Tax Relief, Obama Style

What a relief. Now that April 15 is out of the way, my tax rate is back to zero for another year.

At least that’s the way the President of the United States seems to have it figured—your tax burden, according to him, is measured by what you’re paying right this moment as opposed to what you’re obligated to pay in the future.

taxburdenThat’s the only possible interpretation of his statement last night that Tea Partiers (and others) should be thanking him for cutting taxes. The reality is that President Obama, like President Bush before him, has rather dramatically raised government spending and therefore has raised your taxes. To say otherwise is like saying you got your new swimming pool for free because you put it on your credit card.

Once the money is spent, the bill must eventually come due—and there’s nobody around to foot that bill except the taxpayers. We are locked into higher current spending and therefore locked into higher future taxes. The president hasn’t lowered taxes; he’s raised and then deferred them. To say otherwise is—let’s be blunt—a flat-out lie.

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41 Responses to “Tax Relief, Obama Style”


  1. 1 1 Anon

    In addition to taxpayers, do not consumers also pay the bill if there is inflation?

    By the way, can I make a request? I would like you to analyze the morals and laws of animal abuse.

  2. 2 2 Nick

    Go Go Ricardian Equivalence!

    Don’t you have to take into account how much we care about future generations, as in your critique of Krugman only hours ago?

    The US (and the Brits) ability to sustain high debt levels for long periods of time historically suggests the bill mightn’t arrive till after we die.

    Or for that matter people who will take short term tax breaks and move back from whence they came before the tax man cometh.

    There are all sorts of people who benefit, and not myopically.

  3. 3 3 Harold

    Surely, it is impossible for politicians to lie. However, it is possible in theory to raise more tax from a lower tax rate if the cake is larger. He could also cut my taxes and raise someone elses.

  4. 4 4 S.V.

    There isn’t anything worse than economists complaining about taxes. Really, really boring.

  5. 5 5 Windypundit

    I think it’s a mistake to think too much about the tax hit. That’s because it’s the spending that does most of the damage: The government is consuming real resources that could be used for something else. This is why it doesn’t matter how much we care about future generations. The spending happens right now.

  6. 6 6 Nichlemn

    Well, you can move to a different country. That be okay for you, but what happens if you want to stay while *others* want to emigrate? I wonder if government estimates of future deficits take this into account. If future tax increases to pay down debt or pay for Social Security and Medicare result in significant amounts of net migration, the resulting decrease in the labour force may necessitate further tax increases, resulting in more net migration in a vicious circle.

  7. 7 7 Sierra Black

    I thought the point was that cutting government spending in some areas and increasing it in others would, over time, reduce our future tax burdens. For example, not that we were fortunate enough to have this work out politically, enrolling everyone in the country in Medicare, even the healthy young people, would save the government from the looming cost disaster of running the nation’s largest health insurance system ONLY for high-need, high-risk patients.

  8. 8 8 Aaron

    Hmmm… perhaps you have to weigh the growth in government spending against the growth in the population to determine if individual tax rates are actually increasing.

  9. 9 9 Cos

    I’m surprised at you here. Often I disagree with you, but usually you’re honest and consistent within your own logic. This post strikes me as deliberately dishonest, in an attempt to use rhetoric to make a point. The point you want to make is real, but the rhetoric is … not what I’ve come to expect from you.

    And, quite flatly, no it is not a lie. Your claim that it’s a lie, clearly is. Except I don’t think even you believe your claim. You’re playing semantic games with what the definition of a tax rate or a tax cut is, to try to squeeze other people’s words into your frame.

  10. 10 10 Cos

    P.S. I’d also like to remind you of one of your earlier books, in which you made a strong and powerful argument against the concept that running deficits in a government budget is bad. I wasn’t entirely convinced, and thought you left out some considerations, but you certainly seemed to be arguing from a very confident point of view of “I don’t see why people have a problem with the government spending more than it takes in, it’s a perfectly good thing to do and has no drawbacks” (my paraphrase).

  11. 11 11 neil wilson

    Steve:

    You can’t have it both ways. Whatever we spend less whatever we tax must be covered by borrowing. However you repeatedly state our grandkids will be far richer than we are.

    Why not put the swimming pool on a credit card because my rich grand kids will easily be able to pay it off.

