By Miguel De La Torre
Sorry, but I don’t buy all the hype about going over the so-called “fiscal cliff.”
Why? Because the Bush-era tax cuts have harmed the poor. They believed that the wealthy should control the economy, for they are, after all, the so-called “job creators.” A “trickle down” effect was supposed to result. This did not happen.
By 2000, the top 400 wealthiest taxpayers in the U.S. represented 1 percent of all income obtained, a figure that had quadrupled in the eight years since 1992. Yet their tax burden dropped from 26.4 percent in 1992 to 22.3 percent by 2000. By 2008, the tax burden of these taxpayers further dropped to 18.1 percent, lower than the percentage paid by most ordinary workers.
The main reason the super rich pay so little is because most of their income is in the form of capital gains. These are taxed at a maximum rate of 15 percent, far below the maximum rate paid on salaries and wages.
It was none other than Ronald Reagan who in 1986 passed legislation equalizing the top rate on capital gain (28 percent) with earned income. Under George W. Bush, however, the capital gains tax rate dropped in 2003 to the lowest levels since Herbert Hoover was president.
The main argument used throughout 2012 for extending the Bush tax cuts was that allowing them to expire will inhibit the so-called “job creators.” Yet, during Bill Clinton’s first term — when the wealthiest 400 taxpayers paid close to 30 percent of their income and capital gains tax was roughly equivalent to the income tax rate — 11.5 million jobs were added to the economy. The Bush administration, during its eight years, never came close to matching this many job creations.
The Bush tax cuts transferred more wealth to the top earners than virtually any act of fiscal policy in history. By 2011, more than 90 percent of the tax savings went to the taxpayers in the top quintile (fifth) and nearly half of all the benefits went to the top 10 percent.
The top 0.1 percent of earners (those making over $3 million), received an average tax cut of about $520,000, more than 450 times the average received by a middle-income family.
Tax filers in the bottom 20 percent (making less than $20,000), received only 1 percent share of the tax cuts, while 75 percent of these low-income families got nothing.
The promise that tax cuts would bring a higher rate of economic growth never materialized.
Median income grew slowly between 2002 and 2008 (slower than in any other economic expansion) only to fall sharply with the 2008 Great Recession.
Real gross domestic product (GDP) peaked in 2004 at 3.6 percent but quickly faded. Even before the Great Recession hit, the real GDP was growing at less than 2 percent a year.
Contrast this with the robust growth which occurred with the 1982 and 1993 tax increases. In 1984, real GDP rose 7.2 percent and continued to rise at more than 3 percent a year for the remaining 1980s. After 1994, real growth averaged 4 percent for the remainder of the 1990s.
Recalling that Bush inherited a projected $6 trillion surplus, we are left to wonder how we arrived at a $6 trillion cumulative deficit by the close of his presidency.
According to the Congressional Budget Office, the Bush tax cuts reduced revenue by at least $2.9 trillion below what it would have been between 2001 and 2011. Slower-than-expected growth further reduced revenue by $3.5 trillion. A higher-than-expected $5.6 trillion in spending helped complete the country’s fiscal dilemma.
Despite the economic damage caused by the 2001, 2002, 2003, 2004 and 2006 tax cuts, politicians like Senate minority leader Mitch McConnell (R-Ky.), Gov. Tim Pawlenty (R-Minn.), Sen. Jeff Sessions (R-Ala.) and Rep. Trent Franks (R-Ariz.) continue to misinform the public by saying that revenues increased due to the Bush tax cuts.
In reality, the implementation of the Bush tax cuts from 2001 to 2010 added $2.6 trillion of the public debt, nearly half of the total national debt accrued during this period. It is estimated that if the Bush tax cuts were to be made permanent, it would cost about $4.6 trillion over the 2012-21 period.
The Congressional Budget Office says fully eliminating the Bush tax cuts for the wealthiest 2 percent of Americans would increase revenues by about $690 billion over the next 10 years. Add the $140 billion in debt services needed to maintain the tax cuts, and the total comes to $830 billion in savings.
I don’t know about you, but I’m ready to take the leap off the cliff.