Pro vs Con

The Economic Policy Institute's Ethan Pollack responds:

"The Chicago Tribune editorial was right to withhold judgment on the effectiveness of the existing economic recovery package, but it completely mischaracterized the arguments in favor of another round of stimulus.

"The writer likened the situation to making a turkey dinner. If you get hungry before it’s ready, the reasoning went, you don’t put another turkey in the oven—you wait until the first one is done. But the lesson is wrong. The problem isn’t that we need stimulus faster, it’s that we now need more of it than we expected.

"The first round of stimulus was designed for an economy that would peak at 8.8 percent unemployment by the fourth quarter of 2009. Four months later we’ve hit 9.5 percent, and the trend points toward 10 percent before summer’s over.

"Furthermore, the next round of stimulus should focus on what the first round underfunded or ignored: aid to cities and states, school construction, aid to transit agencies (to avoid fare increases and service cuts), and more support for low-income families.

"To correct the analogy, we’ve already got a turkey cooking, but now 10 hungry friends unexpectedly have shown up for dinner. Why wouldn’t we put another bird in the oven?"

In fact, according to the Tax Policy Center's table of 2007 tax returns that reported small-business income, 481,000 of those returns—about 2 percent—are in the top two income tax brackets, which include all filers with taxable incomes that would be affected by Obama's proposals to let portions of the Bush tax cuts for wealthy taxpayers expire and to reduce the tax rate at which families making more than $250,000 could take itemized deductions.

Even though only two percent of people who are classified as small-business owners would see a tax increase under President Obama's policies, Media Matters reports that many media figures and outlets—including CNBC host Joe Kernen, CNBC host Maria Bartiromo, ABC News' Jake Tapper, CNN's Dana Bash, Fox News' Sean Hannity, CNN's David Gergen, Politico, the Associated Press, The Washington Post, and The New York Times—have advanced, uncritically repeated, or failed to challenge the debunked Republican falsehood that Obama's income tax proposals would increase taxes on a large percentage of small businesses. For example, Kernen didn't challenge Sen. Judd Gregg, R-N.H., on the March 26 edition of CNBC's Squawk Box after Gregg referred to Obama's proposal as a "tax policy that basically is focused on raising taxes on small businesses especially."

The Freudian slip in a quote from House Minority Leader John Boehner to CBS News—"it's time for government to tighten their belts"—inadvertently reveals something of the Republican mindset about the role of government, for it is us who will be strangled by the belt that conservatives say they want to tighten.

The reality is that in this fiscal emergency asking government to spend less on programs that will rebuild our schools, roads and other public facilities; set the stage for universal health care; help states prevent layoffs of thousands of public servants and prepare the country for a new energy future is simply wrongheaded. With the country on the verge of a depression and the downturn going global, consumers are cutting back, businesses are laying off workers, state and local governments are facing severe budget cuts. It is precisely at this time when the federal government—and governments around the world—must spend more money to lift the economy, and put people back to work.

The number of small-business owners who would be affected by this tax increase would actually be very small, according to the Center for Budget and Policy Priorities and the Brookings Tax Policy Center.

First, less than 9 percent of people with any small business income have incomes of over $250,000. The remainder would actually get a tax cut under President Obama's tax plan. Second, only 1.9 percent of small-business owners pay taxes at above the 28 percent tax bracket. Third, many of the people who would be affected by the proposed tax increase are actually passive investors who have no direct role in managing the businesses, including multimillion-dollar hedge-fund managers. Plus, small businesses whose owners are paying taxes on their profits at the personal tax rate have other options for lowering their tax bill.

What small-business owners will get with this tax change, however, is policies that will lower their health care costs over time, help them shift to green-energy sources, strengthen schools so they can draw from a better-educated labor pool and a better transportation grid for their goods and their workers. And those changes will have a positive impact on their bottom line that will outweigh the small tax increase a few might pay.

