By Jeff Madrick

The Simpson-Bowles Consensus Isn’t Common Sense. It’s Nonsense.

November 28, 2012 12:45 pm Category: Memo Pad 50 Comments A+ / A-
The Simpson-Bowles Consensus Isn’t Common Sense. It’s Nonsense.

Capping federal spending at 21 percent of GDP is arbitrary, shortsighted, and wrong for America.

The Simpson-Bowles budget-balancing plan seems to have become the common-sense standard for dealing with America’s future budget deficits. I’d say this move toward the right is dangerous to the future of the nation and essentially cruel—far more dangerous than the level of the deficit over the next 15 years. The commission, formally known as the Commission on Fiscal Responsibility and Reform, appointed by President Obama, achieves its deficit reduction by reducing government spending to do two-thirds of the job and raising taxes to do only one-third of the job. Even 50-50 would not be fair in such a low-tax nation. The commission proposed cuts in Social Security benefits of 15 percent for medium earners, for example.

But easily the most shortsighted objective is to hold federal spending to 21 percent of Gross Domestic Product into the future. How did they get this number? It is roughly the average level of federal spending since 1970. This is not a reasonable standard—it is not even a way to think about the issue. So where did the idea originally come from? The answer: the right-wing Heritage Foundation.

Now our most respected elder statesmen of the economy, Paul Volcker and Warren Buffett, are endorsing the 21-percent level in recent editorials. It may have been missed in Buffett’s piece, which endorsed a 30-percent tax on the rich, and correctly so. But he said it plain as day: “Our government’s goal should be to…spend about 21 percent of GDP.”

Oh my. Did they do any analysis at all about what that level would mean for retired, sick, and middle-income-to-poor Americans? Did it occur to them how vastly the U.S. economy has changed over those years? There are many more retirees, health care is more expensive and more extensive, the U.S. has chosen to fight costly wars, and its infrastructure and educational needs are dire.

The words of the wise oracles should not be taken seriously. One wonders whether Volcker would have run the Federal Reserve or Buffett picked stock on such skimpy analysis. They present no evidence, nor do I think they have done any research or even reading that shows that a 21-percent spending level will make the economy more efficient than, say, a 24-percent level of spending.

And they beat their chests as the exemplars of responsibility in an otherwise irresponsible America. Moreover, Pete Peterson, of course, is now financing a road tour for Bowles and Simpson to fight their great moral battle to get America’s budget under control—as a reminder, not by raising taxes significantly but by cutting social entitlements significantly. America cannot be run by men like these. America’s great moral battle is for social justice and adequate federal investment.

Pages →  1 2

The Simpson-Bowles Consensus Isn’t Common Sense. It’s Nonsense. Reviewed by on . Capping federal spending at 21 percent of GDP is arbitrary, shortsighted, and wrong for America. The Simpson-Bowles budget-balancing plan seems to have become t Capping federal spending at 21 percent of GDP is arbitrary, shortsighted, and wrong for America. The Simpson-Bowles budget-balancing plan seems to have become t Rating:

More by Jeff Madrick

America Can Attain Full Employment With A Bold Approach To The Jobs Emergency

A new report from the Rediscovering Government Initiative lays out 15 ways the government can create more and better jobs starting right now. After five long years, the economy has at last produced enough new jobs to compensate for the 8 million lost in the Great Recession of 2009. But in that same period some

Read more...

The Progressive Caucus Budget Makes The Right Decisions

The “Better Off Budget” is the only budget proposal in Congress that really places people’s needs ahead of political compromise. The Congressional Progressive Caucus has issued its annual budget and it is in different ways the antithesis of what both the Republicans and Democrats are offering. The Caucus calls it the “Better Off Budget,” and it puts

Read more...

The Congressional Budget Office Should Serve The People, Not Politics

The CBO’s projections often miss the mark, but its mandate is to produce a politically useful number. The admirable Jared Bernstein entirely misses the point in his post about recent critiques of the Congressional Budget Office. Floyd Norris, Zachary Karabell, and Dean Baker have noted how often the CBO gets it wrong, and how it influences policy in damaging ways.

