Jul 28th 2010

Why Congress Must End Bush Tax Breaks for the Rich

by Robert Creamer

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
President Obama has proposed to eliminate the massive deficit-busting Bush tax breaks for the top 2% of Americans - while maintaining tax cuts for 95% of Americans. He is spot on.
The Bush tax breaks are set to expire at year's end, so there is real pressure on Congress to act. Congress should maintain the cuts for individuals earning $200,000 or less, and families earning $250,000 or less. And it should restore the Clinton-era tax rates to the very rich.

It is the right thing to do economically, politically and morally.

First the economics
. When it comes to creating jobs, the last people who need more money in their hands are the wealthiest 2% of Americans.

The Republicans charge that eliminating these tax breaks on the rich - and returning them to Clinton-era levels -- would be a "job-killing tax hike in the midst of a recession." Let's recall that while the Clinton-era tax rates applied to the rich in the 1990's, the economy created more than 22.5 million jobs in less than eight years-the most jobs ever created under a single administration. Moreover, the Federal deficit had turned into a surplus for as long as the eye could see. The number of private sector jobs created during the Bush years: zero. The Republican position amounts to nothing more than baseless pandering to the greed of their many wealthy donors.

To create more jobs, our economy needs more economic demand. We need people who are willing to go out and buy products and services. Our economic problem is not that we lack enough people who will go out and work to create the products and services we need to have better lives. Our problem is that there is not enough demand to entice businesses to increase their work forces or buy new plants and equipment.

The economy's fundamental problem is a "demand deficit." There is less economic demand for products and services than the ability we have to produce them. Every day that goes by with plants and workers lying idle, we lose the output they would have produced forever - we squander precious resources that could go to build new homes, or produce more food or invent new sources of energy.

For three decades - from Ronald Reagan through George W. Bush -- the American right wing peddled the notion that by transferring more money to the wealthiest among us, we would entice them to invest more and that the economy would grow. That was the fundamental premise of "supply side economics." In fact, of course, "supply side economics" was really a rationale for why rich people should be richer still.

The "supply side experiment" turned out to be a colossal failure. For eight years, George W. Bush applied the theory in its purest form: increase tax breaks to the rich, eliminate regulations on Big Oil, insurance companies and Wall Street.

The results are there for everyone to see.

The New York Times
reported last year that, "For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring."

In fact, since George Bush and the Republicans in Congress passed two massive tax cuts, we have seen a massive, secular decline in the creation of private sector jobs.
Of course it won't surprise anyone that this decline has been led by the reduction of American manufacturing jobs. There has been a decline of 3.7% in overall manufacturing jobs in the United States over the last decade.

Remember that we're talking here about an absolute lack of increase in private sector jobs - zero increase in actual jobs -- even as the population of the United States has grown. Economists tell us that the economy must create 150,000 new jobs each month just to stay even with population growth.

The failure of the economy to produce any private sector jobs at all would have been even more devastating had it not been for a small but significant growth in public sector jobs at the state, local and federal levels. Of course these are precisely the kind of jobs that the Republicans and Right decry at every opportunity and claim to want to cut. "Everyone knows," they say, "that job growth is really driven only by the private sector." Wrong…maybe in the imaginary worlds of the Heritage Foundation or Cato Institute, but not in the real world of Republican economic policy.

And let's be clear, the Bush tax cuts didn't just produce fewer jobs than advertised. They didn't produce any private sector jobs at all. The whole experiment in handing over money to the wealthiest people in America so they could use it to benefit the rest of us was a colossal - empirically verifiable - failure.

Now compare that to the Clinton administration where the rich paid Clinton-era tax rates. Of the total of 22.5 million new jobs, 20.7 million, or 92 percent, were in the private sector.

Turns out that when they were given all of those tax cuts, the top two percent of the population used them to speculate in exotic derivatives, to drive up the prices of high-end real estate, pay exorbitant prices to the designers of $4,000 blouses and $2,000 shoes. There is absolutely no evidence that they made any more investments in new manufacturing plants, or started up any more businesses than they would have had they paid the same tax rates that they did when Ronald Reagan took office and private sector job growth was 3% per year.

