Warner: Eliminate Tax Cuts For The Wealthy, Give Them To Businesses

[cal04]

Sen. Mark Warner (D-VA) is offering a new compromise take on the Bush tax cuts. In a nutshell, the moderate Senator says Congress should hew to the President's plan to end tax cuts for the top 2% of earners -- but instead of using the new revenue to pay down the deficit as President Obama has suggested, Warner says it should be used to pay for new tax cuts aimed at boosting the economic activity of businesses.

Here's Warner's plan, as he laid it out in a Financial Times op-ed today:

Instead the administration should consider an alternative compromise. Extend the tax cuts just for 98 per cent, allowing the cuts for top wage earners to expire as scheduled. But instead of removing $65bn from the economy, we should work with the business community to enact $65bn in new, targeted business tax cuts and incentives to spur private-sector investment.
http://www.ft.com/cms/s/99572a20-edd2-11df-9612-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F99572a20-edd2-11df-9612-00144feab49a.html&_i_referer=http%3A%2F%2Ftpmdc.talkingpointsmemo.com%2F2010%2F11%2Fmark-warners-tax-cut-compromise-lets-extend-em-all-but-slightly-differently.php%3Fref%3Dfpi#axzz156pSBuTC

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video
Watch Warner discuss his plan and it's chances on MSNBC today:

[jpgray]

1. Businesses require demand, not tax cuts. They say so themselves!

Find the issue that jumps along with unemployment and the crisis. That's simply correlation, and subjective opinion at that, but it fits rather well as an explanation.

[Bonhomme Richard]

8. +1000 I don't get why anyone believes businesses need tax cuts.

Sure it would be great to get a tax cut but my business doesn't survive or grow based on what money I save on taxes. It grows because I make decisions on what is best for the business. I am not going to decide not to invest in my business because I didn't get a tax break. That would be suicide. Same thing as tax breaks for R&D. Makes me crazy. If a companies business were based on coming up with new products they would develop them whether they got a tax break or not because to do otherwise would necessitate closing the doors.

[ProgressiveEconomist]

9. Some payroll tax cut options boost CONSUMER DEMAND as well as net new hires--

see post #3 below and the GD thread linked there.

[jpgray]

12. How does a tax cut for a construction contractor induce him to hire?

You need to have things to build, not just tax cuts. People and businesses will tend to -save- money in this environment, and when neither will spend the government must, or demand will dry up.

[ProgressiveEconomist]

14. If he already has work lined up and is hiring, a 15% temporary payroll tax cut may

induce him to speed up his pace of work, hiring 7 men instead of 6, or paying an extra 10 percent in wages to attract better workers.

I agree with you--if no new work is lined up, he's not going to do any hiring or give any raises. Thus his payroll won't be expanding, and he won't be eligible for the cleverly-designed payroll tax break.

IMO, Dubya's SECOND national slump already has hit bottom, so a payroll tax cut plan like this one now has some "green shoots" to accelerate.

[ProgressiveEconomist]

23. Kick!

[BzaDem]

35. In general, an employer is not going to employ someone demand doesn't call for just because they

get a small payroll tax cut. If demand doesn't already call for a 7th worker, why would they spend tens of thousands in salary and benefits just to get a few thousand payroll tax cut?

They stand to lose far more than the tax cut if they hire too many people. So they won't hire more, and thus the second-order effect on demand will be negligible.

[ProgressiveEconomist]

38. 'If demand doesn't already call for a 7th worker...' At what price? Demand can call for

6 workers at $1 per dollar of employer cost, AND for 7 workers at 85 cents per dollar of employer cost. When something's on sale, and you're buying some anyway, you tend to buy more.

You are assuming a "fixed-ratio production function" that has no leeway for SUBSTITUTING one factor for another. See for example http://www.deltaecom.latech.edu/watson/agbu220/Chapter5-LaTech.ppt .

[BzaDem]

40. "When something's on sale, and you're buying some anyway, you tend to buy more."

I'm not sure that accurately describes the economy right now, though I could be wrong. I'm imagining somewhat inelastic (high slope) demand curves here, to reflect the macroeconomic factor that both consumers and businesses are hoarding money and/or paying down debt due to fear.

Let's say an employer hires 6 workers at $1 per dollar of employer cost, and that 6 workers can produce 600 widgets. There is currently demand for 600 widgets, at price p. This is because in the aggregate, people need exactly 600 widgets and are willing to pay p dollars for them (per widget).

