No New Ideas
December 10, 2008 - 2:36pm ET
The American people voted for change. While Obama is talking about a huge public works project, conservatives are still stuck in the same old place. They cannot seem to stop talking about tax cuts, as if that will solve every problem
John Boehner, current Republican Leader of the House, offered his economic advice to the American people in a press release on November 21. But it’s all about tax cuts. He recommended we double “the child tax credit; temporarily eliminate the capital-gains tax…reduce the corporate tax rate…and give small businesses more tax relief…” Same old, same old. And even more recently, he shot down Obama's “spending spree” and announced once again that we should provide “tax relief to the middle-class.” Been there, done that.
Furthermore, the Heritage Foundation's plan is also all about tax cuts: “ … the federal government should top showering industries with loans… lower the corporate tax rate...make permanent many elements of the Bush tax cuts…delay the increase in the capital gains and dividends tax rate from 15 percent to 20 percent for some successful investors…”
To top it off, here are some ideas put forth by the Republican Party in their 2008 Economic Platform:
• “making the 2001 and 2003 tax cuts permanent”
• “a major reduction in the corporate tax rate”
• “permanently ban internet access taxes and stop all new cell phone taxes”
• “doubling the exemption for dependents”
• “current limits on tax-free savings accounts should be removed”
Read that list again. Everything is a tax cut. Don’t they have any other ideas? And who is going to pay for our roads, schools and bridges if we don’t collect any money for them?
What conservatives don’t understand is that this is not a battle between tax hikes and tax reductions. Progressives are not claiming that tax increases alone will get the country out of the recession; rather they are focused on using government spending to jump start the economy.
It has been said time and time again by leading economists. Tax breaks simply do not stimulate as well as direct investment. The Economic Policy Institute recently published an article on how to stimulate the economy, accompanied by a chart containing the following information about the “Economic benefits of various stimulus provisions”:
• Food stamps: $1.73
• Extending UI Benefits: $1.64
• Infrastructure Spending: $1.59
• Make Dividend and Capital Gains Tax Cuts Permanent: $0.37
• Corporate Tax Cut: $0.30
• Make Bush Income Tax Cuts Permanent: $0.29
• Accelerated Depreciation: $0.27
As we can see, investing in food stamps, unemployment benefits and infrastructure will create the greatest amount of return for each dollar spent. Poor people spend their money immediately on necessities, producing immediate economic activity. On the other hand, corporate tax cuts, making the Bush tax cuts permanent, and accelerated depreciated are not very useful or economically rational measures. In fact, infrastructure investment yields a return that is over 5 times greater than that of the Bush tax cuts. The tax breaks for wealthy citizens and corporations will actually “cost over twice as much as they return to the economy.”
The Center on Budget and Policy Priorities also separates the myths and realities of tax reductions, emphasizing that making tax cuts of the Bush administration permanent “would cost about $4.4 trillion over the next decade.” Moreover, “tax cuts have been the single largest contributor to the reemergence of substantial budget deficits in recent years.”
Numerous opinions from leading economists support the progressive call for fiscal expansion. In a recent op-ed from The New York Times, Paul Krugman points out that “Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.”
In an article from The American Prospect, Dean Baker also stresses that the country “should support a big stimulus package that is focused on investments for the future. This is essential for sustaining the economy now and it will help our kids for decades to come.”
Inevitably, not everyone is going to agree on the best way to revive the economy. But with the constant repetition of appeals for infrastructure investment it would seem counter-intuitive to not follow this route. We need a new solution to a new problem. The conservatives' exhausted tax cut plan just doesn’t make sense for us anymore.
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Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future