Again With the Trickle Down!?!

If your only tool is a hammer, everything looks like a nail. That's what came to mind this AM when I read that John McCain's plan to address the ailing economy includes a big cut in the capital gains tax rate, from 15% to 7.5% for the next two years.

How wrongheaded is this? Let me count the ways.

First, the McCain folks may have missed this, but asset values have been falling, big time. Remember, John?... That whole financial mess that folks have been talking about? When capital assets, like stocks or bonds, lose value, that's a capital loss, and it's already deductible from your taxes.

OK, but there's probably a few folks out there who've realized some capital gains, or will do so at some point in the next couple of years. What's the point of giving them a tax break? What itch does that scratch?

The vast majority of realized capital gains--that's the money you make, for example, when you sell a stock for more than you paid for it--go the richest families, so they're the ones who benefit from this. The good number crunchers at the Tax Policy Center examined who would benefit from the McCain proposal. The middle fifth of families end up with all of 0.2% of the benefits. That's not a typo. The tax break would lower their annual tax bill by $4.00. OK, that is a gallon of gas, but it's not what you'd call a game-changer.

The top 20% end up with 98.3% of the benefits of the cut, and the top 1%, with income above $600,000 get 75% of the gains, for an average benefit of $37,600. The average tax savings for the top 0.1%--income above $3 mil--is $244,000. In other words, this isn't a recipe for helping families hurt by the financial crisis and the recession. It's a recipe for more income inequality.

So why do it...why cut the rate? You guessed it: good old trickle down. It's yet another example of that supply-side fairy dust that worked so well for Bush that McCain and Co. want to see the Bushies and raise them.

If cutting taxes for the wealthiest households boosted job creation, we'd know it. The Bush cuts, originally opposed by John McCain by the way, were sold on this premise. Yet before we began to shed jobs this year, employment growth in the Bush years was the worst on record.

If you want to provide income and job opportunities to people who are hurting, your best bet is to do so directly, through tax cuts targeted at them, and through infrastructure investment designed to create new, quality jobs. That's what Obama aims for in his recently announced package.

Finally, and this is important, does anyone really believe that this allegedly temporary cut will really sunset in two years? Like Dr. Phil says, "this ain't my first rodeo!" That's the tripwire in the Bush cuts. They end in 2011, but anyone who wants to let them do so is accused of supporting the "largest tax increase in history."

If we're foolish enough to sign onto this cut in the capital gains tax rate based on our understanding that the rate will reset in two years...well, as Bush himself put it, "fool me once, shame on...shame on you. Fool me...you can't get fooled again." In fact, here's a quote from a straight-talking Republican Senator back in 2003 when he opposed Bush's capital gain and dividend tax cuts based on these illusory sunsets: "...the problem with that is it's gimmickry. It makes a mockery out of the whole budgetary process..." Listen to yourself, Senator McCain.

So we are yet again left with John McCain getting it wrong on economic policy. There is absolutely a need to help struggling families right now, but if this is the best he can come up with, we'd all be much better off if he put the hammer back in the tool shed and left the policy construction to others.

Comments

[TheFriendlyAtheist]

John McCain, typical neocon. There is no problem that cannot be solved by giving more money to the rich.

[ReasonIsMyReligion]

The top 1% already control 25% of the income. Yet still Wall Street quivers and layoffs increase.

Clearly what is called for is that the top 1% control 50% of the income.

If the 99% club of the rest of us just cut back from 75% to 50%, all will be right with America.

And oh yes, your health benis are now taxable (and let's not quibble over whether the offsetting $5k credit is too little).

TAX THE RICH -- paying your fair share is patriotic

[cubalibre]

Yes and the top 5% pay 60% of all taxes in this country.Wh­ile 40% of Americans
pay no taxes at all.Yet American corporations have a higher tax rate than any other country in the developed world. And soon to pay more if Obama wins.Which will make
unemployment balloon to over 10%.I've never heard of a poor man giving people
jobs.

[Corpsman]

It doesn't trickle down to Americans. It hemorrhages out to the Chinese.

[BlueZoo]

Point well made!

[BRclub]

http://www.youtube.com/watch?v=FL4LTqgTXu0

Barack Obama can affect the next economic recession!!!

