August 04, 2004

A Primer on Fiscal Policy

David Wessel tries to make sense of the Bush administration's stance on fiscal policy:

WSJ.com - Capital: President Bush offered this attack on... Kerry: "He said he's only going to raise the tax on the so-called rich.... But you know how the rich is: They've got accountants. That means you pay. That means your small business pays. It means the farmers and ranchers pay."... What did he mean?

"He's only going to raise the tax on the so-called rich."

True. The candidates differ sharply on how heavily to tax Americans with incomes above $200,000 a year. President Bush wants a top marginal tax rate of 35%. The Democratic Mr. Kerry would boost rates to 39.6%.... He'd use the money to expand access to health insurance....

"You know how the rich is: They've got accountants. That means you pay."...

Quips Jason Furman, a Kerry economist: "If the most fortunate weren't paying taxes in the first place, why did they need the Bush tax cut?"...

The latest academic work suggests that lifting the top tax rate to 39.6% from today's 35% (which works out to a 7% decrease in such taxpayers' take-home pay at the margin) would reduce taxable income in that bracket by about 4%. Overall, though, the government still is likely to come out ahead, as the gush of tax revenues after the 1993 tax increases suggests....

The president, Ms. Buchan explains, means that "the so-called wealthy" can afford to hire accountants but "small businesses, farmers and ranchers who are organized as Subchapter S... would nonetheless be subject to the tax increases."... But the bulk... don't make enough to fall into top brackets.... I've never understood the case for taxing a farmer, rancher or small-business owner who clears $500,000 differently than a corporate executive, lawyer or ballplayer who earns $500,000....

[The] conservative case... is hard for Mr. Bush to make. "If you want the efficiency of smaller government, you have to have smaller expenditures and smaller taxes at the same time," says... Eugene Steuerle, a Reagan tax official.... Mr. Bush is guaranteeing tax increases in the future, Mr. Steuerle argues....

Posted by DeLong at August 4, 2004 08:34 PM | TrackBack | | Other weblogs commenting on this post
Comments

Eugene Steuerle, whoever he may be, joins the limited ranks of honest conservatives! Bless him....

Posted by: howard on August 4, 2004 09:20 PM

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Every time the Republicans say that Kerry is going to destroy small businesses, all the Democrats need to do is hammer home the point that only 4% would be affected. They need to make say this as much as the Republicans are saying "$87 billion."

Posted by: Brian on August 4, 2004 10:00 PM

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Bush fiscal policy boils down to "Ignore the problem. Maybe it will go away." In an administration where the top guy does not want to hear bad news and cannot be trusted to make competent decisions due to lack of knowledge, how can those tough choices of "funding x but not y" be made? The Bush administration will avoid addressing the issue until absolutlely forced by outside pressure.

Posted by: bakho on August 5, 2004 07:00 AM

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Kuttner has some good ideas that would work for Kerry but Bush would never approve.

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2004/08/04/digging_out_of_bushs_tax_cut_hole/

Posted by: bakho on August 5, 2004 07:17 AM

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howard wrote, "Eugene Steuerle, whoever he may be,..."

He's a tax policy guy...and currently one of Kerry's top advisers...

Posted by: liberal on August 5, 2004 09:01 AM

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This in an incredible admission and should be proclaimed from the rooftops: "Bush admits rich screw middle class."

Posted by: General Glut on August 5, 2004 11:21 AM

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And all this "small government" guff is coming from George Bush, author of a drug program which is a half-trillion dollar give-away to the pharmaceutical companies...

Posted by: David Lloyd-Jones on August 5, 2004 11:28 AM

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"all the Democrats need to do is hammer home the point that only 4% would be affected"

no no no. People don't understand percentages. Remember the message is aimed at those who won't pay the extra tax but fear they might : -
"If you make over $200 000 after all your deductions, you'll be affected. That's only fair".

Posted by: dave heasman on August 6, 2004 07:26 AM

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"The latest academic work suggests that lifting the top tax rate to 39.6% from today's 35% (which works out to a 7% decrease in such taxpayers' take-home pay at the margin) would reduce taxable income in that bracket by about 4%. "

That's another way of saying economic activity in that bracket is reduced 4%.

Gack. We need a top rate of 25% or LESS, not these overly high tax rates that hurt the economy.

Cut the spending and cut the taxes.

Kerry is going in the wrong direction.

Posted by: Patrick on August 7, 2004 09:36 PM

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