Democrats Waver on Ending Bush Tax Cuts for Wealthy
Last year, President Obama kept his campaign promise to cut taxes for 95% of American households. But facing tough reelection prospects in November, a group of House Democrats is getting weak in the knees when its comes to Obama's pledge to reduce the budget deficit by letting the Bush tax cuts expire for Americans making over $250,000 a year. By delivering a massive windfall for the richest Americans while producing red ink as far as the eye can see, that surrender would not only be bad politics, it would be bad policy.
As The Hill reported yesterday:
Reps. Bobby Bright (D-Ala.) and Mike McMahon (D-N.Y.) asked members in a "Dear Colleague" letter Thursday to support extending the tax cuts, which passed in 2001 and 2003 and are set to expire this year, for at least another two years. Specifically, Bright and McMahon are asking lawmakers to sign a letter to Obama asking him to include the tax cuts in his budget plans for 2010.
"Allowing these tax rates to expire during this recession runs the risk of curtailing economic expansion just when it begins to pick up and could lead to a 'double dip' recession," says the letter to Obama.
Questioning Treasury Secretary Tim Geithner last week, Reps. Gerry Connolly (D-VA) and Harry Mitchell (D-AZ) made clear that Bright and McMahon are not alone. While Geither contended that "I don't think that would be good policy for the country," Connolly argued, "I think there is a certain logic to leaving well-enough alone for now, given the fragility of the economic recovery." Mitchell echoed that line:
"Given the unique economic difficulties we face as a nation, this is the wrong time to raise these taxes. We need to retain these tax cuts that encourage investment that stimulates growth and job creation."
But as ThinkProgress detailed, failing to restore upper bracket tax rates to their Clinton-era levels not only won't help spur economic recovery, it will blow a gaping hole through the federal budget even as it needlessly lines the pockets of the wealthiest Americans:
In an era when everyone seems to be running around screaming about the deficit, there's absolutely no reason to extend these cuts, which this year will give millionaires more in tax breaks than 90 percent of Americans will earn in income. The Bush tax cuts have delivered $715 billion to the wealthiest one percent of the country over the last ten years, and extending the cuts would give households in that one percent $60,000 in additional breaks per year, with millionaires receiving a $150,000 annual break. Over ten years, that amounts to another $1.2 trillion in lost revenue.
As the Center for American Progress previously noted, the Bush tax cuts delivered a third of their total benefits to the wealthiest 1% of Americans. And to be sure, their payday was staggering. As the Center on Budget and Policy Priorities detailed, by 2007 millionaires on average pocketed $120,000 from the Bush tax cuts of 2001 and 2003. Those in the top 1% stashed an extra $45,000 a year. As a result, millionaires saw their after-tax incomes rise by 7.6%, while the gains for the middle quintile and bottom 20% of Americans were a paltry 2.3% and 0.4%, respectively. (Another CBPP study demonstrated that the Bush tax cuts accounted for half of the mushrooming deficits during his tenure in the White House.)
And as the New York Times uncovered in 2006, the 2003 Bush dividend and capital gains tax cuts offered almost nothing to taxpayers earning below $100,000 a year. Instead, those windfalls reduced taxes "on incomes of more than $10 million by an average of about $500,000." As the Times revealed in a jaw-dropping chart, "the top 2 percent of taxpayers, those making more than $200,000, received more than 70% of the increased tax savings from those cuts in investment income." So it should come as no surprise that the income share of the 400 richest Americans doubled over the past decade.
And it is precisely that cornucopia, and not any increase in tax rates, which produced the growing upper-income tax bills so bemoaned by the likes of Ari Fleischer and supply-side snake oil salesman Arthur Laffer. Again, the Center on Budget and Policy Priorities (CBPP) explained the true dynamic at work:
The increase in the share of taxes paid by those at the top did not occur because this group's taxes were raised - they were not - but because the share of pretax income going to the top 1 percent of households rose from 18.1 percent of total income in the country in 2005 to 18.8 percent in 2006. Indeed, the effective tax rate of the top 1 percent of households was lower in 2006 than in any year since 1992.
All told, those policies helped set new records for income inequality in the United States, reaching levels not seen since 1929:
And as it turned out, of course, the Bush administration's endless deficits were made worse by the wars in Iraq and Afghanistan, the unfunded Medicare prescription drug benefit, the Bush recession starting in December 2007 and finally, the Wall Street bailouts of 2008. After Ronald Reagan tripled the national debt during the 1980's George W. Bush doubled it again during the Aughts.
As the chart at the top of this piece suggests, making the Bush tax cuts permanent will make the deficit picture worse - much worse - over the next decade. In December, CBPP released an eye-popping report showing just how bad:
Nonetheless, feckless Democrats like Bright and McMahon are doing the work of the Republican Party and its allies like the U.S. Chamber of Commerce and National Federation of Independent Business (NFIB). (This debate, after all, comes just three weeks after Republican obstructionism resulted in a one-year elimination of the estate tax, draining $25 billion from the Treasury, all on behalf of only 1 in 500 estates.) Despite the fact that the expiration of the Bush tax cuts for the wealthy impacts less than 2% of small business owners, Republican leaders like Mitch McConnell claim that "when our good friends on the other side of the aisle say raising the taxes on the wealthy, what they are really talking about is small business." As South Dakota Senator John Thune put it in the context of President Obama's proposed banking reforms:
"For Democrats to be successful they've got to create a sense of class warfare and an us versus them mindset."
As recent history shows, however, the only people fighting a class war in this country are the ones who are winning it.
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