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Should we extend the Bush tax cuts?

August 13, 2010

Anybody who knows anything about my views on politics will know that there are few policies that have pissed me off more than the Bush tax cuts.  A president who was at war and planning to get us involved in another one makes it his priority to give a tax break to the wealthiest Americans while asking a huge sacrifice from one percent of the population who have fought in Afghanistan and Iraq.  This is showing a disconnect from reality.     That said the fact that the Bush tax cuts were going to expire this year while the economic situation is so precarious gave me pause.  While conservatives seem to view cutting taxes as a cure all for economic woes, and I find this viewpoint both childish and wrongheaded, it would be stupid to think that taxes have no economic impact whatsoever, especially during a time that we are recovering from a deep recession.  In this way I think that extending the Bush tax cuts for those making less than $200,000 a year is a good thing but even within the Democratic party there are voices that say that these cuts should be extended for the very wealthiest Americans.

Unlike most of those people who make a living at political punditry I am not blindly ideological so I didn’t let the idea just wash over me.  I looked up what the experts had to say on the issue and found that voices as disparate as Paul Krugman  and Alan Greenspan called for allowing the Bush tax cuts to expire and not just for the wealthiest Americans but all Americans.  The logic is as follows: tax cuts for the rich will be saved and not spent and anything the fed does with the money to stimulate the economy will be better than anything the rich do with it.  This seems in line with my own research about taxes that I have used in past blogs and have found huge opposition from conservatives on the issue in the past.  Supply side economics or Reaganomics or “voodoo economics” as it was called by George H. W. Bush isn’t taken seriously even by conservative intellectuals anymore but it is one of those ideas that just won’t die, like ethical egoism or the idea that Boondock Saints isn’t an unwatchable piece of shit.

I have written on this subject before but since I am starting over here at wordpress and have a different audience, to a certain extent, I do not feel bad about cannibalizing past blogs.  If one looks at unemployment there can be no direct correlation between lower taxes and unemployment.  This is more obvious now since so much of the country has very high levels of unemployment.  While arguing with conservatives I was given Texas as an example of their arguments.  When I would point out that several blue states had lower levels of unemployment than Texas despite the fact that they have significantly higher taxes I was told that those states had too low a population to make comparisons with Texas.  I was told to compare Texas with California.

The problem with this comparison is that California has over 12 million more people than Texas has which makes Texas population only 2/3 that of California.  In addition while California has much higher income tax and corporate tax than Texas (taxes that put the burden on the rich) they also have significantly higher sales taxes than Texas (taxes that put the burden on the poor.)   I suggested that a much better comparison would be the state of New York whose population is five million less than Texas but also has much higher corporate and progressive income taxes while having lower sales tax.

When I first wrote my blog on the subject in March, New York had a 8.8% unemployment rate while Texas had a 8.2% employment rate.   Now they are both even at 8.2% according to the department of labor statistics for June.  These states have close to the same population and New York has 7.5% higher rate of corporate taxes, a 7.5% difference in bank taxes and a 8.97% difference in income tax for the wealthiest tax bracket.    With these significantly higher taxes you would think that the state of Texas would have a lower unemployment rate by a significant amount but this is not the case.  The hike in federal income tax that will occur after the Bush tax cuts expire is only 3%.

In addition to showing no difference in unemployment New York is ranked higher in education than Texas.  Texas also has a significantly higher murder rate then New York and nearly twice the number of violent rapes.  Texas is currently fifth in teen pregnancy and second in live births.  I imagine that conservatives will want to blame some of this on illegals but that just isn’t true either.  If anything undocumented workers help the Texas economy by providing them with cheap labor.

Currently the tax rate for the highest income bracket in the US is 35%.    Most single people have 30% of their paycheck taken out for taxes.  Many are able to get a large chunk of that money back.  I have had many conservatives claim that the rate for the rich is actually higher.  They claim that there are a bunch of “hidden fees” that the rich pay that the rest of us don’t.  If they are talking about bank taxes and corporate taxes I say, “duh,” what is your point?  We are talking about progressive income tax here.  Those taxes are as separate an issue as sales tax would be to the conversation.  I don’t take all the deductions that the rich could get into account either.  There is a long standing argument from conservatives that US tax rates are excessively high and are a drain on our economy.

Before the great depression the top tax rate was 24%.  It was common practice that during war time taxes would go up.  During World War I  the highest tax rate rose to 77% but by the end of the 1920s it had hit a rate lower than our current one.   Then of course the economy collapsed so the fed must have lowered taxes, right?  Nope, after the depression taxes on the wealthiest Americans rose to 63% and as the New Deal accelerated grew to 79%.  But everybody knows it wasn’t the New Deal that ended the Depression but World War II so taxes must have gone down then, right?  No, because taxes go up during war time.  In 1944-45 the wealthiest Americans were paying an income tax rate of 94%.

When Ronald Reagan came into office the tax rate was 70% for the most wealthy Americans but he lowered it to 28% by his final year of office.  He also increased the deficit by 189% far more than any other president in the history of the country.   George W. Bush couldn’t even do that with two wars, only coming in at 89% increase.  (In his defense the deficit was much higher then and he had to squander a surplus too.)   My point is that we won’t ever get this deficit under control until we get over this fear of taxing the wealthy.  Greed is what got us into this.  It isn’t what is going to get us out again.

2 Comments leave one →
  1. Lisa permalink
    August 13, 2010 3:19 pm

    The fear in the UK of taxing the rich is that the rich will simply leave to sunnier climits, so what little taxes they do pay is better than no tax at all?! I don’t understand all the different tax brackets for different States, why can’t each State have the same taxation bracket using same upper and lower levels for different classes?

    • August 13, 2010 3:48 pm

      The US has had this conflict between having a strong federal government and leaving the states free to make their own policy since the beginning. When health care reform and the recent stimulus passed their were states that refused to take money or threatened to sue the federal government. It is just one of those weird quirks about the United States. We really are a bunch of small independently governed states sometimes and some people think the more independent each state is from the federal government the better. I personally do not see the distinction.

      We get the exact same arguments against high taxes in the United States. It is constantly said that people will leave to go to places with lower taxes. I think this is true to a certain extent when you are talking about taxing at a rate that far exceeds the norm but in the US we see companies leave states with lower taxes to set up shop in states with higher taxes all the time. There are other factors at play not just taxes.

      The US has low personal income taxes compared to most countries. We do have higher corporate taxes then the UK as of 2005 but most developed countries have higher taxes then we do. Even if people want to leave the US or UK they will still want to keep those countries as a market and as a result will end up paying taxes there.

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