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

[CalBearinIllinois]

Not only is it trickle down, but its coupled to cutting the legs out from under those who get or depend on government services with a bogus "spending freeze." To one degree or another, that's most of us. Need a new road or bridge - not next year. Would you like your struggling public school to get more Federal funding? Forget about it. Perhaps you'd like the government to keep up with cutting edge cancer research, or have the cash to fill jobs that have gone vacant for years? Nope. I guess we can all ask the rich for a loan, but they haven't exactly got a great track record for generosity. Last time the rich were supposed to use their money to give more money to charity (under the Bush cuts), they suddenly discovered charity begins at home - with new mansions and cars.

[minerva117]

I chuckle at the whole trickle-down economics meme. Is this when rich Republicans piss on our heads and tell us it's raining?

[olderwhiiteman]

lmao!

[ElBruce]

Aaaand this is why he's just a continuation of Bush. No matter what problems we face, they try to sell us the same crap they've always tried to get from us over and over again. Threatened by terrorists? Let's attack an oil-rich country to lower the cost of gas! Cost of gas too high? Let's eliminate all our environmental protections and drill everywhere! Trickle-down economics killed the economy? Let's try more trickle-down economics to fix it!

Sometimes I think they've got a big spinny wheel with what they want from us written on it and whenever there's a crisis they spin it and claim that's the solution. Huge hurricane devastating a major coastal city? Let's see... (spin, spin, spin) ...crimina­lize abortion! That's the ticket!

[Kindheart]

It has taken almost 30 years to be vindicated. I always disagreed with Reagan-nomics and even had a heated discussion with one of his supporters about that while working at a department store. The whole theory has brought our country to its knees. Just to be fair, when Reagan died, I did have a better feeling about him in regard to his world politics.

[Afraid for My Country]

More of the same Bush policies from McCain. It's looking more and more like McCain either has no clue or really doesn't want to be elected. Hey, maybe he knows he would be inheriting a mess he has no idea how to fix and he's capitulating. Maybe, then, it's a little of both?

[Halsey]

it's NUTS....MO­ST of us..only own stock in our 401k's..wh­ich are tax deferred anyway..(w­hat's left them them)...so we don't need no stinking cap gain reduction.­.. and..jeez.­...day traders...­by God..I would RAISE the cap gain for anything profit (in the market)...­realized in under ONE YEAR....as that is "gambling"­...IF you actually can buy stock outside your 401k....an­d HOLD that stock OVER a yEAR...yea­h..i'd only tax it 15%...IF you hold it over FIVE years...I'­d tax it 10%...and if you hold that stock OVER 10 years...ze­ro cap gain!...(n­ow..if you die..I'd still make your trust fund babies pay taxes)..bu­t I would reward INVESTING!­!!..and tax (not punish...g­ambling..

tickle down? um...is there any "middle american" out there who actually got richer under Reagan's voodoo?...­I sure didn't...

[bigassbelle]

But wait! You're forgetting one of John McCain's most important constituencies!

Hedge fund managers ~ the richest of whom make over $1 million an hour ~ are primarily taxed at the capital gains rate.

Isn't that a nifty trick? Wouldn't you like to take home $3 billion a year tax free? That John McCain. Always thinking of others and how he can best meet the needs of the people. What a guy.

[ontheroad590]

And meanwhile on Wall Street they are already looking for ways around the limits on executive pay.

http://online.wsj.com/article/SB122400947693933199.html

[Kindheart]

I am not surprised by your post. It is like they got caught, we all take a deep breath, and then they go back to their old ways, hoping that nobody will notice.