I’ll undoubtedly post something substantive about them later, after I’ve had time to look at them. But, as excited as I am, I’m not spending my Friday afternoon looking through anybody’s tax returns, even a presidential candidate’s. If you really can’t wait to see what people are saying about them, you can use this roundup. ↩
65 comments for “Romney Released His 2011 Tax Returns Today.”
I’m also excited about the fact that Kent put a footnote plugin into our blog; make sure you click on the “Show 1 footnote.” At least, if you’re interested in seeing the footnote.
I think most people could care less about his tax returns. I don’t!
NO
So is it true that he didn’t deduct the whole amount of tithing he paid? If so, why?
Tim, rumor has it he didn’t deduct all of his charitable donations so that he could deliberately pay more taxes and honestly claim a higher percentage number for his overall tax rate. This may have backfired on him, however.
Do you mean he wanted to have a higher effective tax rate? Because at 14.1%, I’m not so sure he succeeded, as that’s only slightly higher than the 13.9% he paid in 2010. Especially considering those are both significantly lower than people with his income are “supposed” to pay. (I put “supposed” in quotations, because I realize there is disagreement on that point. I only mean that the marginal tax rate of his income bracket is much higher than that.)
Well, on the news they had:
Romney: Taxes + Charity = 45% of income.
Obama: Taxes + Charity = 25% of income.
Not sure exactly where that takes us.
“Second, the Romneys take to heart “to whom much is given, of him shall much be required.” Accordingly, they have been generous in their charitable giving, donating over $7 million between 2010-2011 – donating more to charity than they paid in federal income taxes”
I am guessing that they meant this as a good thing, that they were donating more than they were taxed. I am not sure that I see it that way, and I imagine they will wish they had used different words over the next few days.
I agree with the not reading anyone’s taxes on Friday night. I downloaded it and will read it if I had insomnia.
How do Romney’s charitable contributions compare to other millionaire philanthropists?
I’m not sure this makes the offshore accounts look better. Putting money in offshore accounts and in Swiss bank accounts makes him look like he doesn’t believe or trust in America.
What does it mean to trust America? Does it mean to trust Congress? To trust the President or the Supreme Court? To trust only domestic banking institutions, or invest solely in business concerns that do not own assets outside of the United States?
Mr. Romney, like any investor, needs to diversify his portfolio. He has no patriotic duty to expose himself to U.S. – specific risk just because he is a public figure.
Now I will stop feeding the troll.
If we count charitable deductions as those which help the poor and needy, not everything the IRS allows goes to help the poor. Some organizations like ALEC are set up for tax purposes as charitable enterprises although their entire focus is on lobbying. And how much of the money which churches take in actually goes to help the poor?
Does most of Romney’s tax exempt “charitable” donations benefit the poor or just organizations with which he agrees?
I’d worry about Romney’s tax returns, but I’m too busy worrying about how avaricious and duplicitous he appears. I predict that Mitt will not be able to shake the rap, deserved or otherwise. Win or lose, this is turning into a PR disaster for the members of the Church.
I don’t really care how much he makes or how much he paid in taxes or tithing…what I care about is his refusal to acknowledge his privileges and his constant reiteration of the theme that He Built That…that he, shall we say, fared according to the management of the creature, or that he prospered according to his own genius… or you might say, how he conquered according to his own strength. Granted, he’s a bit hostage to his party in that kind of rhetoric, but still, I’d prefer less hubris and more humility from the dude.
CC, a couple quick responses. First, I’d assume all of his charitable donations go to groups with which he agrees. I know mine do—nobody I know of donates to causes they disagree with.
And while you certainly can define “charity” to mean “poverty-alieving.” it’s clear that that is not the sole—or even necessarily the best—definition. That said, you can undoubtedly look at his returns and see what organizations he donates to. And, after I have time to take a look and draft a post, chances are I’ll provide you a partial cheat-sheet on that.
Just a reminder—I don’t care what your political persuasions are, but this is not the place to cast aspersions on Romney’s (or Obama’s, though I can’t figure out how you’d get to Obama from a discussion of Romney’s release of his tax return) character. There are plenty of places on the web to do that. Thanks.
Sam, how about this: If Obama had not been president, the economy would have grown at a stratospheric pace and Romney would have had much more income to report and therefore would have paid more in taxes and charitable contributions. Let aspersions be cast!
Just trying to be helpful.
Thanks, Jonathan!
Charitable organizations include (a) universities and schools, which will certainly tell you that they benefit society, even if they charge high tuition and pay high salaries to certain professors and administrators and football coaches; (b) organizations that support the arts, including symphony orchestras, ballet companies, opera companies, and art museums, whose customers are generally not poor; (c) environmental organizations, which vary greatly in their purposes and methods, but by and large are not directly concerned with helping house the poor or make food or energy available at low prices.
In addition to the things that churches do directly to help people in financial difficulty, they are one of the few institutions in society that actually train and motivate people to make sacrifices to help others. One of the ways it does that is to actually introduce those with resources to those without them. My guess is that there is a multiplier effect here that translates donations to churches into donations of money and labor to support the needy.
The only way to view the release of the 2011 tax return is as a political document. Remember, he claimed that anyone who did not pay the lowest legal amount in taxes was not qualified to be President. Doing so had a political risk in having that pointed out, as comedians and commentators are already doing. So, why do it?
1. By not claiming all of his dedusctions, he cannot be accused of paying an even lower tax rate than he did in 2010.
2. By doing a “Friday Dump,” the return will have a shorter and less sophistaced lifespan in the news.
3. By combining it with the “20/20 statement” statement from his accountants, he hoped to bury the “release your tax returns” arguments.
The problem for Romney is that this release may raise even more questions. Why twenty years of returns? Was that done to raise the percentage? He estimated 20.9 million in income for 2011, where did the 7.2 million go? How did they figure the 20 year average of 20.2% out? Their average for charity over that period was 13.45%, this year was about 30%. Was that increase for PR purposes? As soon as feasable is he going to file an amended return and claim the unused charitable giving and lower his taxes? Why is he still “hiding” his returns.
So much of this is just appearance and little substance. For example, that 30% in charitable donations would only have been a little over 20% if the Romneys would have actually gotten the 20 million in income they predicted in April. Romney exascerbated the problems by just not being up front and releasing the documents months ago.
The real problem is the tax system that lets people like Romney pay so little. In political terms it is made worse by Romney and Ryan talking about lowering the tax on the super wealthy even more (Ryan would reduce the Romney’s tax to about a 1% rate).
There is just no pleasing some people…
Stan, when I write up my actual post, I’ll go into the probable reason Romney didn’t release his final return months ago; for now, suffice it to say that he almost undoubtedly couldn’t have released his returns several months ago. I’ll also explain why he would have an estimated return (which probably cost nearly as much to prepare as his actual return did, and certainly cost more than the, what, $50 most of us spend on TurboTax).
The real problem is the tax system that lets people like Romney pay so little.
Well, would you prefer that he take all his money out of the system (say, by buying gold bars and hiding them in his closet?) If you take out the profit then why would he and others with money take the risks?
If he removed his money from the system, then he would still be wealthy and not have to pay any interest. Or if he does that, should we still take a percentage of it yearly? Does he have to pay taxes just for the privilege of having wealth? Do I? Do we only hold our personal wealth/possessions because of the benevolent blessings of the state?
