Will Trickle Down Policies Help "All Americans"?

There is an editorial in the WSJ today by Martin Feldstein and John Taylor that is - surprise! - supportive of McCain's economic policies, and dismissive of Obama's. Two policies they highlight are "a package of tax incentives that will create jobs and raise earnings by inducing firms to invest more in the U.S.," and "doubling the personal exemptions for families with children, which will reduce the tax burden on working Americans.":

Here a response from the Wonk Room

In Wall Street Journal, McCain Econ Advisers Claim McCain’s Tax Plan Benefits ‘All Americans’:  Today, Martin Feldstein and John Taylor, two of Sen. John McCain’s (R-AZ) economic advisers, published an op-ed in the Wall Street Journal claiming that McCain’s tax plan is designed to help “all Americans,” “especially those in the hard-pressed middle class,” and that “Mr. McCain will bring the budget into balance.”

In reality, McCain’s plan will significantly favor the ultra-rich and America’s largest corporations over the middle class, while driving up the federal deficit. Here is a dissection of the McCain campaign’s argument, and why McCain’s plan doesn’t really help “all Americans”:

CLAIM: John McCain’s tax policies are designed to create jobs, increase wages and allow all Americans — especially those in the hard-pressed middle class — to keep more of what they earn.

FACT: McCain’s tax plan delivers almost half its benefits to the top 1% of taxpayers, and gives the top 0.1% a $1 million tax cut. The only middle class tax cut his campaign can cite is “drill, drill, drill.”

CLAIM: Mr. McCain’s plan will significantly ease the tax burden on American families with children by doubling the personal exemption to $7,000 from $3,500.

FACT: According to the Tax Policy Center, “although this provision is sometimes described as a doubling of the personal exemption, that is true only in the first year, and then only for lower-income married couples,” leaving everyone else out. Every other family’s exemption is not fully phased in until 2016, and “because it is not refundable, it is worth nothing to poor families and little to many in the working-class.” Over 100 million families receive no tax cut under McCain’s plan.

CLAIM: Mr. McCain will bring the budget into balance.

FACT: As the Wonk Room has previously noted, McCain could not balance the budget with his current tax proposals, even if he cut ten cabinet agencies. His budget would create the largest deficit in 25 years.

Of course, the McCain campaign already has a history of disconnect between what it says and what it means. This op-ed is no exception: when McCain says his plan helps all Americans, he means the wealthy and the Fortune 200.

The plan involves tax breaks for the wealthy and for corporations, which the editorial says will increase productivity, and the hope is that jobs and income trickle down to those who really need it. We've seen this argument before, and we know how supply-side policies turns out. Lots of gains at the top, nothing in the middle and the bottom leading to rising inequality, little evidence that the tax cuts stimulate economic growth, and rising deficits that places the burden of the tax cuts for the wealthy on future taxpayers.

This is supposed to help all Americans?

Comments

[Blissex]

«There is an editorial in the WSJ today by Martin Feldstein and John Taylor that is - surprise! - supportive of McCain's economic policies, and dismissive of Obama's.»

Feldstein is such a buffon and a crypto-Socialist anti-market fanatic that he has written a column in the Financial Times arguing that the government should make sure that the market price of real estate don't fall below trend (I am not joking, he really argues against the tendency of markets to "overshoot" and drive prices below trend).

http://www.ft.com/cms/s/0/29e69ebc-736f-11dd-8a66-0000779fd18c.html
«How to shore up America’s crumbling housing market»

«The current decline of house prices is the natural result of the bubble that by 2006 had raised house prices to 60 per cent above their long-term trend. The sharp decline since then means that today’s prices are about 15 per cent above the trend level. But while a further 15 per cent decline may be inevitable, there is nothing to stop prices declining even further.
House prices that could overshoot by 60 per cent on the way up could also overshoot substantially on the way down. During the past 12 months, house prices across the nation fell by an average of 16 per cent. The large overhang of unsold homes continues to create pressure for further price declines.»

«A policy is needed that will permit the appropriate 15 per cent additional decline in house prices but end the risk of a further downward spiral.»

HAHAHAHAHAHA!