  12. 12 12 Popeye

    Obama’s usage of the term “tax cut” is entirely consistent with virtually everyone else’s, including his critics. To say otherwise — by pretending that this usage is “Obama-style” — is, to be blunt, a lie.

  13. 13 13 ryan yin

    Sierra,
    I understand how paying for the healthcare of a bunch of new people might lower the cost per person, but surely it doesn’t reduce the total cost (particularly if you’re also encouraging expenditures by lowering people’s out of pocket costs).

  14. 14 14 ryan yin

    Cos,
    I believe Dr. Landsburg’s point about deficits wasn’t that it doesn’t matter how much you spend so long as you don’t pay for it right away; it’s that primary issue is just how much you spend rather than the timing. So it seems to me that he was saying almost the opposite of the interpretation you took.

  15. 15 15 Steve Landsburg

    Cos:

    “I don’t see why people have a problem with the government spending more than it takes in, it’s a perfectly good thing to do and has no drawbacks”

    You have completely conflated two entirely separate issues, namely:

    1) Does government spending necessitate tax increases?

    2) Does it much matter whether those tax increases take place in the present or in the future?

    The answer to 1) is yes; your paraphrase of my earlier writing says that the answer to 2) is no. I have no idea what contradiction you think you see here.

    According to the standard everyday use of the phrase “tax rate”, my tax rate includes taxes I am liable for in the future. If that were not true, then my tax rate today would be zero and my tax rate on April 15 (when I pay far more than 100% of my income for that day) would be enormous. But nobody uses words in that way. If “tax rates” include what we’re committed to paying in the future, and if our future commitments have increased under this administration (as they did under the last) then both this administration and the last have indubitably raised our taxes. And in both cases, they’ve lied about it.

  16. 16 16 Jeff Semel

    Steve,

    I take your point that present spending requires present or future taxes to pay for it, but I’m afraid I have to agree with your critics about your use of language.

    You said, “According to the standard everyday use of the phrase `tax rate’, my tax rate includes taxes I am liable for in the future.” Yes, but only by matching your income against your accrued tax liability on that income, for the same period. If I were to hear someone mention her (annual) tax rate, or even by extension her daily or instantaneous tax rate, that’s the way I would understand the plain-language meaning of “tax rate”.

    And that’s why your cute example of an enormous daily tax rate on April 15, calculated on a cash basis rather an accrual basis, is not consistent with the standard every-day use of the phrase “tax rate”.

  17. 17 17 Snorri Godhi

    Please excuse me for leaving economic theory to go off on a cultural tangent. Part of the stereotype of Americans that I was handed down is one of spendthrift short-termists who want to get rich quick. (When in doubt about this stereotype, I could look at personal saving rates and trade deficits.) Therefore, I was pleasantly surprised to see thousands of Americans take to the streets to protest, not at higher taxes, but at higher public spending. I would certainly expect that from the Swiss, probably from the Germans (who took to the streets in the 1990s to defend the independence of the Bundesbank, if memory serves correctly), and possibly from other countries bordering with Germany, at least if the people are asked in a referendum; but I expected less of Americans, and I owe them/you a public apology.

    OTOH I think that there is a difference between Germany and the USA: the German press would never portray people worried about budget deficits as country bumpkins who don’t know what is good for them.

  18. 18 18 EricK

    So if government spending falls, but tax rates (as normally understood) were increased, this would actually be a tax cut. The apparent “tax rise” just being one of the previous deferred tax rises coming into effect.

    This brings to mind the recent post of yours about economists not making themselves understood.

  19. 19 19 Dagon

    Wait, this is simply untrue. There’s LOTS of people to foot the bill beyond (today’s) taxpayers. USD-denominated creditors come to mind – inflation is them footing the bill for today’s spending by collecting less real value than they lent us.

    Future taxpayers are a different set of people than today’s taxpayers as well.

    For the credit card analogy, it’s quite possible that the swimming pool _is_ free to the swimmer, if they declare bankruptcy or die before being forced to pay.

  20. 20 20 Douglas Bennett

    Jeff and Cos:

    Then if the current administration had decided to take no taxes whatsoever this year, but tax next year’s income at three times the rate from 2 years prior, it would be dishonest and inconsistent to refer to that as anything other than a tax cut?