No, instead the rich used the Bush Tax Cuts to create the gigantic economic "bubble" that ultimately burst and caused immeasurable hardship and suffering to millions of average Americans and everyday people across the globe.

Most economists agree that the best way to close the "demand deficit" that is at the root of our economic problems is to put money into the hands of people who will spend it - because they need to. Mark Zandi, Chief Economist for Moody's who was economic adviser to former Republican presidential candidate John McCain, argues that the most efficient way to create immediate growth in demand are investments in food stamps and unemployment benefits. In fact he estimates that every dollar of spending on unemployment benefits increases overall economic growth by $1.61. That's because people who get unemployment benefits need to spend the money, and the people who receive it from them spend it as well, and so on.

You don't create more demand by giving money to rich people who don't spend it - or for that matter, to corporations who sit on huge sums of cash. And that is one of our current economic problems. Corporate bank accounts are bulging with cash. And remember, corporate profits have actually gone up in the last quarter - mostly by cutting back the costs - and especially cutting jobs.

But that approach is not sustainable over the long run - even for the corporations. To have sustainable growth, the economy needs consumers with money to spend - with rising income, not just credit cards in their pockets. Long-term growth requires widely spread prosperity - not ever-increasing concentration of income at the top of the income pyramid. One of the leading causes of the current economic disaster was the transfer of income from average middle class people to the very rich. Over the eight years of Bush, even when the overall economy grew, the incomes of working Americans actually dropped in real terms by $2,197 per year since 2000.
Eliminating the Bush tax breaks for the very rich would save the taxpayers more than two thirds of a trillion dollars over the next decade. That money would make a substantial dent into the long-term budget deficit. And it could be used to make the desperately needed public sector investments we need to assure long term economic success - investments in education, infrastructure, health care and new sources of energy.

The politics
. If Republicans want to campaign this fall defending tax breaks for the rich - bring 'em on.

This is an issue that should be used to divide the sheep and the goats. There should be no question that Democrats support continuing tax relief for everyday people and eliminating Bush's outrageous tax breaks for millionaires.

Everyday voters are furious at wealthy special interests - and especially Wall Street. A huge portion of the Bush tax breaks went to the "geniuses" on Wall Street whose recklessness sunk the economy but even now continue to rake in multi-million dollar bonuses.

Then there is the inheritance tax. In a brilliant stroke, Bush guru Karl Rove managed to get the media to refer to the inheritance tax as the "death tax." Democrats need rebrand the attempt to eliminate or substantially cut the inheritance tax for what it is: an attempt to hand billions of dollars in tax savings to the sons and daughters of multi-millionaires.

By definition the sons and daughters of multi-millionares - the Paris Hiltons of the world - are the only people who would benefit by eliminating or cutting the inheritance tax since it only affects muti-millionaires. America is sick of bonuses and perks for multi-millionaires. Nobody wants to use precious tax dollars to provide tax breaks to help Paris Hilton jet around the world and go to more exclusive parties.

Right and Wrong
. The elimination of the Bush tax cuts for the rich is good economics and good politics. But this is also about right and wrong.

It is just plain wrong for our government cut back on food programs for children to give Paris Hilton more money to buy another pair of $1,300 Manolo Blahnik shoes.

It's just wrong for Republicans to deny unemployment compensation to victims of the recession because they say we can't afford them, and then turn around and extend billions of tax breaks to multi-millionaires.

It's just wrong for us to lay off teachers - and deny our children the educations they need to have fulfilling productive lives in order to allow John McCain to add to his collection of seven homes.
It's wrong to propose cutting Social Security payments for seniors who get an average of $13,000 a year in benefits in order to make it easier for one of the "masters of the universe" on Wall Street to fly around the world in his Gulfstream VI private jet.

In the end, good politics and good economics are not about lists of policies and programs - they are about right and wrong.

People are not "inputs" in the economic process - their welfare is the goal of economic policy - and the products and services they create represent the sum total of everything that the economy is about.

