Richard Florida
by Richard Florida
Fri Mar 6th 2009 at 10:32am UTC

The Big Squelch

Jim Manzi (via Will Wilkinson) lambastes the effects of Obamanomics on innovation:

Like the college students who stayed up late to hear Obama’s campaign speeches only to find his first significant action to be a stimulus program that will transfer about $1 trillion from them to the Baby Boomers, Silicon Valley Obama supporters may find themselves in an uncomfortable environment. A government-dominated economic era may not be an auspicious one in which to start companies that threaten big, incumbent corporations with lots of political clout.

What do liberal/Dem innovation policy types think? Is Manzi onto something?

45 Responses to “The Big Squelch”

  1. Michael Wells Says:

    I don’t see the logic of this.

    First, much of the stimulus is aimed at infrastructure, research or developing new technologies. That seems to be both future oriented and pro-technology. What’s the baby boomer angle?

    Second, we’re coming out of 8 years where the focus was on old resource extraction industry rather than new economy business. New company innovation declined in the Bush era. As Newt said recently (I think in Newsweek) “Unfortunately, most of the GOP is corporate rather than entrepreneurial.” Granted the auto bailout isn’t very innovative, but alt energy is.

    Third, if this is to dump on Democrats and “high taxes” remember the high tech boom of the ’90’s was under Clintonomics.

    Let’s give it a year and see how government-dominated the economy is then. If that just means broader health care coverage and regulation at the level it was 20 years ago, bring it on.

  2. Buzzcut Says:

    You don’t see the logic in this? Are you blind?

    I believe the $1T comment is referring to the likely uncapping of Socialist Insecurity taxes.

    Regarding the downshifting of innovation during the Bush years, it was inevitable after the “dot bomb” crash. There simply was not the venture capital that there was in the ninetees, perhaps rightfully so (the nature of bubbles are that they’re wasteful, right?). Is that Bush’s fault?

    When I see these huge Obama tax proposals, where he’s uncapping payroll taxes, increasing marginal tax rates, and imposing carbon taxes, I just wonder what the high earners think. Obama won high earners something like 52-48, so there are A LOT of people who are going to be hit with these drastically higher taxes who voted for the man.

    Are you happy with that?

    You combine that with the massive tax increases in the blue states, and marginal tax rates are totally at confiscatory levels if all this gets passed.

    And for what? So that we can socialize the only part of the economy that isn’t tanking (health care). So that we can substitute high cost “alternative energy” for much, much cheaper conventional sources, and let the Chinese and Indians get an even bigger cost advantage than they already have? So that we can undo welfare reform? So that our bloated and inefffective education system can become even moreso?

    If Obama were really trying something new, I’d be with him, but this is all just warmed over… Mondale-ism? It’s the same stuff Democrats have proposed since… I don’t know, since Teddy Kennedy ran for prez in ‘80? No different than Dukakis, or Kerry proposed.

    It is nothing like Clintonism, post-1994, where Bob Rubin got Clinton to control spending. A Clinton style austerity and catering to the bond market would be an excellent response to this crisis. But Bob Rubin has destroyed his career because of Citibank, and he’s nowhere to be found.

    This is why the stock market is in ACCELERATED decline. There’s just absolutely no growth proposals coming from this adminsitration. It’s just socialize this, regulate that, and raise taxes to (allegedly) pay for it all (but in reality, tax increases would have to be even larger to even come close to paying for this level of spending).

    Again, Obama won the votes of at least 50% of the people that he’s out to stick it to. What do they think about that?

    I know what Cramer thinks!

  3. Wendy Says:

    One of the larger barriers to entrepreneurship in the US has to be the lack of access to affordable health care if you don’t work for a medium or large company. Thousands of talented unemployed people won’t attempt to create their own innovative, start up businesses because their families need health care, which they won’t be able to afford to purchase for the first few years of running a start up.

  4. Brian Knudsen Says:

    Buzzkill (uh, I mean Buzzcut) talks about warmed-over Mondale-ism, but his post is like a warmed over FreeRepublic.com rant from whenever. Somebody is PO’d! By the way, what’s with the anonymous moniker?

    Anyway, I agree with Michael. And, I’d add just a few points. Indeed, Manzi’s column is nothing but an ideological ploy to stir up the resentments that Buzzkill/cut displays. Yet, I think the underlying premise of Manzi’s argument is wrong – i.e. that entrepreneurs “deserve” higher incomes at all. Why should they, even if we concede that contemporary economic growth comes from ideas?

    Entrepreneurs have one major input to their work – the vast store of existing knowledge. This store includes everything, including
    language, mathematics, all representative symbolic systems, all science and technology, everything that we have available to use that enables us to do what we do today. This vast store of existing knowledge is a social, collectively produced product – it has been produced collectively and collaboratively across time and across space, essentially for all of humankind’s history. It is therefore also an historical product. This historical, collective product is the main input to economic growth today. It is what entrepreneurs use, what the creative class uses to do their jobs. But, if this input is/was collectively created, what right does any one person then have to claim for him or herself a disproportionate share of its benefits? Why do I necessarily get to appropriate for myself all the benefits, when the major
    inputs to my work have nothing to do with me, and indeed were produced collectively and historically by (human) society? To do so is to steal from society. A person goes and takes what society has collectively produced, and then claims all of the benefits for themselves. This disjuncture between the collective nature of the inputs to creative work and the claims of disproportionate individual benefits from creative work is a matter of simple fairness, and undermines the premise that entrepreneurs “deserve” higher incomes. Instead, I would hope that society can evolve to a point where we remunerate people for their work differently from how we do now, say on the basis of effort and sacrifice instead of output.

