Friday, April 3, 2009

The joke is on us

As surely as the sun rises in the east and sets in the west, Republicans will offer tax giveaways to the wealthy as the cure-all for surpluses, deficits, boom times, and recessions. The government’s Office of Management and Budget communications director Kenneth Baer said this about the Republican alternative budget, "I have two words for you: April Fool's."

Just to give you some context, as the Center for American Progress noted, the Bush tax cuts delivered a third of their total benefits to the wealthiest 1% of Americans. Their payday was staggering. As the Center for Budget and Policy Priorities detailed in 2008, in 2007 millionaires on average pocketed $120,000 from the Bush tax cuts of 2001 and 2003. Those in the top 1% were allowed to keep an extra $45,000 a year! As a result, millionaires saw their after-tax incomes rise by 7.6%, while the gains for the middle class and poor were basically stagnate.

As the Republicans try to give away billions to those who are already living high on the hog, what do they budget for health care, research on renewable energy, natural disasters, or to bring down the deficit? Do they actually put the cost of the Iraq and Afghanistan wars in their budget as Obama did in his?

While the Democratic budget cuts taxes for middle class families, and makes critical investments in health care, education and clean energy, the Republican budget released on Tuesday called for "a marginal tax rate for income up to $100,000 of 10 percent and 25 percent for any income thereafter," which would result in a massive reduction in government revenue and another generous tax break for the wealthy. They also propose to cut taxes for business, freeze most government spending for five years, halt spending approved in the economic stimulus package, and slash federal health programs for the poor and elderly. The Republican budget plan would gradually eliminate the traditional fee-for-service Medicare program, offering a stark alternative ‘voucher’ plan so the elderly would have to buy their insurance on the open market.

But please beware, Republicans are playing a shell game with the numbers: You, the taxpayer would get to choose whether you want the new tax rate or the old tax rate. This is how the Republicans offer the tax cut without factoring it into the budget's revenue – suggesting that Americans won't actually take advantage of the lower rates. Instead, the GOP budget permanently extends President Bush's 2001 and 2003 tax cuts. A Republican budget committee aid said that the revenues assumed in the GOP budget are based on the current tax structure. In other words, in order to give you, the public, a more favorable picture of the deficit their budget would create, Republicans are making the assumption that Americans will choose the higher rate – hence, the shell game.

Under the current tax code, an individual making more than $160,850 pays a 33 percent rate; under the Republican plan, that taxpayer could choose to pay 25 percent instead. (For a family, the income threshold is $195,850.) For a family earning more than $349,700, the rate rises to 35 percent, but filers could still choose the 25 percent rate. If taxpayers did decide to pay the lower rate, government revenue would plummet by roughly $300 billion per year, said economist Dean Baker of the liberal-leaning Center for Economic Policy Research. This would effectively gut most domestic programs such as healthcare and renewable energy research.

A study by the non-partisan ‘Center on Budget and Policy Priorities’ demonstrated that the Bush tax cuts accounted for half of the mushrooming deficits during his tenure in the White House – and yet Republicans want to do more of the same. What’s worse, the Republicans have not put forward any credible deficit-reduction plans. Their main alternative to Obama's stimulus plan is a $3.6 trillion tax cut for the wealthy that will add that same amount to the national debt.

Once again Republicans want to give an overwhelming share of tax cuts to wealthier Americans. Yet the GOP plan fails to invest in high priorities such as education, infrastructure, public safety and biomedical research. And their plan for Medicare is that workers under the age of 55 would no longer be allowed to buy into the program but instead receive insurance premium subsidies. The Medicare move would gut the program and turn it into a voucher system. The Republicans are basically saying to the retired and elderly who often cannot qualify for insurance on the open market “here’s a small amount against your insurance premium – if you can find someone who will insure you.” The amount of the voucher would all too quickly fall behind the rising cost of health care.

Some of the features of the GOP budget are:

• Rescinding the newly passed economic stimulus package in 2010, except for unemployment insurance for those who have already lost their job;
• Freezing non-defense, non-veteran spending;
• Converting Medicaid into an allotment to states. Turn Medicare into an insurance voucher system. (Keeping current Medicare secure for those who are now over 55.)
• Privatize Social Security – if you lose the money in the stock market it will be your tough luck;
• Make permanent the 2001 and 2003 tax cuts while setting up a parallel, simplified tax code that taxpayers could opt-in to. Taxpayers would have a choice of keeping the current system, or choosing one that would tax couples making $100,000 (or individuals making $50,000) at a10% rate and taxing those above at 25%.
• Cutting the corporate tax rate to 25% as a “job-creating measure”;
• Increasing offshore oil drilling; no cap-and-trade;

Here is a graph from Republican Paul Ryan's Wall Street Journal op-ed on the subject, because it's a blatant exaggeration. They are saying that this is based on Congressional Budget Office's Long-Term Alternative Fiscal Scenario, but the CBO has never done an analysis that runs through 2080. This graph supposedly compares the Democratic Budget and the Republican Alternative based on spending as a percentage of GDP all the way up to 2080:

The Congressional Budget Office has scored the Obama budget only through 2019, and it looks like this:

Apparently, Paul Ryan and his staff just took the CBO projections (above) that end in 2019 and drew a random line, extending upward at about a 45 degree angle, until 2080.

Census Bureau data reveal large, consistent differences in patterns of real pre-tax income growth under Democratic and Republican presidents since World War II. Democratic presidents have produced slightly more income growth for poor families than for rich families, resulting in a modest decrease in overall inequality. Republican presidents have produced a great deal more income growth for rich families than for poor families, resulting in a substantial increase in inequality. How can the average citizen not see that Republicans are in bed with the wealthy?

OMB’s Kenneth Baer was correct – the joke is on us.