@Stan (20) I’m curious what you think the ideal tax rate should be. I think the real problem is that people think the widow’s mite story is about poor people. It’s really about relative giving. A rich person could just as easily be a the widow in giving a greater portion of what they have, of their own free will and choice, just as they could be outdone by the widow (as they are in the example) by giving a smaller portion of their own wealth. Of course, that is between them and God at the judgement bar, and honestly paying as little taxes as legally possible is a separate issue–one I would guess we both think is a moral one, but from opposite sides of the spectrum.
“Does he have to pay taxes just for the privilege of having wealth? Do I? Do we only hold our personal wealth/possessions because of the benevolent blessings of the state?”
One pays taxes for the privilege of being a citizen. It used to be that we held our possessions at the whim of the state when they were subject to confiscation by the crown. Now that we have the rule of law and representative government, we contribute that portion of our wealth and income that We the people have decided to require, through the medium of our elected officials. It’s very strange to me that some people find this illegitimate.
“If you take out the profit then why would he and others with money take the risks?”
My opinion is that all income, investment and earned, should be taxed at the same rate. Thus Romney’s “base” tax rate would have been closer to 30% than 15%.
In the past, when investment income was taxed at a much higher rate, the “job creaters” did not “take their money out of the system” or at least not to any great degree. They still had every reason to invest their money, just as most of us have every reason to to go work and earn a paycheck. Rich people invested when the tax rate was much higher because it was still the best way to make more money. Even at much higher tax rates.
The response is predictable — which may be an indication of why he didn’t release the info earlier. The facts are:
1. Romney paid all the taxes he is required to by laws enacted by those with authority.
2. Romney gave a great deal to charity, likely far more than anyone sniping at him.
I’m wondering when I’ll hear the outcry from T&S readers for Brother Harry Reid to apologize for his hateful, illogical, and erroneous smear?
One pays taxes for the privilege of being a citizen
Really? Because I know lots of citizns who don’t pay taxes… why do they have the privilege of being citizens without paying the price? I propose we accept your standard though and only allow citizenship (and therefore voting rights) to those who pay taxes. I’d support that wholeheartedly over what we have now.
Now that we have the rule of law and representative government, we contribute that portion of our wealth and income that We the people have decided to require, through the medium of our elected officials.
I suppose then that everyone should be thrilled with Mitt’s return, because he HAS “contribute[d] that portion of [his] wealth and income that We the people have decided to require” In fact he paid more…so what’s the problem? Why gripe and moan that he should pay more? If you won’t allow for people to say they want less taxes without labeling them ‘illegitimate’, then by the same logic you can’t say you want more taxes.
Rich people invested when the tax rate was much higher because it was still the best way to make more money. Even at much higher tax rates.
The high end of the spectrum is just like the low end. When you decrease the reward for the risk/effort then people will choose not to participate/keep their money in the system. So, on the low end, you get people who say to themselves, “I get $1500/mo in welfare benefits for doing nothing. The best job I can get pays only $1800/mo. Working 40hrs/wk isn’t worth a net increase of $300/mo. So I’ll keep doing nothing.” Likewise on the high end… for each individual the threshold is different, but each time you take away more profit margin by increasing taxes, you have more people who will say it isn’t worth the risks to only make (whatever %) of return.
If Romney paid the taxes the law required, then why should I care?
I read a recent article that listed the ten states with the highest percentage of people who don’t pay federal income tax. Eight were red states (mostly in the South, but also Utah and Idaho), one was a blue state, and one was a battleground state. The main reason Utah was on that list? Large families, allowing for large deductions come tax time.
However, the “they don’t pay any taxes” mentality is ridiculous. Just about everyone pays taxes. Everyone buys stuff, and therefore must pay sales tax. Everyone who makes an honest living pays social security and Medicare. Most pay state taxes and many pay local taxes.
Since you asked “Is anybody else excited?” . . . Not me.
There is an interesting-to-me-but-political topic suggested by the tax returns: what is the appropriate or best public/private mix for charity, for helping people in need? One might view the Republican Party/Mitt Romney position as “less public/more private” compared to where we are now, and view the Romney tax returns as a practical illustration (less tax/more charitable giving).
If you’re going to put up something substantive, note the following:
1. As others have said, the appearance and presentation of the 2011 tax return has to be viewed as a political document.
2. It is unclear (and possibly interesting to speculate) whether the Romneys made politically motivated decisions about taxes during 2011, when they could have done something substantive. My uninformed guess is that like most people they viewed taxes as something to be structured and planned to be as small as possible, and then paid honestly, correctly, legally. That in 2011, if asked, they would have said that “correct and legal” should be the beginning and end of any question. That political sensitivities are something of a 2012 surprise.
3. In my (limited but not zero) experience, for the wealthy charitable giving is almost completely unrelated to current year income; rather, charitable giving is related to needs and requests, and to total wealth, lifetime income, lifetime giving, estate planning, and current year tax planning.
A response to Jax and others
The Romneys get to pay such a low tax rate because the wealthy and uber wealthy have political power through their money. The net result is that we have a tax structure that gives tremendous breaks to many individuals and corporations. As one California legislator cynically stated, “you can’t buy my vote, but you can rent it.”
The most obnoxious technique the Romneys can use is called “carried interest.” In effect common income from private equity firms is changed to capital gains. Thus people like Mitt and Ann pay 15% instead of 35% on that income. Even billionaires like Michael Bloomberg and Rupert Murdoch find find this unacceptable.
The examples of the power of individual or corporate wealth “fixing” the tax code for their advantage is extremely impressive. Most of the oil subsidies, Corporate deductions that change a high corporate tax rate to a very low effective rate, off shoring businesses to pay lower taxes yet.
If you visit the August 12 Vanity Fair and read the article “Where the Money Lives” you can see all of the unfair advantages that families like the Romney’s have. With apologies to Lord Acton in the realm of politics, “Money corrupts, and massive amounts corrupts absolutely.”
Stan, I notice you haven’t come out and said Romney uses the carried-interest trick, though you seem to want your reader to think that he does.
So, which is it? Does he, or doesn’t he? Or is this just another Reid-esque tactic of making a baseless accusation and then demanding that the libeled individual prove the accusation untrue?
JimD (33), there is no “carried interest trick” of which I’m aware; some not-insignificant portion of Romney’s annual income is, however, carried interest. What does that mean? Long story short: a fund gives him (and the other members of the general partner) ~20% of the fund’s profits, which are eligible for pass-through characterization. For more detail on carried interest (to the extent that you want to read my long-form stuff) us available here (or, for a slightly shorter version, if you have access to Tax Notes, you can read my piece How to Tax Mitt Romney, 137 Tax Notes 1137 (May 28, 2012), which is not linkable).
Sam, if Romney failed to claim $2 million in charitable deductions, would it be correct to say that he paid about $300k extra in taxes (2 million x 15%) for 2011?
i still don’t understand why he’s willing to submit himself to all this scrutiny from people who only want to find fault with him, but only for 2010 and 2011.
Oh, look! Just like I mentioned. Extremely rich people don’t NEED extra money and so if you lower their profit margin by raising their taxes (either personal or on their businesses) why would they go the hassle of running a large business when, as the gentlemen in the above article states, he will just go to the Carribean and sit on the beach. He and many other have plenty of money to do just that. And higher tax rates is exactly what would prompt them to do it and leave thousands/millions of Americans without work.
