Tax Cuts, Stimulus and The Rudder on a Ship.
February 16, 2009
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(Pre-Note: Continuing from last weeks “Myth Busting” regarding The Depression and WWII’s role in ending it, ABC’s Sam Donaldson repeated the falsehood during “This Week“s “Roundtable” segment Sunday as if it were an obvious statement of fact. Naturally, I sent feedback to them pointing out his error.)
It must be tough being a Republican, living in a state of constant fear & paranoia. The entire world is quite literally out to get them. “Liberals” control The Media, The Poor want their money, Mexicans are crossing the border to “take our jobs” AND “live on welfare”, foreign dictators want to attack us (so we must attack them first), The Gays want to corrupt “Polite Society” and “indoctrinate” our children, and The Atheists want to take God… the only thing that keeps people from behaving like total deviants… out of our schools, off our money and out of Christmas.
They LITERALLY drive modified military vehicles (“Hummers”) just to take the kids to hockey (I almost said “soccer”) practice, and think Democrats want to pick THEIR pocket by raising their bosses taxes by 3% (even if it means passing that tax cut on to them). How a Republican gets through each day without taking a handful of Prozac every morning is a mystery to me.
It doesn’t help that the very Media they believe is against them keeps repeating their worst fears & misinformation as fact day after day, only lending credence to their fear. Such is the debate between Democrats & Republicans over what stimulates the economy more: “tax cuts” or “targeted spending”.
I don’t mean to sound like a broken record, but why is ANYONE listening to the Republicans on this issue? Haven’t they already PROVEN to us that their “solutions” don’t work? From the first day of the 2000 Presidential campaign, Republicans tried to tell us how the incredible Clinton Economy would have been “even better” had we of only had a Republican in the White House for those eight years. They credited themselves for the amazing economy of the 1990’s (the very economy they said would be a disaster following the passage of Clinton’s 1993 tax increase, which they used to retake the House in 1994). And Bush campaigned on how the “Budget Surplus” was just evidence taxes were too high. “A Republican President with a Republican Congress” would cut taxes, which they promised would “result in an economic boom”. So we gave it to them and what was the result? The only “BOOM” I heard was the economy falling off a cliff like Wile E. Coyote chasing the Road Runner around a blind curve:
By 2006, it was already clear the Republicans were wrong about… well, everything, and the voters en masse turned control of BOTH houses of Congress over to the Democrats (compare that to Newt Gingrich’s “Republican Revolution” in 1994 that retook the House and added seats in the already-Republican Senate in a coup that they still talk about today). Despite that, one Fox News Sunday “viewer-mail” yesterday claimed that Democrats, who gained control of Congress in 2007 after the economy started to sour, were responsible for the “sub-Prime mortgage crisis” (which, BTW, began in mid-2003 after Bush cut interest rates to the bone following 9/11 and touted his “ownership society”) that resulted in the mess we are in today, and thus should not be listened to.
“Tax cuts” are not a “stimulus”. Let me repeat that: “Tax cuts” are not a “stimulus”. That might sound counter-intuitive (especially if you are a Republican), but maybe it’ll make more sense if you think of it this way:
Picture a boat in the water (sorry, no diagram. My regular PC went belly up two weeks ago and I’ve been using a makeshift system until I get back up and running). The boat is “the economy”. The rudder is “taxes”. Just as the rudder steers the boat, taxes can steer the economy. Taxes are a powerful tool that allows the government to direct the flow of money the same way the rudder decides the direction of the boat. “More taxes” (ie “a bigger rudder”) won’t make the boat go any faster, but too small a rudder is incapable of steering a big ship.
Now picture “tax cuts” as a hand saw hacking away at the rudder, making it smaller and smaller until eventually, it becomes useless, incapable of steering the massive ship we call the U.S. economy. That’s what Republicans want to do in the foolish belief that “the rudder is always too big and must therefore be slimmed down to reduce weight & drag that slow down the ship.
As you can see from this metaphor, both arguments have some merit. Too big a rudder is unnecessary and should be trimmed. While too small a rudder can’t steer a big ship. Problem is, Republicans don’t know when to stop hacking away at the rudder. Short-term, tax cuts appear to work because the boat continues moving in the same direction it was already pointing, only faster with less drag now that the rudder is gone. But then you see a giant reef up ahead and you no longer have the ability to steer around it. Republicans have whittled our rudder down to a toothpick and now the U.S.S. Economy is not only adrift, it’s run aground and taking on water. The Republican solution: lighten the boat even more by continuing to hack away at the rudder until the boat floats up off the reef, and when that doesn’t work, start tossing people overboard… the guys that were doing the rowing. Eventually, all those bodies in the water will raise the water level until the boat, now filled with nothing but wealthy shipping tycoons, floats free. Of course, there’s no one left to row the boat, and no way to steer it even if you could. Oh, and that hole in the bottom of the boat that caused it to take on water, who’s going to fix that? The boat, now adrift, begins to sink in open, shark-infested waters. “Save us!” they cry to the very people they just tossed overboard (taxpayers). “Bail us out!” (literally, “start bailing the water out of our boat!”).
