The Tax Debate

Below is a letter of mine that the Spartanburg Herald-Journal published today.  It captures my concerns about some of the subtle sleight of hand used in the current debate over extending current tax rates:

I agree with the Herald-Journal’s point that the failure of Congress to take a vote on extending the current tax rates was an example of political cowardice (“Votes not taken” editorial, Friday’s edition). But the rest of your presentation of the issue is misleading, at best.

First, you raise the specter of a tax increase for everyone and the prospect that an average family could see their taxes go up. You fail to note that no one — not Democrats in Congress, not Republicans in Congress, not President Barack Obama — is proposing that. In fact, the only way that outcome could possibly come about is if Republicans in the Senate filibuster to prevent the passage of any bill.

You also misrepresent the president’s proposal. You say it would allow tax cuts to “expire for those who make more” than $250,000. In fact, the first $250,000 of every single family’s income would continue to be taxed at the current rate. For those who make over that amount, the increased rate would apply only to the income over $250,000. In other words, if a family made $251,000, only $1,000 would be taxed at the new, higher rate. That means that this family’s tax bill would increase by perhaps $70 a year.

Lastly, you give a distorted presentation of the estate tax. “Should you be able to leave your money to your children ... ?” you ask. You do not note that in 2009, the first $3.5 million of any estate was exempted from any tax. How many of your readers will leave fortunes of more than that? A few, perhaps, but you suggest everyone would pay the estate tax, and that is simply not true.

I expect the Herald-Journal to champion the interests of the wealthiest Americans. But I also expect it to honestly present the facts when doing so.

Johnny, They Hardly Know Ye

Tax-cutting Republicans love JFK.  Well, it might be more accurate to say that they love their uninformed caricature of JFK.

Ever since Ronald Reagan made the GOP the party of "all tax cuts, all the time," every time the political debate turns to taxes, Republicans re-discover their crush on JFK.  Right on cue, this past Monday, Rep. Michael McCaul, R-TX, appeared on MSNBC's "Hardball" to make the Republican case for extending all of the Bush tax cuts, including those on income over $250,000 a year.  And he once again trotted out the Democratic tax-cutter:

There was a president by the name of John F. Kennedy who said let's cut taxes to get the economy moving again, and it worked…. Kennedy said that tax increases will not get the deficit and debt down and it will not create jobs because he knew it kills jobs.  It seems to me that the party of Kennedy has gone far astray from his principles.

In the Connecticut senate race, Republican candidate Linda McMahon (of pro wrestling fame)  has used footage of JFK talking about tax cuts to suggest that he would support her position.

It's hard to know where to start, but let's begin with the kernel of truth here.  It is the case that Kennedy did propose a tax cut during his short presidency (though it was actually pushed through Congress by LBJ, one of the more unpopular presidents among today's Republicans).

What Rep. McCaul does not say, and probably does not know, is that Kennedy was a rather reluctant tax cutter, in part because he did not want to increase the deficit.  The push for the tax cut came from Walter Heller, Kennedy's chairman of the Council of Economic Advisors.  Heller's reasoning was explicitly Keynesian: he believed that economic growth could be stimulated through a larger deficit, and thought tax cuts would help achieve that goal (in short, the opposite of contemporary Republican dogma that states that cutting taxes can reduce the deficit).  According to Richard Reeves' definitive biography, President Kennedy: Profile of Power, when Heller first proposed the cut early in the administration, Kennedy replied: "I asked people to sacrifice and you want me to start by announcing that I'm reducing their taxes?"

Eventually, in part due to fears that a recession might doom his re-election hopes in 1964, JFK was persuaded that it made both economic and political sense to propose a tax cut in his January 1963 State of the Union address.  His plan, he told Congress, was to reduce the current rates "which now range between 20 and 91 percent to a more sensible range of 14 to 65 percent."

Do not adjust your screen.  You read that correctly.  The top marginal tax rate in 1963 was 91 percent for income above $400,000 a year.  It was 50 percent for income between $32,000 and $36,000 a year.  John Kennedy was calling for a 65 percent top marginal rate to spur the economy, and this has made him the GOP's favorite Democrat, the one today's Democrats should emulate, whose principles his party has abandoned.  Barack Obama is calling for a top rate of 39.6 percent and he is labeled a "socialist" by that same GOP.  One can only imagine what new terms of opprobrium the right would need to create if Obama proposed a 65 percent top tax rate.

It is hard to know whether this attempt by modern Republicans to claim JFK as one of their own is the result of insincerity or ignorance, but in either case it is at odds with historical reality.  Kennedy proposed cutting taxes because the massive debt from World War II, which necessitated those high tax rates, had by then reached lower, more reasonable levels.  His decision, in short, was contextual: taxes were exceedingly high, the debt was relatively low, and the economy needed stimulus.  Today's Republicans are ideological.  There is no context in which they are against tax cuts, and there is no context in which they see tax increases as justifiable.

