Smart Talk On Ending the Bush Tax Cuts

NUMBER 8 | December 4, 2012

Hold The Line On Ending The Bush Tax Cuts

The Challenge	The emerging Washington consensus on tax reform is that we can raise more revenue by lowering tax rates, especially on the wealthy and corporations, while “broadening the base” by limiting or eliminating tax deductions. Lowering rates, it is argued, helps growth; closing loopholes produces revenue to reduce deficits. It is a seductive proposition. But there are good reasons to resist the seduction. The argument that lower rates for corporations and the top 2 percent of taxpayers accelerate economic growth is simply not borne out by the evidence. Reviewing the post World War II history, a peer-reviewed September 2012 Congressional Research Service study concluded, “There is not conclusive evidence … to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth.” Worse, previous tax reform has closed loopholes but not lobbies. The lobbies then build in new loopholes while the lower rates remain. Simplifying the tax code is a worthy and necessary goal, but tax “reform” that begins with lower top tax rates is likely to end by enriching the already rich and cutting off needed revenues.
Make the Case	We need more jobs and lower deficits. And we suffer the most extreme income inequality since the Gilded Age in the 1890s. That is because the tax cuts of the last decade encouraged a greater concentration of wealth at the top 1 percent, while doing nothing to encourage job creation that would expand the middle class. We should be asking the wealthy to pay more in taxes, so we can invest in areas vital to our economy and, as people go back to work, reduce our deficits. The richest few who’ve done well in America need to do right by America. If you follow those who say that we can get more revenue by lowering rates and closing loopholes, history shows we’ll end up with lower rates, new loopholes and less revenue — with no guarantee of greater growth. Truth is, President Bill Clinton raised top-end taxes and enjoyed record job growth. President George W. Bush cut taxes and we suffered the worst job growth of any president since the Great Depression. Americans have no problem with financial success. But they demand fairness, and continuing to give a millionaire a $150,000 tax cut while the rest of us are stuck with the bill is not fair. It is time for corporations and the wealthy to pay their fair share.
Case in Point	The first step is to put people to work doing work that needs to be done. That brings down deficits as they start earning incomes and paying taxes, not collecting unemployment insurance. We can pay for this by making certain that the richest Americans pay their fair share of taxes. Start by ending the Bush tax cuts to those making over $250,000 a year, a proposal central to President Obama’s election campaign and mandate. Then investors should pay taxes on their investment income at the same rate that the rest of us pay on our income from wages. When secretaries are paying higher rates than the billionaires that employ them, something is fundamentally wrong.
Counterpoint	When They Say: Lower tax rates create growth; closing loopholes and broadening the base will generate greater revenues. We Say: That hasn’t worked in the past, and won’t in the future. President Bush’s own Treasury Department admitted in 2006 that the Bush tax cuts would have essentially no beneficial effect on the U.S. economy at all. Look what happened after the 2001 and 2003 Bush tax cuts: the weakest economic expansion in post-World War II history. Bottom line: That’s an experiment we’ve tried and can’t afford to repeat. The Bush tax cuts cost us $2.5 trillion in their first decade, added to extreme inequality and helped put us in the hole we’re in. When They Say: We have the highest corporate tax rates in the world, and that’s hurting our ability to be competitive globally. We Say: Actually, the rate companies really pay—because of loopholes and tax havens—is one of the lowest in the industrial world. In fact, General Electric is but one of a long list of major U.S. corporations that made billions in profits and paid nothing in taxes. When They Say: We can’t raise taxes on job creators now. And most small businesses pay individual income tax rates, not corporate tax rates. We Say: Letting the Bush tax cuts expire on those earning more than $250,000 a year won’t touch more than 97 percent of small businesses. Most of those who do face higher rates are wealthy doctors, lawyers and other professionals who can afford to pay more. When They Say: We need the simplicity and fairness provided by a flat tax structure with a couple of rates and fewer deductions. We Say: Getting rid of overseas tax dodges, glaring loopholes and unfair tax breaks is a good idea. But we can have simplicity and still insist that the wealthiest Americans pay their fair share of taxes.
Public Pulse	In a post-election poll, 56 percent of respondents said “the best way for Congress to deal with the Bush tax cuts” is to end them for those making $250,000 or more a year. (Hart Research for Americans for Tax Fairness) In an Election Day exit poll, 60 percent of respondents supported raising taxes on those earning more than $250,000 a year, while 35 percent supported not raising taxes on anyone. (CNN) Seventy percent say that raising taxes on the richest 2 percent while keeping taxes low for low- and middle-income people was an “acceptable” way to deal with the budget deficit, and 68 percent say not raising taxes on the rich was “unacceptable.” (Democracy Corps poll for Campaign for America’s Future, November 2012) Fifty-one percent (42 percent strongly) support the view that “any new plan to address the deficit should start by closing corporate loopholes and raising taxes for those at the top” and not cut Medicare, Medicaid and Social Security. (Democracy Corps poll for Campaign for America’s Future, November 2012) Substantial majorities (84 percent) support reforms that would ensure that corporations paid the same tax on their foreign profits as they do on their U.S. profits. (Hart Research for Americans for Tax Fairness) Only 26 percent of respondents in a national survey said they believed the wealthy paid their fair share of taxes. (Pew Research Center). In a poll of 2012 general election voters, 62 percent said one message they were trying to send with their vote was that “we should make sure the wealthy start paying their fair share of taxes.” (Hart Research/AFL-CIO, November 2012)
Hot Facts	The top tax rate an hourly worker pays is 35 percent, while the top tax rate on the income made by a Wall Street stock trader or hedge fund manager is just 15 percent. That’s why Mitt Romney paid a 14 percent tax rate on income of over $20 million a year. If we taxed investment profits at the same rates we tax workers’ wages, that would make more than $500 billion available over the next decade for critical national needs or to reduce the deficit. (Citizens for Tax Justice). Giving tax breaks to the wealthy is among the least effective ways to create jobs. But, if we extend the middle-class portion of the Bush tax cuts for 98 percent of Americans and adjust the Alternative Minimum Tax so it doesn't affect middle-class households, that will create 1.6 million jobs, according to the nonpartisan Congressional Budget Office, and boost economic growth by 1.3 percentage points. (Congressional Budget Office) For every dollar Warren Buffett earns, he pays about 17 cents in taxes, while the people who work in his office pay on average more than twice that—36 cents of every dollar. (New York Times) Under our current tax laws, nearly 1,500 millionaires and some of the nation’s largest corporations get away with paying no income tax at all. (Americans for Tax Fairness, Citizens for Tax Justice) Ending the Bush tax cuts for the richest 2 percent would affect on average only two out of 100 people in each state. (Americans for Tax Fairness)