Obama vows to let Bush tax cuts expire

[Anders Hallin]

In most countries (in other words: in Sweden), if they can show that you spent 6 months in the country, you'll get taxed for your personal income there.

[Jason McCullough]

On the citizenship, I gather that if you completely give it up visiting the US becomes a gigantic pain in the ass because you're treated just as any other foreigner. Time in country restrictions and all that, and if you're a citizen of a tax haven you get the very unfriendly rules instead of the not-as-bad Canada/UK ones.

Do you have to move that far away? I would figure you could simply move your residence to some caribbean country (Anguilla, the Bahamas, Cayman Islands, St. Kitts, etc) and you would be set. You would need to have citizenship in some 1st world country other than the US, but that shouldn't be too hard to swing.

Near as I can tell, very few people want to live in developing countries, even in super rich enclaves. It's be like signing up to stay in Club Med for the rest of your life - the only people you want to hang out with are the tiny set of strangers like you. Servants are cheap, but your friends probably aren't there.

Maybe it's roughly analogous to living in really rural England back in the 19th if you were filthy rich; sure, you could, but unless you had a real thing for hunting the lack of access to London was excruciating. No dinner parties, no infrastructure.

[jeffd]

Iirc if it's demonstrated that you renounced your citizenship to avoid taxes, you're basically locked out of the country.

[Starlight]

Most of the people renouncing (sorry, no reference to hand, but I remember reading) have Citizenship in Canada or a EU country.

Bear in mind that if you're a US citizen in Canada and haven't been paying enough attention you can easily end up with a large tax bill and be refused entry anyway.

[bishop]

US Citizens living in Canada should be fine unless they somehow manage to work without paying taxes in Canada. They still have to file US taxes, but owe $0. Essentially, people are on the hook for the difference between what they paid in their resident country and what they'd pay in the US. There are some exceptions, like if a particular deduction is allowed in the resident country but not by the US..

US citizens that work in a country with lower tax rates need to worry. They owe Uncle Sam a check every year, and there are major penalties for not knowing this. If they live in a country without individual income tax (like Monaco), they owe the full US tax rate to the US government.

[Starlight]

They still have to file US taxes

Yes, that's where they've often gone wrong.

[ineffablebob]

Economist Justin Wolfers has a Freakonomics blog post and Bloomberg News column up about how far apart politics and economics are these days. For example:

How about the oft-cited Republican claim that tax cuts will boost the economy so much that they will pay for themselves? It’s an idea born as a sketch on a restaurant napkin by conservative economist Art Laffer. Perhaps when the top tax rate was 91 percent, the idea was plausible. Today, it’s a fantasy. The Booth poll couldn’t find a single economist who believed that cutting taxes today will lead to higher government revenue – even if we lower only the top tax rate.

Just another example of the unfortunate reality in US politics these days. The facts have no bearing on the policies being promoted by our politicians.

[Huzurdaddi]

I haven't been hearing that claim too much lately. What you do hear, all of the time, is that a tax cut would stimulate the economy. And guess what, the IGM Forum agrees! Interesting that the person writing the article didn't mention that. Weird.

Now that isn't saying that there is anything like consensus on whether it is the most efficient way to provide stimulus. That is a much harder question.

[cheapfilms]

Uncertain = agree?

[ydejin]

I haven't been hearing that claim too much lately. What you do hear, all of the time, is that a tax cut would stimulate the economy. And guess what, the IGM Forum agrees! Interesting that the person writing the article didn't mention that. Weird.

Now that isn't saying that there is anything like consensus on whether it is the most efficient way to provide stimulus. That is a much harder question.

Tax cuts on the low end of the scale will definitely stimulate the economy. If we gave everyone making under $50,000 a year an extra $10,000 yes, that would absolutely stimulate the economy.

If we give tax cuts on the high end, it probably won't do jack. I know if I get an extra $10,000 back on my tax returns, it's going right into my retirement fund. The bulk of the tax cuts Republicans talk about are going to the rich and very rich. That money is not going to do a very good job stimulating the economy, but it will help the rich get richer, which let's face it is what the Republicans are really all about.

