How to Drive the Economy Off a Cliff While Insisting You’re Actually Fixing it

by on June 17, 2011 · 11 comments

in American Empire, Economy, Popular

Republicans continue on their propaganda campaign that cutting taxes leads to economic and employment prosperity, in defiance of a mountain of evidence to the contrary.

“Everything is on the table” say Senate Minority Leader Mitch McConnell and House Majority Leader Eric Cantor when referring to the ongoing budget debate as the deadline looms to raise the nation’s debt ceiling.  But we know that’s not at all true.  There is, in fact, one glaring item that as far as Republicans are concerned is most certainly NOT on the table, and we know this because the very same gentlemen who’ve told us that “everything is on the table” have also told us explicitly that, in reality, not everything is on the table.  They’ve told us that the one thing that has been the single biggest contributor to our nation’s debt and deficit crisis over the last 10 years is a complete non-starter (Cantor’s words).

That one thing:  Taxes.  It is the single most divisive issue in American politics today; perhaps even more so than the current Battle Royale over Medicare.  Democrats insist that the wealthiest Americans need to pay their fair share; that the Bush tax cuts of 2001 and 2003 have led us into an economic abyss and that they need to be eliminated (something that by law actually should have happened already).  Republicans insist that we’re being taxed into oblivion, which they claim is directly responsible for our current economic crisis.  Their plan is to further cut taxes—and government regulation, but that’s another issue for another post—and sit back and watch as the economy mystically, magically grows and sprouts millions of new jobs.

A little recap:  During the Clinton administration, taxes went up slightly to what were historically very moderate levels, the top tax rate being 39%.  The economy grew by leaps and bounds, 20 million jobs were created during Clinton’s eight years in office (compared with a paltry 1 million new jobs during Bush’s eight years), he left a budget surplus of $246 billion when he handed the reins to George W. Bush, and according to the CBO and Bush’s own Office of Management and Budget had Clinton’s policies remained in place the national debt would have been paid off by 2009.

A look back at the numbers in January 2001, when Republicans took complete control of the government (both houses of Congress and the White House), finds an unemployment rate of 4.2%, up from 4.0% in January of 2000 (courtesy of the Bureau of Labor Statistics).  Compare that to the 7.8% in January 2009 (when Obama took office) and the current 9.1% figure.  Given that the statistical equivalent of full employment is generally considered to be somewhere between four and five percent unemployment, it becomes clear that the higher tax rate has absolutely nothing to do with high unemployment numbers, since tax rates currently sit at historical lows.

Our economy as a whole was clearly better off in the late 90’s.

Just for a little historical perspective:  Republican wunderkind Ronald Reagan, 1 ½ years into his presidency, presided over the highest unemployment rates since WWII, with unemployment holding steady at well over 10% for 10 months between 1982 and 1983, reaching a high of 10.8%.  This after implementing one of the largest tax cuts in history at the time.

Last week I wrote about what the official Republican budget plan looks to do to Medicare:  In short, they want to kill it altogether.  But their plan isn’t any more credible on tax policy.  It should be common knowledge by now that the basic premise behind Republican economic policy is tax cuts:  When the economy is struggling, you cut taxes.  When the economy is booming, you cut taxes.  When unemployment is high, cut taxes.  Their theory is that tax cuts spur job growth by putting more money in the hands of businesses, which in turn cause businesses to hire more workers.  It’s a nice theory, but complete fantasy.

The Republican “Path to Prosperity” does precisely that:  It cuts taxes to where the top rate sits at 25% (compared to 36% now, which in truth is a 28% effective rate), claiming they can balance the budget by slashing revenues.  And according to the CBO, they actually do manage to balance the budget and run a slight ¼% surplus beginning in 2040.  But to do this, 68% of medical costs are shifted directly to seniors instead of the 75% that is currently covered by Medicare.

