In Part I we provided suggestions for defining the Democratic message, for exposing the Republican actions since taking control of the House in early 2011 and the intentions of the GOP extremist agenda, as well as facts for countering the GOP falsehoods and misinformation about the Democratic and Presidential records. In Part II we dispel a number of falsehoods and myths about important economic facts and trends that Republicans have ably propagated and successfully instilled in the public mind.
These pertain to (i) the myth that spending cuts create jobs, (ii) the Republican "Big Lies" that Democrats are responsible for the large deficits, the debt and corporate bailouts, (iii) the lie that the size and role of Federal Government grew in 2009-2010 under President Obama, (iv) the myth that tax cuts for the wealthy or for the corporations create jobs, (v) the myth that corporations pay high taxes, (vi) the myth that the wealthy pay more than their fair share of the nation's taxes, and (vii) the myth that Democrats aim at wealth redistribution.
The last portion of Part I was dedicated to defending the Democratic accomplishments of 2009-2010 on the economy. In that context we also brought up Reference10 [to read a particular reference, please click on it] which discussed the misplaced blame that played an important part in deciding the 2010 election. To a good extent the electoral defeat of the Democrats was due to the magnitude of GOP's misinformation campaign and the many falsehoods on the economy that Republicans ably and widely propagated. Several of these falsehoods are addressed and dispelled below.
Dispelling the Myth that Spending Cuts Create Jobs
Since January 2011 that Republicans took control of the House, they have focused on anything else but jobs and their calls for austerity and deep spending cuts appear to aim at slowing or even derailing the economic recovery as is discussed in the Daily Kos articles Reference4 and Reference11, the Erie Lead articles Reference12a and Reference12b and the New York Times Op-Ed Reference13
In their totality these articles make the point that spending cuts will cost jobs and they dispel the GOP claims that such cuts will stimulate the economy. The articles discuss the reports by Moody's and Goldman Sachs -- Wall St 's top Rating and Investment firms, respectively -- that the immediate cost of the spending cuts will be significant, as low as 350,000 jobs for and as high as 1.5 million jobs depending on the total amount of the cuts. Keep in mind that States have been shedding jobs at the rate of 25,000 jobs a month to a total of 100,000 state jobs lost so far in 2011.
Moreover the theory of "expansionist austerity" -- also referred to as expansionary fiscal contraction or the "Mellon" doctrine (Reference13) -- is also debunked in the latter two of the five aforementioned articles. According to this theory, jobs losses among well educated mostly computer-literate white-collar employees (such as federal and state employees) result in lower wages of other similar employees, increase competition in the labor market and at the end spur higher employment. Another claim of this flawed theory is that decreasing deficits (ultimately also debts) and balancing budgets increases confidence in the capital and financial markets so that they invest more in pro-growth economic activity. These claims have not ever been validated and, even if some benefit to the economy materializes in the long-term, the cost of raising unemployment in the short-term and causing additional misery and hardship to the unemployed and stressing an already frail recovery is not justified.
For a broader view of economic austerity both in US and globally please also read the excellent article Reference14. Finally, for the impact of the United kingdom austerity policies instituted by the Conservative UK Government a year or so ago, please read Reference15; growth in UK dropped significantly, government jobs are being shed, wages are stagnant and there inflationary pressures on consumer incomes; but also keep in mind that UK's top individual income tax rate is 50%, among the highest in Europe, and they are taxing excessive bonuses to executives and traders in the financial sector.
Exposing the Republican "Big Lies" about Deficits, the Debt and Corporate Bailouts
Democrats should also explain that our current deficit and debt predicament is the result of the trickle-down economics of Reagan and the Bushs (father and son) ... Bring charts and graphs, if necessary, but establish that Obama has in essence been responsible for only $1 trillion added to the debt in his 2 years (2009-2010) so far and not what GOP claims; please read Reference3 that provided the details of debt accumulation from 2001 to 2010. By contrast GOP policies and Republican presidents since Reagan are responsible for $10.8 trillion of the $13.2 trillion of national debt accumulated since 1981-- in January 1981, when Reagan took office the debt was $994 billion, in January 1993 when Clinton came it was $5.7 trillion, in January 2011 it reached $14.2 trillion. Clinton is responsible for adding $1.4 trillion (1992-2000) to the debt and Obama for adding about $1 trillion so far.
