Archive for the ‘Bush tax cuts’ Tag
“Everything is on the table” say Senate Minority Leader Mitch McConnell and House Majority Leader Eric Cantor when referring to the ongoing budget debate as the deadline looms to raise the nation’s debt ceiling. But we know that’s not at all true. There is, in fact, one glaring item that as far as Republicans are concerned is most certainly NOT on the table, and we know this because the very same gentlemen who’ve told us that “everything is on the table” have also told us explicitly that, in reality, not everything is on the table. They’ve told us that the one thing that has been the single biggest contributor to our nation’s debt and deficit crisis over the last 10 years is a complete non-starter (Cantor’s words).
That one thing: Taxes. It is the single most divisive issue in American politics today; perhaps even more so than the current Battle Royale over Medicare. Democrats insist that the wealthiest Americans need to pay their fair share; that the Bush tax cuts of 2001 and 2003 have led us into an economic abyss and that they need to be eliminated (something that by law actually should have happened already). Republicans insist that we’re being taxed into oblivion, which they claim is directly responsible for our current economic crisis. Their plan is to further cut taxes—and government regulation, but that’s another issue for another post—and sit back and watch as the economy mystically, magically grows and sprouts millions of new jobs.
A little recap: During the Clinton administration, taxes went up slightly to what were historically very moderate levels, the top tax rate being 39%. The economy grew by leaps and bounds, 20 million jobs were created during Clinton’s eight years in office (compared with a paltry 1 million new jobs during Bush’s eight years), he left a budget surplus of $246 billion when he handed the reins to George W. Bush, and according to the CBO and Bush’s own Office of Management and Budget had Clinton’s policies remained in place the national debt would have been paid off by 2009.
A look back at the numbers in January 2001, when Republicans took complete control of the government (both houses of Congress and the White House), finds an unemployment rate of 4.2%, up from 4.0% in January of 2000 (courtesy of the Bureau of Labor Statistics). Compare that to the 7.8% in January 2009 (when Obama took office) and the current 9.1% figure. Given that the statistical equivalent of full employment is generally considered to be somewhere between four and five percent unemployment, it becomes clear that the higher tax rate has absolutely nothing to do with high unemployment numbers, since tax rates currently sit at historical lows.
Our economy as a whole was clearly better off in the late 90’s.
Just for a little historical perspective: Republican wunderkind Ronald Reagan, 1 ½ years into his presidency, presided over the highest unemployment rates since WWII, with unemployment holding steady at well over 10% for 10 months between 1982 and 1983, reaching a high of 10.8%. This after implementing one of the largest tax cuts in history at the time.
Last week I wrote about what the official Republican budget plan looks to do to Medicare: In short, they want to kill it altogether. But their plan isn’t any more credible on tax policy. It should be common knowledge by now that the basic premise behind Republican economic policy is tax cuts: When the economy is struggling, you cut taxes. When the economy is booming, you cut taxes. When unemployment is high, cut taxes. Their theory is that tax cuts spur job growth by putting more money in the hands of businesses, which in turn cause businesses to hire more workers. It’s a nice theory, but complete fantasy.
The Republican “Path to Prosperity” does precisely that: It cuts taxes to where the top rate sits at 25% (compared to 36% now, which in truth is a 28% effective rate), claiming they can balance the budget by slashing revenues. And according to the CBO, they actually do manage to balance the budget and run a slight ¼% surplus beginning in 2040. But to do this, 68% of medical costs are shifted directly to seniors instead of the 75% that is currently covered by Medicare.
In 2001 the United States had a budget surplus. By 2002 that surplus was gone, and the U.S. began to see the debt and the deficit both skyrocket out of control. What was the leading cause of the exploding debt and deficit? Well, every credible analysis says that it was the Bush tax cuts that are the primary culprit.
Study after study after study have shown us that the single largest contributor to our current debt and deficit crisis are the Bush tax cuts of 2001 and 2003. The Center for Budget Policy and Priority have released more graphs demonstrating this than Sadaharu Oh has base hits, yet Republicans continue to double and triple down on the same disastrous policies.
