Democrats are now starting to support the Republican call to extend the Bush tax cuts. In a recent interview, Sen. Kent Conrad (D-ND) stated that, “The general rule of thumb would be you’d not want to do tax changes, tax increases … until the recovery is on more solid ground.” I’ve got to ask, what effing “recovery” is Conrad talking about? Is he referring to the Dow being over 10,000? He’s sure not talking about the 30 million Americans who are unemployed or the countless others who are underemployed, threatened, or who have seen their nest eggs decimated.
The thing that most revolts me about this “you can’t raise taxes in a recession” pitch is that it’s spoken by the same folk who are suddenly budget conscious and focused on the deficit. Most recently, Republicans fought the extension of unemployment benefits because the $34 billion price tag was not offset with corresponding spending cuts. Now those same “leaders” are fighting for a $678 billion reduction in revenue by maintaining the Bush tax cuts for the top 2%.
To support their case, they offer the same voodoo economic tenets that supply side crooks have been spewing for decades: they claim that “tax cuts pay for themselves.” Of course, nobody actually believes this — not even the liars who say it’s so. Everyone knows that there’s ZERO empirical evidence to support this claim. In fact, all evidence supports exactly the opposite.
In a 2005 Congressional Budget Office study looking at the macroeconomic impact of an across-the-board 10% tax cut, the CBO estimated that the BEST CASE return was an offset of the loss in revenue by 22% over the first 5 years and by 32% over the second 5 year period. And those were their most optimistic projections. Their more conservative assumptions concluded that the offset over the first 5 years would be only 1%, and that the second period would actually experience a 5% increase in lost revenue. Also, it’s important to keep in mind that this study looked at across-the-board cuts, for rich and poor alike. If the cuts were isolated to only the top rates, even less of the money would find its way back into the economy.
Mark Zandi, head economist for Moody’s, provided analysis in 2009 that supports a similar conclusion. His study of the Fiscal Stimulus of 2008 shows that general tax cuts will increase the GDP by only $1.03 for every dollar of tax relief. The increase in GDP would then theoretically be taxed at some marginal rate, which at present would return no more than $0.36 in tax revenues. The bottom line is that while economists might debate whether or when tax cuts are good for the economy, they virtually all agree that cuts don’t pay for themselves.
But, where tax cuts have questionable impact, government spending provides a much better return. In stark contrast to the weak stimulus provided by tax cuts, the Zandi study concluded that an extension of unemployment benefits would grow the GDP by $1.63 for every dollar spent. The same study estimated every dollar of increased infrastructure spending would return $1.59.
So, why is it again — that we have to offset increased spending, but we don’t have to cover tax cuts?
Oh yeah . . . I remember — it’s because we need jobs, and those tax cuts for the rich are supposed to produce them.
But, wait a minute. Haven’t we tried that before? Weren’t the Bush tax cuts supposed to produce millions of jobs?
Actually, the Bush administration sold the tax cuts of 2003 by claiming they would create 1.4 million new jobs. These jobs were supposed to add to the 4.1 million jobs “expected” from earlier efforts. But in the end, only 2.4 million jobs were ever created. Of course, this shouldn’t come as a surprise, since the entire boom cycle of the Bush years only produced 5.6 million new jobs. In fact, the Bush era had the slowest rate of average job growth of any cycle since 1945, and it was even worse for those in their prime work years (ages 25 to 54), where only 1.8 million jobs were added throughout the Bush cycle.
The sad truth is that we spent most of the past decade testing the effectiveness of growing the economy and creating jobs by cutting taxes, and the entire process has been proven to be an abysmal failure. The first decade of this century produced ZERO net job growth, while no other decade going back to the 1940s produced less than 20%. Do we really want more of this medicine?
What the supply-side fallacy of tax cuts for the rich actually produces is intuitively obvious to even the most conservative observer — it’s more money for the rich. Those very same Bush policies that added all those jobs also brought the after-tax income of the top 1% to it’s highest level since 1979 (17.1%), concentrated more wealth in the top 1% than the bottom 90%, and gave average Americans the first decline of median household income of any cycle since 1967.
There’s only one reason that Republicans, and some Democrats, support tax cuts for the rich, and it’s best summed up by none other than G.W. himself: spoken at the Al Smith dinner in 2000, “This is an impressive crowd — the haves and the have mores. Some people call you the elite — I call you my base.” They owe their allegiance to the wealthy; they willfully sacrifice the average American for the top 2%; they paint government as the problem, knowing that it’s the only hope of The People, and they will do or say anything to serve themselves and further their elitist goals.
The American middle class was created through a system designed to effectively and ethically share the wealth of our great nation. At the core of that system was a structure of progressive taxation that provided the revenue required for it to function. That progressive structure once asked much of those who gained the most, and for decades it worked well. It worked to pay off the war debt and create the programs of the New Deal. But it stopped working in the 1980s, when movement conservatism worked to cut the top rates in half. It doesn’t work today for the same reason. Now those same conservatives are at work again — working to save money for their elite, working to starve government, working to end the American middle class.