Monday, July 11, 2011

Trickle-dumb economics

The debt is dominating economic news lately, and despite accusations of rampant spending, it seems as though the Democrats are the only ones taking debt reduction seriously.

This weekend Republicans scaled back their debt reduction efforts, pulling out of the bipartisan talks. House Speaker John Boehner listed Republican reasoning as follows:
Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.
The most interesting part of Republican reasoning is its complete lack of reason.

Taking tax increases off the table only leaves spending cuts as a means of deficit reduction. And although the Republican Party has done an excellent job of selling "tax and spend" as a Democratic plan of unjust wealth redistribution, they forgot a critical point: you can't redistribute wealth where it does not exist.

Fighting against the so-called tax hikes does not provide security for the middle class; rather, it represent a crusade against it. Nobody would feel the effects of most Democrat-proposed/Republican-opposed tax increases. Notice I said feel. Those with modest incomes would not see tax increases. Wealthy individuals would see tax increases, but I doubt it would meaningfully affect them.

Let's consider a few examples. First, we could eliminate the carried interest loophole. As of late, the stock market has become as much a place to make short-term profits as it is to make long-term investments. In the spirit of encouraging investing, capital gains are taxed at 15% as opposed to the rate in one's typical tax bracket -- 35% for the wealthiest among us. Translation: hedge fund managers like John Paulson, who made nearly $5 billion last year (not to mention his massive profits from betting against the market during the crash) has much of his income taxed at 15% rather than 35%. Nice to see the government looking out for the little guy.

Republicans oppose closing this loophole because...not sure. But my guess is they default to the idea that taxing the wealthy inevitably stunts job growth. Corporations and wealthy Americans must be protected from tax increases so they are free to invest in job creation, so sayeth the mighty theory of trickle-down economics.

My good friend, Stephen Colbert, once said that if the "trickle-down" were a cocktail, the recipe would go like this:

The bartender keeps giving your drink to the rich guy next to you until he vomits in your glass.

Trickle-down economics is certainly excrement of some kind. Republicans are fighting for corporate tax breaks and tax holidays, the argument being that businesses are strapped for cash and freeing up revenue will create jobs.


First, the premise of this argument is false. Businesses don't exist to create jobs, they exist to turn a profit. If creating jobs leads to profit, they do it. If it doesn't they don't. Tax breaks typically don't lead to job creation, or at least they haven't in the past.

Second, most large corporations are sitting on large cash reserves. Without government or consumer support in economic growth, they likely won't spend it. So giving them more money to do nothing is moronic.

Finally, why do we have such a hard-on for the middleman -- or more precisely the corporate middleman? American workers need our help, so let's give money to big business and let them help America workers.

Why? Couldn't we help both? Why not invest in strengthening national infrastructure via works projects. Programs to better national communication and transportation efforts would provide jobs in the short term while laying a foundation for long-term economic growth, helping both American workers and corporations.

I could throw out ideas all day and someone would probably have a valid counterpoint, but one thing is indisputable: unwavering dedication to a single class of people is detrimental to the whole. The middle and lower classes will likely take a hit in the "spirit of solidarity" and the hope for recovering, while the privileged among us will remain undeservedly privileged. Putting arguments of fairness aside, this approach is just plain dangerous.


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