How is this tax break a bad thing?

During this president's term, deficit spending was deployed to find Saddam Hussein, Osama Bin Laden, and Weapons of Mass Destruction. Looks like we're 0/3, and it's been almost 2 years since 9/11.

If someone paid me to find a virus in their computer and I couldn't find it, I'd be pretty damn reluctant to take their money.

 

[Lucky]

Here are my thoughts on this tax cut.
1) Dividend cut. This will in reality only help those who are already millionaires. Warren Buffet will get 0.02% of the entire tax cut.

For the fourteenth million time, Berkshire Hathaway does NOT pay dividends.

 

[Lucky]

Originally posted by: jumpr
Hey, I'm not against the tax cut - lower taxes are great for everyone. I just disagree that this is the right time for a cut! After two 'foggy' wars against 'terror' why is our president FURTHER ERASING ANY TRACE OF THE TRILLION-DOLLAR SURPLUS HE WAS GIVEN AT THE START OF HIS TERM?

Sure, he inherited a recession - but two wars and a nominal tax cut last year haven't helped much...why should this new one help any more? I like money in my pocket, but I'd be happier if our government could get into shape - it'd make me feel a lot better about the economy than an extra $400 or so for me.

I thought democrats were the champions of deficit spending? I think Bush would be the type to frequent the Hot Deals forum based on his spending patterns.[/quote]



Courtesy HJD1:

The Budget Surplus Hoax
LET'S THINK ABOUT THE FEDERAL BUDGET but first consider a pretend scenario between Mrs. Williams and me.

"Honey," she says, "we have a budget surplus. Our 1998 expenditures were $90,000, and our revenue was $100,000. That's a $10,000 surplus."

"That's wonderful, Mrs. Williams," I say. "Your brilliance has saved our household from the financial collapse we were headed for as a result of deficit spending. As soon as our accountant goes over our books, we're going to celebrate."

Our accountant goes over the books and gives me a report. Mrs. Williams had counted as revenue this year's $15,000 contribution to our children's education trust fund. She also counted this year's $20,000 contribution to our retirement account. There was nothing put in those accounts except little slips of paper marked "IOU."

Irate, I confront Mrs. Williams, "In reality, there's no balanced budget, much less a surplus. You've cooked the books! You've spent $35,000 earmarked for our trust funds and replaced them with IOUs. You're not supposed to count the money we're putting aside for our children's education and our retirement as revenue available for spending this year. The reality is, the revenue available to be spent this year was $65,000 ($35,000 was to go into the trust accounts). You spent $90,000. That makes for a deficit of $25,000."

With nothing but IOUs in our education trust fund, I ask Mrs. Williams, "What do we do when it's time for our children to go to college?" She says, "Take it easy, Walter. Don't get your panties in a bunch! When college time comes, we have several options: We can renege on our promise to the kids, or we can borrow or steal money for college."

That's when I say, "You are no longer Mrs. Williams; you're fired!"


http://www.gmu.edu/departments/economics/wew/articles/98/budget-hoax.html

http://wfhummel.cnchost.com/budgetsurplus.html

http://budget.senate.gov/democratic/charts/2001/avail_surplus_chartpacket062701.pdf

 

[dullard]

Originally posted by: Lucky
For the fourteenth million time, Berkshire Hathaway does NOT pay dividends.

No it doesn't. But if suddenly companies found out they could pay their employees/owners tax free (tax free to the recipent) many will start paying dividends. Warren Buffet himself said it may be likely if this passed, then Berkshire Hathaway may very well pay dividends. Of which Buffet would get $300 million dollars a year at a 15% tax rate...

 

[FatJackSprat]

Originally posted by: ScoobMaster
Why do government officials think it is better for the economy if they take more of your money to use/spend than to let you keep it to use/spend? Why is money put to "better use" in the hands of government than in the hands of the citizens who worked for and earned it?

two words:

INCOME REDISTRIBUTION

A.K.A. using force to take from the "haves" and giving some to the "have-nots"
A.K.A. vote-buying scheme (since the "have-nots outnumber the "haves")

I agree, the politicians "fighting" tax cuts are really just trying to sell themselves as the protectors of the underdogs in order to gain political favor. Democrats need high taxes to fund all their social programs, which are also just ways to get votes. It's all about job security.

