As the debate over taxes has heated up during the lame duck session of Congress, the media invariably have failed to ask the tough questions of the Democrats, and are regularly mischaracterizing the positions of the Republicans and trying to keep them on the defensive.
The debate goes something like this: How can the Republicans demand that extending unemployment benefits be paid for, while they don’t demand that “tax cuts for the rich” are paid for? The media are all too eager to side with the Democrats.
President Obama called for PayGo back in June of 2009, and in February of 2010 he signed it into law. He said, upon signing the bill, “Now, Congress will have to pay for what it spends, just like everybody else.” The idea was that in the future, after the so-called stimulus bill, and other large increases in spending without finding offsetting cuts in other programs, any future spending other than entitlements would have to be paid for.
So what is the issue regarding the unemployment benefits? Most states provide people who have lost their job, and who are looking for work, unemployment benefits, usually totaling somewhere over $300 a week, for 26 weeks. Once the 26 weeks run out, that is when the federal government has stepped in, and with several extensions, has gone to 99 weeks of benefits. Now many of those people have reached that limit. So the question is framed, that going into the holidays, how can Republicans be so cruel as to cut off these peoples’ only means of support? Republicans have answered that they are willing to extend them again, but want to see it paid for, as called for in PayGo, or perhaps take the money from the $800 billion stimulus bill’s unused funds. The Democrats and their allies in the media say this is outrageous and cruel. What this is really about is political theater, to portray the Republicans as evil and heartless.
But a question for the Democrats and their liberal supporters in the media—at what point is it okay to end the unemployment benefits? Is $300 really enough, or should it be, perhaps, a thousand a week? Does subsidizing unemployment create more of it, or, is it stimulative for the overall economy, as Speaker Nancy Pelosi and other Democrats argue? Maybe we want the government to give weekly checks to everyone who is unemployed, for as long as they say they need it. Is that the compassionate thing to do? And can we afford it? Is it good for the economy?
The next question is the question of fairness and consistency. How can the Republicans demand that the unemployment benefits be paid for, but not the supposed $700 billion over the next decade that the government would collect if the Bush tax cuts were ended for those making more than $250,000 as a couple, or more than $200,000 as an individual? Which brings up another question that the media are ignoring. Why don’t they ask the Democrats why they are okay with not paying for the estimated $3 trillion that the government won’t collect over the next decade by permanently extending the Bush tax cuts to the “middle class?” Any hypocrisy there?
The rules of Congress require that tax cuts should be viewed as static, meaning that it assumes that raising or lowering tax rates doesn’t change behavior, only the amounts of money collected. Franklin Roosevelt had that idea when, in 1941 he advocated taxing 99.5% of everything made above $100,000 a year. When that went nowhere he decreed by Executive Order that everything over $25,000 would be taxed 100%. Yes, 100%. Congress rescinded it, but it perfectly illustrates the point. Clearly there is a point in rising tax rates in which the tax revenues will start to decrease, the higher the rate is. In other words, why would anyone work to make more than $25,000 a year if it was all going to be taken by the government?
This logic was perhaps the inspiration for the Laffer curve, and supply side economics. Investor’s Business Daily (IBD), in a December 3 editorial, makes the point loud and clear. They cite the argument of the Democratic senator from Ohio, Sherrod Brown, one of many who has argued that if the Bush tax cuts were really going to create jobs, why has it failed so miserably in doing so. Brown said that “these tax cuts for the rich that Bush did twice ... resulted in very little economic growth. We saw only 1 million jobs created in the Bush years, 22 million created in the Clinton years, when we reached a balanced budget with a fairer tax system.”
According to IBD, Brown’s figures are “false,” out of context and misleading. “From 2002, the last year before the cuts, to 2007, the last year before the financial meltdown, the real economy expanded by $1.77 trillion, or 15.2%...Jobs increased by 7.77 million, business investment surged 38%, and personal net worth soared 56%. Brown is wrong on every point.”
They point out that “gross domestic product did fall sharply in 2008 as the financial meltdown hit. But no reputable economist maintains the financial panic was a result of the Bush tax cuts.
“Laughably, Brown talks about how ‘we’ reached a balanced budget during the Clinton years. What do you mean ‘we,’ senator?,” IBD asks. “Since budgets are written and passed by Congress, and only approved by the president, Brown must know that it was Republicans who balanced the budget—not Democrats.
IBD then cites the history from the past century of tax cuts on “high-income earners”: Starting with “the 1920s (Coolidge), 1960s (Kennedy), 1980s (Reagan) and again in the 2000s (Bush). These cuts benefited the rich and everyone else. In all these cases, jobs boomed after tax cuts. In fact, history shows that the best way to boost jobs is to cut taxes on the rich.”
The editorial concludes by noting that “If we want a strong expansion, business investment must grow. It won’t as long as Brown and his colleagues continue to believe that extending jobless benefits to boost consumption, and raising taxes on the ‘rich’ would create economic activity.”
Thomas Sowell, the economist and journalist, recently made a similar argument, writing that “facts do not ‘speak for themselves.’ In terms of facts, the Republicans have the stronger case. But that doesn’t matter, unless they make the case, which they show little sign of doing.”
By all accounts, the Democrats wasted a precious week of their lame duck session in early December so they could hold votes to appease their base and achieve headlines, like this one on the CBS News website, saying that “GOP Senators Reject Tax Cuts for Middle Class.” In fact, CBS knows that the GOP doesn’t oppose the tax cuts for the middle class, rather they want to extend all of the Bush tax cuts. But if they had voted for this legislation, the Democratic controlled Congress wasn’t about to vote to extend current tax rates on those earning more than $250,000 a year, or what the Democrats call “the rich,” or “the millionaires and billionaires.”
President Obama has given every indication that he plans to make a deal regarding an extension of all the Bush tax cuts, with the rates for higher income people and small businesses being extended for a limited period of one or two years. What he expects in return is that Republicans agree to the extension of unemployment benefits without having to pay for it, in other words by adding to the deficit. What has made this more awkward for Obama is that his appointed Debt Commission has called for significant lowering of the tax rates for individuals and corporations, a nod to supply side economics as being the engine to help grow our way out of this economic mess, at the same time that his party in Congress is trying to raise rates.
This has his left-wing base upset, “livid” in the words of a story in The Hill. Paul Krugman, the left-wing columnist for The New York Times urged Obama to not make the deal with the GOP. He acknowledged in one column that “raising taxes when unemployment is high is a bad thing,” but added, “there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.” And with Obama’s pledge to freeze the salaries of federal employees for two years, Krugman further expressed his frustration. “Whatever is going on inside the White House, from the outside it looks like moral collapse—a complete failure of purpose and loss of direction.” You get the idea.