Warren Buffett, ranked by Forbes magazine as 2008’s "Richest Man in the World", gravely observed: "If there is a Class War in America, my side is winning." The populist "Oracle of Omaha" pleaded with the Senate Finance Committee last November to drop the wildly disproportionate tax cuts of 2001 and 2003 that Bush and the Republican Congress gave to his already wealthy kith and kin, and enact a fairer and more progressive tax program that would narrow – not widen – the existing chasm separating the haves from the have-nots:
[I]n a country that prides itself on equality of opportunity, it is becoming anything but that, as the gap between the super rich and the middle class widens in dramatic fashion.
During this election cycle you can bet we'll hear Republicans yet again try to convince us that if we would just lower taxes, then government revenues are guaranteed to go up.
Well, swallowing Republican logic like that it follows that if we simply eliminated all taxes, the government would then be guaranteed of having an infinite amount of money.
Why, even ABC’s Charlie Gibson, during that tag-team tragedy of a "debate" he moderated with Stephanopoulos, said: "History shows that when you drop the capital gains tax, the revenues go up." (OK – give him partial credit, as they do tend to move up some the year immediately following for a perfectly understandable reason ... but more on that just a wee bit later.)
So why then are McCain and Republicans so adamant on making permanent Bush’s capital gains and dividends tax cuts of 2001 and 2003? To find the answer, we only need to take Deep Throat’s legendary advice on nailing Nixon: "Follow the money!"
THE REPUBLICAN CLAIM: "BUT IT REALLY, REALLY HELPS EVERYONE"
Let’s start by setting the record straight: Reagan’s supply-side, trickle-down "tax cuts" proved to be a disastrous drought for us in the middle and lower income brackets, and nothing more than a Republican ploy to guarantee that the rich would get richer.
As Time magazine so succinctly put it just last month:
The message many Republicans took from Reagan ... and still preach today, is that tax cuts pay for themselves. That's nonsense
Republicans who want to make those tax cuts permanent (they expire in 2010) deceitfully point out that the majority of households earning capital gains and dividends have incomes of less than $100,000. While that’s technically true, it’s only true because they purposefully leave out the fact that those households make up the vast majority of American taxpayers – 90 percent.
But of those 90 percent, only about 10 percent will be lucky enough to get any type of benefit at all from capital gains and/or dividends tax cuts. And nothing in proportion to the percentages Bush and the Republicans gifted to the wealthy - those already fortunate few who don't have to choose between gas to get them to work, food to put on the table or medicines to maintain their family's health.
Even more deceitfully, Bush conveniently fails to say that very few middle income taxpayers gain from his cuts because most who do own stocks hold them in retirement accounts (IRAs and 401ks) that are not even eligible for the cuts. In fact when their money is withdrawn from their hard-earned savings, it will then be taxed at the much higher rate as ordinary income – not the lower capital gains rate endowed to the already-rich.
But Bush and his Republican Congress were able to even expand Reagan's disparity, thus widening the abysmal abyss separating the rich from the rest of us, with their capital gains and dividends tax cut gifts to the wealthy in 2001 and 2003.
If you are fortunate enough to be reaping $200,000 a year, you and those like you were on the receiving end of the lion’s share of Bush’s largesse, being gifted greater than 75 percent of all the winnings from the capital gains and dividend tax cuts that were shelled out. And incredibly, over 50 percent of all the tax cuts on capital gains and dividends went to just the tiny subset of American households with annual incomes over $1 million – the top 0.1 percent.
THE REPUBLICAN CLAIM: "OK, SO MAYBE IT DIDN’T HELP EVERYONE – BUT THE ONES IT HELPED ... WELL, WE’RE TALKING REAL MONEY HERE"
You need to remember that these are Republican claims, so want to guess on how the pie was actually divided?
According to Internal Revenue Service data analyzing the initial impact of the Republicans’ tax investment cuts on capital gains and dividends shows that for those earning $50,000 or less (70 percent of all returns filed), their average savings was $19.
While for people fortunate enough to be earning over $200,000 (2 percent of all returns filed), their share of the investment gifts cuts was $7,849.
Care to compare the difference between $19 and $7,849? Well, my friends, that's an eye-popping 41,200 percent advantage that Bush/McSame want to permanently grant to the wealthy instead of those who actually are in need.
But $200,000 is chickenfeed to the likes of heiress Cindy McCain. So I know you’re concerned on how the ultra-rich and über-ultra-rich made out from the very start of Bush’s investment tax cuts that McSame now wants to make permanent.
Those people with annual incomes of $1 million or more (0.1 percent of all filers) averaged a savings of $41,400 each. While those raking in more than $10 million every year had their tax bill reduced by $500,000!
You would think that at some point in the future the collective conscience of all those "compassionate conservatives" would twinge just a smidgeon, and they'd decide to actually try to help those poor folks struggling to keep body and soul together, wouldn’t you?
Sadly, you’d be wrong.
Analyzing data from both the IRS and CBO, the Tax Policy Center projects that in 2009, households with incomes below $50,000 would see an average tax cut of only $11 (yep, eleven dollars - and that's even less than they got at its inception in 2003). While those making over $1 million would benefit by $32,000!
That’s a mind-boggling 290,000 percent advantage Bush/McSame think the ultra-rich deserve instead of folks struggling to make ends meet! (And they have the cojones to call Obama an "elitist"?!) So maybe NOW would be the time for Bush/McSame to recycle that infamous "MISSION ACCOMPLISHED!" banner. And in full "Let them eat cake" mode, the actual Republican Elitist base just has to be pleased as Punch.
