60 on those dividends (I've heard conflicting things -- maybe someone with tax experience can comment. Are dividends taxed merely as income? Or are they taxed at the higher rate of 40% as some websites suggest?). In fact, all other things being equal, and assuming you own Philip Morris, you'd have to own a paltry EIGHT SHARES in order to "only save $5.85" on that taxation of your dividends.

And, frankly, if you've only got $320 invested (about eight shares of Philip Morris), or if you're NOT invested in stocks like Eastman Kodak or Philip Morris, I don't see why you'd even bring dividends up as a complaint. Those actions seem to imply that you don't care about dividend income anyway.

Dividends are a derivative of corporate earnings. Corporate earnings are already taxed. Why would you tax something twice?

JavaFox

Why do we need high taxes? This question fundementally determines, I believe, whether or not a person is conservative/libertarian or liberal, even more so than the abortion issue. The main function of the government is, and should be, defense. We cede liberties in exchange for protection. But examine our country's massive $2,000,000,000,000 (That's right -- two trillion dollars) budget and what do you see? You see 23% going to Social Security. You see 25% going to Medicare and Medicaid combined. The food stamp program, unemployment benefits NOTWITHSTANDING, we are a country whose budget is a massive 48% social welfare. This isn't what the Founding Fathers meant by "promoting the general welfare." In my views, and history will be a judge of whether or not they are correct, such programs promote dependency, not change, because they rob people of their incentive to bust their asses and make their lives successful. So what does this all mean for taxes? It means that I don't believe our government ought to be spending $2,000,000,000,000 a year! It means that you need to give incentive to people, not a hand-out. For taxes, this means lowering rates. Lowered taxes means more money for everybody. It means that the lower-class gets to keep more of its money. The middle-class gets to save and spend more of its money. And it means the upper-class get to expands its businesses, putting more people (in every class) to work.

And the paradox of it all? Almost every time this country has dropped tax rates, it hasn't been accompanied by a drop in tax revenue! What does that mean? It means an average of 30% OR 25% taken by the federal income tax is probably still going to pull in just as many dollars for the government to spend. Tax cuts promote healthy economies, pure and simple.


Okay, well, although liberals scoff at the idea, I actually do agree with you that we do have an obligation to help the poor. But the way we would accomplish this is quite different. You seem to be saying that the rich ought to be bearing the brunt of this country's tax burden. And they are. You will hear people say "What an outrage! The top 1% of people own 38% of this country's wealth!" But they aren't telling the whole story. The whole story is that that 1% pays 36% of the country's budget. But let's ignore that for a second. Let's also ignore the fact that America's rich are the most generous in the world when it comes to giving to charities (whether or not this generosity is a product of tax breaks is largely, I feel, irrelevant). Increasing dependency on the state never, ever, ever will produce a productive workforce or economy, whether it's funded solely by the rich, mostly by the rich, or equally by all. The old proverb "Give a man a fish, he'll eat for a day. TEACH a man to fish, he'll eat the rest of his life" certainly applies. You can't just throw money at the poor and expect them to fix problems by themselves. You have to make it easy for them to pull themselves up by a) creating jobs, and b) ensuring that they keep most of the money they'll make. And you can only do that by cutting taxes. Lift the burden off of everybody, and everybody will benefit, be it from having to PAY less in taxes, or by being hired.

Here is a question. Why, when capital gains rates are cut, does the economy prosper? Why are interest rate cuts used to kick-start the economy? None of these things directly affects any poor person. But yet the economy as a whole benefits. Why is this? Because economic policy doesn't occur in a vacuum. When companies make more money, they expand, and they hire more workers. Things perceived as helping the rich don't only help the rich. Remember that the rich hire. That said, I must again stress that these tax cuts help everybody, directly AND indirectly. You said that the rich get benefits from it. I say "So?" Don't the rich pay a lot of taxes for services they don't need? And doesn't alleviating the burden on the rich lead to more hiring?