  5. Buzzcut Says:

    Buzzkill ;)

    That’s good!

    I could tell you why I need anonymity… but then I’d have to kill you. ;)

    Regarding whether entreprunerial income is deserved or not, most entrepreneurs provide goods and services. That is what they are making money from.

    And if they make less money because it is being taxed away from them, they have less of an incentive to provide those goods and services.

    It is no different than those of us working long hours at corporations or who are professionals. For the most part, people who are in the earnings ranges targeted by Obama are those working long hours and who are highly skilled (skills earned through long hours!).

    So… it all comes back to a classic supply side economics argument: what are you doing to encourage work, education, and investment. I see very little in these proposals.

  6. Michael Wells Says:

    This might be a place to ask a question that I’ve wondered about for a while. Why the obsession with taxes? Buzzcut and most conservatives seem to think that for every problem, every question, the answer is lower taxes. For the sake of argument, let’s say that they’re a factor but they’re not the only factor or even a major factor in most problems.

    For most high earners that I know, taxes (at least at the levels we’re talking about) are much less important than health, pollution, good roads & airports, global warming threats, education to name a few. By and large upper income people benefit more from government.

    And while I agree with Brian that the accumulated knowledge is major in innovation (whatever Ayn Rand thought about the one wolf) nevertheless I agree that someone who puts own money, time and ideas up and takes the risk deserves whatever rewards they earn. I just don’t think taxes are among their major problems.

    Don’t get me wrong, I don’t enjoy paying taxes. But I don’t like paying my electric bill or car insurance either. I pay all of them because I think I get value that improves my life and my family’s lives and in the case of taxes, the country.

  7. Jim H Says:

    Brian,
    that was the most bizarre post I’ve ever seen. I hope you don’t live in the United States, I don’t want to live in the same country as people who subscribe to your outlook.

    “Why do I necessarily get to appropriate for myself all the benefits, when the major inputs to my work have nothing to do with me, and indeed were produced collectively and historically by (human) society? To do so is to steal from society.”

    I’m still shaking my head at this. Wow

  8. Jim H Says:

    “For most high earners that I know, taxes (at least at the levels we’re talking about) are much less important than health, pollution, good roads & airports, global warming threats, education to name a few. By and large upper income people benefit more from government.”

    —It really must be different in Oregon then—

    Michael,
    That’s where you’re wrong – how exactly does an upper income person benefit more from these things more than anyone else? They don’t; but they have to contribute more of their earnings, if for no other reason than that they can. Do you have statistics that show upper income people drive more on local roads? Just because someone inevitably pays more for these things (infrastructure,whatever) doesn’t mean that they will reap more benefits from it. People reap the most benefits from their own achievements, their initiatives, and their own creativity.

    You are right in that everyone considers health important. The difference between a conservative and a liberal is in how we think each person should get it. We both agree that everyone should have health coverage, but liberals believe it should be provided to you in the form of universal care (essentially putting everyone on Medicaid). Personally, I would not want to depend on the government for anything – show me something they’ve proven they can handle effectively.

    Fiscal conservatives like me would rather see each person buy their own policy, not depend on the government, nor a particular company – that makes it portable. I’ve learned the hard way in life, if you just give someone something, they don’t take care of it quite like they should. There is no incentive in universal healthcare to take care of yourself, to prevent problems. For that matter the problem with universal health care or our current system, is that we don’t address prevention in any meaningful way, only treating people after the fact.

    As I’ve said many times, it will be interesting to see how the Creative Class reacts to being the target of class-warfare by the very people they voted in. Of course entrepeneurs deserve higher incomes, without them there is no job creation, no innovation, nothing that would raise the standard of living for the rest of the population. Why anyone can begrudge successful people is beyond me. Punishing success and rewarding failure is always the wrong answer.

    “I don’t like paying my electric bill or car insurance either. I pay all of them because I think I get value that improves my life and my family’s lives”

    And in those instances you only pay for what you consume. Now that seems like a fair system to me. You use it, you pay for it…

  9. Scott Says:

    The problem is in how those taxes are evaluated — it is not like someone starts a company, has success, makes a lot of money and then discovers they have to pay a higher tax burden.

    Almost every successful start-up company you have heard of went to an investor — and achieved success with that investor’s money. That is to say, the value they delivered was not in regurgitating some sort of “existing knowledge” but instead the kind of return they were able to generate on that investor’s capital. That is how value for these companies is determined — and part of that upfront calculation is the tax impact.

    For these entrepreneurs, they don’t decide to not start a company because they will have to pay the taxes — the presence of those taxes/government regulations lowers the risk/reward burden by lowering the potential reward or increasing the potential risk to a level that makes the project unattractive to an investor that would loan them the money or invest in the project.

    I have worked with companies with capital-gain intensive projects and for those projects increasing cap gains taxes from 15% or 20% to ordinary income rates makes Uncle Sam the largest partner in the project, and he gets the highest return without assuming any of the risk of the other partners. That both reduces the return and increases the risk for all other partners, discouraging them from proceeding.

  10. Buzzcut Says:

    Jim, nice post. Regarding health “insurance”, don’t we really have a tax avoidance scheme posing as insurance? Why on earth should I be insulated from the $100 or so it costs to see a doctor? Why shouldn’t I pay that directly? Why should insurance pay for medicine instead of me directly?

    If health insurance worked more like car insurance (the deductibles are high enough that routine maintenance and other minor things are not covered), health care inflation might not be so rampant.

