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Neocons and National Debt

August 5th, 2010 · 2 Comments · Capitalism, Economics, Lobbying, Politics, Taxes

Income taxes were first levied to pay for the Civil War. After the Civil War, personal income taxes were abolished and there were basically no income taxes from 1868 to 1913. Taxes on liquor and tobacco were the chief sources of revenue for the Federal government.

To fund the U.S. participation in World War I, Congress raised taxes from one percent to two percent and raised the tax on million-dollar annual incomes to 15%. By 1918, when the U.S. was heavily involved in the war, the tax rates had been raised to 6 % for the lowest incomes and 77% for those incomes over $1.5 million. On the other hand, only 5% of Americans actually paid income taxes in those days.

During World War II, our national debt actually grew to 120% of GDP. If that were to be the case today, current national debt would be $20.4 trillion instead of $13 trillion.That is neither desirable nor even thinkable. We need to reduce our national debt. We did it after World War II by paying taxes and cutting government.

So how do we do it today? Our tax revenues as a percentage of GDP are now so low that they are the same as they were in 1950, when we had a third of the population we have now. So how do you do it? How do you bring down the debt and raise government revenues? One way you don’t do it is more tax cuts.

The Senate is ready to punt on retiring the Bush Tax Cuts. It is of course a cowardly act on the part of any Democrat who votes for it and villainy on the part of the Neocons. Retiring the Bush Tax cuts would mean that we would put another $3 trillion into government coffers or continue to subtract that amount. It is the same question as the one about the Bush tax cuts themselves. Should we have voted them down? If we had, all else being equal, we would have an approximate $2.6 trillion budget deficit today.

The fact is that we need to retire those tax cuts for the wealthy and go in the opposite direction. We must go back to tax levels prior to Bush the Second, and prior to Reagan. We need to make a few exceptions, namely to raise the exemption for multi-millionaire heirs to the 2009 rate of $3.5 million and then hit them with 35% on everything above that.

But we need a top marginal rate right now of something like 55% or more or we will have to cut our social safety network for everyone. It will not hurt the economy and here’s why.

Reagan told us for 8 years that tax cuts would save us. They didn’t. They put a lot of money into the hands of CEOs and people in the top income bracket who went from something like 74% down to 50% then to 28%. When no money at all was coming in, Tip O’Neill go together with Reagan and they arrived at 35%. But from day one, the Reaganistas began telling us that tax cuts would generate economic activity. They never did. Tax cuts do not pay for themselves. And they do not generate economic activity.

When Douglas Holtz-Eakin was head of the CBO, a report by that supposedly politically neutral government agency showed that tax cuts pay back only between one percent at the low end and 22 percent on the high end of their costs to the treasury.

And they generate between minus one percent economic activity up to a maximum of one percent. So the idea that we need tax cuts to generate economic activity is false. That same logic, therefore, tells you that disposing of the Bush tax cuts will only do one thing…raise $3 trillion immediately for the Treasury. It will not harm the economy because as CBO has shown, tax cuts have little or now effect on the ecoonomy. A report that was signed by arch Republican Douglas Holtz-Eakin, Chairman of the Council of Economic advisors to President George W. Bush.

The only period of reduced budgetary deficits since 1980 was the period during the Presidency of Bill Clinton. Bush the First enacted paygo laws and the Republicans in Congress who wanted to stiff Bill Clinton on everything (just like the current Republicans fought him on everything and used paygo to do it. But Clinton got a tax increase on the wealthiest Americans passed and balanced the budget.

But then came Bush the Second. Instead of doing what the country did in the Civil War and the First World War and the Second World War and the Viet Nam War…he cut taxes rather than raising them. That resulted in the largest deficits in our country’s history and doubled the national debt.

What if we had not had them? It is pretty clear we would have been in much better shape financially. In fact, we would have no financial problems at all and we could be investing in jobs and rebuilding the economy. And do tax cuts result in job creation? They do not. At least there is no evidence to that contention.

For example, as of January 1993, a week before Clinton took office the number of jobs was

109,725,000.

As of January 2001, a week before Clinton left office the number of jobs was
132,469,000

A gain of 22.7 million jobs.