The many people who say they would save their money are also good examples of why tax cuts to the "wealthy" are not inherently evil. Give the money to people who can afford to lose it and they're more like to put it back into the economy - who cares if they spend it hoping to increase their wealth or just provide themselves with greater comfort, they're creating jobs whether they put more people on their own company payroll by seeking to increase profits or on someone else's payroll by simply having the kitchen redone.

Things shouldn't be judged as to whether they reach an the ideal of perfection, but rather as to whether they are doing anything in the way of improvement. Even one new job is better than none.

 

[isaacmacdonald]

Originally posted by: Lucky

Giving warren buffet an extra 100 million a year (as a result of decreased dividend taxes) will obviously not do that (as his last op-ed pointed out).

Except for one small thing; Berkshire Hathaway does not pay dividends and never will.

Does that change the fundmental truth? It's a hypothesis (warren's incidentally).

Warren's op-ed on the impact of dividend tax cut

 

[CPA]

Originally posted by: Lucky

Originally posted by: jumpr
Hey, I'm not against the tax cut - lower taxes are great for everyone. I just disagree that this is the right time for a cut! After two 'foggy' wars against 'terror' why is our president FURTHER ERASING ANY TRACE OF THE TRILLION-DOLLAR SURPLUS HE WAS GIVEN AT THE START OF HIS TERM?

Sure, he inherited a recession - but two wars and a nominal tax cut last year haven't helped much...why should this new one help any more? I like money in my pocket, but I'd be happier if our government could get into shape - it'd make me feel a lot better about the economy than an extra $400 or so for me.

I thought democrats were the champions of deficit spending? I think Bush would be the type to frequent the Hot Deals forum based on his spending patterns.

Courtesy HJD1:

The Budget Surplus Hoax
LET'S THINK ABOUT THE FEDERAL BUDGET but first consider a pretend scenario between Mrs. Williams and me.

"Honey," she says, "we have a budget surplus. Our 1998 expenditures were $90,000, and our revenue was $100,000. That's a $10,000 surplus."

"That's wonderful, Mrs. Williams," I say. "Your brilliance has saved our household from the financial collapse we were headed for as a result of deficit spending. As soon as our accountant goes over our books, we're going to celebrate."

Our accountant goes over the books and gives me a report. Mrs. Williams had counted as revenue this year's $15,000 contribution to our children's education trust fund. She also counted this year's $20,000 contribution to our retirement account. There was nothing put in those accounts except little slips of paper marked "IOU."

Irate, I confront Mrs. Williams, "In reality, there's no balanced budget, much less a surplus. You've cooked the books! You've spent $35,000 earmarked for our trust funds and replaced them with IOUs. You're not supposed to count the money we're putting aside for our children's education and our retirement as revenue available for spending this year. The reality is, the revenue available to be spent this year was $65,000 ($35,000 was to go into the trust accounts). You spent $90,000. That makes for a deficit of $25,000."

With nothing but IOUs in our education trust fund, I ask Mrs. Williams, "What do we do when it's time for our children to go to college?" She says, "Take it easy, Walter. Don't get your panties in a bunch! When college time comes, we have several options: We can renege on our promise to the kids, or we can borrow or steal money for college."

That's when I say, "You are no longer Mrs. Williams; you're fired!"


http://www.gmu.edu/departments/economics/wew/articles/98/budget-hoax.html

http://wfhummel.cnchost.com/budgetsurplus.html

http://budget.senate.gov/democratic/charts/2001/avail_surplus_chartpacket062701.pdf[/quote]

Walter Williams is hilarious, and pretty damn smart to boot.

 

[Lucky]

Originally posted by: isaacmacdonald

Originally posted by: Lucky

Giving warren buffet an extra 100 million a year (as a result of decreased dividend taxes) will obviously not do that (as his last op-ed pointed out).

Except for one small thing; Berkshire Hathaway does not pay dividends and never will.

Does that change the fundmental truth? It's a hypothesis (warren's incidentally).

