The end of 2012 will bring, absent Congressional action, the end of the Bush tax cuts from 2001 and 2003. President Obama has proposed extending the cuts for all but those with incomes at the highest level.
Republicans have argued that doing so will hurt the economy and are unfair to the rich. This is all rhetorical nonsense driven more by an agenda that favors the rich but is ill-conceived and demonstrably wrong as it pertains to the fiscal health of the United States as a whole.
This rhetoric also carries accusations of class warfare but, as noted in this blog and elsewhere, the rich have been managing fine, thank you. As other segments of the economy have experienced difficulties ranging from budgetary cutbacks at home to utter despair from a plunge into poverty, the rich keep getting richer. There is ample statistical evidence of that.
As you can see the claim that tax cuts, at least the Bush cuts in this instance, spur economic growth is simply not true. The economy in terms of employment and GDP growth lagged the general trends since World War II.
One reason for this dichotomy appears to be that the rich benefitted from these cuts far more greatly, proportionately, than did the middle class, the people whose spending stimulates demand which results in the need for business expansion which means jobs growth which means an increasing GDP.
Even if these cuts had generated a salutory effect, which clearly they did not, they also generated the the biggest cause of our budget deficits and increase in the national debt.
Allowing income tax rates to rise for wealthy Americans would not hurt U.S. economic growth much in 2013 if Congress extends expiring tax rates on lower income levels, the Congressional Budget Office said on Thursday.
In a report expected to fuel Democrats’ post-election demands for higher taxes on the rich, the CBO said extending all of the Bush-era tax cuts, along with changes to the Alternative Minimum Tax, would boost U.S. gross domestic product growth by 1.5 percentage points, compared to letting these rates snap back to prior levels.
If the tax rates were extended only for individuals earning less than $200,000 and couples earnings less than $250,000, CBO said growth would rise by 1.25 percent — just a quarter point less than extending all of the cuts. http://www.huffingtonpost.com/2012/11/08/taxes-on-the-rich_n_2094592.html#slide=1563279
Post-election concerns will be focused on entitlements as a source of budget savings. I’ve written on the fiscal realities facing Social Security and Medicare and have my own ideas for viable solutions. I will be writing more in the very near future. In the meantime one simple solution presents itself. And that is the proposed reinstatement of the 39.6% top marginal rate on the highest incomes.
In short, the revenue lost from extending the cuts on upper incomes would ensure the solvency of Social Security for 75 years.
Now that’s not to say that other methods should not be employed to achieve this goal. But this fact illustrates that the problem is not insurmountable and that complicated, contrived reforms such as privatization are not necessarily the solutions we should be seeking to implement.
In summary we have evidence that the vaunted effects of lowering taxes on the rich leading to jobs and economic growth did not work with the Bush cuts. Moreover, restoring the highest marginal rate to what it was under Clinton would have minimal negative effect on the economy.
Now the Congressional Budget Office (CBO) has previously issued a projection that if the cuts expire as scheduled, together with other legislative imperatives currently in effect, the U.S. will probably fall into recession again with increased unemployment.
The logic of that is pretty easy to understand. Restoring the highest rate will still leave those affected with over $60,000 net for each $100,000 of EXTRA income above the threshhold. But restoring all the rates will mean much less money in the pockets of most Americans whose average income is below that EXTRA $60,000.
So taking money out of their hands will mean less ability to purchase goods and services and which spending is the driving force of the economy.
The benefits of taking this one step will aid in reducing the deficit (though spending cuts will still be needed). And frankly the people in that income bracket can well afford this small sacrifice since they have consistently seen greater gains in income and wealth out of proportion to their demographic size for the past three decades.
Protestations be damned. The rich can afford this slightly increased burden and the nation cannot afford not to impose it.