Republicans like Paul Ryan and Tim Pawlenty, the former Republican governor of Minnesota and current candidate for president, are selling the gullible public a suicide kit. (See this one of many analyses of Pawlenty’s recently released budget plan, which has been ridiculed and derided across the political spectrum.) They continue to insist that it was Obama’s policies that have driven the debt and deficit in two years, and not Republican policies. But this study by the CBPP definitively shows us otherwise.
According to the study, under current policies (which includes maintaining the Bush tax cuts), the U.S. debt will reach $20 trillion by 2019, and the Bush tax cuts and the wars in Iraq and Afghanistan will account for half of that by themselves. TARP and other recovery measures? Less than 10%, with TARP and the Fannie and Freddie bailouts disappearing almost entirely from the radar. It’s the economic recovery efforts, after all, on which Republicans place the entirety of the blame for our current troubles, but that’s simply nothing less than a bald faced lie.
Republicans continue to point to past surges in economic growth as evidence that their policies work. But as Dave Weigel of Slate (a self-proclaimed libertarian, no less) points out—particularly in the case of the Reagan era—the spikes in economic growth that figures like Ryan and Pawlenty point to came after tax increases, not tax cuts. Further, it was the periods after tax cuts that saw the least amount of growth, and the biggest jump in the deficit and debt.
The continued insistence by Republicans that raising taxes cuts economic and employment growth off at the knees has been repeated so often that the more gullible among us accept it as fact with absolutely no accompanying evidence. We’ve seen that the exact opposite is true, though, or at the very least that tax rates have little to do with employment numbers. In fact, it can be argued that raising taxes only moderately can spur job growth. In 1986 Ronald Reagan, signed a tax reform bill that had the effect of raising taxes on the wealthy. What happened to the unemployment rate? January 1986 saw unemployment at 6.7% and hovering around 7% for most of the year before steadily declining through 1989 and into 1990, reaching a low of 5.0%.
In other words, Reagan’s tax hikes did not kill jobs, and didn’t stifle job creation. Bill Clinton raised taxes and presided over unprecedented economic and employment growth.
So here we sit in 2011 with major economic and budget problems, with over 12 million unemployed and a major jobs crisis. Republicans surged to control of the House of Representatives on a “jobs, jobs, jobs” campaign meme in 2010, yet all we hear about is the debt and the deficit, and how it’s the Democrats and President Obama who are to blame. We have not seen one single jobs bill come out of Congress. Not. One.
With any and all efforts by Democrats to address economic issues being treated with utter contempt by their Republican counterparts, it’s no wonder our economy is slipping backward instead of continuing to improve. If Republicans continue their intransigence on revenues we will surely see our entire country fall into oblivion—both economically and culturally. Republican policies have led to a shocking and growing disparity in income levels between the very rich and the withering middle class. A healthy economy is one that is sustained by the purchasing power of its middle class. At the rate we’re going, and if Republicans have their way, it won’t be long before the middle class disappears completely, and we’re left with two distinct classes of Americans: The über wealthy, and the working poor who have barely enough to secure the bare essentials. It’ll be the 1920’s all over again. Which is exactly what Republicans want: A return to the “good old days.”
Strange are the times we live in. Never has this nation been in more desperate need of cooperation, but never before has this nation been so completely and totally divided (at least not in my lifetime). The November 2nd midterm elections are upon us, and they are sure to profoundly shape the immediate future of the United States, both politically and economically.
So what can we expect to see if the Republicans manage a coup?
Well, it won’t be good, that’s for sure. The simple answer is a return to the very same policies they had under the Bush administration. And that’s not conjecture. That’s exactly what they’ve stated. They want to return us to the same policies that got us into this mess in the first place.
But let’s talk specifics. We’ll start with taxes. Republicans are absolutely adamant about extending the Bush tax cuts for EVERYBODY, while the Obama administration and the Democrats want to extend tax breaks to those families making less than $250,000 per year, and individuals making less than $200,000 per year.
There are a couple of ways to look at it. Republicans say that tax cuts are the only way to revive a struggling economy. And that by extending tax breaks to the wealthiest Americans, it helps to spur job creation. Democrats say that it’s necessary to extend tax cuts for the middle class; that we need to put the money in the hands of people who need it most, who are most likely to spend it and put it back into the economy, which will help the economy grow.
