By Tadie (December 29th, 2011)
The debate in Washington D.C. regarding economic policy has revolved around the wealthy, tax cuts, and how to get the U.S. economy growing faster. Unfortunately, the negative stance of the Republican party in recent votes on policy and legislation to help boost the economy has held back the potential growth for the economy as a whole. Essentially, the Republicans now are voting against the same policies that they have supported for decades. Nearly all of the Republican members of Congress voted against keeping the payroll tax cut in place which benefits 160 million Americans, basically voting to raise taxes on that group of people – all the while not wanting to raise taxes on the wealthiest 1% of Americans based on the logic that the wealthy are the “job creators”.
Unfortunately, they are wrong not just on the policy but also on the history of these same arguments and the outcomes of those same policies over the past 30 years. The GoP’s continual assault on this President and his policies and thwarting implementation of many of those economic policies hurt this country and the hundreds of millions of working class Americans. Although I would give this President a “C” grade overall I give the Republicans an “F” in honesty. Since the President was sworn into office the Republican strategy has been to make sure this President and his policies fail – but that strategy has harmed this country and is making the economic recovery even more difficult.
A great example of the above statement is real outcome of what happens when you raise taxes on the middle class and reduce or keep taxes low on the wealthy ( the job creators as Republicans call them ). The middle class by definition is not wealthy. They have little in savings or investment. They probably have a house which represents their largest investment. They basically spend all they earn to support their families and have a few luxuries such as a vacation once a year. By raising taxes on the average famiy, by about $100 per month, they don’t have this 100 dollar to spend in the economy. That’s a fact. America was built during the 1940’s and ‘50’s and 60’s by a rapidly expanding middle class that earned wages that kept growing with increases in technology, innovation and efficiencies. This middle class had families and bought houses and paid property taxes that built schools and funded fire departments, bought gas for cars that built roads for them to drive on. Had sons and daughters who they believed would live a better life than they did when they grew up.
Take away $100 a month from 160 million people and you seriously damage the economic fabric of this country. They won’t spend that money. If they don’t spend that money at the grocery store, or at Walmart or Target or Macy’s then you will see lower employment at those stores, and with those people who lose their jobs because of lower spending overall by the 160 million people they then will have no money to spend and it becomes a vicious cycle of reduced employment, reduced tax income to the government and growing budget deficits in all government sectors.
That’s not a good economic scenario.
Now, by continually reducing the tax rates on the wealthy ( the job creators ) so that they can invest and create jobs has proven to be false. Over the past 10 years the wealthiest Americans have benefited from a $1 Trillion ( yes, trillion ) tax break. But, where are the jobs ? They didn’t invest it in new plants or manufacturing facilities here. Why? Because by reducing their taxes to the lowest level in history they have no motivation to assume risk. What do I mean by that? Basically, the lower the tax rate to a wealthy person the more risk they assume when making an investment. Lower tax rates cause people to be more conservative. If the tax rate is 35% and the rich person invests in a new project and it goes broke they lose 65% of their investment ( they write off the loss on the next tax year against that current year income, so if they lost $100 they write off $100 against their income, saving $35 in taxes and losing $65 of their own money ). Now, if the tax rate is 50% and given the same investment – their risk s only $50. But, if the new business works out they increase their income regardless of the tax rate. If the tax rate is 90% ( which it actually as about 100 years ago ) then their risk is vey small because if it doesn’t work out they only lose 10% ( since they save $90 on taxes for the next year. They only lost $10 ), and if they made a $100 in the next year they wouldn’t pay any taxes at all since they wrote off the loss from the prior year. BUT, if the new business was successful they would have the opportunity to increase their annual income many times over – regardless of the tax rate !
Higher taxes on the wealthy ( 39.6% during Clinton years vs. 35% now ) created an opportunity for more investment because as a wealthy person there was more incentive to invest because the government kept a larger share of your income. When the government share of your income is reduced you lose incentive to take risk because if you lose your investment you have less tax benefit the following year for write off. Lower taxes means the wealthy actually have “more at risk”.
So, what do you do if you’re wealthy and taxes are being reduced ? KEEP THE MONEY ! DON’T TAKE RISK ! YOU DON’T NEED TO !
The bottom line is that lower tax rates on the wealthy create incentive for them to manage wealth – not to create more. Higher tax rates force wealthy people to produce more with their capital if they want to earn more.
The decade of the 90’s saw the technology revolution – Microsoft, Oracle Corp, Apple Corp. and many others. It changed the way we, and the world live our lives. The most recent decade ( 2000 to 2010 ) saw no new innovations – just growth from those technology companies that got their start in a “higher tax rate environment”. The other major growth was the huge change in China – as it became the manufacturer to the world. The job creators created jobs – they were just in China and India, and special tax treatment on those foreign earnings let them get even richer. But, they still didn’t create jobs in the USA, but they did get wealthier while the other “99%” stayed the same.
While the President has been deride for what the Republicans call his failed stimulus plan – the non partisan Office of Management and Budget ( OMB ) says the stimulus saved up to 3.5 million jobs. The President bailed out the American auto industry – much to the screaming of the GOP, saving perhaps 1.4 million jobs. Now, those same auto companies that the GOP wanted to fail ( which would also hurt the Presidents economic arguments and the overall economy ) are now producing profits and even growing picking up market share they haven’t had in 15 years !
Since the beginning of the “Reagan Revolution” the top 1% has seen their incomes grow by 247%. The other 99% saw their incomes grow just 40%, which didn’t even keep up with inflation. Income of the working class has been flat the last 3 decades.
The GOP says that the President is waging “class warfare” and wants to “redistribute wealth” ( a term which is coded to mean either socialist or communist policy ). What the GOP fails to tell you is that wealth has been redistributed, for the past 30 years from the middle class to the wealthy via failed economic and tax policies and the assault on organized union labor.
The Republicans, allegedly the party that is concerned with “famiy values” and “middle America” and budget conservatives has been nothing more than a party of unneeded wars, unpaid government mandates ( prescription drug bill ), and trillion dollar ( yes, trillion – a thousand billion ) tax cut to the wealthiest among this nation – and it wants to have the middle class pay more while giving more tax breaks to the rich.
The GOP argument that citizens need to pay their “fair share” is a good one. The only problem is defining what is fair. The millionaire or billionaire uses much more in government services than the normal American family. The wealthy businessman who produces products or imports or exports uses educated people – who most likely went to a public school. They import or export their goods around the world on seas which the US Navy is present. They work or open factories in other countries that will use the federal government to help maintain order, fairness, solve problems, and create favorable trade policies. These are tools that make more sense to the wealthy than they do to the truck driver for FEDEX.
Economic policy is a little bit like art It’s in the eye of the beholder. But an ugly painting is always an ugly painting and everyone knows it. That’s what the GOP economic policy is – an ugly painting, and everyone knows it – except the painter.
