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.
There is a great story from Ronald Reagan’s autobiography that illustrates this concept. “At the peak of my career at Warner Bros.,” he wrote in his 1990 book, An American Life: Ronald Reagan, “I was in the ninety-four percent tax bracket; that meant that after a certain point, I received only six cents of each dollar I earned and the government got the rest. The IRS took such a big chunk of my earning s that after a while I began asking myself whether it was worth it to keep on taking work. Something was wrong with a system like that: When you have to give up such a large percentage of your income in taxes, incentive to work goes down. You don’t say, ‘I’ve got to do more pictures,’ you say, ‘I’m not gonna work for six cents on the dollar.’ If I decided to do one less picture, that meant other people at the studio in lower tax brackets wouldn’t work as much either; the effect filtered down, and there were fewer total jobs available.”
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.
“That’s right, a GOP-led Congress controlled the spending that led to the surpluses of the late 1990s. It also proposed welfare reform and pushed through cap-gains tax cuts that helped the economy boom. To his credit, President Clinton signed these initiatives into law—but only after much political arm-twisting.”
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.”
On CBS’s Face the Nation on December 5, Sen. Jon Kyl (R-AZ) had to correct host Bob Schieffer and the other guest, Sen. Dick Durbin (D-IL) on multiple occasions that Republicans weren’t advocating for tax cuts, but rather for the extension of rates that had been in effect for nearly a decade. This is probably the most misreported fact of this whole debate.
And what about this lame duck session of Congress? Should a Congress that was in essence fired really be back in session trying to pass all sorts of legislation that they should have and could have taken up before the November election? Either they didn’t have the votes then, or didn’t want to have to vote on them prior to the election, maybe because they knew their positions weren’t popular. Betsy McCaughey, a former lieutenant governor of New York, wrote a piece for The Wall Street Journal pointing out that the 20th Amendment, ratified in 1933, was largely intended to end lame duck Congresses by moving the Congressional swearing-in date from March back to January 3rd. For the next half century, there were no attempts to use the shorter lame duck period to pass significant legislation.
Back in July it was becoming apparent that the Democrats were holding back on passing a budget, and dealing with Don’t Ask, Don’t Tell, cap and trade, immigration legislation and other big agenda items. Republicans were calling them on it, asking them to renounce the possibility that this was what they had in mind. Chris Van Hollen, the assistant to the Speaker who also headed up the House Democrats’ campaign committee, said that “[N]o one should think there’s some secret plan for after the election on big issues. There’s no secret or overt plan to do something like that.” Maybe not, but it certainly has played out that way.
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.
The left is upset not only with Obama’s apparent willingness to give in on the tax issue, but also because he has increased the number of troops in Afghanistan and has announced that it will be the end of 2014 at the earliest before we’ll be leaving there. They have kept assuming that Obama is one of them, and would show some backbone. But what they fail to, or hate to, realize is that Obama is taking them for granted. He is on to the 2012 campaign, and needs independents to win re-election. He can always reassure them that he is one of them, and that they need to be patient and wait till after he gets re-elected in 2012. And while the media are still working hard for Obama’s agenda, and are always eager to play the class warfare card against the Republicans, they are losing their patience with what they see as Obama’s lack of leadership.