Okay, to elaborate: Bush's plan (and indeed basically any plan calling for the end of double-taxation of dividends) calls for the end of taxation on the shareholder's side. Of course corporations should be taxed for their profits. And they are! But should profits be taxed TWICE? AND THIS DOESN'T HELP ONLY THE RICH! It helps everybody! THIRTY-FIVE MILLION AMERICAN FAMILIES RECEIVE DIVIDEND INCOME, NOT TO MENTION ALMOST 10 MILLION SENIOR CITIZENS. And contrary to DW's vastly exaggerated rhetorical fallacy of a post (perhaps the nicest word this fox can muster is "diatribe"), it would help a WHOLE hell of a lot more than $5.84! Don't believe that garbage. The fact is, if you're into stocks that pay good dividends, and you've got about $4000 invested, you'll save enough money to buy a new PC! Or, perhaps, repair your car. Maybe pay the electric bill for several months.


Well, I think this part of the plan is a concession to the Democrats, really. And they've demonstrated that, far from opposing this part of Bush's plan, they think it doesn't go far enough! They want to extend unemployment benefits for TWICE as long as Bush does (I think it was a matter of 16 weeks versus 32 weeks, but I'm not positive about those numbers). So, really, this was added, I feel, merely to curry favor with liberals.

As far as the accounts go... I don't really know how I feel about them, but, like I said earlier, the program is pretty small in scope.

Oh, and by the way, Toshiro, shrinking down my post like that was one fine idea.

JavaFox

Well, firstly, Coca-Cola only pays $0.80. That's not nearly as good as some of the others I mentioned. But, anyway, I digress. A quick look at a five-year graph of KO shows a general down trend. Dividends are the way that Coke says to its investors: "Look, we may go down, or we may not be that exciting of a stock from a trader's perspective, but we'll give you a cut of our profits." This is why so many elderly folks hold onto such stocks -- because they provide stable, constant income. Companies that aren't interested in encouraging long-term investment -- well, aren't interested in it! Check out NASDAQ stocks. I don't think that the end of double-taxation will lead to companies taking money out of R&D, expenditures, etc. simply to pay dividends to investors. Here is why. I think you are ignoring the fact that not all investors are the same. Day-traders don't care about dividends. Small-time investors (i.e., people playing around with $1000-$2000) don't care about dividends. And short-term investors like myself don't care about dividends either. Most of my money is in technology stocks, few of which pay dividends. In fact, none of the stocks I hold pays dividends except for Raytheon. But I don't care (I have too little in that company anyway). I'm not in any of my stocks as a long-term investment.

I strongly support the elimination of double-taxation of dividends, even though it doesn't benefit me at all. Many companies don't offer dividends because they want their money in something else, and many investors don't care about dividends. So I don't think we'll see many new companies paying them. What we will see is an increase in investment OF those companies, though.

Well, that is a fine compliment, and I thank you for it. But, actually, what I said in that thread was that I was not registered to vote in the Mid-Term elections. You see, I've spent the bulk of my life living in Japan, and I thought that elligibility to vote in a state had to be acquired in the same way as residency (for tuition purposes). Well, I learned that I was wrong, but I learned that too late. Anyway, I'm 19.

Now, I do see your point in that what is an incentive for one may not be an incentive for another. But, I think, for the most part, everybody wants to be successful in some way. And for most people, this involves having a job. Government programs like welfare and minimum wage, make it harder for people to get jobs, either by making them dependent, or by increasing unemployment. Now, I said that I didn't know much about unemployment benefits, and I maintain that. Can give me reliable data that attests to their effectiveness?

I believe that incentive is an important thing to consider as far as human psychology is concerned. And when you rob a person of incentive, his behavior is usually pretty predictable. Look, in Canada, they have socialized health care. So what happened? People flooded the system. There are waiting periods of weeks, and the system is on the verge of collapse. But, after all, when you take someone's incentive NOT to go to a hospital away (money out of their pocket), why would they show restraint?

Say two men work at a furniture factory. They get paid for every chair they make. One guy is lazy. He makes a chair an hour. The other guy works his ASS off, and he makes three chairs an hour. Why? Why does he work harder? Largely, because he is going to be paid more.

Now let's move that factory. Let's move it to a Communist state. Here both men are paid the same amount, regardless of what they produce. Maybe one of the guys works hard at first because of his work ethic, or because he is idealistic, but, eventually, invariably, both of them begin doing the same amount of work. Why? Because there IS NO incentive to succeed.

So why does the same logic not apply to welfare, or unemployment benefits? Say there is no limit and no conditions for welfare money. What happens? Many people get on it, and stay on it. Why wouldn't they? But introduce things like time limits, or force them to prove that they're looking for jobs, and what happens? They start doing those things! Because the incentive to NOT stay on welfare exists.

