The Great Tax Cut Debate – Myths and Facts

In the lame-duck Congress agenda, perhaps the most substantive debate is over whether to continue tax breaks for the rich. President Obama and most Congressional Democrats want to extend the Bush tax cuts for 98 percent of Americans, everyone making under $250,000. Republicans want to extend the tax cuts for everybody despite Bush’s tax bill enacted in June 2001 to suspend the tax cuts at the end of 2010 in order to restore needed revenue. If nothing is done, everyone’s taxes will rise.

There is room to maneuver – Ohio’s John Boehner, the House Republican leader and soon to be speaker, said he’d vote for tax breaks for the middle class without the wealthy if that’s the only choice. There is consensus by both parties that the sluggish economy makes this the wrong time to raise taxes on the middle class. In the Senate, current Leader Reid said he will press for a vote.

Republicans portray the Bush tax cuts as similar to President John F. Kennedy’s. That is a poor analogy. Kennedy cut the top tax rate from an exorbitant 91 percent to 70 percent. In contrast, Bush cut the top tax rate from a historically low 39.6 percent to 35 percent. By increasing enforcement and cracking down on loopholes, including the use of foreign subsidiaries for tax evasion, Kennedy increased government revenue. On the other hand, the Bush rich tax cuts will cost the nation $700 billion dollars in government revenue, and Republicans are fighting limiting outsourcing and foreign loopholes. In part due to a smart taxation policy, Kennedy created 1.2 million jobs per year in office; Bush was losing 700,000 jobs a month his last year.

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“Trickle-down” economics has not worked since Herbert Hoover tried it. Every dollar devoted to the middle class causes the economy to grow three times faster than a dollar for the rich, according to the Congressional Budget Office. Millionaires save more of their income gained by tax cuts. Middle-class families spend more. Lower taxes for the rich leave deficits that must be paid for by the middle class, taking the very money we’d give working families.

Since 1900, Democratic presidents have produced a 12.3 percent annual return on the S&P 500, Republicans only 8 percent. GDP growth since 1930 is 5.4 percent for Democratic presidents and 1.6 percent for Republicans.

President Bush inherited from Bill Clinton an annual federal budget surplus of $236 billion, the largest in American history. Clinton balanced the budget for the first time since 1969. Budget surpluses were expected to total $5.6 trillion between FY 2002 and 2011. Despite this, Bush transformed these surpluses into a $1.1 trillion annual deficit in just three years, because of Iraq and his relentless push for permanent tax cuts for wealthy Americans – a new iteration of Hoover’s equally catastrophic trickle-down theory. Bragging about a $239 billion deficit set such a low standard for excellence that he can claim horrific failure as a good thing for the country. The Bush annual loss of three-quarter trillion dollars is totally unprecedented.

Bush presided over the loss of two million American jobs in his first two and one-half years and net gained three million in eight years, the worst since Hoover – and left office by generating the worst recession since the Great Depression. Clinton created 23 million jobs. It’s not rocket science to figure out the difference: Clinton, tax breaks for the middle and lower incomes who actually spend the money, no Iraq war; Bush, disproportionate tax breaks for the wealthy (50 percent to the wealthiest 1 percent by 2010), over a trillion dollars committed for a war monetarily benefiting only a few military contractors and a financial sieve for the country – a war which incidentally misfired and found no WMDs.

Democratic presidents spread the wealth around through spending on needed social programs and targeting tax cuts to lower- and middle-income Americans – stimulating the economy more broadly. Republicans pump into defense contractors and high-income Americans, creating a significant detriment to the whole economy with larger deficits and higher interest rates.

At a press conference on September 10, President Obama asked, “Why would we borrow money on policies that won’t help the economy and help people who don’t need help?”

Retiring Rep. David Obey (D-Wisconsin), House Appropriations Committee Chairman, has complained of our limited resources now because of President Bush’s “gargantuan deficits he created with that stupid war and those stupid tax cuts paid for with our money.”