Warren's op-ed on the impact of dividend tax cut

Yes, it changes everything when goto the point of actually saying that x% will go directly to him because of a divident tax cut. That means you do not know what you are talking about.

 

[DT4K]

dullard and jumpr,

One misconception you both seem to have is that cutting taxes will lead to higher deficits and that we will have to pay more taxes in the future to make up for paying less now.

This is simply not true.

In the last 100 years, the worst increases in the federal deficit have come when we raised taxes. This is because raising taxes stifles the economy and increases unemployment. So people are paying a higher tax rate, but due to the negative impact on the economy, many people are making less money and many others are unemployed so they pay no taxes at all.

Lowering taxes actually tends to increase the federal tax revenues for the opposite reasons. Although people pay a lower rate, more people are working and they are making more money.

The Ronald Reagan era was an exception to this rule, primarily because the Reagan tax cuts came along with huge increases in defense spending. And yes, this did cause the deficits to skyrocket, but the economy was in good shape and unemployment went down.

There was tons of talk about how terrible the deficits and the debt were, but by the early 90's the economy had grown it's way out of the deficit and was back in surplus.

 

[isaacmacdonald]

How exactly would you have a "low end" tax cut when the low end doesn't pay taxes?

The tax cut will help everyone who pays taxes. It will help the wealthy the most because they are the ones who pay the most.

How many people do you think are gainfully employed because wealthy people like Warren Buffet and others invested in their companies?
That is the point of a stimulus tax cut. It not only puts more money in the hands of middle class people who may go out and buy a new car, but it also puts more money in the hands of the wealthy. The wealthy then invest more money in businesses.

Obviously, low end meaning the low end of tax payers, not beggars on the streets who lack social security numbers.

We're not talking about morality here, but if we were I might question why regressive taxation should be a worthy goal. In any case, the theory we're talking about is sort of trickledown reaganomics versus the slightly more contemporary bubbleup (business growth spurred by consumer spending). I'm not saying that either one will work wonders, but I'm willing to bet that trickledown (especially as a blanket cut rather than a real stimulus for new investment) will not reap especially astonishing returns.

 

[dullard]

Originally posted by: Shanti
dullard and jumpr,
One misconception you both seem to have is that cutting taxes will lead to higher deficits and that we will have to pay more taxes in the future to make up for paying less now.

The Ronald Reagan era was an exception to this rule, primarily because the Reagan tax cuts came along with huge increases in defense spending. And yes, this did cause the deficits to skyrocket, but the economy was in good shape and unemployment went down.

There was tons of talk about how terrible the deficits and the debt were, but by the early 90's the economy had grown it's way out of the deficit and was back in surplus.

What happened in the early 90's? A huge tax increase (Bush Sr small tax increase and Clinton's huge tax incrase). Then suddendly the economy soared. So make that exception #2. Then keep looking in history and you will see exception after exception...

Eventually after seeing all these exceptions everywhere you realize maybe your original assumption is wrong.

 

[isaacmacdonald]

Except for one small thing; Berkshire Hathaway does not pay dividends and never will.

Does that change the fundmental truth? It's a hypothesis (warren's incidentally).

Warren's op-ed on the impact of dividend tax cut[/quote]



Yes, it changes everything when goto the point of actually saying that x% will go directly to him because of a divident tax cut. That means you do not know what you are talking about.[/quote]

Umm... not really. It's the point of the article. Since you don't feel like following the link, here's what he says:

Now the Senate says that dividends should be tax-free to recipients. Suppose this measure goes through and the directors of Berkshire Hathaway (which does not now pay a dividend) therefore decide to pay $1 billion in dividends next year. Owning 31 percent of Berkshire, I would receive $310 million in additional income, owe not another dime in federal tax, and see my tax rate plunge to 3 percent.

And our receptionist? She'd still be paying about 30 percent, which means she would be contributing about 10 times the proportion of her income that I would to such government pursuits as fighting terrorism, waging wars and supporting the elderly. Let me repeat the point: Her overall federal tax rate would be 10 times what my rate would be.

----

Administration officials say that the $310 million suddenly added to my wallet would stimulate the economy because I would invest it and thereby create jobs. But they conveniently forget that if Berkshire kept the money, it would invest that same amount, creating jobs as well.

