An Expensive Loyalty

For Republican politicians—and, alas, a few conservative Democrats—tax cuts are a policy for all seasons and incomes: in good times and in bad, for the poor and, especially, for the rich. It is a standard axiom of right-wing ideology that there is no economic problem that tax cuts of sufficient quantity can’t solve.

In this bad time, however, when many Americans are still losing jobs and homes, the GOP’s enthusiasm for tax cuts has collided with its other perennial obsession: budget deficits. Since being signed into law in 2001 and 2003, the Bush administration’s tax cuts, along with its wars and regulatory failures, have turned budget surpluses into massive debt. Many of the politicians who supported those cuts are now expressing alarm at the budget shortfall they helped create.

Instead of acknowledging that the government can no longer afford tax breaks for everyone, conservative politicians are calling for deep spending cuts—at precisely the moment when the private sector and cash-strapped states most need the federal government’s support. The politicians solemnly advertise their anxiety for future generations that will have to repay the debt we’ve incurred; they seem somewhat less worried about a generation of children whose schools are being gutted by state cutbacks.

In keeping with his campaign pledge, President Barack Obama wants to extend the Bush tax cuts only for annual income below $200,000 for individuals and $250,000 for households. For those who make more than this, he proposes to let the top two tax rates return to their pre-Bush levels: 35 and 39 percent—up from 33 and 35 percent. Historically, these higher rates are still quite low (in the 1950s and early ’60s, a period of sustained economic growth, the top marginal tax rate was more than 90 percent). Only the part of a taxpayer’s income above $200,000 would be taxed at the higher rates, and the president’s plan preserves some of the Bush tax cuts for capital gains and dividends. This means that the wealthiest Americans would still pay less in taxes than they did before the Bush tax cuts went into effect. The richest top tenth of 1 percent, for example, would still pay an average of $61,510 less, as compared with the $370,000 less they pay now.

This hardly counts as class warfare, though you wouldn’t know it to listen to Republican lawmakers. After Rep. John Boehner (R-Ohio), in a brief fit of rationality, signaled his willingness to vote for a bill extending tax cuts only for the nonrich, his party quickly returned to its normal intransigency. Republicans once again insist they are opposed, on principle, to letting any of the tax cuts expire. In the words of Senate Minority Leader Mitch McConnell, “We don’t think taxes ought to be increased in the middle of a recession for anyone.”

Most of the country disagrees. According to a recent CBS News poll, 56 percent of Americans favor getting rid of tax cuts for households earning more than $250,000. No matter how many times politicians say these cuts help small-business owners, ordinary Americans have trouble believing it. As well they should: according to the Tax Policy Center, less than 2 percent of those who report small-business income on their tax returns make enough money to pay at the top two tax rates.

So just what is the principle behind Republican opposition to (slightly) higher taxes for the rich? At a time when the richest 1 percent of Americans get roughly a quarter of the country’s total income, it’s hard to argue that the rich need tax relief for their own benefit. If the idea is to stimulate the economy by giving consumers more money to spend, it would be much more efficient—as well as more just—to give money to those who are now living hand to mouth. The rich can afford not to spend their money. If the Republicans’ most pressing concern is really the deficit, they might consider that the tax cuts they’re defending cost the government $68 billion a year. That’s more than the cost of the infrastructure program the president has proposed, which would put Americans back to work rebuilding the nation’s neglected dams, bridges, and roads. And it’s more than twice as much as Congress—after months of Republican foot-dragging—finally set aside for state and local governments that couldn’t afford to pay their teachers and firefighters.

Whether the Republicans’ main priority is jumpstarting the economy or reducing the deficit, there’s no excuse for their eagerness to extend tax breaks for the rich, not even the excuse of popular opinion. As for principle, the main one seems to be to take care of one’s own—not one’s constituents, to be sure, but one’s campaign donors and lobbyist friends. The GOP’s loyalty to the rich, in and out of season, is impressive in its way, but the country can no longer afford it.


Related: The Wrong Tax Debate, by E. J. Dionne Jr.;  The Rich Get Richer, by the Editors; Economic Injustice for Most, by Charles R. Morris; Government Is Not the Problem, by Jeff Madrick

From the dotCommonweal blog: Taxing Language, by Don Wycliff 

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The editorial says, "the GOP’s enthusiasm for tax cuts has collided with its other perennial obsession: budget deficits."  However, this ignores actual experience which shows that tax rate cuts usually lead to more tax revenues.  The biggest problem the Obama administration has in dealing with the economy is that it has too many balls in the air for entrepreneurs to be able to plan.  If one is about to invest in a new business or expand an existing one, one needs to know what taxes one will pay, what energy costs it will pay, and what employee health care costs it will pay.  All of these factors are moving targets.  2010 will look like a banner year compared to 2011 if the tax cuts are allowed to expire.  Most businessmen are right now pulling as much income into 2010 as they can.  The editorial says, "If the idea is to stimulate the economy by giving consumers more money to spend, it would be much more efficient—as well as more just—to give money to those who are now living hand to mouth."  The main goal should be to stimulate job growth, by making new investment a better bet.  The unemployed and those fearing for their jobs are not going to spend more and the wealthy will look for safer investments. 

Tom,

 

You are wasting your breath - or bytes.

