The Washington Post has a report alleging that:
…some senior Democrats are having second thoughts about raising taxes on the nation’s wealthiest families and are pressing party leaders to consider extending the full array of Bush administration tax cuts, at least through next year.
Here’s the rationale put forward (by the WP, I should point out, not by any Democrats the WP is able to cite):
But a growing cadre of Democrats – alarmed by evidence that the recovery is losing steam and fearful of wounding conservative Democrats in a tough election year – are advocating a plan that would permanently extend tax cuts benefiting the middle class while renewing breaks for the wealthy through 2011, senior Democratic aides said.
That idea has long appealed to some conservative Democrats in both chambers, who argue that Congress should not raise anyone’s taxes until the economy is more stable. But Democrats said it has gained momentum since economist Mark Zandi, a key adviser to House Speaker Nancy Pelosi (D-Calif.), adopted that view during a presentation at a Democratic issues conference in California in mid-August.
Zandi, an adviser to the presidential campaign of Sen. John McCain (R-Ariz.), later played an important role in designing Obama‘s economic stimulus package, enacted by Congress last year.
In an interview, Zandi said he supports a one-year extension of tax cuts for the wealthy – with the cuts phased out starting in 2012 – in part because election-year anxiety about budget deficits is preventing Congress from approving additional stimulus in any other form. He acknowledged that tax cuts for the rich tend not to be an effective way to pump money into the economy because they tend to save it rather than spend it.
“Normally, I would firmly agree that raising taxes on people who make over $250,000 a year would not make a meaningful difference in the way they spend money. But I worry that these aren’t normal times and that even this income group may be sensitive,” Zandi said, noting that the top 3 percent of households account for a quarter of all personal spending.
“With 9.5 percent unemployment – which is clearly going to move higher – raising taxes is a gamble that is unnecessary,” he said.
Of course, this makes absolutely no sense at all. Extending the Bush tax cuts for the wealthiest 2% of the population will add an extra $680 billion to the deficit. It will do diddly-squat to stimulate the economy.
More than half of the $680 billion will go to “the richest 120,000 people in the country.” That’s the richest 0.1% of Americans; “the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year”. And they would pick up a cool $300,000 each year. These rich folk aren’t exactly going to go out and rush to spend their extra tax savings. And to have them sitting there in their counting-houses, counting out their money, doesn’t exactly stimulate the economy.
So it doesn’t matter how poor a shape the economy is in (and there’s no doubt that it’s in very poor shape; modest economic growth may once again give way to small contractions). Extending the Bush tax cuts for the wealthy serves absolutely no useful economic purpose. In other words, Mark Zandi is talking absolute ox-crap.
The only possible reason for extending the tax cuts for the wealthy is that, if you don’t, then Republicans are going to go around fulminating about how Democrats are jeopardizing the fragile recovery by raising taxes. It’s not an economic argument, it’s a political one. Zandi is being disingenuous and dishonest pretending it’s an economic argument. The WP is being disingenuous and dishonest by peddling Zandi’s argument as if it makes sense (the story was written by Lori Montgomery).
I take heart, though, from two things. The fact that the wealthy-tax-cuts are proposed to be extended for just one year seems to underline that even the proponents understand perfectly well that it’s a perfectly bad idea. And not one single Democrat of note was willing to go on record to the WP as supporting this totally stupid plan.
As Paul Krugman said the other day:
Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.
No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture …
So far, the Obama administration is standing firm against this outrage. Let’s hope that it prevails in its fight. Otherwise, it will be hard not to lose all faith in America’s future.
Here’s just one little example of Zandi’s (and the WP‘s) dishonesty on the subject:
In an interview, Zandi said he supports a one-year extension of tax cuts for the wealthy – with the cuts phased out starting in 2012 …
Zandi’s proposing just a one-year extension. Even though, by design, it lasts much longer than one year. Because at the end of one year, what you do is you start phasing it out. And somehow the WP never gets around to telling us how many years this one-year extension will actually last.
(It is, of course, not clear whether the unknown, unnamed “growing cadre of Democrats” that is “advocating a plan that would … (renew) breaks for the wealthy through 2011″ is supporting a true one-year extension or Zandi’s false one-year extension. It’s not clear because Lori Montgomery doesn’t make it clear. And maybe she doesn’t make it clear because there’s no way to do so without calling attention to Zandi’s dishonest little word game.)