Archive for the ‘CBO’ Tag
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.”
So according to unconventional wisdom, when a Republican resides in the White House, deficits don’t matter one iota. But the instant a Democrat moves in, the budget deficit becomes the single greatest threat to American society since the War of Independence; the absolute bane of our existence.
How strange, then, that Republican economic policies have the effect of increasing the budget deficit, while Democratic policies have tended to decrease the level of deficit, or even result in a budget surplus. Yet Republicans in Congress would like us to believe that they have just the remedies necessary to stamp down that pesky deficit and cut our national debt!
So with the 2010 midterm elections fast approaching, let’s try to get an idea of what might happen should Republicans retake majorities in the House and Senate, and what they would do to change our economic course.
Meet the new fiscal policies, same as the old fiscal policies.
As usual, Republican economic policies revolve around tax cuts. Early in the Bush administration, we saw two rounds of tax cuts, neither of them accounted for in the federal budget; i.e. neither of them paid for. But according to Republicans, you don’t have to pay for tax cuts—they pay for themselves. And according to Arizona Republican Senator Jon Kyl, “You should never have to offset a deliberate decision to reduce tax rates on Americans.” But even a cursory glance at the facts reveals this position to be an utterly ridiculous falsehood.
George W. Bush came into office with a $236 Billion surplus. Then, in a 2001 speech, he declared that the U.S. Government was running budget surpluses because taxes were too high, and thus he was going to demand a refund on behalf of all Americans. The resulting tax cuts plunged the deficit to the deepest levels ever. And so no, Senator Kyl, they didn’t pay for themselves.
In fact, according to the Center on Budget Policy and Priorities, the Bush tax cuts are BY FAR the biggest contributors to the budget deficits. It’s not even close! They account for 49% of the deficits, whereas the wars in Iraq and Afghanistan, along with other defense increases, have accounted for 34%.
With the Bush tax cuts set to expire at the end of 2010, the latest fight in Congress is whether or not to extend them indefinitely, or as the Obama administration intends, to let the cuts on the wealthiest Americans—those making $250,000 or more—expire, while maintaining or even lowering the rates on the middle class.
Most economists agree—even Republican economists—that allowing the Bush tax cuts for those making over $250,000 to lapse is just good policy. But Republicans in Congress are adamantly opposed to allowing those cuts to lapse, insisting that it will further decimate the economy. Facts be damned.
Just for the record, Congressional Republicans made the same claims when President Clinton raised taxes on the top earners. But what actually ensued was one of the most prosperous periods in American history.
Republican economic theory stems from the supply side, or “trickle-down economics” of the Ronald Reagan era—a theory decried by his opponent in the 1980 presidential election, George H. W. Bush, as “Voodoo Economics.” The premise is that tax cuts are always a good thing. It holds that by putting money in the pockets of the uber-wealthy through tax cuts, that money will magically and mystically “trickle down” into the pockets of everyone else. It assumes that the wealthy will always take that extra cash and invest it into new business ventures, creating new jobs, boosting the economy, and putting more wealth in the bank accounts of the middle and poorer classes.
The theory also tells us that tax cuts for the wealthy don’t add to the deficit or national debt, and will pay for themselves. Even at lower rates, government tax receipts will increase, the deficit and debt will all but disappear, and the American economy will flourish! That’s the theory, at least.
Supply-side economics have been debunked, over and over, even by conservative economists. One of George W. Bush’s former chief economists, Greg Mankiw, finds the premise totally bunk. But while supply-side economic policy has been a complete and utter disaster for the economy, it’s been a political gold mine for Republicans. As Martin Wolf of The Financial Times puts it:
“Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.
The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?
How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives – for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.”
The budget deficit is the topic du jour in Republican political circles these days. And the hypocrisy is staggering. After all, it was former Vice President Dick Cheney who matter-of-factly declared in 2002 that “Reagan proved that deficits don’t matter.” Only now, according to his Republican contemporaries (because we have a black Democratic President?), deficits do, in fact matter. They might be the ONLY things that matter.
The trouble is that it’s because of Republican fiscal policies that this country is running such huge deficits and skyrocketing the national debt in the first place. And talk about running up the credit card for future generations to have to worry about? It has been Republicans who have presided over the biggest increases in our national debt in the last 40 years.
