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Taxes and Stimuli, 101

August 15th, 2011 · No Comments · Capitalism, Corporations and Industry, Economics, Politics, Populism, taxes, The Budget

So many stupid theories abound today, tossed back and forth between the billionaire-paid politicians and their paid think-tank economists, that it is hard to go a single day without shaking your head so hard that your hat falls off. The fact is that there are always only two explanations.

Let me explain the two explanations theory by using “Dr.” Douglass Holtz-Eakin. You’ll see in a minute why we put the “Dr.” part…Ph.d., economics…in quotation marks. You’ll simply have to trust us when we tell you that Degrees from U.S. universities these days are not what they used to be. For your consideration: George W. Bush–Yale, B.A., Harvard Business School, M.B.A. — any questions? Michele Bachmann, Doctor of Laws from William and Mary? Please!)

At any rate, Dr. Holtz-Eakin was the head of CBO at a time when the CBO produced a report of a study that said that tax cuts do not return revenues from generating economic activity in any way remotely close to what they cost the government in lost revenues. You cut taxes by a dollar and you get one cent back.

For example, if the George W. Bush tax cuts cost $3 trillion, then one would expect to have some multiple of that return to the Treasury if they were done to stimulate more economic activity…which is how they were sold to us. But by 2003, the date of this report from CBO, we knew that tax cuts that cost us $3 trillion in revenue not only would never return that money to the Treasury but would never come close to generating revenue compared to what they cost.

So in the case of the Bush tax cuts, let’s say $3 trillion, they would eventually earn back from about 1% in increased economic activity to about 20%. So in this case, that would mean we would not get back even $2 trillion in tax revenues, nor $1 trillion, but–at best–$600 billion! The fact is that we got no increase revenue because of stimulus provided by the Bush tax cuts because tax cuts are not stimulative. Instead, we got $7 trillion in deficit spending–borrowed from taxpayers–from Bush added onto the already $5 trillion that had been passed on from Reagan, Bush I, and some from Clinton.

If for every $1,000,000 we gave away in tax cuts, overwhelmingly to the wealthiest citizens, we only got back at Best $200,000 and at worst $10,000 and we know that during the period where we gave away $3 trillion, we got nothing back.

We did not balance the budget the way Clinton did with his very small tax increases….but we went $7 trillion more into debt. What did we learn? The CBO says it is clear…don’t give tax cuts if your idea is to use them to stimulate the economy. It doesn’t work, says the ultimate independent authority on taxes and budgets in this country.

But in 2008, we had a crash, and while people were losing their jobs at the rate of 500,000 or so a month in early 2009, we had a stimulus…to create new jobs and stop the free-fall of the economy. The Republicans said that the only way they would agree to it was if we did one-third of it as a “tax-cut stimulus” which we now know is an oxymoron, which is a nice way of saying that they lied.

“Dr.” Holtz-Eakin agreed to the big tax cuts in the 2009 stimulus, even though he had been head of CBO when it released the report saying that tax-cuts are not stimulative. Later, in 2010, when tax cuts were set to expire, the Republicans said that they would not renew unemployment to citizens that they and George W. Bush and Wall Street had thrown out of work unless President Obama renewed the Bush tax-cuts for the wealthy “job producers” for two years. In other words, taxes always kill jobs. Dr. Holtz-Eakin agreed.

So here is the two explanations theory as it relates to Holtz-Eakin. The first is that he is stupid and read the study…how could he not know about it and still agree with the tax cuts? How could he agree when he knew from his CBO experience that they would not be “job killers.” Of course, you might wonder if he may not have read the study. But wouldn’t not having read the most important findings of his tenure at CBO been even more stupid?

But let’s say that he did read the study. Let’s say that he does know these facts. Then he’s lying. Why he is lying is not very speculative. He is a card-carrying member of the Republican Neocon Party, and they lie with almost hourly regularity. So the two explanations theory is that he is either stupid or he is a liar. In fact, if he is a liar, and it is our opinion that he is…then he is doubly stupid, because no one who realizes that he is lying can ever trust him again.

Here’s why this is important. Half of the electorate are Republicans. Governor Scott Walker of Wisconsin, who has cut teacher’s income, and made all civil servants pay an additional approximately $4,000 per year and gave them no raises, was elected by a majority of the people in Wisconsin…who are Republican. They actually believe people like Walker and Holtz-Eakin that tax cuts stimulate jobs, when in fact they only stimulate the incomes of those recipients of tax cuts, who more and more often are the wealthy elite.

If we are going to get out of this horrific Recession, we need to understand the truth. The truth is that we will only return to solvency if we understand that cutting taxes is both foolish and destructive. The ONLY reason..the only reason…that we even discuss this is because some very rich Right Wing millionaires and billionaires are so greedy.

This is true despite the fact that this kind greed is difficult to believe it. Just as we could never believe that Nazis…before we knew the depths of their depravity…would massacre, murder millions of people for their beliefs. Or just as it is hard to remember that men would keep other men and women as slaves, keep them in deliberate ignorance, cut off their feet, or whip them to near-death if they tried to escape.

