The Starting Five, 2/3/2015


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.


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



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,



in the face of all this uncertainty, Republicans are more sure than ever that

making tax cuts for the richest Americans permanent is vital.


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.


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.


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.


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.


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.


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.


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.


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.


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.