Now, let's say there is a payroll tax holiday. An employer now hires 7 workers at 85 cents per dollar of employer cost. 7 workers can produce 700 widgets. But they can't sell all of them at price p, since the demand function we are using gives us 600 at price p. Because of the payroll tax holiday being passed along to the consumer, the price of each widget can be lowered all the way down to 0.85p.

But what if customers don't want to buy 700 widgets, EVEN at price 0.85p? What if they really only need 600 widgets, they are afraid of losing their house and their job, and WON'T buy more just because it is on sale? What if at price 0.85p, they would only buy 620 widgets? (I.e., what if the demand curve is very inelastic, such that lowering the supply curve to reflect the payroll tax holiday doesn't actually change the quantity demanded at equilibrium very much?)

Then the employer is producing 80 widgets that aren't getting sold, and they will have to lower the price even further for them to get rid of them (below cost). Rather than doing that, it is much easier just to not hire the 7th worker.

So to sum up, the more elastic the demand curve is, the more a payroll tax holiday incentives hiring. But when the demand curve is very inelastic/high-slope (reflecting pervasive fear in the economy), a payroll tax holiday doesn't incentive hiring that much.

Thus, the only way to improve the economy is to flatten out the demand curve (by having government create demand by spending). Lowering the supply curve (the payroll tax holiday) just won't cut it when the demand curve is nearly vertical.

[Hannah Bell]

26. really pushing those payroll tax cuts to defund social security & medicare, aren't you?

[BzaDem]

36. To be fair to ProgressiveEconomist, a temporary payroll tax cut could be designed not to affect SS

or Medicare at all. You just have the Treasury write a check to the trust fund in the full amount of the tax cut, and put it on the deficit.

I disagree with ProgressiveEconomist about the effectiveness of a payroll tax cut, but not because it will affect SS and Medicare. (It won't.)

[ProgressiveEconomist]

39. Than you. A payroll tax cut could get Treasury to buy back some of the $2.5 trillion

in non-publicly tradable securites it has sold to the SS Trust Fund since Reagan's "reform", setting a favorable precedent for the future. See http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9536891 .

[BzaDem]

34. +1. n/t

[BeFree]

2. nope

Put that money back in the SS fund. And then spend it on increased SS benefits to individuals who will go buy stuff from businesses. It's our money, we should be allowed to have our money and spend it as we see fit.

Again, Warner, et al, It's our money. Give it back to us.

[stillwaiting]

6. Stamp

[ProgressiveEconomist]

3. Did Warner's staff read Nouriel Roubini's recent op-ed? See the GD thread at

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9497641 .

Instead of spending $70 billion a year to give an extra $100,000 to each of the top 2 percent of income tax filers, why not spend the same amount ONLY on small businesses who expand their payrolls through new net hires and/or raises for entry-level and lower-middle-class employees?

That is a much surer way to boost CONSUMER DEMAND, GDP, and job growth.

The CBO agrees: see http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9518706

[csziggy]

4. Give the wealthy tax breaks ONLY for expenditures that create American jobs

So if they buy made in USA products, hire workers in this country, invest in American businesses that manufacture goods in this country, they can take a deduction. Every other dollar that goes through their wallet or any bank or investment account is taxed at 90%. That way, if all their money is spent in things that promote American industry and creates jobs, they can get off easy. If they insist on spending money on things made elsewhere, screw 'em.

The rest of us benefit if that produces American goods that we can purchase with money earned at jobs making those things.

[TwilightGardener]

5. How about we save the money, for once, instead of always trying to

find other ways to make the wealthy wealthier?

[bluerum]

7. U mean those same businesses that are sitting on mountains o' cash?

They should get another tax cut exactly why? So they can continue doing nothing but maintaining a minimal workforce?

[ProgressiveEconomist]

10. No--only those businesses that are expanding their payrolls with new hires and/or raises

for existing employees. See post #3 above and the GD thread linked there.

[bluerum]

16. Was that in Warner's proposals?

Your post says that was a statement from a column by Nouriel Roubini.

How is that related to Warners proposal? Did Warner attribute anything to Roubini?

[ProgressiveEconomist]

17. Not to my knowledge. But he said the same thing as Roubini. Maybe his staff

read my DU post!

