Behind partisan posturing, a bottom line | Arkansas Blog

Tuesday, April 24, 2012

Behind partisan posturing, a bottom line

Posted By on Tue, Apr 24, 2012 at 9:06 AM

Ernie Dumas' column this week says both parties are guilty of posturing in calling the roll on tax and spending measures with no chance of passage. Even those like Sen. Mark Pryor, who held himself above the fray in opposing a tax increase for millionaires, are just engaged in a different form of posturing.

But, Dumas notes, there is a bottom line. Republicans would give still more tax breaks to the wealthy — perhaps along withnew minimum taxes on the poor — and explode the deficit as the failed trickle-down plans always have done. Democrats would close the budget gap a little by making millionaires pay a little more than they do currently. Tax rates for business and individuals are lower than they've been in decades and, well, you know the results.

The full column:

By ERNEST DUMAS

Everyone in Congress who cared to go to the chamber cast a ceremonious but meaningless vote on taxes last week and then promptly boasted that they had struck a blow for the people.

The votes were meaningless only in the sense that neither the Senate nor House of Representatives tax bills had a chance of becoming law. They were public relations lagniappe served up in hopes of giving the parties a leg up in the fall elections.

That doesn’t mean that voters shouldn’t pay attention to the votes. They represent as well as anything could what people are apt to get from the next Congress in the way of debt reduction should one or the other party gain control.

The minority Republicans in the Senate, along with Arkansas Sen. Mark Pryor, blocked passage of the president’s plan to require people making more than a million dollars a year to pay a 30-percent tax rate.

House Republicans countered the millionaire tax—the so-called Warren Buffett tax—with Majority Leader Eric Cantor’s “small-business tax cut.” It passed the House 235-173, with all four Arkansans, including Democrat Mark Ross, voting yes. It has no chance of passing the Senate. The House also voted ceremoniously to reject the Buffett tax with Ross again voting with the GOP.

Pryor, the only Democrat in the Senate to vote against the millionaire tax, explained that he was not necessarily against having millionaires pay a fair tax rate but these tax plans were political posturing by the parties and he was having none of it.

Standing above the fray is a form of posturing itself and, sadly for Pryor, it is not likely to stand him in good stead. Democrats and others who favor imposing a fairer tax on hedge-fund managers and others who use investment-profit loopholes to escape taxes thought his vote was cowardly, and Republicans only jeered.

Although they are only symbolic in the hopelessly divided Congress, the two measures reflect how the two parties in a new Congress would confront the looming issue of the budget deficits—basically whether they can be eliminated without more revenues, that is, more taxes.

The Buffett rule—the billionaire said his secretary should not be paying a higher percentage of her meager income in taxes than he did—would reduce the annual deficit by $47 billion while the House’s small-business tax cut would increase the deficit by $40 billion next year, the only year the businesses would receive the tax cut, although Republicans would likely insist on continuing it by saying that allowing it to expire would be a tax increase.

The Republicans claim the $40 billion in revenue loss would be partially offset by tax receipts from new wages and salaries that would flow when businessmen who enjoy the tax cuts next year invest their savings in new workers.

There is, by the way, a grudging acknowledgment lately by Republican leaders that eliminating deficits will require revenue increases as well as spending cuts, but they insist it will be done by “tax reform.” They haven’t identified the reforms, but Cantor last week explained his own idea of reform. Congress would require people with low to moderate incomes to pay federal income taxes even if large families and deductions for such things as high medical costs and mortgages leave them with no tax liability—a sort of alternative minimum tax on America’s poor.

But about that notion that the small-business tax cut—up to 20 percent for business owners with fewer than 500 employees—will cause an economic boom: It sounds fetching but it is nonsense, and it has been proven so for a couple of generations. Some 9.4 million owners of small businesses would reap tax cuts, according to the Joint Committee on Taxation, but 75 percent of the $40 million in tax savings would go to the richest 8 percent of businessmen. Income taxes on businesses are already the lowest in 80 years.

The theory of these supply-side tax cuts is that a businessman who sees his taxes reduced by a few thousand dollars for one year will decide to give it to someone else by hiring another worker. Businesses don’t hire a new worker just to be nice. They hire for one reason and one only: the new employee is needed to meet the demand for the business’s goods and services. No demand, no new employee.

Look, the supply-side theory has been amply tested and it didn’t work. The two big examples are President Reagan’s tax cut in 1981, which sharply lowered rates for high earners and corporations, and President George W. Bush’s successive rounds of tax cuts early in the last decade. They were sandwiched around President Clinton’s tax increase on upper incomes in 1993 to bring down the deficit and balance the budget (it did both). The tax cuts were sold as giant job creators, which would lead to higher tax collections and balanced budgets.

Everyone knows what happened both times: ballooning deficits.

But did the tax cuts produce the huge investment growth that was promised and that this year’s sponsors promise? Over the seven years after the Reagan tax cut, investment growth averaged 2.8 percent; after Bush’s tax cuts it averaged 2.7 percent. After Clinton’s tax increase, which Republicans warned would lead to another great depression, growth averaged 10.2 percent.

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