There is no evidence to suggest that giving tax breaks, kickbacks, handouts, or whatever you want to call them, to the wealthy will do anything to spur economic growth. Quite the opposite. People who don’t need the money are more likely to put it into their pockets and hang on to it. There is no incentive for them to do anything with that money. There is no incentive for wealthy business owners to expand their businesses just for the sake of expanding their businesses. Tax breaks make the rich richer, and that’s about it.
Now, I’ll buy the argument that targeted tax breaks for small businesses will help spur job creation and economic development. For example, a tax break for those small businesses that hire a new employee, or some sort of temporary payroll tax holiday. Tax cuts in certain areas might make sense, and they might help growth. But that’s not what the Republicans are proposing. They want across the board tax cuts without any proof that it will help.
In fact, Republicans have offered no specifics on what they would do should they retake Congress. Lots of vague references, but nothing concrete. As if voters aren’t smart enough to know when they’re being snowed under.
The truth is that if the Republicans get their way, things will get worse. A whole lot worse. Repubs have vilified “out of control government spending,” telling us how we need to reduce the deficit and not grow the national debt. And they’re just the ones to do it, doggone it! The facts, however, tell us otherwise. The Republican plan to extend ALL of the Bush tax breaks, will ADD $4 trillion to the national debt over the next 10 years, and increase the budget deficit by $700 billion.
Oh, and by the way, lest we forget, it was a Republican administration, in concert with a Republican controlled House and a Republican controlled Senate that oversaw the explosion of the debt and deficit, that turned a budget surplus in to record budget deficits, and that saw government spending reach new heights. But let’s not let a little thing like the facts stand in our way.
This is not to say that Democrats have firm control of their policy message. Their unwillingness to directly challenge the Republican minority on their tax oath by putting off debate until after the midterm election is an astonishing display of cowardice, as they should use this opportunity to highlight the differences between themselves and their opponents. Dems are in the right, and have public opinion polling strongly in their favor, yet still refuse to publicly take up the fight.
Republicans recently released their “Pledge to America,” in which they said government had to cut expenditures; where they promised to cut federal spending next year by $100 billion. Again, they insist on cutting taxes for the richest two percent of Americans, yet have no plan to increase government revenues to address the debt and deficit. They also failed to point to a single program or area of the federal budget that they would target for such cuts.
An analysis by Bloomberg News found that cutting spending by the proposed 21% would take $400 million out of police department budgets; $6 billion from health research programs, including cancer research; $15 billion from education, including $5 billion from the Pell Grant programs that provide a financial lifeline to students who otherwise would not have access to a college education. Our already decimated education system would be put in a veritable death grip. Fire departments would also see huge cuts.
Military spending, however, according to the Republican “Pledge,” is off the table. No need to discuss it further, despite Defense Secretary Robert Gates’ insistence on the need to trim $100 billion from the Pentagon budget over the next five years. Republicans have scoffed, since trimming the defense budget would surely mean that their defense contractor friends would see some of their government contracts disappear. And after all, examining military operational efficiencies is strictly taboo to the Republican base.
Entitlement programs, such as Medicare, Medicaid, and Social Security, account for 60% of the federal budget, but they refused to detail what, if anything, they would cut from those programs. Despite that, Republicans insist that they can close the budget gap by cutting those mysterious costs and cutting taxes at the same time. In short, it’s MAGIC! It’ll happen because they say it will, but their math just doesn’t add up.
Speaking of entitlements: What was once unmentionable, even for Republicans, is now their preferred M.O. Privatizing (or “personalizing,” as Nevada Senate candidate Sharron Angle puts it) Social Security is now squarely back on the table. The idea is to hand over all of our inputs into the Social Security system to Wall St. and let them invest it in the stock market. Oh, and there will be no additional accountability to Wall St. execs, allowing them to gamble some folks’ retirement lifelines like they did in the years leading up to the “Great Recession.” How many of our seniors would have had their entire life savings completely wiped out two years ago if George W. Bush had been successful in 2005?