Now for Bush. As already noted the day that Bush the Second took office the nation had 132,469,000 jobs.

The number of jobs on January 12, 2009, a week before Bush left office
133,549,000

A gain of 1.08 million jobs.

It should also be noted that during the Clinton era, with the tax increases, average weekly wages rose by 21 percent. Under Bush’s two terms weekly wages grew exactly 2 per cent. Of course during Bush the Second the rich earned, literally, three-quarters of all increases in income from 2001 to 2007. But that doesn’t really tell the story. The incomes of the top 1% actually increased by 181% from 2001 to 2007.

The middle and bottom quintiles actually went up an average of less than 20%. Income inequality as the result of tax policy, the deliberate destruction of unions, job losses to India,China and elsewhere in Asia, and the anti-middle class approach to governing, such as very lax rules on Wall Street have caused the real collapse of the American Middle Class. It is not in the process of collapsing. The Great Bush Recession finally did it in. It took a huge percentage of the value of 401K retirement funds away from workers and it reduced home equities dramatically, often putting homeowners “under water,” owing more than the equity in their homes.

So did the Bush tax cuts help? They had nothing to do with the economy, as the CBO study shows, except to do what the numbers show…increase the deficit by $7 trillion dollars to a total of $12 trillion and leave another $1.4 trillion to President Obama or let the country go into a major Depression.

There are, in fact, very rational economists who believe that the Bush Administration deliberately destroyed the economy. They believe that it is the only only explanation for the actions of the Bush Administration in cutting taxes in war time and in removing huge numbers of people from government regulatory bodies and in allowing Wall Street to run wild by appointing an anti-regulatory Congressman as SEC chief, among other things.

There is no other reason except direct animus to the federal government system. Any other rationale, they say, is so stupid that it would be, if not criminally indictable, a serious worry as to the ability of our citizens to elect leaders capable of running the country. The other option is that the country was deliberately looted by the Neocons.

There were party hacks put in every position, including, infamously into judicial positions up to and including the Supreme Court and in every U.S. Attorneys office. Gale Norton, head of Interior, was responsible for the removal of huge tracts of government lands and opening national parks to drilling and mining. She left office before being indicted with Stephen Griles who went to jail for his corrupt activities as her deputy. Suffice to say there were government give aways to private oil and mining companies.

It is not as if the Neocons have hidden their agenda. They have shown, even while out of power, that they would fight to keep corporations from paying taxes and moving their headquarters back to the U.S. They recently voted against shutting down huge tax breaks for corporations who move their headquarters off shore to the Cayman Islands and pay no taxes. They voted against a bill to help first responders to 9/11 with the serious illnesses from the asbestos and other particles in the air during their response to the terrorist attacks.

Holtz-Eakin says do not let the tax cuts expire. A loss to the Treasury of $3 trillion. Yet his Neocon Party will not vote a billion dollars to save the lives of 9/11 heroes because it would have to be paid for and the only way to pay for it is to make corporations pay their legitimate taxes rather than scamming the Treasury on a technicality.

How do they get away with it? Bribes. Political contributions are bribes and until we recognize that and make them illegal, Firemen and first responders will get no relief from the Neocons in Congress for the huge medical bills that they incurred from doing God’s work, humanitarian work of saving lives. If it means that huge international corporations, 26,000 of them in one single building in the Cayman Islands, simply to avoid U.S. taxes, then, the Neocons say, to hell with the first responders. That is exactly what they did say this week in the House of Representatives.

End the tax cuts and let’s go back to paying for things instead of believing the voodoo George W. Bush-Dick Cheney lies that things are somehow going well. How stupid can people be when their country is so far in debt that we now have to cut Social Security and Medicare and Medicaid…which the entire rest of the intelligent world feels are simply mandatory for citizens.

And why? So that international corporations and their CEOs who make 400 times what the average worker makes, can pay less in taxes. Not just get rich, but get rich without paying any taxes. That is their goal.

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2 Comments so far ↓

  • emt training

    Keep posting stuff like this i really like it

  • Carol

    This is fascinating! I’ve just discovered your site. I’ve long railed against the neocons who ran the Bush White House, but considered them Republicans rather than non-partisian, uber-wealthy opportunists. Your philosophy makes a lot of sense!