The tax sellout is not a stimulus
Villanova Law School tax prof Jim Maule had some interesting thoughts on the White House's assertion that the President's deal with Senate Republicans over the Bush tax cuts will stimulate the economy. He posted this to the popular TaxProf list yesterday:
I have my doubts, serious ones, about the notion that the agreement is stimulative.
1. Income tax liabilities will not change. Though psychologically it may feel good to know that one’s take-home pay is not going to shrink, there’s no extra "spending" money coming in from the extension of the tax cuts.
2. The cut in the FICA tax might be stimulative, but not by much. For the wealthy, it’s another two grand to stash in the cash hoard. For lower income individuals, a good chunk will end up being used to pay credit card and other debt, putting cash into the piles held by the banks and other financial institutions. Another good chunk will find its way to the PRC for the holiday season’s predicted top gift category, electronic gizmos of one sort or another.
3. The 100 percent expensing thing will be no more stimulative than its predecessors, in other words, it will have negligible effect.
4. The legislation will create work for tax practitioners but there would have been work no matter what would have happened.
The nation needs jobs (chiefly because jobs have been shipped overseas). I do not accept the argument advanced by the tax cut extension advocates that "small business owners" will create jobs on account of the extension. If X, with $a of income and $b of tax liability in 2008, 2009, and 2010, hasn’t hired anyone, X, with $a of income and $b of tax liability in 2010 isn’t going to jump up and yell, "Wow, look at all this additional money, I can hire someone." Plus, if X doesn’t NEED an employee, X isn’t going to hire. X will need an employee if X is offering goods or services for which demand increases.
The argument that with the deal, the uncertainty that was holding back spending and hiring will disappear is nonsense. If the uncertainty about what would happen as of Jan 1, 2011 was causing stagnation in 2008 – 2010 (and I think it was), then the uncertainty about what will happen as of Jan 1, 2013 will cause the same stagnation in 2011 and 2012.
The whole thing is a canard. The rich will get richer, and the poor will get poorer, as the trend lines in effect for the past ten years get extended for another two years. Until Americans put their many brains to work to unravel the shell game foisted on the citizenry by the anti-tax crowd (see "Absurd Tax Quote of the Century" for a discussion of "no taxes on nobody")..., the rise of the peasant class and the destruction of the middle class will continue. Too bad the anti-tax crowd isn’t up on its French history.