Tag Archives: Trickle Down Economics

White House economic report calls for cutting corporate taxes

By Andre Damon
February 24, 2015
World Socialist Web Site

 

On Thursday, the White House released its “2015 Economic Report of the President,” presenting it as an argument for “middle-class economics.”

The document seeks to justify Obama’s scheme, spelled out in his most recent budget proposal, to slash corporate taxes by up to ten percentage points. The report attempts to obscure the fact that such a windfall for the corporate-financial elite will dramatically increase social inequality, claiming instead that it will “increase productivity, output and living standards.”

The document falsifies both present economic reality and the development of the US economy in the post-World War II period in order to argue for further pro-corporate “reforms.”

It declares that, in the aftermath of the 2008 Wall Street crash, “a successful multifaceted policy response, including actions by the President, Congress, and the Federal Reserve, combined with the determination of the American people, has enabled the US economy to dig out of that deep hole, putting more people back to work, reducing the unemployment rate, and creating a virtuous cycle in which higher consumer purchasing power supports greater economic activity and job creation.”

In reality, the majority of new jobs have been low-wage, including a large percentage of part-time and temporary positions. Wages have stagnated or declined, and benefits have been slashed. Millions remain unemployed and millions more have dropped out of the labor market.

Combined with virtually unlimited cash handouts to the banks, the lowering of working class living standards has provided the basis for the so-called “recovery”—a recovery for the rich and the super-rich, not the working class.

In his introduction to the report, Obama declares, “Since the crisis, we’ve seen our deficits cut by two-thirds, our stock market double, and health care inflation at its lowest rate in 50 years.”

Here, Obama praises the fruits of his own right-wing policies, including the pumping of trillions of dollars into the banks, the slashing of funding for social programs, and the use of the Affordable Care Act to slash corporate and government health care costs.

The report includes damning acknowledgments of the decades-long redistribution of wealth in America from the bottom to the top, carried out by Democratic and Republican administrations alike. It notes, “In the United States, the top 1 percent has garnered a larger share of income than in any other G-7 country in each year since 1987,” a process that has accelerated under the Obama administration.

The report shows that, since 1973, the income share of the top 1 percent in the US has ballooned from 7.7 percent of the total to 17.5 percent, while the income share of the bottom 99 percent has fallen from 68.1 percent to 53.0. The document also notes that the labor force participation rate, particularly for males, has plunged in recent decades.

However, it presents the growth of social inequality as though it were an entirely impersonal process, the result of cosmic forces divorced from the struggle of social classes and the policies of governments and politicians.

This is deliberate. The aim is to grant the American ruling class and its two corporate-controlled parties a political amnesty for the ruthless offensive they have carried out against the vast majority of the American people. This, in turn, facilitates the attempt to dress up right-wing, pro-corporate proposals for future action in “progressive” and even “egalitarian” trappings.

The growth of social inequality is directly bound up with a decades-long assault on the American working class. The president’s report purports to review the economic history of the US since World War II, but fails to mention any of the key events in the escalating ruling class offensive.

There is no mention of the near-bankruptcy of New York City in 1975, which was used to impose a de facto banker’s dictatorship and sweeping cuts in municipal workers’ jobs and compensation. Similarly passed over in silence are the 1979–1980 bailout of Chrysler, which was used to begin the wave of wage and benefit concessions that have continued ever since, the 1981 smashing of the PATCO air controller’s strike and ensuing decade of strike-breaking and union-busting, and Obama’s forced bankruptcy of GM and Chrysler in 2009, which included the halving of the wages of all newly hired workers. Nor is there any mention of the relentless attack on social programs at the federal, state and local levels.

In a report whose main proposal is a drastic lowering of corporate taxes, there is no examination of the relationship of taxation to inequality—for example, the fact that inequality has soared in parallel with the repeated cutting of the top personal income tax rate from 90 percent in the early 1960s to the present level of 35 percent.

While the more than 400-page document is full of generalities and amorphous proposals, it gets right down to business when arguing that taxes for US corporations should be slashed. The report declares that “business tax reform offers the potential to boost productivity by improving the quantity and quality of investment in the United States.”

This is the standard free market pabulum that was once the province of the Republican Party. In Reagan’s day, it was known as “supply side” economics. It has since been fully embraced by the Democrats.

The basic conceit is the assumption that the corporate ruling elite will use its increased wealth from lower taxes to invest in new production, hire more workers, raise productivity and, with it, wages. But the White House Council on Economic Advisers, which drafted the report, acknowledges therein that productivity has been rising in the US since 1995 while wages have stagnated, and that the current “recovery” has seen a level of corporate investment far below that of previous recoveries.

The authors write, “Investment spending has grown more slowly than usual for a business‐cycle expansion.” They note that instead of investing, “corporations used a good part of those funds to buy back shares from their stockholders,” pushing up stock prices.