Read more...

Tags

Comments

  • nobsartist

    Since no one has followed this plan, why is it relevant? The fact is, a republicon, eisenhower, when put in the same position that we are in now, got out of it with a massive jobs plan that created our highway system and built new hospitals thru out the country.

    In other words, he did exactly the opposite that these traitorous republiCONs want done now.

    So the real question is, why do republiCONs hate American workers so much. They refuse to create a jobs plan and they are selling our manufacturing to China.

    It is time to call these half wits out for what they are. ANTI-AMERICAN.

    • Germansmith

      The plan is relevant because so far is the only “bipartisan” plan to reduce the deficit and probably the starting point for negotiations.

      Do you buy stuff online instead of supporting your local merchant? (remember most of those sites have customer support in foreign lands)
      When you go to the store, do you assure yourself the product in Made in the USA or just go for the best value?
      When your roof need repairs, do you go for the best lowest proposal OR do you go around making sure all the roofer’s employees are legal US residents?

      I think we are all a little guilty of not promoting more jobs for Americans.

      • Canistercook

        I like to support my fellow Americans but fairly. When the union auto workers got bailed out by taxpayers with wages and benefits averaging at around $50+ an hour that is not fair! It’s not fair I had to work to 65 to collect a measly $1,000 a month social security while government workers average 3 times that amount and many retire at 55. Unfortunately there are a lot of people who have little if any idea of whose pocket books they are filling!

        • JSquercia

          I do NOT believe that Auto workers are making any where near the $50 an hour . As a price of saving the Auto Industry the Unions had to give back a lot . Contrast this with the bail out of Wall Street ( the VERY people who caused the CRISIS) they were not required to give up a dime of their bloated salaries .

          • Canistercook

            I do not believe Wall Street should have been bailed out either but Clinton and Barney Frank helped create a lot of the Wall Street problems when they privatized Fanny Mae & Freddie Mac and insisted on loans to people who did not have good credit and backed those loans with taxpayers insurance. Check your figures for the UAW workers, I believe the average pay for them is around $54 an hour when all benefits are included. The UAW is Obama’s biggest supporter monetarily along with the Teacher’s Unions. We need a leader not a campaigner.

          • http://www.facebook.com/novadust David Nova

            clinton? frank?

            fannie mae became a private corporation in 1968. freddie mac was established in 1970 and was a private corporation from the start.

            frank was working for the mayor of boston then, and clinton was still a student.

          • Canistercook

            Clinton signed the act sponsored by Barney Frank et al to privatize Fannie Mae and Freddie Mac. Also Barney Frank and Ted Kennedy forced them to lower their standards required to make loans so that areas would not be ‘red lined’. They were started as government backed mortgage companies. Taxpayers were still left on the hook to insure them though and we are paying billions to offset their losses. Everything our government does is a failure such as social security, Medicare, the drug program and next comes Obamacare. When you get too big to be efficient and you reward obesity and smokers and poor money managers, like the USSR you collapse. Check your facts!

          • lunibin

            UAW was given a 30% stake in GM. All UAW pensions were fully funded. All non union subsidiary workers pensions were wiped out. Unions made no concessions with TARP!

            The entire fiscal mess began back in 1977 with the Carter administration and the Community Reinvestment Act allowing banks to sell mortgages to under qualified people then selling those loans to Fannie, Freddie, and the FHA. All of this driven by democratically controlled congresses. Franklin Raines, James Dodd, Chris Dodd, and Barney Frank should be in jail.

          • RobertCHastings

            And I guess Reagan’s bay , deregulation, had no part in all that? Give me a break, please. Carter’s desire to give every one a crack at home ownership was well-intended, just not that well administered. What caused the crash four years ago was what Reagan did, not what Carter did.