I believe it's pretty close to being a psychological truth. Which is not to say it's always true, just that it can be observed a lot.

Like I said before, the big problem with the homeless is addiction. The data supports this. But, I think it's more than that. Like I said, we oughta help people that can't help themselves, but we must do more than throw money at them, otherwise there will be no improvement. Coerced rehabilitation, for example. The problems with the homeless are BIGGER than not having enough money, as your quip about overweight poor people illustrates. The homeless, by and large, are homeless not because there isn't enough money to go around, but because they've made poor lifestyle choices.

digitalwanderer

I won't benefit if by giving me an additional $400 it tanks me countries economy, no. I see that as a bit of a downside to me "BIG" windfall taxcut. (Oh, and do you know something I don't? 'Cause last time I checked I only had two kids.... )

Well, ya got me there. I just pulled the number out of me arse for the sake of argument...but I'm willing to bet it ain't far from the truth. I personally don't own ANY stock, and I believe the wife only owns some CVS & a 401 she likes to follow....but with the amount both of those lost thanks to this "great" economy our President has given us it probably wouldn't even be that much.

Quote:

Dividends are a derivative of corporate earnings. Corporate earnings are already taxed. Why would you tax something twice?

I dunno, because? All I know for sure is this is the most blatant money-grab I've seen them do...and I haven't even gotten STARTED on the death tax!

If taxation is such a bad thing, why not just eliminate it entirely and make everyone happy? (BTW-Your sarcastic answer to that question is going to be used against you in the near future.... )

lovswr

JF. On the dividend point, I agree with everything you said (I just used Coke because I live in Atlanta). However that just proved my point. People concerned about income do not invest in growth companies. Companies concered about income payments, usually don't do things like spend greatly on R&D, or even hire new workers (as opposed to replacing workers).
It will put pressure in companies that do not now pay dividends to at the very least, give that serious consideration. As "Deep Throat" said in All the Presidents Men, follow the money. It would be much better to elimniate the capital gains tax if ones stated goal is short term economic stimulation.


DW you're ramblin'. You're going to have to be more concise.

ToshiroOC

Here's a few commentaries that I found to be intriquing - read further down for my personal responses to the above posts