Jax, there are certainly people who will do this. But to the extent the announce it, they’re doing it for political, not economic, reasons. Those who don’t like taxes are focusing on the substitution effect (that is, at some point, the additional income after tax for an hour worked is worth less than enjoying an hour of leisure). That effect exists, of course, but you ignore the income effect (that is, as after-tax income decreased, people will work more so that they can afford the same consumption). Notwithstanding ideologues, neither effect exists in a vacuum, and, to paraphrase a pretty sweet movie, anyone who says otherwise is selling something.
I don’t deny that an announcement of their intent is politcally motivated. I’d be motivated to save myself a ton of tax money as well.
You’re effect does take place… that people will have to work more in order to have the same consumption levels. Are you pointing that out as a positive though? Do you like the idea of a policy that would force people to either accept a lower standard or living or to spend more time at work (which by my definition is in itself a lower standard of living). IMO, both of these effects lend themselves toward the argument in favor of lowering taxes on both businesses and people.
Jax, I’m not asserting either that the income or the substitution effect is good or bad, mostly because neither is entirely good or entirely bad. The substitution effect provides opportunities for new market entrants, while the income effect increases productivity. Both, in other words, can provide economic benefits. As you point out, both can also detrimentally affect the economy. And it would take empirical research—research I don’t have at the tip of my fingers—to determine (a) which effect predominates in a higher-tax environment, and (b) whether the effects were positive or negative on a net basis.
You get, by the way, that you’re arguing that anything that causes people to work more or less is bad; that can only be the case if we currently have a socially optimal level of work. (Also, lowering taxes reverses the effects—it may cause people to work more because income from labor becomes more valuable than leisure (substitution effect) or it may cause them to work less because less work will fund the same amount of consumption (income effect). But both effects are still there.)
Which is to say, neither effect constitutes an argument either in favor of or against higher/lower taxes. You have to look at a lot more factors than whether people will work more or less in setting tax rates and bases.
Very fair assessment Sam. I agree it would take much more research than I have seen or could make. On a personal point though, I’d much rather people working more because it increases their standard of living, rather than working more simply to stop from having a lower standard of living. I have no idea which option would bring in more tax revenue, but I think most people would prefer working to get ahead rather than working to stop from falling behind.
Jax (39), raising taxes a few percentage points back to the rates of the 1990s isn’t going to drive “job creators” to lazy around on the Caribbean. If anything those who do decide to do so will be replaced by an aspiring class of new “job creators.” The top tax rate between WWII and 1980 was over 70% and somehow the US economy managed to grow at a faster pace then than it has since the 1980s.
Fair point Steve, but let’s also keep in mind that tax rates don’t always directly correlate with tax revenue and are likely to yield diminishing returns in our current situation.
Cool. I love the semi-wonky direction this is playing out.
Cameron, you’re referring, I assume, to the Laffer Curve. To which I respond, it’s self-evident, but at what point additional taxation yields lower revenue isn’t clear, but economists generally agree that we’re nowhere near that point right now.
Sam, I remember reading about tax cuts under President Bush that produced that increased revenue. Wouldn’t that indicate we are in that zone? Does the Laffer Curve accommodate the range of psychological effects of particular circumstances such as ours?
Sam,
My understanding of all tax revenue since the beginning of the income tax is that no matter where the tax rate actually is, tax revenue is always within the 19-21% range of GDP. Is that accurate? I think I saw a study on that about 5 yrs ago but I couldn’t tell you from where.
Because of that unfortunately unidentified article I’ve assumed that it doesn’t really matter too much where tax rates are set in terms of revenue (because people will lie, find more loopholes, etc) and that in the end the only way to raise gov’t revenue is to raise GDP. Because of that, my opinion has been that raising or lowering of taxes is basically reduced to a means of social engineering, i.e. raise taxes to take more from people and push them into gov’t programs, lower taxes to let people keep more and make decisions for themselves.
I therefore always want taxes as low as possible so that people will get to keep more of the rewards of their labor and can dispose of it as they see fit – maximizing personal freedom instead of social equality. Thus my position on taxes is that we should basically set them at 20% across the board for all personal income levels as well as for businesses, capital gains, etc. This would also make it possible to almost eliminate the IRS (which is a good thing in my book) and allow people to file their taxes on a postcard.
I do readily admit that my lack of a citable study is problematic for my position… but there it is anyway.
These three pages came up on a google search of “tax revenue as percent of GDP” They all state what I was trying to get across though they show the range of revenue to be between 15-20% of GDP.
And Jax, those graphs don’t tell us anything about a natural equilibrium of tax revenue. For starters, in the last 12 years, it’s been between about 14% and 20%, which is a huge shift. Moreover, the raw numbers don’t address causation. Is ~19% a natural equilibrium point, or do we adjust tax rates/base when we get much above or below that point? (This list of countries suggests that broadly speaking, 19% isn’t a natural spot for all countries.)
Also, it’s worth noting that top marginal rate is only a small part of the tax burden. It also matters who is taxed and what the tax base is. A 70% rate, just imposed on interest income, may raise less income than a 20% rate imposed on all income from all sources. (Note that I’m not asserting the truth of that, but, instead, providing a hypothetical.)
“tax revenue is always within the 19-21% range of GDP. Is that accurate?”
Five years ago, that statement would have been more accurate. But in 2010 it was 14.4% and in 2011 it was 14.8%.
Sam,
I came across the same Wiki pages myself, but wasn’t looking for global rates. Globally they ranged from single digits to the 40’s. What I noticed from a quick glance is that almost all of the 30+ rates were European countries. I think part of the reason for that is cultural; they have accepted a socialist government and have accepted reliance on gov’t as a norm. We haven’t done that in this country (at least most people haven’t).
I don’t think we can get from 19% up to the European 30%+ range without a total shift in our cultural paradigm. Until the VAST majority of Americans start saying “we want to rely on gov’t to take care of us” I don’t think we CAN get there, nor do I think we SHOULD.
As for US policy, the 19% revenue is all that Americans are willing to pay up. When taxes get higher they go looking for tax shelters, look harder for deductions, or just plain lie/cheat on their taxes. Raising taxes has not raised more revenue…it has remained right around 19% no matter the rates or where those rates are applied.
What the effect really is then, is that higher taxes shift choices. When rates are low, revenue stays at 19%, but individual families get to keep more and therefore get to choose how that extra money gets spent, they choose what causes/activities/charities/etc are worthy of their money. Raising taxes leaves them less choices and shifts it to the gov’t. The gov’t takes that extra money from the individuals and then gov’t chooses what causes/activities/charities are worthy of the money.
Really it all comes down to those choices. Do you think americans can make good choices about which families need money and which ones don’t? Can they choose which businesses are good and worth saving and which aren’t and should fail? Can they choose what research should be funded and what shouldn’t? Can they choose what charities are worthy of funds and which aren’t?
I think that the public IS capable of making those choices and therefore the money should be left in their hands to spend/donate as they see fit. Those who think that only gov’t can make those choices wisely support higher taxes. Raising or lowering taxes doesn’t affect gov’t revenue, it only shifts who makes the choices on where that money is spent.
Thanks for sharing Sam and Jax. Sam, you mean economists agree on something?