          • lunibin

            Your comments are a little disingenuous. Who said anything about deregulation not playing a part in what happened? The deregulation under Reagan and Clinton all played a part. What I said was that it started with the CRA in 1977 under Carter. As to your attempt to spin what Carter did as being well intended and not well administered is exactly my argument. Government i.e. politicians, do nothing well except take good care of themselves. We are about to see this unfold again as they administer health care. When are we going to learn the lesson? Clinton and Sebelius have already told us “we are not smart enough to make good choices for ourselves, so they have to make the right choices for us.”

            The only politicians I trust are the ones who reduce or eliminate their role in my life and I live in California so it’ll be awhile.

          • http://www.facebook.com/novadust David Nova

            do you really not know what ‘disingenuous’ means, or are you just pretending?

            on second thought, your ignorance shows in what you say about the CRA.

            here’s a quote from ‘business week’, september 2008 [sorry this site won’t let me post a URL]:

            Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

            The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

            Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

            Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.

          • RobertCHastings

            Thank you for your comments. Isn’t “disingenuous” sort of like naive? I can assure you (which you can accept or not) I labor under no misconceptions regarding the role government, either directly or indirectly in my life. It should be the goal, as Jefferson put it, to find that government which governs least. However, the problems began much before Carter, even much before FDR’s attempt to find a safety net for the elderly, against the advice and consent of his own party, in the form of Social Security. Even before Lincoln got everyone in the country embroiled in the slavery issue, government has been doing things that individuals are incapable of accomplishing, for the good of us all. Let us remove ourselves from the current issues to get a longer view of the influence of government, and our need for that influence. Without Lincoln’s Emancipation Proclamation, the Civil War, and the ensuing Constitutional amendments making Negroes citizens, this country would be much different (although, in truth, that struggle is still ongoing). Without a strengthened central government, this country would probably be back under the auspices of the British Crown and, like GB, part of a crumbling and inconsequential Empire (not the international powerhouse it is today). After all, the original Articles of Confederation proved that thirteen colonies cannot function separately, and without the Constitution the War of 1812 would definitely have gone quite differently. The first real power grab by our central government was the Constitution itself, a document unlike any other at the time, and still unique in its longevity and consideration of the rights of ALL members of society. And it still works quite well through the use of various amendments, which allow it to change with the changing times. If either of us is naive, it is you, my friend, in your denial of the course this country has taken over the past 240 + years, a course that, in spite of the many obstacles we have faced, has taken us (and the rest of the world) forward.

          • RobertCHastings

            Hello, again. Different tack, this time. Unions,in the past, served a very valuable purpose, giving ALL workers a crack at good wages and good benefits. Without unions, workers would be putting in mandatory and unquestioned 7-day workweeks, no benefits, no paid holidays or vacations, no sick leave, and many other benefits to ALL working people, even those who choose NOT to unionize. While it is true that in some cases unions have become too greedy and are partly responsible for driving some jobs out of this country, they are largely responsible for the rise of the American middle class.

          • http://www.facebook.com/warren.nicholson.77 Warren Nicholson

            When are you going to stop repeating those lies?

          • lunibin

            Which lies did you have in mind Warren?

    • RobertCHastings

      Another thing Eisenhower did was NOT reduce the top rate on income taxes from what it was at the end of WWII – 90%. Looks like at least ONE Republican in the Twentieth Century had a brain!

    • RobertCHastings

      Excellent. Exactly the point many are making, that in order for us to progress into this century we must deal with our infrastructure, something the Republicans denied us with Obama’s request for a second stimulus. We all watched, horror-stricken, the collapse of that bridge in Minnesota. What was even scarier was the ensuing report regarding the state of bridges around the country. Everyone benefits from good infrastructure,the rich and the poor, government and business. While most of the advanced and advancing countries around the world spend significant shares of their GDP on rebuilding and maintaining infrastructure, we don’t. The hardest hit industry by the current Recession has been the building industry, putting hundreds of thousands of skilled carpenters, masons, steelworkers, etc. out of jobs. Attention to our infrastructure would put many of these folks into jobs, valuable jobs rebuilding this country, physically.

      • nobsartist

        Take a trip to china and see first hand, how we have all been sold a bill of goods. welcome to the new 3rd world.

