The argument out of the White House, accompanied by the "Doom and Gloom" predictions of Larry Summers (who has always been known to be right on everything, including on the topic of the mental acuity of women in mathematics and sciences), is that letting the Bush tax cuts expire would ruin the economy. My counter-argument to Larry Summers is that keeping the Bush tax cuts for the wealthy would in fact worsen our deficit, not produce jobs that we need, and ruin our economy.
After all, in the past ten years in which we've endured the Bush tax cuts, we haven't seen a plethora of good jobs being created as a result of them. When the White House is parroting this line, they're validating the right-wing arguments for extending and keeping the Bush tax cuts for the wealthy. What happens when the Bush tax cuts for the wealthy expires in 2012?
The Republicans will beat President Obama over the head on letting them expire, and they'll repeat the same arguments they're making now--letting the tax cuts expire would kill jobs, and ruin the economy. So, how can the President effectively make a case for letting the tax cuts expire in 2012 when he's presently making the case through Larry Summers and himself that letting the tax cuts expire would make the economy even worse?
Even though John Podesta, who backs the tax cut compromise, has pointed out the problems in 2012 that President Obama will face when the tax cuts for the wealthy and the payroll tax cut are due to expire:
"On balance," as CAP President and CEO John Podesta said in a statement, "I think the President was right to choose helping working Americans over a December conflagration. But the question hanging over Washington and the country today is how will he avoid repeating the same scenario being played out again and again for the next two years? That's a question that's keeping me awake at night."
The Center For The American Progress previously posted this summer three good reasons for letting the Bush tax cuts for the wealthy expire:
The cost of those tax cuts is going to go straight onto our national credit card unless we raise taxes from everyone else to pay for the $690 billion in tax breaks for the rich or we find $690 billion in spending cuts. And that means increased interest payments on the debt. When we add in the costs of additional debt service, the true price of maintaining the tax cuts for the wealthy jumps by almost $140 billion.** In total, keeping those cuts for the rich will cost almost $830 billion over the next 10 years.
To put that figure in perspective, $830 billion is enough to pay for all veterans’ hospitals, doctors, and the rest of the Veteran’s Affairs health system, plus the United States Coast Guard, plus the Food and Drug Administration, plus the operation and maintenance of every single national park for the entire 10-year period—with more than $100 billion left over.
Extending the Bush tax cuts for the wealthy will cost about $80 billion over just the next two years, and frankly, that $80 billion could be put to much better use than simply giving it to the richest 2 percent of Americans. We could extend additional tax relief to middle-income Americans. We could make sure that teachers, firefighters, and police officers aren’t laid off. We could prevent unemployment benefits from lapsing again. We could rebuild some crumbling roads and bridges. We could invest in more science and technology research. Even just paying down the debt would be a better use of $80 billion than giving it to people who don’t need it. Simply put, tax cuts for the rich should be at the bottom of our priority list, not at the top.
And remember that Clinton also helped increase taxes in his budget deal, and the economy did not suffer from that---rather, the middle class grew and so did their median incomes:
They didn’t deliver. The economy boasted 132 million jobs in June of 2001, the month that the first of the Bush tax cuts was signed into law. Three years later, in June of 2004, there were just 131.4 million jobs. The economy did not add a single new job during three years under the Bush tax cuts. The next three years were better than the first three as the private sector struggled back to its feet following the first Bush recession. By June of 2007, before the start of the Great Recession, total jobs had grown to 137.7 million. Overall, the six years following the Bush tax cuts saw a 4.8 percent increase in jobs.
Percentage increase in jobs after President Clinton's tax increases and President Bush's tax cuts. That’s not nothing, but it’s pretty anemic compared to job growth under President Bill Clinton. President Clinton, after raising taxes in 1993, oversaw an economy that went from 111 million jobs in August of that year (the month Clinton’s budget plan passed, including the increase in taxes) to 129 million jobs six years later—an increase of 16.2 percent, and more than three times better than under the Bush tax cuts.
And the Bush tax cuts didn’t just fail to stack up on jobs. Overall economic growth was much slower under the Bush administration’s tax policies than under the Clinton administration’s tax policies. Real gross domestic product grew by 26 percent in the six years after Clinton’s tax increases. But real GDP grew by just 16 percent in the six years after the Bush tax cuts began. In fact, that six-year growth rate was low even by general historical standards. The average real GDP growth in any given six year period (from any quarter to the same quarter six years later) since World War II was 22 percent.
Real GDP growth after President Clinton's tax increases and President Bush's tax cuts. And don’t forget that President Bush promised his tax cuts would deliver, "real and immediate benefits to middle-income Americans." The cuts were a spectacular failure on this score, too. Real income for the median American household went from $51,356 in 2001 to $52,163 six years later—an increase of just 1.6 percent. Under President Clinton’s tax rates, real median household income went from $45,839 in 1993 to $52,587 in 1999—an increase of 14.7 percent.
Paul Krugman, in his editorial at The New York Times, also points out the same problem as Podesta did that President Obama will face in 2012 when these tax cuts are slated to expire:
Look at the Zandi estimates: they show a boost to the economy in 2011, which is then given back in 2012. So growth is actually slower in 2012 than it would be without the deal.
Now, what we know from lots of political economy research — Larry Bartels is my guru on this — is that presidential elections depend, not on the state of the economy, but on whether things are getting better or worse in the year or so before the election. The unemployment rate in October 1984 was almost the same as the rate in October 1980 — but Carter was thrown out by voters who saw things getting worse, while for Reagan it was morning in America.
