Point of view

Tax cuts at the top and other priorities

August 16, 2010 

— To the surprise of none, another fight looms in Washington. Having locked horns on health care, financial reform, economic stimulus, the Supreme Court and (almost) war, now it's time for taxes.

President George W. Bush's defining tax cuts are set to expire in 2011. President Barack Obama and most of the Democrats would retain the reduced rates for all but the top 2 percent - those making over $250,000 a year ($200,000 for single filers). Obama explains that, given our "fiscal situation," we "simply can't afford" cuts of this magnitude for the very wealthiest Americans. Reportedly over $710 billion in revenue would be lost in the next decade.

Republicans, of course, disagree. But their rationale has been murky. They fought mightily against recent efforts to extend unemployment compensation, to aid cash-strapped state governments and to further boost an anemic recovery because the proposals would add to a daunting federal deficit. But tax cuts for the richest among us are apparently copacetic; even if we have to borrow boatloads to pay for them.

When pressed, recently, to explain the contradiction, House Minority Leader John Boehner stumbled. He refused, repeatedly, to answer whether the proposed cuts would "be paid for" or would "pay for themselves." He offered only that the lowered rates were necessary "for job creation" and "getting the economy moving again."

Those claims were rendered less compelling, though, by a recent study from the nonpartisan Congressional Budget Office. It examined 11 options to stimulate growth and job creation. The report found not only that that making the tax cuts permanent would dramatically increase the long-term deficit; it was the worst proffered option to nudge the economy forward. Extending unemployment benefits, staunching state budget cuts and providing job-creating tax credits would generate at least three times as much additional economic activity as retaining the top tax rates.

Alan Blinder, former Federal Reserve vice-chair, put it this way in The Wall Street Journal: "Paying more in unemployment benefits offers the most spending 'bang' for the budgetary 'buck'. Extending the Bush tax cuts for the wealthy offers the least."

The poor and near-poor will spend every cent they can get hold of. Those making over $250,000 will be far more apt to save the proceeds. If the rationale is job creation, the Republicans seem to have it backwards.

Of course it's not implausible to surmise that something else is going on.

Why ditch, completely and enthusiastically, the central tenets of deficit reduction? Why opt for the most demonstrably inefficient means of stimulating recovery, while rejecting, under potent party discipline, long-proven, more effective measures? And when pressed to explain the tortured path, why the studied non-responses?

My own sense of it is the national Republicans are now saying, clearly, even if by indirection, "We're the party of the 2 percent." We're willing to further bust the budget, to countenance massive teacher and first-responder layoffs, to leave millions out of work, to permit our beyond-frayed social safety net to crumble, to increase what is already the steepest income inequality in the Western industrial world and to flatly discard the concerns of "the least of these" in order to bolster the economic prospects of a relative handful of the wealthiest people in the United States. Some mission that.

It's worth wondering how, in a majoritarian democracy, this happens to a political party - especially one poised to make large gains in the upcoming congressional elections. The impact of money on our politics is part of it, to be sure. But not all. Americans, after three decades, undoubtedly know what they're getting. A complex cauldron of distaste for government and the public sector; derision for those needing a helping hand; obsession with guns, gays and abortion; and, perhaps, a yearning for forgone privilege seems to leave large numbers of us willing to opt, against all odds, for government by and for the wealthy.

And it shows in the North Carolina numbers. Citizens For Tax Justice reports that the bottom 60 percent of Tar Heels would pay, on average, $167 less under the Obama plan than the Republican alternative (because of changes to the Earned Income and child tax credits). Under the Republican version, though, the richest 1 percent would pay $33,644 less annually. And that fortunate 1 percent would receive 30 percent of the entire relief package benefits. Here's to government for the common man.

Gene Nichol, a professor of law at the UNC School of Law, is director of UNC-Chapel Hill's Center on Poverty, Work & Opportunity.

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