[anne]

What is puzzling is that we have had trickle-down economic expansion policy from the initial budget by George Bush in 2001, but it did not work and did not work in such pronounced fashion that I have no decent explanation for all that went so wrong. Why was a low interest rate, low and lowered taxes, increased government spending, deficit spending, even a decline in the value of the dollar, record international economic growth, and record or near record corporate revenue and saving economic expansion so poor?

[anne]

http://www.cbpp.org/8-9-05bud.htm

August 29, 2008

How Robust Was the 2001-2007 Economic Expansion?
By Aviva Aron-Dine, Chad Stone, and Richard Kogan

We examine Commerce Department, Labor Department, and Federal Reserve Board data on seven economic indicators: the gross domestic product, personal consumption expenditures, private domestic fixed non-residential investment, net worth, income from wages and salaries, payroll employment, and corporate profits. For each indicator, we look at average growth both since the economy hit bottom in November 2001 and since the last business-cycle peak in March 2001. We compare average growth over these periods with the average growth that occurred over comparable periods in the other business cycles since the end of World War II. (Growth is measured after adjusting for inflation, except for employment levels, where such an adjustment is inapplicable.)

For six of the seven indicators, the average annual growth rate between 2001 and 2007 was below the average growth rate for the comparable periods of other post-World War II economic expansions. Notably, this expansion was among the weakest since World War II with respect to both overall economic growth and growth in fixed non-residential investment. These two indicators should have captured any positive "growth effects" of the tax cuts.

The labor market also was weaker during the 2001-2007 expansion. Both employment growth and wage and salary growth were weaker during this expansion as a whole than in any prior expansion since the end of World War II.

The 2001-2007 expansion outperformed the average post-World War II expansion in only one area: corporate profits, which grew much more rapidly than average.

These conclusions hold whether one focuses on comparisons that examine the period since the expansion began in the fourth quarter of 2001, or comparisons that examine the period since the last business-cycle peak (i.e., since the 1990s expansion ended in the first quarter of 2001).

Annual Growth Rates Measured from Trough *

GDP
Consumption
Non-Residential Fixed Investment
Net Worth
Wages and Salaries
Employment
Corporate Profits

Current Expansion

2.8%
2.9%
3.9%
3.5%
1.8%
0.9%
10.8%

Post-War Average

4.3%
4.0%
6.0%
4.1%
3.8%
2.5%
7.4%

1990s

3.3%
3.2%
7.6%
4.1%
2.7%
1.9%
8.0%

Annual Growth Rates Measured from Peak **

GDP
Consumption
Non-Residential Fixed Investment
Net Worth
Wages and Salaries
Employment
Corporate Profits

Current Expansion

2.5%
2.9%
2.0%
3.2%
1.2%
0.6%
9.5%

Post-War Average

3.4%
3.6%
3.7%
3.9%
2.9%
1.7%
3.8%

1990s

2.8%
2.8%
6.4%
4.3%
2.3%
1.5%
8.1%

* Average growth rate in 23 quarters after trough. Current expansion: 2001-IV:2007-III.

** Average growth rate in 26 quarters after peak. Current expansion: 2001-I:2007-III. 1990s: 1990-III:1997-I.

[im1dc]

Trickle Down ala McCain/Bush Republicanism?

Give me a break.

Try the following for a new kind of Trickle Down due to Bush and his extremist conservative Republican enablers mismanagement of our economy and country.

http://norris.blogs.nytimes.com/

August 31, 2008, 9:27 pm

Prime Foreclosures

Here’s a milestone: There are now more foreclosures on prime mortgages than on subprime ones.

The Hope Now alliance — the lenders’ group put together at the urging of Treasury Secretary Henry M. Paulson Jr — estimates the number of foreclosure proceedings that begin nationally in each month.

The latest figures, for July, put the number at 197,000, the highest for any month since they started keeping track in July 2007.

Of those, 105,000 were prime mortgages, and 92,000 subprime. The June numbers also showed more prime foreclosures initiated.

The Hope Now people report that completed foreclosure sales are still higher for subprime but the gap is narrowing.

There are far more prime mortgages than subprime, of course, and subprime loans are much more likely to get into trouble. But this does show how the foreclosure problem is spreading.

One more indication that things are getting worse. Hope Now tracks the number of homeowners it says its members have helped each month to avoid foreclosures against the number of foreclosure sales completed.

For most of 2007, it figured three homeowners were helped for every foreclosure. Now the ratio is about two-to-one.

