Insane Right-Wing Tax Cut Fetish

The definition of insanity is doing the same thing over and over and expecting different results.

For the last eight years, the Republican supply-side, trickle-down philosophy of corporate and individual tax cuts has been given free rein. It hasn’t worked.

The Bush Administration has stood in favor of tax cuts through thick and thin.  In the midst of a booming economy and large projected budget surpluses, President Bush’s top economic policy initiative — both as a candidate in 2000 and upon taking office — was to cut taxes.  When the economy slowed, the Bush Administration’s response also was dominated by tax cuts.  Now [April, 2004], in the face of yawning deficits and its own pledge to reduce them, the Administration has again put forward large, permanent tax cuts as part of its most recent budget.

The early returns on the effects of the tax cuts have not been good.

  • The Bush tax cuts have contributed to revenues dropping in 2004 to the lowest level as a share of the economy since 1950, and have been a major contributor to the dramatic shift from large projected budget surpluses to projected deficits as far as the eye can see.
  • The tax cuts have conferred the most benefits, by far, on the highest-income households — those least in need of additional resources — at a time when income already is exceptionally concentrated at the top of the income spectrum.
  • The design of these tax cuts was ill-conceived, resulting in significantly less economic stimulus than could have been accomplished for the same budgetary cost. In part because the tax cuts were not as effective as alternative measures would have been, job creation during this recovery has been notably worse than in any other recovery since the end of World War II.

If the Administration’s latest tax proposals — which would make permanent most of the tax cuts enacted in 2001 and 2003 and establish new tax cuts on top of that — are enacted, the long-term results are likely to be even more troubling. …

And again, a year and a half later (October, 2005):

Since 2001, changes in tax law have cost the federal government $929 billion, including $860 billion in direct cost and $69 billion in interest.1  Proponents of these tax cuts promised stronger economic gains than were typical of the past, but that did not occur.2 Unfortunately for most Americans, almost every broad measure of economic activity—GDP, jobs, personal income, and business investment, among others—has fared worse over the last four years than in past business cycles.
Even as tax cuts have failed to boost economic performance, they have reduced revenues substantially. In the recently completed fiscal year 2005, the cost of all the tax cuts passed since 2001 combined was $260 billion (of which $35 billion was interest), a sum that would wipe out most of last year’s unsustainable $317 billion deficit. If the tax cuts are extended and reasonable assumptions about future spending are accepted, the deficit will remain near 3% of GDP (or higher) indefinitely.

As the Congress debates whether to enact new tax cuts or to extend expiring cuts, it should view claims of economic benefits with skepticism and recognize their substantial effects on the already excessive budget deficit. We would enhance the standard of living of most Americans in the future if the tax cuts for those with high income and wealth were allowed to expire.

In his New York Times column dated December 23, 2005, Paul Krugman wrote about the Bush “tax cut zombies“:

Since the 1970’s, conservatives have used two theories to justify cutting taxes. One theory, supply-side economics, has always been hokum for the yokels. Conservative insiders adopted the supply-siders as mascots because they were useful to the cause, but never took them seriously.

The insiders’ theory – what we might call the true tax-cut theory – was memorably described by David Stockman, Ronald Reagan’s budget director, as “starving the beast.” Proponents of this theory argue that conservatives should seek tax cuts not because they won’t create budget deficits, but because they will. Starve-the-beasters believe that budget deficits will lead to spending cuts that will eventually achieve their true aim: shrinking the government’s role back to what it was under Calvin Coolidge.
… the starve-the-beast theory – like missile defense – has been tested under the most favorable possible circumstances, and failed. So there is no longer any coherent justification for further tax cuts.

Yet the cuts go on. In fact, even as Congressional leaders struggled to pass a tiny package of mean-spirited spending cuts, they pushed forward with a much larger package of tax cuts. The benefits of those cuts, as always, will go disproportionately to the wealthy.

Here’s how I see it: Republicans have turned into tax-cut zombies. They can’t remember why they originally wanted to cut taxes, they can’t explain how they plan to make up for the lost revenue, and they don’t care. Instead, they just keep shambling forward, always hungry for more.

