How to give Republicans their tax cut without destroying the economy
November 15, 2010
Republicans say “corporate tax cuts create jobs, increase tax revenue and reduce the Deficit”. It’s total bullshit of course. It’s what George H.W. Bush called “Voodoo Economics” 30 years ago when he ran for president in 1980 against Ronald Reagan. You can’t find a single example of it happening anywhere in history, but that doesn’t stop them from repeating it. Their “logic” (for lack of a better word) goes like this: “Low taxes leave corporations with more money to spend creating jobs, and/or buy stuff that results in product orders that create jobs. Those employees then become tax payers, resulting in more income than what was lost due to the tax cut”. The problems with that theory are manifold:
One: Why would corporations voluntarily spend money to hire employees or expand their business when they can just keep the money for themselves… ESPECIALLY when the economy is bad? Taxes on net profit encourage companies to reinvest that money back into their business to avoid having to pay taxes on it. You can’t encourage desired behavior with a “tax cut” when the other side is giving tax cuts away for free. Republicans want to take away the Stick, and give away the Carrot. Ever seen an Ox choose to pull the cart on his own when he can simply lie down and eat all day? Beside generating revenue, “Taxes” actually serve a practical purpose: To direct the behavior of spending.
Two: If you’re already rich, you’re not going to go on a spending spree just because your taxes went down by 3% (39% to 36%). And two percent of the population doesn’t buy enough to create enough jobs to offset the loss in tax revenue. Middle-Class Conservative voters have bought into the lie that only “the rich” purchase the kinds of things that create jobs: boats, cars, machinery, etc (and how much of that is actually Made in America?) It doesn’t occur to them that the Middle-Class buys more than a few rich people do. Middle-Class Conservative voters also believe that “the rich” spend their money the same as everyone else. No. If you suddenly won $100 in the lottery tomorrow, you’re more likely to spend it all on Xmas gifts in the coming days than the millionaire that suddenly receives a $10,000 windfall in the Stock Market. The millionaire’s Xmas budget isn’t likely to change. If you’re already a millionaire, is an extra 3% really going to change your spending plans? 99.6% of Americans earn less than $500,000 a year. The increase in taxes on people making between $200,000 and $500,000 if the Bush Tax Cuts for the Top 2% are allowed to expire: $700 dollars. Not enough to hire anyone or result in any massive “spending spree” that might create millions of jobs. The poorer you are, the more likely you are to actually SPEND the money quickly. Ask Wal*Mart if “the poor” create jobs.
Three: The “rich” have NO incentive to expand their business when there is NO DEMAND for the products/services they sell. Instead, they put their windfall in the bank, off-shore accounts, or invest in stocks/bonds/etc… where the money simply sits with ZERO stimulus effect on the economy (notice how even though the economy is bad right now, the Stock Market is soaring.) Companies are sitting on $1.8 TRILLION in cash with NO incentive… read: tax break… to pour that money back into their business.
Four: People who ALREADY have a lot of money can already do all those things without giving them even MORE. One week ago on NBC’s “Meet the Press” (11/7/10), Ronald Reagan’s budget director David Stockman asked why are we giving tax breaks to the millionaires and billionaires on Wall Street that we just bailed out? “They don’t deserve it!”, he asserted. And as I pointed out last week: “Why is a $700B bailout of Wall Street ‘bad’, but giving Wall Street $700B in tax cuts ‘good’?” I’m still waiting on an answer to that one.
And finally, we also end up cutting taxes on the employees as well, so the amount of tax revenue raised never surpasses the amount of tax revenue LOST.
So, you say “extending the tax cuts to the Top 2% will create jobs”? Fine. If the tax cuts are supposed to “create jobs”, then simply add a stipulation that they don’t get the cut unless they increase their payroll (via jobs and/or raises) by an amount greater than or equal to their cut. Simple.
Better yet, Senator Mark Warner (D-VA) has suggested we use $65B the $70 Billion dollars collected in taxes on the Top 2% and use it to pay for tax cuts to corporations that actually create jobs. Win/Win. If that’s what is supposed to happen anyway, Republicans SHOULD have no problem making it a condition of receiving those tax cuts.
There appears to be every indication that when Congress reconvenes for their Lame Duck session today (11/15), Democrats will split the extension of the Bush Tax Cuts into two bills: one extending the cuts for everyone below $250,000, and one for everybody above that, then DARE Republicans to vote against the first bill… holding it hostage until they get their cuts for the rich. I’d be interested in watching Republicans try and fight such a bill. If they do, it would be proof positive their reason for wanting the cuts is purely to enrich the rich and nothing to do with “creating jobs”.
Sadly though, I’ve become jaded enough at this point to think a majority of Americans might actually be stupid enough to allow their own tax cuts to be held hostage until Republicans can give “the rich” their irresponsible cut come January. We’ll see.
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November 15, 2010
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Admin Mugsy · 
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Posted in: Economy, Money, Politics, Seems Obvious to Me
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