Kevin G. Hall: None of the parts of the deal likely to be effective stimulus, each party trying please its base
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. A few days ago [in] the insider Washington paper called The Hill, the headline is “Don’t topple the economy, Obama tells the Democrats”, as the members of the House are deciding whether or not to go along with a deal that President Obama made with the Republicans and has now passed the Senate. They have another interesting piece in here. They say, “CEOs find new friend”. And here’s the first couple paragraphs: “Corporate chief executives who have been disappointed in the Obama administration are suddenly singing a different tune. Ivan Seidenberg, the Verizon CEO who just months ago criticized President Obama’s policies as a threat to business, on Wednesday said, ‘Obama has shown a willingness to learn.’; ‘The things that occurred in the past of couple days are extraordinary,’ Seidenberg, chairman of the Business Roundtable, told a Washington news conference on Wednesday.” So progressive Democrats in the House are apparently screaming. They don’t like this deal. CEOs across the country are apparently cheering the new President Obama. Is this deal good or bad for most Americans? Now joining us to try to answer this question is Kevin Hall. He’s the national economics correspondent for McClatchy Newspapers. Thanks for joining us, Kevin. So there’s a lot in this deal. But let’s just pick out a few things to dig into. The fundamental arguments go: President Obama says that if we don’t have the stimulus part of this deal, which is mostly to do with extending unemployment insurance and a certain amount of payroll tax deductions, tax reduction, that without that stimulus we could be back into a double-dip recession; so, begrudgingly, we have to make this deal with the Republicans to give the rich what they wanted. So let’s dig in. First of all, what do you make of the basic argument?
KEVIN G. HALL, ECONOMICS CORRESPONDENT, MCCLATCHY NEWSPAPERS: Well, there’s a little bit of truth on both sides. It will stimulate–the unemployment benefit extension and the payroll tax holiday are the two parts that will have an immediately pass-through effect into the economy, and that’s money that will get spent quickly. The tax cuts don’t have a stimulative effect in that way. They do create certainty. They take away uncertainty. Some economists–.
JAY: You mean tax cuts on the wealthy.
HALL: On the–well, extended for everybody, but certainly the top 2 percent is what the fight has been about, whether or not people earning over $250,000 average adjusted gross income, whether they should be paying more in taxes. Extending that to them won’t have any economic benefit. The rich have a higher propensity to save.
JAY: Yeah, let me ask you this, ’cause I’ve been trying to ask Republicans this and I can’t get a straight answer. Is there any actual data or research that shows that if you give this break to the upper 2 percentile it will have some kind of stimulus effect? Like, they say, well, maybe they don’t spend it on consumer goods, but it leads to more investments, and that’s stimulative. Is there any evidence that that’s the truth?
HALL: No. And I think the Bush-era economists Glenn Hubbard and [Greg] Mankiw, some of the big names from the Bush administration, have said that tax cuts don’t generate enough income to pay for the cost. So I think that there’s very little evidence of that. What there is–what some economists say is that you don’t want to upset the apple cart. This kind of creates some stability, some certainty for the next couple of years, in a period where our economy is just in the middle of a fragile recovery, where the European debt crisis could explode into a bigger global problem and hit stocks and bring us back to a double-dip. So it’s prudence–.
JAY: So we’re worried about the psychological situation–
HALL: Yeah, psychological, and prudence.
JAY: –of the top two percentile, who may lack confidence even though they’re sitting on billions of dollars. I–we–our hearts, I’m sure, collectively bleed for them. Number two, another big piece of this is part of this deal that the Republicans wanted was on the estate tax. Okay, Republicans say, you can have your unemployment insurance, and you’re lowering middle-class taxes, but we also want a deal on the estate. So what was made? And, first of all, what’s the deal?
HALL: I think the estate tax is precisely what a lot of the liberal Democrats are particularly incensed about. The feeling was there was no need to throw that in there, because this is a tax deal. You can argue that the tax cuts, even if they don’t stimulate the economy, provide a certain level of certainty. You don’t have that argument with the estate tax. There really is no economic benefit from this. There is a policy benefit. It’s a policy choice: do you believe that they’re confiscatory? Do you believe it’s a fairness issue? But that’s a very different question than whether it stimulates the economy.
JAY: So let’s break down exactly what happened. So let me–just tell me if I’m right. At the end of ’09, more or less somewhere between 45 and 55 percent of upper-tier income–what was the–?
HALL: One million.
JAY: If you made more than $1 million, you could pay about 55 percent estate tax.
JAY: Which is important in the sense that if there’s ever going to be a tax on accumulated wealth rather than income, that’s about the only time you get at it is during the time after someone dies. So the new deal is what?
HALL: The new deal is it would extend that cap to $5 million. Nothing under $5 million would be taxed, and everything over $5 million, every estate over $5 million would then be taxed at a rate of 35 percent for the next two years. Part of the equation is there are roughly 43,000 estates worth more than $1 million. Of those, about 40,000 of those fall into $2 million or less. So this pretty much extends–it gives a pass, a get out of jail free card to almost anybody who would fall under the estate tax.
JAY: On the other hand, if you’re in that over $5 million–and some people are way over that $5 million–if you’re talking about billionaires and their tax just went from 55 down to 35, you’re talking–I don’t know. Do we have any idea what that number is, how much money is going to go untaxed [as] a result of that, in terms of the transfer of billions in estates?
HALL: I don’t think there’s a hard and firm number, and I think if you look at what’s happened with Bill Gates and Warren Buffett and the wealthiest Americans are all pledging to give a large amount of their estate away. So there’s a question as to whether that–how much effect that has. And when you think there’s 40-something, 45,000, 43,000 estates that fall into this category, less than 5,000 above $5 million, it’s a pretty small number. So how much money–.
JAY: Numerically the number is small, but in terms of dollars it could be a lot.
HALL: In terms of dollars it’s a help. It’s not a panacea, but it’s a help.
JAY: One thing seems to be for sure is–one is it’s going to add to the debt, the national debt, and number two, as you’re saying, is there any argument for–there’s no argument for a stimulus effect, giving estates back more money.
HALL: No. And, in fact, some economists argue that the stimulus that you might have gotten two years ago from a package like this you won’t get now because you’ve already had a lot of stimulus growth in the last couple of years from the earlier efforts and you’ve got an economy that’s on its feet, it’s back on its feet and recovering. So you’re not going to get as much punch as you might have. And you’re getting a higher deficit, which is–.
JAY: And a lot of people probably don’t realize it, unless they’ve been through a probate: in 2010 there actually was zero estate tax, if I understand it correctly, in 2010, and we can’t see much stimulus effect from that.
HALL: I think former Yankees owner George Steinbrenner was the case in point on that issue.
JAY: Okay. So we have some idea why CEOs might be cheering. In the next segment, let’s talk a little bit about what’s in this for ordinary people and how much. Please join us for the second part our interview with Kevin Hall, coming up on The Real News Network.
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