    We should all go party in the streets because our tax burden is now zero?

    On an accrual basis, we owe no taxes on what we earned this year, so by your definition, no one should pay any attention to the tax increase next year. In fact, to refer to your tax rate as including what you need to pay next year would be an abuse of language unbecoming an economist? If this is truly how the government and the people view taxes then I can see why we spend so much.

    **If this made sense to you, go back and replace “tax next year’s income at three times the rate from 2 years prior” with “doubled spending” in the first paragraph. The result and analysis are exactly the same, except in magnitude.

    To refer to your tax burden as /anything other/ than the present value of all future taxes paid is misguided, myopic, and ultimately useless.

    Based on recent evidence, it appears that some people view their mortgage payments in the same way you suggest we view taxes.

  21. 21 21 Douglas Bennett

    PS Jeff:

    On an accrual basis, one would need to consider the future taxes on this year’s activities. That is part of what it means to have an accrual basis. Thus our tax burden for this year would be whatever we paid this year PLUS what we will need to pay in taxes to cover what we spent this year.

    Consider the purchase of all government goods this year. We the taxpayers must pay for those at some point. Most of what we bought this year was purchased on credit. Increase assets by the total amount of spending* less what we actually paid so far, then increase liabilities by the same amount. You and Cos are suggesting that when referring to our total liabilities, we should refer only to current liabilities and ignore all long-term debt.

    Landsburg was saying that it is the total amount of liabilities that matters when you are talking about how much you owe. You (and Obama, and Bush, and countless others) suggested that it is only what you owe this year that matters, and it should be compared to what you earned this year. Taking a snapshot of time like this, ignoring accrued future effects, is what cash accounting does. Thus his example of April 15 having absurdly high tax rates.

    Apparently you weren’t actually advocating a cash accounting framework, but instead an accrual accounting framework where you selectively ignore entire sections of your balance sheet. The cash accounting framework you disparage Steve for would actually be an improvement over that.

    *On goods/services only. Transfer payments don’t necessarily count.

  22. 22 22 Ned Baker

    Landsburg:

    You’re saying before I can even claim to have a present tax rate I must determine what my tax bracket will be for the rest of my life? Your pet definition of tax rates is useless and obviously atypical. Sorry, the rest of us will continue to tie the term tax rate to a particular year.

    And what about all this new spending by Obama? I know, I know, he’s a tax and spend liberal. The problem is, the numbers don’t bear it out. His budget is largely unchanged from Bush, except for his major project, HCR, which CBO says will reduce the deficit.

    Posts like this are childish.

  23. 23 23 Neil

    The folks who are most vocal in this regard are the Republicans. Reagan cut our taxes, blah, blah, blah, Bush cut our taxes, blah, blah,… Please direct this comment to them.

  24. 24 24 Snorri Godhi

    Allow me to slip back into economics mode to reply to Dagon, who makes very good points — good in the sense that I feel it worthwhile to explore them further.

    Wait, this is simply untrue. There’s LOTS of people to foot the bill beyond (today’s) taxpayers.

    So far, so good.

    USD-denominated creditors come to mind – inflation is them footing the bill for today’s spending by collecting less real value than they lent us.

    True … but US taxpayers are paying higher interest rates, right now, to compensate USD-denominated creditors for the possibility of rising inflation.

    Future taxpayers are a different set of people than today’s taxpayers as well.

    Also true … but unless you plan to emigrate, that should make you even more worried.

    For the credit card analogy, it’s quite possible that the swimming pool _is_ free to the swimmer, if they declare bankruptcy or die before being forced to pay.

    Also true, but that is why credit-card companies charge such high interest rates.

  25. 25 25 Jeff Semel

    Douglas:

    Just to be clear, I’m only taking issue with the language. I completely agree that government spending increases our future tax burden, and that my individual share of the anticipated future tax burden stemming from our real and present public liability has some negative present value, which might be hard to calculate. In accounting terms, I suppose it would appear on my balance sheet as a contingent liability.

    I think it’s too bad that the tax rate (I mean the nominal, published tax rate, not what you call the tax rate) is so much more salient to the public than public spending is.

