Posted on 12/04/2012 8:25:22 AM PST by ksen
The Republican Party has long promoted itself as the party of business. Republicans understand the needs of business, we are told, and if the country would leave the economy in their hands business would boom. All we need to do is to give those at the very top of the income distribution – the “job creators” – more income through tax breaks, and then sit back and wait for the magic happen. Our investment in the wealthy will produce remarkable economic growth, and everyone will be better off.
The Bush tax cuts were a test of these claims about supply-side economic policies. To justify the tax cuts the nation was, in effect, given a business prospectus from the Republican Party. We were promised that cutting taxes on the wealthy would result in much higher economic growth and broadly shared prosperity. For those who wondered how we would pay for such a large cut to the government’s revenue stream, the Republican prospectus had a remarkable claim. The tax cuts wouldn’t cost us anything. Growth would be so strong that the tax cuts would more than pay for themselves. Even those who admitted that the tax cuts might not be fully self-financing still made strong claims about faster economic growth offsetting much of the lost revenue from the tax cuts.
The reality, of course, has been quite different. There is little evidence that the Bush tax cuts, or any other tax cuts directed at the so-called job creators, have had a noticeable effect on economic growth. And the promise of broadly shared prosperity has not been realized. Most of the gains from economic growth in recent decades have gone to the top of the income distribution while the inflation adjusted wages of the working class have been relatively flat. Furthermore, the tax cuts have not paid for themselves as promised, and it hasn’t even been close. The Bush tax cuts have already cost us trillions in revenue, and if they are extended for high income tax payers, they will cost us roughly another trillion over the next decade.
The failure of Republicans to deliver on their promise that tax cuts would be mostly self-financing is a large factor in the deterioration in our long-run fiscal outlook, and it is putting considerable pressure on programs such as Social Security. In fact, the Bush tax cuts can be thought of as a loan from the Social Security Trust Fund that was supposed to be paid back with the revenues from higher economic growth, a loan that is presently in default.
To see this, recall that the government began intentionally collecting a surplus from the Social Security program beginning in 1983 in order to prefund the retirement needs of baby boomers. The idea was to run a surplus for several decades while the baby-boomers were still working to get ready for the deficit years the system would experience after they retired.
The revenue from Social Security over and above what was needed to fund payouts reduced the overall government debt and allowed taxes to be lower than they could have been without these surplus funds. For example, the surplus that Bush inherited from the Clinton administration was largely due to the Social Security Trust Fund, and Bush argued it would be better to give this surplus to the private sector through tax cuts than to leave it in the hands of the government. But it wasn’t better. The income of the wealthy grew as they pocketed the tax cuts, but workers experienced stagnant wages, a recession that hit working class households particularly hard, and intense pressure to cut important social programs.
Despite their failed promises, the Republican Party is asking that we extend the tax cuts for the wealthy, and some are even calling for further reductions in tax rates. However, if the Republican Party is truly the party of business, then surely it will understand that no responsible financial institution would continue to invest in a business that failed meet, or even come close to the growth and revenue projections that justified the investment in the first place. The payoffs from tax cuts that were promised during the Bush years have not been realized, and the failed promises about growth and revenue have damaged the health, education, and retirement programs the working class depends upon in our increasingly globalized economy.
A true party of business would end our investment in the false promise of supply-side economics. However, a party with a goal of reducing the scale of programs such as Social Security and Medicare along with delivering tax cuts to wealthy political backers would use arguments about the economic effects of tax cuts to disguise its true intentions. Which description fits best? Many Republicans still claim that tax cuts for the wealthy enhance economic growth despite the evidence to the contrary, but it’s rare to hear a Republican admit that these supply-side policies have failed.
The Republican Party has long promoted itself as the party of business. Republicans understand the needs of business, we are told, and if the country would leave the economy in their hands business would boom. All we need to do is to give those at the very top of the income distribution – the “job creators” – more income through tax breaks, and then sit back and wait for the magic happen. Our investment in the wealthy will produce remarkable economic growth, and everyone will be better off.
The Bush tax cuts were a test of these claims about supply-side economic policies. To justify the tax cuts the nation was, in effect, given a business prospectus from the Republican Party. We were promised that cutting taxes on the wealthy would result in much higher economic growth and broadly shared prosperity. For those who wondered how we would pay for such a large cut to the government’s revenue stream, the Republican prospectus had a remarkable claim. The tax cuts wouldn’t cost us anything. Growth would be so strong that the tax cuts would more than pay for themselves. Even those who admitted that the tax cuts might not be fully self-financing still made strong claims about faster economic growth offsetting much of the lost revenue from the tax cuts.
The reality, of course, has been quite different. There is little evidence that the Bush tax cuts, or any other tax cuts directed at the so-called job creators, have had a noticeable effect on economic growth. And the promise of broadly shared prosperity has not been realized. Most of the gains from economic growth in recent decades have gone to the top of the income distribution while the inflation adjusted wages of the working class have been relatively flat. Furthermore, the tax cuts have not paid for themselves as promised, and it hasn’t even been close. The Bush tax cuts have already cost us trillions in revenue, and if they are extended for high income tax payers, they will cost us roughly another trillion over the next decade.
The failure of Republicans to deliver on their promise that tax cuts would be mostly self-financing is a large factor in the deterioration in our long-run fiscal outlook, and it is putting considerable pressure on programs such as Social Security. In fact, the Bush tax cuts can be thought of as a loan from the Social Security Trust Fund that was supposed to be paid back with the revenues from higher economic growth, a loan that is presently in default.