Just because you HAVE a high tax rates does NOT mean everyone PAYS those high taxes (Republicans know this but like to play dumb on the issue). You then offer incentives and exemptions to reward good behavior… ie: things that improve the economy. As Air America’s Thom Hartmann likes to point out all the time, we used a top tax rate of 70% up until the 1950’s to encourage companies to reinvest their taxable profits back into their companies tax-free… increasing the value of a personal asset while creating jobs here in the U.S…. rather than pay taxes on them. That went away with the Reagan Administration in the 1980’s, cutting the corporate tax rate nearly in half, and making up the lost tax revenue by borrowing it from China (among others). And today, more than a quarter of every tax dollar… rather than be spent here to help Americans… is used to pay interest on the Debt so these countries will continue to loan us money (what Bush Sr. referred to as “Voodoo Economics” when he ran against Reagan in 1980)… a problem that compounded exponentially under George Dubya with his massive tax cuts while trying to pay for two simultaneous wars.
In a bad economy, the savings from a “tax cut” is more than likely to be “saved” or spent only to pay down debt for things you’ve ALREADY bought rather than be spent right away, unlike government spending which will pour 100% of the money directly into the economy. We saw this two years ago when President Bush announced everyone would be receiving $300 “stimulus checks”, which he assured us would rescue the sinking economy. But what did people do, they put it in the bank or they paid off debt, doing almost nothing for the economy except delaying the inevitable.
And STILL they listen to these people. It doesn’t matter how many times one of ACME’s defective products sends ol’ Wile E. off a cliff or into the side of a mountain, he’s going to keep ordering from ACME because who else is going to accept a credit card over the phone from a dog that talks using paper signs?
Media Matters pointed out last week that Mark Zandi of financial giant Moody’s cited low-end spending on social services like “unemployment benefits” and “food stamps” as being as much as THREE TIMES as stimulative as tax cuts. If you give a poor person $100 in food stamps, you can bet all $100 of it will be spent back into the economy. Versus a $100 tax cut for someone worth over a million dollars. Which one has a greater stimulus effect on the economy?
The size & scale of the mess the Bush Administration has gotten us into has yet to be fully appreciated by most people. I posted a video to our archive nearly a year ago of Mort Zuckerman, billionaire real estate developer and editor of US News & World Report, warning people that:
Understand for a moment the difficult spot we are in: the Recession is now *global* (when the U.S. sneezes, the World catches cold), so we can’t borrow our way out of this mess (not that we should even if we could). That means paying for the stimulus by printing more money… which makes the dollar more worthless, which creates inflation, which makes things more expensive, which means people get less for their money. Less product being sold means more layoffs, meaning fewer people paying taxes to help pay for the stimulus. You can’t continue (and even worsen) the cycle by printing even more money, so you must make due with what you’ve already allocated. The less that amount is, the harder it will be to dig your way out. And so far, the Republicans have convinced Democrats to slash nearly a hundred billion from a stimulus package that (IMHO) is already 50% too small.
I’m reminded of the first new car I ever bought: a tiny Hyundai Excel in 1986. It was incredibly cheap because it used a tiny Mitsubishi engine that Mitsubishi themselves thought was unusable because it was too small (89ccm). Hyundai bought the engines, built a car around it that it was light enough to move, and sold them for peanuts. It wasn’t fast and the engine probably had to work harder than it should to do the job, but it’d get you there. And such as it is with the finalized $787 billion dollar stimulus package. It’s going to be a struggle for a Stimulus that’s less that 1/5th our 2008 GDP to revive our economy, but given time, it’ll get us there.
As Nobel Prize winning economist Paul Krugman noted recently (I apologize for the lack of a link. If someone could provide it in the Comments?), “the Bush Administration siphoned THREE TRILLION DOLLARS out of our economy between two wars and their tax cuts for the rich.” That’s an awful lot of “rudder” the Republicans have hacked away. And now they’re hacking away at the amount of wood needed to rebuild it.
Postscript: On this “Presidents’ Day”, celebrating the 200th birthday of Abraham Lincoln, I highly encourage everyone to go back and re-read our last Myth Buster: Let’s Put this “Party of Lincoln” Nonsense to Bed Once and For All
February 16, 2009
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