THE REPUBLICAN CLAIM: "OK, SO IT SCREWS REGULAR FOLKS – BUT IT REALLY, REALLY HELPS THE ECOMONY"
As we saw above, even Charlie Gibson buys into the old saw that cutting capital gains and dividends tax rates makes the economy grow. And we agreed to give him partial credit for that.
There’s almost always a single year up-tick in revenues after investment tax rates are cut because people can choose when to enter into a transaction that will generate capital gains. It’d be silly not to forgo that transaction for a few months knowing a tax rate is about to drop.
But that’s not evidence that capital gains tax cuts increased revenue – that’s just evidence that people shifted it from one year to another.
A much better gauge of their impact is to monitor how revenues perform over the course of a standard Juglar investment business cycle of 7 to 10 years. And from the non-partisan Congressional Budget Office report published this January it demonstrates that revenues will go up and revenues will go down ... unrelated solely to investment tax cuts.
See, Charlie Gibson, it's not as simple as ABC. Looking at the CBO's inflation-adjusted figures, the reduction in the capital gains tax rate from 20% to 15% in 2003 did not result in an increase in revenue over the course of the business cycle. In 2000 receipts totaled $119 billion, which equals $143 million in 2007 dollars. In 2007, they totaled $122 billion. That's actually a 15% decline in revenue resulting from lowering the capital gains rate directly from the non-partisan Congressional Budget Office's January report.
And when you make no commensurate spending cuts to compensate for that revenue decline (as the Bush administration did not) you end up compounding the problem by ballooning the budget to record deficit levels.
Now I suppose Republicans might argue that 2000 was the peak of the biggest bull stock market boom on record, and so claim it’s an not a fair comparison. But that would force them to likewise admit that forces other than capital gains tax rates acted to determine the course of the stock market. Well, now that doesn’t work out so well for supply-side zealots, now does it?
THE REPUBLICAN CLAIM: "YEAH, WELL ... JUST YOU WAIT UNTIL OUR ECONOMIC EXPERTS WEIGH IN"
Sen. Obama’s announced position to eliminate Bush's lowered capital gains tax rate for only the wealthy (which McCain and the Republicans want to make permanent) is shared by Princeton’s Economics Professor Alan Blinder – who just happens to be the former Vice-Chairman of the Federal Reserve Board.
In fact not only does Prof. Blinder disagree with supply-siders’ mantra that lowering taxes on capital gains will result in increased revenues, but in a "New York Times" article this past year he actually illustrates how lowering taxes on capital gains undermines the very bedrock of capitalism itself – even showing how it mimics the old Soviet Union’s approach to economics.
A far more important objection is that the tax preference for capital gains undermines capitalism — a system in which capitalists, not the state, are supposed to make the investment decisions. When I discuss this issue with my Economics 101 students, I show them an example of a proposed investment that loses money before tax (and which, therefore, should be rejected) but which actually turns a profit after tax because of the preferentially low capital gains rate. (Accountants and tax lawyers live this example every day.) The government thus induces people to make bad investments, which is a good way to run an economy into the ground. Come to think of it, that’s just what the old Soviet Union did. [Emphasis added]
He goes further in the same article in objecting to the current tax code that so outlandishly favors the rich and argues for adjusting it to a fairer one that is more progressive and less punishing of the middle- and lower-income class:
But would taxing capital gains like other types of income imperil our economy? No. The Tax Reform Act of 1986 did exactly that, and it did not end capitalism as we know it. In fact, the gross domestic product in 1987 and 1988 grew at about the identical rate as in 1985 and 1986, and the investment share of GDP barely budged.
In fact Bush's very own selection to be the current Federal Reserve Chairman, Ben Bernanke, tried to disabuse Republicans of their specious claims that tax cuts always pay for themselves through increased growth during his own confirmation hearings when Mr. Bernanke said that it was "unusual for a tax cut to completely offset the revenue loss."
In fact, cutting capital gains rates reduces revenues over the long run. That’s the conclusion of the federal government’s official revenue-estimating agencies, buttressed by outside experts – as well as the Bush Administration’s own Treasury Department:
The non-partisan Congressional Budget Office (CBO) and Joint Committee on Taxation have estimated that extending the capital gains tax cut enacted in 2003 would cost $100 billion over the next decade.
The Administration’s own Office of Management and Budget (OMB) included a similar estimate in the President’s budget.
The non-partisan Congressional Research Service concluded that cutting capital gains taxes loses revenue over the long run.
The Bush Administration Treasury Department examined the economic effects of extending the capital gains and dividend tax cuts. Even under the Treasury’s most optimistic scenario, the tax cuts would not generate anywhere close to enough added economic growth to pay for them — and would thus lose money.
SOURCE FOR ABOVE
Even N. Gregory Mankiw, Bush’s very own former Chairman of the Council of Economic Advisers, found that there is "no credible evidence" that tax cuts pay for themselves, and that an economist who makes such a claim is a "snake oil salesman who is trying to sell a miracle cure."
In fact Mr. Mankiw said they’ll pay for only 50 percent of themselves. Which begs the question of who’s going to finance the other half?
Bush and McSame, in pushing to make permanent the 2001 and 2003 tax cuts that wildly favor the already wealthy, clearly intend to let your children and grandchildren try and find the money to cover the other half.