America's Next Failed Conservative Stimulus
Unless something drastic happens between now and the vote on President Obama’s tax-cut “compromise” with congressional conservatives, America is headed for its next failed conservative stimulus. Even with the proposed tweaking around the edges, there is nothing in this bill that hasn’t already been tried and failed.
In a sense, we are still living with the worst economic policies of the George W. Bush era, going all the way back to the tax cuts Bush pushed for almost as soon as he entered office, promising that the cuts would create jobs, stimulate the economy and stave off the recession that Fed chief Alan Greenspan warned was on the way. On June 7, 2001 — with unanimous support from Republicans, and the help of 28 House and 12 Senate Democrats who should have known better — Bush signed into law $1.35 trillion in tax cuts. It was one of the largest tax cuts in history; much larger than the $127 billion surplus left by President Clinton, Bush’s predecessor in the Oval Office.
While Bush was in office, the tax cuts failed to pay off. The gross domestic product grew at an anemic rate, and unemployment rose 2.1% between January 2001 and June 2003. Median household income — adjusted for inflation — dropped between 2000 and 2007, even as families were spending more on such basic expenses as food, housing, gas and health insurance. Meanwhile, after-tax income for the wealthiest 1% rose by $146,000 in 2004 alone. The poverty rate increased from 11.3% to 12.5% by 2006, and had increased to 13.2% by 2008.
Over and over again, President Bush, with the support of Republicans in Congress, opted for the same failed “stimulus” — cut taxes and hope for the best. Campaigning in 2004, Bush promised “tax refunds” amounting to about $400 per working family. In 2008, with the economy already in a recession that we now know would only worsen unless the government took major steps to stimulate the economy, Bush tried “tax rebates,” ironically dubbed a “stimulus plan” and passed by Congress in February 2008.
But by then the trap was already set and the damage essentially done. In 2003, with job growth stagnant in the middle of an economic upswing, another round of tax cuts passed with the support of all but one House Republican and all but three Republican senators, consisting of cuts in individual rates, capital gains, dividends and the estates tax — nearly all of which were set to expire in 2010. As Jacob Hacker and Paul Pierson pointed out, the tax cut package of 2003 was a trap, both in the political and economic sense, set to ensnare whomever was unfortunate enough to hold power when the bill came due.
When President Obama said he was forced to negotiate with hostage-takers, he conjured an image of ski-masked Republicans suddenly storming the White House and demanding tax cuts for the rich, a screaming Jane Middle Class in tow.
The imagery made it seem as if this bitter fight just emerged — an impression reinforced by the breathless commentary of pundits who act as if history began last week. In reality, the hostage takers laid their “trap” a decade ago, as former Bush spokesman Dan Bartlett helpfully explained to The Daily Beast: “We knew that, politically, once you get [a big tax cut] into law, it becomes almost impossible to remove it. That’s not a bad legacy. The fact that we were able to lay the trap does feel pretty good, to tell you the truth.”
…In our 2005 book Off Center, we summed up the Republican tax-cut strategy as follows:
Republicans carefully calibrated their presentation of the tax cuts to circumvent hostile public opinion. Three strategies were central — each attuned to the tax cuts’ principal liabilities. First, unrealistic projections of federal surpluses and of the costs of the tax changes were used to justify the tax cuts and obscure their effects on competing priorities. Second, Republican leaders managed the legislative agenda to prevent consideration of the tax cuts’ specific effects on valued programs. And third, tax-cut advocates worked assiduously to make the cuts look far less tilted in favor of the rich and well connected than they really were…
To respond to their base, Republicans misled most Americans. On an unprecedented scale, phase-ins, sunsets, and time bombs were used to give the tax cuts of 2001 the most attractive public face possible while systematically stacking the deck in favor of Republicans’ long-term aims. From top to bottom, Republicans larded the tax cuts with features that made sense only for the purposes of political manipulation.
Most reporters have done a lousy job of reminding us of this background. Why were the tax cuts of 2001 scheduled to expire? Because the Bush administration could not convince enough Senators back then that they were affordable, even at a time of record budget surpluses.The GOP’s gamble was that when the tax cuts were due to expire, they would be extended because too many in Washington would be afraid to “raise taxes.”
Like a lot of progressives, I hoped the long, dark decade of conservative failure on a host of issues was behind us by 2010, or soon would be. At the beginning of the year, I looked back on a decade I dubbed “The Uh-Ohs: A Decade of Conservative Failure,” and the “tax-cut stimulus” policies that created more income inequality than prosperity.
Uh-Oh! For 99% of us, it was a very taxing decade. From 2000 on conservatives preached the gospel of prosperity through tax cuts. Tax cuts for the very wealthy, that is. The idea was the tax cuts would put yet more money into the hands of the wealthiest Americans, who would then put that money back into the economy, and “spread the wealth” either by spending it on goods and services that create jobs or by investing it in ventures that would create jobs and benefit all Americans. The reality turned out to be something else.
- The Bush tax cuts mostly benefited the very wealthy. Tax rates for families earning more than $1 million a year dropped more than any other group, and stayed low while rates for middle-income families crept back up.
- According to the GAO, two thirds of corporations in the U.S. avoided paying taxes between 1998 and 2005, thus placing a greater tax burden on working families. Nonetheless, the Bush administration and conservatives campaigned to cut a corporate tax rate already among the lowest in the world.