http://www.nathannewman.org/log/arch...2.shtml#000672

from www.democraticunderground.com
Another Stupid Idea From The Bush Administration
January 8, 2003
By_Hochizen
The idea that taxes should be cut on dividends is a major part of the economic policies of the Republican administration, seeking to once again give a huge tax break to their major donors at the expense of the American economy and the vast majority of its citizens.
For the time being, let us ignore the allegations that this tax cut will primarily benefit the wealthiest Americans. Should it be shown that this tax cut to the wealthy will spur the economy, then it would be a good policy, questions of "fairness" aside.
However, the dividend tax cut will hurt the economy, crush the stock market, reduce technological innovation with little benefit.
First let us look at the results of a 50% tax reduction on the rate paid by recipients of dividends. What will the result be? The prices of stocks are ruled by supply and demand. Right now, dividends are not particularly desirable. The taxes do cut deeply into the ultimate return provided by dividend paying stocks. When the tax cut becomes law (actually, even before the tax cut becomes law) the stocks with a high dividend yield will become much more desirable since the rate of return will be increased. According to the laws of supply and demand, the price of these stocks will go up, thereby dropping the yield on these stocks to a rate corresponding to the risks perceived in owning them. In other words, the price of certain dividend paying stocks will definitely rise. While this will be good for those who own these dividend paying stocks, it will be bad for those who hold bonds. After all, if the yield on bonds is not increased by a corresponding amount, bonds will be less desirable than dividend paying stocks which provide a partial tax shelter. Similarly, cds and bank notes will be less desirable. The result will be an increase in the yield of bonds and cd's to represent the increased pressure on these markets caused by the attractiveness of dividend paying stocks.
Guess what happens when the interest rates on bonds and cds go up, boys and girls? That's right, real interest rates go up, because banks are not going to lend money at a rate less than they pay. So, the tax cut on dividends will push the economy towards recession. In a weak economy, adding pressure towards weakness is insane. Corporations are already leery of expanding, of hiring more workers and of building new plants. If the price of credit is higher (due to higher bond rates the corporations could float, or due to higher bank interest rates) they will be even less likely to expand.
Furthermore, the tax cut will make it more difficult for local governments to float bond issues for improvements such as water plants, schools, or other needs. The yields of municipal bonds are quite low, because of their favored tax status. If part of that benefit is lost by stock dividends having a sheltering effect, then municipal will have to increase their yields to find buyers. Of course, this means the cost to the taxpayers will increase as the higher bond interest rates will have to be paid.
Not only is a dividend tax cut recessionary, it will also crash the stock market further. If stocks do not pay dividends, they will be less attractive. Growth stocks tend not to pay dividends, under the theory that they are better able to use their capital to expand. Therefore, most growth companies will see their stock price fall. Growth companies are also at the forefront of technological innovation...after all, Krogers has little reason to spend much on research and development, but Intel has great incentive to do so. The technology stocks (and other growth stocks) will face a dilemna: should they pay dividends, and thereby use capital that could otherwise be used for growth or research and development...or should they not pay dividends, and watch their stock price take a hit?
Perhaps one of the hardest hit stocks will be the new companies. Since stocks which do not pay dividends will be less attractive, new companies will see their initial stock offering price lower than it otherwise would be. There will be less capital resulting from the IPOs, which will mean it will be more difficult to start up a company. The start ups could forgo the price hit by paying dividends... but again, they go public to get capital to grow the business, and tying up money by paying out quarterly dividends will only limit their opportunities.
In a nutshell, then, we will see a dividend tax cut that will likely increase recession pressures, lower the prices of most stocks and stifle innovation and growth. The tax cut will put pressure on governments to increase yields on bonds which will cost all of us more money.
The only benefit would be that those who hold the stocks will see price appreciation and have more money. Of course, most people do not only hold dividend paying stocks..so their benefit will be offset to the extent they own non-dividend paying stocks or bonds which will see their price decline.
The proposed legislation is simply bad business. The effects could be ameliorated somewhat capping the tax break to the first $2,500 of dividend income. This would lessen the negative impact on the economy and the rest of the market. This would NOT be "class warfare;" it would be a benefit that would be available to everyone. It would stop the expected outflow of major money away from bonds and growth stocks..it would not be as inflationary...and it would increase interest of the average investor in returning to the market.
Of course, we know the Republicans don't really care about those things. After all, they need to payback their rich handlers at any cost -- even if it tanks the economy, the stock market and technological innovation.


from LA times website:
Bush Proves He's an Upper-Class Act
Under his tax plan, the only winners are the economic elite.
By Robert B. Reich

Robert B. Reich, secretary of Labor in the Clinton administration, is a professor of social and economic policy at Brandeis University and a co-founder and national editor of the American Prospect.
January 7 2003

The president calls it a "jobs and growth" plan, but it's neither.
His latest round of proposed tax cuts won't create jobs and won't grow the economy. It will only do more of what his last round did -- make the rich even richer.
The economic problem right now is too much capacity relative to demand. Too many factories are idle, too much equipment isn't being used, too many people don't have jobs. The nation is having a hard time coming out of its slump because there still aren't enough buyers for all the goods and services the American economy can produce.
But there's also a long-term problem, and it's as much a social problem as an economic one: We're splitting into three separate societies.
At the top is a regal class with more wealth and income than any aristocracy has ever had. They're also receiving a bigger slice of America's total income now than at any time in the last 60 years. In the middle is a big, anxious class that's just a bit better off than a decade ago but still having trouble making ends meet. At the bottom is a large underclass whose income and sparse wealth declined through the 1980s and mid-1990s, then picked up in the late '90s when the national rate of unemployment dipped to 4% and employers had to scrounge to find workers. Now that the official rate of unemployment is back at 6%, the underclass is falling backward again.
The short-term problem is related to the long-term one. For years, American productivity has been rising at a healthy clip. Computer and Internet technologies have dramatically increased our capacity to produce more goods and services. That's a major reason why the economy could grow so quickly in the '90s without igniting inflation.
Alan Greenspan deserves credit for recognizing this when he allowed short-term interest rates to fall and unemployment to drop. Despite the "irrational exuberance" that caused stock prices to soar in the late 1990s and plummet between 2000 and now, the productivity revolution continues. That's why our businesses have all that new capacity.
But here's the rub. All the goods and services that can now be produced have to be bought by someone. Individual consumers account for two-thirds of what's purchased in the nation. And because of the productivity revolution, a lot of items can be made cheaper. But they're not so cheap that consumers can afford to buy all of them on paychecks that haven't gone anywhere.
The only people whose pay has skyrocketed are at the very top. They're spending princely sums on exotic vacations, mansions in the Hamptons and cashmere sweaters. But they spend only a fraction of the money they have. The much-larger anxious class doesn't have a lot of discretionary income after paying for utilities, food and housing. The underclass has virtually none.
The recession that just ended was relatively mild because most consumers in the anxious and under classes kept on spending despite their fragile finances. But to do so, they had to go deep in debt and work longer hours. Now they're worried about unsteady jobs, shrinking 401(k) retirement savings and war.
It looks as if their buying binge is over. Consumer confidence has dropped six out of the last seven months. The Christmas buying season was a bust.
So where's the demand for all the goods and services the U.S. can produce to come from? Foreigners won't and can't buy up what's left. The world's second-largest economy, Japan, is flat on its back; the third-largest, Germany, is sliding into recession. Much of the rest of the world is in no shape to go on a buying spree.
So now comes President Bush's much-vaunted economic plan. It mainly cuts taxes on the royal class. Its members own most shares of stock, so reducing taxes on stock dividends is a boon for them. According to the IRS, more than 60% of the total value of dividends paid to individuals in 1999 went to the top 10% of taxpayers. The royal class also gains the most from accelerating the income tax cuts enacted in 2001 because most of the benefits originally scheduled to take effect after 2004 went to the highest earners. And they're the ones who reap almost all the benefits from a permanent repeal of the estate tax, which would affect only estates worth more than $1 million. Yet the members of the royal class are spending about as much as they want to spend. No amount of extra money in their diamond-studded pocketbooks will cause them to spend much more.
The president's plan responds to the nation's two overarching economic problems -- overcapacity and widening inequality -- by worsening both. It's a remarkable achievement, made all the more remarkable by the utter cynicism with which it's being marketed.
It's not a plan for "growth and jobs." It's a plan for rewarding the rich when what the economy needs is more spending by people of modest means. And it further concentrates wealth and power at a time when wealth and power are already in fewer and fewer hands.

ToshiroOC

from ToshiroOC

First off, whoa! I thought you were like 30 or something You debate with a maturity far beyond your age! Also, you lived in Japan? Are you of Japanese descent? Javafox wa nihon'go o hanashimashita ka? Curiouser and Curiouser...

As this post is already obscenely long, I'll make my own few bits somewhat short:

You said that the rich are already bearing the brunt of the tax-paying here in this country - this is true. However, my arguement is that I see no reason to reduce their burden at the expense of programs that, in my mind, take an infinitely higher priority - education, science research, and other programs that provide for the long-term improvement of this country.

Promoting the general welfare, in my opinion, has always been providing for the average citizen with services that require large institutions while defending the citizen from foreign attack. We need the government for more than setting up local defense - we need it for enforcement of large businesses, for fair law enforcement (to the extent that it is possible with naturally biased humans...), for the contruction of large projects beyond any one person or corporation (freeways...), for the protection of the land inside it's borders environmentally and militarily, and for providing a unified face for the United States economic interests.

I don't feel that providing any of these increases dependancy on the state at all - and I feel that the rich don't really need to have their social responsibility reduced at the expense of these services which benefit all. The rich may hire people, but giving the rich money doesn't help create jobs - giving corporations and small businesses money does. I see no reason to reduce income tax - I see no reason to help corporations, as they already pay extremely minimal taxes (despite the link above, I feel that they probably do end up paying a lot of tax that is simply not included in direct corporate profit... but it is still very little considering...), and I feel that the only way to significantly increase the numbers of jobs is to increase funding for education and science (thus increasing the amount of skilled labor in the country that will almost definitely find employment), decrease taxation of small businesses (thus allowing them to hire more people, as they are not yet at the saturation point for employment like larger corporations...), and to increase government spending on public projects (thus creating jobs within the government for the general betterment of the country)...