  • http://pulse.yahoo.com/_B6RROC4IUESHT322QS5VJVPYRM Lynda

    Anytime a commission comes up with a cut to Social Security you know from the get go that it is a sham and fraud. Social Security is not part of the problem as it is self funded. Congress should stop raiding the trust fund to cover the shortfalls created by our under taxed revenue system. Lying about Social Security has become a blood sport designed to confuse and freighten the American people into accepting cuts or a move to a private system. That would be great for the moneyed class and a disaster for the country.

  • http://www.facebook.com/dominick.vila.1 Dominick Vila

    The reason we are running deficits, borrowing, accumulating debt and unable to invest to improve our infrastructure and create jobs is because of our refusal to pay for the things we need and benefit from. Putting an arbitrary cap on the debt ceiling, while well intended, is the wrong thing to do considering that we are not going to change our minds and start paying our fair share of taxes. Without enough revenues to cover outlays the only options are borrowing, deficit spending and accumulating debt.

    • sigrid28

      DV: Again well written, and we agree–as far as you say. I think legislators keep trying to make Simpson-Bowles fit, when it was designed for the red carpet some time ago: the times and the model have outgrown it. Like they say on the make-over reality programs, if you haven’t worn it since you bought it, it should go to Good Will. They hoard ideas the way they hoard money.

      It’s as though they refuse to really start from scratch, and they refuse to look at EVERY THIING, though that’s what they claim to be about. I may be a terrible housekeeper and the world’s worst procrastinator, but I know–and I think all Americans know–what the table looks like when EVERY THING is on it.

      I’ll give you just one example of something these guys refuse to look at. A way to raise revenue that would truly help the working class and raise revenue would be to increase wages, starting with setting the minimum wage at a level I would call a living wage. Second, I don’t hear enough about job programs. Third, if they spent as much time whining about military spending as they do whining about the cost of programs affecting the most vulnerable in our culture, I’d believe they really care about the deficit. What’s worse, the longer they waste our time mulling over these Simpson-Bowles, the more people are truly suffering.

      • http://www.facebook.com/dominick.vila.1 Dominick Vila

        I suspect the reason Republicans don’t offer any ideas on how to reduce spending, after almost four years of clamoring for spending reductions, is because they know that whomever proposes cuts in entitlement programs that affect benefits will be voted out of office.
        President Obama proposed a solution on the need for additional revenues when he proposed raising the tax rate that applies to the top 2%, plus the capital gains tax rate and estate tax rate for people with assets that exceed $3.5M. It is now up to the GOP to support their constant calls for spending reductions with specifics. I am not holding my breadth.
        All we have to do is look at what happened during the last campaign, when the party that ran on spending reductions cynically promised seniors to restore the $716B in MEDICARE saving and promised VMI cadets that, if elected, they would restore the DoD programs that have been cut to reduce spending.
        They know that revenues must be raised and spending must be reduced to balance the budget, stop borrowing, and reduce the national debt, but they don’t want to be blamed for the tough decisions that ought to go along with their rhetoric. They are, in fact, the empty chairs portrayed by Clint Eastwood.

  • carolknows

    why do we even bother to listen to simpson? that snarly old f*rt should stay home/on his porch and whittle wood. he’s always been a ‘my way or the highway’ antagonist who crassly degrades women and obviously feels superior to them. (note his inexcuseable ‘bitch’ comment during thomas hearings). he’s deplorable

  • montanabill

    This can’t be a good plan. We must spend. We must get spending to at least 100% of GDP. Then we must keep going and spend some more. If it causes a problem, raise taxes on the wealthy. Borrow another $20 trillion from the Chinese. We can print our repayment. This is a plan Paul Krugman would love!

    • johninPCFL

      We owe the Chinese $1.5T. We owe American investors $8.5T.

      Pick another bogeyman.

      • montanabill

        I was simply presuming other investors would not be silly enough to lend this country another dime.

