Friday, April 23, 2010

The Journal Sentinel's latest man bites dog story

In the Milwaukee Journal Sentinel's latest man bites dog story Katelyn Ferral writes:

More than 65% of Midwest chief financial officers and senior comptrollers said cutting corporate and personal income taxes is the best way to create jobs, according to a national survey conducted by Grant Thornton this month.

Thirty-five percent of those polled said cutting personal income taxes would be most effective in creating employment opportunities, while 32% said cutting corporate tax rates would best allow companies to hire.

What will the MJS tell us next, that alcoholics prefer beer to sparkling water?

Economic policy, including tax policy, should be based on facts not opinions, even those of highly paid CFOs.

The United States enacted the largest tax cut in its history in 2001 ($1.3 trillion) and followed that up with additional capital gains and dividend tax cuts in 2003.

The total value of the 2001-2003 tax cuts was $1.8 trillion.

More than 50% of the $1.8 trillion tax cuts went to the richest 1%, CEOs and CFOs included who averaged over $900,000 annually.

The result-the weakest job creation of any post World War II business cycle.

If cutting top marginal income rates led to job creation we should have had a job boom. Instead we had the opposite. And a large proportion of the private sector jobs that were created (finance, real estate and construction) were the result of the housing bubble. Once that burst all of those jobs were eliminated.

We experienced much greater job growth during every other post WWII business cycles, including those in the 50s, 60s, 70s and 90s, when the top marginal tax rate was significantly higher than it was during the 2001-2007 business cycle.

High income personal income tax cuts, such as the 2001 tax cuts or those advocated by the CFOs, are weak economic engines because high income earners are less likely to spend their additional income than less affluent people.


Ancient Advocate said...

Right on, Michael. Even though corporations and high income earners are paying less and less of the percentage of tax burden, little effect has been shown on unemployment. Just the facts, man!

Peter said...

Uh oh, Michael, we disagree on something. But I suspect we don't really diverge that much.

Facts, including economic statistics are great figures on which to base decisions. But decision-making, especially on public policy, occurs in a framework of understanding. Facts need to hang on some overarching story, narrative, or understanding of the world.

The question is not what facts are out there -- although I will certainly grant you that the facts show disastrous economic policy for the last 30-40 years. The question is what kind of economic policy should we have. Do we want economic policy that serves to further enrich and empower elites like Big Finance, corporations, and the American aristocracy? Or we do we want economic policy that serves the common good of working people and that re-builds a middle class?

I think we'd both agree that the latter is far more preferable. And while the facts show that this nation's pursuit of the former since at least the Reagan era has been disastrous for our economy, and especially for working people. More of the same isn't going to cut it.

That's because when we make policy choices, cold, context-less facts allow the mis-assumptions of economic elites to rule. They simply have more power and can either twist the facts to suit their narrative or disregard the facts altogether. Especially when it comes to economic modeling, the assumptions one uses at the outset are critical. And when applying that economic research into economic policy, the framework matters most.

Instead, we need to provide a) an explanation of how we got here and b) a framework for understanding both the history and the future. The base of that narrative should be about empowering working people, from tax policy labor policy to industrial policy to trade policy to energy policy to social policy.

The contest in economic policy-making can't be about facts -- we've had them on our side the whole time. The contest must be about whose vision of economic policy rules: that of elites, the right, and the powerful; or that of working people.

As a person wiser than I once said "It's only class war when we fight back," or alternatively, "Yes there is a class war -- being waged from above." It's time for working people to be at the center of economic policy-making, because the facts fit our framework.

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