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September 20, 2010
GOP and Welfare for the Rich
Republicans in Congress have been arguing that the Bush tax cuts, set to expire this year, need to be extended. More particularly, they need to be extended for all income groups--not just for those who earn less than $250K a year. The rationale, of course, is that a recession is no time to raise taxes becausing doing so will destimulate the economy. So, even though extending all the tax cuts will increase the debt, it's a necessary price to pay.
The problem here is that if you want another stimulous--and I, for one, do--just giving the money to wealthy people is about the worst way to do it. Why? Rich people don't spend as quickly as poor and middle-class Americans. This is how Krugman puts it:
Now, consider first what would happen if we extend the tax cuts for the next 10 years. This would add $700 billion to the debt (pdf). If the rich spread their windfall evenly across the decade, that’s $70 billion a year in additional consumer spending — or $140 billion during the period when we need it. So, $700 billion in deficits for $140 billion in stimulus; not a good bargain!Alternatively, suppose we extend the tax cuts for only 2 years. That’s only $140 billion on the deficit. But the rich, knowing that it’s temporary, won’t spend much of it — if they really operate on a 10-year horizon, they’ll spend only $14 billion a year more, so $28 billion of stimulus
The other argument for extending the tax cuts for the rich is those rich people arn't really rich people--they're small business owners. And, of course, even if nobody likes "rich people" enough to protect them from tax increases, the assumption is that small business people always deserve protection because they are the real engine of economic growth. The problem with this argument is that it's phoney. The juice behind this point is not economic theory; it's mythology. The small business owner is the new "common man," the guy who represents all the individual virtues encoded into the American dream. Hence, they're innocent. It turns out, though, that there's not that many of them--at least not that many who are in the $250K tax bracket that would be impacted by the expiration of the Bush tax cuts. As reported by TPM and others, 98.1% of small business tax payers fall below the top two income brackets. That means that letting the Bush tax cuts expire will impact LESS THAN 2% OF SMALL BUSINESSES.
Posted by stevemack at September 20, 2010 05:29 PM