  • Germansmith

    Well, I am a Centrist
    Here is my opinion.
    Simpson-Bowles is the best attempt to a compromise SO FAR.
    People should not shot down a plan unless they are willing to come up with a more acceptable option.
    We should NOT spend another penny in healthcare (Medicaid or Medicare) until we find a way to control the healthcare cost (HIGHEST IN THE WORLD)
    Any spending in infrastructure most show an ROI expectations.
    Cut military spending 20% across the board and have a committee of both military and ex-military civilians decide what is what we really need to defend our country and project power across the world.
    Modified our tax code eliminating most deductions. Use the tax code to encourage companies to create good paying jobs in the US.
    Enforce WTO dumping guidelines.
    Spend in primary education…if you teach them the value of education and how to learn and study when they are young, the rest would take care of itself. Spend more effort and money to bring good teachers and administrators to urban areas to see if we can break the circle poor attitude, ignorance and poverty.
    Subsidize the education of engineers, doctors, teachers, science mayors. You want to be lawyer or a liberal art mayor…pay out of your own pocket.
    Help the poor and unemployed TEMPORARILY. In the long run, everybody should take personal responsibility in how their lives turn out .

    21% of GDP is FAR MORE that enough for the Federal Government

    • http://www.facebook.com/dominick.vila.1 Dominick Vila

      I support investment in infrastructure, not only because it would help us reduce the unemployment rate temporarily, until coonsumer confidence is back up to normal levels and private industry starts investing and hiring, but because our infrastructure is in desperate need of repairs. Our roads, bridges, tunnels, ports and airports need to be upgraded to the same standards that exist in most Western European countries and Japan. Our power grid is unreliable, inefficient, wasteful and unreliable. Last, but not least, our levees are a national embarrassment. Take a look at the levees in the Netherlands and then look at ours in Louisiana and the Mississipi delta for a cursory comparison. Our problem is not that we don’t know how to do what needs to be done, or that we don’t recognize that improvements are needed, but that we are so caught up in our respective ideologies that nothing gets done. Incredibly, the same people who had no problem spending almost $1T in nation building in Iraq and Afghanistan, are vehemently opposed to investing in the USA because union workers may benefit from that investment. They had no problem spending money on sole source contracts awarded to Halliburton, who employed Iraqis, Afghans, Palestinians and other foreigners, but they have a huge problem investing at home because fellow Americans, who happen to be union workers, may benefit from it!
      We don’t need half the military bases we have overseas. Most have been rendered obsolete by technology and serve no purpose whatsoever. For that matter, we should dismantle NATO. The Soviet Union is no more and we don’t need that alliance to fight medieval zealots firing AK47s from the bed of TOYOTA pickup trucks.
      Foreign aid should be limited to humanitarian aid, and military aid should stop immediately.
      Subsidies to oil companies, the agri-business and pharmaceuticals should be discontinued immediately. These sectors of our economy are posting record profits and do not need our help to prosper.
      Eliminate ALL the loopholes that allow the wealthy to pay little or no taxes, and ban the use of foreign tax shelters to avoid paying paying taxes.
      Last, but not least, we must invest in education. Our HS ropout rate should be unacceptable to everyone, the fact that we rank 36th and 38th in the world in math and science is an embarrassment and enough of a reason to declare a national emergency. The reason we issue so many H1B visas every year is because not enough American kids are majoring in hard sciences. Demand for medical doctors, nurses, biomedical engineers, physicists, chemists and other professionals exceed supply.

  • Canistercook

    No plan would please you and the other lefties short of taking as much as they can from those who have succeeded in their lives instead of relying on others to support them. We need to get back to expecting able bodied individuals to contribute rather than take from others.

    • JSquercia

      So you think it’s perfectly OK that Mitt Romney pays 14% in Federal taxes . One good thing that Simpson Bowles advocated was taxing ALL income the same and just so you know Reagan did exactly THAT for a while .

      We are always told that this lower rate is to ENCOURAGE investment but it is BS . If I buy a share of stock in Company A from YOU , it does not benefit Company A one bit. It is frankly more like my betting you that the price will go up . Another thing the NEVER mention is that when the lose money they can write it off ; First against any gains and Second against ordinary income .