  11. Buzzcut Says:

    Michael, I think that as taxes have come down over the last generation or so, more and more people are like you. Taxes ARE less of a concern than “health, pollution, good roads & airports, global warming threats, education to name a few”.

    But that’s only for people in, say, the 28% tax bracket and under. And that’s only now.

    In the future, where that tax bracket goes higher, and where payroll and state income taxes are much, much higher, maybe taxes become more important to people like you.

    And when those taxes go to pay for the retirements of people who have more wealth than you do, or for the health care and welfare of people who work less than you do, or roads in Congressional districts that you don’t live in, or to educate people who are perfectly capable of paying for it themselves… well, what are you really getting for your taxes?

    BTW, whatever your thinking on global warming is, imposing carbon taxes here (and Europe, and Japan) isn’t going to do a darn thing if India and China aren’t on board.

  12. Scott Says:

    Buzzcut-

    The irony is our scheme of paying for medical care is an historical accident. During WWII there were wage controls but workers were in high demand; to remain competitive, Congress permitted employers to deduct the cost of health insurance to make employee compensation more attractive when wages couldn’t be increased. That is why today your employer can deduct the cost of insurance but you cannot if you pay for it yourself.

  13. Buzzcut Says:

    Yeah, if Obama wants to raise taxes, besides phasing out home mortgage interest and charitable contributions, how about making health insurance a taxable benefit?

    Back in the ’80s, there was a big push for tax reform that revolved around broadening the tax base by eliminating deductions, while at the same time lowering rates. That’s the kind of “compromise” I could get behind, if only Obama would go in that direction.

  14. Swordsman Says:

    Honestly, Jim and Buzzcut, if I wanted to hear GOP talking points, I’d be on Seanhannity.com not creativeclass.com.

    It’s really old.

  15. Troy Camplin Says:

    Here’s the problem with the “stimulus.” The current economy is going through a transition state. It is moving from one kind of economy to another. That is what happens during recessions. As changes accumulate in a stable economy, it becomes unstable, a shift occurs, and the economy leaps into a new stable order. The economist Joseph Schumpeter called this process “creative destruction,” and it is a key feature of free market economies.

    During recessions, the “destruction” part becomes all too apparent. Still, it is necessary if the “creative” part is to occur at all. Recessions can be compared to an arborist cleaning up a bush. The deadwood has to be cleaned out to allow new growth to occur. When that deadwood is removed, the bush will look worse for a while, full of holes, drooping here and there – but after a while, new growth fills in everywhere, and the bush is stronger than before.

    From this perspective, it seems odd to want to keep the growth-stunting deadwood around. Which is, after all, what the bailouts, started by Bush and being continued by Obama, are doing, and were intended to do. This kind of bailout of industries whose timely end has come is thus conservative in the truest sense of the word: it is intended to conserve the status quo. Unfortunately, such measures are made at the expense of what is now succeeding, slowing that success and, thus, delaying economic recovery. Worse, those who made bad decisions, who are failing, are being rewarded for their bad decisions and failures at the expense of those making good decisions and succeeding.

    The consequence of all this is a delay of the next phase in our economy and, thus, of our economic recovery. At the same time, many elements of the new economy, such as health care and education, are in danger of stagnation precisely because of the dominance – and increasing dominance – of the government in those very areas. The drop in educational outcomes coincided wit the creation of the federal Dept. of Education, and has gotten worse the more we have funded it. This should make us at least question the value of federal involvement in serves and the economy. I am convinced that the arts, too, will become increasingly important, but the same people who rightly complain that our schools are driving out the arts are begging for the creation of a Secretary of the Arts. They do not realize it is the very people they want to put in charge who do not think the arts are a valuable part of education. Therein lies the problem. In a free market economy, you can make choices based on your values; the more the government becomes involved, the more you have to submit your values to the values of others. Such dominating ideology does not have a proper place in the marketplace, where people are freely exchanging value for value.

    The real danger for our economy thus lies not so much in conservative efforts to prevent change, but in the fact that the federal government already controls so much of what will become the basis of the future economy: health care, education, and the arts. The places where true creativity, innovation, and growth will occur will be those places where there is little to no government presence. The best hospitals are private hospitals, not V.A. hospitals. Inexpensive health care is being provided to the poor in many places by clinics that refuse government-mandated insurance, Medicare, and Medicaid and deal only in cash. Our best schools are our private schools, not our public schools. The best, most innovative art and performances are found in private galleries and playhouses, not in those receiving government subsidies. Indeed, we are fortunate the arts receive so little federal support – it is why we have such a vibrant arts scene, in comparison to places like Europe, where the arts receive much greater subsidies. Subsidized art creates two dangers: art by committee, and the funding of those who play at being artists because it’s better than working for a living. True artists are in fact some of the world’s hardest workers. Subsidized artists are some of its laziest. The last thing we need to do to the burgeoning arts economy is to treat it as we do the farm economy, paying people to grow crops nobody wants, or to not grow anything at all.

    The good news is that the “stimulus” package just passed by Congress has so little to do with the current economy that it will likely have little effect on it. The bad news is that it federalizes much of what was likely to have become the new economy. If history is any guide, that does not bode well for the economy over the long term.

  16. Jim H Says:

    Swordsman,
    You might not like our views, and yes you and I are diametrically opposed, but if we leave, this site just becomes one big dump of group think. I’m as sick of hearing the liberal agenda as you are the conservative view.

    I’m here because I believe the creative class and sorting are real developments, and it would be a shame for any new readers to stumble unto this site and assume you have to be liberal to be a part of the creative class.