In 2001 the United States had a budget surplus.  By 2002 that surplus was gone, and the U.S. began to see the debt and the deficit both skyrocket out of control.  What was the leading cause of the exploding debt and deficit?  Well, every credible analysis says that it was the Bush tax cuts that are the primary culprit.

Study after study after study have shown us that the single largest contributor to our current debt and deficit crisis are the Bush tax cuts of 2001 and 2003.  The Center for Budget Policy and Priority have released more graphs demonstrating this than Sadaharu Oh has base hits, yet Republicans continue to double and triple down on the same disastrous policies.

Republicans like Paul Ryan and Tim Pawlenty, the former Republican governor of Minnesota and current candidate for president, are selling the gullible public a suicide kit.  (See this one of many analyses of Pawlenty’s recently released budget plan, which has been ridiculed and derided across the political spectrum.)  They continue to insist that it was Obama’s policies that have driven the debt and deficit in two years, and not Republican policies.  But this study by the CBPP definitively shows us otherwise.

According to the study, under current policies (which includes maintaining the Bush tax cuts), the U.S. debt will reach $20 trillion by 2019, and the Bush tax cuts and the wars in Iraq and Afghanistan will account for half of that by themselves.  TARP and other recovery measures?  Less than 10%, with TARP and the Fannie and Freddie bailouts disappearing almost entirely from the radar.  It’s the economic recovery efforts, after all, on which Republicans place the entirety of the blame for our current troubles, but that’s simply nothing less than a bald faced lie.

Republicans continue to point to past surges in economic growth as evidence that their policies work.  But as Dave Weigel of Slate (a self-proclaimed libertarian, no less) points out—particularly in the case of the Reagan era—the spikes in economic growth that figures like Ryan and Pawlenty point to came after tax increases, not tax cuts.  Further, it was the periods after tax cuts that saw the least amount of growth, and the biggest jump in the deficit and debt.

In fact, if nothing other than ending the Bush tax cuts happened, projections tell us that the debt would level off completely.

The continued insistence by Republicans that raising taxes cuts economic and employment growth off at the knees has been repeated so often that the more gullible among us accept it as fact with absolutely no accompanying evidence.  We’ve seen that the exact opposite is true, though, or at the very least that tax rates have little to do with employment numbers.  In fact, it can be argued that raising taxes only moderately can spur job growth.  In 1986 Ronald Reagan, signed a tax reform bill that had the effect of raising taxes on the wealthy.  What happened to the unemployment rate?  January 1986 saw unemployment at 6.7% and hovering around 7% for most of the year before steadily declining through 1989 and into 1990, reaching a low of 5.0%.

In other words, Reagan’s tax hikes did not kill jobs, and didn’t stifle job creation.  Bill Clinton raised taxes and presided over unprecedented economic and employment growth.

So here we sit in 2011 with major economic and budget problems, with over 12 million unemployed and a major jobs crisis.  Republicans surged to control of the House of Representatives on a “jobs, jobs, jobs” campaign meme in 2010, yet all we hear about is the debt and the deficit, and how it’s the Democrats and President Obama who are to blame.  We have not seen one single jobs bill come out of Congress.  Not.  One.

With any and all efforts by Democrats to address economic issues being treated with utter contempt by their Republican counterparts, it’s no wonder our economy is slipping backward instead of continuing to improve.  If Republicans continue their intransigence on revenues we will surely see our entire country fall into oblivion—both economically and culturally.  Republican policies have led to a shocking and growing disparity in income levels between the very rich and the withering middle class. A healthy economy is one that is sustained by the purchasing power of its middle class.  At the rate we’re going, and if Republicans have their way, it won’t be long before the middle class disappears completely, and we’re left with two distinct classes of Americans:  The über wealthy, and the working poor who have barely enough to secure the bare essentials.  It’ll be the 1920’s all over again.  Which is exactly what Republicans want:  A return to the “good old days.”

