Oh, Those Job Killing Taxes - And Other GOP Myths

                                 Oh, Those Job Killing Taxes - And Other GOP Myths

  "Americans want to know that Washington is going to stop the reckless spending and debt, the burdensome red-tape and job-killing taxes."  -Sen. Minority Leader M. McConnell, Sept. 2010


            Senate Minority Leader Mitch McConnell, R. Kentucky,  and House Speaker John Boehner, R. Ohio, are continually carping about "those job-killing taxes."  We even see this nonsense on the editorial pages of our local paper, The Cape Cod Times, with simplistic cartoons by an imbecile like Gorrell who apparently draws with two right hands.   But how many of us ever bother to look at the facts about jobs and taxes?

            I know, I know, Ronald Reagan told us that "facts are stupid things" but, actually, they are stubborn things, and the stubborn facts about jobs and taxes over the past sixty years or so clearly tell us that there is no correlation between lower taxes and high employment.  In fact, just the opposite appears from the data regarding taxes, unemployment, gross domestic product (GDP), deficits, and the median household income over the past sixty or seventy years. 

            What the long term data tells us is that higher taxes do not "kill jobs" as GOP hacks like McConnell would have you believe, and lower taxes for the wealthy do not create jobs as promised by the Bush tax cuts that only allowed the wealthiest Americans to get even wealthier while their corporations continued to ship good jobs overseas to keep wages down here in the U.S. while driving us deeper and deeper into debt.

        A.     Higher Taxes Do Not "Kill" Jobs. They Contribute To A Healthy Economy Instead.

         The modern phenomenon of chronic deficit spending began with Nixon in 1969, when the deficits began to reach the tens of billions, and it really took off during the Reagan years when the deficits first began to reach the hundreds of billions annually.  Before Nixon, there had been sporadic deficits, but never in the hundreds of billions and not on the sustained, year-after-year basis of increasing deficits that we have been living under for the past 30 years since the Reagan tax cuts.  That trend was reversed, with significant surpluses during the Clinton administration, along with low unemployment after he raised the top marginal tax rate to just under 40 percent.

          Beginning with the Truman administration in 1948, and continuing through the Eisenhower years,  we  saw high taxes on the wealthy, with the top marginal rates over 80 and 90 percent, combined with low to moderate unemployment.  In 1952, for example, the top marginal tax rate was 92 percent, while unemployment was only at 2.0 percent.  These were years which also saw many balanced budgets, as shown by data from the U..S. Gov't. Printing Office, based on  the wealthiest Americans paying their fair progressive share of taxes as opposed to budgets based on borrowing. 

          In 1969, Nixon started with a modest surplus of  $3.24 billion, combined with a top marginal tax rate of 77 percent.  Unemployment was at a low 3.5 percent, and he was following a decade where our Gross Domestic Product had increased by 4.65 percent during the Kennedy years and a whopping 5.5 percent under LBJ.  Nixon began by lowering the top marginal tax rate, first to 71.75 percent in 1970, as the unemployment rate increased to 5 percent, and then to 70 percent in 1971, as unemployment jumped up to 5.9 percent.  Talk about those "job killing taxes," huh?

             During the Nixon and Ford administrations, the top marginal tax rate remained at 70 percent, while unemployment fluctuated from a low of 4.8 percent in 1973 to end at 7.7 percent in 1976.   Meanwhile, the combined on-budget and off-budget deficit, i.e. the amount of money borrowed to pay for governmental operations in addition to tax revenues,  jumped from  $2.842 billion  in 1970, the beginning of modern day deficit spending, to $73.73 billion in 1976 under Ford.  Meanwhile, the growth in GDP had slowed to a meager 2.6 percent.

            This trend continued throughout the 20th  Century and into the 21st.   Jimmy Carter maintained the top marginal tax as reduced to 70 percent, continuing with combined deficits between $40.7 billion and $73.8 billion, while unemployment continued to hover between 6 and 7 percent.  He did manage to increase the rate of growth in GDP to +3.25 percent.  After Carter, deficit spending combined with low taxes really skyrocketed under Reagan, with no real improvement in the 6  to 7 percent rate of unemployment he inherited from Carter. 