Please also read Reference16 for the recent history of the national debt from Carter to Obama and Reference17a and Reference17b for a very informative graph of the national Debt vs GDP over the entire period 1930 to 2010 and subsequent analysis. What the latter two references establish is that FDR, Truman and Eisenhower, despite the spending and deficits incurred during the Great Depression and then World War II, were able to lower the deficits and pay back the debt thanks to an explosion of economy growth and high taxes (top individual tax rate was 91% under Ike).
Under JFK and LBJ the debt also remained under control despite spending on new social programs and somewhat lower taxes. Even under Nixon, Ford and Carter the Debt vs GDP ratio was kept at its lowest point (top tax rate was still 71% in late 1970's) and the debt remained low; it was less than $1 trillion at the end of Carter Administration (December 1980). It was under Reagan in the 1980's that individual and corporates taxes were slashed to 35% or less and as shown in the Debt vs GDP Graph the debt starts its disastrous ascend. As explained in the two references supply-side economics are the cause of our current predicament and not over-spending.
The same applies for the falsehoods and misinformation spread by GOP about the TARP and GM Bailouts. The Bailouts were necessary, they worked, stabilized Wall St and the financial markets, provided confidence for economic activity to restart, and saved the US Auto Industry from total collapse. Equally importantly the final cost to the taxpayers is expected to be only $19 billion or less. Please read Reference16 which in addition to the recent history of the national debt also includes the history of the Corporate Bailouts from Nixon to Obama, and the recent status of paybacks to TARP and GM Bailouts.
This short history of debt accumulation also serves the purpose of dispelling another myth, namely that the middle class and the poor are responsible for our current deficit and debt predicament due to the voters wanting something for nothing and voting for weak-minded politicians who cater to the electorates foolishness. This is utterly false, in fact, as explained in previous paragraphs, it is Reaganomics and supply-side economic theories that have dominated our economic policies since the 1980's -- pushed by Republicans and frequently acquiesced by the Democrats in Congress -- that caused our current debt predicament. The high deficits are due to lowering taxes for the wealthy and the corporations too much and not to the public drawing benefits from the state; they are also due to the unpaid for, uncontrollable defense spending and the frequent small and large wars pursued since the 1980's.
Another such myth propagated by the Republicans is that the size of the Government grew in 2009-2010 under President Obama and its role increased. In truth as argued in Reference10 the government size did not increase perceptibly under Obama, and actually the President has imposed a pay freeze on federal employees and on non-security discretionary spending, this was in his 2011 Budget Proposal (Reference2) and in the final 2011 Budget compromise (Reference3). Indeed, some social programs (e.g., assistance to low income families including food-stamps, housing, heating, and jobs retraining as well as Pell grants for college students) that had expanded under the 2009 Stimulus so as to help cope with the hardship caused by the Great Recession have now been reduced to 2008 (pre-recession) levels in the 2011 Budget compromise. Moreover, so far States have shed a total of 430,000 state jobs, 100,000 of them in 2011 alone, and another 330,000 state jobs in 2009-2010; the latter despite the $300 billion assistance to the States that was provided as part of the 2009 Stimulus. Since this assistance expired in late 2010, more state jobs are expected to be lost due to budget shortfalls.
Dispelling the Myth that Tax Cuts for the Wealthy or the Corporations Create Jobs
According to Moody's $1 in tax cuts for the 2% of top earners generates only 40c in economic activity; by contrast $1 in jobless deficits generates almost $2 in economic activity. The reason for this is that the wealthy have maxed out their spending and invest their surplus from lower taxation in investments in Wall St (often ins speculation in commodities and exotic financial instruments like derivatives) or overseas in countries with higher growth rates and large consumer markets. By contrast jobless benefits for the unemployment or tax cuts for the lower middle class are guaranteed to be spent on basic necessities, goods and services thus spurring economic growth. The issue in a frail economic recovery is how to increase consumer demand, and to achieve this we must leave more money in the hands of those who will certainly spend it, not those who will mostly save it and invest it in financial speculative instruments or overseas.
As for corporations low taxes and excessive cash in their balance sheets encourages mergers and acquisitions and the creation of monopolies, often a loss to consumers, or buying back their shares and offering dividends so as to increase their share value; these may be good for shareholders but do nothing for job creation. Moreover corporations are often enticed to invest overseas by lower taxes, cheap labor and lack of worker benefits, lack of labor unions, and loose safety and environmental regulations, rather than investing in plants and jobs on American soil; in doing this they take advantage of tax loopholes that allow them to defer payment of taxes on profits made overseas until repatriation of their operations and capital back to the US.
