"The hard part of the supply-side tax cut is dropping the top [tax] rate from 70 to 50 percent--the rest of it is a secondary matter," Stockman explained. "The original argument was that the top bracket was too high, and that's having the most devastating effect on the economy. Then, the general argument was that, in order to make this palatable as a political matter, you had to bring down all the brackets. But, I mean, Kemp-Roth was always a Trojan horse to bring down the top rate."
--Former White House Office of Management and Budget director David Stockman to William Greider, "The Education of David Stockman," The Atlantic, December 1981.
The previous paragraph tells you nearly everything you need to know about the current tax proposal being bandied about as "economic stimulus." It is the full return of "supply-side" economics, which, for those of you who were drooling in the highchair in front of MTV back in 1981, was a sneaky way to lower taxes on the wealthy.
What it did, of course, was create mammoth budget deficits that took fully 15 years to undo. Right now the top individual tax bracket is 38.6 percent--and yet, the GOP, with full control of the wheel, the gas, and the brakes in this tripartite democracy, still thinks the way to solve things is to cut taxes.
Let's go back again to before the 2000 election. Candidate George W. Bush said the economy is in a surplus--we can afford to boost the defense budget, save Social Security, and cut taxes.
When the economy headed toward a recession and gas prices went up, Bush argued that giving everyone $300 and lowering taxes on the wealthy (in the form of ending the estate tax, among the other usual bromides) would halt the downturn. Citizens for Tax Justice pointed out that almost 40 percent of this tax cut would go toward people who made more than $373,000 a year.
After Congress gave in to the first set of Bush tax cuts and America was hit by Sept. 11, the president said we can fund homeland security, ease the high cost of prescription drugs, and increase the defense budget--and still cut taxes.
It is the third year of the Bush presidency, and this president is still arguing for cutting taxes on people who didn't earn the money themselves (the estate tax), cutting taxes on stock dividends, and once again handing a big break to the wealthy. That same group of people--the $373K and up--under the current "stimulus" plan, would get an average tax cut of $30,127. The average working family (the "nonrich") would get a break of $289.
"The tax cuts are set up in such a way that the people with the biggest burden get the biggest tax relief," Mark Garay, deputy director of tax policy for the accounting and consulting firm of Deloitte & Touche, was quoted in the Jan. 8 New York Times. "The goal is to look at who is paying the taxes, and give them the relief.
We keep hearing that phrase, "who is paying the taxes," but the fact is, this administration leaves out a giant chunk of people when they make that statement. The Republicans never consider the Social Security payroll tax a "tax" when making these calculations, so payroll taxes, which are regressive and predominantly affect the "nonrich," never come into consideration. It's sort of like putting an asterisk at the end of every administration pronouncement on taxes.
In the meantime, the same president that promised to fund homeland security in 2001 vetoed a bipartisan bill in August 2002 that would have funded port security, the strengthening of airplane cockpit doors, chemical-weapons defense, and the border patrol, among other things. His rationale was that we couldn't afford it.
And the White House itself predicts a 2004 budget deficit of more than $300 billion, beating out the previous record deficit of $290.4 billion dollars set in 1992--under President George H.W. Bush. The same man who, when talking about supply-side economics, coined a nickname for it that stands to this day: voodoo economics.
A Trojan horse? This seemed a cynical concession for Stockman to make in private conversation while the Reagan Administration was still selling the supply-side doctrine to Congress. Yet he was conceding what the liberal Keynesian critics had argued from the outset--the supply-side theory was not a new economic theory at all but only new language and argument to conceal a hoary old Republican doctrine: give the tax cuts to the top brackets, the wealthiest individuals and largest enterprises, and let the good effects "trickle down" through the economy to reach everyone else. Yes, Stockman conceded, when one stripped away the new rhetoric emphasizing across-the-board cuts, the supply-side theory was really new clothes for the unpopular doctrine of the old Republican orthodoxy. "It's kind of hard to sell 'trickle down,'" he explained, "so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."
Supply-side economics was sold as a lie in 1981, and the nation fell for it. With a looming recession and a likely war on the horizon, can we afford this folly again?
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