Subject: [SocialistWorker.org] The big lie about tax cuts and jobs
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Editorials
======== THE BIG LIE ABOUT TAX CUTS AND JOBS =================================
Tax cuts for business have been a complete failure at creating jobs, but they
serve another purpose for political leaders: creating a fiscal train wreck to
justify austerity.
October 17, 2012
WE'RE TOLD that the 2012 presidential campaign offers a stark choice--a
corporate executive vs. a community organizer, the brash nearly-billionaire
vs. the empathetic everyman.
But on the most important issue for voters in this election--employment and
the economy--the candidates agree on an awful lot. It may not seem like it
when you hear the talking points designed to emphasize the difference between
the two--or listen to the media's obsessive analysis of who denounced who
about what and when. But once you cut through the rhetoric, the candidates
agree on the main way to produce more jobs.
Tax cuts for business. And if that doesn't work, more tax cuts.
Sure, at the Tuesday night presidential debate, Obama--maybe because he was
fully awake this time--emphasized that he, unlike Romney, wanted to raise
income tax rates affecting the richest 2 percent of U.S. households to the
levels they were at during the presidency of Bill Clinton in the 1990s. What
Obama /didn't/ point out is that he had a chance to do this by rescinding the
Bush tax cuts for the super-rich at the end of 2010--and he capitulated to
the Republicans.
Nevertheless, while Obama promised to repeal the Bush tax cuts for the
wealthy, he also said he wanted to reduce taxes on bankers and businesses. In
a debate where Obama was desperate to show how different he is from Romney,
he stressed several times one point of agreement between the two--that taxes
on corporations are too high, and they ought to be reduced.
This reflects something that has become an article of faith in mainstream
politics--that the best way to create jobs is to cut taxes on businesses so
they'll hire workers. The flip side of that consensus is that the worst way
to create jobs is a government program that actually hires people--like, you
know, teachers, social workers, highway construction crews, structural
engineers who know how to keep bridges from collapsing...
Once confined to a minority of fiscal conservatives who then found themselves
in power during the administration of Republican Ronald Reagan, the theory of
"trickle-down economics" dominates economic policy across the mainstream
political spectrum--even if not many people use the term anymore.
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THE BASIC idea is that if you cut taxes on corporations, that gives them more
cash that they can use to invest, which will increase overall employment as
more people are hired, and incomes will rise throughout society. In other
words, more money in the hands of business and the rich will eventually
"trickle down" to the rest of us.
There are two problems, though. One is that "trickle-down economics" doesn't
work, and never has. And two is that tax cuts for the rich starve the
government of resources that /could/ make a difference.
Even the Congressional Budget Office, the government's own nonpartisan agency
for analyzing economic data, acknowledges that cutting taxes won't create
jobs [1], especially in a weak economy: "Increasing the after-tax income of
businesses typically does not create much incentive for them to hire more
workers in order to produce more, because production depends principally on
their ability to sell their products."
Tax rates on business and the wealthy in the U.S. are already very low by
historical standards and--despite the squawking by CEOs and the financial
press--on the low end when compared to other industrialized countries.
One result is that U.S. corporations are sitting on a record hoard of cash,
estimated at as much as $2 trillion. Why? Because corporations won't make new
investments until they believe those investments will turn a profit. The
money that's supposed to trickle down to the rest of us is trickling into the
big pockets of the super-rich.
Instead of creating jobs, cutting taxes for the wealthy and
corporations...makes the wealthy and corporations richer still! One of the
20th century's leading mainstream economists, John Kenneth Galbraith,
derisively referred to the "trickle-down" methods of his day as the
horse-and-sparrow theory: "If you feed the horse enough oats, some will pass
through to the road for the sparrows."
That's true today. The neoliberal consensus for free markets, government
spending cuts, privatization and tax cuts for the rich serves the interests
of the 1 percent--the same elite that already made off with the lion's share
of the economy's gains for the last few decades.
The rest of us get crap.
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DON'T TAKE our word for it that the mania for tax cuts is a bipartisan
consensus. Listen to the presidential candidates.
In the first debate, Mitt Romney said: "Fifty-four percent of America's
workers work in businesses that are taxed not at the corporate tax rate, but
at the individual tax rate. And if we lower that rate, they will be able to
hire more people. For me, this is about jobs. This is about getting jobs for
the American people."
Obama's "counter" was: "When it comes to our tax code, Governor Romney and I
both agree that our corporate tax rate is too high, so I want to lower it,
particularly for manufacturing, taking it down to 25 percent."
Both men said pretty much the same in the second debate.
Romney, of course, is explicit--he's a "trickle-down" fundamentalist. One of
his last comments in the second debate was to repeat the same
sentence--"Government doesn't create jobs"--over and over, like a mantra.
But Barack Obama and the Democrats are no less dedicated to this proposition.