[oafishcad]

Quick we all have to give billions or maybe trillions of dollars to the people who messed up the economy, so the same people can fix the economy, so that later we can borrow some of that money back at rates that would have been illegal and usurious not long ago. Sure, that's a swell idea. But be sure to cut those same folks' tax rates, or they might get upset and take our jobs elsewhere. Good thing they aren't already doing that. And be sure ti elect the party back into power who made sure this all happened through deregulation (lawlessness).

[loveu2]

I think I have a better idea than trickle down economics. Why don't the companies that are making huge profits and paying their CEO'S a fortune, raise the wages of everyone working for them. Then the employees would be able to put the money back into the economy themselves! Our economy isn't bad - businesses are making profits. They just don't want any of US to have a share!

[whitegoldwielder]

Well, the democrats have been in control of Congress for two years including committees on banking.

Why don't you start by asking Pelosi and Reid where they have been?

[Brokenduck]

Excuse me, can you tell me how many filibusters or threats to filibuster we've seen in the Senate these past two years?

I would agree that Pelosi and Reid are not up to the job, but mostly because they have not realized that the Republican Party, post-1994 has been nothing but obstructionist when out of power and totalitarian when in power.

[boing007]

Dow down 733 points today, Wednesday October 15, 2008. Somebody's having fun.

[oafishcad]

The only trickle down I've experienced from the wealthy is warm wet and yellow. History teaches, if you bother to read, that when wealth is concentrated in a relatively few hands, it just stays there. Wealth in the hands of a few does NOT create jobs. Wealth spread throughout the population does. Labor creates wealth, not vice versa.

[whitegoldwielder]

"Labor creates wealth, not vice versa."

Ok, and where does labor get its job, the government? Ever wonder why it is cheaper to send steel overseas to get materials and then send it back than to pay union workers outrageous wages to put nuts on bolts?

You union people have driven our country into the ground with your union shops. It is communistic and ignores where the money comes from.....t­he employer.

[LeftRight]

Yes, labor gets the jobs from the companies, but the companies get their wealth from selling the product of that labor. The fact of the matter is that labor is the only thing that changes a stick into an axe handle, or a piece of iron into a steel I-Beam. THAT'S what creates wealth!

[Hoelder]

Did anyone really believe that trickle down sprinkled on a big budget deficit has actually worked? Better ask yourself the question whether trickle down was ever intended to work? The answer is "No"? The "trickle down" excuse has been used by politician across the world for centuries or even millennia. Feudalism gave royal lands to a noblemen, intended as payment for their services to return to the crown after their death. That did not happen. Finally, it destroyed kingdoms and empires, because the crown could not call the land back and had nothing to give anymore. How about France before the first revolution, the wealthy nobles that vowed protection over serfs and farmers on their land, did not adjust for failing harvest and had no interest to forgo taxes they levied. Industrialization created the fourth class and extreme abuses, see Dickens, Bismark. A government is a contract of all people to see upon their welfare. Trickle down pretends to assert that all people will benefit from tax breaks to the rich, but it is just empty shell. A gift wrap without gift. The failure lies in the assumption that the beneficiaries of the tax break would actually invest for the benefit of others. Greed is a powerful emotion. In a downturn it holds on to the last penny to drop through the hands of that class that has already build another justification for their wealth: "God wanted it that way".

[Bladernr1001]

You guys choose your own reality.

Trickle down has worked. Even our poorest citizens are far better off than many considered middle class in other countries.

Not to mention that we are still by far the largest, most powerful economy in the history of the world.

Trickle down is not just a catchphras­e....it is critical to how capitalism works. It is part and parcel of how it works.....­..it is not a government policy. Goverment policy can regulate its effect to a certain degree but it cannot just stop or start it.

[LeftRight]

The reason that even our poor are better off has NOTHING to do with trickle down. They were better off than the rest of the world LONG before there was a trickle down theory. In fact, they are WORSE off now than they were before raygun got to them!!!

This is like claiming that the falling dollar (which began happening in 2007) was to blame for the increase in the oil price (which mostly happened between 2004-2007)!

[Larenzo]

hmm...I think permalink has some substantial mind-altering substances or is a paid publican rat....you judge.

[dirtystrat]

"So why do it...why cut the rate?"