And in the end, more than anything else, politics is about whether people believe that candidates are on their side and stand up forcefully for the values they hold dear.
President Obama, House Speaker Nancy Pelosi, and Senate President Harry Reid have all called on Congress to do what's right. Time for every Member of Congress to stand up straight and eliminate the Bush tax cuts for the rich that did so much to harm to our economy, our people and our sense of justice.

Robert Creamer's recent book: "Stand Up Straight: How Progressives Can Win," available on Amazon.com.

Browse articles by author

More Current Affairs

Nov 30th 2021
EXTRACT: "So it could well be that, despite the faster spread of the infection, its ultimate health, social and economic impact proves negligible. We simply do not know at this point. But detecting more uncertainty than before, financial markets have reacted with panic. For example, the S&P500 tumbled 2.3% on Friday November 26 only to rise 1.1% on Monday November 29. Most markets gave up between 2% and 4%, which is a pretty substantial one-day fall."
Nov 28th 2021
EXTRACT: "Momentous changes are casting a long shadow on China. The country’s political system will soon undergo a profound reform, pending final approval (a quasi-formality) at next year’s congress of the Communist Party of China (CPC). President Xi Jinping, the Party chairman and the “navigator” of the country, has decided on a new course, abandoning the principle of collective leadership. Xi is leading China away from the path taken by Deng Xiaoping after the terror of the Cultural Revolution, and back toward a system of absolute rule by one person without term limits, as under Mao Zedong."
Nov 25th 2021
EXTRACTS: "”The biggest disappointment in Glasgow was the last-minute watering down of the proposed (and widely supported) agreement to “phase out” the use of coal in energy production. With India providing political cover for China in vetoing this language, the final conference proposal was to “phase down” coal”. ---- “China accounts for more than half of the world’s coal consumption, and has the largest amount of coal-fired generating capacity under construction. Pressed about why his country would not do more in Glasgow to help save the planet, China’s chief negotiator pointed to the commitments in the Communist Party of China’s current Five-Year Plan. So, our future now depends on the CPC’s program. The tragedy for the world is that the Party cannot be phased down, much less phased out, despite the fact that it is a huge threat to the future of all of us.” ------ “To save the planet, robust democratic leadership must be phased up – not phased down, let alone phased out. Rather than merely keeping our fingers crossed and hoping for the best, we should start by calling out the appalling behavior of dictatorships such as China and Russia.”
Nov 22nd 2021
EXTRACT: "The transitory inflation debate in the United States is over. The upsurge in US inflation has turned into something far worse than the Federal Reserve expected. Perpetually optimistic financial markets are taking this largely in stride. The Fed is widely presumed to have both the wisdom and the firepower to keep underlying inflation in check. That remains to be seen."
Nov 14th 2021
EXTRACT: "S&P projects that companies are planning to install 44 gigawatts of new solar in 2022. The year 2020, despite the onset of the pandemic, saw a record-breaking 19 gigawatts of new solar capacity installed in the U.S. So given the bids out there already, it appears that in 2022 solar installers will more than double their best year ever so far. The U.S. currently has 100 gigawatts of solar electricity-generating capacity, so in just one year we are poised to add nearly 50% of our current total. A gigawatt of power can provide electricity to about 750,000 homes. So the 44 new gigawatts we’ll put in next year have a nameplate capacity that would under ideal conditions allow them to power 33 million homes." ----- "Not only is there a lot of good news on the green energy front but there is good news in the bad news for fossil fuels. S&P finds that coal plants are being retired way before the utilities had expected. Some 29 gigawatts of coal retirements are expected from 2020 through 2025. "
Nov 3rd 2021
EXTRACT: "Zemmour’s way of thinking stems from a tradition going back to the French Revolution of 1789. Catholic conservatives and right-wing intellectuals, who hated the secular republic that emerged from the revolution, have long fulminated against liberals, cosmopolitans, immigrants, and other enemies of their idea of a society based on ethnic purity, obedience to the church, and family values. They were almost invariably anti-Semitic. When Jewish army Captain Alfred Dreyfus was falsely accused of betraying his country in the notorious scandal of the 1890s, they were on the side of Dreyfus’s accusers. ---- Germany’s invasion of France in 1940 gave reactionaries of this kind the chance to form a French puppet-government in Vichy. Zemmour has had kind things to say about the Vichy regime. He also has expressed some doubt about the innocence of Dreyfus. ---- None of these views would be surprising if they came from a far-right agitator like Jean-Marie Le Pen. But Zemmour is the son of Sephardic Jewish immigrants from Algeria who lived among the Muslim Berbers."
