Sunday, June 1, 2008

Nothing new about Ryan's voodoo economics

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.

4 comments:

Anonymous said...

It must be nice for a college (excuse me MATC) instructor to rip on Rep Ryan. Maybe you should get out of your cushy tax payer funded job and run for office. If you think that the high tax rates of the 50's were the reason why things were good, you are crazy.

Also Mr. Buffet is free to donate more of his money to the government, as you can also. Please write out a bigger check to the IRS on 4/15th.

Mr. Buffet can afford higher taxes, and why would he care anyway, he is already rich. So because he is rich he is an expert on tax policy . The tax cuts have helped lower every American's income taxes. Some are not ever paying federal income taxes now. Tax cuts helped the higher income tax payers, since , they already pay more federal income taxes.

We make about $200,000, and between all of the taxes, social security, medicare, state and local taxes, about 33% is going to fund the government. I ask, is this not enough for you? How much more do you want?

Social security was never meant to be a persons sole means of retirement income, which is what it is now for many people.

It is funny, you rip on Ryan for the touting the old conservative ideas, you and your ilk are touting the same liberal (progressive I think is the new word) ideas.

Anonymous said...

Anon, it is funny how you rip the author and Warren Buffet personally instead of talking about the issues. If you think cutting taxes for people who make over $500K a year is stimulating the economy you are crazy. That is exactly what has led us to the crisis we now face, deteriorating infrastructure, failing schools, and a lack of health care for those most in need.
Social security was designed to be a safety net for people in retirement. How on earth do you expect someone who makes minimum wage to save for retirement? It isn't realistic and shows how flawed your argument is. Social security, medicare, medicaid, these are programs that produce returns for those who pay into them, as well as those who are most vulnerable.
So the question is not how much more the author wants, it is how little do you think you should have to contribute to keep our society afloat? Apparently you and Rep. Ryan feel entitled to all the benefits without having to do anything.

Anonymous said...

Annon 2:

You have no idea what you are talking about. You think that raising taxes on people who make over 500K is going to fix all of those things? If you do I have some swamp land to sell you. Liberals always want more revenue, but never look at the spending side. You are really good at spending or taking other's peoples money.

Social security and medicare and unsustainable programs at their current levels. People are living longer then when the program was initially set-up. Unless you are advocating a 50% increase in taxes, the money will not be there.

I love how the left always uses minimum wage BS. Most people do not stay on minimum wage their whole life, and their are opportunities for someone to better their financial situation. If they chose not to do that, that is a different story.

Bush's tax cuts have helped stimulate the economy and has brought in record levels of money into the Treasury. The problem is that Federal spending increased way too much.

I am all for paying my fair share of taxes, but I think 33% of my income is enough, if you do not think so and believe that I am not doing anything then, excuse my language, but you are clueless moron.

Anonymous said...

anon 1: You are crazy if you think us "liberals" are just revenue raisers who never look at spending. The point is to control spending for where it is most needed. Not on misguided wars and benefits for the wealthy.

If the current bush tax cuts have stimulated the economy so much, please explain the current crisis the economy is currently in. It isn't the spending of programs such as social and security that have thrown us into deficit, it is the misguided Iraq war, which racks of trillions of dollars.

And I never advocated for a 50% tax rate, however, I have no sympathy for someone making millions of dollars and paying less than a 15% effective tax rate.

The issue at hand has nothing to do with your personal attacks on liberals. The point of the government is to maintain basic security and public order, not to enrich a few at the expense of the rest.