If there is one thing we have learned from the debate over the expiring Bush tax cuts, its that arithmetic is not the strong suit of the Washington political class.
Politicians on both sides have trouble with the calculations, making outlandish claims for a set of cuts that never should have been approved in the place.
Democrats are claiming a stimulative effect for the middle-class portion of the cuts, though it is unlikely that extending them will have much effect on the economy as a whole, while exacerbating a large, if stabilized budget deficit.
Republican math skills are even worse. The GOP has been trying to convince voters that tax cuts for the wealthiest Americans will a) stimulate the economy and b) not only not increase the deficit but reduce it. Basic math, however, tells us the opposite: If you cut revenue without cutting spending and to be fair, the Republicans do have a vague if unrealistic plan to reduce the size of government - you increase the deficit.
None of this makes any sense. Tax cuts should not be on the table - let them expire and go back to the rates of the Clinton years, which are still historically low and take the money we were going to waste on them (nearly three quarters of a billion dollars) and use it for a second stimulus, an extension of unemployment benefits and aid to the states.
This makes sense on two levels.
First, a Congressional Budget Office report issued in February found that the cumulative effects of public spending on infrastructure, unemployment benefit and state aid far exceeds the impact of tax cuts, both in terms of increasing the gross domestic product and creating jobs.
A May CBO report further confirmed this, placing the multiplier effect defined by economists as amount of new GDP and earnings generated by each federal dollar spent - for infrastructure spending, aid to states and transfer payments to individuals (food stamps, unemployment, retirement benefits) at between two to five times that of tax cuts. Each dollar spent on infrastructure, according to the report, generates between $1 and $2.50 in private spending, compared with 60 cents to $1.50 for middle class tax cuts or 20 cents to $1 for higher-bracket tax cuts.
This is not chump change, especially when applied to a proposed $700-plus billion federal spending, under this scenario, would generate an additional $700 billion to $1.75 trillion in private spending, compared with the $280 billion to $850 billion for tax cuts. (This is my math.)
If we are concerned about the return on our investment, it seems pretty clear which makes more sense.
But that is not the only factor. Federal spending is more likely to be put to productive use replacing bridges and dams, repairing highways, levees and rail lines, improving the electrical grid, running high-speed communications wire, building schools and community centers and so on. It would keep teachers and police officers in their jobs and help ameliorate the worst effects of the current recession by guaranteeing a minimum amount of income to the unemployed.
Think about it, we could keep people employed making say $50,000 a year to fix things we need, to keep us safe and teacher our children or we could hand $70,000 a year on average to the top 1 percent of earners (with the numbers going up drastically as the income levels rise). This seems like a no-brainer, but then I live outside Washington and am not bombarded by lobbyists.
The Republicans led by their Tea Party wing have spent the first 20 months of the Obama presidency railing about bailouts and the deficits, which has had a devastating impact on the national debate. Poll numbers show Americans more concerned about the deficit and fearful of federal spending even as they agree that the economy is in the toilet and not getting better. Politicians and the Washington media, who do little more than follow public opinion they helped to create, are furthering the narrative, making economic stimulus a political nonstarter in a contentious Congressional election year.
This may be good politics though I dont see it but it is awful policy. It is the wrong calculation and just proves that the Washington political class should be forced to take a remedial math class.
Hank Kalet is a newspaper editor in New Jersey. E-mail, firstname.lastname@example.org.
From The Progressive Populist, October 15, 2010
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