[Travis]

It is good to know the commenters here have original thoughts of their own, instead of just posting articles from other people.

No matter who wins, a reduction in taxes just isn't possible with the enormous budget deficit that will need to be covered. They can talk balanced budget all they want, but how do they plan to reduce the deficit? Both plans will raise the deficit, not lower it.

[Warland]

From WSJ article:

"To increase wages, Mr. McCain will provide incentives to raise productivity, which leads to higher wages."

Except for when it doesn't...

[Icarus]

The error in most thinking here is taking statistics of wealth, or income, and comparing it to previous presidential regimes (aka Anne).

What does one have to do with another? Just because labor was better off in 1955, what does that have to do with today?

The issue is the VALUE of that labor, and it has decreased. There are more entrants, and new nations competing to offer that same labor, and that has changed the game.

American Labor is actually lucky it has such a good lifestyle. A janitor in the US can still rent an apartment with plumbing. A janitor in most nations cannot. This is because American capital generates so much revenue.

That middle class laborer you guys pull for is simply offering services which don't have the market value it did 20-50 years ago. This is what's happening.

[Upandaway]

This "McCain" character looks worse and worse for every day now. Palin might be a screwd choice from a Rabid Red point of view (in the southern sense), but exactly how maveric is it to have a climate change denier on the ticket...?

Real *frikkin* desperate. There was an excellent comparison to another female VP-candidate in the 80-thies running against Reagan (think it was in the NyTimes).

[ken melvin]

Has the value of labor been reduced? You bet. What cost $3 to make in China sells here at Wal-Mart for $27.

[Pierce Wetter]

No one knows if the Bush tax cuts were good or bad, because we have no idea how bad the recession from 9/11 and the dot-com bubble could have been. We have seen 9.5% growth in tax revenue the last 4 years. I note that both parties are talking about extending the Bush tax cuts.

As for Obama's tax plan, growth is better then tax rebates any day of the week. I just ran the numbers and at little as .35% excess growth is better for the bottom 60% of the population then these credits here and there. We're only talking about 25 cents/hour under the Obama plan.

You can see more here if you like. I don't claim to understand all the ramifications of either candidates tax plans, but its pretty easy to show that "growth" trumps "fairness".

[Francois]

Why don't these economists leave the US and sell their advice to Putin, or Mugabe?

I'm sick and tired of dishonest imbeciles getting a soapbox and a megaphone to broadcast their lies.

Let's call a cat, a cat.

[Francois]

"I note that both parties are talking about extending the Bush tax cuts."

Both parties? Which country are you talking about?

[Francois]

"A janitor in the US can still rent an apartment with plumbing."

You obviously don't know a lot of janitors.

[glory]

http://www.econbrowser.com/archives/2008/09/extending_jgtrr.html - "the McCain plan implies a $4.2 trillion reduction in tax revenues. In other words, both tax plans imply a deterioration of the debt/GDP ratio relative to baseline, but the McCain plan implies a substantially larger deterioration [i.e., $1.3 trillion (45%) bigger]"

[Francois]

"This is supposed to help all Americans?"

Only the "good" ones, those who have the decency to contribute generously to electoral campaigns.

The rest don't vote anyway, so who the hell care about them?

Should they decide to vote anyway (a frightening prospect, no?) call ChoicePoint, Diebold and the Supreme Court.

Problem solved.

[donna]

OF COURSE it helps all Americans -- with their own planes. McCain's constituency.

[Julio]

Icarus:

"That middle class laborer you guys pull for is simply offering services which don't have the market value it did 20-50 years ago. This is what's happening."

So? Say the causes are really larger than the country -- all the more reason to remember Franklin:

"We must hang together, gentlemen...else, we shall most assuredly hang separately."

[Daniel]

Icarus:

"That middle class laborer you guys pull for is simply offering services which don't have the market value it did 20-50 years ago. This is what's happening."

I'd be really curious to see if anyone has numbers comparing the well-being of people of different income groups living in different countries, say the US, Canada, GB, Germany, France, Sweden, and Greece. Is there any comprehensive index, something weighing factors like income, wealth, social mobility, stability/safety, education, health care, etc, that could be used to rank the different societies?

I'm also surprised anyone is still pulling for supply-side econ, or even daring to throw numbers out in support of it like they mean something. I believe Anne's report above tried to control for factors other than the cuts when determining their impact, and still found they did little.

