Balancing the budget

I see that John Edwards is proposing that the Bush tax cuts be repealed so the revenue can be spent on an expanded Medicaid program:

WASHINGTON (Reuters) – Democratic U.S. presidential candidate John Edwards on Sunday said that he would raise taxes, chiefly on the wealthy, to pay for expanded healthcare coverage under a plan costing $90 billion to $120 billion a year to be unveiled on Monday.

“We’ll have to raise taxes. The only way you can pay for a healthcare plan that cost anywhere from $90 to $120 billion is there has to be a revenue source,” Edwards said on NBC’s Meet the Press news program.

The 2004 vice presidential nominee and former North Carolina senator said his plan would “get rid of George Bush’s tax cuts for people who make over $200,000 a year.”

I’m eagerly awaiting the denunciation of this plan from the econbloggers who’ve criticized the structural imbalance in the federal budget. Mark? Brad? Menzie? Anybody? So far there’s been silence. I don’t see how the imbalance can be remedied by raising taxes and spending the revenue. That sounds to me as though it would exacerbate the problem if anything.

Just for the record I believe that some form of tax cut was politically necessary in 2001 but that the tax cuts enacted were imprudent and, worse, not as effective in stimulating the economy as they might have been. There was no lack of consumer spending at the time nor in business investment (in the sense of people investing in stocks). However, there was a lack of business investment in the sense of businesses buying things and that continues to be somewhat sluggish. I favored a reform in the R&D deduction rules or, better, abandoning the depreciation rules altogether.


Edwards is being pilloried left and right for this proposal.  On the one hand Sean Hackbarth is upset about the tax increase and on the other Cernig of Newshog is calling Edwards a “corporate Dinocrat”.

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  • I have a financial background and I always find it odd that whenever raising the minimum wage is proposed all the Righties get a wedgie, and whenever a tax cut is proposed all the Lefties get at least two of them. Both without one item of hard evidence to support their thesis; coincidence is not hard evidence. I’ve been around since the minimum wage was $.75 and hour and each rise always meant that small business couldn’t afford it and would lay off helpless students and so on. Major tax cuts like the Kennedy and Reagan cuts absolutely worked because both targeted a group that had their incomes tied down, so loosening them up put a hell of a lot of buying power into the economy. NOW we have a couple of unstable and not understood conditions. They are: companies in other countries do NOT have to pay medical insurance for their employees and the cheaper costs of doing business is killing us; and the bottom 75% don’t pay ANY tax at all so a tax break brings zero into the overall economy. Breaks in stock investment taxes and top end rates can produce business activity but how much? Nobody knows. BUT WHAT ABOUT A TAX HIKE? The bottom 75% will go totally nuts if they suddenly have to pay anything, so it follows that the middle class is going to get wasted and we can do the math for the evidence. Further, consumer money available will shrink (M-1)and that usually means bad for business.

    It ramains to be seen if Edwards has traction with people who never vote because if he can rouse them off their lazy asses, he wins. All the dopey feminists will stick with Hillary, and that’s it.

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