We must accept this as truth because if we do not they will continue to steal our liberty, our rights as citizens and will continue to loot our national social safety net until we are no better as individual citizens than some country in Asia or Africa.

So, we know…or you can look it up…that tax cuts do not stimulate the economy. Then what does stimulate the economy, and if a stronger national budget is the goal, how do we do it? Well, first of all, the last time we had this kind of national debt…and we have had…the way we got out of it, over about 35 years, was to raise income tax levels on individuals and on corporations. Over time, individual taxpayers have paid in about 20-21% of GDP in taxes. Sometimes it was higher out of necessity.

Corporations accounted for about 20% of total government revenues in the 1960s. Today they pay about 7% of our total revenues. There are many comments about how only half the people even pay taxes. The fact is that the top ten percent, that is about 1.4 million people, paid about 38% of income taxes. Their average income, however, was about $380,000 per year. Those in the bottom 50% paid little or no taxes. But they account for about 70 million tax returns, and most of those are married and yet make less than $33,000 per year.

So should they be paying taxes on $33,000 per year. Lets say that they should. Lets say that everyone should have a tax increase…everyone…of 10%. Right across the board. Ten percent. These people would have to find a way to subtract $3,300 from their living costs. And the top one percent would have to find a way to pay an additional $38,000. We would all be set. The government would function again. The national debt would go away. And let’s suppose that we asked corporations to pay about 5% more.

In other words, let’s ask them for another nickel of their profits…and close the loopholes of course at the same time. That would add another $110 billion a year to our income. Not bad. Not as much as we would like, but enough to keep the country going and pay off our debt in about 20 years. By 1945, WWII had increased our debt to 120% of GDP. It took us from 1945 to 1980 to reduce it to manageable levels.

Businessmen will tell you that this will not have a significant impact on the national debt, or that it will destroy incentives for investment in their companies or that they cannot properly motivate their employees unless they can use a substantial amount of their profits to provide incentives. So here is what you must reply. The tax cuts that George W. Bush initiated cost the government $3 trillion dollars over ten years. The follow up in 2010, for two years, cost $800 billion.

So let’s take those tax cuts back. Let’s roll back the Bush cuts, and this time ask the top 10% of earners to pay an additional 5% on top of that. The top ten percent averages around $115,000 annually. They pay an effective rate of around 18%. So we’d be bumping them to 27%. These 14 million people would add a total of $347 billion more to our coffers every year.

By adding 5 percent plus the 4 percent that Bush cut the tax rate we would merely be adding a 5% tax increase to the old Clinton rates. In other words, let those who took greatest advantage of the Bush tax cuts return the favor to the American People. To put this in some context, please remember that as late as 1979, the wealthiest Americans were paying a 70% top tax rate and today that rate is 35%. What we are suggesting would be 44% for the top people, but we know that they would only pay 27%.

The tax policies in this country have created 400 more billionaires than we had in 1980, and hundreds of thousands of more millionaires. But the income of the average citizen has gone down. To give you an idea, in 2009, the average income in the U.S. was just $18 more…in real terms…than it was in the middle of Bill Clinton’s administration, 1997. So in 12 years the people advanced in income by $18.

But…in 2009 also…during the absolute-zero chill of the Great Bush Recession, when Blockbusters were closing on every corner and Bennigans and Circuit City and dozens of other retail chains were going bust and laying off low-wage workers, in that year more than 235,000 people made more than one million dollars and, of those, 1,470 paid no taxes at all. So you can be sure that a lot of those millionaires paid next to nothing.

If we did these things we would not need cuts to Social Security. We would not need adjustments to Medicare. We would merely need to do what is prudent to make our government more efficient. We need realistic tax rates. Yes, we need to fix our health care system. We need to take the private sector entirely out of it. What we need is Medicare for all, a modification of Obamacare, allowing everyone to keep everything they have now and take the billions of profit out of the health care system and make it work for the people.

If we made these kinds of adjustments in our tax code, we would have enough money to jump start the economy and that would bring unemployment back down to pre-Recession levels of 6-7% with an upward trend. But we need to make these tax adjustments. The government needs the revenue. The people need to know that the security of the many will not be sacrificed to the greed of a few.

Of course we also need to make some adjustments in our spending. We need to take another look at Social Security and see if we can make it more like a really good mutual fund. Remember, if we had a fund that was set up that could be converted to solid securities from speculative stocks, we could have a different kind of retirement system. If we did that, then people could retire on incomes of around 40% of what they earn throughout their careers.

In addition, with all that money in the Treasury, as savings, we would become the most affluent country in the world. What we do now is put money into the government Treasury, let the crooked politicians borrow it, then claim poverty and tell us that we have to cut back on Social Security. In the meantime, they have taken our Social Security and given it in tax cuts to the wealthy and to businesses. That is exactly what has happened. It’s not hyperbole.

So it is time. Tax increases. Taxes on corporations. Closing loopholes in the tax structure. Changes in trade policies. Strengthening unions. If we do those things, plus bring our troops home reasonably soon…we’ll be just fine, thank you.

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