[ineffablebob]

I haven't been hearing that claim too much lately. What you do hear, all of the time, is that a tax cut would stimulate the economy. And guess what, the IGM Forum agrees! Interesting that the person writing the article didn't mention that. Weird.

The article was referring to question B in that link there, not question A. It calls out specifically the "pay for itself" bit.

Neither question addresses the spending side of the equation, so you have to assume they're holding spending constant. Thus in either case the government debt goes up, and that doesn't seem to be an issue.

[Strollen]

Iirc if it's demonstrated that you renounced your citizenship to avoid taxes, you're basically locked out of the country.

I don't think it is nearly that bad. I just spent several days with a guy and his family who own a hotel in Mexico and has lived most of his life in Mexico. After he became a Mexican citizen about a decade ago he renounced his US citizenship to avoid the dual taxation issues.

He and his wife (she is a dual citizen but born in the US) have no problems traveling to and from the country several times a year for several weeks at time. Now presumably it would be a different situation if wanted to work or tried to collect social security etc. But it certainly is not the case that he is locked out of the country.

[ShivaX]

Tax cuts on the low end of the scale will definitely stimulate the economy. If we gave everyone making under $50,000 a year an extra $10,000 yes, that would absolutely stimulate the economy.

If we give tax cuts on the high end, it probably won't do jack. I know if I get an extra $10,000 back on my tax returns, it's going right into my retirement fund. The bulk of the tax cuts Republicans talk about are going to the rich and very rich. That money is not going to do a very good job stimulating the economy, but it will help the rich get richer, which let's face it is what the Republicans are really all about.

Pretty much. Give someone who has nothing a dollar and he'll spend it. Give someone with a wallet full of hundreds a dollar and the best you can hope for is that he gives it to someone with nothing because he doesn't want to accidentally pull it out of his wallet by mistake.

[Huzurdaddi]

Tax cuts on the low end of the scale will definitely stimulate the economy. If we gave everyone making under $50,000 a year an extra $10,000 yes, that would absolutely stimulate the economy.

If we give tax cuts on the high end, it probably won't do jack. I know if I get an extra $10,000 back on my tax returns, it's going right into my retirement fund. The bulk of the tax cuts Republicans talk about are going to the rich and very rich. That money is not going to do a very good job stimulating the economy, but it will help the rich get richer, which let's face it is what the Republicans are really all about.

Any data to back this up? I realize that assertion is gospel on this board (nice Amen brother ShivaX) but I have no idea how the stimulus function varies with income. It makes sense to me that all tax cuts have a stimulus impact, either directly or indirectly.

[Houngan]

Any data to back this up? I realize that assertion is gospel on this board (nice Amen brother ShivaX) but I have no idea how the stimulus function varies with income. It makes sense to me that all tax cuts have a stimulus impact, either directly or indirectly.

I just took your sentence, removed function, and Googled:

https://www.google.com/webhp?sourcei...w=1071&bih=704

Which led to this:

http://economix.blogs.nytimes.com/20...-and-stimulus/

Which seems relevant.

[Alstein]

I still think the best Gameplan Obama has is to let the cuts expire in their entirity at the start of the year, then propose new cuts.

If he wins, he can get what he wants, or clubber the Republicans on it for 2 years (and folks will blame the Reps if they block middle-class cuts just to get rich class cuts)

If he loses, it becomes Romney's problem, and the Dems can filibuster it up.

[Papageno]

Any data to back this up? I realize that assertion is gospel on this board (nice Amen brother ShivaX) but I have no idea how the stimulus function varies with income. It makes sense to me that all tax cuts have a stimulus impact, either directly or indirectly.

It just makes sense that a given amount of more income suddenly appearing in the pocket of someone with relatively little is more likely to get SPENT than that same amount appearing in the pocket of a more prosperous person. It comes down to the fact that the lower the income you have coming in, the more likely you have a purchase that you have an urgent need to make vs a person who's probably already bought everything he/she needs. Surely you've heard of the term "marginal utility of income," right?

