Columns » Ernest Dumas

Politics, tax policy converge


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Seldom are the stars aligned so that good politics and good policy are exactly the same, but the Democrats and President Obama enjoy that lucky constellation in the fight to extend the Bush tax cuts.

But many Democrats are so paralyzed by the success of Republican and chamber of commerce propaganda that they can't exploit the first unalloyed political bonanza they have had in a year. Some of them, like Sen. Joe Lieberman and a timorous Arkansas Democrat or two, just go on and join the Republicans rather than correct them. It's easier and maybe safer, at least in Arkansas.

Obama's plan, supported by Democratic leadership in both houses, would extend the full tax cuts of the Bush era except the richest 1 or 2 percent of Americans, and the richest ones would still get bigger tax cuts than everyone else, just not as much as the Republicans want to give them.

That is not how the parties explain their differences, but it is a fact. Under the Obama plan, every American who earns up to $200,000 for individuals and $250,000 for couples would keep the full amount of the tax cuts next year and many of them would get additional tax benefits. Those earning above those thresholds, the richest 2 percent nationally and 1.5 percent in Arkansas, would get the same tax breaks as everyone else but for most of them it would amount on average to much more in dollar terms. That is because the rich would get the same middle-class tax cut as everyone else, just not the extra helping they got in the 2001 and 2003 tax cuts.

An example or two: Households that earn more than $1 million next year would get an average tax cut of $6,349. That is under the Obama plan, mind you, not Mitch McConnell's. McConnell's plan, which is backed by every Republican in Arkansas and Washington, would give them an average bonus of $104,000 next year. These are the taxpayers who already are the most pampered by the U. S. tax system. They pay an effective tax rate of under 18 percent, which is much less than average working families and less than all but the very poorest Americans.

What ought to be encouraging to Democrats is that the vast majority of Americans get it. Polls show that 70 to 75 percent favor extending the full tax cuts except for the richest and least needy families. The figures may not be that good in Arkansas, where every policy initiative by Obama is filtered through a conservative lens. That is, Obama and the Democrats want to raise taxes and the budget deficit, Republicans want to cut taxes and the deficit.

There may never have been a major debate where theory and facts were all on one side as they are on the extension of the Bush tax cuts, which are scheduled by law — Bush's law — to end Dec. 31.

What about the deficit, the horror that is driving voter rage this year? The Republican plan to extend all the tax cuts forever would add $4 trillion to the national debt over the next decade. The Obama plan would cut the deficits by more than $700 billion over that period — not nearly enough but the first step in reversing the slide from balanced budgets as far as the eye could see to deepwater deficits that began with the Bush tax and spending policies in 2001.

McConnell & Co. and the Republican candidates who parrot them everywhere, including Arkansas, offer two arguments: Restoring something close to the 2001 tax rates for the richest people will hurt struggling small businesses and force them to reduce workers, and taking more taxes from anyone, even multimillionaires, when the economy is growing so slowly is terrible strategy.

The Obama tax plan would have virtually no negative effect on small businesses. Only 3 percent of small business owners would have their taxes increased and nearly all of those are people in the $250,000 to $500,000 tax bracket, as Rep. John Boehner, the House Republican leader, acknowledged Sunday. Those people would pay an average of $400 a year in extra taxes, hardly enough to make them start laying off people. And businesses pay income taxes not on gross incomes but on profits, what is left after payroll and expenses. It would have no effect on hiring or firing.

What history can they cite that modest taxes on the richest Americans hurt the economy? President Clinton raised tax rates on the wealthy slightly in 1993 when the country was struggling out of a recession. Republicans predicted the next depression. It produced the first string of balanced budgets in modern times and the longest and most robust period of economic growth and the best jobs record in history. And what happened when Bush cut taxes on the rich, not once but three times? It led to the worst jobs and general economic record for any eight years since the Great Depression.

You can take the same analogies as far back as the enactment of the income tax nearly a century ago. Unless they are confiscatory, taxes on people of great wealth do not stunt demand like they do for the middle class, which spends, not saves, when taxes are cut. And remember, even when the top marginal tax rate of 2001 is restored it will still be close to the lowest since the 1920s.

Don't get me started on the restoration of a small estate tax, another part of the Obama plan. A grand total of 82 estates in Arkansas in 2007 and 83 in 2008, the richest three-tenths of one percent of the thousands of estates left by deaths, owed even a dime of taxes on the largely untaxed inherited wealth. That is the infamous "death tax."

If you were Blanche Lincoln, Chad Causey, Joyce Elliott, David Whitaker or Mike Ross, wouldn't you love to take the field against those dour Republican candidates on exactly this issue and maybe nothing else?


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