            Reagan began in 1981 with a top marginal tax rate of 69.125 percent, and unemployment at 7.6 percent.  He reduced the top marginal tax to 50 percent in 1982, and unemployment soared to 9.7 percent, despite the fact that he increased the combined deficit to $127.977 billion, an increase of $54 billion over Carter's highest deficit.  Unemployment increased to 9.6 percent in 1983, despite the lower 50 percent top tax rate, and Reagan increased the deficit to $207.802 billion, almost three times the top Carter deficit. 

            Over the remainder of Reagan's administration, unemployment began to come down again, into the 6 to 7 percent range between 1984 and 1987, and then 5.5 percent in 1988.  Meanwhile, the growth in GDP under Reagan was just +3.4 percent, marginally better than Carter's despite the significantly lower tax rate and significantly higher combined deficits.  Things did not improve under G.H.W. Bush.

            The top marginal tax rate under Bush senior began at Reagan's low 28 percent, with the rate of unemployment holding at over 5 percent in 1989 and 1990.  The tax rate increased to 31 percent in 1991, and unemployment increased to 6.8 percent and then 7.5 percent by the end of Bush's term in 1992.  Meanwhile, under Bush senior, the combined deficit had soared from $152.6 billion to $290.3 billion, while the GDP growth rate  dropped to 21.7 percent.  That was the situation that Clinton inherited in 1993.

           Clinton began by increasing the top marginal tax rate to 39.6 percent, and reducing the combined deficit to $255 billion in 1993, with 6.9 percent unemployment.  During his first term, while  the top marginal tax rate remained up at almost 40 percent, both unemployment and the combined deficit steadily declined.   Then, in 1998, with unemployment still declining, chronic, increasing deficits that began under Nixon were erased and there was a modest $21.9 billion surplus. 

          During Clinton's second term, while  the top marginal tax remaining at nearly 40 percent, that surplus increased to $236.1 billion by the year 2000, while unemployment plummeted to 3.9 percent in 2000, the lowest it had been since Nixon took office and began cutting taxes while increasing deficits.  When Clinton left office, the GDP growth rate had increased to +3.88 percent, better than Reagan with his lower taxes, higher unemployment and  record setting deficits, and the highest it had been since LBJ.

          What happened next, under George W. Bush, with a GOP Congressional majority for the first six years, was an era of gross ideologicallydriven incompetence, with wildly cutting taxes and returning to multi-billion dollar deficits, leading to the worst economic collapse in American history since 1929.  When Bush took office in 2001 and lowered the  top marginal tax rate to 39.1 percent, the Clinton era surplus plummeted to only $128.6 billion, and unemployment climbed back up over 4 percent.  Bush then dropped the top marginal tax to 38.6 percent in 2002 and to 35 percent in 2003, where it has remained through 2011.

          The Bush tax cuts were combined with increasingly huge combined deficits, breaking Reagan's record, going from $157.7 billion in 2002 to $426.5 billion in 2005.  Bush wasn't spending less than Clinton, but he was paying for governmental services with more borrowed money and fewer tax revenues.  Meanwhile, this had no appreciable effect on creating more jobs.  Unemployment under Bush varied from a low of 4.6 percent to a high of 6 percent in 2003, despite lower taxes.  Over the eight years since Bush took office, unemployment averaged almost 5.2 percent.  Even discounting 2008 when the economy collapsed, the unemployment rate averaged 5.1 percent under the Bush tax cuts. 

             Under Clinton, with higher taxes and much lower combined deficits leading to surpluses, the 8-year average for unemployment was 5.0 percent, and that figure declined steadily year to year.  Clinton had to start with the high unemployment and hundred billion dollar deficits he inherited from Bush senior, high numbers that obtained despite the low 31 percent top marginal tax rate.  Thus, during Clinton's second term, with the top tax rate at just under 40 percent, unemployment in 1997 was 4.1 percent and declined to 3.9 percent in 2000, with a four year average of 4.2 percent.  Again, tell me all about those "job killing taxes," will ya.  Meanwhile, during those same four years, Clinton went from a small  combined deficit of $21.9 billion to a whopping surplus of more than $236 billion.