The Senate's plan invites corporations -- indeed, virtually commands them -- to contort their behavior in a major way. Were the plan to be enacted, shareholders would logically respond by asking the corporations they own to pay no more dividends in 2003, when they would be partially taxed, but instead to pay the skipped amounts in 2004, when they'd be tax-free. Similarly, in 2006, the last year of the plan, companies should pay double their normal dividend and then avoid dividends altogether in 2007.

 

[Ronstang]

Originally posted by: CPA

Originally posted by: jumpr
I don't know about the rest of America, but if I got more money in my paycheck, it'd go right where most of my paycheck already goes: savings account. I don't want to spend my extra money only to have the country go deeper into debt because of another 'War on Terror' which we haven't finished nor have we won.

I save my money - stimulating the economy (according to GWB) means squandering your money away on material posessions. Not me.

And what do you think the bank does with the money you put into your savings account? It just sits in a little pot until you come calling? No, they lend it out to people and businesses, thus stimulating the economy.

Exactly, I guess not many here have ever heard of the money multiplier effect. In reality your 1 dollar can be multiplied around 10X this way, so the tax cut will have much more impact than most think......even if everyone just squirrels it away.

 

[Lucky]

Umm... not really. It's the point of the article.

Let me quote exactly dullard said.


Dividend cut. This will in reality only help those who are already millionaires. Warren Buffet will get 0.02% of the entire tax cut.



He is clearly saying that the dividend tax cut will fantastically benefit Warren Buffet. That is simply not true. I am not responding to Buffet's politics, I'm responding to the erroneous factual information that dullard posted. I've read his op-ed piece previously, thank you very much.

There is much more factually incorrect (the top 100 richest recieving the vast majority of this portion) but I think that much is obviously not true and I have better things to do than to prove wrong someone who doesn't want to hear the truth.

 

[SagaLore]

Originally posted by: jumpr
I don't know about the rest of America, but if I got more money in my paycheck, it'd go right where most of my paycheck already goes: savings account. I don't want to spend my extra money only to have the country go deeper into debt because of another 'War on Terror' which we haven't finished nor have we won.

I save my money - stimulating the economy (according to GWB) means squandering your money away on material posessions. Not me.

I think the majority of people don't realize that by putting your money into a savings account, the economy still gets stimulated. You earn interest because the bank takes the accumulated money everyone has saved up and loans (invests) it out to people or projects, which then have a ROI both for the bank and commonly for the person or project.

So keep on saving. You're doing a good thing.

 

[dullard]

Originally posted by: Lucky
He is clearly saying that the dividend tax cut will fantastically benefit Warren Buffet. That is simply not true. I am not responding to Buffet's politics, I'm responding to the erroneous factual information that dullard posted. I've read his op-ed piece previously, thank you very much.

I'm responding to what will most likely happen. When this passes, more companies will likely pay dividends. Thus if this happens Buffet would get 0.02% of the entire tax cut. There is an "IF" in that statement. Maybe I should have made that more clear.

If there is 0% on dividends, an employer owned company can pay themselves entirely out of dividends instead of salary. Imagine that taken to the extreme. No one ever has income and just gets dividends. Buffet is smart and so is Berkshire Hathaway. They realize this loophole and would likely use it. Yes you are right that they might not. I just believe that they will.

 

[isaacmacdonald]

Originally posted by: Lucky

Umm... not really. It's the point of the article.

Let me quote exactly dullard said.


Dividend cut. This will in reality only help those who are already millionaires. Warren Buffet will get 0.02% of the entire tax cut.



He is clearly saying that the dividend tax cut will fantastically benefit Warren Buffet. That is simply not true. I am not responding to Buffet's politics, I'm responding to the erroneous factual information that dullard posted. I've read his op-ed piece previously, thank you very much.

There is much more factually incorrect (the top 100 richest recieving the vast majority of this portion) but I think that much is obviously not true and I have better things to do than to prove wrong someone who doesn't want to hear the truth.

Neat. But seemed to be a reply to my post. I'm well aware that the dividend income is hypothetical, but I thought buffet did raise an interesting point. Granted, his position (even hypothetically) is far from unviersal, and in most cases the dividend cut will not result in a totally regressive tax system. But regardless of morality (don't give a damn) the questions is what the most effective form of STIMULUS will be.