Oct 27th 2021
EXTRACT: "performed strongly in last month’s parliamentary and regional elections. Officially, Communist Party candidates took 18.9% of the popular vote for the State Duma (parliament), compared to nearly 49.8% for the Kremlin’s United Russia party. But the Communists refused to recognize the results, insisting that the vote was rigged. And, indeed, some experts estimate that they should have gotten around 30% of the vote, with United Russia taking about 35%."
Oct 22nd 2021
EXTRACT: "Powell was charismatic in the true sense of the term. Nowadays, this description is too often used to indicate an ability to attract supporters or generate celebrity interest. Internet lists of those who are regarded as charismatic include characters as varied as Adolf Hitler, Bono, Donald Trump, George Clooney, and Rihanna. But the ancient Greeks and Saint Paul used “charisma” to describe values-based leadership infused with a charm capable of inspiring devotion. The Greeks believed that this quality was a gift of grace, while Christian theology regarded it as a power given by the Holy Spirit."
Oct 17th 2021
EXTRACTS: "But property-sector woes are not the only economic danger China faces in 2021-22. The Chinese government’s mounting crackdown on the country’s burgeoning tech sector may pose an even greater threat." ---- "According to a recent study by McKinsey & Company, the share of Chinese urban employment supported by private enterprises more than quadrupled between 1995 and 2018, from just 18% to 87%. The share of exports generated by the private sector more than doubled over the same period, from 34% to 88%. And private-sector fixed-asset investment jumped from 42% to 65% of the total. The message in the data is clear: clamping down on the private sector and threatening innovators is not the way to ensure sustained rapid growth. Chinese entrepreneurs can read the writing on the wall. They understand that their political and regulatory room to maneuver is shrinking, and that the balance has shifted in favor of state-owned firms and public officials. And they understand that this uneasy atmosphere is likely to persist."
Oct 16th 2021
EXTRACT: "We designed a programme that incorporated data from over 300 million buildings and analysed 130 million km² of land – almost the entire land surface area of the planet. This estimated how much energy could be produced from the 0.2 million km² of rooftops present on that land, an area roughly the same size as the UK."
Oct 6th 2021
EXTRACT: "Britain in the 1950s was wedded to the US, acting as a partner rather than leading the charge. Now, while the UK continues to support the US, the influence it has seems negligible. While it may bring comfort to the UK to feel it is a partner to a superpower, being its stooge or subordinate is an unpleasant place to be, no matter how much you tell yourself it values your opinion."
Oct 6th 2021
EXTRACT: "That was then. Now, the Chinese government has doubled down, with President Xi Jinping throwing the full force of his power into a “common prosperity” campaign aimed at addressing inequalities of income and wealth. Moreover, the regulatory net has been broadened, not just to ban cryptocurrencies, but also to become an instrument of social engineering, with the government adding e-cigarettes, business drinking, and celebrity fan culture to its ever-lengthening list of bad social habits. All this only compounds the concerns I raised two months ago. The new dual thrust of Chinese policy – redistribution plus re-regulation – strikes at the heart of the market-based “reform and opening up” that have underpinned China’s growth miracle since the days of Deng Xiaoping in the 1980s. It will subdue the entrepreneurial activity that has been so important in powering China’s dynamic private sector, with lasting consequences for the next, innovations-driven, phase of Chinese economic development. Without animal spirits, the case for indigenous innovation is in tatters."
Oct 5th 2021
EXTRACT: "Wartime nostalgia plays an important part in Britain’s instinctive fondness for the special relationship. Like former Prime Minister Tony Blair in the run-up to the invasion of Iraq in 2003, some British politicians might believe that the United Kingdom is the only European country with serious armed forces and the political will to use them. Prime Minister Boris Johnson, like Blair before him, seems to fancy himself a modern-day Churchill. Unfortunately (or not), Britain’s military power is insignificant compared to what Churchill could command in 1944. Wartime nostalgia has drawn Britain into several foolish American wars, which other European countries were wise to avoid."
