...From journalist and author Jon Talton in his Rogue Columnist blog on Monday 9 January '09...Why tax cuts won't stim this time
At the moment, tax cuts make up 42 percent of the so-called stimulus bill. This dooms it to be ineffectual, if not actually making things worse. The latter will happen because this is all borrowed money. Public investments provide the means to repay it by improving commerce and productivity. Tax cuts just piss it away. Where are the fighting liberals who are going to filibuster this mess and make the president realize his bipartisanship dance has only reinvigorated the Republicans, the party that wrecked America?
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In 2003, Nobel laureate economist Paul Krugman laid out the exhaustive case against the cult of tax cuts, in a must-read, must-keep article in the New York Times Magazine. Yet this remains the only idea of the GOP, the party that wrecked America. And it has been given center stage by a naive president and weak Democrats who don't know how to act as winners. As a consequence, public investments in infrastructure, the best way to generate jobs and a return for the future, have been pared back. The perfect should not be the enemy of the good. But this is a rotten bill, and it is the enemy of the good, whether the punked good has realized yet or not.
In 2003, Nobel laureate economist Paul Krugman laid out the exhaustive case against the cult of tax cuts, in a must-read, must-keep article in the New York Times Magazine. Yet this remains the only idea of the GOP, the party that wrecked America. And it has been given center stage by a naive president and weak Democrats who don't know how to act as winners. As a consequence, public investments in infrastructure, the best way to generate jobs and a return for the future, have been pared back. The perfect should not be the enemy of the good. But this is a rotten bill, and it is the enemy of the good, whether the punked good has realized yet or not.
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Context is important to understanding how tax cuts work. John F. Kennedy cut tax rates in the early 1960s, providing incentives to invest, which in turn created jobs. This worked because top tax rates were very high, and arguably kept capital in shelters instead of being used for productive purposes. The same move worked, to a degree, for Ronald Reagan, although rates were not as high. Unfortunately, in Reagan's case the resulting investment boom was often acted out in destructive financial plays and mergers. Still, millions of jobs were created. Yet Krugman debunks the idea that this brought in more money to the Treasury than if rates had remained at their Carter levels. And combined with a major arms build-up, these tax rate cuts created record deficits. (To be fair, the Gipper was pragmatic enough to later raise some taxes, as did George H.W. Bush). A slight rise in the rates for the top earners in the Clinton years refilled the Treasury and gave George W. Bush a surplus.
Context is important to understanding how tax cuts work. John F. Kennedy cut tax rates in the early 1960s, providing incentives to invest, which in turn created jobs. This worked because top tax rates were very high, and arguably kept capital in shelters instead of being used for productive purposes. The same move worked, to a degree, for Ronald Reagan, although rates were not as high. Unfortunately, in Reagan's case the resulting investment boom was often acted out in destructive financial plays and mergers. Still, millions of jobs were created. Yet Krugman debunks the idea that this brought in more money to the Treasury than if rates had remained at their Carter levels. And combined with a major arms build-up, these tax rate cuts created record deficits. (To be fair, the Gipper was pragmatic enough to later raise some taxes, as did George H.W. Bush). A slight rise in the rates for the top earners in the Clinton years refilled the Treasury and gave George W. Bush a surplus.
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Bush cut taxes, but this time the reliable old contraption misfired. Although the economy went into a mania of mergers and financial plays, job creation was the slowest in decades. Incomes of wage earners stagnated or declined -- this was cloaked by the Fed-induced housing bubble. Meanwhile, the well-off -- people who make their living from investments, rather than wages -- did better than ever. With very low capital-gains taxes and an eviscerated estate tax, investors and family dynasties reached levels of wealth not seen since the run-up to the Depression. The same was true for the disparity between rich and poor. We now have a genuine oligarchy with interests at odds with the national interest. With the help of fighting an elective war, Bush left a monstrous economic calamity and monstrous deficit.
Bush cut taxes, but this time the reliable old contraption misfired. Although the economy went into a mania of mergers and financial plays, job creation was the slowest in decades. Incomes of wage earners stagnated or declined -- this was cloaked by the Fed-induced housing bubble. Meanwhile, the well-off -- people who make their living from investments, rather than wages -- did better than ever. With very low capital-gains taxes and an eviscerated estate tax, investors and family dynasties reached levels of wealth not seen since the run-up to the Depression. The same was true for the disparity between rich and poor. We now have a genuine oligarchy with interests at odds with the national interest. With the help of fighting an elective war, Bush left a monstrous economic calamity and monstrous deficit.