Jax, raising and lowering taxes has in recent years affected revenue. To cite Sam, the Bush tax cuts “reduced revenue by about 4 percentage points (or 20%) of GDP between 2000 and 2004” (see comment 50 for the reference). According to the Center on Budget and Policy Priorities, the Bush tax cuts have contributed in great part to the deficit: http://www.cbpp.org/cms/index.cfm?fa=view&id=3849.
Clinton was able to increase the revenue somewhat by raising taxes. But in fairness, it has also been argued that the budget surpluses under Clinton are largely attributable more to the technology boom in the 1990s than increased tax rates.
But there is a national debt that needs to be paid down at some point, and the case of Bush tax cuts have shown us that revenue is not increased by reducing tax rates. So it seems that it would be more effective to modestly increase taxes on, say, the top two tax brackets while perhaps modestly lowering taxes on those in the lower tax brackets to give them more money to pay down personal debts thereby stimulating overall demand.
Tax cuts don’t make debt. You don’t have to “pay for” a tax cut. When you cut taxes you not taking money from someone/somewhere else in order to give to people a tax cut, you are simply letting them keep their own money.
Debt comes from spending more than you take in. Now maybe nobody accounted for possibly less revenue because of tax cuts, but it was the spending that created the debt, not the tax cut.
Now according to the third link from post #49:
TaxProf Blog points to a Wall Street Journal piece by W. Kurt Hauser showing a hard fact that has yet to sink in on most budget-balancers: Since World War II, federal revenue as a percentage of GDP hasn’t budged much from a bit shy of 19 percent. Regardless of tax rates and what have you, that’s the amount the feds have been able to collect.
This seems to say that no matter what tax changes you make the revenue % of GDP doesn’t change but just a few fractions of a point from 19%. So really, all that raising taxes does is to move money from individuals to the gov’t under the auspices that gov’t can decide how to use our money more wisely than we can. I tend to trust free people to decide where their money SHOULD be spent more than a gov’t.
Cameron (53): Very little :)
Jax,
You don’t have to “pay for” a tax cut
Of course you do. You don’t, of course, have to “pay for” a tax cut in the sense of giving money in return for it, but you nonetheless have to pay for it, whether through reduced expenditures or through increased borrowing (or finding a planet made of diamonds or something).
Although it’s nonsense to compare the federal budget to a household budget, I’m going to do it anyway to illustrate: if I make $75,000 a year, and then decide to take a job that pays $50,000, I have to pay for that $25,000. It will come either through reduced consumption (I buy less, get a cheaper home, etc.), increased borrowing (and good luck with that these days) or decreased savings. Whatever route I choose, I have to make up for (that is, “pay for”) my reduced income.
Nice “diamond planet” reference! I thought that was a fascinating story! Glad to know I’m not the only one.
I thought my 2nd paragraph in #55 covered the paying by reduced consumption you mentioned. I thought I covered that my definition of “paying for” meant solely “giving money in return”. So I agree with your points Sam and thought I had addressed them. a gov’t might need to reduce consumption because of a tax cut, but that doesn’t qualify as “paying for” it in my mind. It was the failure to reduce gov’t spending that created the debt! And that blame lays upon both parties and all past presidents.
As an aside, I’m sick of hearing about how people are going to “reduce the deficit”. That means they are going to still add to the total debt, but they’ll add a smaller amount than their opponent. WHY IS NOONE TALKING ABOUT PAYING OFF THE DEBT?!!! Why have we accepted that we HAVE to go into debt each and every year? Let’s pay it off and start building a true surplus!!
Thanks, Jax; the diamond planet is an incredibly cool find.
If you’re interested, there’s a great Planet Money episode on the history of the national debt, including the one time it was paid off (for one year) and why the debt returned. Really a fascinating history.
“if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression.”
To pay down the national debt, you need to generate GDP (and probably raise taxes on the wealth). To generate GDP, you need to raise the employment rate. The employment rate cannot be raised without spending and investment (someone has to pay the employees). And with the private sector deleveraged, it is not doing enough spending, even with interest rates at historic lows. Hence the government has to spend in order to keep the economy afloat and to stimulate lagging demand. Right now the need for spending (be it from the government or private sector) is much greater than the need for the government to pay down debt. If investors are willing to purchase a 10-year treasury note at the extremely low maturity rate of 1.67 percent, then it is a sign that they have confidence in the US government to pay them back and that debt isn’t a particularly pressing problem. Only when the GDP experiences greater increase and unemployment drops should the government focus on the debt.
Is it wrong to think that macroeconomics shouldn’t be so counter-intuitive? To the average schmoe, it seems like Keynesianism can only go so far before something collapses. Perhaps rising inflation is not worth the cost of maintaining GDP?
Cameron, is there an intuitive thinking to macroeconomics? Macroeconomics is a difficult subject to understand and it seems that much of what average schmoes think about it emanates from the top down; from the ideas of an economic theorist or group of theorists which in turn filters down through various channels often in a hybridized and vernacularized form.
But ultimately navigating our collective economic future is something that involves risks and gambles no matter where you turn. Indeed, inflation is a risk that policy-makers and central bankers should watch out for and increased government spending during recessions isn’t risk-free. But based on the measures of the BLS and independent MIT-run Billion Prices Index, inflation appears to be and to have been quite low in spite of low interest rates and government stimulus. On the other hand by imposing austerity, nation-states face a whole host of different risks, including prolonged or increased unemployment, slowed economic growth, and even political unrest.
I don’t believe macroeconomics have to be so complex. True, they have many variables, but something in me thinks there is great symbolism in people protesting austerity.
Also, anecdotally, no one can tell me that prices for hard goods and staples have not increased dramatically faster the last 2 years.
Cameron- Macroeconomics is complex because we live in a highly complex global economy in which many factors are outside of the controls of any one person or government. I am not sure what you are trying to get at when you say:
“I don’t believe macroeconomics have to be so complex. True, they have many variables, but something in me thinks there is great symbolism in people protesting austerity.”
What is the symbolism you see in the protests? Personally I can see lots of potential symbolisms, but your comment doesn’t give me enough context to know which one(s) you may be referring to. And, how does that symbolism negate the complexities of macroeconomics, to the point that you don’t think it has to be complex?
Looking at things hyper-simplistically, I guess macroeconomics could be simple in the way that Einstein saw physics. The only problem is that macroeconomics is based on a combination of many different economies and countless regulation, thus the math and principles get all warped.
When I see people protesting austerity (particularly Greece), I see in part the prelude to the collapse of the great and spacious building, not because God arbitrarily decreed it so, but because unchecked Keynesianism and consumerism are fundamentally unsustainable based upon natural law. This is more a philosophical angle than an economic policy angle, although I think they are related in principle, if they get jumbled up and confusing in actual public policy execution.
What is unchecked Keynesianism? I think you are not understanding Keynesianism correctly. The philosophy isn’t equatable with reckless spending and consumerism. Keynes said that, “the boom, not the slump, is the right time for austerity at the Treasury.” So Greece’s problems are simply a product of bad policy making, not because they were implementing what Keynes would have told them to do.
It should be also be noted that Keynesianism is not a monolith. Many competing economic schools of thought are inspired by Keynes’ ideas.
