American Elephants

The Problem Is Spending, Not The Bush Tax Cuts, Mr. President. by The Elephant's Child

Democrats hate tax cuts. They like having all lots of revenue to spend on doing nice things for people who then will vote for them. So, naturally when the Clinton administration ended, and there was a recession left for George W. Bush to deal with, they talked about the surplus, and did not mention the recession at all.

Tax rates were much higher during the Clinton administration, but the economy was in the middle of the boom, when everyone thought they had the perfect online business that would make them rich. Such enthusiasm often turns into a bubble, and so it did. The bubble burst,  and a recession was the result.

To deal with the recession, George W. Bush wanted to cut taxes. Democrats hate tax cuts, but Bush got them through in 2001 and 2003, barely, but only by making them temporary. The Democrats and their compliant, dishonest major media institutions spent the next ten years raging about the “Bush tax cuts for the rich,” attempting to create the impression that Republican nature was to do favors for the rich while ignoring ordinary folk. Curious, because everybody got a tax cut, and the lower and middle income taxpayers got a bigger tax cut than the rich did.

The top tax rate was cut by only 13%, while the lowest rate was cut by one-third, 33%. The result was that the top 1% of income earners paid $84 billion more in taxes in 2007 than in 2000 before the tax cuts were passed. The share of total federal income taxes paid by the top 1% rose from 37% in 2000 to 40% in 2007, after the tax cuts took effect. Didn’t stop the Democrats. The Big Lie technique usually works. Repeat something often enough and people probably believe it.

That wasn’t all, though. The tax cuts also included a doubling of the child tax credit from $500 per child to $1000 per child. Because of that, and the 33% cut in the bottom tax rate, nearly 8 million more people dropped off the federal income tax rolls entirely, paying no federal income taxes at all.

The Bush tax cuts did not explode the deficit either, as Obama has claimed. By 2007, the deficit was down to $160 billion, less than 15% of Obama’s deficits today. Bush did increase federal spending as a percent of GDP by one-seventh, erasing the federal spending cuts enacted by the Republican Congressional majorities in the 1990s.

Even with that, deficits during the Bush years averaged just 2% of GDP, one-third less than the average over the prior 50 years. President Obama’s deficits have averaged 5 times as much, at 9.1% of GDP.

Business investment spending, which had declined for 9 straight quarters, reversed and increased by 6.7% per quarter, producing 8 million new jobs. Because of the increased investment, labor productivity soared by 2.5% annually, higher than the averages of the 1970s, 1980s and 1990s. Real after-tax income per capita increased by more than 11%.

Manufacturing output soared to its highest level in 20 years. The stock market revived, creating almost $7 trillion in new shareholder wealth. From 2003 to 2007, the S&P 500 almost doubled. From 2000 to 2007, real GDP grew by more than 17%. Not exactly what President Obama has been claiming, is it?

The boost the Bush tax cuts had given the economy was ended by the collapse of the housing bubble which was created by the excessive overregulation of Democrat’s promotion of home ownership which created the subprime mortgage market, increased by the ill-advised work of community organizers who fought for more loans to less qualified people. Obama’s dishonest claim that the Bush tax cuts caused the financial crisis should have disqualified him from office.

If Congress imposed a 100% tax , taking all earnings over $250,000 per year, it would bring in about $1.9 trillion. That would keep Washington running for 190 days.  And it would leave 175 more days to be paid for with …?

The profits of the Fortune 500 richest companies in America come to about $400 billion. That would keep the government running for another 40 days, to mid July. If Congress fleeced America’s 400 billionaires with a combined net worth of $1.3 trillion of their assets, stocks, bonds, yachts, airplanes, mansions and jewelery, it would get us to late fall. “Making the rich pay their fair share” (they already do) isn’t going to solve our budget problems. The rich receive about 50% of the nation’s income, yet they already pay 70% of all taxes. The problem is not revenue.  The problem is spending.

Obama cannot envision cutting spending. His incomprehension is aptly illustrated by a White House decorated this year with 54 Christmas trees, and a coming $4 million Hawaiian Christmas vacation, when 540,000 American have become so despairing that they are no longer even looking for a job. Now that the election is over, the economy is no longer recovering. So Obama wants $1.6 trillion in new taxes on “the rich,”— including $50  billion for roads, $30 billion in extended unemployment benefits and some short-term tax breaks.

Mr. Obama wants to become a “transformational” president and change the historic trajectory of America’s domestic and foreign policy. He intends to bring the Israelis and Palestinians to the negotiating table and create a permanent peace in the Middle East. He wants to open a “constructive dialogue” with Iran and North Korea, and through his powers of persuasion, help them see the error of their ways.  He has passed and will continue to support legislation to revolutionize the country’s health care system and the country’s energy policy. And he will inject the regulatory hand of the federal government into the American economy in an effort to create”a more just and equitable society.” *

If Obama gets his way, there will be more spending, more unemployment, more debt and a second recession. Obama is still trying to play political gotcha games with Republicans. He will not negotiate seriously, and he clearly doesn’t understand the predicament the country is in. Too much fun being the imperial president. It’s very frightening.

*See The Amateur by Edward Klein

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