[SoCalDem]

11. Here's the thing..

If you have a viable business plan, make a product that customers want..or a service that people need, you should not HAVE to beg & whine for "tax-cuts" in order to stay IN business..

if your business model relies upon NOT paying taxes on the PROFIT, either you are not making a profit ..and you need to fold it up

or

you are greedy bastard who wants a free ride, at the expense of the rest of us.

[w4rma]

13. The GOP won't like that, either. Sorry, the GOP only cares about giving money to the already rich.nt

[OregonBlue]

15. I like it.

[phasma ex machina]

18. +1 Too bad America's addicted to sticking it to small business.

[B Calm]

24. Small business is 500 employees or less. My employer has over

30 of these so called small business plants running all across the country and now into Canada and Mexico. My employer doesn't pay taxes now, so why in hell do you want to give him anymore of our hard earned tax dollars?

We make new bumpers for the big automobile companies. Last year he was laying off employees because no could afford to buy automobiles. Obama came out with the wildly successful Cash for Clunkers program and now we're all called back to work and working overtime. Another huge tax cut to the rich doesn't help demand (consumer). Without demand no new jobs will ever be created!

[phasma ex machina]

27. I'm talking about genuine small business not players.

I'm talking about America's designated villains who get stuck collecting government taxes and then get stuck again playing the part of scapegoat when prices rise to cope with government inflation.

America's got far too many players. So be it. They can play each other for all they're worth.

[BlueCheese]

19. Better than the GOP plan.

Of course, almost anything other than setting the money on fire is better than the GOP plan.

Right now, I think the government needs to spend the money, as part of a second stimulus.

[unkachuck]

20. "...aimed at boosting the economic activity of businesses."

....warner, you're a dick....businesses don't need tax cuts, they need customers....so, give us customers an even bigger tax cut....

[hollowdweller]

21. Enough of tax cuts already

Seems like we have the feds easing, tax cuts all supply side BS even from the dems.

How about put the money to paying down the deficit? That will help us more in 2012 against the GOP.

[ProgressiveEconomist]

22. 'Paying down the deficit'? IMO getting back the millions of jobs we're down from Dubya's

second recession will be the best way to fight the deficit--with future tax revenues from re-employed workers.

You've got to distinguish between STRUCTURAL and CYCLICAL deficit. The media--even Bloomberg and CNBC--won't help you. See the GD thread at http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9548570

[B Calm]

25. Lower the social security retirement age and open jobs up

for the younger generation! Problem Solved!

[Kurt_and_Hunter]

28. This is not ideal but it is intelligent

At least Warner recognizes that the worst course of action right now would be to apply any added revenue to the deficit.

[Tierra_y_Libertad]

29. Eliminate 50% of the "defense" budget and give it to the people to buy stuff.

[laughingliberal]

30. There you go! nt

[B Calm]

32. The wildly successful Cash for Clunkers program should have open their eyes

that this is the way to go to bring back jobs!

[Overseas]

31. Hate his idea! Make Exxon pay more than Zero taxes and give that to other businesses.

Disgusting idea from Warner. Cut that crap.

Many large profitable mega multinational corporations pay ZERO income taxes. Collect from them to support the smaller businesses.

Enough with stealing our Social Security to pay for businesses that pay for big favors from our legislators already.

[Obamanaut]

33. Any money gained via the tax cut dispute won't be seen anywhere

but as a windfall for congress to divvy up amongst their favorite projects in their districts, in an ongoing effort to assure their continued employment in congress. Edited to add: An example that popped into my mind was $3.4 million of stimulus money to build a turtle tunnel in Florida.

Write a budget that includes no new spending, that only allows enough increase to cover normal inflation and population growth, and don't allow spending over that amount.

Oh, and stop spending money on these endless wars.

[TheKentuckian]

37. How does that generate employment, resolve our 2 trillion dollar infrastructure deficit, transform

our energy generation and distribution, modernize our mass and individual transit, fight our structural poverty issues, help the homeless, save and rebuild our wetlands, and it goes on and on?

We have serious issues that must be addressed and very basic investments that are required to function as a first world nation that are decades overdue. 2 trillion dollars to get existing infrastructure just to code is a nation killing level problem. Water mains, roads, sewers, power lines, bridges, power generation, and mass transit cannot be ignored and we have the surplus workforce desperately at hand.

Deficit hawks ALMOST ALWAYS find ways to depress long term revenues, exacerbate capital project expenses, and reduce competitiveness with short sighted and anti-investment prescriptions.
The end result is token reductions in yearly deficits that land heavy gut shots to the structural deficit.