Square off: Extend cuts for 98 percent who need them
WASHINGTON — George W. Bush summed it up at an $800 a plate dinner back in 2000 with a joke: “This is an impressive crowd — the haves and the have-mores,” he said. “Some people call you the elites; I call you — my base.”
What made the joke really funny is that it was true.
The Republicans, true to their base, are fighting to keep the Bush tax cuts for the richest 2 percent of Americans: those singles receiving more than $200,000 a year and those couples earning above $250,000.
President Obama wants to let these tax cuts for the wealthy expire, as scheduled, at the end of this year — while keeping them for everyone else.
This one should be a no-brainer, especially when you consider how much the rich and super-rich have gained in the last 30 years as compared to everyone else, in their before-tax income. From 1993 to 2008 the top 1 percent of families — with income of more $368,000 in 2008 — actually captured the majority of the income gains for the whole country.
If all this rich-getting-richer had made the rest of us better off too, that would be another story. But most of it is because the government has rigged the rules of the game to favor upper-income groups.
Manufacturing workers have been subjected to increasingly ruthless international competition with “free trade” agreements and other incentives for U.S. companies to produce elsewhere; but “free trade” does not apply to lawyers, economists, and Wall Street executives. This by itself guarantees a bigger piece of a slower-growing pie for the rich.
Add in the assaults — in both law and practice — on organized labor and increased unemployment, and the bargaining power of most wage and salary earners has been severely reduced. No wonder the typical wage, adjusted for inflation, is barely higher than it was three decades ago.
Now comes Mitch McConnell, Republican minority leader in the Senate, to argue that the rich and super-rich must keep their tax cuts.
Oddly, on a recent Sunday’s “This Week,” he made a liberal, Keynesian argument: “We’re talking about raising taxes in the middle of a recession. And most economists think that’s the worst thing you could do.”
Actually, the economy is not technically in recession right now; but that is not so important. With 9.6 percent unemployment and millions more underemployed or dropped out of the labor force, for most people it is just as bad as a recession.
It’s great that McConnell has discovered Keynes. Maybe he will now realize that our sputtering economy also needs more public spending, which is — by his very same logic — much more effective than tax cuts, especially tax cuts for the people who are most likely to save the money.
But the net effect of Obama’s proposal, as compared to the current law that would let all of the Bush tax cuts expire, is a tax cut for 98 percent of taxpayers.
For 2011, for example, the upper 2 percent would see their taxes rise by $33.5 billion; but the other 98 percent would continue a tax cut worth approximately $199 billion.
Of course, if we want to increase the stimulus — and we desperately need to do so — we can distribute that $33.5 billion from the upper 2 percent to state and local governments so they can reduce layoffs of teachers and other employees, which is one of the things that is slowing our economic recovery.
There is no doubt that the government will have to do much more to stimulate the economy, if we are to avoid a period of prolonged high unemployment and a lot of needless suffering. But extending tax cuts to people who don’t need them, and never should have gotten them in the first place, is the least effective way to do this.
To contact Mark Weisbrot, readers may write to him at CEPR, 1611 Connecticut Avenue NW, Suite 400, Washington, D.C. 20009-1052.