Everybody's in a twist about America's budget deficit. I just saw a 30-second spot that shows a bunch of all-American school kids saying the pledge of allegiance, except they begin by pledging to China, for keeping us in hock. The idea is that our government's fiscal policies are going to stick our kids with crummy jobs and a lower standard of living.
I don't know anyone who's for crummy jobs and a lower standard of living. And while there's a debate over how much the government needs to spend to keep our economy on life support during this recession – or whatever you want to call it when one in ten of us is unemployed with no relief in sight – there is general agreement that the size of the national debt is scarifying and unsustainable.
The world seems upside down. A large portion of our manufacturing base has either been shipped overseas or eliminated by technology. Today, for example, General Motors employs 52,000 hourly workers; in 1970 that number was 468,000. Housing values, once considered the surest investment a family could make, have fallen. Now some people owe more than their houses are worth. Young adults with college degrees, supposedly their tickets to lives as rewarding as their parents', are lucky to get minimum wage jobs in retail stores and cafes with few, if any, benefits.
Yet, in the face of all this uncertainty, Republicans are more sure than ever that making tax cuts for the richest Americans permanent is vital.
George W. Bush enacted these cuts just after being elected president in 2001. He claimed they would create more jobs because most new jobs are created by small businesses. Tax cuts for the owners of those businesses were supposed to enable them to add more workers. Bush also hoped that putting more money in the pockets of the wealthy would spur greater consumption.
But as economist Robert H. Frank wrote in 2005 in The New York Times, this policy "rests implicitly on the premise that if business owners could afford to hire additional workers, they would. But whether owners can afford to hire is not the issue. What matters is whether hiring will increase their profits." Employment actually remained relatively flat under Bush, as many owners found that not hiring enhanced profitability. That trend continues today.
And as to the rich consuming more, thus allowing for a trickle down to working stiffs – well, it turns out the rich, to paraphrase F. Scott Fitzgerald, really are different. They put their money into property, imported luxury items like sports cars, and, most of all, they save. So there's very little windfall there for the rest of us.
Bear in mind, American corporations today are sitting on over a trillion dollars in cash. Are they using this to grow their businesses and make new hires? No, they're beginning to pay it out in dividends to shareholders.
When Bush enacted his tax cuts, a group of over 400 Nobel Prize-winning economists warned this would increase the national debt. They (abetted by Bush's decision, still ongoing under Obama, to pursue wars in Iraq and Afghanistan) were proved correct. When Bush assumed office, the gross national debt was around $5.8 trillion. When he left, it had reached over $10.6 trillion – the single biggest increase under any president in history.
Republicans' belief in the virtues of the rich – which, to a great degree, corresponds to the level of their own self-satisfaction – can sometimes resemble magical thinking. If, they argue, Obama has his way and rolls back tax cuts for the wealthiest Americans, which, remember, only represents a hit to the portion of their income above a certain level, from 35 percent to 39.6 percent, awful things are bound to happen.
Let's put this in perspective. When Dwight Eisenhower was president in 1953, the tax rate wealthy Americans paid on the top portion of their earnings was 93 percent with a 91 percent tax on capital gains. Did people stop being rich under Eisenhower? Were wealthy families forced to abandon their Park Avenue apartments and sell grandma's jewels? The Gross National Product more than doubled, and there were substantial increases in per capita income and real purchasing power. Think the rise of the suburbs. A boom in college education. In short, the American middle class came into its own.
As for the argument that a modest increase in taxation on the wealthiest Americans will smother small business owners, the Brookings Tax Policy Center estimates that only 1.9 percent of small businesses are in the tax brackets that would be affected. About half that number aren't even small business owners, but high-income investors who get part of their income from small businesses.
Finally, think about this: The Office of Management and Budget projects that rolling back upper income tax cuts will generate about $678 billion in revenues over ten years. That's a good start on dealing with the deficit. If we get serious about demanding accountability for the all the money even conservatives say we waste on defense, we might get a handle on this thing.