Why Obama's 'Tax Deal' Does Major Damage to His Case That We Need to Invest in America

Take a close look at the deal. Basically, it is an agreement to keep tax rates at the same level – for the very rich to the middle class (the poor fare worse). The Bush tax rates are extended. The expanded Earned Income Tax Credit and child tax credit is extended. Unemployment insurance is extended. Dividends and capital gains keep their special rate. The alternative minimum tax remains limited. None of these add a boost to the economy; they simply avoid constricting the economy. (Sadly, the only people facing higher taxes are families making less than $40,000 or individuals making less than $20,000, who will lose refunds they received from the President’s Make Work Pay refundable tax credit that wasn’t part of the deal).

Three elements are new. The unconscionable estate tax deform offers an average million bucks or so in extra tax breaks to the heirs of the wealthiest few thousand families in America – but even if there is an epidemic that lays waste to the elderly rich, it will have no effect on jobs.

The president’s team is touting the corporate tax break that allows companies to write off investments completely in the next year. But its effect on jobs is likely to be very limited. Companies are sitting on trillions in cash; they aren’t investing because they don’t have customers, not because they don’t have money. Worse, the larger companies are using much of their investment to build plants abroad where markets are growing. Unless carefully drafted, the measure will end up subsidizing them to ship jobs abroad.

The third measure is the payroll tax cut for employees. The administration touts this as “progressive” since it reduces the employees’ share of the payroll tax that applies to only the first $106,800 of income. But of course, those who make more get a greater tax break than those who make less – someone making the six-figure maximum will get a break about $2,100, a $50,000-a-year earner will get less than half that.

<Making a regressive tax more regressive is Obama's idea of 'progressive'???>

http://www.alternet.org/story/149125/why_obama%27s_%27tax_deal%27_does_major_damage_to_his_case_that_we_need_to_invest_in_america

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And now they are being told that again. So they will continue not investing until that time comes because they want to cash out while taxes are lower.

This deal is a jobs killer, not a jobs maker.

If they tell you that they are.. they are lying and I am so tired of hearing that excuse used.

Income taxes are generally what you pay on PROFITS (there are a few exceptions such as the AMT, but that only applies to larger corporations with sales over 7.5 million and generally those companies know how to shelter funds).

Salaries are deducted from PROFITS prior to the calculation of income taxes. (ie, hiring an employee LOWERS your income taxes no matter what the rate)


There are some taxes that apply to gross sales, but these are generally STATE or CITY taxes and have little to nothing to do with the federal government tax deal.

At the end of the day.. employees are hired/fired based on NEED and NEED alone.

they are not investing right now, because demand isn't strong enough.

You are 100% right in saying that this deal is not a jobs maker, since there is nothing in this deal that will really spur demand. The only item in the bill with the CHANCE to really spur demand is the "instant write off" on items bought this year and next year.. the idea being that some huge factories will retool entirely. Unfortunately, so much of these items are now made overseas, the only economies we will really wind up stimulating are India and China.

Consider this example. You own a company and are ready to expand into a new market. You aren't going to take profit, pay income taxes on it, then reinvest what is left. Instead, you will have the company reinvest the money directly. But you happen to know that next year, your profit will be taxed at a higher rate.

If it is at all feasible, why not take the profits for yourself this year, and have your company do that reinvestment when those profits would be taxed at a higher rate next year?

I am not really saying that they decide hiring/firing based on taxes. I am saying they may decide the timing of that hiring/firing based on taxes.

First, let me start with explaining that I own 3 companies and help develop new businesses, so I have some experience with this stuff.

You hire/fire based on need of a job getting done.

For example, say you are having a great year.. it is September and you can't keep up with demand... you are going to make record profits this year. Your example suggests that someone may hold off hiring until January, so they can take higher profits in year 1 (when the tax rate is low) and then have the write off of that employee in year 2 (when the tax rate is higher). On paper that sounds good, but you are not considering that the reason you hire someone is because you are going to make MORE from that employee than their salary pays. In any decently run business every hire/fire decision is made based on return. We add X, we get Y. Hiring someone in September should actually lead to GREATER profits. Income taxes are not a consideration, since they are calculated on PROFITS.

now, are there some poorly run businesses that don't do tax analysis during the year, so they get a shock in March when they file and that may cause them to fire people? Yeah.. that happens But you can't set tax policy based upon people who don't plan for their tax liability properly.

Your customized-out-of-the-box computer software lifecycle is running out. You can get a couple years out of it (actually, you can probably get many more; but according to the rules of these things...).

On the one hand, your company is hurting like most others. Do you want to hurt the bottom line even more by starting up a massive infrastructure project?

