Why Some Millionaires Say No To The Bush Tax Cuts

Isaiah J. Poole

Most of the media this week ignored two significant mass defections from the Chamber of Commerce line that the Bush tax cuts for the wealthiest 2 percent of Americans must be extended indefinitely, even though doing so will worsen the federal deficit and won’t help produce middle-class jobs. President Obama and and Democrats in Congress should take this as a sign to stand firm against a “compromise” that locks in what has already proved to be disastrous economic policy.

On Thursday a group calling itself "Patriotic Millionaires for Fiscal Strength" set up an online petition calling on Congress and the White House to end the Bush tax breaks for people earning more than $1 million. Their statement is signed by  41 "loyal citizens who now or in the past earned an income of $1,000,000 per year or more. We have done very well over the last several years. Now, during our nation’s moment of need, we are eager to do our fair share. We don’t need more tax cuts, and we understand that cutting our taxes will increase the deficit and the debt burden carried by other taxpayers. The country needs to meet its financial obligations in a just and responsible way."

On Tuesday, a group comprised mainly of small-business owners, Business for Shared Prosperity, had gone even further, saying that Congress should allow the Bush tax cuts to expire on families earning more than $250,000 a year. Their statement is significant because a key Republican talking point is that small businesses need the continued tax break as an incentive to hire new workers. Not true, this group’s statement says.

"Congress should not let Wall Street and big business CEOs hide behind small business to justify a budget-­busting $700 billion tax giveaway over the next decade that would be even more harmful for Main Street than it was the last decade. Instead, Congress should build on constructive action like the Small Business Jobs Act and the overdue infrastructure investment we need to create jobs and stay competitive in the global economy," the statement says.

The Business for Shared Prosperity document, "The Business Case for Letting High-end Tax Cuts Expire," makes several key points often missing in the coverage of the tax-cut debate:

  • Demand spurs hiring, not tax rates. In fact, as the report notes, "Money that a small business owner pays in employee wages or other business expenses is not included in the owner’s taxable income. Small businesses will not hire workers or make new investments unless they expect enough demand for their products and services to justify the increased capacity."
  • Nine years of these tax cuts did not work. "The 2001-­‐2007 economic expansion was the weakest since World War II when it came to growth in GDP, consumption, non-residential investment, wages and salary, and net worth, as well as employment growth." (New York Times columnist David Leonhardt posted some of the evidence Thursday on the Economix blog.)
  • Allowing the Bush tax cuts to expire for the richest 2 percent of Americans would still leave that group paying taxes at a lower rate than they were in 2000, and rates at the very top would be dramatically lower than they were during the Reagan presidency.
  • The "small businesses" that would keep their tax break from Republicans in the name of job creation would include " partners in large corporate law firms, hedge fund managers, K Street lobbyists, high-­ powered consultants, Wall Street bond traders and the country’s wealthiest millionaires"—in short, people who would not be induced to hire anyone no matter how few taxes they paid.
  • The wealthy already pay a lower tax rate than many working-class people. Individuals making less than $82,000 pay a tax rate of 25 percent on earned income above $34,000. The report notes that according to the latest IRS data, "the 400 richest taxpayers increased their average income by 399 percent, adjusted for inflation, between 1992 and 2007, and lowered their effective income tax rate by 37 percent -­‐ from 26.4 percent to just 16.6 percent."

Perhaps the best take-away in the report is this quote from a businessman: "Give me more customers and I’ll be forced to buy equipment and hire people to meet demand. Give me a tax break without more customers and I’ll just go to Aruba.”

That, in a nutshell, captures what has been the progressive argument about the Bush tax cuts. If congressional conservatives were truly interested in job creation, we’d be having a debate about how best to use government to stimulate demand and how best to prioritize the billions of dollars of work that needs to be done to shore up our transportation network, build the foundation for a green economy and ensure all our children have access to a first-class education—all necessary for a vibrant private sector in the 21st-century global economy. The additional taxes the wealthiest 2 percent pay are a down payment on a future prosperity that they get to share with millions of working families.

Instead, the right has drawn a line in the sand to keep vacations in Aruba more affordable for the über-rich at the expense of adding at least $700 billion to the federal deficit—even as its members in the House on Thursday got righteous about insisting on the unprecedented condition that $12 billion needed to pay for emergency unemployment benefits through the end of February was paid for by cuts in other government programs.

NOTE: The Campaign for America’s Future is one of the endorsers of a letter that went to members of Congress today calling for the expiration of the Bush tax cuts for the wealthy and for a one-year continuation of emergency unemployment benefits. “Continuing tax breaks for those who have been most insulated from the effects of the recent recession will do little to help the economy but will pose serious risks to our long-term economic health by adding hundreds of billions to the deficit,” the letter says. On the other hand, “The Congressional Budget Office estimates that unemployment benefits help the economy grow by up to 19 times more than extending tax cuts for the rich, because low-income families spend additional income quickly to meet basic needs.”

The fight on this issue will continue when Congress returns from its recess on November 29.
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