These and other arguments are made in Reference18. Moreover, in Reference19 additional arguments are provided about why lower taxes on corporate profits -- this is what corporations are actually taxed on -- hinder further investments by the corporations, allows more money for lobbying and political contributions in an attempt to influence favorable legislation and the election of politicians that favor their requests for lower taxes and fewer regulations, and leaves excess cash in corporate balance sheets or in the hands of CEO's (due to higher bonuses) to invest in derivatives, credit default swaps and other speculative instruments that may create problems or even crisis in the financial markets as happened in the Wall St meltdown of 2008..
Relevant to the corporate tax loopholes which enable the sheltering of overseas profits is a more general discussion of the reasons for which corporations are not doing much hiring in the US; these are outlined in Reference20, together with suggestions for new policies that curtail the off-shoring of jobs (for this issue also read Reference21), and a comparison of the corporate cultures of US and Germany and Scandinavia.
Dispelling the Myth that Democrats Aim at Redistribution of Wealth
Another myth or "Big Lie" spread by the Republicans is that Obama and the Democrats aim at redistributing wealth from the rich to the poor. If anything the exact opposite is true and it has been happening since the 1980's: wealth transfer from the middle class to the wealthy. The last 30 years have been dominated by Reaganomics and supply-side economics with devastating results for the middle class and the poor. The over-concentration of wealth in the hands of few and tax avoidance by the wealthy and the corporations have reached epidemic proportions.
In this context an important part of the Democratic message should also be the exposure of the loopholes, tax credits and deductions offered by the individual and corporate tax codes which enable the avoidance of taxes by the wealthy and the corporations. These are well described in Reference22 and Reference23.
A frequently used excuse by conservatives to justify their unwillingness to raise taxes on the wealthy is that the top 20% of richest Americans pay almost 70% of the country's income taxes. But the reality is that this top quintile also receives 60% of the national income and this justifies their contributing more. Actually the effective tax rate (EFTR) -- that is the total federal tax liability (includes income, payroll, excise and corporate taxes) of a quintile divided by the total income of that quintile -- is just 25.8% for the top quinitle; thus they are not at all over-taxed. By comparison the 2nd quintile receives 19.5% of total income and pays an EFTR of 17.6%, the middle quintile receives 13.2% and pays 14.2%, the next quintile receives 8.4% and pays 10.2%, and the bottom quintile receives 3.9% of total income and pays an EFTR 4.3%. Notice that the EFTR of the top quintile is significantly lower than the percentage of its received income as a fraction of the total income, while for the remaining four quintiles the two numbers (the EFTR paid and the fraction of total income received by each quintile) are very close. Again a fact that favors the top 20% of the earners.
The fact is that, as discussed in Reference24 using data from the Economic Policy Institute, the richest 10% of Americans received 100% of income growth in 2000 - 2007; by contrast through much of the post WWII era 10% of families accounted for just 1/3 of average income growth and the bottom 90% for 2/3 of it. Moreover, in 2009 the richest 5% claimed 63.5% of the nation's wealth, by contrast the bottom 805 collectively held just 12.8% of the wealth.
As for corporations, they only contributed 7% of total tax receipts in 2009 and they are expected to contribute just 12% of total tax receipts in 2012; by contrast in the 1950's corporate taxes amounted to 30% of all taxes collected. Indeed the information recently revealed in Reference25 about the GE strategies for tax avoidance, and the fact that GE and another nine top US corporations -- see Reference26 -- paid zero or very little in taxes are both astonishing, but it should have come as no surprise to anyone given the abundance of tax loopholes, tax credits and subsidies in the corporate tax law.
Moreover, statistical data about the deteriorating conditions of the shrinking middle class will be useful for justifying and shaping the Democratic agenda for tax reform and the 2012 message. Such indisputable data are provided in Reference27. Similarly, very useful statistics about the widespread income inequality are provided in Reference28 and Reference29.
To this end Reference30 also provides a very useful comparison of the US misplaced spending priorities and our current flawed spending trends with those of other advanced industrialized nations. Our over-emphasis on defense and our military spending being the highest in the world, the percentage of income received by the richest 0.1% being the highest, while our percentage of GDP devoted to social spending for families being the lowest, and the percentages of children living in poverty or of population experiencing homelessness being the highest among advanced industrialized European countries.