 

[SagaLore]

Originally posted by: dullard
Here are my thoughts on this tax cut.
1) Dividend cut. This will in reality only help those who are already millionaires. Warren Buffet will get 0.02% of the entire tax cut. What percent will Bill Gates get? Compile a list of the top 100 richest American's and they will get the vast majority of this tax cut. So esentially we will be pooring $100 billion or so into the hands of a very few of the world's richest people. What will they do with the money? Swiss bank accounts maybe, buy some more stocks, etc. They are already spending as much as they want, so this chunk will not increase spending, so this chunk will not stimulate the economy. I don't see the point of this part of the tax cut.
2) Individual rate cuts. This would be a nice thing to see for each individual. However a cut from 36% to 35% isn't very significant. This will partially stimulate the economy - but as others have said they might put part of that into savings instead.
3) Increase in standard deduction for married couples. I have mixed feelings on this issue. A couple living on $50,000 per year is a lot wealthier than two individuals making $25,000 each (since the couple only has one rent payment and gets lower prices on other things like insurance). So since I feel we should tax wealth (note this is different from taxing income) in principle I agree with the marriage penalty. But I can see how this will help some couples and could stimulate the economy slightly.
4) Moving the child credit to now instead of the future. Why on Earth did Bush want this pushed back so far into the future in his inital tax cut? It should have been active last year. At least he is making up for his mistake.

There are problems with tax cuts in general though.
1) If you cut taxes when in debt, this is basically a loan. We will have to pay for it with higher taxes in the future - with interest. So in the long run, cutting taxes means we must pay more taxes. I'd rather pay them now to have a lot lower taxes in the future. But most people cannot look that far into the future. Or they make unrealistic assumptions hoping to make a model showing that you can cut taxes now so that the economy is so stimulated that you can keep them cut. Unfortunately those models have never worked.
2) The other way to cut taxes without a loan is to cut spending. Suppose to pay for this tax cut, the government cut spending by $350 billion. Basically the government is unaffected - $350 billion less tax offsets $350 billion less spending. But how is the economy affected. That $350 billion in spending cuts means a lot of people depending on government jobs must be fired. If the country spends all that $350 billion, then these fired people can switch jobs and everything is the same. But what if half of that $350 billion is saved instead of spent (which is likely since most will go to the richest of the rich)? That means the government spends $350 billion less, and America spends $175 billion more. Net effect is a $175 billion LOSS to the economy. Thus all tax cuts paid for by cutting spending will HURT the economy.

So do the benefits outweigh the problems? In my opinion this tax cut as it is done has problems that outweigh the benefits.

Here are my suggestions to solve the same problems:
1) Bush wants to end the double taxation of dividends and stimulate the economy. But giving money to Warren Buffet won't stimulate the economy. He'll just pocket the savings. Instead eliminate the corporate tax on all money given out in dividends. That way the double taxation is ended, and the businesses have more money which a lot will be spent on hiring employees. That will work a lot better than the current plan at meeting Bush's goals.
2) Want to elimiate the marriage penalty? That is fine. Increase the married deduction and reduce the individual deduction in a way that the government still collects the same amount of taxes. Thus for free you ended the marriage penalty.
3) I'd bump the child credit even more than what Bush wants. That gives money to those who are most likely to spend it (thus stimulating the economy the most).
4) Cut the individual tax levels more than 1 or 2 percent instead of reducing the dividend tax.

What's this thing everyone has against Warren Buffet?

If rich people just put their increased capital into a savings account, the money still gets into the economy through bank loans. If the rich people just buy more junk, then the product of that junk helps out those companies that make it. If the rich people use the extra dollars as toilet paper, the value of the dollar goes up since there is less of it. So no matter what the economy is stimulated!

 

[Lucky]

I'm responding to what will most likely happen. When this passes, more companies will likely pay dividends. Thus if this happens Buffet would get 0.02% of the entire tax cut.

Buffett is on record saying he despises dividends and the BH board has consistently refused to pay them.

edit: thanks for clarifying your point.

