Tax Cuts Cut Both Ways - UPDATED and now ridiculously long

That whole stupid fucking insane bullshit about tax cuts paying for themselves?  About how teh only way to save teh Economies is by cutting taxes on teh rich and teh corporations?  Well, I suppose if you're reading this you probably are well aware that it's bullshit and there's decades of proof of it, but have you ever wondered why it's wrnog?  I mean other than the fact that teh argument is always made by smug sociopathic selfish jerkasses or brainless dolts that think they are smug sociopathic selfish jerkasses.

Caveat - I'm just pulling stuff outta my ass here, it's not like I'm an economist - heck I don't even have an mba.

Here's the argument, by cutting taxes to teh uber wealthy - they'll have moar disposable income to spend which thus stimulates teh economy!  Tax cuts mean that rich folks have moar resources that they can then invest!  Increasing all sorts of good things for teh peons!  Yayyys!

Only, of course teh richer you are, teh higher your savings rate.  Meaning that cutting a dollar of taxes for teh wealthy has a smaller effect than giving a dollar to teh less wealthy.  That if you really wanted to stimulate teh economy and boost consumer spending, tax cuts benefitting mostly teh rich is teh worst way to do it.  Let's gloss over all of that, like a good glibertarian.

Teh tax cut thing is still bullshit.  If you wanted to "incentivize" spending by teh wealthy - you can do that with tax credits.  Up teh top tax rate and give tax refunds to Moneybags McHazALot when he actually uses his obscene wealth right when it would help teh economy teh most.  That way you can ding teh miserly Hoardy McSkinflints without hurting teh productive überGaltmenschen who only want to help teh markets realize their full potentials.  It's not a crazy idea - 401(k)'s are a tax refund based method to get people to put away some retirement moneys.  Typically into investments.  Although maybe 401(k)'s is a bad example given market performance over teh past few years.  Still - the basic idea is there, and anything that has gotten capital investment from a mutual fund has tax refunds to thank.

So anyone trying to sell you on tax cuts to boost investment or spending or whatnot, they are lying or stupid.  If you wanted to boost investment or spending or wev, you can just do that much moar efficiently than by cutting taxes.  Teh fairytale is purely a justification for tax cuts.

Anyways, if it's so easy - why don't they do it more?  Well other than the fucktards that run the system being total fucktards - they actually do do this a lot (heh "do do").  All those various deductions and exemptions are all programs which cut taxes for specific individuals for doing specific things, such as spending money on their home business or having babbies.

Okay, that's a lot of background - hopefully my point is a good one.

So, there are also these types of programs for corporations and businesses too.  The one I'm going to talk about is the one I have some experience with - the Renewable Energy Tax Credits.  There are two (actually three, but that's complicating things unnecessarily) programs - the Investment Tax Credit and the Production Tax Credit.  One covers 30% of the capital costs of installing a renewable energy facility and the other is worth around a third to a half the average wholesale price of electricity last year - for ten years.  These programs can easily turn a marginal project into one with quite decent returns.

BUT - and here's teh problem - teh incentives are tax refunds.  Meaning that to take advantage of these programs, you need to find investors who are taxable (called "tax equity investors").  And with a lot of big players paying little or no tax those investors are getting hard to find.   Although to be fair, these tax credit programs may be part of why those companies are paying so few taxes.

So here's the other edge of the tax cut - none of this stuff happens in a vacuum.  That currently there are big corporations that are sinking capital on a tax equity basis into wind farms and solar power projects.  And what happens when you cut their taxes?  They suddenly have less to gain from these investments.  IOW, that money that you're giving back to corporations so that they can invest in the economy?  They were going to invest that money in renewable energy anyways.  And now that you've cut their taxes - they aren't.  They're going to save it.

UPDATE: There's one of those genteel dust-ups brewing in teh left neo-liberal blogosphere.  Henry Farrell at Crooked Timber and Doug Henwood who I hadn't heard of earlier are taking teh piss out of BM Matt.  Generally, I'm okay with Matt (excepting that he passed on teh opportunity to spit in ME-gan's face when he had the chance.  In fact, he continues to do skip that opportunity regularly! ) but is he ever getting shat upon here, and justifiably too.  Why am I mentioning it as an Update to this post?  Just to point out that BM Matt is making very much teh same argument as teh tax-cut folks.  That his preferred sacred cow will start all these nebulous mechanisms which will automagically lead to his preferred outcomes because that's how it works since he is so smart and has such deep understanding of teh mechanisms and situation at all times.

Matt, when we're talking about near double digit unemployment for over a year and teh sum total of your argument amounts to repeating "At the margins" - you have lost.  You're going back to teh "marginal case" because that's what your argument is - a marginal case.  I mean srsly.  Ooooh, maybe a higher target inflation rate may have made moar rich persons spend some cash!  Right.  And maybe monkeys will fly out my ass, carrying giant bags with dollar signs on them.

One.  Teh margins are small.  That's why they are called margins.  I don't know why you folks don't understand that.  When you're trying to name teh single best thing we can do to spark job creation, a marginal change is teh wrnog answer.