Simple. China, Singapore and Taiwan have a capital gain tax rate of 0%. That's where the investment money is going. Why invest here if the rate is going to go up.

[ReasonIsMyReligion]

Oversimplify much?

Doncha think what matters is the NET total return on investment? Stock appreciation, dividends, the whole nine yards? And let's not forget inflation and the exchange rate of the dollar vs. home currency of the investor.

Investment money flows to places that have growing economies. Food for thought.

[cubalibre]

Yes and both of those places with zero capitol gains, have booming economies
and currencies.

[BlueZoo]

Uh...China­, Singapore & Taiwan are NOT democracies. They are run by people who slice up or jail their poltical adversaries. I lived in Singapore and I know exactly how they run things! Labor in all three of these countries is not enough to feed one person for a day. We'd have a booming economy too if you discounted these unsavory facts. No thanks. With all of our problems, I'm still proud to live in the USA!

[BlueZoo]

These three benevolent dictatorships also do not have a free market economy. I wish you understood how much money it costs to do business in those three countries! You wouldn't think they are such great investment opportunities if you actually wanted to invest there by bringing your company to do business with them,

[NABNYC]

There has been a major PR campaign to convince the public that cutting taxes for rich people actually benefits the non-rich. This is absurd. I've seen rallies full of apparently very modest-income people who nonetheless cheer when the Republicans says he'll cut capital gains taxes. How ignorant can these people be.

Most people never pay capital gains taxes. It's for rich people who don't work for a living, just sit back and (have their broker) buy and sell things. So if a rich person earns $100,000 from sale of an asset, and a working person earns $100,000 from a full-time job, the working person pays 30% in taxes, but the rich person only pays 15%.

When you cut taxes for rich people, they take the money and put it outside of the U.S. It does us no good at all. They "invest" only in further looting of the country, or in third world countries with slave labor and murderous dictatorships to ensure their money will be safe. When you cut taxes on working people, say $50/month, that money goes straight into the community where they live. It is spent at the grocery store, gas station, maybe department store to get some shoes or a shirt. It helps those people and their neighbors, and it helps our country.

We need capital gains taxes to be exactly the same as income taxes.

[Larenzo]

Right on....well explained'

[boing007]

Chetdude,

Now we're talking turkey. There's plenty of money available to do good works, it's just a question of priorities and possessing a moral conscience.

[jlounsbury59]

Yes, capital gains taxes (and taxes on dividends) should be cut, even eliminated for some. The same for interest income. But not the way John "Trickle down" McCain proposes. How about something like this:
Below $50,000 AGI, no tax
$50,000 - $100,000 5%
$100,000 -$200,000 10%
$200,000 -$300,000 15%
$300,000-$500,000 20%
$500,000 - $1,000,000 25%
$1,000,000 - $2,000,000 30%
$2,000,000 - $5,000,000 35%
Over $5,000,000 40%

In 1980, the top 1% of all income earners received 8% of the income total.
Today, the top 1% of all income earners receive 20-21% of the total income pie.

Republicans like to attack Democrats as proposing wealth redistribution. Since the initiation of the supply side economic model in 1981, we have had a massive wealth redistribution. Wealth has been redistributed from the lower half or 2/3 of income earners to the top few percent. This has been one of the most massive wealth transfers in history. We are now reaping the painful harvest of having concentrated capital in the hands of so few.

[Larenzo]

Again. excellent comment...

[coco51]

It's the 80s 'TROJAN HORSE" rolled out again!!! ...

google it.. "Trickle Down Economic" per David Stockman, then Reagan’s budget director, put it: giving small tax cuts across the board to all brackets was simply a “Trojan Horse” that was used to get approval for the huge top tax bracket cuts. “Trickle-Down” was a term used by Republicans that meant giving tax cuts to the rich.

[Arishia]

How can we assure that the trickle doesn't just trickle out of the country in a global economy? I'd really like an anser to that question, because the money sure hasn't trickled down to the middle class in America.

[Noogie]

John McCain has flunked the Economist-In-Chief test.

[Moncar]

John Kenneth Galbraith, during the Reagan era, defined trickle-down economics aptly: If you feed the horses enough oats, the sparrows will thrive.
Chew on that for a while.