All about ideas…

McConnell is just plain wrong.

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Sen. McConnell pushing Bush Tax Cuts for Wealthy“There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” Senator McConnell told Brian Beutler of TPMDC. “They increased revenue because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject.” In other words, this is why Republicans don’t think tax cuts need to be paid for. They pay for themselves.

As Derek Thompson notes, Sen. McConnell might not believe the evidence provided by the Congressional Budget Office, the Committee for a Responsible Federal Budget, the Joint Tax Committee, or the Brookings Institution, all of which concludes that the Bush tax cuts added to the deficit.

However, he should believe President George W. Bush’s own Ph.D-wielding economists. Many of them have gone on the record to say that while they supported the tax cuts, they didn’t for one second believe they raised government revenue.

1) The Council of Economic Advisers’ Report to the President, 2003: “Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity.”

2) The chair of CEA from 2003-2005, [conservative economist] Greg Mankiw: “Some supply-siders like to claim that the distortionary effect of taxes is so large that increasing tax rates reduces tax revenue. Like most economists, I don’t find that conclusion credible for most tax hikes, and I doubt Mr. Paulson does either.”

3) He’s right! Hank Paulson, Bush’s last Treasury Secretary, doesn’t: “As a general rule, I don’t believe that tax cuts pay for themselves.”

4) That opinion was shared by Andrew Samwick, Chief Economist on Council of Economic Advisers, 2003-2004: “No thoughtful person believes that this possible offset [the Bush tax cuts] more than compensated for the first effect for these tax cuts. Not a single one.”…

5) … and Edward Lazear, chair of the Council of Economic Advisers in 2007: “I certainly would not claim that tax cuts pay for themselves.”

Federal Revenues during Clinton and Bush years

Graph credit - Paul Krugman

And Edmund L. Andrews of Fiscal Times confirms the information in the Atlantic article,

So far, Senate Republicans have managed to block a $35 billion  extension of unemployment benefits; $24 billion to shore up state Medicaid programs; $23 billion (later whittled down to $10 billion or less) to prevent 100,000 teacher layoffs, and a number of other things. 

The fight is still underway, but 2 million unemployed people have run out of benefits since June 1 and the economic recovery is looking weaker by the day.
Now we come to the Bush tax cuts — lower individual tax rates, lower rates on dividends and capital  gains, elimination of the estate tax and a lot more.  Extending all of them would cost about $3.2 trillion over the next ten years – all of that paid with borrowed money. […]

The economic problem: the stimulus impact would be zero, but the deficit would be about $55 billion bigger.  There wouldn’t be any stimulus because not raising taxes isn’t the same thing as cutting taxes.   People wouldn’t have any more money in 2011 than they  did in 2010, so they wouldn’t spend more.  Meanwhile, the government would be doing nothing to provide relief to the millions who have been jobless for nine months and longer.  But the cost in lost revenues for one year alone would be about $55 billion.

The political problem:  a tax reprieve for the top 2 percent of income-earners would be very ugly if Congress simultaneously refused to help people decimated by the downturn.

If the tax cuts were extended for everyone, people in the bottom fifth of earnings would save an average of $45, according to the Tax Policy Center.  People in the top fifth would save an average of $7,820, while those in the top 1 percent would save an average of $62,497.

And I won’t go into the discredit that Bruce Bartlett, advisor to President Reagan, heaps on Senators Kyl and McConnell.

The wealthy will continue to put their tax savings into Treasuries and foreign bonds which does nothing to stimulate the economy. Further, if bondholders perceive the debt growing as a result of the tax decrease, they may well decrease the US bond ratings, which could cause even more havoc for the world and, in particular, the US economy.

The facts are clear: Senators McConnell and Kyl are dead wrong. So, the question is why do they keep pushing a completely discredited economic policy?

Extra Reading or Resources:

* 58% of Real Income Growth Since 1976 Went to Top 1% (and Why That Matters)

* Chris Whalen Calls for Reforms, But Gives Crony Capitalism and the Neo-Liberals a Rewrite


Written by Valerie Curl

July 15, 2010 at 9:20 AM

One Response

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  1. Hello! Given that I have invested a bit of time in the past hour-ish perusing through your blog articles, I figured I would slide in a short comment in your guestbook to say good day. I am really impressed with the level of quality of blog writing you have yourself here, and I’ll certainly be back again to say hello there again in the future. Anyhow I won’t occupy any more of your time, I simply wanted to say howdy and keep up the good work.

    Force Factor Supplement

    July 23, 2010 at 1:04 PM

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