The Tax Cut Myth Further Debunked
More and more economists and fiscal authority figures are lending their voice to smack down the Republican myth that tax cuts–or extending the Bush tax cuts for the wealthy–are the only way to rescue our economy.
Start with the CBO report that I cited in “Playing Politics with Deficits and Debt” that determined that tax cuts were the LEAST stimulative option. In his Washington Post op-ed “Five myths about the Bush Tax cuts,” William G. Gale cites the same report, but extrapolates it a bit further. According to the report, extending all of the tax cuts would have a very “small bang for the buck, the equivalent of a 10 to 40 cent increase in the GDP for every dollar spent.” (Just by way of comparison, the report also shows that extending aid to the unemployed provides a 70 cent to $1.90 increase to the GDP for every dollar spent.)
Gale suggests that “the government could more effectively stimulate the economy by letting the high-income tax cuts expire and using the money for aid to the states, extensions of unemployment insurance benefits and tax credits favoring job creation. Dollar for dollar, each of these measures would have about three times the impact on GDP as continuing the Bush tax cuts.”
Of course, what does Mr. Gale know? He’s only a senior fellow at the Brookings Institution and co-director of the Urban-Brookings Tax Policy Center.
No less an authority on fiscal policy than Alan Greenspan in an appearance on “Meet The Press” on Sunday declared that an extension of the Bush tax cuts would be “disastrous” specifically because we’d be paying for them with borrowed money, which only makes our debt and deficit situation worse. MTP host David Gregory also directly asked Dr. Greenspan if he agreed with Republicans that tax cuts pay for themselves, and he replied “No, I do not.”
Last Sunday, The Washington Post published this series of snippets from economists and former public policy makers, entitled “Debating an extension of the Bush tax cuts,” and the overwhelming majority agreed that letting them lapse, or at least letting the cuts to the top earners lapse while maintaining the middle class cuts (at least for now), is the way to go. Douglas Holtz-Eakin, senior economic adviser to John McCain’s presidential campaign, being essentially the lone dissenter, skirted the issue by giving an immensely vague dissertation on how complex our tax code is, but never actually answered the question at all. Way to take a stand there, Dougie!
Add this to the David Stockman op-ed which excoriates the supply-side theory, Greg Mankiw (see my “Playing Politics with Deficit and Debt” piece), and the whole cadre of others stepping up and cheering on the Obama administration to allow the Bush tax cuts to expire.
And then there’s this from Michael Linden and Michael Ettinger of the Center for American Progress:
The cost of those tax cuts is going to go straight onto our national credit card unless we raise taxes from everyone else to pay for the $690 billion in tax breaks for the rich or we find $690 billion in spending cuts. And that means increased interest payments on the debt. When we add in the costs of additional debt service, the true price of maintaining the tax cuts for the wealthy jumps by almost $140 billion.** In total, keeping those cuts for the rich will cost almost $830 billion over the next 10 years.
To put that figure in perspective, $830 billion is enough to pay for all veterans’ hospitals, doctors, and the rest of the Veteran’s Affairs health system, plus the United States Coast Guard, plus the Food and Drug Administration, plus the operation and maintenance of every single national park for the entire 10-year period—with more than $100 billion left over. (Emphasis mine.)
On the other side of the political argument, we have the intellectual giant Sarah Palin, who claims that allowing the Bush tax cuts to expire is “idiotic.” When challenged by Fox host Chris Wallace who pointed out that by extending the tax breaks, it will add $678 billion (their figure) to the deficit because it’s not paid for, Palin replied, “No. This is going to result in the largest tax increase in U.S. history. Again, it’s idiotic.”
In the words of Keith Olbermann, “That woman is an idiot!”
Which brings me to this slightly related, yet terribly interesting point made by Washington Post columnist E.J. Dionne (yeah, I know, I’m leaning heavily on the Post for this one, but it’s still one of the best, most trustworthy newspapers in the country despite its shortcomings): “When our republic was created, the population ratio between the largest and smallest state was 13 to 1. Now, it’s 68 to 1. Because of the abuse of the filibuster, 41 senators representing less than 11 percent of the nation’s population can, in principle, block action supported by 59 senators representing more than 89 percent of our population. And you wonder why it’s so hard to get anything done in Washington?”
So much for “government of the people, for the people, and by the people.”
UPDATE: Add Treasury Secretary Tim Geithner to the roll of authority figures to thrash Republican economic fear mongering talking points….
Geithner also says that America is a “less equal country today than it was 10 years ago, in part because of the tax cuts for the top 2 percent put in place in 2001 and 2003.”