      • Canistercook

        No, but Obama is not talking about raising Buffet or Romney’s tax rate but raising the tax on a small business man making more than$200,000 a year that in California is already in 2013 to be taxed at almost 50% including existing Federal tax. No they cannot write off lost money, they can only deduct it from what they made just as they add it if they make money. It is sad that so many don’t really understand the tax code. It is too complicated and very unfair to all right now, especially small businesses that have ‘earned income’. When you save money in the bank the bank lends it to someone to build homes and businesses! That creates jobs!

        • johninPCFL

          “making more than $200k”? No. Taking home more than $200k after all possible deductions have been taken, including CA state income tax.

          • Canistercook

            So if the State already took it it’s not income!

          • johninPCFL

            If you pay state income tax, your federal return shows the payment off the top. If you don’t have enough deductions on your personal return, then it doesn’t.

            I don’t know of any small businessmen who don’t file itemized returns, so the state income tax would be a typical deduction on any of their returns. Wages paid to employees are also deducted, so the $200k is full take-home. I don’t know of many who take home that much; most manage their expenses more tightly and manage a small profit that they pay business income taxes on. They also maintain a second set of books that shows the real numbers, in case they ever want to sell the business.

            That’s why changing the top tax rate on high incomes will have negligible effect on small business owners. While their business may turn $1MM+, their personal take-home is generally tiny, and is done that way to minimize their income taxes.

          • Canistercook

            You must be kidding! Either that or you have no knowledge of what is a small business. The $200,000+ is what they live on and buy capital improvement items for their business.

          • johninPCFL

            Capital improvements, yes. But under the tax law changes passed with the stimulus, the expense regulations were changed so that up to $150k capital equipment could be expensed per year.

            “what they live on” is their salary and wage, and that’s a deductible business expense. The $200K is take home in the pocket after all deductions have been declared; it is whatever profit the owner decides to take out in cash.

          • Canistercook

            That’s true but how much of that $200K belongs really to him. In California for example after he has paid his property taxes, gas taxes, health care premiums, mental health 1% tax, State taxes, sales taxes and all the other little taxes and fees on things like his utility and telephone bills? Our population has been brainwashed into creating an ‘army’ of government employees who are doing just ‘fine’. We sure do have our ‘share’ of commissions, with highly paid ‘commissioners’. Many being relatives of elected officials! Why do government workers for example not have their pensions taxed to subsidize Medicare ‘premiums’ like Social Security recipients do if they make a high income. That’s because government workers were never forced into social security. Did you ever wonder why? Government has said to the rest of us “We will tell you what you have to join and pay into but we don’t have to join or pay into it’. How can we be such fools as to vote for more of the same? Gets to sound like what happened in the USSR when the ‘Party’ members buttered their own bread while the ‘workers’ toiled to provide the butter! Obama has succeeded in using an attack on the ‘rich’ to get elected in a similar manner Hitler used the ‘Jews and the Bankers’ in the late 1930’s. Guess in politics history does repeat! You have to find a ‘scapegoat’ and Obama has found one while he creates his form of Communism.

          • johninPCFL

            Government employees were classically paid much less than civillians. The trade-off was job security and pension at a lower pay rate, or rough-and-tumble, but with a chance at the big bucks. My father in-law’s pension after 25 years with the city was $300 per month.

            All of the things you mentioned are business deductions that would occur before the $200k went into his pocket. Again, the income tax rate change is on the NET-NET after ALL expenses.

            Yeah, Obama’s scapegoat is the 1% who own 90% of all the wealth in the US. Romney’s was the 47% who didn’t pay income taxes, incluging the several thousand multimillionaires with good CPAs, overseas military personnel, SS recipients, the disabled, and the working poor.

          • Canistercook

            Guess you don’t earn $200,000 or pay little in taxes or you would know the facts on how the tax code works and what is deductible. The prison guards here in California get over $100,000 a year and County Hospital doctors $400,000 a year and similar pensions at 55. That is our problem, much of the electorate runs on jealousy and misinformation. You have found your scapegoat I guess.