And most recently, in his NYT column dated January 5, 2009, Krugman questions Pres. Obama’s over-reliance on tax cuts in the stimulus package (the one that just passed in the House without a single Republican vote):

Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.

That said, there’s a problem with a public-investment-only stimulus plan, namely timing. We need stimulus fast, and there’s a limited supply of “shovel-ready” projects that can be started soon enough to deliver an economic boost any time soon. You can bulk up stimulus through other forms of spending, mainly aid to Americans in distress — unemployment benefits, food stamps, etc.. And you can also provide aid to state and local governments so that they don’t have to cut spending — avoiding anti-stimulus is a fast way to achieve net stimulus. But everything I’ve heard says that even with all these things it’s hard to come up with enough spending to provide all the aid the economy needs in 2009.

What this says is that there’s a reasonable economic case for including a significant amount of tax cuts in the package, mainly in year one.

But the numbers being reported — 40 percent of the whole, two-year plan — sound high. And all the news reports say that the high tax-cut share is intended to assuage Republicans; what this presumably means is that this was the message the off-the-record Obamanauts were told to convey.

And that’s bad news.

Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.

OK, maybe this is just a head fake from the Obama people — they think they can win the PR battle by making bipartisan noises, then accusing the GOP of being obstructionist. But I’m really worried that they’re sending off signals of weakness right from the beginning, and that they’re just going to embolden the opposition.

Emphasis mine. Who knew that Paul Krugman was a psychic?

And still, conservatives continue to cling to their insane “tax cuts are the answer; government spending is the spawn of the devil”  fetish — except, of course, for war-related government spending. And check out what congressional Republicans and their followers consider to be “Democrat constituencies.” Apart from the predictable “welfare payments” and “food stamps” of course (can’t help Americans pay for food in an economic crisis, you know), here are some of the sectors of the domestic economy that Republicans consider to be “Democrat” not “national” constituencies: education, federal buildings and facilities, public transportation, child care, Amtrak, global warming, and funding for the arts.

If you take a look at the arguments these people make for their accusations of, in the words of one such, “lard, transfer payments, and payoffs,” they are inconsistent, illogical, and just plain flat-out wrong (in both meanings of that word).

Here is a sampling:

“Anyone – what will $50 million for the NEA do to ‘stimulate the economy’?” (the above-linked Bruce McQuain).

Well. Setting aside the facts (because I know Bruce doesn’t care) that (a) America’s cultural and artistic heritage is worth preserving and protecting; and (b) encouraging and nurturing artistic endeavor is in both the short- and the long-term interests of any civilization worth the name, $50 million for the NEA is unquestionably a wise use of stimulus dollars.

Here is a very partial list of projects the NEA has funded since Lyndon Johnson enacted it in 1965. Do you think, for example, that the National Film Institute and the American Ballet Theatre provide employment to a few people, directly and indirectly? How many small businesses do you think are helped by a season of ballet performances at Lincoln Center? How many apartments are rented or condos bought because they are within walking distance of Lincoln Center?

“Ah … those would be weapons systems that actually employ people, create jobs, and help defend the nation.  That may not be as sexy, figuratively and literally, as buying billions of condoms, but it means that a significant number of good paying (and likely union) jobs will disappear” (Ed Morrissey at Hot Air).

And reducing unwanted pregnancies (and thus abortions) as well as lowering the incidence of STDs makes it possible for many Americans to take those good-paying jobs who otherwise would not be able to.

And this (the biggest lie of all):

“Obama’s busy expanding all of the rest of the government except for its primary, Constitutional mission: defending the nation.”

The duty of defending the country (it’s not a “mission,” it’s a duty, an obligation) is no more primary according to the Constitution than is the duty to “provide for the general welfare.” Both obligations are in the Preamble to, and in the sentence that begins Article 1, Section 8 of, the Constitution. The Preamble additionally includes the words, “… in order to form a more perfect union, establish justice, insure domestic tranquility …” — all of which terms, arguably but reasonably, can be said to define the purpose (or one of the purposes) of education, relief measures for Americans who are unemployed and/or struggling to survive in a very bad economy, making it easier for low-income Americans to get necessary health care services, subsidizing health care costs for vulnerable populations (like those over 65 who receive Medicare), and — dare I say it — funding the arts.

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