- Thirteen banks among the 23 recipients of the $700 billion bailout also failed to pay more than $220 million in taxes.
- Congress passed up a chance to reign in coroprate tax evasion via offshore tax shelters.
- Foreign banks helped wealthy Americans avoid taxes, via secret offshore accounts, costing the federal government up to $100 billion in annual revenues. The United Bank of Switzerland, where former Republican senator Phil Gramm — who authored much of the deregulation legislation blamed for the current meltdown — serves as a Vice Chairman of the Investment Bank division, admitted to having committed conspiracy and fraud and agreed to pay a $780 million fine.
- Not only did the Bush era tax cuts only benefit the wealthy, but the administration attempted to use policy to lay “tax traps” for seniors and middle-income Americans, thus increasing their tax burden.
Uh-Oh! We never got the “trickle down” of prosperity the tax cutters promised. Instead, we got a kind of Bizarro World “trickle up” economy, where billionaire Warren Buffet has a lower tax rate than his secretary. Of course it didn’t work. It couldn’t work and we’ve known for years it wouldn’t work. This long, slow drift actually began decades ago, but really began to pay off in the past 10 years — when conservatives had control of both the White House and Congress, and could finally do a lot of things their way.
- The average tax rate of the wealthiest 1% fell to its lowest level in 18 years.
- Capital gains tax cuts lowered the tax rates of the top 400 tax filers, while their incomes soared. The top marginal tax rate now stands at 15%, less than half the top tax rate on wages and salaries. The result: the super-wealthy — who derive a large fraction of their income from investments rather than wages and salaries — now pay tax at very low rates.
- In the last economic expansion, from 2000 – 2007, two thirds of income growth went to the top 1%, whose income grew 10.1% annually, compared to 2.7% annual growth for the other 99% (i.e. the rest of us). (Source.)
- America’s most affluent 1% now pay just 6.4% of their incomes in state and local taxes. But they actually pay less — 5.2% — because they can deduct state and local taxes from their federal tax bill.
- Middle income families, who make up the middle fifth of the nation’s income distribution, pay 9.4% of their incomes in state and local taxes.(Source.)
- The poorest families, in the bottom 20%, pay 10.9% of their income in state and local taxes.(Source
By September of this year, David Cay Johnston reminded us how the Bush tax cuts worked out for the economy, and that conservatives were running on a platform of nothing more than the same old tax cuts.
The tax cuts did not spur investment. Job growth in the George W. Bush years was one-seventh that of the Clinton years. Nixon and Ford did better than Bush on jobs. Wages fell during the last administration. Average incomes fell. The number of Americans in poverty, as officially measured, hit a 16-year high last year of 43.6 million, though a National Academy of Sciences study says that the real poverty figure is closer to 51 million. Food banks are swamped. Foreclosure signs are everywhere. Americans and their governments are drowning in debt. And at the nexus of tax and healthcare, Republican ideas perpetuate a cruel and immoral system that rations healthcare — while consuming every sixth dollar in the economy and making businesses, especially small businesses, less efficient and less profitable.
This is economic madness. It is policy divorced from empirical evidence. It is insanity because the policies are illusory and delusional. The evidence is in, and it shows beyond a shadow of a reasonable doubt that the 2001 and 2003 tax cuts failed to achieve the promised goals.
So why in the world is anyone giving any credence to the insistence by Republican leaders that tax cuts, more tax cuts, and deeper tax cuts are the remedy to our economic woes? Why are they not laughingstocks? It is one thing for Fox News to treat these policies as successful, but what of the rest of what Sarah Palin calls with some justification the “lamestream media,” who treat these policies as worthy ideas?
The Republican leadership is like the doctors who believed bleeding cured the sick. When physicians bled George Washington, he got worse, so they increased the treatment until they bled him to death. Our government, the basis of our freedoms, is spewing red ink, and the Republican solution is to spill ever more.
Those who ignore evidence and pledge blind faith in policy based on ideological fantasy are little different from the clerics who made Galileo Galilei confess that the sun revolves around the earth. The Capitol Hill and media Republicans differ only in not threatening death to those who deny their dogma.
How much more evidence do we need that we made terrible and costly mistakes in 2001 and 2003?
Now, we know tax cuts are the least effective way to create jobs and stimulate economic growth, because the wealthy don’t spend tax cuts. Yet, it now appears that we will jump into that same trap with both feet.
Let’s be clear about what we’re doing. By extending the worst economic policy of the Bush/conservative era — tax cuts for the wealthiest one to two percent — without even so much as discussing the kind of direct investment in job creation and economic growth needed for a recovery that would have real meaning for millions of Americans whose fortunes rise and fall on Main Street, not Wall Street, we are setting America up for its next failed conservative stimulus.
But beyond that, whether as Democrats or progressives, we are setting ourselves up for moral failure if we do not meet the inherent moral obligation this “tax deal” creates, and let the discussion end with the extension of the same tax cuts that have consistently failed to stimulate growth and create jobs. If we fail to make the case for and demand direct investment in jobs and recovery, we will be complicit in sticking America with a deal that belongs in the same category as one that Sen. Carl Levin (quoting a Goldman Sachs email) aptly described, while grilling the former head of Goldman Sachs’ mortgages department, as a “shitty deal.”
If we believe America deserves better, we’d better be willing to fight for it or be held accountable for failing to fight for what we say we believe is right.