Six Months to Go Until The Largest Tax Hikes in US History | Hacker News Reader

Six Months to Go Until The Largest Tax Hikes in US History

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15 pointsmarkbao17 comments

It's important to recognize that these "tax hikes" come from expiring legislation that temporarily cut the marginal tax rate for many. That these tax cuts have existed without commensurate cuts in government spending and in fact corresponded with enormous amounts of additional spending (primarily for two wars and a Medicare prescription drug benefit), have resulted in a nearly 7.5 trillion dollar increase in the national debt by September, 2009.

I'm not an economist, so I can't say for certain what the correct course of action here should be. But the effective result of these "tax hikes" is to return the marginal income tax rates to what they were a decade ago.

There is actually fairly solid economic evidence that the "Bush tax-cuts" were extremely damaging to the economy precisely because the cuts were not made with corresponding reductions in spending.

I find it interesting that the Republican party advertises itself as fiscally conservative while obeying none of the tenants of fiscal conservatism such as maintaining a balanced budget.

Keysian economics (use gov't spending to boost the economy out of recession) only works when there is a corresponding cut in spending after exiting the recession. In other words, over a period of time there can be deficits but only if replaced with equally large surpluses. A consistent state of deficit spending is unsound and unwise, to say the least.

See the last three paragraphs of this reply in another thread: http://news.ycombinator.com/item?id=1500697, most specifically the final question:

Is raising tax rates a good prescription for today's economic problems?

Or to better focus it on HN related business issues: will socking small businesses (http://news.ycombinator.com/item?id=1499419) and decreasing the return on non-tax advantaged investments by the "rich", e.g. angel investors who by definition are "rich", help people like us start up tasty new companies?

Here's a significant one for small companies including many HN style startups:

"Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”"

This seems rather short-sighted, basically, businesses have less incentive to purchase equipment now.

It would be interesting to know how much of equipment was expensed versus depreciated before this change.

I can answer that question right now:

Every bit possible up to a company's limit for losses. I.e. if you're still losing money there are provisions I'm not familiar with for carrying losses forward to when you ideally are earning a profit but I gather these have limits and in that case you might want to e.g. use the 3 year depreciation schedule for computers.

But if you're profitable (even if most of that profit is flowing through to the founders so that they can purchase their ramen :-) then you want to expense what you can immediately instead of paying taxes. Cash is king, especially in a startup.

I expect that this will be a boost to AWS, Rackspace, etc. and a general hit to the nation's capital investment. In relation to this I've read one small tour operator talk about how they were going to have to change their purchasing pattern for vehicles and among other things lay one person off. Multiply that by a few million small businesses that have to regularly buy equipment....

If they use equipment up faster than the official IRS depreciation schedules they're going to take a hit, period (this includes obsolesce, like replacing network gear with faster varieties). If their usage matches the schedules this is going to move earnings into the future, which will hurt, especially if they don't have the cash to spare right now.

First NASA, now this. Come on!

Outrageous---Obama is returning our tax rates to levels we haven't seen since that crusty old socialist Ronald Reagan was in office.

http://politics.gather.com/viewArticle.action?articleId=2814...

Errr no, that article is just plain wrong (ignoring that Reagan famously called himself a FDR Democrat).

From memory, but if you wish I can fact check it and add figures past 1980:

When Reagan entered office, the top marginal rates on "earned" income (e.g. wages and salary) was 50% and on "unearned" income (returns on investments) was 75%. He proposed a set of "supply side" tax cuts, was forced to phase them in over 3 years (remember he never had a Republican House majority and had a Senate one for only a short period as I recall) and that helped drag out the stagflation pain---e.g. people postponed taxable events until the cuts were fully in effect---but after that it was "Morning In America" (the theme of his 1984 election campaign).

That started in 1981. In 1982 he was forced into a major FICA (Social Security and Medicare) tax increase (note that's regressive) and from that point until this year or next FICA taxes have been in surplus to needs and were spent on the general fisc (SS and Medicare have a "lockbox" of unmarketable bonds for the money the Federal Government owes them).

In 1986 it was argued that the tax system was out of wack and various changes were made and as I recall some individual rates were increased, but there was at least attempted balancing in things like deductions or exemptions (can't recall the details).

Starting in 1981 as I recall there was also and indexing of thresholds and so on to inflation (prior to that the Congress would regularly pass "tax cuts" but people's tax bills would keep going up because they got pushed by inflation into higher tax rate brackets).

If you want to try to make the point you're making you're going to have to use a better source of data.

And this is largely irrelevant as a answer to the question "What makes sense today?" Reagan cut tax rates in 1981-3 when we had been suffering from a decade or more of stagflation. (Some) tax rates were increased in 1986 long after the economy recovered. Clinton raised tax rates in 1993 after the recovery of the G. H. W. Bush recession and they weren't disastrous.

Today we are at best in a technical recovery with sustained and increasing true unemployment being a lagging indicator (if measured traditionally the unemployement rate would be around 22% according to http://www.shadowstats.com/alternate_data/unemployment-chart...). At medium worst we're headed for a double-dip recession.

Forget about "fairness" or anything to do with "that crusty old socialist Ronald Reagan". Is raising tax rates a good prescription for today's economic problems?

If you're going to criticize someone else's source, you really should have something better than your personal recollection of the 80s to base it on. Try this:

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...

With regard to whether raising taxes at all is good policy, I'd say it's better to pay as you go than it is to borrow the money.

That's not useful for the purposes of my discussion of the '80s and '90s, which was a narrative of the shape of the changes without specific figures except for the starting ones for Reagan (where I seem to have been off by 5% for unearned income). As the table itself notes, it's grossly oversimplified (I would say to the point of uselessness, at least for comparison with today's tax regime) and I'd add that it obviously doesn't go into the critical (and all too common) changes in capital gains taxation. Or how inflation drastically changed effective tax rates for many families as it made the personal exemption more a historical curiosity than an effective tax policy for, say, the middle class.

As for pay as you go, sure, but not too relevant in an era where Federal spending is generating annual deficits of a trillion dollars this year and last as of about now (http://thehill.com/blogs/on-the-money/budget/107669-deficit-...), three months before the end of the Federal fiscal year. It's hard to imagine any level or type of tolerable taxation that could cover that.

Anyway, as I said, I'm willing to fact check myself and look up numbers.

totally not appropriate for HN

political news plus spun propaganda with an agenda

It's completely appropriate. This community is comprised of people with both technical skill and entrepreneurial ambition. Many will start, or already own or are part of, small S-Corporations or other small business entities. These tax increases, especially their implications for small businesses, are very relevant to this audience.

So exactly how is this propaganda? You can refute these taxes?

Grover Norquist propaganda.

Written by charliepark's tax preparer (http://news.ycombinator.com/item?id=1490945).

And every bit is pretty easily falsifiable.

Paying taxes is patriotic.

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