Remember the scam of the Bush Tax Cuts

With all the GOP whining about the repeal of the Bush tax cuts for the wealthy it’s key to remember why they were set to sunset after 10 years. Here’s Paul Krugman on how the American people were sold a couple of lemons in 2001 and 2003.

The most important tool of accounting trickery, though not the only one, is the use of ”sunset clauses” to understate the long-term budget impact of tax cuts. To keep the official 10-year cost of the 2001 tax cut down, the administration’s Congressional allies wrote the law so that tax rates revert to their 2000 levels in 2011. But, of course, nobody expects the sunset to occur: when 2011 rolls around, Congress will be under immense pressure to extend the tax cuts.

The same strategy was used to hide the cost of the 2003 tax cut. Thanks to sunset clauses, its headline cost over the next decade was only $350 billion, but if the sunsets are canceled — as the president proposed in a speech early this month — the cost will be at least $800 billion.

Meanwhile, the administration has carried out a very successful campaign to portray these tax cuts as mainly aimed at middle-class families. This campaign is similar in spirit to the selling of estate-tax repeal as a populist measure, but considerably more sophisticated.

The reality is that the core measures of both the 2001 and 2003 tax cuts mainly benefit the very affluent. The centerpieces of the 2001 act were a reduction in the top income-tax rate and elimination of the estate tax — the first, by definition, benefiting only people with high incomes; the second benefiting only heirs to large estates. The core of the 2003 tax cut was a reduction in the tax rate on dividend income. This benefit, too, is concentrated on very high-income families.

According to estimates by the Tax Policy Center — a liberal-oriented institution, but one with a reputation for scrupulous accuracy — the 2001 tax cut, once fully phased in, will deliver 42 percent of its benefits to the top 1 percent of the income distribution. (Roughly speaking, that means families earning more than $330,000 per year.) The 2003 tax cut delivers a somewhat smaller share to the top 1 percent, 29.1 percent, but within that concentrates its benefits on the really, really rich. Families with incomes over $1 million a year — a mere 0.13 percent of the population — will receive 17.3 percent of this year’s tax cut, more than the total received by the bottom 70 percent of American families. Indeed, the 2003 tax cut has already proved a major boon to some of America’s wealthiest people: corporations in which executives or a single family hold a large fraction of stocks are suddenly paying much bigger dividends, which are now taxed at only 15 percent no matter how high the income of their recipient.

It might seem impossible to put a populist gloss on tax cuts this skewed toward the rich, but the administration has been remarkably successful in doing just that.

The Bush tax cuts were a tax scam wrapped in fake populism from the beginning. A huge give-away to the richest Americans, and it’s time for it to stop. What we want to get back to is a time, before Reagan, when we had a fair and equitable tax system. Overwhelming majorities of Americans want more spending to create jobs in this country. And they don’t want to cut the social safety net that Americans value so much, which protects human dignity and the common good. These numbers are staggering.

29. If Congress and the president had to reduce spending, which of these areas would you reduce spending on?

Social Security:
Would reduce spending 12%
Would not reduce spending86%
No answer / Don’t know 1%

Medicare:
Would reduce spending 16%
Would not reduce spending 82%
No answer / Don’t know 2%

Wars in Afghanistan an Iraq:
Would reduce spending 55%
Would not reduce spending 41%
No answer / Don’t know 3%

Education:
Would reduce spending 17%
Would not reduce spending 82%
No answer / Don’t know 1%

Unemployment compensation for people out of work and looking for jobs:
Would reduce spending 34%
Would not reduce spending 63%
No answer / Don’t know 4%

Healthcare:
Would reduce spending 28%
Would not reduce spending 68%
No answer / Don’t know 4%

Medicaid, which provides health care for low income families:
Would reduce spending 20%
Would not reduce spending 77%
No answer / Don’t know 3%

Defense spending other than the wars in Iraq and Afghanistan:
Would reduce spending 46%
Would not reduce spending 50%
No answer / Don’t know 4%

If we think about what the GOP is consistently for and against, you can pretty much flip-flop those poll results. The GOP hates fiscal stimulus, social security, Medicare, health care, the unemployed, and education. The GOP loves defense spending/corporate welfare, and war. That is why GOP Sen. John Cornyn and GOP Rep. Pete Sessions squirmed and didn’t want to cite the specifics of what the GOP wants to cut.

Who is fighting for working Americans?

Crooks and Liars rightly points out the idiocy of the “true Village” pundit Ruth Marcus on the economy, WaPo’s Ruth Marcus: It Would Be ‘Insane’ To Restore Tax Rates For The Rich To Previous Levels.

I could almost feel bad about picking on poor Ruth Marcus, another overpaid Washington Post columnist, lawyer and true Villager (married to the head of the FTC). After all, she’s probably just looking out for her boss, and Amato did just chide her yesterday.

But when you read this petulant hatchet job on Rich Trumka and progressive taxation, I think you’ll understand.

You’ll have to click the C&L link to read the full hatchet job.  But suffice it to say There’s  A LOT of bad in her column, and even errors as Dean Baker points out, The Washington Post Has Not Heard that the Retirement Age for Social Security Has Been Raised. But the worst part is that she appears clueless, from reading her column, as do so many, on what has caused the massive budget deficits. As Trumka pointed out in his statement to the “Catfood Commission” he quotes the CBPP on why we have such a massive deficit right now. (And it’s not because of the stimulus or unemployment benefits).

We need to be clear that President Obama is not to blame for getting us into this mess. Two weeks before he took office, the Congressional Budget Office (CBO) projected a budget deficit of $1.4 trillion for 2009—and annual deficits averaging well over $1 trillion for the coming decade.

