First District Congressman Paul Ryan is generating a lot of publicity for proposing "A Road Map for America's Future."
It's not surprising that Republican insiders have enthusiastically praised Ryan's proposal. Their electoral prospects are bleak because their presumptive nominee, John McCain, is running as the heir to President Bush's failed and unpopular presidency. But the mainstream media has also parroted this unwarranted praise.
Ryan's Milwaukee Journal Sentinel op ed on his proposal was entitled "A blueprint to address our financial crisis now." But if you are looking for fresh ideas on how to respond to the sub prime crisis, the explosion of home foreclosures, the bursting of the real estate bubble and the financial meltdown that followed, you will be disappointed. There is nary a word here.
Instead, Ryan resurrects the traditional Republican bogey man,"the explosion of entitlement spending" as the "greatest threat to our nation's long term economic health."
He takes aim at Social Security and Medicare, the two most successful social welfare programs in U.S. history, using chicken little actuarial assumptions that manufacture a crisis designed to undermine popular support. (This will be the focus of separate article/blog.)
These are hardly new conservative targets. Social Security has been a focus of Republican opposition since the 1930s when conservatives opposed the creation of our national retirement and disability insurance program. Republicans also opposed establishing Medicare in 1965 arguing that it would lead down the slippery slope of national health care
The facts, of course, tell a much different story about the causes of the nation's deficits.
President Bush's high income tax cuts enacted in 2001 and 2003 with Ryan's support are responsible for fully 47% of this decades (2001-2011) record deficits according to Congressional Budget Office data.
The $10 billion a month war in Iraq, another failed Bush policy supported by Mr. Ryan, the war in Afghanistan and homeland security account for an additional 37%.
Entitlements, only 9%.
Ryan's solution-more upper income tax cuts, including the elimination of capital gains, dividend, estate taxes and corporate income taxes- are neither bold or new.
They are a continuation of Bush's high income tax cuts.
Capital gains and dividend taxes which Ryan proposes we eliminate have already been slashed to much lower rates (15%) than earned income (35%). As a consequence, hedge fund managers who make billions of dollars managing other wealthy people's money, pay lower tax rates that auto workers, nurses and secretaries.
Warren Buffet, the third-richest man in the world, acknowledged this when he criticised the US tax system for allowing him to pay a lower rate than his secretary or cleaning lady. Mr. Buffett reports that he was taxed at 17.7 per cent on the $46 million he made in 2006, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.
The inheritance tax , another Ryan target, doesn't even kick in unless an estate has more than $2 million in assets. Only one percent of American estates, mainly the Rockefeller, DuPont, Vanderbilt and Kennedy's heirs, pay this tax. Ninety-nine percent of estates pay nothing.
There is no evidence that reducing these taxes leads to increased productive investment. Mr Buffett argues the opposite-that the Bush high income tax cuts have accentuated a disparity of wealth that hurts the economy by stifling opportunity and motivation.
Ryan also proposes reducing the number of income tax rates from five to two, and reducing marginal rates. He resurrects the long discredited argument that the revenue the federal government loses, estimated at $5 to $7 trillion, will be more than replaced as the economy grows and generates additional taxes.
George Herbert Walker Bush called this "voodoo economics" when it was proposed by President Reagan in 1980. The huge Reagan deficits which nearly tripled the national debt proved him right. Even N. Gregory Mankiw of Harvard, a proponent of tax cuts who chaired the Council of Economic Advisers in the Bush White House. projects that every $1 trillion in tax cuts adds $830 billion to the national debt.
The Congressional Budget Office in a study published under conservative, economist Douglas Holtz-Eakin's leadership, estimated that tax cuts would at best stimulate enough economic growth to replace only 22 percent of lost revenue in the first five years and 32 percent in the second five. On pessimistic assumptions, the growth effects of tax cuts did nothing to offset revenue loss.
Ryan also calls for eliminating the corporate income tax and implies that it is responsible for the nation's sluggish economic growth. The facts again suggest a different story.
In the 1950 and '60 when the United States had its highest post-World War II growth rates, the nation had much higher marginal income and corporate tax rates.
The federal government invested these revenues in its people through the GI Bill, the National Defense Education Act (1958), and the expansion of higher education; in its infrastructure. including the largest public works program in the nation's history, the National Interstate and Defense Highway Act; and into research and science, the National Aeronautics and Space Administration and the Defense Advanced Research Projects Agency. We can thank the former for satellites, Tang and TV dinners and the later for the Internet.
These strategic investments created the human capital, the ideas for new consumer products and capital goods and the infrastructure that stimulated increased productivity, economic growth, increased wages, and the growth of the American middle class.
There is nothing bold, courageous or new in a proposal that amounts to cutting taxes on the richest Americans. The United States has pursued this course for almost thirty years. The result has been declining or stagnate wages for 80% of the country's workers, anemic growth, rising inequality, deteriorating public schools, financially strapped public universities and colleges, 47 million without health care, record deficits and a huge increase in the national debt.
Ryan's proposal to cut the taxes of the wealthiest American is neither bold or courageous. It is simply another version of voodoo economics.