To see this, recall that the government began intentionally collecting a surplus from the Social Security program beginning in 1983 in order to prefund the retirement needs of baby boomers. The idea was to run a surplus for several decades while the baby-boomers were still working to get ready for the deficit years the system would experience after they retired.
The revenue from Social Security over and above what was needed to fund payouts reduced the overall government debt and allowed taxes to be lower than they could have been without these surplus funds. For example, the surplus that Bush inherited from the Clinton administration was largely due to the Social Security Trust Fund, and Bush argued it would be better to give this surplus to the private sector through tax cuts than to leave it in the hands of the government. But it wasn’t better. The income of the wealthy grew as they pocketed the tax cuts, but workers experienced stagnant wages, a recession that hit working class households particularly hard, and intense pressure to cut important social programs.
Despite their failed promises, the Republican Party is asking that we extend the tax cuts for the wealthy, and some are even calling for further reductions in tax rates. However, if the Republican Party is truly the party of business, then surely it will understand that no responsible financial institution would continue to invest in a business that failed meet, or even come close to the growth and revenue projections that justified the investment in the first place. The payoffs from tax cuts that were promised during the Bush years have not been realized, and the failed promises about growth and revenue have damaged the health, education, and retirement programs the working class depends upon in our increasingly globalized economy.
A true party of business would end our investment in the false promise of supply-side economics. However, a party with a goal of reducing the scale of programs such as Social Security and Medicare along with delivering tax cuts to wealthy political backers would use arguments about the economic effects of tax cuts to disguise its true intentions. Which description fits best? Many Republicans still claim that tax cuts for the wealthy enhance economic growth despite the evidence to the contrary, but it’s rare to hear a Republican admit that these supply-side policies have failed.
Your reply to my post is a non sequitur. Did you intend to reply to someone else?
bump
What a country!
“Suppy Side” is not a policy, it is a description of the only approach that actually works over the long term. US Governments never manage to collect much more than 18-19% of GDP so the only question is how much government revenue do you want. When Reagan took office the government was raking in about $500B; when he left office after serious tax cuts the government was collecting $975B.
And if it’s shown that the top of the laffer curve for high income earners is 76%?
I’ve never seen anything indicating causality between the 2007-2009 Pelosi Comgress and the recession. Correlation yes, but not causation.
The recession was caused by the CRA poison pill pushed through by Dems years before and the massive over leveraging of Fannie Mae and Freddie Mac. There was a massive, unsustainable bubble in housing, made worse by It being the sector investors fled to when the dot com bubble popped.
The recession really had little to do, directly, with the Bush tax cuts or whatever level of supply side was in effect when the housing bubble popped. This article is just Monday morning quarterbacking by someone seeking to point fingers and push an ideological agenda.
“It’s the spending, stupid!”
If capitalism doesn’t work then how can they tax everyone so much?
Actually the people that have all those material goods are the American “Poor”!
StAn, you want to put a Variable Atlas Shrugged pointer on that? I don’t want to wait for a 100% Tax Rate before I say “Bleep it”.
*sigh*
You just said you've 'been able to find no empirical evidence that shows a statistically significant link between tax rates and GDP growth'.
Presumably had you found a cite that says Laffer +76% yields -- well you haven't revealed any supposed corresponding tax revenue yield, unless you're suggesting +76% is the apex of the Laffer curve, and I can't LOL enough at that -- so cite your cite.
“And it is true that since supply-side became ascendant the fruits of additional GDP growth have become more and more concentrated in the upper income levels.”
Concentration of capital and production facilities into fewer hands is a thoroughly predictable outcome of recessions and depressions. It never fails to occur.
The historical evidence of the 20s, 60s, 80s, and 2000s is that whatever happens to the rich, cutting their taxes is the fastest route to increase the SHARE of taxes paid by the rich. That’s why rich libs are ALWAYS in favor of increasing tax RATES, because they know the TAX REALITY and REVENUE will go down if rates go up.
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Yep this makes perfect sense because when they pay a lower rate they expose more of their money to taxation instead of funneling it into shelters and when they use their money for investments in capital they create jobs and that means more taxpayers on the margins and less people on welfare and unemployment.
Funny how the liberals never mention JFK's 1963 tax cuts when they want to slam supply side tax cuts, or as they like to say, "trickle down economics." That's probably why Reagan used JFK as an example when he was selling his own tax cuts and economic policy.
What's the Laffer Curve have to do with GDP growth?
Presumably had you found a cite that says Laffer +76% yields -- well you haven't revealed any supposed corresponding tax revenue yield, unless you're suggesting +76% is the apex of the Laffer curve, and I can't LOL enough at that -- so cite your cite.
Just remember that you asked me to post this. ;)
The Case for a Progressive Tax: From Basic Research to Policy Recommendations
There are obviously a trillion and one different inputs into the economy, so one particular cause or another of a recession will always be hard to establish, but I don’t think it’s pure coincidence that the economy started to head south soon after the Dem’s took over Congress and as polls began to make it increasingly clear that they would soon take over the White House as well. I think business owners, investors and consumers all make decisions based on the available information about what’s coming down the pipe, and socialism is what they saw coming in 2007 and 2008.
Then maybe it’s also not a coincidence that GDP growth has slowly been declining since marginal rates have been trending down.
“innovators”
that’s a really dumb term especially when the vast majority of the wealthy got it by innovating getting born to wealthy parents.
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