It was the George W. Bush White House and the Republican controlled Congress and Senate that presided over the largest increases in our national debt in the history of this country. But they would have voters believe that they’re the ones who are fiscally responsible and should be entrusted to guide us out of the economic ditch we’re in. They would have us believe that it is Barack Obama’s fault that the deficit stood at $1.3 trillion on the very day he was sworn in as President of the United States.
The Republican mantra is that in order to facilitate recovery, we must cut taxes. And after we’ve cut taxes, we cut taxes some more. And then cut taxes again. The idea is that by putting more money in the pockets of the wealthy, they’ll turn around and invest it. They think that productivity will increase despite the fact that there is no demand because those at the lower end of the pay scale cannot afford to purchase anything.
Never mind that every shred of evidence tells us otherwise. Nobel Prize winning economist Paul Krugman explains in a segment on “The Colbert Report” with Stephen Colbert why tax cuts don’t work, particularly in this economic environment. He says if you give money (in the form of tax cuts) to somebody who’s well off, they’re probably going to save it because they’re “not living hand to mouth,” which doesn’t help the economy. What actually happens is that the wealthy put the money in their pockets and hang on to it, making them richer, but doing nothing to stoke business growth.
The last (or lost?) decade has seen an increase in wealth for the top 2% of the income scale, but a substantial decrease in wealth for the middle class: Real wages for the middle class have stagnated or decreased, while corporate CEO’s are reaping record windfalls. According to FactCheck.org, the top 2% of household earners (those making $250,000 or more) accounted for 24.1% of all income in 2009.
Perhaps the biggest hypocrisy, however, is the fact that despite the overwhelming evidence that tax cuts do not pay for themselves and have been a major contributing factor in exploding the budget deficit and national debt, is the insistence on the part of Republicans to indefinitely extend the Bush tax cuts for the wealthiest Americans without any need to offset them, which economists predict will add $650 billion to the deficit. But at the same time they refuse to extend unemployment benefits to the long-term unemployed to the tune of $30 billion. So it’s OK to add $650 billion to the deficit, but it’s not OK to increase the deficit in the short run by less than ¼ of one percent.
Conservatives scream that the debt and deficit are the single greatest threats to America today, yet they’re chomping at the bit to reintroduce policies that will make those threats even greater.
Besides, the CBO recently scored 11 different policies to increase economic growth and found that extending tax cuts—or further reducing the tax rate, particularly on the wealthy—was the LEAST effective way to stoke economic growth. The same study found that increasing aid to the unemployed was the single BEST way to aid economic growth.
Republicans believe that having a set of rules for corporations to follow in order to level the playing field and ensure the safety of workers, the stability of industry, and the vibrancy of the economy as a whole is a bad thing. This despite the fact that it was a lack of oversight and regulation that led to the catastrophe in the Gulf of Mexico brought on by BP. It was the lack of regulation and oversight that led to the subprime mortgage meltdown (and no, it was not Fannie and Freddie’s fault, but rather the fault of private lenders who were overzealous in their pursuit of profits) and the financial crisis that brought us here in the first place. It was deregulation that brought on a tripling of electricity rates in San Diego while energy providers found new and creative ways to game the system and drive up prices, and thus profits, all the while inducing rolling blackouts throughout California.
It was a complete lack of oversight and regulation that led to Enron.
Today, with the American economy slowly recovering from the massive meltdown of the financial industry in 2008 but still in the tank, it is more imperative than ever that our Congress enacts policies that are proven to stoke growth and promote our economic well-being. It has been made absolutely clear through the statements Republican politicians have made in recent weeks and months that should they retake control of Congress they will as sure as you are reading this return us to the very policies that brought on the economic crisis in the first place. They will return us to the policies that have been proven beyond a doubt to be an abject failure for America as a whole. Sure, times have been great for their corporate benefactors, but for the rest of us, not so much.
So come November, do the entire nation a favor: Vote Democratic.
UPDATE: David Stockman, Director of the OMB (Office of Management and Budget) under Ronald Reagan, has this op-ed in the NY Times taking Republicans to task for their miserable fiscal failures.