We should be honest about what’s causing deficits over the next ten years. According to the Center on Budget and Policy Priorities, “The tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years.” And “without the economic downturn and the fiscal policies of the previous administration, the budget would be roughly in balance over the next decade.”

Although more than half of the 2009 deficit is due to the recession, Council of Economic Advisers Chair Christina Romer points out that “in the absence of [Bush administration policies that we failed to pay for], we could have had an economic downturn as severe as the current one and responded to it as aggressively as we have, all while keeping the budget roughly balanced over the next ten years [2010-2019].”

We should also be honest about what’s causing projected deficits over the long term. We do not face a crisis of entitlement spending generally, caused by the retirement of the Baby Boomers. In the long term, we face a crisis of public and private health care costs growing faster than GDP, especially after 2035. Social Security has its own source of dedicated funding and is not responsible for our unsustainable long-term debt, and spending on other entitlements is projected to fall as a share of the economy over the long term.

Also the title of her column “Overtaxing the rich inst’ the answer”, is just wrong.  One persons fair taxation is another persons over taxation it seems.  What we want is for the rich to finally pay their fair share, which they haven’t done in a long time.

We’ve been through this before, the quickest way out of our current situation is for the Federal government to deficit spend, in the short-term, to create  jobs.  Then once people are working again, buying , and investing again that will help take care of much of that deficit. To take care of the long-term deficit we need to get of Iraq and Afghanistan and let the Bush tax cuts expire.  It’s impossible to fix a problem if we are blind to what caused  it.  And we, the people, expect to get the right fix the village.

Another huge problem is that the income gap in the US is at an 80-year high.

The CBO data studied by the CBPP show that in just under three decades, the after-tax income for the top one percent rose by 281 percent. By contrast, incomes for the middle quintile of income distribution rose a much more modest 25 percent over the same time period, while incomes for the bottom fifth increased by only 16 percent. If Americans in the middle fifth of the income distribution curve had seen their incomes rise at the same rate as those of the top one percent, that would equal an extra $13,000 in annual income for middle-class households, says Sherman.

A variety of factors, some stretching back a generation or more, have played a role in cultivating this inequality. Throughout the generation following World War II, incomes rose in a more evenly distributed manner, and a broad middle class was established. This trend reversed itself in the 1970s, when the income gains of the rich started outpacing those of the rest of the country.

Economists say there were several factors at play, some of which might have been unavoidable. The growth of technology rendered low-skill manufacturing jobs redundant. Globalization accelerated this decline as companies moved their production facilities offshore to take advantage of lower labor costs. The shift from a manufacturing to a service economy weakened the collective bargaining power of unions, a key force in establishing the wages on which America’s mid-century middle class was built.

“Union contracts helped bolster wages across the distribution, and the manufacturing sector was historically a highly unionized sector,” said Heidi Shierholz, an economist at the Economic Policy Institute, a think tank. Declining union membership since the 1950s has eroded manufacturing wages.

Industrial and corporate deregulation added fuel to the fire. Executive compensation swelled even as the minimum wage failed to keep pace with the rising cost of living. Shierholz said a robust minimum wage doesn’t only benefit those who are paid minimum wage. Rather, that baseline impacts lower-income wages across the board.

Tax policies also widened the income gap. While many point to George W. Bush’s tax cuts as a key accelerant in the runaway income growth of the wealthy, economists note that other, long-standing parts of the federal tax code played a role as well.

Really!? So how do we change this?

Economists say there’s no silver bullet for narrowing the income gap, but a number of policies and programs could help. First up, says Chad Stone of the CBPP, is letting the Bush-era tax cuts expire on schedule. “That will return rates at the top to approximately where they were at the boom of the 90s,” he said. Some say the imbalance could be partially offset by a more progressive federal tax code, a higher minimum wage and legislation that gives workers more bargaining power, while CEPR’s Baker suggests what he terms a “financial speculation” tax to capture some of the outsize profits generated by Wall Street and the financial sector.

But economists say the real key to regaining lost ground, especially for the middle class, is cultivating large numbers of jobs in new and growing industries like green technology and health care, and providing unfettered access to higher education so middle- and lower-income Americans can train for these careers.

“I think it’s widely agreed that education plays a huge role here and more so than in the past,” said Ron Haskins, an economist at the Brookings Institution. “The problem is a lot of people don’t have skills, and that’s because our high school dropout rates are high and people don’t go to college.”

Yes that sounds about right but you won’t read about it in from the WaPo or many other traditional media sources. But here’s what the guy who is fighting for working Americans has to say, Time to Raise Our Voices for Good Jobs Now.

AFL-CIO President Richard Trumka says when Congress went on vacation last week without passing a jobs bill or extending unemployment, it made him sick. He’s calling for all of us to make Congress listen to our concerns about the need for good jobs now by joining the AFL-CIO jobs team. Text JOBS to 225568 (standard text charges may apply).

Republicans in Congress—and some Democrats whom we supported—are blocking efforts to create jobs and stimulate job growth, Trumka says.

I don’t think they’re hearing us. I think they’re listening to Wall Street and the lobbyists for corporate America. I think it’s time we raised our voices…and make sure they hear us. It’s time for us to join together. It’s time to make some phone calls, send some faxes. Let them know that if jobs don’t become their number one priority, that come November…we’ll send them to the ranks of the unemployed, so they can join those without unemployment benefits.

Text JOBS to 225568 to join the fight for good American jobs now.

Help him out, he’s fighting hard for working Americans.