On the other hand, you may get the best deals in your purchases, and with fewer companies involved in such projects at this time, you get a better pick of consultants to assist in the rollout.


The cost of this project is going to lower profit 10% in the year in which you do it. Using 100 units as your normal profit and simplified taxes of 10% today, 15% two years from now:

Do it in 2010:

o 2010 profits = 90 units minus 10% tax = 81
o 2011 profits = 100 units minus 10% tax = 90
o 2012 profits = 100 units minus 15% tax = 85
o Three year total = 256 units

Do it in 2012:

o 2010 profits = 100 units minus 10% tax = 90
o 2011 profits = 100 units minus 10% tax = 90
o 2012 profits = 90 units minus 15% tax = 76.5
o Three year total = 256.5 units

The tax holiday makes it more profitable to wait ... unless waiting incurs a greater cost.

I think that is where a lot of this gets lost (again, I am talking INCOME taxes.. not sales taxes or city taxes, which are a completely different creature!!)

Again, this is somewhat of an "on paper" vs "real world" scenario. Your example assumes completely static sales. Incurring the expansion in 2010, should increase profit units in years 2 and 3.

So, it should look more like this:

o 2010 profits = 90 units minus 10% tax = 81
o 2011 profits = 110 units minus 10% tax = 99
o 2012 profits = 110 units minus 15% tax = 93.50
o Three year total = 273.50 units

vs

Do it in 2012:

o 2010 profits = 100 units minus 10% tax = 90
o 2011 profits = 100 units minus 10% tax = 90
o 2012 profits = 90 units minus 15% tax = 76.5
o Three year total = 256.5 units

Even if you increase tax in year 2.. it comes out similar with 268 units vs 256.5.

That TAX CUTS = ECONOMIC GROWTH.

By making this deal, Obama essentially gave away the farm, because it suggests tax cuts as the best way to stimulate the economy.

Obama now embraces supply side as the cure to our fiscal ailments.

They are the one's who fucked us. In case you have not noticed, there are people hurting out there, that are doing far worse than you or I. Can't even get on the internet to have their "screaming" heard. We should be looking out for them, and cleaning up the mess the GOP left for us as we can.

Continue the failure that caused the whole mess we are in? Shun traditional Democratic policies of fiscal sanity and sacrificing for the common good?

That is not in dispute.

Keeping them unemployed for two additional years by embracing supply side failure? Obama is taking ownership of failed Bush economic policies. Traditional Democratic values means fighting tooth and nail, not bending over for the far right.

Extending Bush tax cuts for two years will add two years to the recovery. It plays right into GOP hands in 2012

The GOP had to pass it in reconciliation.

Republicans win if the tax bill passes and the wealthy get their tax cuts and the Republicans win if the tax bill loses as it is then the fault of the Democrats if the economy doesn't improve (See Larry Summers latest lament). Good grief! And, I'll still vote for Obama to save Supreme Court choices in 2012.

in case people haven't noticed. That should be address first and foremost above any "agenda".

Unless you buy into supply side economics, which has been proven wrong over and over again.

People seem to be losing sight of that. Middle class tax cuts, tax credits, unemployment, etc.

Total cost is between 800 and 900B

Cost of tax cuts for the top 2% = about 75 billion

Breakdown here:

http://money.cnn.com/2010/12/07/news/economy/tax_cut_deal_obama/

I don't like the top 2 percent either, but du is acting as if they are getting all the money in the package. They aren't

Middle class will spend their tax break on goods and services, and it seems to me that is stimulative.

Rich people we know will not spend it, so yes that 75B is a waste of money.

Tax cuts, whether directed at the rich, middle class or even the low class have an incredibly low return rate when it comes to stimulating the economy / job growth.

Also, a larger part of the package than you are stating goes to the wealthy.. remember that payroll tax holiday is a REGRESSIVE TAX CUT (across the board no matter the income level)... meaning the wealthy benefit more.

The most rosy analysis of the package shows the potential to create (OR SAVE) 2.2 million jobs at a cost of 600 BILLION. (272K per job).. forgetting the language (OR SAVE) is wiggle room to explain poorer than expected performance.

The government could create 3 times the jobs for that same amount of money with direct investment.


What's really sad about all of this. The President who actually proved these economic realities to us is Ronald Fucking Reagan.

He injected nearly 1.5 TRILLION dollars into the US economy via direct government spending AFTER raising taxes during a recession. The spending was HIDDEN in the defense budget.. but the effect was obvious. We had incredible job growth http://www.miseryindex.us/URbyyear.asp?StartYear=1981&EndYear=1992

The mistake that was made is that they waited too long to raise taxes once unemployment had settled and government spending had to slow.. drying up job growth since the people were off the government teet!

It makes it go for two additional years