Sunday, September 28, 2008

Tax Cuts: Myths and Realities

Alternate titles - "if you are stuck in hole it's probably best to stop digging" or "insanity is doing the same thing over and over and expecting different results".

The article Tax Cuts: Myths and Realities from the Center on Budget and Policy Priorities (CBPP) should be read by anyone who still wants to jump on the "tax cut for the wealthy...trickle side economics" bandwagon as defined by Ronald Reagan, then George W. Bush and now John McCain.

I know with the current state of the economy this seems like kind of "duh" stuff but there are actually people proposing tax cuts, with no idea how they are going to pay for them other than vague references to - "pork barrels" and "earmarks" (or to put it another way federal money provided for state or local projects which hasn't gone through the usual "merit-based" process Congress uses to spend money) - and something about us "sending $700 billion a year overseas to countries that don't like us very much. Some of that money ends up in the hands of terrorist organizations." (or to put it another way we are buying oil from a variety of foreign countries including Canada).

It's interesting to note that earmarks are not necessarily good or bad and accounted for a (relatively speaking) measly 16.5 billion, some say up to 18 billion, in 2007. Just to make the arithmetic easier let's assume those pesky earmarked pork barrels cost us 20 billion a year. Now assume the national debt is 10 trillion (it will be more before we finish trying to shore up the banks). Let's see...1000 billion dollars is 1 trillion. 50 times 20 is 1000...So....I need 50 years of no earmarks to pay off 10% of the debt. That can't be right! Is it?

Whenever someone talks about cutting spending it's good to keep in mind that over 70% of the federal budget is allocated to defense, the entitlement programs - social security, medicare and medicaid, and paying interest on the debt. So unless a candidate is willing to cut the defense budget they are left with cutting that small slice of the pie that's left - without adversely impacting education, science and health research, veterans benefits, protecting the environment, alternative energy programs and ultimately our long-term ability to survive, thrive and remain competitive in the world.

Here's a summary of the myths and realities from the article -
Myth 1: Tax cuts “pay for themselves.”

Reality: A study by the President’s own Treasury Department confirmed the common-sense view shared by economists across the political spectrum: cutting taxes decreases revenues.

Myth 2: Even if the tax cuts reduced revenues initially, they boosted revenues and lowered deficits in 2005 to 2007.

Reality: Robust revenue growth in 2005-2007 has not made up for extraordinarily weak revenue growth over the previous few years.

Myth 3: The economy has grown strongly over the past several years because of the tax cuts.

Reality: The 2001-2007 economic expansion was sub-par overall, and job and wage growth were anemic.

Myth 4: Even if economic growth and the job market were weak during the early stages of the recovery, the capital gains and dividend tax cuts turned the economy around in 2003.

Reality: The available evidence indicates that the capital gains and dividend tax cuts were not the cause of improvement in the economy in 2003.

Myth 5: Extending the tax cuts is important for the economy’s long-run health.

Reality: Extending the tax cuts without paying for them would be more likely to reduce economic growth over the long run than to increase it.

Myth 6: The tax cuts have made the tax system more progressive.

Reality: The tax cuts have made the distribution of take-home pay more unequal — at a time when inequality in before-tax income has also increased.

Myth 7: The tax cuts have made the tax system more fair to small business owners.

Reality: The President’s tax cuts affect small business owners much as they affect the population as a whole: they provide large gains to those with high incomes and little benefit to others. For more information see Big Misconceptions about Small Businesses and Taxes

Myth 8: Even if high-income taxpayers have received the largest gains from the tax cuts, taxpayers across the income spectrum have benefited.

Reality: Taking into account the fact that their costs eventually must be paid for, most American families likely will lose from the tax cuts over the long run.


So how come this myth gets implemented as public policy you may ask?

"Conservative" policy makers get executive summary information from groups like the Heritage Foundation which is in turn funded by people who have a vested interest in making super rich people richer by whatever means possible - including a never-ending series of wars that call for expansion of the military/industrial complex, and redistribution of wealth via deficit spending and tax policies that favor the elite class of multi-millionaires/billonaires.

As Warren Buffett, one of the richest people in the world said, "there is a class war and we're winning." To be fair to Warren Buffett he's also said he doesn't think that's right.

Groups like the Heritage Foundation staff up with "true-believers" who have a fundamentalist view that doesn't allow for dispassionate treatment of fact.

You can see this in a Heritage Foundation report from 2001 Cost of Bush's Tax Plan that claims the Bush tax plan "would eliminate the federal debt by 2010." We know the federal debt has increased every year George Bush has been in office and the 2008 debt is estimated to be 9 trillion 654 billon dollars (that estimate is before we try to prop up the failing banks with taxes that come from the middle class). Of course in 2001 no one knew this, but the paper is written in such a way to present what turns out to be an ill-informed opinion - as fact.


In 2000 the Heritage Foundation was beating their drum to tell leaders it was Time to Eliminate the Costly Death Tax. It's interesting to note that part of the overall strategy was to rename the estate tax, the death tax - because that sounds scary and makes poor people afraid that the government was going to unfairly tax whatever meager amount might be in their estate.

The Heritage Foundation represents a very small minority of people who would like to consolidate wealth. They certainly don't represent rich people if you consider people like William H. Gates (Bill's dad), Warren Buffett, and George Soros, and the Dozens of Wealthy Joined to Fight Estate Tax Repeal.

I know this sounds unbelievably weird and conspiracy-like in a free country like the USA, but according to this article by Robert Reich,
"The campaign to repeal the estate tax was financed and coordinated by 18 families worth a total of $185 billion."
How does this sham get perpetrated?

Propaganda is a powerful tool - just look at all the poor people who watch Fox News and listen to "conservatives" on talk radio and somehow are misled into thinking the Bush administration, some so called "conservatives", and now John McCain who drank the tax cut kool-aid, have their best interests at heart, while progressive Democrats (and yes some Republicans), who might have some ideas that would actually help them get ahead - are evil. If you say that someone is evil, stupid, crazy, radical, a liar...or whatever name you can think of, who needs to argue the facts?

Of course we'll see a lot of low ball ads, funded primarily by the greedy minority of the super-rich, aimed at trying to scare average Americans away from electing progressive politicians who actually do have their best interests in mind. I don't think dirty fighting will work this time, people are tired of the scare and hate tactics that try to divert them from the real issues.

Enough people have had enough to make sure we get a new deal for the next four years.