          • johninPCFL

            Both. A smart businessman deducts all he can to pay as little taxes as possible. That’s why two sets of books are kept, one for the IRS and one to show a prospective buyer. State taxes and fees are fully deductible either as business deductions (costs of doing business) or personally on your itemized return. They may be high, but they don’t impact what the tax rate change will do to the $200k you put in your pocket after all deductions are taken and go home with. That would be $70k under today’s tax code (leaving you $130k to bury in the back yard) and $79.2k if the Clinton rates are restored (leaving you $120.8k to bury).

            Since wage expenses are fully deductible, the tax rate change makes no difference WRT hiring. Either the business is succesfully meeting customer desires with its existing manpower, or not. If not, the $200k is available to hire more people. If so, then the $9200 difference in take-home makes no difference. Being clear here, you may choose to spend it or save it, but the $9200 makes no difference in whether you , as a company, hire new people.

          • Canistercook

            That depends on what kind of business one has. I agree some small businesses are able to do what you say, but not all. State taxes are deductible from ‘income’ not ‘income taxes’ so of course if you don’t earn it you don’t pay tax on it again to the Feds. Whatever it costs you to make that income is deductible because you never received that money as income in the first place. Out of the 130 you suggest one could ‘bury’ is what is left for your living costs and what you have earned the right to I guess. What the tax rate increase does to me and others is make us feel it’s not worth having the extra work and responsibility for 50 cents on the dollar. In other words why depreciate 100% of myself for a 50% return. Result is many will scale down their efforts as we are already seeing in California. The desire to go to the cold gold fields in Alaska and work hard was the desire to get rich. We have now killed for many that desire since it involves for many considerable effort and risk. The future is bleak with 90% black, 47% Hispanic and 27% white babies being born to single mothers who have difficulty raising them without the support of wage earners. Government workers with pay and pensions 1.5 to 2 times private industry. This along with more and more claiming disability social security, low cost student loans and food stamps bodes that even with this tax increase our future is not bright unless and until we are once again able to truly compete in this competitive world market. Having seen the result on relatives of ‘government entitlements’ and how they destroyed their work ethic, I favor requiring everyone contributing their efforts to the degree their health allows (and the obese should slim down so they can work too) rather than propping them up with too many entitlements. I have watched while an elderly relative gets Medicare paid for ‘Physical Therapy’ takes foreign trips, and when I suggest that joining an exercise class at the YMCA she pooh poohs it. It’s nicer to get spoiled by a therapist I guess at taxpayer expense. I believe we must get back to competing in this world or our whole standard of living for all will continue to fall. I like to help the truly needy not the spoiled college kids, irresponsible single mothers with 3 children at 19, people who eat a healthy diet, people who don’t smoke, people you can hire to work for you because they won’t steal from you etc. Perhaps I was raised in an old fashioned home that believed in the work ethnic and that is old fashioned in today’s world I guess. I watched a relative ‘out of work’ for two years but within a month of ‘benefits’ ceasing get a job.

          • johninPCFL

            Thank you. I agree with almost everything you say. I don’t have any answers, and the easy fixes don’t work. How do you “means test” capability? Fixed end dates for UE make sense until a truly needy family loses their home because in spite of enormous effort, a job can’t be found. You can’t legislate morality, so other than education, how do you keep the 19YO from having kids on welfare? Education, contraception, and abortion seem to be the options. If you don’t support the illicit kids, with food and education, they become criminals.

            After getting my first college degree, I emerged into an empty jobs market. With my chemistry degree inhand, I mended three-rail fence on a horse farm and designed and installed sprinkler systems until I got into GE in one of their DOE plants. I worked on the Pershing-II, the first missile decommissioned by Reagan. They have one on display at the Smithsonian A&S Museum. I’ve had my own company since the mid-1980s and we have 10 employees.

