About Those Expiring Tax Cuts

There has been much written and discussed about the 2001 tax cuts that are due to expire this year.  Certainly those tax cuts put a large amount of actual dollars into the pockets of those that make the most money.  This is a fact.  It is also a fact that this group pays the most in taxes.  Most of the ink spilled on the subject focuses on the possible stimulative effect on the economy of extending the cuts (there will not be any), but I think a more interesting question to discuss would be “Who’s money is it anyway?”

On the first point – stimulus – I do not see how leaving someone with what they currently have will create new economic activity.  The discussion is framed as a tax cut.  That is not correct.  These cuts, or reductions in tax rates, were made almost a decade ago.  What was your income then?  What was your financial situation?  Are people really stashing the extra money they keep because of these cuts in some special savings account, only to be spent if the decade-old cuts are made permanent, or semi-permanent, or at least extended for a couple of years?  That makes no sense. 

Those who are living paycheck to paycheck, or close to it, probably have no recollection of their change in income lo those many years ago when the tax cuts were first enacted.  First, it was a long time ago, second, the change wasn’t that dramatic when spread across the full calendar year.  To say that middle income earners, those earning $40k-75k per year, who would realize a continued savings of $830-$1,200 per year, not a NEW savings of anything, would suddenly go out and spend more is silly.  This extra $70-$100 per month is already factored into the family budget.  There is no stimulus here, nothing to see, time to move along.

At the top of the earning scale are people making over $500k, who will see their take home pay cut by $20k or more.  Will it impact their spending?  It’s possible, however there aren’t that many people in this group, and I can only hope they are not living paycheck to paycheck. 

A more interesting notion is, who’s money is it, and what will the government do with it?  Krugman wrote today about angry rich people.  They are.  But then again, so are a lot of not-so-rich people.  In the US we start with the assumption that the country belongs to the people, not that the people belong to the country.  This means that all we create is ours to dispose of, and we choose (sort of) to spend a certain amount on government, which in the US is something akin to a four letter word…maybe “Feds” is what I should use instead.  Anyway, every time that we are asked to give more to the feds we always ask how the funds will be used.  What happens when you don’t agree?  What happens when there are so many existing programs that seem frivolous, ill-conceived, or just down right idiotic that you have a hard time seeing why even more of your monies should be required, even when the new efforts – such as employment, education, healthcare – seem worthwhile? 

I think what happens in this instance is political turmoil, and it seems to be fomenting right on cue.  Don’t get caught up in the labeling of a Tea Party Movement or any particular brand of politics, just ask the typical tuned in voter if he is happy with his representatives.  There seems to be quite a move on both sides of the aisle to find new representation.

 As for the expiring tax cuts, an interesting thing happened on the way to our future budget estimates.  When the CBO compiles estimated revenues and expenditures for the years ahead, and thereby delivers budgets for years out, they must use existing law.  Which means that the budget estimates we have heard for the last year all include the full expiration of these tax cuts.

Read the original story at H. S. Dent