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What happened? Arguably, rates fell too low to stimulate productive new capital use that would be widely beneficial. In a global economy, what investment that was stimulated by cutting taxes on the wealthy resulted in investments in China, India, eastern Europe, etc. This was a different case from Kennedy's time, or even Reagan's. So while tax-rate changes can influence behavior, we now know they are not a panacea. We know that rates too low only widen the gulf of incomes and grow deficits and debt. Now is not the time to raise tax rates. But that time must come.
What happened? Arguably, rates fell too low to stimulate productive new capital use that would be widely beneficial. In a global economy, what investment that was stimulated by cutting taxes on the wealthy resulted in investments in China, India, eastern Europe, etc. This was a different case from Kennedy's time, or even Reagan's. So while tax-rate changes can influence behavior, we now know they are not a panacea. We know that rates too low only widen the gulf of incomes and grow deficits and debt. Now is not the time to raise tax rates. But that time must come.
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On a more fundamental level: there's no free lunch. It costs money to operate an advanced nation, including the duties of government. Americans want their tax cuts and their government services -- and so insular are they out in suburbia, they don't even realize Americans pay far lower taxes than other advanced nations (and get less for it, including an educational system that fails to prepare more people to rise to good jobs). Now, thanks to a quarter century of bad policy, we have a mindset of entitlement. Tax cuts! Tax cuts! Tax cuts! Do the duhs and ignos realize they are being played by the oligarchy that controls our politics -- and keeps them in low-wage jobs frying their minds on cheap TVs from Wal-Mart?
On a more fundamental level: there's no free lunch. It costs money to operate an advanced nation, including the duties of government. Americans want their tax cuts and their government services -- and so insular are they out in suburbia, they don't even realize Americans pay far lower taxes than other advanced nations (and get less for it, including an educational system that fails to prepare more people to rise to good jobs). Now, thanks to a quarter century of bad policy, we have a mindset of entitlement. Tax cuts! Tax cuts! Tax cuts! Do the duhs and ignos realize they are being played by the oligarchy that controls our politics -- and keeps them in low-wage jobs frying their minds on cheap TVs from Wal-Mart?
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The rebates to "average Americans" are especially wasteful, as we also learned under President Bush. With $1 trillion in unpaid credit-card debt alone, these Americans are not going to stimulate the economy with $500 checks. They would with, say, well-paid, secure jobs manufacturing transit equipment, rebuilding our passenger rail system and operating a 21st century rail network. Oh, wait -- that has to be killed or scaled back for more tax cuts.
The rebates to "average Americans" are especially wasteful, as we also learned under President Bush. With $1 trillion in unpaid credit-card debt alone, these Americans are not going to stimulate the economy with $500 checks. They would with, say, well-paid, secure jobs manufacturing transit equipment, rebuilding our passenger rail system and operating a 21st century rail network. Oh, wait -- that has to be killed or scaled back for more tax cuts.
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A return to the much of the federal income tax code with multiple progressive rates that existed in 1979 and prior is increasingly in order. Some changes would be needed to reflect technological changes, and rates for those for with annual taxable incomes under $20,000 should have zero federal tax liabilities. Rates should increase progressively albeit slowly for incomes under $100,000 and then more quickly for taxable incomes that are greater. Tax rates should be indexed to zip codes and housing costs and rents in those zip codes to not penalize those that live in more costly areas and states. Incomes in excess of $3 million need to be taxed at 75 % and those with incomes over $10 million should be in a 90 % tax bracket. Hyper millionaires and billionaires with incomes over $12.5 million like the wealthy elite; corporate executives and management; actors and entertainers; sports teams owners and players like Kobe "Satan" Bryant and Alex "Steroids" Rodriguez should be in a 95 % tax bracket. Corporate income taxes need to be on a similar progressive level with progressive revenue taxes employed as well with a reduced number of deductions and credits in placed as compared to the numerous ones in place today that are broadly abused and misused. Only through fair measures such as these will the gross growing income inequality issue be addressed and the middle class be returned to the eminence that allowed the nation to be broadly successful in the past.
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