There's been much Sturm und Drang in the last few days over the expiration of the Bush tax cuts and what Obama should do about it. Obama has made clear that he wants a middle class tax cut AND that he opposes the Bush extension for the upper income brackets--but shortly after the November spanking, he backed off and started to signal a compromise position. He may be feigning an effort at decoupling the cuts, but many progressives are afraid he'll ultimately cave and compromise with an temporary extension of Bush's cuts OR worse with a permanent extension.
Most of the DC conventional wisdom wraps the debate in broad strokes like so:
Either Obama
- Lets them expire - causing political damage and uncertain economic harm (I've of the mind that it really wouldn't be that big a deal economically, but a bad thing politically)
- Compromise with a temporary or permanent extension of Bush's radical tax cuts for billionaires and above(ugh)...
Robert Reich presents a third way, a much more palatable compromise which would include the top 99% of income earners and NOT bust the budget AND provide sweeping tax relief for 99% of our country.
http://www.readersupportednews.org/...
Yes, the President needs to acknowledge the Republican sweep on Election Day. But he can do that by offering his own version of a compromise that's both economically sensible and politically smart. Instead of limiting the extension to $250,000 of income (the bottom 98 percent of Americans), he should offer to extend it to all incomes under $500,000 (essentially the bottom 99 percent), for two years.
The economics are clear:
First, the top 1 percent spends a much smaller proportion of their income than everyone else, so there's very little economic stimulus at these lofty heights.
On the other hand, giving the top 1 percent a two-year extension would cost the Treasury $130 billion over two years, thereby blowing a giant hole in efforts to get the deficit under control.
Alternatively, $130 billion would be enough to rehire every teacher, firefighter, and police officer laid off over the last two years and save the jobs of all of them now on the chopping block. Not only are these people critical to our security and the future of our children but, unlike the top 1 percent, they could be expected to spend all of their earnings and thereby stimulate the economy.
Reich goes on to mock supply siders who are afraid that the top 1% will become disincentivized without their tax goodies. And well he should. The marginal rate would rise to a whooping 39%--no ones going to stop working at that rate. For those who actually want to play the game, Mr. Laffer's curve has been artfully studied by economist and most rational economist suggest that producitivity would only start declining well above that mark--approximately at 60%.
http://voices.washingtonpost.com/...
According to Emmanuel Saez, E. Morris Cox professor of economics, University of California at Berkeley:
The most reasonable estimates for e vary from 0.12 to 0.40 (see conclusion page 47) so e=.25 seems like a reasonable estimate. Then t=1/(1+1.5*0.25)=73% which means a top federal income tax rate of 69% (when taking into account the extra tax rates created by Medicare payroll taxes, state income tax rates, and sales taxes) much higher than the current 35% or 39.6% currently discussed."
According to another expert:
Joel Slemrod, Paul W. McCracken Collegiate Professor of Business Economics and Public Policy, University of Michigan:
I would venture that the answer is 60% or higher.... The idea that we're on the wrong side has almost no support among academics who have looked at this. Evidence doesn't suggest we're anywhere near the other end of the Laffer curve....
Naturally, Republican genuises like Pat Buchanan argue that the curve starts its bend right around 33% but I think his degree was in racism or skullduggery 101, and not economics. But even the conservative Kudlow puts it at around 40+% --above the 39% that's been recommended.
So arguments that a tax hike on the top 1% will someone reduce their incentive to work are empirical bullshit. And one has to ask frankly, if millionaires stopped 'producing' what would we actually lose? Fewer consolidation deals? One less hedge fund manager in the world. Okay, you know, I can live with that.