{ 11 comments… read them below or add one }

avatar tj June 17, 2011 at 8:12 am

USA job exporting & Greedy Wall Street Bankster Deregulating Republicans – pander to their ultra-rich backers – the Military Industrial Complex, Multi-National Corporations, Foreign Interests, Wall Street Banksters, etc – the rest of the country can be damned & GtH – according to them.

I D I O T S.

Reply

avatar annagrace June 17, 2011 at 8:46 am

It is interesting that a few republicans have broken rank recently with the Grover Norquist pledge. Things are getting interesting!

Reply

avatar The Mustachioed OBecian June 17, 2011 at 10:26 am

Not to nitpick or anything, but since we were generally in the neighborhood of 4.5 to 5% unemployment for much of the Bush administration, why would we expect there to be a huge surge in employment if we were already close to full employment? Most of the job losses came during the final year of the administration when our economy was rocked by the recession. Reasons for which will be debated ad infinitum.

The only thing we know for certain is that we were assured unemployment would not top 8% with an injection of nearly $1 trillion into the economy. Obviously, that wasn’t the case. Sure, we could inject another $1 trillion into the economy as some Keynesians would desire, however, at what point do we find another approach when we fall further into debt.

Blaming tax cuts for the hole that we’re in suggests that money earned is the government’s to begin with. Maybe it’s out-of-control spending that has something to do with our present situation. If any company ran their business the way we run our government, it wouldn’t be long before those employees found themselves applying for unemployment.

Going back to the Great Depression, a good amount of scholarship reads that FDR’s spending policy directly resulted in prolonging the depression for years. So, who’s to say who’s right?

Reply

avatar Andy Cohen June 17, 2011 at 10:37 am

Take a look at the first graph I posted:

Increases in entitlement spending contributed 10% to the increase in the deficit and debt.

Increases in domestic discretionary spending contributed 6%.

Wars in Iraq and Afghanistan accounted for 37%.

Bush tax cuts amounted to 46%.

Other than the wars, this is clearly not a spending problem. It is a revenue problem. Had Bush left it at the levels Clinton left him even with the wars we’d still be in good shape. But that’s not what happened. And these are the results.

Reply

avatar Andy Cohen June 17, 2011 at 11:05 am

As to your FDR comparison: That’s complete bullpuckey! FDR’s policies had the economy growing steadily from 1933 to 1937. It was in 1937 that he gave in to Republican demands and cut back on government programs. This directly resulted in an economic backslide until 1939 when he resumed his “dastardly” government programs and the economy began to grow again.

As to your comment about unemployment during the Bush era:

1990 U.S. population according to the Census Bureau= 248,709,873

2000 U.S. population= 281,421,906

Not all of those people were of working age, and not all of them entered the workforce. Yet Clinton era policies managed to create 20 million new jobs.

2010 U.S. population= 308,745,538. A similar growth rate to the Clinton years, yet your intrepid hero GW managed to foster an economy that created a mere 1 million new jobs. 20 million > 1 million last I checked.

Reply

avatar The Mustachioed OBecian June 17, 2011 at 1:28 pm

That’s a quick way to win an argument by calling bullpuckey. I can’t compete with that. Regardless of population, how many jobs should be created when the unemployment rate is below 5? Isn’t it possible that there simply wasn’t room for additional growth?

Aren’t the Bush tax cuts now the Obama tax cuts? Again, the difference regarding taxes between the right and left rests in your opinion that our money belongs to the government. The right believes that it belongs to the wage earner.

And with a democrat in the white house and democrats in charge of congress, we’ve slid into even greater debt, unemployment, and uncertainty.

Reply

avatar Andy Cohen June 17, 2011 at 2:13 pm

Bill Clinton took office in 1993, inheriting a 7.3% unemployment rate. For most of 2000 it hovered at around 4.0%, sitting at 4.2% when Bush took office. The average unemployment rate during the Clinton years is 5.2% (I downloaded the excel file from the BLS and I’d be happy to forward it to you, although the info is readily available on the BLS website).