Right now the problem in the economy is a shortfall in aggregate public and private spending, and thus too much supply and not enough demand backed up with dollars (effective demand), not too little saving (which is more likely to happen with a marginal dollar of income as it's received by people the more income they already have). Putting more money into savings and thus lowering interest rates when most businesses don't need to borrow it to invest is like "pushing on a string."

EDIT: BTW, if you want to help savers by raising interest rates, the best way to do so will be to fix the demand problem (either by federal tax cuts/credits on the low end, or via direct federal stimulus spending). When that happens, the demand will be there for businesses to want to invest, and the demand for credit will rise, raising interest rates.

[Huzurdaddi]

Putting more money into savings and thus lowering interest rates when most businesses don't need to borrow it to invest is like "pushing on a string."

I disagree with this, and assuming you are arguing in good faith, it is why we reach different conclusions. You argue that the increased savings yield a reduction in the cost of money, but that reduction in price does not affect behavior, and thus the end result is clear: reduction in top marginal rates is a dead end. I think that changes in price almost always yield changes in behavior and thus, to me, the end result is murky -- IDK which is better.

If there was a study about this, I would enjoy reading it, I doubt that they would state that it is conclusive, however. It may be very hard to tease the effect from the data. IDK.

[Papageno]

I disagree with this, and assuming you are arguing in good faith, it is why we reach different conclusions. You argue that the increased savings yield a reduction in the cost of money, but that reduction in price does not affect behavior, and thus the end result is clear: reduction in top marginal rates is a dead end. I think that changes in price almost always yield changes in behavior and thus, to me, the end result is murky -- IDK which is better.

If there was a study about this, I would enjoy reading it, I doubt that they would state that it is conclusive, however. It may be very hard to tease the effect from the data. IDK.

Well, in theory increased savings should lower interest rates, but they're so ridiculously low already that they're approaching zero (particularly interest paid to small savers), and the US corporate sector is sitting on piles o' cash already (that fact is all over the news) and not investing it because there aren't enough customers walking through the door. In a situation such as that why would they borrow and pay interest when they can just use cash on hand (which isn't earning them much more than if they put it in coffee cans buried in the yard), even if the already low interest rates charged went down? Lowering interest rates doesn't help anyone who doesn't need to borrow money.

Now, if people can refinance existing high-interest mortgages and actually get banks and credit unions to give them new loans, that certainly frees up money that COULD be spent on consumer goods and services, but with unemployment as high as it is most rational people who don't need to spend it right away are saving it for a rainy day, so we're back to the insufficient demand problem.

[Alstein]

Economist Justin Wolfers has a Freakonomics blog post and Bloomberg News column up about how far apart politics and economics are these days. For example:



Just another example of the unfortunate reality in US politics these days. The facts have no bearing on the policies being promoted by our politicians.

I was told in my economics policy classes that the rate where the Laffer curve starts to work is around 65% total taxation. No idea where they drew that number from, but it sounds reasonable. Most of my econ profs taught as moderates.

[Huzurdaddi]

Well, in theory increased savings should lower interest rates, but they're so ridiculously low already that they're approaching zero (particularly interest paid to small savers), and the US corporate sector is sitting on piles o' cash already (that fact is all over the news) and not investing it because there aren't enough customers walking through the door. In a situation such as that why would they borrow and pay interest when they can just use cash on hand (which isn't earning them much more than if they put it in coffee cans buried in the yard), even if the already low interest rates charged went down? Lowering interest rates doesn't help anyone who doesn't need to borrow money.

The point about piles of cash may not be valid as the numbers do get updated quite a bit. Also, IIRC, if a small handful of companies are excluded (eg: apple, and to a lesser extent a few other tech giants) then the discrepancy goes away entirely. Although it is a great political line, sigh. Further, corporate governance issues could be responsible for the increase in increases in cash on hand.

I'm going to repeat myself: I believe that incentives matter, that people respond to incentives. As the price of money falls, more people will want to get that money and put it to some use. Almost no matter what the environment, if the price of money is low enough people will invest.

[Jason McCullough]

Real interest rates can't go below near-zero (where t-bills are at) without inflation, and that's also at near-zero. So the market doesn't clear.

