The tax extension compromise of 2010 will add 900 billion dollars to the national debt with the goal of accelerating the economic recovery. To agree to the compromise the Republicans held firm to extending the tax cuts to income in excess of $250,000. This action by itself will add $120 billion* to the national debt with near unanimous agreement among economists that it will not have any significant stimulatory effect on the economy.
It’s fundamental that to have an impact money must be spent. Vandergelder got it right in the musical Hello Dolly saying “Money is like manure. It’s not worth a thing unless it’s spread about.” Senator McConnell and Representative Boehner are smart people and I expect would agree with Vandergelder. Why then were they and their colleagues so adamant on tax cuts for the wealthy?
During the tax cut debate both McConnell and Boehner frequently cited the recent midterm election saying the people spoke and we listened. Really? That’s their justification for giving a tax cut to the “wealthy”? Poll after poll** shows that the vast majority of Americans disapprove of extending the tax cuts to income over $250,000.
This seems both simple and curious to me. The republicans are supporting an action that will:
1. Benefit only 2% of the population.
2. Be against the wishes of two thirds of Americans.
3. Add 120 billion to the national debt.
4. Contribute nothing to stimulating the economy.
5. Further increase the gap between top income earners and the rest of us.
The last point is particularly troubling because it exacerbates the concentration of wealth that has been developing since Ronald Regan’s first term. When there is a large disparity in income between the top few percent and everyone else there is a concomitant drop in demand for goods and services. In essence, the producers of those goods and services can no longer afford to buy them. This trend, left unabated, will lead to structural economic instability. In a previous posting I addressed this issue and offered a graph showing the relationship between prosperity, top marginal tax rates and income distribution. The same graph is re-posted below.***
In light of the above five points, why then would the republicans be so intractable on extending the tax cuts to the wealthy? It’s not to help America. Everyone should see this clearly for what it is, a way to support their true base and facilitate the wealthy’s quest for more wealth. It is pork taken to the extreme.
It is unfortunate that Obama had to accept the tax cuts for the wealthy in order to secure republican support for the rest of the package. In the end it was the right thing for him to do. In the long view, Obama will be seen as the adult in the negotiations that lead to the compromise. I hope working class republicans will also share the same view and critically consider why the republicans are perceived as representing their interests.
** Polls showing lack of support for extending tax cuts on incomes over $250,000
August http://www.gallup.com/poll/142940/americans-allowing-tax-cuts-wealthy-expire.aspx August 37% keep all
Sept http://www.cbsnews.com/8301-503544_162-20016602-503544.html 38% extend all