              Bush, however, started with the low 3.9 percent  unemployment and high combined surplus that Clinton created and proceeded, with lowering taxes and increased  borrowing, to create an unstable economy with unemployment yo-yo-ing between 4.6 percent and 6.0 percent.  And the rate of GDP growth dropped to +2.09 percent, even lower than under Bush senior - the lowest growth rate in the modern era.

            Thus, despite what Ayn Rand, Ronald Reagan and their  GOP disciples would have you to believe, with  their knee-jerk, anti-tax, small government ideology, there is no clear relation between lower taxes and creating jobs. In fact, based on the historic record under both a traditional Republican like Eisenhower and several Democratic Presidents including Kennedy, Johnson and Clinton, one can conclude that higher taxes combined with less borrowing is what creates jobs and contributes to increased growth in GDP as well.  That's what the numbers say looking at the long term.

B.         Higher Taxes & Government Spending Based On Tax Revenues Instead Of Borrowing   Contribute To Better Paying Jobs Within A Healthier  Economy

           Thus far, we've been looking only at job numbers as they relate to the top marginal tax rate, but there's another  significant factor to consider when talking about jobs and taxes, and that is how well workers are paid.  Here, over the past 30 years, we have seen only modest growth in middle class and working class incomes since 1977, adjusted for inflation.  This is a period when worker productivity increased markedly and the wealth and income gap between the wealthiest Americans and the middle class increased to unprecedented levels. 

           Between 1977 and 2007, the median American' inflation adjusted household income increased by 14.5 percent.   The sharpest increment over that 30-year period, at +14.5 percent, occurred during the Clinton years, after he increased the top marginal tax rate to nearly 40 percent. That growth in median  household income dropped sharply during the Bush administration, despite his tax cuts for the wealthiest Americans.  Even without counting the economic debacle of 2008, the growth in median household income over the first seven years of the Bush tax cuts, adjusted for inflation, was only +1.6 percent.  If we count  2008, the growth rate sinks to a negative 2.0 percent, the worst since the drop to -4.9 percent under Bush senior.

            Some readers, those who cannot or will not grasp the reality of these numbers will undoubtedly say "Aha!"  Look at that 14.5 percent rise in inflation adjusted median household income over 30 years -so what's the problem?  A rising tide floats all ships, right?  Wrong!   That 14.5 percent rise is for median household income, which is simply a number that floats, abstractly, in the middle between the highest 50 percent and the lowest. It is not the same as the modal, which means the number which occurs most frequently, or the mean which is what most of us refer to when we say "average," based on adding all the incomes up and then dividing that sum by the number of incomes.

            Also, the median household income means the income that is brought into the home by all earners combined, a working father, a working mother and working children over age 15, based on reported income.  The reality today, with both parents working just to make ends meet, is quite different from that of the 'fifties and 'sixties where families could survive on a single income.  When it thus takes two or three wage earners today  to equal what one wage earner used to take home, that shows that average American  workers have experienced a  serious decline in personal income based on inflation adjusted earnings over the past 30 years.

            The reality today, despite the rise in median household income, is that the disparity between the richest and the poorest Americans, and between the wealthy and the middle class as well, has increased so much that the mean increase in household income for 90 percent of Americans over the past thirty years, adjusted for inflation,  is just under $300 per year. 

             Meanwhile, as the national economy has about doubled over the past 30 years, so has the share of national income taken by the wealthiest 1 percent, from 10 percent of all earnings annually to 20 percent. The median compensation for top executives for 200 major American corporations last year was $9.6 million, and the total compensation for Wall Street was $135 billion -at least the amounts that were reported on the books.            

           In addition to the vast amounts of  "earned" income being taken tax-free by the wealthiest Americans, the capital gains tax has been reduced from 35 percent in the late 1980s to 15 percent today. Theoretically, the reason for lowering the tax on capital gains, i.e. the earnings from investment as opposed to labor, is that the tax savings will be used to invest in companies that create good jobs here in America. That, however, is just another GOP myth as has been seen over the past twenty-years.

        Manufacturing jobs, the kind that used to pay good wages to skilled workers here in the U.S., have been shipped wholesale overseas.  Meanwhile, the typical American today works in a service industry, flipping burgers for low wages or working in finance for slightly better wages.  Over the past 30 years, finance has supplanted manufacturing as a major component of our GDP, so instead of producing manufactured goods we can sell overseas, we buy them from places like China, and our workers are producing financial "products" instead, things like the securitized mortgage packages sold by the deregulated Bush era banking/investment industry that caused the crash of 2008. 