Conservatives often focus on the wrong questions, and this poll, which plays into the caricature of "tax-and-spend" liberalism and the specter of government taking money from hard-working people and giving it to people who are less deserving, is a prime example. Ask people about the direction that progressives actually embrace as opposed to the stereotype presented by conservatives, and they will side with progressives. For example, a February 2008 Associated Press/Ipsos poll found that 70 percent of respondents thought that "increasing spending on domestic programs like health care, education, and housing" would help fix the country's economic problems. A January 2008 Fortune Magazine poll found that 67 percent would support "increasing government spending on things like public-works projects to help create jobs." Bush administration economic policies, if anything, have fostered a redistribution of wealth upward, creating an unprecedented economic gap between the very wealthy and the rest of the country. Progressives believe this is wrong, and most of the country agrees.

"But because the United States has so many generous special tax preferences for businesses, it collects the fourth lowest corporate tax revenues as a share of GDP among all OECD countries."

Here are the facts:

• Between March 2001 and March 2008 the nation lost almost 3.3 million manufacturing jobs, and only gained 5.3 million jobs overall—just slightly more than half the number of jobs needed to keep pace with the 9.8 million people added to the labor force during that period. That's why the unemployment rate is 15.7 percent higher in March 2008 than it was in March 2001. (Bureau of Labor Statistics)
• The share of the population with jobs declined from 64.3 percent of the population in March 2001 to 62.6 percent of the population in March 2008. It's the first time on record that a period of "economic recovery" has been marched by an actual decline in the employment rate. (Bureau of Labor Statistics, Economic Policy Institute)
• Hourly wages rose 3.6 percent over the past year, the slowest growth rate in two years, and well behind recent inflationary readings, which have been around 4 percent. What's worse, employees on average have been keeping their workers on the job for fewer hours in the past year, so weekly earnings are up only 3.3 percent over the past year. (Economic Policy Institute).
• Since the late 1990's, average incomes fell by 2.5 percent for those in the bottom fifth of the income scale and rose by just 1.3 percent for those in the middle fifth. Meanwhile, incomes climbed 9 percent for those in the top fifth, not counting income from capital gains. (Economic Policy Institute)
• At the same time, the consumer price index from March 2001 to March 2008 has increased 17.5 percent. (Inflation Data.com)
• People in the top 1 percent of the income bracket captured about half of the overall economic growth between 1993 and 2006. (Emmanuel Saez, University of California, Berkeley)

Doing away with federal gasoline taxes for even a short period of time will do serious damage to the economy as we head into a recession and as high gas prices affect our commuting patterns. Federal gasoline tax dollars go into a trust fund that helps pay for roads, bridges and mass transit. According to the federal government's own calculations, every $1 billion spent of the gasoline tax revenues creates nearly 35,000 jobs. A summertime "gas tax holiday" could cost the nation almost 350,000 jobs and would halt work on vital improvements to roads and bridges, as well as mass transit systems stressed by new riders leaving their cars at home. According to the Congressional Budget Office, we're already falling behind in our ability to pay for our transportation needs. The bigger issue is this: An economy that depends on the efficient interstate movement of goods and services can't afford to continue starving the maintenance and growth of our transportation network. But that's what we've done under the Bush administration, which opposed moves even from within its own party to increase transportation spending enough to match actual needs. Dumping the burden on already-strapped and unevenly equipped states won't solve the problem. A transportation system that allows the economy to operate efficiently and save precious fuel is a national priority; we should all share in the costs and the benefits.

"...growing trade deficits with Mexico and Canada have displaced production that supported roughly 660,000 (manufacturing only) and 1.0 million (total) U.S. jobs since the agreement took effect in 1994." -- Revisiting NAFTA, Economic Policy Institute, 9/28/06

Most middle class Americans aren't doing "fine" in this economy. Household incomes are stuck in 1999, while American families pay 2008's prices for the basic necessities. As a result, more of them are going deeper into debt. That's why more than 79% say that it's more difficult to maintain their standard of living now than just five years ago. That's because the economy isn't working for them, and they know it. A majority, 58% say the Republican Party favors the rich. For middle class Americans, it's not a question of whether the economy is working. It's a question of who it's working for, and why it's not working for them.