    I’m not suggesting we ignore public debt, only that we keep a separate word for it. I suspect Steve used the term “tax rate” the way he did for shock value. Some of his readers seem to gotten an insight from his extension of the way the term is commonly used; others found his language to be disingenuous.

  26. 26 26 Douglas Bennett

    Jeff,

    Thank you for clarifying your standpoint. I think our only difference here is that I find the language to be both amusing and useful for encouraging more people to realize that many things they view as very different are in fact economically equivalent. Since the only difference then is personal preference, I have no inclination to quibble over it.

  27. 27 27 James

    Steven:

    If Obama genuinely believes that his spending programs will cause economic growth in excess of their associated outlays, he might sincerely, albeit wrongly, claim that he is actually lowering tax rates. Undeniably, tax levels must rise.

  28. 28 28 Neil

    BTW, should it be “tea partiers” or “tea partyers”?

  29. 29 29 Steve Reilly

    @Snorri Godhi

    “OTOH I think that there is a difference between Germany and the USA: the German press would never portray people worried about budget deficits as country bumpkins who don’t know what is good for them.”

    Just out of curiousity, do you know how the German press portrays Teapartiers? I’d imagine they’re mentioned at least on occasion in the German press; I’d be interested to know if they’re portrayed as bumpkins or otherwise.

  30. 30 30 Snorri Godhi

    Steve Reilly:
    Just out of curiousity, do you know how the German press portrays Teapartiers?

    Sorry, I don’t know German, and anyway I read the news almost entirely in English these days. You might want to look at the English section of the Spiegel website. In fact, I am going to do that right now…

  31. 31 31 Harold

    Having had a look at the comments above I think that the language has been chosen clumsily or incorrectly. I think that “taxes” as commonly understood is the rate of tax you will need to pay on a dollar earned today – even if you won’t actually pay it until next April. If public spending is higher than tax revenue, then there will be a deficit built up that will need to be payed sometime later. Next year, you may need to pay extra tax to make up for the fact that you paid a low tax rate this year. Next year you may have a higher tax rate. That is a consequence of this years low tax rate, but is not the same as having a high tax this year. Maybe this years spending will have caused economic growth, and you won’t have a higher tax rate next year. We have different words for tax and spend because they are different things. Steve seems to think we should conflate the two. If the president started using the words as Steve suggests, he would be widely mis-understood. I think the point could have been made without resort to personal insults. There was no lie in saying taxes had been lowered. There may have been a mistake that the teaparties should thank him for it.

  32. 32 32 muirgeo

    “The president hasn’t lowered taxes; he’s raised and then deferred them. To say otherwise is—let’s be blunt—a flat-out lie.”
    SL

    I wasn’t sure which president you speak of here. Are you talking about the Reagan and his “tax cuts” and his ensuing 270% increase in debt over 8 years?

    Or were you talking of the George H Bush’s tax cuts and his $1.5 trillion dollar addition to the public debt… were those the FAKE tax cuts you are talking of?

    I know for sure you weren’t talking about Bill Clinton because he raised taxes and we saw the debt to GDP go DOWN from 70% to 55%.

    Maybe you were talking about George W Bush. He “cut taxes” and now we have $6,000,000,000,000 trillion in “future taxes” …right???

  33. 33 33 Bob

    S.V.: “There isn’t anything worse than economists complaining about taxes. Really, really boring.”

    Well, there is one thing worse than that: those ignorant tea-partiers complaining about taxes. In fact, anybody concerned about taxes is the worst thing evar!!1! Why can’t all of those bigots thank Obama for all of the goodies they’re getting and stop their whining?

    Muirgeo:

    Good point. Previous presidents have had their faults, therefore Steve should refrain from criticizing this one. Especially since he never ever ever criticized former presidents. Never. Not even a peep.

  34. 34 34 muirgeo

    Bob,

    I should think a little leeway is in order. This president just 18 months ago came into the worst economic downturn in 80 years which was 30 years in the making.

    It’s a bit like blaming the kid who happens to be holding the broken vase his 3 brothers playing ball in the house broke… don’t you think?

    So the differences are;

    ONE… Obama has only been in office for 18 months

    TWO… he indisputably came into the worst economy ever since the last Republican Lead Great Depression

    THREE… he is following a specific economic policy that has a theoretical and historical track record that specifically involves deficit spending to jump start the economy

    Four… he is not willy nilly spending massively because he is a socialist or some other such drivel your side puts forth.