             Thus, not only has the lower 15% capital gains tax failed to produce the jobs that the corporate class promised, it has helped bring America to the brink of bankruptcy by encouraging investors to put more money  into irresponsible, speculative get-rich-quick schemes instead of real, job-creating enterprises that produce goods we can sell overseas.  And isn't it just wonderful, by the way,  that those highly "creative" bankers who put those investment packages together, working risk-free with other people's money, got to claim the 15% capital gains tax rate for the commissions they "earned," without putting so much as a dime of their own money into the pot.

           One other GOP myth is also exploded by the long term data, and that is the notion that "wasteful" government spending is what kills jobs and causes the massive deficits we are living under today.  That myth should have been blown out of the water by the Clinton surpluses, when he continued to spend on a wide range of government programs but paid for it with increased tax revenues instead of borrowing. The result, during Clinton's second term, was not only the lowest level of unemployment since Eisenhower but the highest rate of GDP growth since LBJ combined with the highest growth in median household income over the past 30 years.

             Compare that with G.H.W. Bush's numbers when, with a significantly lower tax rate, unemployment increased from 5.2 percent to 7.5 percent, while deficit spending went up incrementally from $154 billion to $290 billion over four years and GDP increased by only 2.17 percent.  Reagan had done considerably better than Bush with growth in GDP at 3.4 percent, still short of Clinton's 3.88 percent, but he did that largely through deficit spending, combining reduced taxes with record increases in the deficit, reaching into  the $100 billions in 1982 for the first time in our history and escalating from there.

            What these numbers tell us, contrary to the GOP shibboleth about "wasteful" spending, is that government plays an important role in stimulating the economy through spending.  Government spending puts money into peoples' pockets, whether you think they "deserve" it or not, and they go out and spend that money in local economies all across America.                

           Government spending, in turn, creates jobs all across the United States, as opposed to Singapore, putting more people to work, and that work is what reduces unemployment and creates growth in the GDP.  Don't just take my word for it, look at the numbers and think about what they mean -comparing what in fact happened during the Clinton years with higher taxes and surpluses instead of deficit spending, as opposed to either Bush senior or Reagan with lower taxes and deficits in the hundreds of billions.  Look, too, at what happened during the administration of George W. Bush, with lower taxes, a return to multi-billion dollar deficits and deregulation of the banking industry.

            Today, however, thanks to those Bush tax cuts, while applications for unemployment benefits are increasing, the Commonwealth has just closed the unemployment offices here in Falmouth and in Orleans, which means that people out of work will have to make a 60-mile or more round trip drives, burning $4.00 per gallon gasoline this summer, to collect their "wasteful" jobless entitlements that the GOP wants to reduce.  Meanwhile, Exxon Mobil has reported a profit of more than $10 billion this past year, and other oil companies like BP have also reported multi-billion dollar profits.  What's really "exceptional" about  Americans is that so many of us don't see the connection between these two facts, due to ideological blindness induced by the GOP's mindless "small government," anti-tax propaganda. 

             What the long-term  data shows,  i.e. our actual economic experience over the past sixty years or so,  clearly contradicts everything we're hearing from the right wing GOP ideologues in Congress and the airwaves, shouting their mindless slogans about "job killing taxes" and "wasteful" government spending -and it's all too easy to just nod our heads and agree because,  justifiably, many of us are mad as hell about what has happened over the past 30 years to our once thriving American economy.  It's easy to just lash out at a bogeyman like Obama or Kennedy because you don't agree with their positions on "values" issues like gay rights, and to lash out at  the "welfare queens" and "illegal" immigrants too.

           It's far more difficult, however, to put ideology and wishful thinking aside to look at the cold, hard facts of our economic reality over the past 70 years,  which clearly tell us that higher taxes on the rich do not "kill" jobs.  Instead, what actually kills  jobs is cutting taxes for the rich and then using the reduced tax revenues as an excuse to cut back on government spending on  selected programs based on ideological rather than pragmatic considerations.   

