House Speaker Nancy Pelosi is speaking out for the repeal of George Bush's tax cuts on the wealthiest Americans.
National Economic Council Chairman Larry Summers gave a short economics seminar to David Gregory on Meet The Press explaining why, unlike tax cuts to working families who spend most of what they make, tax cuts for the wealthy do not stimulate the economy since the rich just put the extra money in their back pocket. Yet Summers was evasive when asked by Gregory whether President Obama will support Congress repealing the tax cuts on the wealthy or prefers to let them run for another two years after which they will just expire.
A report by Citizens for Tax Justice shows that repealing Bush tax cuts on the top 1% of income earners would generate $226 billion over the two years it would take waiting for the tax cuts to expire on their own.
Yet while Democratic House Majority Whip James Clyburn told Chris Mathews on MSNBC that he agrees with Speaker Pelosi that the tax cuts on the wealthy should be repealed, he also said it's unlikely to happen because instructions from on high coming from the White House are telling Congress to ignore this issue.
What's the problem here? Why is Obama seemingly reluctant to follow through on his own campaign promises in this regard? Are he and his centrist economic advisors still too enthralled with conservative theory that almost always opposes tax increases of any sort? Is he so intent on his unnecessary goal of passing his economic stimulus plan with at least 20-25 Republican votes in the Senate that he will sacrifice good policy in order to obtain consensus?
Either way, it's a mistake that will harm the country. While the Democratic Congress should be working with the Obama White House as much as possible, it should also use its independent judgment as a separate branch of government to change Obama's policy in this regard.
Already, Obama's stimulus package is somewhat out of balance, with over 40% projected to go for individual and corporate tax cuts and less than 20% for infrastructure spending. This despite the fact that $100 billion in government spending is projected to increase GDP by approximately $150 billion dollars, $100 billion in individual tax rebates is projected to increase GDP by approximately $129 billion dollars, and a $100 billion in corporate tax cuts is projected to increase GDP by only $30 billion dollars. Since $150 billion dollars in increased GDP is projected to create an additional 1 million new jobs, a $100 billion corporate tax cut would create just 200,000 new jobs, a $100 billion temporary payroll tax cut would create about 860,000 new jobs, and $100 billion in new government spending would create about 1 million new jobs.
Moreover, all tax cuts are not created equal. The figures above show the significant differences in the job creation effect between corporate and individual tax cuts. I can't find exact figures on the difference in economic impact between individual tax cuts on poor and working families and those on the wealthiest 1%. But all economists agree that working families who live paycheck to paycheck will likely spend any tax cuts on goods and services, thus bolstering the economy, while the wealthiest Americans will likely save any tax cuts, thus providing almost zero economic stimulus.
Moreover, George Bush has already left a projected $1.2 trillion deficit. The 2-year Obama stimulus plan will increase this deficit by over $400 billion more per year. Using the Citizens for Tax Justice figures cited above, repealing Bush's tax cuts on the wealthiest 1% would bring in an additional $226 billion over two years. This money could either be used to decrease the deficit or increase the stimulus by additional spending on things like national health care which would also improve the long-term health of the economy.
Speaker Pelosi is right that it's in the best interest of the American people to repeal Bush's tax cuts on the wealthiest Americans this year. The White House is wrong if it wants to wait two more years to let them expire, at a cost to the Federal government of $226 billion. This is too big a price to pay for the hope of gaining some surplus votes from Republicans in Congress. The Democratic Congress should overrule the White House on this one, whether in the stimulus bill or in separate legislation.