 

[isaacmacdonald]

Originally posted by: SagaLore

Originally posted by: jumpr
I don't know about the rest of America, but if I got more money in my paycheck, it'd go right where most of my paycheck already goes: savings account. I don't want to spend my extra money only to have the country go deeper into debt because of another 'War on Terror' which we haven't finished nor have we won.

I save my money - stimulating the economy (according to GWB) means squandering your money away on material posessions. Not me.

I think the majority of people don't realize that by putting your money into a savings account, the economy still gets stimulated. You earn interest because the bank takes the accumulated money everyone has saved up and loans (invests) it out to people or projects, which then have a ROI both for the bank and commonly for the person or project.

So keep on saving. You're doing a good thing.

Not exactly. The money that you're saving becomes loans.... however, if consumer demand drops (because everyone's saving their money) how many business will be looking for loans (even at a great interest rate)? Beyond this, the banks are required to keep a percentage of money in reserve, which effectively takes it out of action.

 

[dullard]

Originally posted by: Lucky

Buffett is on record saying he despises dividends and the BH board has consistently refused to pay them.

Because there is an instant 28% tax on the dividends, a tax which is actually a double taxation. No wonder he despises them and the BH board opposes them. But with those two obsticales removed do you really think they will have the same opinion?

 

[isaacmacdonald]

What's this thing everyone has against Warren Buffet?

If rich people just put their increased capital into a savings account, the money still gets into the economy through bank loans. If the rich people just buy more junk, then the product of that junk helps out those companies that make it. If the rich people use the extra dollars as toilet paper, the value of the dollar goes up since there is less of it. So no matter what the economy is stimulated!

LOL. I really hope that was ironic (I'm guessing it was). But yeah, it does sound like the typical tax plan. There's no way to lose!

 

[Lucky]

Originally posted by: dullard

Originally posted by: Lucky

Buffett is on record saying he despises dividends and the BH board has consistently refused to pay them.

Because there is an instant 28% tax on the dividends, a tax which is actually a double taxation. No wonder he despises them and the BH board opposes them. But with those two obsticales removed do you really think they will have the same opinion?

Yes, if he is the great moral leader that many here tout him as!

 

[DT4K]

Originally posted by: dullard

Originally posted by: Shanti
dullard and jumpr,
One misconception you both seem to have is that cutting taxes will lead to higher deficits and that we will have to pay more taxes in the future to make up for paying less now.

The Ronald Reagan era was an exception to this rule, primarily because the Reagan tax cuts came along with huge increases in defense spending. And yes, this did cause the deficits to skyrocket, but the economy was in good shape and unemployment went down.

There was tons of talk about how terrible the deficits and the debt were, but by the early 90's the economy had grown it's way out of the deficit and was back in surplus.

What happened in the early 90's? A huge tax increase (Bush Sr small tax increase and Clinton's huge tax incrase). Then suddendly the economy soared. So make that exception #2. Then keep looking in history and you will see exception after exception...

Eventually after seeing all these exceptions everywhere you realize maybe your original assumption is wrong.

Actually, it isn't really an exception. Revenues did increase. The deficit went up though because of the spending increases.
Clinton's tax increase was not "huge". It was minimal and had no positive effect on the economy.

You want to talk about the economy soaring? Look at the Reagan years. The Reagan tax cuts brought us out of the dreadful Carter recession. The first two years of the Reagan administration, unemployment continued to rise as it had started to do towards the end of the Carter administration. Then the effects of the Reagan economic policy changes started to take effect.

Unemployment went from 9.5% in 1982 down to 5.2% in 1989.

individual income tax revenues rose from $244 billion in 1980 to $446 billion in 1989.

according to the FY 1997 Clinton budget submission, individual income tax revenues as a share of GDP will be lower during the first four years of the Clinton tax increase, which include the effects of the 1990 tax increase, than under the last four years of the Reagan tax changes (FY 1986-89).

 

[Brie]

http://www.senate.gov/~miller/oped/020901.htm

Not all democrats are against tax cuts...Looks like he has some pretty strong evidence that tax cuts in Georga stimulated its economy...How can all of you say that this will not work AT ALL when people from your own party are supporting it??