Econ-Recon: July 2006: Archives

July 30, 2006

Minimum Wage Hike Passes With Huge Tax Cuts genre: Econ-Recon & Polispeak & Six Degrees of Speculation

Tax cuts

In an expected move, House Republicans passed a minimum wage increase but the measure includes significant changes in the estate tax structure...removing the tax altogether for many wealthy Americans and capping the tax rate at 30 percent for estates exceeding 25 million dollars. The Washington Post has the full article here. Thought Theater previously discussed the measure and the tactics being employed by the Republican controlled House.

The House, at about 1:30 a.m. yesterday, voted 230 to 180 to raise the minimum wage to $7.25 an hour, from the $5.15 rate on the books since 1997. The bill also would exempt from taxation all estates worth as much as $5 million -- or $10 million for a married couple -- and apply a 15 percent tax rate to inheritances above that threshold and as much as $25 million. For estates exceeding $25 million in value, the tax rate would be 30 percent.

Most congressional Republicans support the estate-tax cuts and oppose the minimum wage increase. Most Democrats take the opposite positions. Democrats said they saw a two-edged strategy in the GOP decision to couple the issues.

Democrats' eagerness to raise the minimum wage might attract enough support in the Senate as well as the House to pass the estate-tax cut, a major GOP goal. But if Senate Democrats block the bill because of their aversion to the estate-tax cut -- as their leaders have vowed to do -- House Republicans may at least be able to blunt Democratic accusations that they made no effort to help the working poor.

The move, by Republicans, is simply an attempt to neutralize an issue they see as a vulnerability this November. They see a benefit whether the bill is passed or rejected in the Senate. If the bill is rejected they believe they can argue that they sought to help low wage workers but the Democrats refused to endorse the proposed legislation. If the bill is passed, they not only enacted a minimum wage increase but passed their long sought estate tax reform. This will be a key test for Senate Democrats and may signal whether the Party can muster the consensus needed to defeat this measure as well as begin the process of speaking with a strong and united voice.

Daniel DiRito | July 30, 2006 | 8:37 AM | link | Comments (1)
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July 28, 2006

Economy Slows: Inflation Worries Rise genre: Econ-Recon

Slowdown

The economy has slowed in the second quarter raising fears that there may be pressure to increase prices. Despite repeated assertions by the current administration that the economy is doing well; most Americans have not experienced the benefits of the recent economic growth...a fact that may have implications for Republicans during the November midterm election. The New York Times has the full article here.

Gross domestic product, the sum of the nation’s output of goods and services, grew at an annual rate of 2.5 percent in the three months ended June 30, the Commerce Department reported today. While that is considered a healthy growth rate, it is well below the figure of 3 percent that many economists forecast.

Just how rapidly the economy is growing is closely watched by the Federal Reserve and, in turn, by investors, who will price the stock market accordingly. Slowing growth would seem to give the Fed a reason to stop raising interest rates — something many investors would like to see.

One closely watched broad measure of inflation, known as the core index of personal consumption, rose at a 2.9 percent annual rate in the second quarter, the fastest pace reported since 1994. The index rose at a 2.1 percent annual rate in the first quarter.

Daniel DiRito | July 28, 2006 | 10:40 AM | link | Comments (0)
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July 27, 2006

Republican Ploy May Allow Vote On Minimum Wage genre: Econ-Recon & Polispeak & Six Degrees of Speculation

Empty pockets

It appears that Republican leaders in the House may allow a vote on increasing the minimum wage. However, as the final version of the bill is negotiated, it appears that Republicans may attach small business tax cuts to offset the increased costs. As I analyze the measure, it seems like an opportunity for Democrats to turn the tables on Republicans. I'll explain after excerpts from the article that can be found here.

Republican leaders haven't yet decided on how far to boost the federal minimum wage, now at $5.15 an hour, or which tax cuts will be included in the package, Madden said. Democrats and some Republicans are pushing to boost the wage to $7.25 over 30 months.

Republicans are under pressure to accept an increase pushed by Democrats as the November midterm elections loom and lawmakers prepare to accept a $3,300 automatic pay raise for themselves.

"We aren't quite there yet but we are getting very close,'' Republican Representative Sherwood Boehlert of New York said in an interview today. “If we don't deal with it, some people would argue it's going to hurt some Republicans,'' he said.

House Democratic leaders say the pairing of a wage increase with tax cuts threatens the prospects of the legislation, because many Democrats may not be willing to support further tax reductions that could yield a larger federal budget deficit.

Basically, the Republicans appear to be trying to back Democrats into a corner while allowing their own House members in tight races to vote in favor of the wage increase. If the bill were to fail because Democrats opposed added tax cuts, Republicans could neutralize the wage issue for the November election while providing needed cover for their House members.

If I were asked how the Democrats can turn the tables on the Republicans, I would argue they need to point out the hypocrisy evident in the GOP's tax cutting strategy. By giving small businesses tax cuts to offset the wage increase, they are actually enacting a subsidy that is ultimately funded through taxpayer generated revenues...in essence they are creating a new tax funded social program...even though they repeatedly espouse the need to cut back on such funding. The measure would ultimately becomes an added burden for the already struggling middle class while at the same time shielding corporations from sharing in the cost of the much needed wage increase.

As such, the proposed bill would continue the trend of fostering profits for the wealthy while shifting further burden for government funded programs to the average middle class taxpayer...who already pays a disproportionate share of the federal tax burden. The Democrats need to reframe the tax equation for the voters by pointing out that the total dollars needed to run the government have not actually been reduced...the burden for that funding is merely being shifted amongst the various income brackets...which is a tax increase…because it either takes more money from some income brackets or creates debt that has to eventually be repaid.

As the national debt increases, the economic growth needed to sustain the debt will eventually be eclipsed...leaving little choice but to collect more revenues...which will no doubt have to come from higher taxes. Until that point is reached, the government is subsidizing the wealthiest Americans while continuing to tax average citizens at virtually the same rates...what little reduction they may be receiving is likely offset by inflation, especially in the form of energy costs (which are creating record profits for large corporations).

The bottom line is that Republicans are not the Party of tax cuts...they are the Party that restructures tax burdens in order to provide added wealth to those who already posses the lions share of the wealth...while at the same time creating astronomical debt that will ultimately be apportioned to all Americans...a simple case of double dipping in my estimation.

Daniel DiRito | July 27, 2006 | 5:52 PM | link | Comments (2)
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