Last week Republican Majority Leader Eric Cantor walked out of the negotiations aimed at preventing America from defaulting on its debt and pushing the country back into economic free fall. What was the impasse that led him to take such a "principled" and risky stand?
The Republican leadership refuses to even discuss eliminating tax loopholes for CEO's who fly corporate jets.
That's right, the GOP -- that claims to stand up for the everyday Tea Party activist -- is willing to risk the jobs of millions of Americans because they won't give an inch when it comes to massive tax benefits for the wealthy.
Instead, the Republicans have proposed eliminating Medicare and raising annual out-of-pocket health care costs for seniors -- who have an average annual income of $19,000 a year -- by $6,000 per person.
Now, that sounds like something worth risking the economy over, doesn't it? How outrageous that the Democrats should demand that corporate CEO's, who last year made an average of $11.6 million per year -- and oil companies that are having their most profitable years ever -- should have to reach into their jeans and share some of the burden to reduce the national debt.
After all, we wouldn't want to interfere with the 23% CEO pay increases they received between 2009 and 2010. Instead, Republicans would rather force middle class working people to pay -- even though middle class incomes have not increased in real value for over a decade.
Never mind that just ten years ago the economy was experiencing the most robust growth in human history -- and the federal government had surpluses as far as the eye could see -- until President Bush and the Republicans cut taxes for the wealthy. That, coupled with two unpaid-for wars and an unpaid-for prescription drug program that was constructed to benefit insurance and pharmaceutical programs -- sent the government headlong into debt. And of course, the red ink flowed like a river when the economy slid into the Great Recession because of an unchecked orgy of Wall Street speculation.
The Republicans seem to believe that the middle class should pay the entire bill to clean up the economic mess America's economic aristocracy created. That's just wrong.
But, they say, you wouldn't want to increase taxes on rich because they are the "job creators." Really?
In fact, of course, our great national experiment in cutting taxes for the rich was a colossal failure (except, of course, if you happen to be rich). In eight years following the Bush tax cuts, the economy created zero new net private sector jobs for the first time in recorded history -- zero.
As everyone who has taken Economics 101 knows, businesses and entrepreneurs do not hire new workers because they have more money in their bank accounts. If they did, they would be hiring millions of new workers right now, since corporate America is sitting on 1.6 trillion dollars of cash.
Businesses and entrepreneurs hire new workers if there is increased demand for their products and services. But over the last decade all of the substantial increases in worker productivity have gone to the top two percent of the population. For example, from 2000 to 2004 worker productivity exploded by an annual rate of 3.8%, but hourly wages went up only 1% and median family income actually dropped .9%. All of that increased productivity was siphoned off into the hands of the economic aristocracy.
For a time, that increased productivity was reflected in actual growth in the per capita gross domestic product. In the last ten years, before the Great Recession, per capita GDP increased at an average rate of 1.8% per year. That means that if the benefits of economic growth were equally spread throughout our society, everyone should have been almost 20% better off (with compounding) in 2008 than they were in 1998.
But they weren't better off, and there weren't more jobs. In fact, median family income actually dropped in the years before the recession. It went from $52,301 (in 2009 dollars) in 2000 to $50,112 in 2008. And, of course it continued to drop as the recession set in.
As a result, middle class people haven't had the increased buying power to buy those new products and services that the increased productivity could produce, and the economy has stalled.
In fact, around the world, the economies that do the best over the long run are the economies where increased productivity is widely shared throughout the population -- just the opposite of what the Republicans want to do.
But in the end, Eric Cantor's willingness to risk yet another financial collapse to perpetuate tax loopholes for corporate CEO's gets down to a question of right and wrong.
Democrats in the Biden talks have proposed reducing the deficit by ending tax breaks on corporate jets, oil and gas company subsidies, hedge funds, and capping the deductions for households making more than $500,000 a year.
Taken together, eliminating these tax loopholes would reduce the deficit by about $400 billion over ten years.
Think for a moment of the fairness of continuing to allow the very wealthy to ask other taxpayers to subsidize their mortgages -- and their charitable contributions -- at higher rates than everyone else. Their higher tax rates mean that they also get higher taxpayer subsidies when it comes to deductions.
Take charitable donations. If a couple making $60,000 of taxable income a year donates $1,000 to their church, they can get about $110 back in the form of a reduced income tax. But if a couple making $1,000,000 makes the same donation, they get $318 back in the form of reduced income taxes for making the same donation. The only difference is that the $1,000 church donation represents a lot of money for the $60,000 couple -- not so much to the $1,000,000 income couple.
Or take the mortgage interest deduction. Say our $60,000 a year couple has a 30-year, 5% mortgage of $150,000 on their bungalow, and our million dollar couple has a $1,000,000, 5%, 30-year mortgage on their much larger sprawling home.
In the first five years of their mortgage the $60,000 couple will get a tax subsidy of $3,966 on the $36,057 interest they can deduct from their income taxes.
But in the same five years, the million dollar couple will get a whopping $76,440 subsidy from the taxpayers on the $240,380 interest they will pay on their mortgage.
Next time you struggle to pay the mortgage on your modest home, or pay the rent on your apartment that receives no tax subsidy at all, or talk to your neighbor who is in foreclosure on her home because the housing market collapsed and she lost her job -- ask yourself if you should be giving a huge tax subsidy for the mortgages on both the primary residences and second homes of people like R.W. Tillerson, the CEO of Exxon who made $28.9 million last year, according to the AFL-CIO's Executive Pay Watch.
Remember that Tillerson made $13,894 per hour for a 40-hour work week. He made as much before lunch on the first day of the year as a teacher making $41,000 will make all year long.
It's just not right to ask ordinary working people to subsidize his mortgage at a higher rate than they would receive for their own.
Or take the deduction for corporate jets. Many businesses tell you they are very important business tools. Maybe. But if there is a choice to be made between increasing out of pocket health care costs by $6,000 for a senior who makes $19,000 a year, and subsidizing private jet travel for Viacom CEO Philippe Dauman -- who last year made $84.5 million, according to the AFL-CIO's Executive Pay Watch -- the decision should be obvious.
Mr. Dauman's time is certainly very valuable -- since last year he was paid $40,625 per hour (by the way, that's 2,708 times as much per hour as someone making $15 an hour). But don't you think if Viacom can afford to pay him that kind of money it could afford it if the taxpayers stopped subsidizing his travel in a corporate jet?
High-end corporate jets can set you back for from $40 to $70 million. They offer huge seats, communications suites, luxury appointments -- convenience that is unmatched by flying commercial. But should the other taxpayers really be subsidizing that kind of luxury travel?
If a corporation spends $40 million on a corporate jet to fly around its CEO without the hassle of airport security, and the other indignities suffered by mere mortals, is it right to require those mere mortals contribute as much as $14 million in the form of a tax subsidy for the deduction the company will take as the aircraft is depreciated over the years?
Certainly not -- especially if you're also asking Ethel Kornowitz to give up a meal every day so she can afford to pay increased out of pocket health care costs that amount to a third of her annual income.
The bottom line is simple. Last week Eric Cantor signaled that the Republican Party will demand enormous sacrifices from people like Ethel Kornowitz -- but nothing from CEO's like Philippe Dauman. And if they don't get what they want, the Republicans are threatening to pull the pin and blow up the entire economy. You would have to have lost your moral compass entirely not to understand that is just plain wrong.