When the lame-duck Congress reconvenes the first big issue will be whether to renew the Bush tax cuts, which otherwise will expire at the end of December. There is broad support among Democrats and Republicans alike to extend the tax cuts for the 98 percent of Americans whose taxable household income is below $250,000. But there’s deep division over the cost of extending the cuts for the top 2 percent of households, whose average income, at $8 million, is well above the $250,000 threshold.
Letting the top-end tax cut expire for wealthy Americans should make an easy “no” vote. It’s neither necessary for the wealthy, nor affordable for the nation. It would cost $700 billion over the next 10 years to keep the tax cuts for the top 2 percent in place. There is no plausible way for Congress to defend this new and needless deficit expenditure.
A $700 billion cost
Even if there were easily available cuts to offset the $700 billion 10-year cost — and there are none — such offset revenue should go to reduce the nation’s $13 trillion debt, and to counter deep cuts in vital services and benefits like Medicare and Social Security. But while there is broad agreement that the national debt should be brought down, Republicans still are poised to fight vociferously to extend the cut for the top 2 percent.
That is blatantly hypocritical. For all the good reasons why it would be wrong to extend the high-end cuts, there’s only one reason to explain why Republicans are so unyielding on the matter: They want the rich who write most of the high-dollar checks for Republicans’ campaign coffers to keep writing those checks.
Democrats benefit from campaign contributions from the wealthy, as well. But it’s Republicans, not Democrats, who are ready to go to the mat to extend the tax break for the nation’s wealthiest Americans, and especially for the ultra-wealthy zillonaires in the top 0.1 percent of households who profit so immensely on that tax break.
The rich-to-middle class gap
Consider the gap. Individual Americans in the top 0.1 percent of annual income now receive a benefit of $371,650 annually from the Bush tax cuts alone. Households in the very middle of the middle class, with a household income of $37,493 to $65,656 in the middle 20 percent of all taxpayers, receive a tax cut of $1,016 under the Bush cuts. People in this bracket truly need the extra money; the wealthy do not.
Extending cuts for the 98 percent of American households with taxable incomes below $250,000 would cost $3.2 trillion over the next 10 years. Without corresponding cuts in spending that expense would go on top of the existing national debt.
Making the Bush tax cuts for the broad 98 percent of households permanent may not be affordable over the long term, simply because it costs so much. If Washington is serious, the Bush tax cuts mark an obvious starting point.
Yet it does make sense in the present circumstances of a slow economic recovery to extend the tax cuts for the bottom 98 percent of households until the nation recovers from the Great Recession of 2008-09. Indeed, most middle-class workers need at least a temporary extension of the Bush tax cuts just to pay their bills and get by. And with the Obama stimulus tax cuts (which absorbed 40 percent of the stimulus spending) set to expire next year, they need it even more.
Eighty percent of American households have incomes of less than $111,660 — most of them far less. Sixty percent of households, for example, have incomes of less than $65,656. In fact, the average Tennessee household in 2008 earned $43,000. Given the wage freezes of the past two years, wages for most true middle-class workers haven’t increased much, if at all, since 2008.
Thus Americans in the bottom 80 percent of incomes — and certainly those in the bottom 60 percent — can be counted on to spend every dime they earn on ordinary goods and services. In our consumer-driven economy, such middle class spending is what truly drives the economy’s strength.
No new shopping
That can’t be said for the top 2 percent of Americans. Most would just keep saving the bulk of their wealth. That may indirectly boost the nation’s stock of capital, but it’s clearly not driving the economy now. Banks are notoriously sitting on the capital, refusing to lend for all but the most profitable investments, while denying lending for many very safe building projects. That’s demonstrably true in Chattanooga, where several major projects are stalled for lack of financing, and it’s true across the nation.
In fact, the Republican argument that keeping the high-end tax cuts is necessary to strengthen the economy is just untrue pablum for the uninformed cable ditto-heads. After the high-end cuts on income, dividends and capital gains were passed in 2003, job losses continued to mount for two more years, and subsequent economic growth was mediocre.
No trickle-down boost
A look over the last seven years since the high-end tax cuts went into effect shows absolutely no significant bump in job growth and economic vigor. Quite the opposite is true. The so-called trickle-down effect failed utterly while the Bush administration was doubling the federal deficit, from $5.7 trillion to over $12 trillion, and rich hedge-fund managers were paying taxes at a lower percentage than their secretaries.
All this should persuade the GOP advocates of the nuttiness of another round of this misappropriation of funds to butter up their wealthy patrons and increase the deficit. Their pledge to focus on working down federal budget deficits and the accumulating debt should nail the door shut on extending high-end tax cuts.
It’s past time for Republicans to acknowledge that any high-end tax cuts also should be under pay-as-you-go rules. They clearly do not pay for themselves over the long term, and they aren’t tantamount to stimulus spending. They do nothing but drive up debt and exacerbate this nation’s wicked and widening income equality.