    I’d be happy to debate you on your blog, but I’m not going to invest my time with someone who has to write a blog anonymously.

  17. Swordsman Says:

    Jim, that’s great and all, but somehow, I think repeating the same policies that got us into this mess in the first place is not much of a solution.

    Besides, it’s not just about YOUR money. It’s about what we all get for the taxes we pay.

  18. Swordsman Says:

    Oh, and honestly to both Jim and Buzzcut, it would be awesome if you guys both tried to stop attacking or implying people are stupid, “blind”, etc. with every single post.

  19. Michael Wells Says:

    Buzzcut et al,

    My question (#6) was less about the arguments for and against income taxes, which we probably disagree on, as for why taxes and “redistribution” constantly come up — regardless of what the topic is. Combined with the certainly that if they only saw the light, high income people would use taxes as their number one issue in voting. This obsession, as I called, seems similar to that of fervent evangelicals with the second coming, or old-time marxists with the inevitable revolution.

    I may tend to hand out mostly with liberals, but aside from that I don’t think my circles are all that limited. And while I’s sure that occasionally I’ve been in discussions about taxes, its rare. And when the topic of discussion isn’t taxes, taxes just don’t come up. This is with people of all walks of life. When I mentioned high earners above, I wasn’t talking about the 28% tax bracket, but people with six figure tax bills.

    Buzzcut. When you hang out with friends, do you all talk a lot about taxes? Because I don’t and this blog is the only place I see it and it genuinely interests me.

  20. hayden fisher Says:

    Government should leave taxes low and lend directly to entrepreneurs, thereby generating revenue via interest payments. Government needs to be a financial non-operating partner deriving revenue from entrepreneurs and affording them access to the capital they need. If it did, we would have more federal revenues to spend on worthwhile societal projects and more new business creation; without raising taxes.

  21. Swordsman Says:

    I don’t think high taxes or low taxes mean a thing when it comes to growth nor creativity. One of the most creative places on the planet is Copenhagen. Another is Amsterdam. Do the math.

    Clinton raised taxes in 1993. The economy took off and so did creativity.

    San Franciso and New York and Boston are all creative hubs. Bismarck, ND not so much.

    I do agree with Michael that conservatives resent taxation, almost as an obsession. Rich people actually DO benefit more from taxation as do corporations, Jim got that terribly wrong.

    There are legitimate criticisms to be levelled at the President’s stimulus package and budget from a creative class point of view.

    Taxation is not one of them.

    Buzzcut mentioned “confiscatory levels” of taxation. Huh? The top marginal rate in this country was 91% under Truman and Eisenhower and was 70% for the 1960s and 1970s. Obama plans to raise the top marginal rate from 35% to 39%. And that’s just taxing what you make over $250,000 a year. So if a millionaire wants to get incensed about this tax increase (and really, it’s a tax cut repeal), let’s look at some figures. The millionaire likely can take deductions us mere mortals don’t get, but let’s put that aside for now. The millionaire gets taxed an additional 4% on $750,000, which means he pays $30,000 extra in taxes under Obama than he did under Bush, which is an effective tax increase of 3%. Yes, they’re getting upset over paying 3% more in taxes.

    Meanwhile, Bush’s tax cuts blew a $1.3 trillion hole in the budget and Obama inherited a $1.7 trillion deficit. Makes you think. Or, if it doesn’t make you think, maybe it should.

    True fiscal conservatives, if there are any left, would have objected to Bush’s tax cuts MORE than Obama’s stimulus package. The current people I see attacking the stimulus package were all in favor of the tax cuts, so the idea that somehow they are for fiscal discipline or that they really care about the deficit or future generations is pretty hollow. What they care about is their own bank account and nothing more.

    By the way, creativity can and does occur with government funding. The idea that government somehow is going to “control” health care, the arts, and so forth as described by Troy is pretty out there. No one is proposing a Ministry of Health, a Ministry of Art, etc. The vast majority of R&D in this country is done with funds provided for by the federal government. You can find that little factoid in Richard’s first book.

    Health care as a taxable benefit and tax cuts in general make a big assumption: that there are actual jobs. Currently, there seem to be fewer and fewer. Furthermore, making health care taxable means that fewer people could afford it, and merrily we go into the third world.

    One last thing: Buzzcut mentioned Jim Cramer. I have absolutely no idea why. If I had $10 million and invested it the way Cramer said to, I’d have $1 million left. The man said there is nothing wrong with Bear Sterns 6 days before it collapsed. He said the same thing about Lehman Brothers. Anyone still listening to Cramer needs to re-think their viewing habits.

  22. Buzzcut Says:

    Michael and Swordsman, obviously I totally don’t understand where you’re coming from, and I appreciate it when you explain your thinking. If I said “stupid” or “blind”, let me take a step back and just say that perhaps it is me not understanding where you guys are coming from. Thanks for taking the time to reply.

    Michael, that is an interesting point regarding who I talk taxes with. Mostly people who are entrepreneurs making over $150k, which is when all the “goodies” in the tax code (child tax credit, mortgage interest deduction, etc.) get phased out.

    Maybe it’s just the difference between being a wage slave and being a business owner. The wage slave gets his taxes deducted. He doesn’t even know what his tax rate is. His employer pays half of his payroll tax. Investing happens in a tax free account. So, yeah, it’s hard to talk taxes with someone who for all intents and purposes doesn’t even know that he’s paying taxes!

    For the entrepreneur of the growing business, cash is king. Cash funds growth. Taxes take cash away from the business, and thus curb growth.

