Jobs, tax cuts and economic stimulus

Dear Friends,

As I have said before, at this point in time the two most important things that President Obama, Congress and the American people need to focus on are getting out of the Iraq and Afghanistan wars and creating more jobs in the United States.

The Republicans (and for reasons that escape all logic and understanding some people who call themselves Democrats) believe that tax cuts, especially tax cuts for the rich are the way to stimulate the economy and ultimately create jobs.  I, as an unabashed liberal, disagree with that position both on the grounds that it is factually incorrect and that it is bad for our country as it increases the wealth disparity.

Before proceeding, I want to discuss a distinction that unfortunately gets blurred way too often.  Republicans often say that by stimulating the economy, jobs will be created.  I, on the other hand, am more focused on creating jobs which will then stimulate the economy.  The most common method used to determine if the economy is being stimulated is to look at changes in the GDP.  The GDP is intended to measure economic activity of all kinds and therefore does not necessarily reflect what is happening to employment.  In recent memory, we have had what are commonly referred to as "jobless recoveries".  Jobless recoveries occur when the economy has recovered as measured by growth in the GDP or perhaps the stock market or corporate profits, but the unemployment rate has remained unacceptably high.  My point is that we know that the economy can improve even without reducing unemployment.  We also know that if the unemployment rates drop, the economy will improve, and that with sustained growth in jobs that provide a reasonable wage and benefits comes a smaller disparity between the richest Americans and everybody else.

As we approach Labor Day, there are two issues that are gaining attention that relate to creating jobs - extending the Bush tax cuts and an additional stimulus package.  The New York Times published two excellent op-ed pieces today that address these issues.  The first was by Robert Reich (here) and the second was by Paul Krugman (here). 

Mr. Reich's thesis is that there is a structural problem with our economy that must be fixed if we are to see strong sustainable growth in our economy.  The disparity in wealth in America has been very well documented.  Mr. Reich cites the following results of one study: "In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income."  Mr. Reich reaches the following conclusion:

The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

Mr. Reich then suggests a number of policies that would result in providing a more equitable distribution of the wealth while not increasing the deficit.  Needless to say, some taxes were included in his suggestions.  He does not suggest that the Bush tax cuts for those earning over $200,000 be permitted to expire, but that would certainly help achieve a broader sharing of the wealth.  Mr. Reich concludes his article as follows:

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

I am a strong proponent of letting the Bush tax cuts expire for those who earn more than $200,000 a year.  Only a very small percentage of Americans earn over $200,000 a year and those who do will not change their spending habits as a result of the additional taxes that they would pay.  We had incredible economic growth when marginal income tax rates were 70% and even 90%.  We are no where near those rates today and those at the top of the wealth ladder can afford to pay a little more. 

It is not just liberals that believe that we should let the Bush tax cuts for the rich expire.  Even Alan Greenspan is against continuing the Bush tax breaks without paying for them which is something that the Republicans refuse to do by arguing that the tax breaks will pay for themselves.  An article in the Huffington Post (here) reads as follows:

Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being "disastrous" for the economy.
In an interview on NBC's "Meet the Press," Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients.
"They do not," said Greenspan.
"I'm very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money," he said. "And at the end of the day that proves disastrous. My view is I don't think we can play subtle policy here."

It is nice to know that there is something that I agree with Alan Greenspan about.

Paul Krugman's op-ed piece in The New York Times today (here) makes an excellent case for an additional and larger stimulus.  Mr. Krugman's opening paragraph echos my sentiments exactly.

Next week, President Obama is scheduled to propose new measures to boost the economy. I hope they’re bold and substantive, since the Republicans will oppose him regardless — if he came out for motherhood, the G.O.P. would declare motherhood un-American. So he should put them on the spot for standing in the way of real action.

Mr. Krugman goes on to describe how the initial stimulus while too small had a very positive impact, why the conservatives position against the stimulus have proven wrong over and over again and why we need a new aggressive stimulus program.  Mr. Krugman is absolutely right as he was when he objected to the original stimulus for being too small.  President Obama may not be able to get a big stimulus through Congress for political reasons, but that does not mean that he shouldn't try and be willing to fight hard even if he loses.  He needs to do that for two reasons.  First, it is the right thing to do.  Second, he will regain the support and respect of many people who are looking for a leader that stands up for what he believes in.

As Labor Day approaches we should remember that it is the vast middle class and the workers that have been the backbone of this country and our economy for years.  We need to work together to give those people the share of the country's prosperity that they deserve.

Thanks for reading and please comment,
The Unabashed Liberal