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need over greed: just say no to extending tax cuts for the wealthy

December 11, 2010

Today I was listening to parts of Senator Bernie Sanders’ 8 1/2 hour filibuster (well, not technically since the vote isn’t scheduled until Monday) of President Obama’s tax cut deal with Republicans (calling it “Robin Hood in reverse”) and found myself agreeing with a lot of what he said.

Nevertheless, there’s a lot of support for the deal among Democrats since it also includes an extension of unemployment benefits for an additional 13 months, and most conservatives (as well as many liberals) believe that raising taxes during a recession for anyone, especially the wealthy, is a terrible idea. I don’t necessarily agree with that, though, and here’s why:

A. According to the National Bureau of Economic Research, the recession is over, and has been since June 2009.

B. The tax cuts, which were unfunded and arguably removed a substantial amount of revenue from the federal budget, were meant to be temporary. Taxes wouldn’t be ‘raised’ so much as they’d simply go back to 2003 rates once they naturally expire at the end of this year.

C. I think some good arguments can be made for allowing the tax cuts to expire for people making more than $250,000 a year while extending the ones for those making less. For one thing, people making less than $250,000 generally spend a larger portion of their income instead of saving it (mostly out of necessity), which helps to stimulate the economy (for those of you who get excited about that kind of thing).

Conversely, according to an article in Bloomberg, tax cuts for people making considerably more don’t really do much to help to stimulate the economy because, much like Plato’s oligarch in the Republic, they tend to save (read ‘hoard’) it.

In addition, worker’s average real wages (i.e., wages that are adjusted for inflation) rose every decade from 1820 to 1970, but have essentially stagnated for the last 30 years. Moreover, the majority of the increase in income there has been since 1980 (about 80%) has gone to the top 1%, and according to an article in Slate, “virtually none of the increase translated into wage growth at middle and lower incomes.”

D. As Warren Buffet famously pointed out, the top 1% pay a lower percentage of their income in taxes than people who make considerably less. Using himself as an example, he paid 17.7% on the $46 million he made in 2007 while his secretary paid 30% on the $60,000 she made in the same year.

I think this is mainly due to the fact that the wealthiest Americans get the majority of their income from capital gains (e.g., Gerald Scorse points out that the top 1% owns nearly 40% of all privately held stock), which is taxed at a much lower rate than wages. Plus, there are a variety of deductions and loopholes that favour those at the top.

E. According to Donald Cohen, executive director for the Center on Policy Initiatives, this is the first time in our nation’s history that we’ve “sent troops to battle without raising the revenues needed to fight that war.”

Since 1812, the US government has either raised existing rates or instituted new taxes during wartime in order to fund its war efforts; however, Bush, in the midst of 2 separate conflicts, actually cut taxes. The more than $1 trillion dollars we’ve spent to fund the wars in Iraq and Afghanistan is essentially money that we’ve borrowed, particularly from countries like China and Japan.

What all of this means to me is that, at the very least, we shouldn’t allow these tax cuts to become permanent. And if there is to be some sort of extension, I think it makes more sense to extend them for the people who’ll actually spend the additional income (and who arguably need it more), thereby spurring demand and stimulating the economy, rather than the people who’ll most likely tuck it away (and who arguable need it less).

That’s why I completely agree with Sen. Sanders that instead of fighting to extend the unfunded Bush-era tax cuts — particularly for those making over $250,000 — Congress should be focusing on extending unemployment benefits for the over 2 million out of work Americans who desperately need it.

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