Introducing Tool$ Tuesday: A New Feature

BY Paul Solman  November 23, 2010 at 10:44 AM EST

Today we present Tool$ Tuesday- the first in a series of online calculators and tools that I or others on the Making Sen$e team have actually used. The primary purpose is to present tools that we have found helpful in understanding and even making economic decisions for ourselves. Sometimes, the purpose is simply to visualize data or a complex issue.

Making Sense

Two appeals to you who read this page. First, let us know which you find useful. Second, if you’ve found others you like that aren’t included on this list, let me know.

May the fittest survive.

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Our first is “The Great Tax Cut Debate.

This tool, from Business Week magazine via its new owner, Bloomberg, does a fine job of itemizing the elements of the Bush Tax Cuts and who supports what.

The vivid visual punchline is one you already know, I suspect: that the only real bone of contention is whether or not to extend tax breaks for truly upper income Americans.

In that regard, I can’t resist reprinting this recent email to the NewsHour from one upper income American, making the case that he or she is not actually all THAT upper income:

I make enough money to affected by the taxes affecting couples making over $250,000 per year. I am offended by the constant reference to the affected “millionaires.” I am not a multimillionaire nor am I even a single millionaire. I was wiped out by the housing crisis and I am struggling to make ends meet without losing my home. I am upside down on my albeit expensive house and cannot sell it. Don’t let the public have the perception that those making more than $250,000 are somehow fat cat millionaires with cash to burn who don’t need the tax break. It may break me if it expires!!!

UPDATE | NOV. 25, 2010: Warning: For those using the New York Times budget balancing exercise, a question about the numbers from a guy who’s rather good with them, Nobel Laureate Robert Merton.

The exercise allows you to balance the budget by cutting spending and/or raising taxes – in $5 billion increments. One option is a “National Sales Tax,” which the Times values at $41 billion in the year 2015.

But, writes Merton:

How can a 5% VAT/consumption tax only reduce the deficit by $41 billion? Even at the reduced consumption rate of the recession, isn’t US consumption rate something like 65-70% of GDP which implies personal consumption of around $9-10 trillion and last time I did the multiplication that comes to around $450-500 billion a year and not ~$40 billion. (I do not believe that exempted consumption of housing and education represents 90% of consumption.)

When I wrote back to Merton, he suggested we consult with macroeconomist and FOBD* Larry Kotlikoff of Boston University, who responded as follows:

Bob’s right. The number is ridiculously low. It’s supposed to be a 2015 number so it should be bigger because of growth and inflation. But even today, my calculation (very quick) based on BEA data suggests a 5% VAT imposed this year would generate about $360 billion in revenue with exemptions for housing, education, non-profit expenditures.

It’s not that big a deal, perhaps, but we didn’t want any of you despairing of balancing the budget, when all you’d have had to do is plug in a sales tax.

Meanwhile, both we and Kotlikoff have written to the Times. We’ll pass along their response.

*Friend of Business Desk

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._