And finally, what's the difference between giving a $2mil cut to a guy making $20mil/year and giving $1,000 to 2,000 people? The same amount of money gets thrown back into the economy, and in the second case it gets spent directly on the things people need/use the most (food, clothing, computers - not yachts). Doesn't this shore up the parts of the economy that most people benefit from? And in theory, isn't it better to have a lot of people with extra cash and time on hand to invent and become entrepreneurs or small businessmen, instead of having them live paycheck to paycheck with one guy making many millions every year off their work?

[daveNYC]

"A janitor in the US can still rent an apartment with plumbing."

Aim low baby.

[Noni Mausa]

:I'd be really curious to see if anyone has numbers comparing the well-being of people of different income groups living in different countries, say the US, Canada, GB, Germany, France, Sweden, and Greece. Is there any comprehensive index, something weighing factors like income, wealth, social mobility, stability/safety, education, health care, etc, that could be used to rank the different societies?

There are indeed, I know of one for sure, although I can't find it at the moment. However, if you do a Google News search with the terms well being index, it returns some interesting articles. I'll mouse around later, and see what I can find.

[ken melvin]

Great the motivation of some to turn the US into a third world nation. Of late, they have made great progress.

[From Here To Absurdity]

So let me get this straight. We raise taxes on one group and they show up as wage gains, job security, health insurance, and an empowered middle class?

Wage compression and the left's new mantra of "income inequality" has been trends for the last 4 decades through both parties administrations, both parties congressional control, and through both parties tinkering with tax rates.

Anytime taxes are mentioned, clear thinking liberals turn into Charlie Babbitt.

[You got it!]

Yes, exactly! We fund preschools, improve education, improve infrastructure, healthcare, keep people safe, etc. etc., and, magically, the middle class and lower classes do better!

It would be one thing if the high incomes were earned in competitve markets. But they aren't. So they aren't paid the value of their marginal product - taxing the rents doesn't produce big distortions, and as you were so kind to note, the revenues can be used for things that help the middle and lower classes to do better, and with better infrastructure and better education, our growth rate is higher.

[Engineer]

Is this a bad dream, Pork McCain or the Obamassiah?

Where's the pitchfork party?

[Icarus]

Daniel,

Don't forget to add some 3rd world countries to the list.

The overarching process is one of moving labor to 3rd world locations, where the bulk of humankind lives.

Each job has a skillset, and developing that skillset has a cost (a social cost, a financial cost, etc, etc).
Nations will compete, depending on their levels of Neo-Liberalism, to acquire those jobs.

The Americans just don't have the competitive edge, anymore, for many types of jobs. This is a good thing, for the vast majority of us. We need chinese labor, indian labor, indonesian labor. And, concomitantly, we don't need more American, western European, and other G-8 Labor.

The tides will change.

The very system the West globalized...which was Capitalism through guns/missles, is coming back to bite their collective asses. It couldn't happen sooner.

[Icarus]

Julio,

F*ck the founding fathers. They were nothing but aristocratic colonialists.

The pull of the "Nation" is less and less relevant everyday. The globe is a sequence of migrations, with the ebbs and flows dictated by politico-economic and social forces.
The "traditional" US is nothing more than a violent mass migration of Europeans onto the north american continent. The coming Latino migration will change the color of its skin (thank god).

Nations are fictions, and can be dismissed. Nations are violent. It's uncanny how creations of Nations have always come with the violent destruction of unwanted peoples. There's a huge literature on this (E. Gellner, E. Hobsbawm, P. Chaterjee).

Ben Franklin means nothing.

I, who grew up in Los Angeles, care more abour people in Tijuana, than I do about people in Detroit.

[Too Much Fed]

Anne said: "What is puzzling is that we have had trickle-down economic expansion policy from the initial budget by George Bush in 2001, but it did not work and did not work in such pronounced fashion that I have no decent explanation for all that went so wrong. Why was a low interest rate, low and lowered taxes, increased government spending, deficit spending, even a decline in the value of the dollar, record international economic growth, and record or near record corporate revenue and saving economic expansion so poor?"

How about wealth/income inequality, too much debt, asset bubbles, negative real earnings for most people, and an oversupplied labor market????

You might want to check out itulip.com and the FIRE economy.

