Aug 16, 201112:00 AMLeft Business Brain
with Tom Breuer
Couldn’t we attack the deficit with Clinton-era tax rates?
Unfortunately for me, these claims are all easily disproven. I know. I Googled them.
So one has to wonder how ineffectual President Obama really is considering that he wasn’t able to roll back the Bush upper-income tax cuts, either during the latest debt-ceiling imbroglio or prior to it. After all, the typical response to any proposed tax increase on those making more than $250,000 a year is just as easily disproved.
If you want to say we shouldn’t be raising taxes on the wealthy because they earned that money and it places an unfair burden on our most productive citizens, hey, I’ll hear you out. At least that’s a fair argument. But if you want to say that higher taxes – and by that I mean anything higher than today’s top marginal income tax rate – would automatically sink the economy and poison the soil in which businesses grow, you’re swimming against a sea of history.
Indeed, this argument is not just a broken record, it’s a broken phonograph cylinder, broken 8-track, broken cassette, broken CD, and broken MP3, because it’s been revived more times than Charlie Sheen at a Bangkok 7-11.
For instance, in the summer of 1993, when President Clinton was proposing a modest increase in the top marginal rate (from 31% to 39.6%), Republicans were united against it.
Then-House Minority Whip Newt Gingrich, who’s currently running for president under the slogan “No, Seriously, I’m Running for President,” was absolutely certain disaster would follow if the tax increase was passed:
“The tax increase will kill jobs and lead to a recession, and the recession will force people off of work and onto unemployment and will actually increase the deficit,” he told the Atlanta Journal Constitution in August of ’93.
He also said this, at a Republican press conference: “I believe this will lead to a recession next year. This is the Democrat machine’s recession, and each one of them will be held personally accountable.”
Shockingly, Gingrich did not hold each Democrat personally accountable for the reduction in the deficit and the economic prosperity that followed. And now, Republicans are singing the same old song.
During the recent debt-ceiling negotiations, House Speaker John Boehner flatly stated that tax increases were “off the table.” And some now want to take the Bush tax plan even further. Presidential contender Michele Bachmann has actually proposed getting rid of capital gains taxes and the estate tax altogether. So if you inherit a large stake in a corporation, watch your holdings increase in value from $10 million to $100 million, and eventually cash out, in Michele Bachmann’s utopia, your tax bill on that windfall will be exactly zero. And this woman is currently leading the pack of GOP hopefuls in Iowa. Yay, Iowa!
Of course, few people realize how far our country’s thinking on the top marginal tax rate has shifted in the last few decades. For instance, all through the ‘50s, which was one of the most prosperous decades in U.S. history, the top marginal rate was a stunning 91%. It began to come down in subsequent years, and reached a low of 28% in 1988. Eventually, the Reagan/Bush recovery gave way to a recession (which likely had little or nothing to do with the tax rate), and Bill Clinton raised the top marginal rate. The rest is inconvenient history.
Indeed, looking at the history of top marginal tax rates (see this chart), it would be difficult to come to any solid conclusions about their relationship to growth and prosperity. For instance, the stock market crash of 1929 followed a deep reduction in the top marginal rate. Conversely, the Reagan boom followed another significant decrease (from 70% to 50%).
So maybe other factors have more to do with the economy’s well-being than upper-class tax rates – and maybe a high marginal tax rate alone is not the economy-killer that some would like to make it out to be.
So what caused the recent increase in the deficit that’s got us all panicked and helped lead to the recent downgrade of our country’s credit rating? Taking my cue from The New York Times and The Washington Post, I would argue it was the Bush tax cuts and the cost of the wars in Iraq and Afghanistan, while mainstream conservatives would probably say that it’s Obama’s crazy spending habits, and Michele Bachmann might cite her neighbor’s telepathic onion patch or the Keebler elves.
Of course, this is serious business, and I don’t want to be too glib. We do need to cut the deficit, and I have no doubt there’s plenty of fat that can be trimmed away. While we’re at it, we might think about addressing those trade deficits we like to run with pretty much every single country on the face of the earth.
And I do think we need to be careful about hurting small business owners who are simply trying to grow their businesses (although the danger to small businesses is often overstated), but there’s no doubt that a saner approach to deficit reduction would help everyone, including small business owners – if only because we’d stop freaking out pretty much everyone on the planet.
So is a modest increase in the top marginal rate back to Clinton-era levels really too much to ask for? Call me an out-of-touch socialist, but I really don’t think so.
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