I’m also excited about the fact that Kent put a footnote plugin into our blog; make sure you click on the “Show 1 footnote.” At least, if you’re interested in seeing the footnote.
I think most people could care less about his tax returns. I don’t!
NO
So is it true that he didn’t deduct the whole amount of tithing he paid? If so, why?
Tim, rumor has it he didn’t deduct all of his charitable donations so that he could deliberately pay more taxes and honestly claim a higher percentage number for his overall tax rate. This may have backfired on him, however.
Do you mean he wanted to have a higher effective tax rate? Because at 14.1%, I’m not so sure he succeeded, as that’s only slightly higher than the 13.9% he paid in 2010. Especially considering those are both significantly lower than people with his income are “supposed” to pay. (I put “supposed” in quotations, because I realize there is disagreement on that point. I only mean that the marginal tax rate of his income bracket is much higher than that.)
Well, on the news they had:
Romney: Taxes + Charity = 45% of income.
Obama: Taxes + Charity = 25% of income.
Not sure exactly where that takes us.
“Second, the Romneys take to heart “to whom much is given, of him shall much be required.” Accordingly, they have been generous in their charitable giving, donating over $7 million between 2010-2011 – donating more to charity than they paid in federal income taxes”
I am guessing that they meant this as a good thing, that they were donating more than they were taxed. I am not sure that I see it that way, and I imagine they will wish they had used different words over the next few days.
I agree with the not reading anyone’s taxes on Friday night. I downloaded it and will read it if I had insomnia.
How do Romney’s charitable contributions compare to other millionaire philanthropists?
I’m not sure this makes the offshore accounts look better. Putting money in offshore accounts and in Swiss bank accounts makes him look like he doesn’t believe or trust in America.
What does it mean to trust America? Does it mean to trust Congress? To trust the President or the Supreme Court? To trust only domestic banking institutions, or invest solely in business concerns that do not own assets outside of the United States?
Mr. Romney, like any investor, needs to diversify his portfolio. He has no patriotic duty to expose himself to U.S. – specific risk just because he is a public figure.
Now I will stop feeding the troll.
If we count charitable deductions as those which help the poor and needy, not everything the IRS allows goes to help the poor. Some organizations like ALEC are set up for tax purposes as charitable enterprises although their entire focus is on lobbying. And how much of the money which churches take in actually goes to help the poor?
Does most of Romney’s tax exempt “charitable” donations benefit the poor or just organizations with which he agrees?
I’d worry about Romney’s tax returns, but I’m too busy worrying about how avaricious and duplicitous he appears. I predict that Mitt will not be able to shake the rap, deserved or otherwise. Win or lose, this is turning into a PR disaster for the members of the Church.
I don’t really care how much he makes or how much he paid in taxes or tithing…what I care about is his refusal to acknowledge his privileges and his constant reiteration of the theme that He Built That…that he, shall we say, fared according to the management of the creature, or that he prospered according to his own genius… or you might say, how he conquered according to his own strength. Granted, he’s a bit hostage to his party in that kind of rhetoric, but still, I’d prefer less hubris and more humility from the dude.
CC, a couple quick responses. First, I’d assume all of his charitable donations go to groups with which he agrees. I know mine do—nobody I know of donates to causes they disagree with.
And while you certainly can define “charity” to mean “poverty-alieving.” it’s clear that that is not the sole—or even necessarily the best—definition. That said, you can undoubtedly look at his returns and see what organizations he donates to. And, after I have time to take a look and draft a post, chances are I’ll provide you a partial cheat-sheet on that.
Just a reminder—I don’t care what your political persuasions are, but this is not the place to cast aspersions on Romney’s (or Obama’s, though I can’t figure out how you’d get to Obama from a discussion of Romney’s release of his tax return) character. There are plenty of places on the web to do that. Thanks.
Sam, how about this: If Obama had not been president, the economy would have grown at a stratospheric pace and Romney would have had much more income to report and therefore would have paid more in taxes and charitable contributions. Let aspersions be cast!
Just trying to be helpful.
Thanks, Jonathan!
Charitable organizations include (a) universities and schools, which will certainly tell you that they benefit society, even if they charge high tuition and pay high salaries to certain professors and administrators and football coaches; (b) organizations that support the arts, including symphony orchestras, ballet companies, opera companies, and art museums, whose customers are generally not poor; (c) environmental organizations, which vary greatly in their purposes and methods, but by and large are not directly concerned with helping house the poor or make food or energy available at low prices.
In addition to the things that churches do directly to help people in financial difficulty, they are one of the few institutions in society that actually train and motivate people to make sacrifices to help others. One of the ways it does that is to actually introduce those with resources to those without them. My guess is that there is a multiplier effect here that translates donations to churches into donations of money and labor to support the needy.
The only way to view the release of the 2011 tax return is as a political document. Remember, he claimed that anyone who did not pay the lowest legal amount in taxes was not qualified to be President. Doing so had a political risk in having that pointed out, as comedians and commentators are already doing. So, why do it?
1. By not claiming all of his dedusctions, he cannot be accused of paying an even lower tax rate than he did in 2010.
2. By doing a “Friday Dump,” the return will have a shorter and less sophistaced lifespan in the news.
3. By combining it with the “20/20 statement” statement from his accountants, he hoped to bury the “release your tax returns” arguments.
The problem for Romney is that this release may raise even more questions. Why twenty years of returns? Was that done to raise the percentage? He estimated 20.9 million in income for 2011, where did the 7.2 million go? How did they figure the 20 year average of 20.2% out? Their average for charity over that period was 13.45%, this year was about 30%. Was that increase for PR purposes? As soon as feasable is he going to file an amended return and claim the unused charitable giving and lower his taxes? Why is he still “hiding” his returns.
So much of this is just appearance and little substance. For example, that 30% in charitable donations would only have been a little over 20% if the Romneys would have actually gotten the 20 million in income they predicted in April. Romney exascerbated the problems by just not being up front and releasing the documents months ago.
The real problem is the tax system that lets people like Romney pay so little. In political terms it is made worse by Romney and Ryan talking about lowering the tax on the super wealthy even more (Ryan would reduce the Romney’s tax to about a 1% rate).
There is just no pleasing some people…
Stan, when I write up my actual post, I’ll go into the probable reason Romney didn’t release his final return months ago; for now, suffice it to say that he almost undoubtedly couldn’t have released his returns several months ago. I’ll also explain why he would have an estimated return (which probably cost nearly as much to prepare as his actual return did, and certainly cost more than the, what, $50 most of us spend on TurboTax).
Well, would you prefer that he take all his money out of the system (say, by buying gold bars and hiding them in his closet?) If you take out the profit then why would he and others with money take the risks?
If he removed his money from the system, then he would still be wealthy and not have to pay any interest. Or if he does that, should we still take a percentage of it yearly? Does he have to pay taxes just for the privilege of having wealth? Do I? Do we only hold our personal wealth/possessions because of the benevolent blessings of the state?
@Stan (20) I’m curious what you think the ideal tax rate should be. I think the real problem is that people think the widow’s mite story is about poor people. It’s really about relative giving. A rich person could just as easily be a the widow in giving a greater portion of what they have, of their own free will and choice, just as they could be outdone by the widow (as they are in the example) by giving a smaller portion of their own wealth. Of course, that is between them and God at the judgement bar, and honestly paying as little taxes as legally possible is a separate issue–one I would guess we both think is a moral one, but from opposite sides of the spectrum.