Put these two observations together — and what you get is that the tax-cut deal makes Obama’s reelection less likely. Let me repeat: the tax cut deal makes Obama less likely to win in 2012.
In agreeing to this tax cut deal with Republicans pre-emptively, the President unfortunately has hampered himself, and the Democratic Party as well when he adopts and advances Republican right-wing framing on the tax cuts issue. Also, in agreeing to the payroll tax holiday, which was what Republicans wanted (not what Democrats wanted), President Obama is helping set up Social Security for the incoming attacks from Republicans.
Republicans have wanted to cut Social Security ever since it came into existence, and with this payroll tax holiday, they will finally have a wedge to accomplish their goal, promising lower taxes now in exchange for reduced benefits later.
It's true that Republicans wouldn't hold all the cards in such a debate. Democrats could point out that you can also lower payroll tax rates without undermining the Social Security system's fiscal health by replacing the lost revenues with the elimination of the cap on payroll tax contributions. Lifting the cap would be a good idea and it would make the system more progressive. And if Democrats were to make continuing the payroll tax holiday contingent on lifting the cap, they'd have a powerful and effective argument.
But the problem is that it's a pipe dream to expect Democrats to make that argument without caving to the GOP's demands. All the proof you need of that is contained in the tax cut debate, where by President Obama's own admission, the GOP's strategy of hostage taking was effective. And that doesn't even take into account that next year, there will be a Republican House and smaller Democratic majority in the Senate.
Now, it would have been one thing if the payroll tax holiday in the tax deal also raised the income cap from to $109,000 to higher brackets, which would help ensure Social Security's longevity, but that would not have passed muster with Republicans. They would have opposed that, so they prefer this payroll tax holiday since it allows them to use the replacement of SS funds with general revenue funds as an excuse that Social Security contributes to the deficit (which it presently does not), and work to gut Social Security on that basis by insisting on benefit cuts to keep the payroll tax holiday in place when it is slated to expire in 2011.
Also, since the debt ceiling raise was not included in the tax cuts deal, it gives Republicans even more ammo to demand further spending cuts and benefit cuts from Social Security, Medicare, and other social programs in January when the next Congress convenes. By not including the debt ceiling in the tax cuts deal, President Obama is allowing the further taking of hostages from the American populace to the benefit of Republicans and their Wall Street benefactorers. Here's Ezra Klein on this, and this is one of the points I rarely agree with him on:
Obama's answer was not comforting. "Here’s my expectation," he said, moments after comparing the Republican negotiating strategy to terrorists who shoot hostages, "and I’ll take John Boehner at his word. Nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse, that that would not be a good thing to happen.... Once John Boehner is sworn in as speaker, then he’s going to have responsibilities to govern. You can’t just stand on the sidelines and be a bomb thrower."
No, but you can be a tough negotiator. And when you combine a tough negotiator -- which Obama says the Republicans have proven to be -- with lots of leverage and popular demands, you get, well, a hard bargain. But this isn't going to be a hard bargain Democrats like. Republicans have already stated their intention to use the debt ceiling's leverage to sharply cut spending and roll back health-care reform. That would be bad for the same reason that the tax cut deal is, on the whole, good: It'd hurt working people and the economy.
Happily, this negotiation isn't over. Republicans want a deal that will add hundreds of billions of dollars onto the deficit. That deal should be packaged, as I and others have been arguing for some time, with an increase in the debt limit. That would not only stop Republicans from taking the full faith and credit of the U.S. government hostage in February, but it'd establish the important principle that tax cuts are not free.
Democrats in Congress should insist on this as a condition of any deal, and so should the White House. And if Republicans want to blow up the bargain because they're unwilling to accept the consequences of their own spending? Well, let them. Not all ransoms are worth paying.
On the whole, I do not support the tax cuts deal, but the deal itself would be marginally better if the payroll tax holiday was not in there, and the debt ceiling increase was in there instead. However, there are no indications that the White House is going to fix the deal as in the words of Vice President Biden to the House Democratic Caucus, "Take it or leave it." I'm glad the House Democratic Caucus left it then by refusing to endorse the Obama-McConnell tax cut deal.
In not endorsing this tax cut deal, and perhaps leaving it to the Republican-controlled House in January, it would be far better to let the Republicans own the vote on bailing out the wealthy. They get to own the vote, and they get to be attacked for it on the basis of increasing the deficit to bail out the wealthy.
Here's how you can take action in saving the Democratic Party by opposing the tax cuts for the rich to save Social Security and other programs from the incoming Republican assault:
- Call your Democratic Senators and Representatives with these talking points below:
Please oppose the tax cut bailout of the wealthy. It increases the deficit at a time in our country when we can least afford it, and it further undermines Social Security by funding it as a welfare program through the replacement of funds lost through the payroll tax cut from the general revenue. I will vote for you in 2012 if you oppose the tax cuts for the rich.
- Sign the Dailykos petition to get Senator Sanders' back since he has promised to filibuster this absolute giveaway to the rich on the backs of the middle class and our seniors.
- In addition to calling your elected officials, you can e-mail your Representative and your Senators as well.
- Also, one of the most effective actions you can take is to show up at your Congressmember's district office with as many people as you can to lodge a protest.
- Please click the Facebook "like" button on top to spread the word to as many people you can on Facebook! Also tweet this as well!
Let's get to it, kossacks! There currently are 53 Democrats on the record in opposing this tax cuts deal, and in your calls to them, you can thank them for doing so.