    Swordsman, regarding confiscatory levels of taxation, if you’re an entrepreneur in California in the top bracket, you’re pretty much there. 35% income, 15.5% payroll, and 10% state. That’s well over 50%. I would say that 50% is the magic number between confiscatory and nonconfiscatory tax rates.

    Regarding that 91% bracket, I’ve read that it was implemented by Roosevelt to stick it to John D. Rockefeller. The first year it was implemented, Rockefeller was the only person to be subject to it. Not sure about later years.

    Can the government be creative? What incentives do government bureacrats have to be creative? I know that you’ve given the example of grant driven university research, but is that really a successful system? Yes, some universities do it well (Stanford, mostly). But I come back to Richard’s example of Case Western to show that a lot of that money never really amounts to anything. My university (SUNY Buffalo) is similar to Case, they get a lot of research money, but somehow it never really benefits the wider community, nor are any big companies spun off.

    I was reading some blog somewhere about how a significant number of young people in San Fran are employed by grant funded non-profits. Is that a sustainable economic model? Is that what we want young people really spending their time on?

    The only reason I mentioned Cramer is because it was a good rant, and he is a Democrat. I don’t take investment advice from the man, but do find his show entertaining on my evening ride home. He can rant with the best of them. It is an undervalued skill.

  23. Troy Camplin Says:

    Clinton raised taxes when the economy was already doing well, so it didn’t harm the economy. The economy didn’t take off because of the tax increase. It took off, and then there was a tax increase. You don’t raise taxes during a recession — the last thing you want to do is remove money from the economy during a recession.

    Also, I find it a real joke to say that rich people or corporations pay taxes at all. They don’t. The cost of their taxes get passed down in price increases for the consumers.

    BTW, Swrodsman, perhaps you haven’t heard of the Dept. of Health and Human Services? Or the Dept. of Education? Or the proposal for a Sect. of the Arts? Or of Obama’s proposal to cut the tax break for charitable giving, whose only purpose at this time, when charitable giving is low, would have been to deal the death blow to many if not most charities? Or of Obama’s proposed abortion legislation that would force doctors and hospitals provide abortion services, and would thus result in the shuttering of over 600 Catholic hospitals nationwide (why else do this but to precipitate a real health care crisis, esp. among those who had been providing care to the poor)?

    I can see the consequences of the last two proposals clear as day. Now, that means that either Obama and his team are either the most ignorant bunch to ever set foot in the White House, not understanding the consequences of their actions, or they do in fact know what they are doing, what the consequences of their actions will be, and in fact intend those consequences to legitimate further government control. Now, which is it?

  24. Jim H Says:

    Swordsman-
    “The millionaire”
    How many times did you throw that around? Why are you obsessed with people who have more money than you? Is it hate, is it envy? How about getting out there and making you’re own success and stop begrudging other people’s?
    You and class warfare types like to wage war against some invisible evil (and probably in your mind white) man that has money to burn, all the while not realizing that there just aren’t that many RICH people to begin with. You continually fail to see the collateral damage of fighting these “millionaires” that will ultimately result in the destruction of jobs. I don’t know about you, but I’ve never been employed by a poor person. Most people with tax returns over $250k are business owners, and only “millionaires” on paper, not lifestyle. And these are the people you can’t stand?

    “Rich people actually DO benefit more from taxation as do corporations”
    Excactly how? I’ve seen NO explanation that held water on that statement. As has been pointed out above – corporations don’t pay taxes – individuals do. Corporations are just conduits between you (the individual) and the government (the recipient).

    “True fiscal conservatives, if there are any left, would have objected to Bush’s tax cuts MORE than Obama’s stimulus package”
    I’m a fiscal conservative and I objected to Bush’s SPENDING. Tax cuts are always the right answer.

    “it would be awesome if you guys both tried to stop attacking or implying people are stupid, “blind”, etc. with every single post.”
    I’m sorry I forget how emotional you liberals are.

  25. Michael Wells Says:

    Buzzcut and Jim H,

    Thanks for the responses, I’m getting some of my question answered. I think if we start with the idea that we’re all intelligent people with philosophical differences the discussion is much more interesting.

    I’m fascinated by how the seeming same demographic economically can be different politically, and how we tend to reinforce our own ideas (see The Big Sort). Also how we jump to conclusions. Many of my friends are self-employed business owners and the ones I referred to in this discussion are all over $150 K income but we don’t talk taxes much, nor worry about them much of the time. There may be a little grumbling around quarterlies time but it’s not in the top 10 topics of discussion. I haven’t worked for anyone else for more than 20 years and believe me, I know what my tax rate is.

    There are two interesting books about millionaires. The better known “The Millionaire Next Door” which talks demographics and “The Middle Class Millionaire” which focuses on how somewhat rich people influence the culture more than the very wealthy.

    Jim. The comment “tax cuts are always the right answer” is what I’m trying to tease out. In my experience an answer depends on what the question is. My automatic response to this comment is that you’ve got a closed mind. But maybe we just ask different questions.

  26. Buzzcut Says:

    I’m fascinated by how the seeming same demographic economically can be different politically, and how we tend to reinforce our own ideas (see The Big Sort).

    Me too. My neighborhood is pretty high end, and has a reputation for being Republican, but I’ve been checking who gives to what candidates, and Democrats make out like bandits. Republicans have no lock on high income earners, and I’m having trouble understanding it, despite all your help.

    I’m trying not to be closed minded!

  27. Michael Wells Says:

    Buzzcut,

    I think we probably ask different questions. I’d guess that the Democratic contributors you find have different priorities, with taxes being not unimportant but not in their top 5 issues.

