Friday, August 27, 2010

Avowed Socialist: “Dems should propose ‘peoples tax cut’

 Roubini Global Economics - U.S. EconoMonitor

Republicans are calling the Democrat’s proposal to end the Bush tax cuts on the richest 3 percent a “tax increase,” and demagoging that it will hurt the economy and small business. This is baloney, to put it politely. Let me count the ways: 

– Bush’s ten-year tax cut was designed to end this year, so it’s not a tax increase.

– Ending it for the rich simply returns them to the Clinton tax rate, which was hardly confiscatory (reminder: the Clinton years were damn good for business).

– Small businesses would barely be affected. Only 3 percent of small business owners earn over $250,000. And because it’s a “marginal” tax, the Clinton rate would apply only to the portion of their incomes over $250,000.

– Yet extending the Bush tax cut to the richest Americans would give them a $36 billion bonus next year. ($31 billion of this would go to billionaire households.) And that $36 billion would be added to the budget deficit.

– And it wouldn’t even stimulate demand and jobs, because the very rich save (rather than spend) more of their disposable income than the rest of us.

– Finally, ending the Bush tax cut for the top is fair. Income inequality has become so grotesque that the top 3 percent of households rake in almost a third of total income (the highest portion since 1928).

But by the time Democrats explain all this, it’s too late. The Republican furor over a “tax increase” has framed the debate.

Allow me to call BS on the “baloney” call.

Whether or not the Bush era tax cuts were designed to end  this year or not, allowing them to sunset would indeed result in a tax increase.  Simple logic demands that you recognize that if you pay more in taxes next year than you do this year, your taxes have “increased,” No?

Secondly, the Clinton years were good for business because Republicans pushed for—and got—tax cuts.  That, along with the end of the drags of the FSLIC/Savings & Loan and Superfund appropriations significantly reduced federal outlays, and by extension, the deficit, which allowed room for the so-called Clinton middle class tax cuts.

Thirdly, to claim that small businesses would not be affected is patently absurd.  Those so-called “richest” Americans are small business owners, most of whom claim their enterprises’ profits on their personal income taxes.  Small business taxes are personal income taxes to these people, and raising their taxes means less money is available for hiring and capital investment (which Reich calls “saving).

Fourthly, and most onerously, Reich says letting these tax cuts expire is “fair.”  That’s socialist-speak for picking winners and losers; social engineering through manipulation of tax policy.  It’s another attempt to redistribute wealth, a tactic that never, ever, ever results in achieving its intended consequences.

Reich goes on:

Accuse Republicans of being shills for the rich.

And don’t stop there. Do tax jujitsu. In addition to ending the Bush tax cut for the rich, put forward another proposal for growing the economy that cuts taxes on lower-income Americans.

Democrats should propose eliminating payroll taxes on the first $20,000 of income, and making up the revenue loss by applying payroll taxes to incomes above $250,000.

This would give the economy an immediate boost by adding to the paychecks of just about every working American. 80 percent of Americans pay more in payroll taxes than they do in income taxes. And because lower-income people would get most of the benefit, it’s likely to be spent.

Reich wants Democrats to engage in class warfare, plain and simple.  This isn’t helpful.  It’s divisive.  It tries to pit one group of Americans against another.  Reich also trots out another favored meme of the socialist left—the “working American.”  That’s another term for “proletariat,” the “workers of the world” they’re trying to unite.

Reich says that since lower income earners would get an immediate boost and that the boost would most likely be spent, it would boost the economy.  I call BS again.  The consumers can only spend if the economy is producing.  And unless the people making investment and production decisions expand economic capacity, the additional goods and services sought by the consumers won’t be there.  That simply drives up prices in a fiscal inflationary spiral.  You have more money chasing the same quantity of goods and services, prices rise.  Econ 101, baby.

The Bush tax cuts were across the board.  The economy grew out of the post 9/11 recession through a combination of higher production and higher net incomes.  They need to be extended, in perpetuity, for all Americans.

We’re all in this together, and we don’t need avowed socialists like Robert Reich and his ilk dividing us among class.

Gimme some feedback in the comments.


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