Interestingly, one of the critics of JFK's 1963 proposal predicted this.  Democratic Sen. Albert Gore Sr., father of the former vice-president, said at the time: "Once taxes are cut, they are not likely to be reimposed…. Congress will always be ready to cut taxes, never ready to raise them.  It is a beautiful theory about moving taxes up and down, but it is only a theory, utterly impractical in our system."

President Clinton succeeded in proving Gore Sr. wrong in 1993, raising the top marginal tax rate despite Republican claims that economic apocalypse would follow.  Seven years of economic expansion ensued. President Obama is trying to prove Gore wrong again.  But since Congressional Democrats now seem too scared to even try before the midterm elections, whether he succeeds or not will depend on the vote in November.  Despite the fact that a solid majority supports the president's plan, every sign indicates that the voters will send to Washington enough ideological Republican tax cutters to thwart him.

"Simply Stealing"? Simply Silly

The closer we get to an election, the more absurd the political dialogue becomes. Last Sunday, a Spartanburg Herald-Journal editorial denounced the president's proposal to extend the current tax rates only for those making under $250,000 a year as "Simply stealing." That's right. Raising taxes is theft.

As silly as that statement is, it is illustrative. This debate regarding the extension of the Bush tax cuts is exposing some basic fault lines in American politics, the same lines that have dominated since at least the tax revolt of the late 1970s that culminated in the Reagan tax cuts of the early 1980s.

The basic question is this: should the current rates, which are set to expire at the end of the year, be extended as they are for all income groups (the Republican position), or should they be extended only for couples making under $250,000 a year (the president's position).

Before engaging the merits of the two positions, a little history for context. The reason they are set to expire is that the Republican Congress that passed the current tax rates back in 2001 had to limit the time they would be in effect in order to keep down the long-term loss of revenue. In other words, if nothing were to be done by this Congress, and tax rates were to revert to the levels of the 1990s, it would be due to the way Republicans wrote the bill back in 2001. And they wrote it that way so that they could pass it using reconciliation (yes, the same technique used to amend the health care bill, which today's Republicans denounced as an anti-democratic abuse of power).

But no one seriously proposes doing that. Republicans propose, as they have ever since they passed the initial bill in 2001, that the current rates should be made "permanent." In the 2008 campaign John McCain took that position, while Barack Obama argued that they should be extended for those making under $250,000 and allowed to expire for those making more. One could argue that the election results should have settled that question, but Republicans have done little in the last 18 months to show that they respect the results of the last election.

The various arguments advanced by Republicans today reveal the inconsistency of that party's economic vision. In 2001, they argued that the tax cuts were necessary because the federal government was running a surplus. Today, they argue that the extension of the tax cuts is necessary, even for the very wealthiest Americans, despite the fact that the federal government is running a huge deficit. So it seems that regardless of economic circumstances, taxes should always be cut.

They denounced the president's stimulus bill in 2009 because it was based on Keynesian economics: the idea that in a slow economy, the federal government should cut taxes and increase spending to increase economic activity. Republicans rejected that theory, and claim it has failed. Now they say no one's taxes should go up during a recession--which is itself a Keynesian concept.

They say we need tax cuts now, because the stimulus failed, while neglecting that fully one-third of the stimulus bill was tax cuts (and which Republicans almost unanimously voted against).

They argue that the president's proposal would hurt small businesses and prevent them from creating jobs, while the New York Times reports that fewer than 3% of small businesses would be affected by it:

"Even among the 750,000 businesses that would be subjected to the higher rates in 2011, many are sole proprietors — a classification so amorphous it can include everyone from corporate executives who earn income on rental property to entertainers, hedge fund managers and investment bankers. Because 80 percent of America’s 32 million businesses are sole proprietorships, 90 percent of the tax cut would be derived from businesses without employees."

In other words, it would have virtually no negative impact on jobs, while adding $700 billion in revenue to federal coffers.

None of the arguments against the president's proposal put forward by conservatives hold water. So what is the real reason? Fortunately, some people have trouble hiding their true agenda. In a stunning display of political obtuseness, Senate Minority leader Mitch McConnell stated last week said that those who make over $250,000 a year are “the people who’ve been hit hardest by this recession.”

This will come as news to the millions and millions of unemployed and under-employed Americans struggling every day to make ends meet. What should not be news to anyone is the dogged determination of Republicans to resist tax increases for the wealthiest Americans, regardless of the consequences. The wealthy have suffered the most, they believe, and cannot be asked to sacrifice any more. That's the honest explanation, but don't expect to see it in this season's campaign ads.