by Charles Lemos, Sun Jan 25, 2009 at 09:16:56 PM EST
"We need to make tax cuts permanent, and we need to make a commitment that there'll be no new taxes," Mr. McCain said. "We need to cut payroll taxes. We need to cut business taxes."
It is, and always has been, illusory to think that the GOP would forgo playing politics, join the ranks of the economically sane and sign on to the American Recovery and Reinvestment Act as currently hammered out in negotiations between the President's economic team and the leadership in the Congress. The only thing more illusory is their adherence to the belief that tax cuts work as an economic stimulus. But at least their views are now clearly stated and I suspect that should please the President for he can and should now just ignore the recalcitrant wing of the GOP, or put another way, all but a handful of them. The bankruptcy of GOP economic thought should now be plainly evident and that's a case the President can make directly to the American people.
"Right now, given the concerns that we have over the size of this package and all of the spending in this package, we don't think it's going to work," the House Minority Leader John A. Boehner, Republican of Ohio, said on NBC's "Meet the Press.""And so if it's the plan that I see today, put me down in the no column."
Actually, it's more like the irrelevant column. The Congressman from Ohio can pout all he will, the Senator from Arizona can rant and rave all he wants and it won't change the fact that tax cuts have been an abysmal failure in lifting the economy. The GOP's main contention has been now for over 30 years that by reducing the top tax rate on personal and corporate income that a large increase in aggregate total savings would result. Yet the savings rate of American households has been declining for more than a decade and it now stands at the lowest level of the post-WW II era. Since 2003, the combined annual net savings of households, businesses, and government have declined to about one percent of gross national income. So if increasing the savings rate is the goal so as to thus increase investment, cutting taxes hasn't worked.
And yet the GOP continues to pitch the idea that tax cuts lift the economy. Well, the Democrats are batting now and they shouldn't swing at balls outside the strike zone. To continue the metaphor, this is the GOP's set up pitch. They want the stimulus to fail and they know full well that the gravity of the situation portends an extended economic downturn that they will look to blame increasingly on the Democrats on the hope that Americans have short memories when it comes to assigning blame. That's their game plan. They want the President and the Democrats to strike out. Tax cuts pacifies their base but not ours and doubly does next to nothing when it comes to lifting the economy. For them, it's a win-win. But it's a lose-lose for the American people.
The reality is the tax cutting regimen has been a race to the bottom for most Americans. The top 300,000 Americans collectively now enjoy almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980 and equaling levels not seen since just before the onset of the Great Depression. Earlier this year, Citizens for Tax Justice released a report finding that 70 percent of the benefits of the capital gains and dividends loopholes will go to the richest 1 percent of taxpayers in 2009. Same as it ever was for the GOP. The game is the same as always, starve the government of funds and you might just prevent a national health care system. It's time for a different course.
It's actually prescient that Congressman Boehner and Senator McCain spoke out now for almost none of the economic news this coming week is expected to be positive. And all of this economic woe is on the GOP. Look no further than Republican tax cuts, Republican deficit spending, Republican gross misinvestment, and the wholesale assault on the industrial manufacturing capacity of the United States for the cause of our current state. We, as a nation, manufacture less today than we did in 1980. Talk about an accomplishment, or lack thereof.
Here's a preview of the bad news to come this week from Market Watch:
Almost everything that could have gone wrong did after the credit crisis worsened in September.
More than 1.5 million jobs were destroyed in the quarter. Consumer spending fell again. Businesses put investment plans on hold. Home builders threw in the towel. Export markets dried up.
The only bright spot was the collapse in prices for oil and other commodities, a sudden reversal caused directly by the global slump. This has boosted consumers' spending power, but has also slammed corporate profits.
"The weakness was very widespread, with every type of final expenditure falling," wrote economist Michael Feroli of J.P. Morgan, who expects final sales to fall 5.9% annualized, which would be the third worst quarter since 1949.
According to Feroli's estimates, consumer spending likely declined at a 3.6% annual pace, about the same as the 3.8% drop in the third quarter. Business investment probably declined at a 20% pace, while residential investment plunged at a 30% pace, the worst yet in this episode. He expects nonresidential construction to fall 2%, the first decline in about three years, with bigger drops to come. And net exports are expected to fall, a big turnaround from earlier in the year when exports kept the economy above water.
The only positive contributors to GDP are expected to be government spending and inventories.
The nation faces some very tough choices in coming years as a result of 30 years of misguided Reagan era neo-liberal and supply-side economic policies that have led us to this juncture. That an increasingly large share of the income gains has gone to the top one percent of Americans with very little to show for a wider economic gain for the bottom 50% of Americans should, at the very least, raise serious questions not just about the nature of fairness in America but also about the GOP's economic stewardship these past three decades. Despite the clear economic failure of their ideas, the GOP continues to trot out the same old illusory thinking. It's time the President calls them on it.
Quotes used in this post are courtesy of the New York Times.