Even the 2009 stimulus law--passed during the first month of the Obama
presidency, as an emergency measure to jump-start the economy, with the
support of most of the business establishment--was heavily weighted in this
direction.
A little over one-third of the $787 billion total in the largest stimulus law
in history was earmarked for tax breaks for individuals and corporations. And
as of 2010, the White House Council of Economic Advisers reported that almost
half of the money actually spent under the stimulus law [2] to that point
went to tax breaks.
A year later, the council estimated that each job created under the stimulus
law cost taxpayers between $185,000 and $278,000, more than if the money had
been spent directly on putting people to work by bringing more teachers into
schools or hiring construction workers to work on infrastructure projects.
All the evidence to predict that tax cuts don't result in job growth was
already available in 2009. To take one example, in the early 1990s,
Republicans made the same claims that Mitt Romney is making today--that
raising taxes on the rich strangles job growth--against Bill Clinton's
proposal for modest tax increases. In the years after Clinton's tax
/increase/, job growth in small businesses increased more than two times
faster [3] than after George W. Bush's tax /cuts/ in the 2000s.
There's no definitive correlation between tax cuts and job growth--because
many more economic factors are at play.
In fact, real corporate tax rates have been falling in the U.S. for decades.
Though the nominal tax rate on businesses is 35 percent, corporations enjoy
so many exemptions, deductions and loopholes that they pay far less--and
often enough, nothing at all. Thus, General Electric, one of the largest
corporations in the world, paid an average effective tax rate of 14 percent
between 2001 and 2010, according to a feature on taxes in /Mother Jones/
magazine [4].
At the same time, the tax burden has shifted more and more onto working
people. Income taxes have fallen modestly for the brackets in the middle of
the income ladder, but a good part of the difference has been made up by
various regressive taxes, which disproportionately hit working people.
The payroll tax extracted from your paycheck--if you get one--is one example:
The tax is capped at just over $100,000 in annual income--meaning the rich
pay substantially less as a percentage of their income as, say, an
"associate" at Wal-Mart or an employee at an auto parts factory. Thus,
payroll taxes have dramatically increased as a share of government revenues.
When it comes to sales taxes, also regressive, no politician ever seems to
want to cut them. But they duel with one another to bestow still lower tax
rates on corporations.
This is the first way to understand the strange but true fact--that Warren
Buffett's secretary, because of regressive taxes like payroll and sales
taxes, pays a far higher percentage of her income to governments at all
levels than her boss.
- - - - - - - - - - - - - - - -
THOUGH TAX cuts have been an abysmal failure at creating jobs, they have
served another purpose perfectly--creating the fiscal train wreck that has
been the justification for deep cuts in an already threadbare social safety
net.
The history of the last three decades makes a mockery of Mitt Romney's claims
to be more responsible about balancing the government's budget. Ronald
Reagan, for example, pledged to balance the budget even as he cut taxes and
doubled defense spending. It didn't work out, to no one's surprise--and
federal deficits ballooned. Later, Reagan's budget director David Stockman
admitted that, despite assurances to the contrary, he knew the budget would
produce deficits, but he and his fellow Republicans figured this would compel
Congress to cut spending on social programs.
Likewise, George W. Bush insisted that not one, but two huge tax cut packages
were needed to spur the economy and job growth--even while the U.S. was
fighting expensive new wars in Afghanistan and Iraq. The pile of debt just
grew and grew.
Given this history, it's ludicrous for Republicans to claim to be the party
of fiscal conservatism. But the Democratic Party can't attack their record of
failure--either on the deficit or job creation--because they don't have an
alternative. On the contrary, they have helped preside over the shift of the
tax burden from the rich to the poor, and from corporations to the rest of
us.
Socialists have a simple answer to the favorite question of politicians
during debates at election time: How will you pay for it? Our answer is this:
Tax the rich.
But within mainstream politics, any proposal of the sort--however modest, and
even those which aren't about raising taxes on the rich, but merely not
reducing them--is invariably met with the charge of "class warfare." The
leaders of the Democratic Party, who are every bit as dependent on donations
from corporations and Wall Street as the Republicans, are keen to avoid this
charge.
And so the /real/ class warfare continues--the one-sided war of the 1 percent
against the 99 percent.
Mitt Romney's program of enriching Corporate America in the name of "helping
100 percent of Americans" is nauseating. But Barack Obama doesn't offer an
alternative. He and the Democratic Party accept all the same premises as
Republicans about government economic policy--austerity, tax cuts for
business and the rich, support for American business above all else.
It will take a mobilization outside of Washington, fighting for completely
different priorities, to do something about the jobs crisis in this country.
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[1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-Outlook_Stimulus_Testimony.pdf
[2] http://en.wikipedia.org/wiki/2009_stimulus#cite_ref-95
[3] http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/20/does-raising-taxes-on-the-rich-hurt-small-businesses/
[4] http://www.motherjones.com/politics/2011/04/taxes-richest-americans-charts-graph
