Tax cuts, deficits: easy on the rich, tough on grandkids

Tom Maertens
The Mankato Free Press
Wed Dec 22, 2010, 04:01 PM CST

The Bowles-Simpson Commission on the deficit made its report this month, noting that we are on an “unsustainable fiscal path” that threatens our future economic viability. The ink wasn’t even dry on the Commission report when President Obama and Republican leaders agreed to another trillion dollars in unfunded tax cuts/spending over the next two years, including at least $55 billion in corporate welfare.

Whatever happened to the deficit hawks, the ones who promised during the electoral campaign an “adult conversation” with the American people about deficits, pain, and shared sacrifice, about perhaps cutting spending and raising taxes?

Maybe they plan to deal with the debt using the Tim Pawlenty Magic Wand method: when confronted with Minnesota’s $6.2 billion dollar deficit that he is leaving to his successor, the governor simply waved it away by announcing that “the state was on the right track … with money in the bank.” Some people would consider this characterization as dishonest, deceptive, disreputable, cynical, mendacious chicanery, and perhaps even, a bald-faced lie.

Michele Bachmann tried another tack, arguing on national television that tax cuts shouldn’t be counted against the deficit, an idea that could have come straight from Alice in Wonderland. The CBO attributes 48 percent of the deficit since 2001 to Bush’s tax cuts.

Meanwhile, the Washington chattering classes are praising Obama’s “centrist moderation,” as Charles Krauthammer called it, for embracing a program that requires the U.S. to borrow $2 billion every day from China. In what alternate universe are exploding deficits and runaway spending considered centrist policies?

Furthermore, this tax cut/spending policy is directed at pumping up consumer spending, inevitably another boom-and-bust, debt-financed bubble. In contrast, a program of investment in education, R&D and infrastructure would increase productivity and promote long-term growth. A report issued in October by the Technology CEO Council, including the chief executives of IBM, Dell, Intel, Motorola, and other tech giants titled “One Trillion Reasons,” lays out seven “commercially proven best practices” for maximizing productivity, which it claims could save the federal government $1 trillion over 10 years.

In the end, the two sides agreed on the budget-busting tax cuts because it serves both their interests. For Obama, re-election looks problematic unless unemployment comes down. Only another major stimulus package in the form of “Keynesian” tax cuts and additional spending has the possibility of improving job creation in the short term. But Bush and his tax cuts, even combined with $800-900 billion in Keynesian deficit spending on two wars, created no net new jobs over eight years. Why should we expect something different this time?

For Republicans, the package ensures a continued redistribution of wealth upward, to the wealthiest Americans who fund their party. According to Jacob Hacker and Paul Pierson (Winner Take-all Politics), 51 percent of the Bush tax cuts go to the top 1 percent of earners. It also continues the march toward unsustainable deficits — including payroll tax cuts that will blow a $120 billion hole in Social Security — that will allow them to argue that Social Security and Medicare must be axed.

Obama thinks he faced a hostage-situation this year, but he will face worse situations over raising the debt ceiling this spring and later when the Republicans, inevitably, agitate to make the payroll and Bush tax cuts for the wealthy permanent.

The tax structure is already skewed so heavily toward the wealthy that, even during this great recession, the top 5 percent of households have seen their income rise. The top 1 percent of Americans currently own 34 percent of our nation’s wealth — more than the combined wealth of 90 percent of Americans.

Studies consistently show that such high concentrations of wealth correlate with poor economic performance of the country as a whole. It was to prevent such concentrated wealth and the rise of a hereditary aristocracy that Teddy Roosevelt advocated a progressive income tax.

As Justice Louis Brandeis said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we can’t have both.”

The only groups likely to face a tax increase under the new legislation , according to the New York Times, are those near the bottom of the income scale — individuals who make less than $20,000 and families with earnings below $40,000.

Eisenhower in his farewell address told Americans to “avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow.” What we are doing is undermining the country’s financial security for short-term political gains, and increasing the Grandchildren’s Tax.