Unspinning the Spin: The Bush Tax Cuts the Federal Deficit and You

Aug 18 2010 Published by under Featured News

“Well you have to remember though that the Bush stimulus package had a couple of components, and a big component was the tax cuts introduced in 2001 and 2003….” Sarah Palin, on FOX News Freedom Watch August 13, 2010

Contrary to Palinist revisionist history, the 2001 and 2003 tax cuts were not part of a stimulus package. They were tax cuts made during a recession and which at worst only served to make the recession worse or at best, had no effect, as Paul Krugman reported in 2008.

President Bush did not sign a stimulus package into law until Feb 13, 2008, and TARP not until October 3, 2008. Clearly there is some confusion here. Given the speaker is Sarah Palin it’s an even guess whether it’s a deliberate manipulation of the facts or a catastrophic display of ignorance.

Since Sarah Jones performed an economic Palinoscopy here Saturday I will restrict myself to some background on what the former governor mistakenly called a stimulus package.

You might remember that Barack Obama campaigned on a promise of partial extension of President George W. Bush’s 2001 and 2003 tax cuts (the Tax Relief Reconciliation Act of 2001 and the Tax Relief Reconciliation Act of 2003), commonly known by their abbreviations, EGTRRA (2001) and JGTRRA (2003). He called for extending the tax cuts affecting the middle class while eliminating those benefitting the wealthiest Americans.

Because of his campaign promises, President Obama has been accused by Republicans of instigating class warfare and engaging in a Marxist redistribution of wealth. Again, it’s an even guess as to whether they know this or are just feigning ignorance, so take your pick.

Turning Karl Marx upside down, Republicans argue that when the money is taken from the poor and Middle Class it is not class warfare. Rather, it is the natural order of things. The money goes where it is supposed to go according to trickle-down economics – into the pockets of the wealthy.

The spin is that this money then serves to create jobs, and so benefits the poor and Middle Class. In reality, it stays in the pockets of the rich, and should these tax cuts for the rich continue, that is exactly what will happen. The rich will get richer, as apparently Jesus intended.

If money is taken, however, from the wealthy, then it is class warfare. Under no circumstances are trickle-down economics to result in money arriving in the pockets of the poor and Middle Class. If this happens, the rich do not get richer and that does not go into the Big Republican Book of Good Things.

The Republican rule of thumb seems to be that if you are sexually raped, make lemonade. If you are economically raped, make lemonade. Republicans like to snigger and say, “Marie Antoinette” when referring to Michelle Obama, but is “make lemonade” any different than “let them eat cake”?

Remember that for the Republicans, the ones who did the raping for eight years, a Darwinist inevitability determines the haves and have-nots of our society. So be a good little victim, trot along now and keep your mouth shut.

President Obama had the unmitigated gall to stand up for the victims and proposed that what was good for the rich was not necessarily beneficial for the poor. He was accused during the 2008 campaign of wanting to raise taxes. This is simply not true. What he spoke of was letting existing tax cuts lapse – and not across the board, but only for the wealthiest Americans.

The ones who benefited most from the tax cuts in the first place.

Robert S. McIntyre, director of Citizens for Tax Justice said at the time, “Congress has given the President what he truly cared about–gigantic tax cuts for the rich.” The Center on Budget and Policy Priorities agreed: “The tax cuts have conferred the most benefits, by far, on the highest-income households — those least in need of additional resources — at a time when income already is exceptionally concentrated at the top of the income spectrum.”

It must be remembered (because Republicans refuse to acknowledge it in order to push their Obama the tax-raiser rhetoric) that when the tax cuts were enacted in 2001 and 2003, the legislation was not open-ended. It came with “sunsets” (expiration dates). EGTRRA will sunset on January 1, 2011 unless further legislation is enacted to make its changes permanent (JGTRRA expired on January 1, 2009). This sunset provision was enacted in order that the cuts could evade the Byrd Rule, which governs increases to the federal deficit beyond a 10-year-term.

As an aside, it is perhaps unsurprising that Sarah Palin would approve of the Bush tax policies. Mr. McIntyre referred to the 2001 tax cuts at the time as a “snake-oil approach to budget policy” and that same snake-oil approach seems to be the one favored by Palin under any and all circumstances.

In other words, there is a lot going on here that isn’t getting mentioned by the GOP spin, and Palin in particular. Not through action by President Obama, but only through inaction, will taxes “go up” (to Clinton era levels) and because they were planned to go up so that President Bush could offer tax cuts while not cutting spending.

Gone unsaid by the Republicans, these tax cuts increased the federal deficit.

A Republican plan to extend the tax cuts for the wealthy would result in more than $36 billion being added to next year’s federal deficit – and that money would go into the pockets of millionaires. Who don’t really need the money and who aren’t really creating any jobs with it, whatever groups like the Heritage Foundation like to claim.

For the party which claims to be against increasing the federal deficit, proposals to increase that deficit seem out of place. But then, different rules apply to the rich, which isn’t surprising since they made the rules during the eight years of the Bush Administration.

None of these facts stop the Republicans from accusing Democrats of planning to give Americans one of the biggest tax hikes in our history. These “tax hikes” are seen as a punishment of the rich, in fitting with their Marxist rhetoric.

No one is punishing the rich. But the rich sure punished America in 2008. And then made us bail them out.

What the Democrat actually plan to do is to keep the tax cuts in place for families making less than $250K and individuals making less than $200K – these cuts affect 98% of American taxpayers – the people who need the money most because of the failure of the wealthy to create jobs because they think getting richer is so much more fun – and profitable.

These Democratic tax cuts would add about $202 billion to next year’s deficit. But they will help the people who need help most.

Given the state of the economy and President Obama’s promises, and with the midterm elections coming up in a few months, any Democratic proposals to let tax cuts for the poor and Middle Class to lapse seem untenable.

It is said that the 2% who qualify as rich under President Obama’s definition pack a huge economic punch, but it’s their political punch that must now be reckoned with. Their mismanagement of the American economy has already demonstrated to Americans the extent of their economic impact.

And it wasn’t pretty.

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