But even taking your argument at face value: There are other measures of economic growth, and despite the fact that the Bush era averaged 5.3% unemployment, the only real growth we saw in the economy was in the disparity between the rich and the middle class: The rich got WAAAAAYYY richer, and real wages for everyone else stagnated and slid backward. Throughout the Bush tenure people made less money in real wages than before. The wealthiest 2% of Americans did VERY well from 2001 through 2008. The rest of us, not so much. And this despite the Bureau of Economic Analysis figures that tell us that GDP rose steadily until the third quarter of 2008. It was those policies that stagnated wages and crushed demand that contributed to the economic collapse.

Pretty simple equation: Middle class shrinking = faltering economy

Reply

avatar Old Hermit Dave June 17, 2011 at 11:28 am

It is just a darn shame that every American can’t enjoy the republican BOOTSTRAP theory. But then everyone doesn’t have a rich daddy with rich friends that can give them money to buy ball teams and oil companies.

Reply

avatar mr.rick June 17, 2011 at 2:51 pm

To the guy on the right in this arguement, Obecian ,you are absolutely right, it is our money. But as we are also the government , this anti-governmant B.S. is kinda lame. Doncha thunk.

Reply

avatar The Mustachioed OBecian June 17, 2011 at 3:35 pm

There’s nothing anti-government in my argument. Government can do, and does, a lot of good for a lot of people. I suppose it boils down to how much government is good, or conversely bad.

Andy, you’re not arguing against which I’m discussing. No one is denying that the economy expanded greatly under President Clinton and that he left a surplus for President Bush. Rather, that employment had possibly reached it’s limit under W. With babyboomers leaving the workplace throughout the aughts, and having fewer young people to replace them, instead of requiring the nearly 150,000 monthly new hires to maintain the then-current unemployment rate, it was closer to 100,000 new hires during that decade. Perhaps one of W’s greatest blunders wasn’t tax cuts, but his medicare bill he signed into law in 2003, co-authored by Ted Kennedy. 400 billion bones is a lot of money for that boondoggle.

We can raise taxes to President Clinton-era levels, but do we really think that’s going to do anything to mitigate the spending orgy that we’ve seen over the last several years? Raising taxes shouldn’t be taken off the table, admittedly, but that’s a pretty meager panacea for our present state.

Reply

avatar tj June 18, 2011 at 1:32 pm

“Other than the wars, this is clearly not a spending problem. It is a revenue problem.” AC

BS.

1) Saying “other than the wars” – a multi-Trillion dollar expense – is like saying “other than being 1,000 lbs overweight – you’d be in pretty good shape.

2) Revenue v Spending is like the Nature v Nurture debate … duh – it’s Both!

“Had Bush left it at the levels Clinton left him even with the wars we’d still be in good shape.” AC

BS.

Clinton’s pandering to the same special interests that later made him Filthy Rich created the core problem. Gramm/ Leach/ Bliley Act, NAFTA, PNTR, etc. Clinton’s SELL-OUT of the American Middle Class set “W’s” stage. W exaserbated it with a War we can’t afford, plus distracting himself & his administration.

“Pretty simple equation: Middle class shrinking = faltering economy” AC

True, that – we agree!!!

And you can thank both “W” as you & I both acknowledge, & W Jeff Clinton – who set the stage for this mess – why deny it?

Just because the dynamite doesn’t go off immediatly – doesn’t mean that some IDIOT (WJC in this case) didn’t light the fuse.

You can’t let GREEDY Banksters run amock (Gramm/ Leach/ Bliley Act) & Export American Families jobs, wholesale (PNTR, NAFTA, etc) – then wonder why ther is a revenue problem. What do you expect when you EXPORT the Tax Base?

Partisans are all alike – BLIND to even the massive failings of their own.

Any wonder why we’re in this mess?

Reply

Leave a Comment

Before clicking Submit, please complete this simple statement to help us weed out the bots... Thank you! *

Older Article:

Newer Article: