Stan Duncan
A number of economists of both the right
and the left have said that we can no
longer sustain the Bush-era tax cuts
and allowing them to expire is the
only way to cut into the budget
deficit. The biggest difference
between conservatives and the liberals
on this (when there actually is one)
is that the conservatives--who include
Alan Greenspan and David Stockman,
architect of the huge Reagan tax cuts
of the 1980s--say that we should let
all
of the tax cuts expire and the
liberals say we should cancel just
those of the top two percent. And many
liberals actually agree on that too.
Some conservatives, like David Brooks
agree that the tax cuts have to go,
but think we should phase them out
over two years. I think they should go
now, but I could live with that as a
compromise.
Taken together, this is a fairly
strong consensus, with the differences
being nuances over timing and degree,
not over principle. It makes one
wonder how the
Republican/Fox/talkshow/pundits were
able to say with a straight face that
ALL of the logic was on the side of
keeping the tax cuts. Or it causes one
to ask how it was that the Democrats
so seriously failed to make the case
for an alternative to the story.
At the risk of sounding like simple
Econ 101, here is the basic outline of
why higher taxes for the wealthy make
sense for everyone, including the
wealthy. Why everyone, including the
rich, benefit in an economy when
wealthy people and corporations are
taxed at a higher percentage rate than
the rest of us.
First, a very brief word on where
we are. When President Bush came into
office in 2001, we had an historic
budget surplus. Not all of that was
due to President Clinton’s policies,
though he would probably say it was.
But for what ever reason, we had a
huge surplus. When George Bush left
office, we had a huge deficit. As much
as the Rep/Fox/pundits would love to
make you believe it is so, the
collapse of the historic surplus is
not because of Barak Obama who came
into office after the rise of the
deficit.
The
three biggest causes of the huge
deficit were these:
- President Bush fought two wars
without any plans for paying for
them. The cost of the Iraq war alone
is in the neighborhood of one
trillion dollars and counting. By
the end of the next decade, with
hundreds of billions of dollars
being paid out in disability
payments to soldiers, it will
probably top off at three trillion
dollars.
- He cut taxes three times (2001, 2,
and 8) in the middle of those wars
for a total of about two trillion
dollars without any plans to pay for
them (actually, he claimed that the
wealthy would have more to invest
and that eventually it would help
everyone, but that didn’t happen),
- He passed a major drug plan
without any plans for paying for it.
- In 2008, for reasons that were not
totally his fault, we fell into a
deep recession and suddenly tax
revenue dried up. The federal out-go
increased with things like
unemployment and food stamps, and
its income went down with literally
millions of people losing their
jobs.
Again,
in spite of what Mitch McConnell, John
Boenher and the Rep/Fox/pundit chorus,
all of these things happened before
Barak Obama came into office. There
also were, at the end of Bush's term
and the beginning of Obama's, a large
bank bailout and a stimulus package,
but even taken together these never
came close to the magnitude of the
cuts in income and increases in
spending of the Bush era.
So, that’s where we are. In his
first months in office, Barak Obama
put together a bi-partisan stimulus
package that was basically in three
parts.
- One part “shovel-ready” payouts
that are still being paid out,
- One part tax cuts which are notoriously ineffective for stimulus but designed to win over Republicans to vote for it (and that
worked out well, didn’t it),
- And one part to take up the slack
in states that had to cut spending
because of their ill-advised
balanced budget requirements.
The “Stimulus” did help, but not
overwhelmingly, and because of that it unfortunately allowed the
Rep/Fox/pundits to claim dishonestly
that it not only did not help but
actually caused harm (
harm? Yes,
that’s what they said).
So, here’s why increasing the
taxes on the wealthy makes sense, and
it’s really not all that complicated.
Let’s call it the Henry Ford Theory of
Tax increases because he was an early proponent of the theory. Ford, as you
may recall was a leader in paying his workers
a decent wage because he had so many
of them that if they were poor and couldn't buy his cars, he would feel it. It would keep down his car sales. So, he
paid them living wages so that they could purchase his product and help him
grow rich. Pay your workers more so that they can buy your stuff and everybody gets happy.
When applied to taxes, the idea is
that wealthy individuals and
corporations make things and they want
to sell them because they want to make
a profit. (In today’s economy they
often make them in Mexico or China,
but they still want someone to buy
them.) If the people on the very
bottom of the society are kept dirt
poor all the time, it keeps them from
buying the stuff that the rich produce
or invest in. If you keep the minimum
wage low, and keep their incomes low,
it may be easier for you to hire them
to clean your house for a song, but it
also makes it harder for them to buy
your refrigerators, microwaves and
autos. So, to help this situation and to help
people in the long run, the government has to spread
some of that wealth down to the bottom
so that the people there can have a
(slightly) higher standard of living
and thus buy the products made or
invested in by the wealthy.
Ways to do that include earned
income tax credits (a Reagan idea, by
the way, but opposed as too liberal
today by Republicans), or extended
unemployment insurance, or just lower
taxes. Ironically, tax cuts for the
poor and middle class usually have
much more bang for the buck in terms
of stimulus in a recession than do tax
cuts for the wealthy. The reason is
that the wealthy don’t see and feel
their tax cuts and they seldom change
their consumption patterns with it.
But the poor use their tax cuts to buy
groceries, or make car payments. They
push their new money out the door fast
and it benefits the economy more
quickly.
So, by taxing the rich and giving
it to the poor in an old fashioned
“FDR” way (because FDR did this), the rich eventually---five
or six years down the pike---will get
the money back again because the poor
are now able to buy things, lift the
economy, and that generates more
income for the rich. In the long run
everyone benefits and the rich don’t
have to be stuck with looking like bad
guys for not wanting to share with the
poor. It’s a logical way to help the
economy, easy to see, easy to
understand, but one that is never even
acknowledged to be on the planet by
the Rep/Fox/pundit voting block.
Two
urgent situations require quick action from those who are concerned
about world hunger. Your action can help counteract the massive presence
of banking lobbyists in Washington. At a time when we give thanks for
food on our plates, let’s help make sure that is a reality for people
across the U.S. and around the world.