  35. 35 35 Steve Landsburg

    Muirgeo: Have you noticed that none of your four points is remotely relevant here?

    I say: The President’s policies have had the inevitable effect of raising taxes, yet he claims to have lowered taxes. This is deceptive.

    You say: But he had good reasons for following policies that will lead to higher taxes!

    We could, of course, both be right. Which means that your position is not opposite to mine; it’s just off topic.

  36. 36 36 Super-Fly

    @Ned Baker

    Landsburg is not trying to trick us with some economic word play. Focus on the concept and see if your definition of ‘tax rate’ is helpful at all. If the president tells you there has been a 100% tax decrease over the last two days, it would be completely true (under the definition you seem to be happy with). Would it be honest or useful to anyone?

    Of course you don’t have to figure out your future tax rate for the rest of your life. You just have to know that if you buy something, you will have to pay it off. We could buy everyone in the country a diamond-studded mustache comb and still lower taxes… does that make it a good idea? If you don’t pay it off, your children will.

  37. 37 37 Harold

    ” If you don’t pay it off, your children will” – our fabulously wealthy children.

    To be consistent, if we believe we should not spend to prevent global warming, we should also run up large deficits and tax capital income (have I got this right?). These all invlolve having more now and less in the future.

    If we believe in preventing global warming, we should not tax capital income, and make sure we pay enough tax to cover all Govt. spending. This costs now so there will be more in the future.

  38. 38 38 muirgeo

    “Muirgeo: Have you noticed that none of your four points is remotely relevant here?

    I say: The President’s policies have had the inevitable effect of raising taxes, yet he claims to have lowered taxes. This is deceptive.”

    Well on that point your whole post is irrelevant. Can you name one president who WASN’T responsible for the same “deception” as Obama.

    My point is that whoever came into office January of 2009 was going to have a huge deficit/ debt (“future taxation”) not of their doing. So most of our”future” taxes are from Reagan, Bush, Clinton and W… not Obama. What IS deceptive is to assume it’s ALL from Obama and Bush… its mostly Bush’s but Reagan set the trend growing the debt 270% in 8 years.

    Sure if you were expecting some one to come in and “Hoover” the budget they could claim not to have placed future taxes on us but the result might have been a full out depression.

  39. 39 39 Harold

    There is a valid point here about honesty in politics. Politicians cannot be honest, or don’t think they can be honest, or the media would pillory them. Imagine the soundbites , played endlessly, forever; “this will cost you money”; “Some people will die because it costs too much to stop it”; etc., etc. In this Obama is no different from the others. Any attempt to put accross a complex message seems to be doomed to failure through mis-quotes, out of context quotes and out-and-out misinformation. Take the healthcare “debate” – there was lots of talk of death panels, which was complete rubbish, but dominated the story for days or weeks because it makes a good soundbite and plays to peoples preconceptions.

    I think it is good to point out these discrepancies where we see them and do a little bit towards making politics more honest. I do not think it is particularly useful to single out individuals and call then liars for just playing the normal political game. There are lies from politicians worthy of the name, but this tax thing is not one of them.

  40. 40 40 Snorri Godhi

    Muirgeo:
    Can you name one president who WASN’T responsible for the same “deception” as Obama.

    I am not sure what you mean by “deception” (you do not seem to mean the same thing as our host means), so I’ll provide 3 different answers.

    1. Harry Truman. He paid off the national debt at a higher rate than any other US President, in spite of the Korean war; ergo, he did not deceive by postponing tax increases.

    2. Dwight Eisenhower. After Truman (in time), the only President who did not increase federal spending as a proportion of GDP:
    http://www.cato-at-liberty.org/2009/12/19/george-w-bush-biggest-spender-since-lbj/
    ergo, he did not deceive by necessitating tax increases.

    3. Every US President who did not say that people should be grateful to him for cutting taxes.

  41. 41 41 Snorri Godhi

    Erratum: in my answer #2 above, “as a proportion of GDP” should be replaced by “adjusted for inflation”. Either that, or the text in the link that I provided is misleading.
    Anyway, the answer remains the same.

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