Republicans still refusing to countenance modestly higher tax rates for the wealthiest Americans are facing a moral dilemma. If tax cuts for the gilded-class do not in fact drive economic growth and job creation, then the GOP has been draining the United States Treasury for the sole purpose of needlessly padding the bank accounts of the rich. Unfortunately for the ideologues of the right, recent analyses from the nonpartisan Congressional Budget Office and Congressional Research Service as well as the robust U.S. economic expansion following the 1993 Clinton tax hikes have laid waste to the Republican "job creators" myth. Which means conservatives can either come clean, or come up with a different rationale for their budget-busting, upper-income tax cuts.
Florida Senator and 2016 White House hopeful Marco Rubio has opted for the later approach. Joining a long list of conservative con men, Rubio argued that raising tax rates on the rich is pointless because they will get around paying them anyway.
Rubio made that point last week during his first visit to Iowa. There, he suggest that Americans shouldn't expect more tax revenue from the likes of Mitt Romney:
"The billionaires and millionaires that are going to be impacted by higher rates, they can afford to hire the best lawyers, lobbyists and accountants in America to figure out how not to pay those higher rates. Rubio told National Journal's Major Garrett at The Atlantic Washington Ideas Forum. "The people that are going to get stuck by that bill are the small businesses, the partnerships, the S corporations, that cannot hire the lawyers to get them out of it."If Rubio's pitch sounds familiar, it should. After all, during his 2004 reelection campaign President George W. Bush said much the same thing in response to John Kerry's proposal to roll back the Bush tax cuts for the top two percent of earners.
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While only about two percent of small business owners would be impacted by such a change, Bush warned "'the rich in America happen to be small business owners." He then added:
"The really rich people figure out how to dodge taxes anyway."Of course, Bush was merely regurgitating the same supply-side snake oil Arthur Laffer has been peddling for years. The architect of the fiscally reckless and thoroughly disproven Republican mantra that "tax cuts pay for themselves," Laffer told Fox News in 2009 that raising revenue "cannot be done at the high end because those people can get away from it" for a very simple reason:
"I mean, you really can't collect much money from upper-income people. They know how to get around taxes."In April, Texas Republican Senator John Cornyn offered the same line.
When MSNBC correspondent Chuck Todd suggested the Buffett Rule and its 30 percent minimum tax on those earning over $1 million a year was "simpler way to tax the wealthy" who otherwise "cut through the tax code in a way and take advantage of things simply because they have the wealth and resources to do it," Cornyn responded that resistance to the rich was futile:
"That's the reason why this is so misguided because you're right, the wealthy have an army of lawyers and accountants that can help them work around this so-called Buffett Tax, but it's individuals who are going to get hammered. And at a time when we're depending on the private sector to create investments to create jobs, this is going to discourage that. And that's why this is so disappointing."During the just completed 2012 presidential campaign, the top economic adviser to GOP candidate Mitt Romney went a step further. Just days before Americans went to the polls, former head of Bush's Council of Economic Advisers Glenn Hubbard protested that "the rich are taxed enough already."
"Raising tax rates on the rich is both counter-productive and unnecessary to fund the government we want," said Hubbard.That would be to ignore both history and math. As the Center on Budget and Policy Priorities revealed in the two charts above, the effective tax rate paid by millionaires and those among the top 400 richest earners in the country has been falling for years even as their incomes have reached stratospheric levels. Despite right-wing mythology to the contrary, economic expansion and employment growth were both faster when taxes on supposed "job creators" were much higher than they are today. (It is also worth noting that while most Americans are still recovering financially from the Bush recession that began in December 2007, by 2010 the wealthy had more than made up their losses.)
While steering clear of specifics, Hubbard told the audience at the Intelligence Squared Debate that "higher tax rates won't necessarily produce enhancements in revenue."
"We can and should achieve fairness and growth without taxing the rich more than they are today," he said.
But it wasn't just the Bush tax cuts of 2001 and 2003 (which Glenn Hubbard helped put in place) which created this perverse result. The plummeting tax bill for the upper-crust is due in large part of the reductions in capital gains taxes both parties pursued over the past 25 years. An analysis by the Washington Post concluded that "capital gains tax rates benefiting wealthy feed [the] growing gap between rich and poor." As the Post explained, for the very richest Americans the successive capital gains tax cuts from Presidents Clinton (from 28 to 20 percent) and Bush (from 20 to 15 percent) have been "better than any Christmas gift":
While it's true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.This convenient chart tells the tale:
But the GOP's deceit hardly ends there. Republican politicians and their conservative water-carriers pretend that it's always 1980 (when the top marginal rate was 70 percent) or 1944 (when it topped 90 percent). As Dylan Matthews explained in the Washington Post today ("When taxes are high, raising them hurts. When they're low, not so much."), research shows the impact of a small tax increase on wealthiest Americans has almost no impact on the economy when current rates are low, as they are now:
So the more realistic Jaimovich and Rebelo's model gets, the less likely it is to see any effects on growth of increasing taxes for high earners, and certainly if the increases are as small as the ones Obama has been proposing. That's in line with a recent Congressional Research Service study that found zero effect of changes in top tax rates on growth.
There's definitely a point at which high tax rates for the rich hurt growth. But we're nowhere near there yet.
Which is exactly right. America's experience, especially over the last two decades, confirms Matthews' point. And going forward, the CBO in its analysis of proposals to end the high-end Bush tax cuts concluded that past performance would be a reasonable indicator of future results.
As for Marco Rubio, he said he has no "religious, spiritual objection" to tax increases, but opposes them for economic reasons:
He said the president's proposal would raise only $80 billion per year in new revenue, 7.7 percent of the national deficit -- not enough to make a significant dent in the debt, he argued.As the data show, Marco Rubio with his faith-based belief in tax cuts for the rich has it exactly backwards.
"The question becomes what problem are you solving and are you willing -- are you prepared -- to wipe out some small businesses in exchange for seven and a half percent of deficit reduction potentially?" he said. "I think that's a bad trade off."