Bush Tax Cuts - There Are Better Ways To Incentivize Saving

The only somewhat coherent argument for keeping the Bush tax cuts around for the top 2% is that it will create incentives for long term investment. Yes, this is important, no extending the Bush tax cuts will not help. Long term means just that - people need the expectation that long term tax rates will still be low.

1. Even an indefinite extension cannot work because it is unrealistic that we can cut spending alone to eliminate our current deficits. Realistic expectations are that taxes will have to go up - right around the time you expect to realize the fruits of your investment today. There is no one that would expect a long term commitment to low marginal tax rates.

2. How is a low tax on realized income an incentive to save? It's not, it's incentive to realize income and maybe use it to invest.

3. The best way to create savings incentives is directly: create accounts that can grow tax free (like a Roth but for anything) and tax deferred (like a 401k, but for anything). Then offset the cost of these accounts by raising taxes on realized income - this could likely be done without raising tax rates and simply by removing the existing bribery in the tax code that is distorting market prices in everything from corn to houses. This way it works more like a consumption tax - people who choose to realize a large income would only do so to consume - they need not have realized income in order to save - and if they do, realized income from savings can later be tax free.

Update:

Corporate taxes are also a tax on savings - your 401k grows slower because good companies that don't have good enough lobbyists to not have to pay a ridiculous 40% corporate tax rate grow more slowly. Savings incentives will be raised by being able to invest in companies not held back by high tax rates. The Bush tax cuts are simply the wrong argument and keep us in a consumption now trap.

Government workers or ...

Much has been made about how Federal workers make far too much money. I'm inclined to think it's not as bad as this: the government is made up of far more white collar workers and it's disingenuous to compare accountants to McDonald's fry cooks. That said, benefits ARE more generous in federal government jobs by any comparison and should be scaled back.

The point of this post however is this:

Lobbyists Rush to Hire G.O.P. Staff Ahead of Vote

I'm not trying single out G.O.P. here, but rather make the point that no matter how much you scale back Federal salaries, you still have a ridiculous amount of money going to people who produce nothing - and this is a drag on the economy.

Ground Zero Mosque

What is the moderate position on this issue? The answer is no position - this is polarizing non-issue that moderates should ignore unless you can have a direct say over New York's zoning laws. People have a right to build a religious building anywhere subject to local zoning laws. People also have the right to protest a place of worship regardless of affiliation and offer opinions on why.

This mosque would get little attention in anything but an election year. If you are voting for someone who agrees with you on whether the mosque should or should not be built, rest assured that they will not even mention the words "Ground Zero Mosque" after the election. If you are voting for someone you think will block the building of the mosque, 1) you are being fooled - they cannot - and 2) shame on you.

OK, Now It's Time

According to The Economist, vacancies are up, and unemployment remains high. I think it's safe to say SOME people are staying on unemployment and not taking a good job when they see it. Time to stop extending benefits.

See the link here

Unemployment Benefits

Are people using their unemployment benefits to put off looking for work? Probably. Does it matter? Probably not.

Consider this - assume there are enough resources to feed 500 people in a town of 2500. ( not coincidentally, this is also about the ratio of job openings to job seekers.). Now let's say the government steps in and distributes some of that resource, or a suitable replacement. What may happen is some townspeople stop going out to collect that resource since they are now being supplied. The problem is STILL the resource shortage, not the fact that the townspeople have stopped going to collect it.

It is much the same for jobs. If we were facing a shortage of workers, we would see wages creep up to attract them. This is not occurring, which tells me that whether people seek work on unemployment or not is irrelevant. The fact is, as long as job openings are much fewer than job seekers, continued unemployment benefits are the best way to keep money flowing. The cbo agrees:

see page 9 here:
http://cbo.gov/ftpdocs/113xx/doc11353/3-17-10-NLGA.pdf

The Health Insurance Mandate

Other things the government "forces" you to buy:
Mortgages, water heaters, hybrid cars ... In all cases, all other things equal, you will pay more tax if you don't buy one of these. The same thing occurs if you don't buy health insurance. Questioning the constitutionality of something that is effectively the same as raising taxes and offering a tax credit for health insurance is ridiculous.

There are many things to dislike about this bill, the mandate is NOT one of them. Keeping the mandate and pre-existing condition portions of the bill does not make Republican favored reforms impossible (never mind that Republicans used to favor the mandate see here, here, and here.).

Within the confines of the general bill, Republicans can still push to lower the Cadillac tax threshold (all the way to 0 is my preference), move more people from employer sponsored health insurance to the exchanges - especially from small businesses, and allow and promote high deductible health plans. The Republicans' gamble on a Democrat failure and refusal to negotiate has left us with a bill to the left of where it could have been, but it's not too late to fix it.