In other words, the ruling elite has used the windfalls provided from virtually free cash from the Federal Reserve, falling wages and benefits, and increased exploitation of workers—compliments of its political servants in Washington—to further enrich itself. It has taken advantage of the largesse of the Fed and the White House to expand its parasitic activities at the expense of the productive forces and the working class.

There is not the slightest reason to doubt it will continue to do so after its taxes have been reduced further, something of which the Obama administration is fully aware.

Meanwhile, the reduction in government revenues will be used as an argument for further cuts in social programs and workers’ wages and pensions.

GOP Rule Change in Congress Signals New Dawn for ‘Voodoo Economics’

‘Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed.’

By Jon Queally
January 7, 2015
Common Dreams

 

Republican Speaker of the House John Boehner wields the gavel for the first time after being re-elected as the Speaker of the House of Representatives at the start of the 114th Congress on Jan. 6, 2015. Among the GOP's first act was imposing a new rule on non-partisan agencies to institute new prediction models that will be more favorable to trickle-down economic policies. (Photo: Jim Bourg /Reuters)

Republican Speaker of the House John Boehner wields the gavel for the first time after being re-elected as the Speaker of the House of Representatives at the start of the 114th Congress on Jan. 6, 2015. Among the GOP’s first act was imposing a new rule on non-partisan agencies to institute new prediction models that will be more favorable to trickle-down economic policies. (Photo: Jim Bourg /Reuters)

 

A seemingly arcane rule change passed by the House of Representatives on Tuesday night signals that a new wave of tax cuts for the wealthy and what has long been criticized as “voodoo economics” will again be in vogue as the new Republican-controlled Congress sets the agenda in the new session.

Along with a host of other rules changes that will govern procedural issues in the House over the next two years, at issue here is a rule that will force both the Congressional Budget Office (CBO) and the Congressional Joint Committe on Taxation (JCT), the two nonpartisan groups tasked with scoring the economic impacts of proposed legislation, to use projection models that include what is called “dynamic scoring.”

According to current lawmakers opposed to the change, the impact could be devastating. That view is also shared by outside economists and progressives who say that demanding the CBO to make expansive and unsupported predictions about the possible macroeconomic implications of new laws is akin to “cooking the books” and a proven failure when it comes to obtaining accurate, unbiased analysis on behalf of the American people.

Voicing objection ahead of the rule change on Tuesday, Rep. Chris Van Hollen (D-Maryland) and Rep. Louise Slaughter (D-NY) wrote an op-ed in Politico in which they argued that recent decades have clearly shown that the GOP’s “trickle down” economic policies have failed. “But instead of changing their approach to budgeting,” the pair wrote, “Republicans want to change the evidence.” They continued:

It may be tempting to dismiss this change as just an accounting issue. But they are rigging the rules in favor of windfall tax breaks to the very wealthy and big corporations who can hire high-priced, well-funded lobbyists—once again choosing to leave behind working families. Their plan would further distort the nation’s fiscal outlook by applying this scoring model only to tax cuts—not the economic impact of investments in education, healthcare, infrastructure, and other areas. That means that the value of tax cuts to the economy would be exaggerated, and the value of investments in the middle class would be undercut.

Though the Senate has yet to vote on new rules for its new session, expectations are that it will impose matching rules on the CBO and the tax committee. In a statement released just ahead of the rule change in the House, Sen. Bernie Sanders (I-Vt.) called the move a dangerous “gimmick” and vowed to fight the effort in the Senate.

“They call it ‘dynamic scoring.’ In fact, it’s a gimmick to help justify more tax cuts for the wealthy and profitable corporations. It’s what the first President Bush called voodoo economics—and he was right,” Sanders said. “The purpose of dynamic scoring is to conceal—not reveal—how Republican policies will affect the economy.”

As former Secretary of Labor and professor of public policy at UC Berkeley Robert Reich explained recently:

Dynamic scoring is the magical-mystery math Republicans have been pushing since they came up with supply-side “trickle-down” economics.

It’s based on the belief that cutting taxes unleashes economic growth and thereby produces additional government revenue. Supposedly the added revenue more than makes up for what’s lost when Congress hands out the tax cuts.

Dynamic scoring would make it easier to enact tax cuts for the wealthy and corporations, because the tax cuts wouldn’t look as if they increased the budget deficit. […]

Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed.

In a recent op-ed for the New York Times voicing his opposition to dynamic scoring, Edward D. Kleinbard, a law professor at the University of Southern California and a former chief of staff of the JCT, said the Republican Party’s interest in the controversial model “is not the result of a million-economist march on Washington,” but rather, “comes from political factions convinced that tax cuts are the panacea for all economic ills.” The GOP, he continued, will “use dynamic scoring to justify a tax cut that, under conventional score-keeping, loses revenue.”

Sen. Sanders, however, says you don’t need a new measuring stick to show what happens when you cut taxes for the wealthy and powerful. “What history shows,” Sanders said, “is that when you give tax breaks to the rich and large corporations, the rich get richer, corporate profits climb and the federal deficit soars. In these difficult times, we need realistic economic projections, not discredited theories, not voodoo economics.”