President Obama has proposed a multi-faceted bill, the American Jobs Act, which uses a mix of tax cuts, infrastructure spending and direct aid to state and local governments, to try and create jobs. The tab for the bill, estimated at $447 billion, will be covered by proposals that include a limit on itemized deductions for high-income taxpayers, to provisions that cut tax breaks currently in place for oil companies and corporate jet owners. It also includes a provision for the newly formed deficit reduction “super-committee” to come up with alternative ways to fund it.
Predictably, the Republicans immediately condemned it, calling it a “re-election bill” as opposed to a jobs bill. However, it contains both tax cuts and infrastructure investment, both of which are things Republicans have touted in the past. Behind the scenes, Republicans are worried about giving Obama any victories, even on issues they support. Some Republicans are privately saying that their leaders are being too accommodating with the President. ‘Obama is on the ropes; why do we appear ready to hand him a win?’ one senior House Republican aide was quoted as saying.
What’s the Republican proposal to the problem of creating jobs? It’s the same answer they always have, the one that seemingly will cure all our ills: Tax cuts, especially for the wealthy and corporations. A spokesman for House Speaker John Boehner said, “It would be fair to say this tax increase on job creators is the kind of proposal both parties have opposed in the past. We remain eager to work together on ways to support job growth, but this proposal doesn’t appear to have been offered in that bipartisan spirit.”
The only problem with the Republican proposal is that it has no basis in fact. The evidence clearly shows that lower taxes have no correlation to job creation. Even without the data, common sense dictates that companies will spend money to hire new employees based on demand for their products. They don’t say, “Hey, we’ve got a little extra money from lower taxes, let’s hire more people.”
Warren Buffet, obviously a very successful investor and proponent of capitalism, wrote a piece in the New York Times in which he showed that it’s ridiculous to think the idea of raising taxes on the ultra rich would hurt the economy. He observes, as he has before, that he pays a much lower tax rate than his secretary. The absurdity stems from the fact that he, as well as hedge-fund managers and other professional investors pay “long-term capital gains” rates on short-term trading profits.
The evidence bears out the fact that if taxes were increased on millionaires, they wouldn’t stop investing, or lay off employees. In the ‘80s and ‘90s, tax rates were far higher. As Buffett wrote, “I have worked with investors for 60 years and I have yet to see anyone, not even when capital gains rates were 39.9 percent in 1976-77, shy away from a sensible investment because of the tax rate on the potential gain.”
Those who bow at the alter of Ronald Reagan say that he cut taxes for the wealthy, helping to usher in a long economic boom. This ignores the fact that Reagan also raised taxes. And it ignores the fact that the top tax rate on the wealthy when Reagan cut them was a startling 70 percent. Nobody is proposing anything close to that; all the President asked for was a couple percentage points.
They also ignore the fact that Bill Clinton raised taxes, and took the U.S. from the perpetual deficits to a surplus, which helped the economy boom. It ignores how Obama’s predecessor, George W. Bush, cut taxes drastically, putting the budget back into a deficit, and helped lead us to the worst recession since the Depression.
The U.S. prospered throughout the ‘50s and ‘60s, when marginal tax rates were ultra high, with a top rate as high as 90 percent. We created two million jobs in the ‘70s and ‘80s, when rates were much higher. In short, the Republicans call for tax cuts, and even worse, no cutting of the tax breaks given to special interest groups such as oil companies, hedge fund managers, corporate jet owners and the like, completely flies in the face of all the economic data. It makes absolutely no sense. Yet somehow, they’ve convinced half of America that it’s the answer to our massive unemployment and stagnant economic growth.
Their other argument is that companies need lower taxes to be competitive with corporations in other countries. In fact, they’ve proposed lowering the top corporate tax rate, which only the most profitable companies pay, from 35 percent to 25 percent. Again, the evidence just doesn’t back up what they are saying.
Our corporate tax rates are actually quite competitive with those of other countries, and as a percentage of GDP, they are the lowest of any industrialized country.
The reason our corporations have trouble competing with those in other countries isn’t taxes. It’s that we’re the ONLY developed country that doesn’t provide health care to our citizens. By relying on employers to provide it, we are penalizing our corporations to the tune of up to 16 percent of their payroll costs to provide it. If we wanted to see an economic boom for our corporations, we should expand the health care bill, not repeal it like the Republicans demand.
Of course, they never mention that. Heaven forbid they say anything positive about the government assisting in the area of health care. The problem is only going to get worse, with our most-expensive-health-care-in-the-world only getting more and more costly. But that’s the surest way to make our corporations more competitive with those in other countries.
The Republicans need to look at the evidence. Tax cuts for the wealthy have never created jobs. If they don’t like the President’s plan, fine, but let’s get serious about alternative proposals. Their broken-record of tax cuts and more tax cuts just doesn’t hold up when you look at the facts.