Geithner gets it right for once

Via:  AP

Geithner: Extending tax cuts for wealthy a mistake

Geithner says extending tax cuts for the wealthiest Americans would be a $700 billion mistake

Martin Crutsinger, AP Economics Writer, On Wednesday August 4, 2010, 7:29 pm EDT

WASHINGTON (AP) -- Treasury Secretary Timothy Geithner said Wednesday that extending the Bush-era tax cuts for the wealthy would be a $700 billion mistake. He also rejected a compromise proposal that would extend the cuts for one or two years.

Geithner said cuts for families making more than $250,000 annually should be allowed to expire on schedule at the end of the year. But the administration believes tax cuts for the 95 percent of taxpayers making less than $250,000 should be extended, he said.

Geithner's comments came during a speech at the Center for American Progress and focused on what is likely to be a key economic battle leading up to the November midterm elections. Unless Congress acts, all of the tax cuts approved in 2001 and 2003 will expire at the end of December.

Republicans have argued that all of the tax cuts should be extended. They contend that raising taxes on any group at the current moment would be harmful to the economy.

Geithner said extending the tax cuts for the top 2 percent of taxpayers would cost $700 billion over a decade and $30 billion for a single year. He said wealthy families are more likely to save the money, which doesn't help the economy in the short run.

Geithner said allowing the tax cuts on the wealthy to expire would also help get the soaring deficits under control.

"Borrowing to finance tax cuts for the top 2 percent would be a $700 billion fiscal mistake," Geithner said. "It's not the prescription that the economy needs right now and the country can't afford it."

As I showed in this post, there are lots of tax cuts for the middle class in the Bush tax cuts that should not be repealed.

This a great wedge issue for the Democrats.  They can once again accuse the Republicans of standing for little more than keeping taxes low on rich people and make the accusation stick. 

This good PR move hardly exonerates Geithner, Summers, Bernanke et al. for effecting the most massive wealth redistribution from working taxpayers to the wealthy in the history of the world, as Barry Ritholtz terms the bailouts of the past couple of years.

The tax increases on the rich the Geithner advocates are mild in the context of American postwar history.  This chart due to Paul Krugman shows the top marginal tax rate (red) and median family income (blue): 

If the take-home pay of the CEOs and corporate board members and senior executives and Wall Street traders were brought down to Earth by a marginal tax rate in the 75-90 percent range, I think it would do much to sober those people up, who have been looting the treasure of American corporations by manipulation of their governance and related capital markets for too long.

It is heartening to see that forty billionaires have heeded Bill Gates call to give away half of their fortunes to charity.  Such moves as these might be the seeds of a new social contract.

Let’s see if they actually do it.  One of the oldest tricks in the book in Hollywood is for a star or starlet to hold a press conference announcing that their giving X million dollars to charity, and then to never do it.