Where’s the Growth?

It’s the 10 year anniversary of the Bush tax cuts, so where’s the growth?

Republicans sold the tax cuts as a plan to increase long-term economic growth, but there’s no results to show for it besides a bigger deficit and stagnant wages. Is this a 20 year project? A 30 year project? Come on. It doesn’t work.

And yet House Republicans are doubling down on this agenda, and Tim Pawlenty is tripling down on it.

Why?

Where the Debt Is

This is why anybody who supports extending the Bush tax cuts shouldn’t be allowed to use the words “debt” or “deficit” in a political context ever again.

Do You Want to Blog At LVI Debra Mellish?

An excellent question from Debra Mellish in a letter to the editor in the Morning Call:

Do Personal Tax Breaks Really Create More Jobs?

Regarding tax rates: A letter writer on Dec. 21 quotes the National Taxpayers Union data on taxes paid by top earners, suggesting that the top earners already pay more than their share. Looking at the actual data, the salaries of the top earners look suspiciously low, suggesting that NTU’s data look at earnings after deductions. I suspect that if there is a reason that NTU’s reported taxes paid as a percent of earned income has gone up, it’s because the amount of deductions has gone up, lowering the reported earned incomes and raising the relative percentage. Another possibility is that the top earners really have little “earned” income, such that they are really paying taxes on “unearned” income — which is fine with me.

Also I have yet to see data that show tax breaks to the wealthy results in job creation. Can someone show me the basis for this claim other than economic theory? Such theory seemed to arise during the growth years of this country, when capitalists actually invested in new manufacturing plants in this country, rather than in stocks whose holdings are in developing countries as is the case today.

The answer, of course, is no. The Bush tax cuts created neither the job growth nor income growth that Republicans promised. From Mark Thoma at CBS MoneyWatch:

The evidence is not favorable. For example, according to this Census report (see table A1), median household income in 2007, adjusted for inflation, was lower than it was in 2000. And as the non-partisan Center on Budget and Policy Priorities reports, based upon data from the Bureau of Labor Statistics, employment growth was particularly weak, “with employment and wage and salary growth … lower than in any previous post-World War II expansion. Employment grew at an average annual rate of only 0.9 percent from November 2001 to September 2007, as compared with an average of 2.5 percent for the comparable periods of other post-World War II expansions. In addition, real wages and salaries grew at a 1.8 percent average annual rate in the 2001-2007 expansion, as compared with a 3.8 percent average annual rate for the comparable periods of other post-World War II expansions.”

Thus, there is little evidence to support that the Bush tax cuts had a significant effect on growth. In addition, contrary to the argument that the tax cuts would pay for themselves being made at the time the tax cuts were enacted, the deficit ballooned as a result of the tax cuts.

Reservations About the Tax Cut Deal

Mike Konczal argues pretty persuasively that the Obama-McConnell tax deal should look more like this than the chart the White House was sending around on the Hill:

James Kwak makes a similar case here. The more I read about this, the more I think we should be concerned about the Democrats’ will to let the payroll tax cut expire, the less I think it will have a significant impact on the economy.

It may be the case that this really is the most stimulus we could have gotten at this point, but I find it very unnerving when I see the term “second stimulus” being ascribed to a policy that is just not going to produce results anywhere close to what we need. And when its all spent and we still have 8% unemployment, and economists and the Fed call for more stimulus to close the output gap, we’re going to hear John Boehner say something like: “Democrats got two failed stimulus bills and now they want another one? When are we going to wake up and realize that more government spending isn’t going to put people back to work?” And of course he’ll still be dead wrong, but this will no doubt seem to be a very persuasive political argument to the public.

Tax Cut Graphics!

You knew it was just a matter of time…

Here’s this one, updated with the compromise plan:

Here’s the graphs from Center for Budget and Policy Priorities, along with their analysis:

Here’s a graph from Michael Linden at CAP that shows why liberals think this is such a raw deal from a moral standpoint, even if it provides a very small stimulus:

And here’s a chart the White House is sending around on the Hill showing why they think this is a good deal for liberals:

I’m still inclined to support this, but I really don’t want Republicans to get any bargaining power out of the debt ceiling vote, so it makes sense for Democrats to insist on adding it to the package.

How the Tax Plans Will Affect You

The Washington Post has a gorgeous infographic that helps you figure out what all the various tax extension plans would mean for your bottom line. One thing that really stands out is how the “middle class” tax cuts are still primarily skewed toward very very rich people. Even under the original Obama plan, billionaires still get a large tax cut on the first $250,000 of income.

What Concessions Should We Want on the Tax Cut Deal?

Tim Fernholz and Jonathan Bernstein have good ideas that would make the tax cut deal better.

Including the debt ceiling vote in the package is the most important. Seeing as the tax cuts are responsible for a goodly portion of the need to raise the debt ceiling in the first place, the extension should be tied to the vote on that. We certainly don’t need any last minute brinksmanship or hostage-taking from Republicans surrounding that must-pass vote.