“Does he have to pay taxes just for the privilege of having wealth? Do I? Do we only hold our personal wealth/possessions because of the benevolent blessings of the state?”
One pays taxes for the privilege of being a citizen. It used to be that we held our possessions at the whim of the state when they were subject to confiscation by the crown. Now that we have the rule of law and representative government, we contribute that portion of our wealth and income that We the people have decided to require, through the medium of our elected officials. It’s very strange to me that some people find this illegitimate.
“If you take out the profit then why would he and others with money take the risks?”
My opinion is that all income, investment and earned, should be taxed at the same rate. Thus Romney’s “base” tax rate would have been closer to 30% than 15%.
In the past, when investment income was taxed at a much higher rate, the “job creaters” did not “take their money out of the system” or at least not to any great degree. They still had every reason to invest their money, just as most of us have every reason to to go work and earn a paycheck. Rich people invested when the tax rate was much higher because it was still the best way to make more money. Even at much higher tax rates.
The response is predictable — which may be an indication of why he didn’t release the info earlier. The facts are:
1. Romney paid all the taxes he is required to by laws enacted by those with authority.
2. Romney gave a great deal to charity, likely far more than anyone sniping at him.
I’m wondering when I’ll hear the outcry from T&S readers for Brother Harry Reid to apologize for his hateful, illogical, and erroneous smear?
Really? Because I know lots of citizns who don’t pay taxes… why do they have the privilege of being citizens without paying the price? I propose we accept your standard though and only allow citizenship (and therefore voting rights) to those who pay taxes. I’d support that wholeheartedly over what we have now.
I suppose then that everyone should be thrilled with Mitt’s return, because he HAS “contribute[d] that portion of [his] wealth and income that We the people have decided to require” In fact he paid more…so what’s the problem? Why gripe and moan that he should pay more? If you won’t allow for people to say they want less taxes without labeling them ‘illegitimate’, then by the same logic you can’t say you want more taxes.
The high end of the spectrum is just like the low end. When you decrease the reward for the risk/effort then people will choose not to participate/keep their money in the system. So, on the low end, you get people who say to themselves, “I get $1500/mo in welfare benefits for doing nothing. The best job I can get pays only $1800/mo. Working 40hrs/wk isn’t worth a net increase of $300/mo. So I’ll keep doing nothing.” Likewise on the high end… for each individual the threshold is different, but each time you take away more profit margin by increasing taxes, you have more people who will say it isn’t worth the risks to only make (whatever %) of return.
If Romney paid the taxes the law required, then why should I care?
I read a recent article that listed the ten states with the highest percentage of people who don’t pay federal income tax. Eight were red states (mostly in the South, but also Utah and Idaho), one was a blue state, and one was a battleground state. The main reason Utah was on that list? Large families, allowing for large deductions come tax time.
However, the “they don’t pay any taxes” mentality is ridiculous. Just about everyone pays taxes. Everyone buys stuff, and therefore must pay sales tax. Everyone who makes an honest living pays social security and Medicare. Most pay state taxes and many pay local taxes.
Since you asked “Is anybody else excited?” . . . Not me.
There is an interesting-to-me-but-political topic suggested by the tax returns: what is the appropriate or best public/private mix for charity, for helping people in need? One might view the Republican Party/Mitt Romney position as “less public/more private” compared to where we are now, and view the Romney tax returns as a practical illustration (less tax/more charitable giving).
If you’re going to put up something substantive, note the following:
1. As others have said, the appearance and presentation of the 2011 tax return has to be viewed as a political document.
2. It is unclear (and possibly interesting to speculate) whether the Romneys made politically motivated decisions about taxes during 2011, when they could have done something substantive. My uninformed guess is that like most people they viewed taxes as something to be structured and planned to be as small as possible, and then paid honestly, correctly, legally. That in 2011, if asked, they would have said that “correct and legal” should be the beginning and end of any question. That political sensitivities are something of a 2012 surprise.
3. In my (limited but not zero) experience, for the wealthy charitable giving is almost completely unrelated to current year income; rather, charitable giving is related to needs and requests, and to total wealth, lifetime income, lifetime giving, estate planning, and current year tax planning.
A response to Jax and others
The Romneys get to pay such a low tax rate because the wealthy and uber wealthy have political power through their money. The net result is that we have a tax structure that gives tremendous breaks to many individuals and corporations. As one California legislator cynically stated, “you can’t buy my vote, but you can rent it.”
The most obnoxious technique the Romneys can use is called “carried interest.” In effect common income from private equity firms is changed to capital gains. Thus people like Mitt and Ann pay 15% instead of 35% on that income. Even billionaires like Michael Bloomberg and Rupert Murdoch find find this unacceptable.
The examples of the power of individual or corporate wealth “fixing” the tax code for their advantage is extremely impressive. Most of the oil subsidies, Corporate deductions that change a high corporate tax rate to a very low effective rate, off shoring businesses to pay lower taxes yet.
If you visit the August 12 Vanity Fair and read the article “Where the Money Lives” you can see all of the unfair advantages that families like the Romney’s have. With apologies to Lord Acton in the realm of politics, “Money corrupts, and massive amounts corrupts absolutely.”
Stan, I notice you haven’t come out and said Romney uses the carried-interest trick, though you seem to want your reader to think that he does.
So, which is it? Does he, or doesn’t he? Or is this just another Reid-esque tactic of making a baseless accusation and then demanding that the libeled individual prove the accusation untrue?
#2 Do you care or not? http://www.youtube.com/watch?v=om7O0MFkmpw
JimD (33), there is no “carried interest trick” of which I’m aware; some not-insignificant portion of Romney’s annual income is, however, carried interest. What does that mean? Long story short: a fund gives him (and the other members of the general partner) ~20% of the fund’s profits, which are eligible for pass-through characterization. For more detail on carried interest (to the extent that you want to read my long-form stuff) us available here (or, for a slightly shorter version, if you have access to Tax Notes, you can read my piece How to Tax Mitt Romney, 137 Tax Notes 1137 (May 28, 2012), which is not linkable).
JimD, this has been known since at least January:
http://www.cnbc.com/id/46115127/Romney_s_13_Million_Carried_Interest_Bonanza
Bill, thanks for the link.
Sam, if Romney failed to claim $2 million in charitable deductions, would it be correct to say that he paid about $300k extra in taxes (2 million x 15%) for 2011?
i still don’t understand why he’s willing to submit himself to all this scrutiny from people who only want to find fault with him, but only for 2010 and 2011.
weird.
http://www.foxnews.com/politics/2012/10/10/timeshare-mogul-warns-in-email-will-need-to-lay-off-employees-if-obama-is-re/
Oh, look! Just like I mentioned. Extremely rich people don’t NEED extra money and so if you lower their profit margin by raising their taxes (either personal or on their businesses) why would they go the hassle of running a large business when, as the gentlemen in the above article states, he will just go to the Carribean and sit on the beach. He and many other have plenty of money to do just that. And higher tax rates is exactly what would prompt them to do it and leave thousands/millions of Americans without work.
