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String Along with Mitch & Say It Ain’t So, Joe.
From the NYTimes:
WASHINGTON – The Senate Republican leader, Mitch McConnell of Kentucky, proposed legislation on Monday to continue the Bush-era income tax cuts indefinitely, even for the wealthiest Americans, testing the willingness of Democrats to vote for a tax increase in a weak economy and making clear that the partisan fight over taxes will extend deep into the campaign season if not beyond. Mr. McConnell’s proposal came a day after the House Republican leader, John A. Boehner of Ohio, opened the door to a potential compromise, saying he would vote for President Obama’s plan to extend the tax cuts only for households earning less than $250,000 if he had no other choice. . . .
“I don’t think it makes sense to raise any federal taxes during the uncertain economy we are struggling through,” Mr. [Sen.] Lieberman said in his prepared remarks. “The more money we leave in private hands, the quicker our economic recovery will be. And that means I will do everything I can to make sure Congress extends the so-called Bush tax cuts for another year, and takes action to prevent the estate tax from rising back to where it was.” . . . .
I have a question or three for Mitch McConnell and Joe Lieberman: If the Bush II-era tax cuts for those in the top tier of income is such a good idea, why isn’t the economy in better shape now? Wasn’t that the point? That those tax cuts for the highest income folks would be good for the economy, for everyone? This approach has been in play for about ten years now. It doesn’t seem to be working. Lieberman says we need to “leave more money in private hands” to speed up the recovery. There’s been a lot more money in private hands for the past decade, and look at the economic mess we’re in. The gap between have-a-lots and have-nots keeps getting larger. Maybe it’s time to try a new approach.
“It doesn’t seem to be working.”
Bit of an understatement there. It’s worth remembering that these tax cuts didn’t exactly lead to a booming economy with rapid growth in GDP. And that was before the financial collapse. President Bush’s first response to the collapse was to pass a tax cut. No effect. In fact, it’s hard to see how any tax cut to the rich has had any stimulative effect at any point in the past 30 years.
It’s behavioral economics 101: wealthy individuals, when given a tax cut, will inevitably save most or all of it. If you want to stimulate the economy, you actually need money flowing; increasing the amount gained in interest for the top 2% doesn’t count.
You’re right about the ever-increasing level of inequality when it comes to income distribution. As I’ve argued before in past comments and posts, we have a fundamentally unstable distribution of income that will retard our economy’s ability to grow. The only reason consumption kept up with production levels was that everyone turned their house into a bank. As we hopefully won’t allow that to happen, we can either redistribute wealth down or watch our production levels fall until they return to a point of equilibrium with demand.
The Republicans argue that tax cuts for the rich help small businesses grow and hire more people. However, if those tax cuts are let to expire, wouldn’t hiring another worker or two increase the cost of business enough to bring his taxable income within the tax cut range? And, if those extra workers resulted in more business and higher income for the owner, he would still be better off.
I expect it is the really high income people who pay the lobbyists to get their way with Congress that are driving the Republican agenda.
In the universe of small business owners, only 3% of them make more than $250,000 per year, so to argue that allowing the reduced tax rate on those high earning individuals will somehow stifle small businesses is absurd.