    I also think, at least among people I know, that the Republicans have lost some of the upper income group with the drift far right. I remember talking to a friend probably 10 years ago, the founder and CEO of a $100 million company. He said he had been a lifelong Republican and had not thought much about it. But he realized it had been over a decade since he had voted for a Republican candidate (and this was pre-Bush). I expect he gives to Democrats, however he’s registered.

  28. Swordsman Says:

    Buzzcut, I totally appreciate your input, and good points on your last two posts. I must say, there are quite a few times on here I have agreed with your points wholeheartedly, so while I may self-identify as a left-leaner, I don’t fit the stereotypical model. Heck, there are only a few people I know who are 100% liberal or 100% conservative on every issue and…well, let me be charitable and just say that we’re not dealing with well-adjusted people here.

    FDR’s 91% tax rate lasted until, IIRC, JFK took over. This country somehow managed to grow quite nicely with a 91% and then a 70% top marginal tax rate. Now, let’s keep in mind, no one actually paid 91% or 70% taxation, and no one really pays 35% now. There’s still a heck of a lot of deductions that are available.

    PLUS, and this is important, we’re only talking income tax here. Everyone gets hit with payroll taxes, property taxes, sales taxes, and the like, and a lot of those are downright regressive and target the poor far more than they do the rich, as a percentage of their own wealth that they must pay.

    I guess I qualify as a “wage slave”, but that seems somewhat demeaning. I know perfectly well what my overall tax rate is, and while I’m not a huge fan of paying taxes, my concern is THAT I GET MY MONEY’S WORTH. I know that I need to pay taxes to support government, and that it isn’t just MY MONEY that I’m dealing with since government has afforded me an awful lot that I have taken advantage of getting to where I am. And so has everyone else.

    I must say, I think Cramer is a fool, period. And I can back that up. In fact, if we did precisely the opposite of what the man advocates, we’d probably be doing quite well. :)

    Buzzcut, I also want to say I value you as a poster here, and value your perspective when it is expressed this way, as I really don’t want to just get one side of any argument.

    Take care,

    Swordsman

  29. Swordsman Says:

    Troy, your argument vis a vis Charities is incorrect. Stop listening only to John Boehner:

    http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aRLx2HwnWyWs

    Raising taxes during a recession? Hmmm…. looks like Clinton actually did to that, and so did FDR.

    Taxes have zilch to do with anything other than collection of revenue. As long as they are between about 30% and 50%, there’s not much change as to spending, etc.

    I agree that corporations pass on their taxes to consumers, and therefore wouldn’t mind lowering our sky-high corporate tax. But the idea that the rich pass on their taxes to consumers – maybe you could let me know how that is supposed to work.

  30. Swordsman Says:

    Jim H, until you stop questioniong my motivations and attacking, there can be no dialogue. Period.

  31. Troy Camplin Says:

    I didn’t get the information from Boehner. But let’s look at the quote from the article: “altruistic or religious motives outweigh tax-shelter considerations among such donors”. Notice the caveat, “among such donors.” That means, among those who donate for altruistic and religious motives. But it does affect those who donate for the tax relief. And the number of people who do so — at least in part — is likely to be higher during a recession.

    Clinton did not do it. The economy was in recovery the last quarter of the first Bush administration. And the result of FDR doing it was to extend the Depression for years. While unemployment did go down from about 25% to 8%, it then rose again to 15%, and showed no signs of going down, except that we entered WWII and sent more people to war than were unemployed. FDR even criticized Hoover’s policies for having put the economy in a depression, then adopted them almost verbatim. Much like Obama’s doing now with the nonsense Bush did right before he thankfully left.

    Taxes can affect the way people spend their money, where it’s spent, etc. There is a certain amount of social engineering to taxation, or else we wouldn’t have the system we have now. It’s not the system that would produce the most revenues, and the politicians know it.

    The rich have their salaries paid by the corporations they work for. They are compensated in such a way as to make up for the taxes paid, which is then translated into a cost for the company, which is then translated into a cost for goods for consumers. The rich don’t pay taxes. Only the poor and middle class do.

  32. Swordsman Says:

    Troy, the idea that FDR extended the Depression for years is just bunk.

    See: http://www.ourfuture.org/blog-entry/2008104430/amity-meet-eric

    and
    http://www.prospect.org/cs/articles?article=learning_from_the_new_deals_mistakes

    So, no. The unemployment spike you cite was in 1937-1938 when FDR figured the worst was over and relaxed Depression era spending because he listened to the Boehners of his time. They were wrong, and he quickly reinstated work programs, etc.

    Hoover only started spending and adopted Keynesian economics in 1932, after trying to cut spending and listening to monetarists from 1929-1931, which is what the Right again wants to try. Didn’t work then, won’t work now.

    Many rich, in fact, perhaps most of them, are not paid by corporations, so the idea that they pass on their personal expenses to consumers is not credible. How does a hedge fund millionaire pass on his debt to consumers? He doesn’t.

    First we hear that the rich pay more taxes than everyone else, and then we hear that the rich don’t pay taxes, that the poor and middle class do. The rich pay an extraordinary amount of taxes in this country, and they still don’t pay an equivalent percentage of the wealth they actually own.

  33. Buzzcut Says:

    Regarding the “other” taxes we pay, state income taxes are not regressive. Payroll taxes aren’t either, although I understand why you’d think so, as they are capped. But that doesn’t mean the poor pay more, which is the true measure of regressivity.

