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Taxing the Jobs Creators
In my Fox News appearance today, the other guest repeated the right's argument that returning to the old tax rates for folks making $250,000 a year and above would be an economic disaster because we are taking money away from those who create jobs, thus slowing job creation (video here). While I gave it my best on the air today, it all got me thinking - does this argument work? Is it true? And I came up with four (now five) reasons for why I felt his argument was at best a bit silly:
1) As this story shows, what we are talking about is a less than 10 percent increase in the tax rate on monies earned over $250,000, which would result in at most a 8-9 percent increase in someone's tax bill. This is neither extreme nor onerous given the current deficit challenges we have, and simply cannot produce a dramatic economic effect even if you believed marginal tax rates deeply effect decisions like this (something our own Garrett Gruener contests here).
2) What we are talking about is a return to the tax rates in a time which produced the greatest economic boom in American history; when median income increased by more than $8,000; when poverty decreased dramatically; the market soared; and deficits became surpluses. If all that happened when the rates were at the level being proposed by some Democrats - what exactly is there to fear from this, and doesn't this utterly disprove this notion that those tax rates will inhibit growth?
In the 1990s we raised taxes on wealthy people and saw the greatest economic boom in American history. In this past decade we cut taxes on the wealthy, and saw wages and income decline, a Great Recession, a financial collapse, surpluses become huge and historic deficits, and an anaemic recovery. The case for low tax rates for wealthy people yielding positive economic results just isn't strong.
3) The Bush tax cuts were sold to the American people as something necessary due to the large surpluses the government was running at the time. It was "our money," we were told, and given the surpluses it needed to be given back to us and not hoarded or spent by the government. Well we do not have surpluses any more, and we simply can no longer afford these temporary low tax rates for people of means, particularly when their share of overall wealth in the US has skyrocketed so much in recent years.
4) Corporate profits are at record levels. Cash isn't the issue with job creation now. It is lack of demand, and businesses not hiring because they do not believe they can sell their products to tapped out American consumers.
5) The single most effective deficit fighting tool available to the Republicans today is allowing the Clinton era tax rates for the wealthy to be reinstated. Nothing else they are proposing comes even close. The GOP's rejection of this strategy once again reminds us that the "big lie" in American politics today is the right's seriousness about deficit reduction. Contrast the President's Deficit Commission Report, the many serious deficit fighting proposals from the center-left this week with the vapid bromides on deficit reduction which have come from the right in recent months. As of today there is not a single Republican Senator or Congressman who has, or can, produce a plan which will reduce the decficit even by a penny in the next 10 years. In fact, the cumulative impact of the right's budget proposals today would be to increase the deficit in the next 10 years by more than what the President has proposed.
Feel free to weigh in here folks.