Jax, there are certainly people who will do this. But to the extent the announce it, they’re doing it for political, not economic, reasons. Those who don’t like taxes are focusing on the substitution effect (that is, at some point, the additional income after tax for an hour worked is worth less than enjoying an hour of leisure). That effect exists, of course, but you ignore the income effect (that is, as after-tax income decreased, people will work more so that they can afford the same consumption). Notwithstanding ideologues, neither effect exists in a vacuum, and, to paraphrase a pretty sweet movie, anyone who says otherwise is selling something.
I don’t deny that an announcement of their intent is politcally motivated. I’d be motivated to save myself a ton of tax money as well.
You’re effect does take place… that people will have to work more in order to have the same consumption levels. Are you pointing that out as a positive though? Do you like the idea of a policy that would force people to either accept a lower standard or living or to spend more time at work (which by my definition is in itself a lower standard of living). IMO, both of these effects lend themselves toward the argument in favor of lowering taxes on both businesses and people.
Jax, I’m not asserting either that the income or the substitution effect is good or bad, mostly because neither is entirely good or entirely bad. The substitution effect provides opportunities for new market entrants, while the income effect increases productivity. Both, in other words, can provide economic benefits. As you point out, both can also detrimentally affect the economy. And it would take empirical research—research I don’t have at the tip of my fingers—to determine (a) which effect predominates in a higher-tax environment, and (b) whether the effects were positive or negative on a net basis.
You get, by the way, that you’re arguing that anything that causes people to work more or less is bad; that can only be the case if we currently have a socially optimal level of work. (Also, lowering taxes reverses the effects—it may cause people to work more because income from labor becomes more valuable than leisure (substitution effect) or it may cause them to work less because less work will fund the same amount of consumption (income effect). But both effects are still there.)
Which is to say, neither effect constitutes an argument either in favor of or against higher/lower taxes. You have to look at a lot more factors than whether people will work more or less in setting tax rates and bases.
Very fair assessment Sam. I agree it would take much more research than I have seen or could make. On a personal point though, I’d much rather people working more because it increases their standard of living, rather than working more simply to stop from having a lower standard of living. I have no idea which option would bring in more tax revenue, but I think most people would prefer working to get ahead rather than working to stop from falling behind.
Jax (39), raising taxes a few percentage points back to the rates of the 1990s isn’t going to drive “job creators” to lazy around on the Caribbean. If anything those who do decide to do so will be replaced by an aspiring class of new “job creators.” The top tax rate between WWII and 1980 was over 70% and somehow the US economy managed to grow at a faster pace then than it has since the 1980s.
Fair point Steve, but let’s also keep in mind that tax rates don’t always directly correlate with tax revenue and are likely to yield diminishing returns in our current situation.
Cool. I love the semi-wonky direction this is playing out.
Cameron, you’re referring, I assume, to the Laffer Curve. To which I respond, it’s self-evident, but at what point additional taxation yields lower revenue isn’t clear, but economists generally agree that we’re nowhere near that point right now.
Sam, I remember reading about tax cuts under President Bush that produced that increased revenue. Wouldn’t that indicate we are in that zone? Does the Laffer Curve accommodate the range of psychological effects of particular circumstances such as ours?
Sam,
My understanding of all tax revenue since the beginning of the income tax is that no matter where the tax rate actually is, tax revenue is always within the 19-21% range of GDP. Is that accurate? I think I saw a study on that about 5 yrs ago but I couldn’t tell you from where.
Because of that unfortunately unidentified article I’ve assumed that it doesn’t really matter too much where tax rates are set in terms of revenue (because people will lie, find more loopholes, etc) and that in the end the only way to raise gov’t revenue is to raise GDP. Because of that, my opinion has been that raising or lowering of taxes is basically reduced to a means of social engineering, i.e. raise taxes to take more from people and push them into gov’t programs, lower taxes to let people keep more and make decisions for themselves.
I therefore always want taxes as low as possible so that people will get to keep more of the rewards of their labor and can dispose of it as they see fit – maximizing personal freedom instead of social equality. Thus my position on taxes is that we should basically set them at 20% across the board for all personal income levels as well as for businesses, capital gains, etc. This would also make it possible to almost eliminate the IRS (which is a good thing in my book) and allow people to file their taxes on a postcard.
I do readily admit that my lack of a citable study is problematic for my position… but there it is anyway.
So I didn’t like my lack of evidence…
http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/
http://www.heritage.org/federalbudget/current-tax-receipts
http://reason.com/blog/2010/11/29/the-remarkably-stable-amount-o
These three pages came up on a google search of “tax revenue as percent of GDP” They all state what I was trying to get across though they show the range of revenue to be between 15-20% of GDP.
Cameron, whatever the politicians say, I haven’t read any economists who believe that the Bush tax cuts paid for themselves. They reduced revenue by about 4 percentage points (or 20%) of GDP between 2000 and 2004. Which is to say, we’re not on the wrong side of the Laffer Curve right now.
And Jax, those graphs don’t tell us anything about a natural equilibrium of tax revenue. For starters, in the last 12 years, it’s been between about 14% and 20%, which is a huge shift. Moreover, the raw numbers don’t address causation. Is ~19% a natural equilibrium point, or do we adjust tax rates/base when we get much above or below that point? (This list of countries suggests that broadly speaking, 19% isn’t a natural spot for all countries.)
Also, it’s worth noting that top marginal rate is only a small part of the tax burden. It also matters who is taxed and what the tax base is. A 70% rate, just imposed on interest income, may raise less income than a 20% rate imposed on all income from all sources. (Note that I’m not asserting the truth of that, but, instead, providing a hypothetical.)
“tax revenue is always within the 19-21% range of GDP. Is that accurate?”
Five years ago, that statement would have been more accurate. But in 2010 it was 14.4% and in 2011 it was 14.8%.
Sam,
I came across the same Wiki pages myself, but wasn’t looking for global rates. Globally they ranged from single digits to the 40’s. What I noticed from a quick glance is that almost all of the 30+ rates were European countries. I think part of the reason for that is cultural; they have accepted a socialist government and have accepted reliance on gov’t as a norm. We haven’t done that in this country (at least most people haven’t).
I don’t think we can get from 19% up to the European 30%+ range without a total shift in our cultural paradigm. Until the VAST majority of Americans start saying “we want to rely on gov’t to take care of us” I don’t think we CAN get there, nor do I think we SHOULD.
As for US policy, the 19% revenue is all that Americans are willing to pay up. When taxes get higher they go looking for tax shelters, look harder for deductions, or just plain lie/cheat on their taxes. Raising taxes has not raised more revenue…it has remained right around 19% no matter the rates or where those rates are applied.
What the effect really is then, is that higher taxes shift choices. When rates are low, revenue stays at 19%, but individual families get to keep more and therefore get to choose how that extra money gets spent, they choose what causes/activities/charities/etc are worthy of their money. Raising taxes leaves them less choices and shifts it to the gov’t. The gov’t takes that extra money from the individuals and then gov’t chooses what causes/activities/charities are worthy of the money.
Really it all comes down to those choices. Do you think americans can make good choices about which families need money and which ones don’t? Can they choose which businesses are good and worth saving and which aren’t and should fail? Can they choose what research should be funded and what shouldn’t? Can they choose what charities are worthy of funds and which aren’t?
I think that the public IS capable of making those choices and therefore the money should be left in their hands to spend/donate as they see fit. Those who think that only gov’t can make those choices wisely support higher taxes. Raising or lowering taxes doesn’t affect gov’t revenue, it only shifts who makes the choices on where that money is spent.