 

The editors are really interested in what they say they are.  It isn't about growing revenues, it's about equalizing incomes regardless of the actual revenue impacts.  You can point out that the percentage of tax revenues paid by the top 10% of earners is exponentially greater now than it was when the top rates were 70%, or that revenues, as you indicate, almost doubled in the eight years after the Reagan tax rate cuts, and they won't care.

Tom and Sean seem unaware of our history, particularly the Greatest Generation and how before JFK cut taxes on the highest bracket to 70%, their wealthiest paid at 90% for 20 years.  They paid off our WWII debts and helped allies and enemies get back on their feet, financed the GI Bill which largely created the middle class we are now losing, built the Interstate system we are now allowing to crumble.  It wasn't the war that pulled us out of the Depression; it was spending on the war and its aftermath, including on infrastructure and education of all those GIs. 

Please don't espouse the old trickle down theory.  Concentrating money in a few places rather than allowing it to circulate results in national disaster -- isn't that clear after our near economic meltdown lit by Wall Street? 

At least JP Morgan and his banking buddies knew this in the late 1800s.  They got together a private stimulus package to give the economy a needed transfusion.  They knew that if the whole system crashed, this would not be good for business.  Today it seems a few are willing to gamble that if the system crashes, they will clean up while the nation as we know it goes down.  JP was hardly a charitable man.  But he was not grandiose and delusional; he was realist.    

Inequality is not good.  Our faith should tell us that.  Sociological and economic data tell us this too.  See the book, "The Spirit Level" for details on this.       

The fact is that very, very few paid 90%.  The wealthy always had their tax shelters and I wouldn't point to the Depression era as a period to emulate.  Obama has spent money like a drunken sailor (which is unfair to drunken sailors because they're spending their own money.)  Unemployment and underemployment remain outrageously high and there is no growth.  Jim, you're staring monumental failure in the face, but refuse to acknowledge it. Obama has threatened to let the Bush tax cuts expire and boy, hasn't that stimulated growth and employment?  The fact is Jim, you can continue guzzling the Kool Aid, but Kennedy's, Reagan's and Bush's tax rate cuts stimulated the economy.  Increasing tax rates now is madness unless your aim is to "spread the poverty."  The Obama administration is populated by radical leftists who have no clue how wealth is created.  All they know is ENVY and class warfare and to hell with how much suffering their policies cause.

What generates tax revenue is monetary velocity.  I get a dollar; it is taxed for the first time, when I spend it it is taxed again.  When the next person spends it it is taxed again, and so forth. 

That's the big hole in the trickle down theory.  The wealthy can afford to rathole their money.  The poor HAVE to spend it, or risk life with no heat or water or groceries.  Give 'em a few extra bucks and they will spend it on something.  Give the very wealthy a few bucks and they will stick it in the bank, which will list it as an asset, but probably not loan it out.  Should they go against the odds and loan it out, it could be involved in a bankrupt company and actually disappear off of the face of the earth.

There is a special glow to cash right now.  People all know that every thing's for sale cheap.  Antiques, yachts, used john boats, used luxury cars and cheap cars are all for sale for less than they were five years ago.  Lots, lots less. No one is buying.  No one thinks it has hit bottom, and meanwhile they are contributing to the problem. 

So much for the buying sense of the American public.  There will be no better time to buy in my lifetime.  Sooner or later, economic realities will force the devaluation of the dollar.  That's all for another post, though.

Sue

Tom,

I'm doing my best to face reality and not prematurely label what I see.  Why don't I trust the people who say we can't help needy people now because then we may not have enough to help the needy in the future?  Because in the future these people won't help the needy then either.  They will use the same argument again -- and again.  I'm tired of it.  I'm old enough not believe such excuses for refusing to help the poor. 

Some people don't want to help the needy.  They see the needy as slackers or lazy or whatever, deserving of their poverty.  They can't see that their worldview is faulty.  We can't have a small class super rich without having a significant number of poor.  We have to have better wealth distribution if we want to have a functioning econmy.  It isn't a matter of envy.  It's a matter of social justice -- or it should be for us Catholics.   

Jim, I think that it was Margaret Thatcher who sagely observed that socialism is great, but sooner or later you run out of other people's money.  I genuinely respect and share your concern for the poor, but the question you fail to address is where the money will come from.  The economic policies of this administration is destroying the economy of this country and therefore our ability to help the poor.

Tom and will never agree on this, but it is good to have more than one take on an issue.  Without this we would never change and grow.  We could all do with a little of the Benedictine vow of conversatio morum, or "a continual openness to change and growth." as translated by Sister Arleen Hynes, OSB.

 

From my perspective, taxes are not evil unless, like in Jesus' time and our pre-independence days, taxes were taken not by ourselves but by another sovereign power.  Jesus never said give what you have to the poor unless it involves (your own) taxes. I believe there were Temple taxes. How else in our huge society can this be done on a consistent and reliable basis?  Waiting for some to amass huge fortunes and then MAYBE, if they so deign, give some to the less fortunate -- well, look at Wall Street. 

 

The Greatest Generation knew this.  They had seen war and destruction.  They knew poor people were all too often victims of large political and economic systems.  Thinking in micro rather than macro terms wasn't appropriate. So they taxed themselves, especially those most able to pay. They got money to those in need, including returning GIs, and they created the middle class we are now letting go because an ideology tells us some few are entitled to amass outrageous and unnecessary individual wealth that could serve the millions of poor right now. To me this sounds more like idolatry than ideology. What are we: the Greediest Generation?  But, as one who is a child of the Greatest Generation, I ramble.      

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