    Property taxes are not neccesarily regressive either. Home values, and thus property tax assessments, are highly correlated to income.

    Sales taxes may be regressive, although in my state “essentials” like food are exempted from sales tax.

    Regarding the 35% bracket, with all the phaseouts for child tax credits, mortgage interest deductions, charitable contributions, etc. etc. etc. anyone with an income over $150k is paying a marginal tax rate MORE than 35%! This is the exact opposite of the situation when we had 91%, 70%, and 50% brackets, where there were deductions all over the place, and indeed no one paid those tax rates, except for John Rockefeller.

    Swordsman, if you’ve got a copy of turbotax, set up a ficticious return at, say, $175k and see how much people really pay. It is eye opening.

    Hey, I’m a wage slave too, at my day job at least! It’s a term of endearment, not a put down.

    I agree with Swordsman about the Clinton (and Bush I) tax increases. They were ill timed, and caused job growth after the ‘91 recession to be very poor. We forget, but ‘91 through probably the end of ‘95 were not exactly a roaring economy. That, in part, is why the Democrats lost Congress in ‘95.

  34. Buzzcut Says:

    The rich pay an extraordinary amount of taxes in this country, and they still don’t pay an equivalent percentage of the wealth they actually own.

    What does that mean? You’re advocating a wealth tax?

  35. Troy Camplin Says:

    You need to read less history written by neo-Marxist liberals and more economic history, Swordsman. Not that this guy is an economic historian or an economist, but try this piece on Hoover:

    http://townhall.com/columnists/JonahGoldberg/2008/10/03/hoover-era_ghost_stories_no_longer_apply

    Here is an article, though, by two economists on the Great Depression:

    http://online.wsj.com/article/SB123353276749137485.html?mod=todays_us_opinion

    Economists have a very different version of what happened leading into and during the Great Depression. Certainly cutting the money supply, as FDR did, was idiotic — but merely reversing Keynes isn’t going to do it. It needs to be repudiated completely. Keynesian macroeconomics has been a disaster, getting everything backwards. HIs model is based on the idea that you can fool everyone in the economy into thinking things are better than they are. Want a strong economy? Just print more money! Except, when people catch on to you, you get a recession with inflation, as we learned in the 1970’s. After all, it was Nixon who said, “We are all Keynesians now.” It was also Keynes’ ideas that led to the massive deficit spending of the last few decades. Yes, it will result in strong economic growth for a while, but eventually your chickens will come home to roost.

    The vast majority of the rich are paid by businesses or corporations. They own or run them. Almost nobody, except the Kennedys, are just sitting around with lots of wealth refusing to do anything. Actually, the country would have been much better off if the Kennedys had in fact done that rather than playing at their favorite hobby.

  36. Michael Wells Says:

    I’d like to address the charitable contribution question. This is my field and I often see the misconception that people give for tax deductions as an economic decision. In fact, nobody makes money by giving money away. Let’s assume someone in the 35% tax bracket with an extra $200 income. If they keep the $200 they pay $70 taxes and end up with $130. If they give $100 to charity they reduce their taxable income by $100, so they pay $35 taxes and end up with $65. So their cost for the $100 contribution is $130 – $65, or $65. A benefit, but not a net gain.

    People’s initial impulse to give may be charitable, religious, recognition, status, social obligation or whatever, but it’s not to make money. BUT once the decision is made, most upper income people will look at the tax consequences of a large gift and this may impact their decision of how much to give, rarely whether to give. Without a tax deduction, they may decide to give what their actual cost would have been and give $65 instead of $100.

  37. Swordsman Says:

    Why Jim Cramer is a fool: http://crooksandliars.com/media/play/wmv/7532/26565

    Not safe for work, children, and probably any carbon based life forms.

  38. Swordsman Says:

    Buzzcut, if you want to blame Clinton for 93-95, you have to blame Reagan for 81-83. Fair’s fair.

    State income taxes are not regressive, true. Well, according to this chart I have, actually some of them ARE. But they’re a minority. Property taxes and Payroll taxes ARE regressive in my book, because the average poor guy or lower middle class guy pays a higher percentage of his overall wealth towards them. And that’s really what we’re talking about here – no one actually thinks that both Bill Gates and Dustin Diamond should both pay $500.00 in taxes for 2008. Even the Fair Tax people (and goodness, let’s NOT get sidetracked there) would say that both Gates and Diamond should pay an equal PERCENTAGE, not an equal AMOUNT. So it is a game of percentages.

    Buzzcut, explain to me though how a top marginal tax rate of 35% equates to a HIGHER tax rate for ANYONE. That’s the highest tax rate. As far as I know, period. I agree there are fewer deductions now than there were, but that just means that the 35% aren’t paying 25% or 30% on that final amount. Furthermore, the 35% tax bracket doesn’t kick in until you make an income of over $350,000. 33% doesn’t kick in until you make an income of over $164,000.

    I will submit that there are marginal brackets as there always are and always have been, in other words that you get extra-hammered if you JUST BARELY make it over the hump into that bracket. Yes, if that happens, you’re pretty much screwed. But that’s also true if you make $32,551 since the 25% bracket starts there. And somehow, I’m not crying for the guy making over $350,000 a year anyhow. He should try making it on $15,000.

  39. Swordsman Says:

    [i]The rich pay an extraordinary amount of taxes in this country, and they still don’t pay an equivalent percentage of the wealth they actually own.

    What does that mean? You’re advocating a wealth tax?[/i]

    I wasn’t when I said that, but I certainly will if you want. I think a wealth tax would be far better than an income tax. After all, we WANT people to work, after all.

