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Fri

18

Jan

2008

A 2-Step Solution to Reverse the Bush Recession
Friday, 18 January 2008 01:24
by Stephen P. Pizzo

Washington seems to have discovered what we've been talking about here for over three years — that the Bush tax cuts for the rich didn't work as advertised. Of course, we knew they wouldn't work when they were passed way back in 2001

As I've written so many times my fingers cramp just thinking about it... economies are not stimulated from the top down, but from the bottom up — by consumers, not producers. Very little of the money generated by tax cuts for top earners ever trickles down in ways that result in higher earnings and spending by consumers.

In reality it works exactly the other way. Cut the payroll tax for working Americans. That immediately puts more money in the hands of people who are already having trouble making ends meet. Consumers spend most or all that extra money in each paycheck. That in turn generates more demand for goods and services, which spurs hiring at the companies that produce them. Those companies then have to hire more workers to profit off that increased demand, resulting in additional workers getting the benefit of the payroll tax cut, who spend that extra money. As companies profits increase due to increased consumer buying power, tax revenues will begin to refill federal coffers gutted by the Bush tax cuts.

All of which creates a self-sustaining virtuous cycle that benefits everyone up and down the food chain.

Now that we're in a mess that could have — and should have — been avoided, everyone in both parties is looking for a way out. And once again, everyone, in both parties, are getting it wrong.

Just look at some of the numbskull proposals being floated.

The Republican solution is another shot of the dog that bit us. They're using looming economic gloom to fear-monger us into agreeing to make the Bush tax cuts of 2001 permanent. Of course that's so predictable from the party that fear-mongered us into other disasters like wiretaps, Gitmo and torture. Now they are trying to scare us into setting those tax cuts for the rich into stone before the GOP gets kicked out of town next January.

Democrats have been no less predictable. Their solution is to just start handing out cash in the form of $300 to $600 one-time handouts to every taxpayer. That's not going to solve anything. It will pay one month's heating bill for a working family in Detroit. Then what? It's a non-solution masquerading as a solution by candidates afraid of being accused of waging "class warfare" by opposing GOP attempts to make the Bush tax cuts permanent.

Democrats learned this little trick from Bush. He used the same trick back in 2001. He handed out the same kind of "feel-good" money then to make us feel like we were getting a piece of his $1.4 trillion tax cuts. That was our piece... a one-time $300 to $600 check — actually more a morsel than a piece — suckers. The biggest beneficiaries of Bush's tax cuts have been the top 1% of the nation's earners.

Estimates from the Congressional Budget Office and the Joint Committee on Taxation indicate that the cost of the tax-cut provisions the Tax Policy Center has analyzed would be $3.4 trillion over the 2008-2017 period, if these provisions are extended. Applying the Tax Policy Center estimates of the share of the tax cuts that would go to each income group to the CBO/Joint Tax Committee estimates of the tax cuts’ cost shows:
  • From 2008 through 2017, households with annual incomes of more than $1 million — a group that comprises the highest income 0.3 percent of the population — would receive $739 billion in tax cuts. This represents 22 percent of the total value of the tax cuts over the period.
  • More than $1 trillion in tax cuts would go to the top 1 percent of households, a group with annual incomes above $400,000 in 2007. The highest income 1 percent of households thus would receive nearly one third of the tax cuts’ total value.
  • The bottom 60 percent of households would receive 12 percent of the tax cuts’ value, or well under half the amount that would go to the top 1 percent. (See Table 1; for year-by-year detail, see the appendix tables.) (Source)
So here's how we fix that "mistake" and, at the same time, revitalize the American economy. Don't reach for a pen and note pad, because this is so simple you could write the whole economic plan on the back of a matchbook:

1) Revoke the Bush tax cuts for the top 1%
2) Shift those cuts to reduce the payroll tax by the same amount.

That's it. A two-point economic stimulus package that will pump $1 trillion into the pockets of American consumers. And, rather than that money flowing into family trusts and other paper investments, it will get spent, piece by orderly piece, each week, every week, forever. So, if congress is itching to make a tax cut permanent, that's the one — a payroll tax cut.

The beneficiaries of the Bush tax cut had their chance to prove the trickle-down theory, and failed — just as they failed the last time it was tried by Ronald Reagan. Both attempts left America saddled by back-breaking deficits and debt. Both attempts enriched the already enriched at the expense of middle class working Americans.

They had their chance. Now give trickle up economics a chance. Revoke the Bush tax cuts for the top 1% and give them to working Americans.

Then, just so they feel like they're getting a piece of this new action, send each of America's top 1% earners a government check for $300 as their share of our economic stimulus package — with our compliments.
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