[Huzurdaddi]

We have around 2% inflation (depending upon calculation method), that leaves some room -- although a little more inflation would probably help (this is a little dangerous -- I'll leave it up to the Fed).

There is no reason why real rates can't go below 0% (nominal going much below 0% is pretty much a hard bound, however) -- hell the argument can easily made that the real rate *should* be less than 0%, moving resources through time is hard.

Just talking about this makes me want to go get a very large house.

[BennyProfane]

I'm going to repeat myself: I believe that incentives matter, that people respond to incentives. As the price of money falls, more people will want to get that money and put it to some use. Almost no matter what the environment, if the price of money is low enough people will invest.

I don't see how you can possibly argue that with a straight face, given that the factual reality RIGHT NOW is that money can be borrowed at effectively 0% interest--you can't MAKE it any cheaper to get that money without paying them to take it. And yet nobody IS taking it and investing it. Your argument is disproven even as you state it.

[Papageno]

Real interest rates of return on most savings are already negative, and have been for a while-- as an example, my credit union is offering a "60 month annual withdrawal" CD that pays 1.1% annualized. The saver is essentially paying to have her money sit there for 5 years and be federally insured up to 250 grand or whatever the figure is nowadays. You'd think this environment would provide incentive for the people and companies who can to invest/spend their excess, but it's not happening: personal savings rates are going up: http://www.bea.gov/newsreleases/nati...ewsrelease.htm

Anyway, to bring this back to the topic of Obama and taxes, the much-discussed "fiscal cliff" will screw the economy big-time if it happens. The President is clearly using the top marginal income tax rate issue to boost his fiscal responsibility cred while quietly letting the vast majority off the hook, but what choice does he have while most people insist on thinking (mistakenly) that the US federal government can actually go broke, and the politicians in the opposing party use said mistaken belief to rail against any and all spending to relieve the suffering caused by the current high unemployment rate?

[Papageno]

I don't see how you can possibly argue that with a straight face, given that the factual reality RIGHT NOW is that money can be borrowed at effectively 0% interest--you can't MAKE it any cheaper to get that money without paying them to take it. And yet nobody IS taking it and investing it. Your argument is disproven even as you state it.

The reply to this by the Right is "business uncertainty" by which they mean "the Obama administration is actually enforcing worker safety and environmental laws, and we can't have that."

The real reason is of course that there aren't enough paying customers to justify increased investment. Effective demand, godammit, how many times do the economists have to shout it.

[BennyProfane]

The reply to this by the Right is "business uncertainty" by which they mean "the Obama administration is actually enforcing worker safety and environmental laws, and we can't have that."

The real reason is of course that there aren't enough paying customers to justify increased investment. Effective demand, godammit, how many times do the economists have to shout it.

That whole "business uncertainty" thing is BS, and it pisses me off every time I hear it.

If you accepted that argument, then business uncertainty ALWAYS exists. There are elections every 2 years, and presidental elections every 4 years. SO no business ever has a window of, even at the outside, 4 years before they have no idea what is going to happen again. Its nonsense: you do business in the environment you exist in, and only the biggest of companies plan very far out in anything but relatively abstract terms. All "business uncertainty" is, is a another codeword for "Republicans don't like having A Democratic president."

[Papageno]

...to which I would add "...especially one whose administration doesn't conveniently look they other way while we violate all kinds of OSHA, MSHA and EPA regs."

[ineffablebob]

Virgina apparently is doing something right - they announced a $450 million surplus for the last fiscal year. The governor poked a bit at the feds:

“Together we are proving that, unlike Washington, we can regularly balance a budget, actually spend less and deliver good customer service for our people,” he said.

Now, I'm not expert in Virginian finances, so I don't know if this is a numbers-manipulating thing or not, but it sure sounds good. Perhaps this is a case of states being small enough to get past the gridlock?

[Jason McCullough]

Inflation above 2% would be dangerousssssss! Everyone remembers what a nightmare Reagan's second term was, with inflation varying between 2% and 6%.

The sudden outbreak of inflation paranoia is goddamn aggrevating.