Again, about the double-taxation - it is biased towards the rich and middle classes, with much more bias towards the rich than the middle classes, for the exact reason that they are based on dividends of stocks! Many millionares have millions of dollars of stocks, and eliminating taxation of dividends will help them more than the middle class person who owns a very significantly smaller portion of stick, and help both of them more than the poor average schmoe in this country, who does not own stock - this country has hundreds of millions in it, yet only 35 million own stock? That makes it seem like there is something wrong there

Finally, you talked about the Democrats wanting to extend the unemployment payments? I don't agree with the Democrats on everything, and this is where I separate from both party lines on the topic and say that instead of paying them welfare, we should hire them for the national betterment Also, if you ask me, the final solution would NOT be reducing taxes - it would be to pour massive amounts of money into education, improving the general state of education across the nation, opening federally-supported (until they were solvent) Universities to make colleges more accessible to all (college admissions are a real whore nowadays, and opening more public campuses can only be a good thing in my opinion, as it would increase the ratio of college-educated in this country...), increasing funding into non-military science and holding "open patents" (an idea of my very own ), where any discoveries made with US grand money would be completely open, with extremely minimal licensing fees, to any US-based business, and foreign interests would be charged a significantly hefty fee for licensing These open patents would help a lot in my opinion, especially as far as making competition drive prices lower in the United States (since everyone will have equal access to federal R&D), R&D costs will be cut (meaning more money for other uses) as research will not have to be repeated and the wheel will not need to be reinvented constantly in secrecy in dozens of different corporations, it would place the US in a position of power economically, it would help the US keep it's dominance in the world of science and technology, and it would serve to create more jobs for educated people (and with this research at my aforementioned federal universities, this would increase jobs, increase overall education, increase the economy, and increase the general health with the federal research in health-related fields). Though the NIH may seem to fill some of this role, it is a mere grant institution if you ask me, and one that isn't funded nearly enough to get anything serious done on a large scale...

ToshiroOC

I think this is my longest post by far, if you include the other articles, as I was told to cut my post into two parts, as I exceeded the 15000 character limit by about 1500 characters...

digitalwanderer

What he said in the last two posts! (I'm not quite THAT up to speed yet! )

toddsmack2k

Wow! After reading all that i hope i can type what i mean to say.

Tosh you say that we need more money put in funding for education and science. where will that money come from ? It would come from raising taxes. In order to fund a federal supported college it would take a across the board tax hike. the upper class would not be able to support it alone. With all these skilled laborers out looking for jobs , where would they get them? If corporations have to pay larger taxes then that means even fewer new job hires and they will most definitely make cuts somewhere. Also if you do not want to include small business's then where do you draw a line as to when they are in the upper class and they get taxed more? very tricky question that has a hard answer. If the goverment has to spend more for all of this extra funding into these programs it has to come from somewhere and it would hurt the middle class harder than the upper class.

I want to see a tax cut across the board. Even if it is just 4.5% every little bit helps. If we account for 2/3 of the purchasing power then we need every bit we can have to spend or save. The more we buy the more supply is eat up and the supply and demand evens out. The more money the upper class has the more money there can be spent on growth of companies ie. new employees and research and development into the co.

The stock market was headed for a big fall sometime i do not see where you can link it 100% to pres bush. Under the clinton era the economy just started rolling along with tech stocks. Everybody was .com crazy and was buying and spending on these companies with no eye for the future. After a year or two things started to go down the krapper when all these big forecast earnings were brought back down to earth and 60-70% of these companies went bust. People were being foolhardy and buying up these stocks and got killed when reality set in. Now how did the president (now) cause that to happen? He didnt, the people are the ones to blame. The market was a big ol bull rolling along and they got cauight up in it didnt be smart and save any of it and then lost a bundle of money.

Being a skilled laborer by no means does that give you a guarantee of getting a job. I do agree that it gives you a better shot. There so many things that go into determining your chances of getting a job a good job in a decent amount of time. It depends on your feild your qualifications, if you have anything extra on your resume and some luck. By no means am i saying you should not go and better yourself but so many people go into a already crowded feild and find themselves going nowhere fast in life. a dgree is only part of the skills you need to get a good job in life. I also depends on you drive and having your eye on the future. Great pride is found in working hard and being proud of what you do as there is also great pride in having a degree in something you have worked hard for. What i am trying to say is that i agree you should go to college if you have the chanceand get a degree but you must do something with that degree and still work hard or it deos not mean anything.

MY veiwpoint is that a across the board tax cut is fine with me. I believe it spurs growth at both ends of the spectrum. The upper class has more money to hire more people and grow. The middle to lower class has more money to save, spend, or send their kids to school or b