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Wednesday, June 1, 2011

Bruce Bartlett demolishes the GOP clip-art job creation plan

After finally tiring of trying to find different ways to limit access to abortion, including one that would create a massive ta hike for businesses the GOP finally got round to revealing their 'job creation' plan. It was a wonderful touchy-feely document all of 10 pages that looked more like a clip art project than an economic plan, complete with pictures, large type and only one page of all text that could have been said in two words, "cut taxes'.

Bruce Bartlett, who worked in the Reagan and Bush the elder's administration sees through all the bullshit which is why he is shunned by Republicans today.

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

In all the deficit frenzy, there is one reality that has been constantly overlooked; that tax revenues are at a historical low of 14.8% of GDP, the lowest it's been since 1950. Republicans argue that our statutory corporate ta rate of 35%v is the highest in the developed world, something that is strangling economic growth, yet the effective tax rate for corporations or the amount that is actually paid is the lowest relative to GDP of any developed country.

At an effective rate of 1.3% of GDP it's the lowest in the developed world. While large corporations have he power to lobby for tax loopholes (about 15,000 of them since the last major tax code revision) smaller corporations who do not have the same access to capital borrowing are the ones that end up paying the statutory rate or close enough to it that it makes no difference.

The post World War II average has been 18.5%. With a GDP of $14.7 trillion, the difference between the current rate and the post war rate would cut $660 billion off the deficit annually.

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

According to Republicans it's this mythical high ta rate that is stifling economic growth because this rate is stifling corporate investment. Never mind that industrial capacity is at about 80% or that the non-financial sector of the is sitting on a record $1.5 trillion in cash or cash equivalents and current job creation is anemic at best. Never mind that much of that job is in lower paying service jobs.

Here is a graph illustrating the contributing factors to the deficit from the CBPP (Center for Budget Policy Priorities)

Note the three biggest contributing factors, the Bush tax cuts, perpetual wars and the economic downturn.  The one that is projected to expand the most is the Bush tax cuts.   Even Paul Ryan's budget fantasy assumes tax revenues of over 18% which is the bottom line minimum to a balanced budget and that in itself is wishful thinking. 

The GOP idea that lowering taxes will actually raise more revenue is mired in fuzziness because by and large, tax revenues have increase as GDP rises no matter what the current tax rates are.  The idea of lower taxes for wealthy individuals stimulated more investment and therefore more job creation is even more absurd.  Wealthy people get rich by using other people's money .  The wealthy do invest, but mostly in the financial markets which does little to stimulate ob creation.  

The GOP invokes tax cutting as a religious litany that is an immutable given with little or no evidence that tax cuts, particularly for the wealthy and for large corporations is the only solution for growing the economy.  Not that all tax cuts are worthless, but those that benefit the richest amongst us or that benefit large corporations are generally the least effective.  While GE has managed to reduce their tax burden over the last decade to a point where they pay virtually nothing they have also cut their U.S. workforce by 20%.  That stimulates nothing other than their their bottom line.

The Ryan plan proposes a constitutional amendment that any tax increases will need a two thirds majority to pass both Houses of Congress.  It is that same rule that has rendered California incapable of balancing its budget.  The Republicans want to hamstring the Federal budget in the same manner. 

Republicans love to invoke the concept of a 'household budget' that cannot spend more than it earns to fiscal policy.  By making it impossible to raise taxes the analogy excludes the possibility that  the mythical household's income  can increase.   It's this blinkered economic policy that has, prior to the start of Obama's term,  resulted in the past 5 Republican presidential terms creating 87% of total federal debt since George Washington.

Then again, to quote both Dick Cheney and Karl Rove, "deficits don't matter' (as long as there's a Republican in the White House.   

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