Dread & Awful Czar,

Dr. J., as you know, has been following Washington’s tax dilemma with baited breath here, here and most notably, here.

President Obama presented his so-called compromise with the congressional Republicans to the wailing and gnashing of teeth of the most ardent progressives in his party.

This series of so-called Obama Tax Cuts® will tragically fail, either through the Progressive’s ignorance of market economics, or by sinster design.

Dr. J. will go through some of the line items and explain why they won’t help:

1. The current income tax rates will be extended for 2 years—Kicking the can down the road for two years will not be stimulatory. President Obama thinks that tax rates exist to punish people and redistribute wealth. He doesn’t want to punish the lower 98% of voters and thinks he can raise revenue over the longterm via punishing the the upper 2%. Maintaining the current rates is, in his mind, only to keep everyone who pays income taxes from being pissed off because their January pay check would be smaller than their December paycheck. Unfortunately with a 2 year extension, small business growth cash will stay on the sidelines. Long term tax stability would be what’s needed to promote growth. True tax cuts would be better, but that wasn’t going to happen.
2. The 2% deduction of the payroll tax for 1 year. This is simply a move to make it look like folks paychecks (especially public employees) are bigger at the expense of Social Security solvency. Dr. J would have made this move permanent, but linked it to more actuarially correct Social Security eligibility criteria for those 55 and under.
3. The Estate Tax Jumping to 35%. While 35% is less than 55%, it is still an unjustifiable double taxation. Let’s go through a theoretical example. Lets say there is a woman in her sixties who recently had a very large settlement from her divorce, significant royalties from a successful book, a home worth well over $6 million dollars and a small furniture business as her estate. Now let’s say it’s December of 2010 and she is told she has weeks to live as her cancer, which she has been battling for years has spread to her liver and bone. Given her amassed wealth, would one think that it would serve her family better if she didn’t make it past December 31st, especially if her children would be inheriting her fortune, or be forced to liquidate her estate to pay the inheritance taxes? Would she possibly be more liberal with her pain medications as a consequence? As I said, this is a theoretical question and any similarities to individuals living or dead is purely coincidental. When Mrs. Dr. J. was posed this scenario, she said she would rather go peacefully prematurely before 12/31/10 than live an additional week or so into 2011 if it meant that 35-55% of her children’s inheritance were to be confiscated by the IRS.
4. Linking the tax cuts to unemployment benefits. ‘Puter put it best when he addressed this issue, but the unemployed do not need to be coddled for TWO YEARS. They need to go out and do something. Keeping people on the sidelines because it is not economically feasible for them to take a job that pays ‘less than’ unemployment is demoralizing and stagnating. Any growth gains from maintaining the current tax rates will be sucked away by these benefits.

In summary, the Obama Tax Cuts® of 2011 will be the first ‘tax cuts’ in history not to be stimulatory. Dr. J just can’t decide whether it is because of ignorance of economics, or by design.

Best,
Dr. J.

The Czar of Muscovy

Божію Поспѣшествующею Милостію Мы, Дима Грозный Императоръ и Самодержецъ Всероссiйскiй, цѣсарь Московскiй. The Czar was born in the steppes of Russia in 1267, and was cheated out of total control of all Russia upon the death of Boris Mikhailovich, who replaced Alexander Yaroslav Nevsky in 1263. However, in 1283, our Czar was passed over due to a clerical error and the rule of all Russia went to his second cousin Daniil (Даниил Александрович), whom Czar still resents. As a half-hearted apology, the Czar was awarded control over Muscovy, inconveniently located 5,000 miles away just outside Chicago. He now spends his time seething about this and writing about other stuff that bothers him.