Sep 24th 2021
EXTRACTS: "We have found that 47 million American adults – nearly 1 in 5 – agree with the statement that “the 2020 election was stolen from Donald Trump and Joe Biden is an illegitimate president.” Of those, 21 million also agree that “use of force is justified to restore Donald J. Trump to the presidency.” Our survey found that many of these 21 million people with insurrectionist sentiments have the capacity for violent mobilization. At least 7 million of them already own a gun, and at least 3 million have served in the U.S. military and so have lethal skills. Of those 21 million, 6 million said they supported right-wing militias and extremist groups, and 1 million said they are themselves or personally know a member of such a group, including the Oath Keepers and Proud Boys." ----- "..... the Jan. 6 insurrection represents a far more mainstream movement than earlier instances of right-wing extremism across the country. Those events, mostly limited to white supremacist and militia groups, saw more than 100 individuals arrested from 2015 to 2020. But just 14% of those arrested for their actions on Jan. 6 are members of those groups. More than half are business owners or middle-aged white-collar professionals, and only 7% are unemployed."
Sep 11th 2021
EXTRACT: "That long path, though, has from the start had within it one fundamental flaw. If we are to make sense of wider global trends in insecurity, we have to recognise that in all the analysis around the 9/11 anniversary there lies the belief that the main security concern must be with an extreme version of Islam. It may seem a reasonable mistake, given the impact of the wars, but it still misses the point. The war on terror is better seen as one part of a global trend which goes well beyond a single religious tradition – a slow but steady move towards revolts from the margins."
Sep 11th 2021
EXTRACTS: "Is it not extraordinary that in a country that claims to be as enlightened and advanced as ours, the combined wealth of three individuals – Amazon founder Jeff Bezos, Microsoft founder Bill Gates, and investor Warren Buffett – exceeds the total wealth of the bottom half of Americans? One has to return to the days of the pharaohs of Egypt to find a parallel to the extreme wealth inequality that we see in in America today." ...... "The top tax rate remained above 90 percent through the 1950s and did not dip below 70 percent until 1981. At no point during the decades that saw America’s greatest economic growth did the tax on the wealthy drop below 70 percent. Today it is somewhere around 37 percent. President Biden’s American Families Plan would increase the top tax rate to 39.6 percent – a fairly modest alteration, albeit in the right direction. It is true that there was a time when the top marginal tax was even lower than it is today: in the years leading up to the Great Depression it hovered around 25 percent."
Sep 7th 2021
EXTRACT: "But Biden can’t be blamed for the rise of the Taliban, or the fragile state of a country that has seen far too many wars and invasions. The US should not have been there in the first place, but that is a lesson that great powers never seem to learn."
Sep 4th 2021
EXTRACT: "The world is only starting to grapple with how profound the artificial-intelligence revolution will be. AI technologies will create waves of progress in critical infrastructure, commerce, transportation, health, education, financial markets, food production, and environmental sustainability. Successful adoption of AI will drive economies, reshape societies, and determine which countries set the rules for the coming century." ----- "AI will reorganize the world and change the course of human history. The democratic world must lead that process."
Sep 1st 2021
EXTRACT: "Although the Fed is considering tapering its quantitative easing (QE), it will likely remain dovish and behind the curve overall. Like most central banks, it has been lured into a “debt trap” by the surge in private and public liabilities (as a share of GDP) in recent years. Even if inflation stays higher than targeted, exiting QE too soon could cause bond, credit, and stock markets to crash. That would subject the economy to a hard landing, potentially forcing the Fed to reverse itself and resume QE." ---- "After all, that is what happened between the fourth quarter of 2018 and the first quarter of 2019, following the Fed’s previous attempt to raise rates and roll back QE."
Sep 1st 2021
EXTRACT: "Today’s economic challenges are certainly solvable, and there is no reason why inflation should have to spike."