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12/26/2010

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Observer

Posner concludes with the following remarks:

"It would have been better to have just continued the tax breaks and not have cut the payroll tax and extended unemployment benefits. A small, and possibly (though not probably) temporary, tax cut is unlikely to stimulate much spending, and extending unemployment benefits can actually increase unemployment by making unemployed workers more picky in their search for a new job. These provisions of the Act are simply the Democratic quid pro quo for the tax breaks for the wealthy, favored by the Republicans."

**********

The first two sentences are undeniably true. Posner goes off the rails, however, in characterizing the current system of marginal tax rates as "tax breaks for the wealthy." He evidently forgets that Ronald Reagan (who put Posner on the federal bench) reforged the Tax Code in 1986 to provide a top tax rate of only 28%. But Posner is not alone. All commentators who refer to the "Bush tax cuts" conveniently neglect to mention this historical fact.


Jack

"It would have been better to have just continued the tax breaks and not have cut the payroll tax and extended unemployment benefits."

............ For whom? Like many Americans having been both up and down, it's fairly easy to pay taxes well after a fine profit or good income year takes place. On the other hand when down as huge number are today even a few bucks during unemployment or a break on payroll taxes while (trying) to catch up. Tax breaks for those who broke us? At our expense? Great.


""A small, and possibly (though not probably) temporary, tax cut is unlikely to stimulate much spending,"

........... Agreed. So why gin up more deficit?

"and extending unemployment benefits can actually increase unemployment by making unemployed workers more picky in their search for a new job."

............ Hmmm "picky you say?" Statistically does it matter? Joe turns down the mediocre offer while Suzie a bit more desperate takes it. Same number still unemployed and since Suzie had little bargaining power no increase in low end pay took place and god knows we would not want wage "inflation" at the lower tiers.

Observer: I do remember! And! The Reagan tax cuts did not pay the bills in peace time, seemingly ginned up the idea charmingly put forth by the old boy that "deficits don't matter" and certainly will not pay the bills in "wartime" or in deep recession.

GreeceRUS

“…there is no basis for thinking that the level of taxation in the Act, compared to the higher tax level in the 1990s, will produce a higher rate of economic growth than the normal 3 percent. “


“Second, and more important, estimates that GDP would grow by at least 3 percent in 2011 were premised on the expectation that the bulk, at least, of the Bush tax cuts would be continued. Given the weakness of the economy, a sudden tax increase in 2011, which would have been the effect of allowing those cuts to expire, could easily have knocked one or two percentage points off the GDP growth rate.”

----------------------


Am I reading things out of context here, or is there a reversal of thinking in the span of a mere 2 paragraphs?

But honestly, as a European immigrant to the US, I’d like to hear from Dr. Posner what are in his view the fundamental economic factors that set the US apart from the other 200 countries in the world and enabled it to become so disproportionately prosperous…

That seems to me the 14 trillion question which Americans and their naiveté seem to be taking for granted (“…now that we’re prosperous we sure can afford to implement a Welfare State. Don’t we?”)

Traduceri

Perhaps, but given the incidence of these taxes this has to be about the least efficient stimulus possible. Too little of it is going to the segments of the population that are most likely to spend it. While I think stimulus can do a lot of good, political opposition to it has been very effective at insuring that the stimulus that does occur is targeted as poorly as possible, which, while it will lead to some growth in the short term, ultimately serves to lend historical evidence to their claims about the futility and low impact of stimulus. Due to long term impacts on the political debate, I think this kind of stimulus is worse for our country in the long term than no stimulus at all.

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Stephen

Judge Posner,

You say, "extending unemployment benefits can actually increase unemployment by making unemployed workers more picky in their search for a new job."

Two points. First, while this phenomenon may be true when the economy is running at "full employment," is this really a concern when, as now, the unemployment rate is near 10%?

Second, do you believe that the unemployment benefits have a stimulative effect by pumping dollars into the economy? Presumably, most of the people who receive UI benefits will not be in a position to save and will thus be spending every dollar they receive. Shouldn't this benefit be factored into your analysis?

Thank you for writing this blog.

Jack

Stephen: Not likely that Posner will reply, but I'd say you have it exactly right. If say unemployed guy #10 million has the temerity to turn down a miserable offer one of the other desperadoes is likely to take it.

You'll remember that Econ tells us that in a market of many sellers and few buyers that the individual seller is a "price taker" not a market maker. In street talk you can spot the effect quickly: When you hear "What are "they" paying for ....... some un or semi-skilled task, or a truckload of potatoes" the price will be set by the employer or buyer. When you hear "Well, WE sat down an negotiated a compensation package....." well you see the difference!

UI is CLEARLY a shock absorber for the economy. When the typically, lip deep in debt, guy is laid off it's a combo of UI and perhaps spousal employment that keeps the car and house off the foreclosure list. You can imagine the ripple effect of millions of "Smart Leases" and repo's clogging up the car lots! Not easy to sell a new gashog when there's a lot full of good two year old units!

Lastly, exactly, lower incomes, be it UI related or other have the highest propensity to spend the next buck to land on their kitchen table. You've surely experienced the effect yourself, in a good year a tax rebate may sit there uncashed for a while and then be banked, mebbe for Jr's schooling a LONG time hence. That's why continuing the (unaffordable) tax cuts for the top 2% was a WASTE in terms of "bang for the buck" spurring. That was an example of pure clout amplified by a large dollop of greed. To get OUT of this mess requires getting the absolute max out of EVERY buck.

Hopes for 2011, Jack

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Bottom line, a tax increase would shave several percentage points off any GDP growth. Not what we need right now.

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"It would have been better to have just continued the tax breaks and not have cut the payroll tax and extended unemployment benefits.

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Prime Minister Stephen Harper's plan for more corporate tax cuts could be a loser with voters, pollsters say.

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Really The first, and I think less important, is that it indicates the possibility of compromise between the Obama Administration..Thanks

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This bargaining power no increase in low end pay took place and god knows we would not want wage "inflation" at the lower tiers..

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