Thanks for sharing Sam and Jax. Sam, you mean economists agree on something?
Jax, raising and lowering taxes has in recent years affected revenue. To cite Sam, the Bush tax cuts “reduced revenue by about 4 percentage points (or 20%) of GDP between 2000 and 2004” (see comment 50 for the reference). According to the Center on Budget and Policy Priorities, the Bush tax cuts have contributed in great part to the deficit: http://www.cbpp.org/cms/index.cfm?fa=view&id=3849.
Clinton was able to increase the revenue somewhat by raising taxes. But in fairness, it has also been argued that the budget surpluses under Clinton are largely attributable more to the technology boom in the 1990s than increased tax rates.
But there is a national debt that needs to be paid down at some point, and the case of Bush tax cuts have shown us that revenue is not increased by reducing tax rates. So it seems that it would be more effective to modestly increase taxes on, say, the top two tax brackets while perhaps modestly lowering taxes on those in the lower tax brackets to give them more money to pay down personal debts thereby stimulating overall demand.
Tax cuts don’t make debt. You don’t have to “pay for” a tax cut. When you cut taxes you not taking money from someone/somewhere else in order to give to people a tax cut, you are simply letting them keep their own money.
Debt comes from spending more than you take in. Now maybe nobody accounted for possibly less revenue because of tax cuts, but it was the spending that created the debt, not the tax cut.
Now according to the third link from post #49:
Here is the link to the article: http://online.wsj.com/article/SB10001424052748703514904575602943209741952.html
This seems to say that no matter what tax changes you make the revenue % of GDP doesn’t change but just a few fractions of a point from 19%. So really, all that raising taxes does is to move money from individuals to the gov’t under the auspices that gov’t can decide how to use our money more wisely than we can. I tend to trust free people to decide where their money SHOULD be spent more than a gov’t.
Cameron (53): Very little :)
Jax,
Of course you do. You don’t, of course, have to “pay for” a tax cut in the sense of giving money in return for it, but you nonetheless have to pay for it, whether through reduced expenditures or through increased borrowing (or finding a planet made of diamonds or something).
Although it’s nonsense to compare the federal budget to a household budget, I’m going to do it anyway to illustrate: if I make $75,000 a year, and then decide to take a job that pays $50,000, I have to pay for that $25,000. It will come either through reduced consumption (I buy less, get a cheaper home, etc.), increased borrowing (and good luck with that these days) or decreased savings. Whatever route I choose, I have to make up for (that is, “pay for”) my reduced income.
Nice “diamond planet” reference! I thought that was a fascinating story! Glad to know I’m not the only one.
I thought my 2nd paragraph in #55 covered the paying by reduced consumption you mentioned. I thought I covered that my definition of “paying for” meant solely “giving money in return”. So I agree with your points Sam and thought I had addressed them. a gov’t might need to reduce consumption because of a tax cut, but that doesn’t qualify as “paying for” it in my mind. It was the failure to reduce gov’t spending that created the debt! And that blame lays upon both parties and all past presidents.
As an aside, I’m sick of hearing about how people are going to “reduce the deficit”. That means they are going to still add to the total debt, but they’ll add a smaller amount than their opponent. WHY IS NOONE TALKING ABOUT PAYING OFF THE DEBT?!!! Why have we accepted that we HAVE to go into debt each and every year? Let’s pay it off and start building a true surplus!!
Thanks, Jax; the diamond planet is an incredibly cool find.
If you’re interested, there’s a great Planet Money episode on the history of the national debt, including the one time it was paid off (for one year) and why the debt returned. Really a fascinating history.
Sharp budget cuts may end up greatly worsening our economic problems. Even Mitt Romney recognizes this: http://thepage.time.com/2012/05/23/the-complete-romney-interview-transcript/
“if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression.”
To pay down the national debt, you need to generate GDP (and probably raise taxes on the wealth). To generate GDP, you need to raise the employment rate. The employment rate cannot be raised without spending and investment (someone has to pay the employees). And with the private sector deleveraged, it is not doing enough spending, even with interest rates at historic lows. Hence the government has to spend in order to keep the economy afloat and to stimulate lagging demand. Right now the need for spending (be it from the government or private sector) is much greater than the need for the government to pay down debt. If investors are willing to purchase a 10-year treasury note at the extremely low maturity rate of 1.67 percent, then it is a sign that they have confidence in the US government to pay them back and that debt isn’t a particularly pressing problem. Only when the GDP experiences greater increase and unemployment drops should the government focus on the debt.
Is it wrong to think that macroeconomics shouldn’t be so counter-intuitive? To the average schmoe, it seems like Keynesianism can only go so far before something collapses. Perhaps rising inflation is not worth the cost of maintaining GDP?
Cameron, is there an intuitive thinking to macroeconomics? Macroeconomics is a difficult subject to understand and it seems that much of what average schmoes think about it emanates from the top down; from the ideas of an economic theorist or group of theorists which in turn filters down through various channels often in a hybridized and vernacularized form.
But ultimately navigating our collective economic future is something that involves risks and gambles no matter where you turn. Indeed, inflation is a risk that policy-makers and central bankers should watch out for and increased government spending during recessions isn’t risk-free. But based on the measures of the BLS and independent MIT-run Billion Prices Index, inflation appears to be and to have been quite low in spite of low interest rates and government stimulus. On the other hand by imposing austerity, nation-states face a whole host of different risks, including prolonged or increased unemployment, slowed economic growth, and even political unrest.
I don’t believe macroeconomics have to be so complex. True, they have many variables, but something in me thinks there is great symbolism in people protesting austerity.
Also, anecdotally, no one can tell me that prices for hard goods and staples have not increased dramatically faster the last 2 years.
Cameron- Macroeconomics is complex because we live in a highly complex global economy in which many factors are outside of the controls of any one person or government. I am not sure what you are trying to get at when you say:
“I don’t believe macroeconomics have to be so complex. True, they have many variables, but something in me thinks there is great symbolism in people protesting austerity.”
What is the symbolism you see in the protests? Personally I can see lots of potential symbolisms, but your comment doesn’t give me enough context to know which one(s) you may be referring to. And, how does that symbolism negate the complexities of macroeconomics, to the point that you don’t think it has to be complex?
Looking at things hyper-simplistically, I guess macroeconomics could be simple in the way that Einstein saw physics. The only problem is that macroeconomics is based on a combination of many different economies and countless regulation, thus the math and principles get all warped.
When I see people protesting austerity (particularly Greece), I see in part the prelude to the collapse of the great and spacious building, not because God arbitrarily decreed it so, but because unchecked Keynesianism and consumerism are fundamentally unsustainable based upon natural law. This is more a philosophical angle than an economic policy angle, although I think they are related in principle, if they get jumbled up and confusing in actual public policy execution.
What is unchecked Keynesianism? I think you are not understanding Keynesianism correctly. The philosophy isn’t equatable with reckless spending and consumerism. Keynes said that, “the boom, not the slump, is the right time for austerity at the Treasury.” So Greece’s problems are simply a product of bad policy making, not because they were implementing what Keynes would have told them to do.
It should be also be noted that Keynesianism is not a monolith. Many competing economic schools of thought are inspired by Keynes’ ideas.