           What kills jobs is letting the corporate class run roughshod  over the middle class and working class, paying less than what our labor is worth and paying less than their fair share of taxes, solely to increase their own exorbitant portfolios and enhance their own exorbitant egos, while  their Republican "leaders" in Congress and the White House reward them with lower tax rates and deregulation.

          What kills jobs is a clueless electorate voting for GOP candidates who spout mindless slogans about abortion, about gays, about school prayer, about "illegal" immigrants, about "patriotic" flag-waving to support overseas resource wars -whatever it takes to keep a closed mind off  our economic reality. That reality is that  the wealthy have been conducting a class war right here in America against the middle class and working class for three decades, by busting unions, by shipping jobs overseas to keep wages down and by manipulating gullible people with emotion laden "values" issues into electing hack politicians who will let them get away with shipping jobs overseas and paying less than their fair share of taxes.

C.        It's Long Past Time For America To Wake Up And Return To Real Market Pragmatism As       Opposed To "Free Market" Ideology As The Basis Of Our Tax And Regulatory Policies.

          We can  all agree that it would be wonderful if lower taxes somehow induced the rich folks to invest in creating jobs here in the U.S. instead of overseas but, unfortunately, that has been proven to be nothing but a myth.  I don't say this as a matter of ideology, because I would really like to live in a world where businessmen and investors made decisions and willingly paid taxes to benefit society as a whole, i.e. to contribute to the Constitutional ideal of promoting the "general welfare."  That would truly be "exceptional," but it just ain't so.

          The unexceptional  reality, however, is that businessmen and investors are interested primarily in maximizing their own profits, and that self-interest, contrary to Adam Smith's free-market, "invisible hand" nonsense, has failed miserably to promote the general welfare of We the People of the United States.   That reality is why Congress must exercise its Constitutional power under the tax clause, Article I, Sect. 8, as President Obama has stated, to increase taxes on the wealthy in order to promote the general welfare of all Americans.  Such a necessary tax increase  will not "kill jobs" as GOP hacks like Boehner, McConnell and Ryan are incessantly bleating based on nothing but ideology, but will do just the opposite as shown through our historic experience and more recently by Clinton's pragmatism.

         What has succeeded historically, as a practical matter supported by the long term data, is the role of government both taxing and spending pragmatically  to foster a healthy economy with low unemployment and high growth in GDP and household incomes.  Meanwhile, true believers in the GOP ranks,  like John Boehner, Mitch McConnell and Paul Ryan, base their economics on the fictional writings of novelist  Ayn Rand as articulated by B-movie actor Ronald Reagan. That is the equivalent of basing our science policy on the novels of Jules Verne as articulated by Vincent Price. 

         Alan Greenspan, former Fed Chairman, had been a disciple of Ayn Rand until the crash of 2008, at which time he was honest and intelligent enough to admit that he had been mistaken in putting so much faith in the corporate class to do the right thing with reduced taxes and deregulated markets.   The crash of 2008, coming less than 80 years after the similar crash of 1929, should have put Adam Smith's myth of the "invisible hand" to rest once and for all.  Unfortunately for We The People of  the United States, however, the post-Reagan GOP is populated with rigid ideologues like Boehner, McConnell and Ryan who just don't get it -whose economic theories are based on fiction and ideology and fly in the face of what hard experience has in fact taught us over the past thirty years.

            On a personal note,  I'd  much rather have a randy Bill Clinton in the Oval Office diddling some bimbo like Monica Lewinski  and keeping good jobs here in America by raising taxes and  borrowing less, than a piously smarmy George W. Bush and  a crassly on-the-make  Richard Cheney  diddling us by letting good jobs be shipped overseas and  starting trillion dollar oil wars in the mid-East. 

          That oil war in Iraq, by the way, was an indirect "big government"  subsidy to the petroleum industry paid for with the blood of over 4,500 young Americans who died there, plus  that trillion dollars borrowed in our name instead of  making the corporate beneficiaries of that resource war, and the one  in Afghanistan, pay their fair share of the cost.   That is in addition to the direct reduced tax-subsidy the oil industry has enjoyed, helping it to show profits in the tens of billions this year while American workers are continuing to apply for unemployment benefits during this prolonged recession.  Now, those subsidies for Big Oil, as opposed to benefits and entitlements for average Americans,  are  what I call "wasteful spending" -big time.

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