See this link:

http://www.itulip.com/forums/showthread.php?t=891

[Too Much Fed]

From the article: "To increase wages, Mr. McCain will provide incentives to raise productivity, which leads to higher wages."

Well, I would call that a half-truth AT BEST. Productivity gains can go to the workers or to the corporation. Guess what happens with an oversupplied labor market???

The last 25 to 35 years seem to prove that. Productivity is up a lot in that time. Real wages are practically flat with 1973.

Here is one last thing. Productivity growth reduces employment.

[Daniel]

Icarus - "Don't forget to add some 3rd world countries to the list."

I thought it would make more sense to compare like with like, trying to identify if the US is an outlier on the inequality/well-being scale. If, say, France, showed a significant difference in the well-being of its subgroups, we would be able to significantly decrease the importance of "globalization" on the list of reasons the typical American hasn't gained much from economic expansion over the past 3 decades. Or we would at least rethink its value. Out of interest, tho, those would be some interesting facts to acquire.

Icarus - "The Americans just don't have the competitive edge, anymore, for many types of jobs. This is a good thing, for the vast majority of us. We need chinese labor, indian labor, indonesian labor."

When you say the vast majority of "us", who are you talking about? Americans? Westerners? Humans on the globe?

[Lafayette]

McBush to the rescue

Icky: That middle class laborer you guys pull for is simply offering services which don't have the market value it did 20-50 years ago. This is what's happening

Wrong again.

Middle Class workers are relatively well off. They tend to have talents or skills such that they can find durable employment.

It is the poorer class workers, incarcerated in poverty, that are having a tough time. Their job-level skills are similar to any that can be found in China, where their job competition mostly comes from.

All that remains are non-dislocatable jobs at the minimum wage. Flipping hamburgers, greeting at Wal-Mart, housecleaning for the aged, etc., etc., etc. All precarious employment, at best.

The Chinese have about 10 million unskilled workers, mostly young, pouring onto the job market every year. If you think the bicycle of the American economy is difficult to keep rolling on two wheels, the Chinese one is far more difficult.

So, expect the "China price" to exert continual pressure on un- and semi-skilled production employment in the US for some time to come. The only way to compete in this sector is by establishing high-robotic content manufacturing lines in the US.

Which require huge investments ... that will be generated by McCain's Trickle Down Economic Program, which releases tax value for the upper 0.1% of the American taxpaying population.

Hurray! McBush to the rescue!

[lerxst]

I discuss the Feldstein-Taylor article over at Economists for Obama...Feldstein and Taylor basically use the complicated nature of McCain's health plan to obscure the fact that Obama's tax plan is broader based.

[Icarus]

Daniel,

Humans on the Globe...We are all better off if the relative importance of the US Middle Class erodes.

[Daniel]

Icarus = "Humans on the Globe...We are all better off if the relative importance of the US Middle Class erodes."

Please explain this point. I think I know what you mean but it would help if you'd clarify.

The weaker you make the middle class the more relatively powerful and disconnected from the rest of society you make the upper class, effectively crippling our governmental institutions and turning them into puppets for the wealthy. This isn't the scenario I think of when I think of "better off".

I can hardly imagine that a government controlled by the super rich can be better for the world. That kind of dysfunction actually spells disaster in my opinion. And as far as experimental evidence, we've had the Bush II years to show how bad an idea that is.

And for the record, I'm not hating on the rich. There's just the fact that their interests diverge from the rest of society. I also suspect, from personal experience, that there are psychological consequences from getting whatever you want whenever you want. You might fantasize that you can invade middle eastern countries with little to no consequences... oh wait. (I'm of course not saying this is deterministic, just that there are certainly behavioral consequences to immense wealth and segregation from society. You could call it Marie Antoinette Syndrome if you wanted...)

[Trickle Down]

Trickle down works about as well as creating new money, giving it to a small percentage of the population, and then expecting it to trickle down to the rest.

[ken melvin]

Trickle down if you wish; just don't call it rain.

[reason]

Too much Fed...
Very good link. A thought provoking description of what has happened. Short on policy suggestions though.

[Holly W.]

I'd be really curious to see if anyone has numbers comparing the well-being of people of different income groups living in different countries, say the US, Canada, GB, Germany, France, Sweden, and Greece.

You might be able to work out some charts on Nation Master, which is easily reached by Googling.