    No, I was obliquely referencing an untruthful meme that pops up from time to time about how the rich pay xx% amount and oh-my-gosh-isn’t-this-amazing-they-do-so-much-for-us, but in reality the rich own xx+xx% of the economy, so they are getting off light. I don’t have the actual percentages in front of me, but the argument (and the response) goes something like this:

    “Oh, wow, the rich pay 69% of all taxes in the entire country.”

    “Yeah, since the bracket you reference actually owns about 85% of the actual income in the country, they’re getting off light.”

  40. Swordsman Says:

    Troy, thanks for nothing.

    First, Jonah Goldberg is not a historian. He is, to put it very mildly, a hack. He is not even a responsible journalist, although in this day and age, that isn’t even hard. I have two degrees in history, Mr. Goldberg majored in English. He has never had a real job but has used his mother’s name to get ahead. This is a man who equated Hitler with Stalin because both are dictators obviously both must be Leftist. In Goldberg’s insane mind, there is no fascism on the right. Franco, Mussolini, Tojo, etc were all Leftists, despite themselves proclaiming they were conservatives, all being in league with conservative elements, and doing everything they could to fight Communists and Leftists.

    Second, your link to “economists” is the same study that my previously posted link demolished and debunked.

    Please try reading my links more thoroughly before attempting to refute them.

    Third, I am not a Marxist. As far as I know, I’ve not read any Marxist economist literature. I did read Marx back in college, but also read Proudhon and Blanc, two people you probably have never heard of, and in the meantime have read Friedman, Rand, and Hayek, which I guess makes me an objectivist, if who I read is a determining factor in my ideology.

  41. Troy Camplin, Ph.D. Says:

    I never said Goldberg was a historian. Doesn’t mean he can’t learn his history, though. I have heard of Proudhon (there’s no need to be either arrogant or condescending here to someone with a Ph.D. in the humanities). You need to go back and read your Hayek. And your Mises. The Austrian account of what happened in the Great Depression and what they say about the general causes of the business cycle are much closer to reality than are the fantasies of historians with an ideology to promote. Lord knows, just because your links “refuted” the article, that doesn’t mean anything of the sort actually happened. If people want to believe mythology rather than facts, I guess there’s not much one can do. It is sad the state of historical studies, dominated as it is by ideology rather than some sort of attempt at objectivity (and spare me your tired postmodern objections to the possibility of historical objectivity — especially when dealing with fairly recent historical events).

    Fascism is a kind of socialism. It is right-socialism, but socialism all the same. National socialism even announces it right there in the name. The only difference between fascism and communism is that more people died under communism. When it comes to socialism, right and left don’t mean much except in relation to social ideology — and even then, the outcome is essentially the same. Political correctness is a leftist ideology, but it’s developed out of the philosophy of the Nazi philosopher Heidegger. You should read your Wolin — The Seduction of Unreason and Heidegger’s CHildren.

  42. Swordsman Says:

    Troy, well done. I shall read Wolin. But you need to also read the history of Naziism. Just because it says “socialist” in the title of a party that by the time it gained power was conservative does not make it so.

    I mean, is the People’s Republic of China for the people or a Republic? In any sense of the word? No.

    But that’s basically Goldberg’s entire premise. Like Cramer, he’s a fool, and figures if he repeats something stupid long enough, he’ll get enough people to believe it.

    The von Mises school is not the answer to everything, Troy. Neither is any other economist or philosophy. Seriously, it would be great if we could debate the relative merits of various plans (as Buzzcut and others are doing) without resorting to ideological arguments.

    Your “facts” do not impress me as they have already been tested and found wanting. Sorry.

  43. Buzzcut Says:

    Regarding the true marginal tax rate, if you’re in the 28% bracket, and every additional dollar you make is getting taxed at 28%, plus you are losing credits and deductions on a dollar per dollar basis, your marginal tax rate is far more than merely 28%.

    Does that result in you paying 28% of your income in federal income taxes? I don’t know. I’ll have to run the numbers and see.

    Regarding payroll taxes, one reason that Socialist Insecurity has been so popular for so long is that it had maintained the veneer of an “earned benefit”. Your benefit is based on how much you paid in, like a pension.

    Now, if we uncap the tax and make benefits completely unrelated to what was paid in (which is what is required to make it solvent), then it becomes undistinguishable from welfare, and support for it will undoubtedly drop.

  44. Michael Wells Says:

    Buzzcut,

    In a few minutes I’m going to deliver Meals on Wheels. Most of my “clients” are disabled and would probably be homeless without SSI or SSD. Back a few years I had a different route which was mostly old folks, and most of them lived solely on Social Security. Most of them couldn’t have worked any more either.

    My mother, who’s in Assisted Living with Alzheimers, is working class and had a full time office job until she was 82. Social Security pays about half of her rent. She’s in a wheelchair and couldn’t live with us unless we moved into a one level house and had full time live-in help. I suppose she could have invested the same amount of money herself, but she never really understood what a stock was.

    When Social Security came into being in the ’30’s, most people had no retirement and to be old mostly meant to be poor. Of course, much of the middle class had been wiped out by the Depression.

    My understanding is that Social Security isn’t really in trouble, Medicare is, and they get lumped together. When Lyndon Johnson lumped Social Security into the general fund he did the country a great disservice. (No, I don’t believe everything bad started with Reagan).

    So I think focusing on Social Security solely in terms of taxes is way too narrow a point of view.

  45. Sven Says:

    Wow! what an idea ! What a concept ! Beautiful .. Amazing