Two.  Yeah, maybe the non-economist non-pundit non-wunderkid (without even an mba) has missed teh point about "at the margin".  No, I haven't.  You're trying to say that changing the marginal case is a fundamental change - that moving a threshold value captures teh entire population that was near the threshold.

Bullshit.  Where are all these people who would have spent like sailors if only the target inflation rate was one percent higher?  They don't exist.  No one thinks like that, not even technocratic dweebs like Yglesias.  Proof - when was the last time BM Matt thought to himself "I'm not going to splurge on anything until the Fed adjusts its target inflation numbers".  NEVAR.  His mom told me so.

One of his commenters put it very succintly:

This looks like:

1. Feds wants inflation.
3. Inflation!
Three.  If you want people to spend money, why the hell don't you just encourage that.  What the fuck is it with technocratic neoliberals and their roundabout Rube Goldbergian schemes to get at their goals?  Changing the target inflation rate?  WTF?  You want corporations to expand operations?  Why the fuck don't you just target that?  New Hire Tax Credit - Gubmint pays x% (in tax credits) of salaries for everyone hired that had been unemployed for moar than y weeks.  It's not fucking rocket science.

Four.  So a jobs program won't just use idle resouces and therefore will cause inflation. BwaAAHAhhaHAHa.  WTF is teh complaint?  U wanted higher inflation anyways.  i.e.  Teh jobs program achieves what you wanted in teh furstest place!*

No srsly though - here he says that teh inflation means that teh Fed will tighten money supply and slow down teh economies again and poof - back to square one.  IOW, in teh long run you get zero benefit from a jobs program.

Begging teh question of teh All Powerful Monetary Policy Paradigm.  But, nevermind that part.

His problem is that there’s no way you could design a program of that kind that exclusively mobilizes idle resources.  Well sure, but you can design a jobs program to do the shit that you want to do.  Like employing people who have been out of work for a long time and are at risk of becoming unemployable.  Like repairing long neglected infrastructure.  And then, even in teh world of Magical Monetary Policy Trumps All, you are back to square one - only if you discount all teh shit that got done.

Shorter BM Matt:  Since you can't design a jobs program that exclusively uses idle resources, jobs programs must therefore exclusively use non-idle resources and therefore get you "nowhere".  Much simpler to increase the target inflation rate and hope that all teh marbles in teh margins line up and teh magic invisible hand gives us lower unemployment because shut up that's why.  So much moar direct and sensible.

*IOW according to Matt, at teh margins people are moar concerned with teh Feds target inflation rate than they are with actual inflation. Because if all he wanted was moar inflation to stimulate marginal entities to spend - then he'd be advocating for a jobs program, which he says causes inflation.


zombie rotten mcdonald said...

I have experience with Hostoric Preservation Tax Credits and Title 42 Moderate Income Housing Tax Credits also, and what you say is pretty much the same.

Prior to 2008, you could recoup about 89 cents for each dollar of tax credit, meaning that to fund a 5 million dollar construction project, some corp could buy 5.6 million in tax credits for 5 million dollars.

After our wonderfully engineered economic fiasco, you couldn't find investors even at 65 cents on the dollar. meaning that to attract an investor for that same 5 million dollar project, you had to provide over 8 million dollars in tax credits.

zombie rotten mcdonald said...

Historic, not Hostoric.

I blame fish.

ifthethunderdontgetya™³²®© said...

Apparently we could solve all our problems if we just put fish in the freezer.

M. Bouffant said...

Or at least put fish on our families.

Dragon-King Wangchuck said...

re: Tax Equity

Yeah, there are tons of other tax credit programs - and not just at teh federal level. Teh Renewable Energy ones are worth only about nine or ten figures annually but a couple dozen billion dollars here and a couple dozen billion in accelerated depreciation and maybe a couple dozen billion for IRC S.41 R&D - and suddenly we're talking real money.

re: frozen fish

But then who would we blame things on? I guess there's always Obama,,,

WAIT. OMG fish is Obama!

Big Bad Bald Bastard said...

Caveat - I'm just pulling stuff outta my ass here, it's not like I'm an economist - heck I don't even have an mba.

Considering the track records of the economists and M.B.A.s, this is actually a plus.

fish said...

Economics is all pretend. As a colleague of mine once said "Economics: predicting the past with increasing accuracy."

I am not to blame for history.

You need to have more problems with MattY. He is the embodiment of evil. Couple examples.

Dragon-King Wangchuck said...

re: BM Matt

Is he an entitled and privileged trustafarian, smug and self-righteous in his superiority? That it certainly seems like he believes he is gifting us all with his insights and we're all ingrates for not immediately recognizing how he's right all the time? That he keeps talking about my town as some sort of example for wev neoliberal thingy is biting his ass, when it is plainly obvious that he has not teh first stinking idea aboot LEAFS SUCK? That he supported the invasion of Iraq?

Yeah, I don't think I have a blind spot with Yglesias. It's just that for a guy who is kinda inside teh Village, he's not that bad. And yes, that is grading on a very generous curve - but it's still troo. I guess I'm kinda like folks who are okay with Maher teh blatant misogynist and anti-vaccine nut.

Plus I really can't get enough of that thing his mom does with her nipple piercings.