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Trickle-Down Economics: The GOP's Hostility Towards the Middle Class

 
 
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 There are certain 'teaching moments' when the Republicans do something so transparently hostile to average people and so obviously in the service of wealthy people (at everyone else's expense), that you can actually use them as an example that can be quite convincing in recruiting people away from the party.

This article provides one of those moments. The issue is taxation. Specifically, the issue is a proposed extension of the payroll tax holiday. I'll let the article do the talking.

 

At issue is a tax that the vast majority of workers pay, but many don't recognize because they don't read, or don't understand their pay stubs. Workers normally pay 6.2 percent of their wages toward a tax designated for Social Security. Their employer pays an equal amount, for a total of 12.4 percent per worker.

As part of a bipartisan spending deal last December, Congress approved Obama's request to reduce the workers' share to 4.2 percent for one year; employers' rate did not change. Obama wants Congress to extend the reduction for an additional year. If not, the rate will return to 6.2 percent on Jan. 1.

This is a relatively modest tax cut. For starters, we only pay this payroll tax on the first $106,800 of our income, so no one can get more than a $2,136 break. But it helps everybody who has an on-the-table job. The idea is that it helps the 46% of Americans who make too little to pay federal income taxes. When the government spends money to stimulate the economy, it wants that money to be spent and spent very quickly, and this is one of the best ways to do that because people who don't make enough to pay federal income taxes are probably struggling to pay their bills and get school supplies and clothes for their kids. They will spend any extra money that they get to keep in their paycheck.

You would think that the anti-tax Republicans would support a tax cut that helps people keep 'their own money.' You would be completely wrong. They hate everything about this tax cut. First, they hate that the people get a cut but the businesses that employ them do not.

 

Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he "would prefer to see the payroll tax cut on the employer side" to spur job growth, his campaign said.

In fairness to Romney, the Congressional Budget Office (CBO) says that cutting the payroll tax on the business side would do more to help hiring, so at least he has some empirical support for his position. But that kind of cut wouldn't help working people at all. It would only help the unemployed in a slightly more efficient way. It turns out, for Republicans, tax cuts to help working people are no good. Watch them compare a temporary payroll tax holiday to the 'temporary' Bush income tax cuts that created a windfall for the rich and a smoking crater for our fiscal health:

 

Republicans cite key differences between the two "temporary" taxes, starting with the fact that the Bush measure had a 10-year life from the start. To stimulate job growth, these lawmakers say, it's better to reduce income tax rates for people and for companies than to extend the payroll tax break.

"We don't need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on," said Sen. Lamar Alexander, R-Tenn., when asked about the payroll tax matter.

House Majority Leader Eric Cantor, R-Va., "has never believed that this type of temporary tax relief is the best way to grow the economy," said spokesman Brad Dayspring.

Notice Sen. Lamar Alexander's (R-TN) focus on "people who create jobs." Those are the only people who deserve tax cuts. If anyone else gets them, it should be restricted to those who pay federal income taxes, and then probably only as a concession to win the political support needed for the "job creators'" tax cuts.

Remember how the Republicans always insist, contrary to all available evidence, that cutting taxes will grow the economy and raise revenue for the government's coffers? Well, not when the tax cuts help the poor and working class.

 

The 12-month tax reduction will cost the government about $120 billion this year, and a similar amount next year if it's renewed.

That worries Rep. David Camp, R-Mich., chairman of the tax-writing Ways and Means Committee, and a member of the House-Senate supercommittee tasked with finding new deficit cuts. Tax reductions, "no matter how well-intended," will push the deficit higher, making the panel's task that much harder, Camp's office said.

This is exactly backwards. The GOP is right that some tax cuts can help grow the economy, but most tax cuts do exactly what they seem to do...the government collects less in taxes and therefore has less revenue and bigger deficits. The logical conclusion is that most tax cuts cost the government more than they can recoup from stronger economic growth. That's what happened under Reagan and that's what happened under Bush and that is what has happened under Obama, who has not so far been able to end Bush's tax cuts for the wealthiest 3% of Americans. It was Clinton's presidency, where taxes were increased on the wealthy, that saw us balance the budget and start paying down the debt. When that happened, the Republicans said the government obviously was taxing us too much if they had so much money that they could pay our bills off.

The reason tax cuts for the rich don't pay for themselves is not that complicated. First, a four percent cut on a billion dollar income is far more money than can be made up for by reinvestment, even if that investment creates a few jobs. Second, very rich people are already spending at about the levels they want to spend, so a tax cut isn't going to spur much consumption and create jobs through increased demand. And, even if they do spend a little more, giving someone a $400 million tax cut will not improve the coffers just because they then buy an extra yacht, home, or private plane.

On the other hand, unemployed people are expensive. Creating tax incentives to spur hiring (as acknowledged above) can actually help the treasury's bottom line. Giving people money that they will quickly spend can spur demand and lead to lower unemployment.

But the Republicans don't care about sensible tax policy, which is why we go broke whenever they have power. We go broke. The CEO's and other 'job creators' do fabulously well.

So, spread the news around. The Republicans have shown their true colors. Any idiot can see what they're about.

Booman Tribune / By Booman

Posted at August 22, 2011, 5:17am

 
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