            We have a collision between societal needs (order, work ethic, lawful behaviours) and the individuality we were founded on. We need an educated work force, but shy away from compulsory parental involvement in their childern’s education. We need lawful behaviour, but shy away from punishing parents who condone or encourage lawless behaviour. We need children to grow up with a good work ethic, but encourage lotteries and other get-rick-quick schemes amongst the poor. Hard workers go to Alaska to try gold mining, the get-rich-quick types buy their plane tickets. Hedge fund managers bet a stock will fail, then find another participant to take their money on the opposite view. They don’t make anything, they don’t create anything, but they get rich betting on failure. How big a step is it to move from “hedging” against failure (but knowing you’re going to make a fortune if it happens) to arrainging the failure to secure your fortune?

          • Canistercook

            Unfortunately many of the ’rich’ are not Hedge fund dealers nor got their income that way. They are people like me that left school at 14 (no money to go to college) worked 7 days a week and saved and invested because I thought I would get ahead, I did. and now I am one of the ‘rich’ enemy I guess! Forward we go to a socialistic society. PS We have welfare and food stamps for the truly needy family! p.s. They are becoming in many cases criminals with cars, guns and cell phones. The job market is empty because our money is going to government pay and pensions and lawyers not developing manufacturing. Until we face up to our real problems, cut government pay and pensions, work to 65, and become productive again we will not succeed. Controlling unreasonable unearned wealth is fine but taxing to death all regardless of how hard they worked to earn it is unfair.

          • johninPCFL

            It’s odd that most successful businesses run on a 10% to 20% profit margin, but 100% margin (50% tax rate) is just unconscionable. Would I rather keep every penny I earn? Sure. But having an army to keep the baddies overseas is worth something to me. Having free roads (as opposed to owned roads, think railroads) is worth something to me. Having trained drivers on those roads is worth something to me. Having vehicles that undergo safety testing is worth something to me.

            On the other hand, countdown intersection timers at $1MM each? Yeah I could pass on those. Our local GOP commission decided that instead of lowering property tax millage, it’d be OK to just leave the millage alone and spend the money. So, in sum: tax rate stayed the same, property values doubled, spent all the extra money. At the federal level: tax rates dropped, business volume dropped, tax receipts dropped, spending dropped (but not nearly as much), deficits exploded.

            Congrats on your success. Move to FL and we’ll team up! It’s nearly as nice as CA, but the strawberries aren’t as good.

            There are four million jobs unfilled because there are no qualified applicants. Education? Yeah it’s critical.

  • JSquercia

    There is no more despicable man on the planet than Pete Peterson . The SOB has been AFTER Social Security for as long as I can remember .

  • http://profile.yahoo.com/GGHNYPK4GNCRYZLXWVZ447WHJM Plznnn

    “SPENDING” IS the problem. BO keeps the focus on taxing the wealthy to divert attention to the SPENDING mess. BO wants to again raise the debt ceiling so he can cut LESS Spending. Taxing the wealthy will only “feed” Washington DC for 8 days, but BO’s entire focus is on taxing the wealthy to perpetuate class warfare.

    • johninPCFL

      Yep, the teabaggers have continued spending like there’s no tomorrow.

    • ralphkr

      But,Plznnn, you are forgetting that the Republicans shall fight tooth and nail to protect SPENDING. After all wasteful government spending is what makes defense contracts so profitable and defense companies keep Republican coffers full. On the other hand the Republicans shall be overjoyed to break the contract that the government has entered into with citizens re: Social Security and Medicare since Republicans have no moral standards unless you consider their slogan, “Screw the populace and worship the wealthy” a moral standard.

  • Michael Welch

    Paul Volker wasn’t even a good steward of the Fed. He almost tanked the world economy 3 times during his tenure. He’s the last person I’d listen to for economic advice. But what do I know? I only have a Ph.D. in Business Administration, and I still would look for someone who *really* knows fiscal economy.

  • Chrysippus

    Simpson/Bowles are out-moded.. They believe in the discredited “Austrian School” of economics. See my “The Myth of Free-Market Economics” archived in http://www.watchingpolitics.com,( under my academic title:of L.S. Carrier) to see why they are economic fools..

scroll to top