Republicans vow to wipe out capital gains taxes (which currently stands at 15%). That would mean that some hedge fund managers and Wall St. execs would pay no taxes at all, despite the billions of dollars in profits they take. Even billionaire Warren Buffet says it’s wrong for him to be paying a lower tax rate than his secretary. Democrats, on the other hand, want to raise the capital gains rate to 20%, still lower than it was under Bill Clinton’s administration. Also consider the fact that hedge fund managers don’t actually produce anything tangible, so they don’t anything concrete to our economy. Giving them even more tax breaks won’t provide more jobs for more workers. And when hedge fund managers bet against the American economy, as many did leading up to the “Great Recession,” it even further damages our national well-being.
And those tepid Wall St. reforms put in place by Congress and signed into law by President Obama? Kiss those goodbye. Since the Glass-Steagall act was repealed in 1999, big banks have been free to invest their depositors’ money in any way they choose. Traditional banks have now become major investment houses instead of the safe, secure institutions we’ve counted on them to be. The complex and controversial derivatives market was completely unchecked. But thanks to the Democratic Congress and the Obama administration, big banks can no longer frivolously throw money at any project in search of astronomical profits for their executives with no accountability, and there is at least SOME transparency now in the derivatives market.
The Republican plan calls for less regulation on industry, particularly on Wall St. This flies in the face of conventional wisdom, since it was a dire lack of regulation that led to the near collapse of our financial system in the first place.
The Obama administration was also behind the biggest overhaul of the federal student loan program in history, to the benefit of every student who will need loans just to attend college. Instead of providing billions of dollars in kickbacks to banks to administer the loan programs, the government will now take on that responsibility, freeing up billions of dollars in funds that will now go directly to students in need rather than bank executives who have found new and creative ways to game the system and take money away from students and schools.
Under Republican rule, those student loan reforms will go away.
And let’s not get started on health care reform. The damage that would be done to the future of health care in this country would be simply devastating. Suffice it to say that Republican cries of “government health care” are disingenuous at best. While they bemoan “putting health care decisions in the hands of government bureaucrats,” what they actually want to do is return health care decisions to the insurance company bureaucrats that, due to their profit driven motives, have skyrocketed health care costs and made access to care a pipe dream for tens of millions of Americans, while simultaneously forcing employers to eliminate health care benefits or cut their workforce just to be able to keep their heads above water.
And for those who insist that the government is too incompetent to administer the program, under Republican governance, that theory becomes a self-fulfilling prophecy. They want government programs to fail in order to prove how feeble government is, so they deliberately fail to provide the necessary resources that would ensure success. Just ask any senior dependent on Medicare how willing they would be to see that program go away.
Republicans have made no secret of their desire to return to the failed policies of the Bush II era that have brought about near disaster for the United States in the first place. They’ve promised a change; a change back to exactly the way things were between 2000 and 2008, except in many cases they’ll shift even more radically to the right of the political spectrum.
Despite claims to the contrary, “Trickle Down Economics” is a complete myth. Even the Oracle himself, Alan Greenspan, flatly denied Republican claims that cutting taxes actually increases federal tax receipts, that tax cuts pay for themselves. But if Republicans take over Congress, these are exactly the policies we’ll get. And we’ll long for the good ‘ole days of 2009 and 2010, when there was actually a glimmer of hope on the horizon.
A Republican victory on November 2nd is a victory for big business and special interests, and a major blow to average Americans, particularly middle class Americans. So do yourselves a favor and get out and vote and make sure we don’t cede our government to the corporate interests that run the Republican Party.
Regarding those “small business” claims by Republicans……you know, the ones where they say that by allowing the Bush tax cuts to lapse on the richest 2% of Americans, it will adversely affect small businesses? Well, the piece Keith Olbermann did on the Republicans’ definition of “small business” is truly “must see” TV. Here’s a hint: Price Waterhouse Coopers, the accounting giant, is a small business, according to Republicans. So is Koch Industries, the largest privately held oil company in the U. S., and Bechtel Corp., one of the largest engineering firms in the world.
Check it out below:
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.”
On her House website, Rep. Susan Davis currently has this poll:
What do you think Congress should do about the expiration of the Bush tax cuts at the end of this year?
- Let all the tax cuts expire.
- Keep the tax cuts in place.
- Keep some of the tax cuts and allow some to expire.
- Not sure.