It’s already an odd alliance – Obama and Boehner in the House, though only if both are pushed to the brink. Similarly, a Senate vote would show the country can actually get something done. It would be unfortunate if the “something” is nothing but a pander to the extremists who want the rich to get richer, at the expense of America’s workers.

Democratic Versus Republican Presidents’ Economic Indicators

In six major criteria – GDP growth, per capita income growth, job creation, unemployment reduction, inflation reduction and federal deficit reduction – for the ten post-World War II presidencies until Bush, there is a record to track the reality of Democratic versus Republican economic success.

Democrats

• President Obama passed the American Recovery and Reinvestment Act and the Congressional Budget Office estimates that it saved as many as three million jobs. Eight million Americans lost their jobs during the recession that he inherited, but the economy is recovering and has experienced eight consecutive months of private sector job growth.
• President Clinton balanced the budget for the first time since 1969. Budget surpluses were expected to total $5.6 trillion between FY 2002 and 2011. Under Clinton, the economy created 23 million jobs.
• Lyndon B. Johnson’s “Great Society” created robust economic expansion, first in both GDP and personal income growth. He also reduced unemployment from 5.3 percent to 3.4 percent. Economic growth remained robust through most of LBJ’s presidency.
• JFK campaigned on the idea of getting America moving again and he did. Under Kennedy, America entered its largest sustained expansion since World War II. GDP and personal income growth were second only to Johnson, all with minimal inflation. Republicans portray the Bush tax cuts as similar to JFK’s. That is a poor analogy. Kennedy cut the top tax rate from an exorbitant 91 percent to 70 percent. In contrast, Bush cut the top tax rate from a historically low 39.6 percent to 35 percent. By increasing enforcement and cracking down on loopholes, including the use of foreign subsidiaries for tax evasion, Kennedy increased government revenue. On the other hand, the Bush rich tax cuts will cost the nation $700 billion dollars in government revenue, and Republicans are fighting limiting outsourcing and foreign loopholes. In part due to a smart taxation policy, Kennedy created 1.2 million jobs per year in office; Bush was losing 700,000 jobs a month his last year.
• The economy added ten million jobs under Jimmy Carter despite high inflation; Carter ranks first in job creation next to Clinton, during just four years in office. Carter also reduced government spending as a percentage of GDP.
• Truman’s second term saw the fastest GDP growth and the sharpest reduction in unemployment of any president surveyed (of course, FDR’s post Hoover-depression New Deal jobs are first).

Republicans

• George W. Bush created only three million jobs in eight years – the slowest rate of job creation since the government began keeping records. In addition, he added four trillion dollars to the deficit and left office with the nation in a financial crisis that lead to the deepest recession since the Great Depression.
• Ronald Reagan focused on reducing the cost of capital through cutting tax bracket highs for the rich, and reducing the size and scope of government. But, instead of lowering spending, Reagan shifted money to the military (i.e. Star Wars) and the deficit tripled with the tax cuts and military spending – as under Bush II. On November 16, Rachel Maddow pointed out that of the most recent five presidents, Reagan actually increased the national deficit by the largest percentage, 186 percent – destroying the myth about Republican fiscal responsibility.
• Under Gerald Ford, the deficit soared and the unemployment rate grew from 5.3 to 8.3 percent in just two and one-half years. His “WIN” (Whip Inflation Now) buttons were no match for economic inactivity.
• It was under Richard Nixon that inflation started to spiral out of control, from 4.4 percent to 8.6 percent, and the deficit shot up from $2.8 billion to $73.7 billion.
• The Eisenhower years were characterized by slow growth (2.27 percent annualized GDP growth) and relatively high unemployment (7.7 percent at end of term).
• George H. W. Bush had the poorest record for both GDP and income growth. During his single term, the deficit ballooned (from $152 billion to $255 billion), more than under every president but his son and Ford.

(Sources: White House Office of Management and Budget, US Department of Labor and White House Council of Economic Advisors)

Chart Prepared by Varun Saxena, John Larmett and Robert Weiner, “Robert Weiner Associates Public Affairs and Issues Strategies.”