This is so cool. We are wrecking the economy and our future, but never mind that – look what’s in it for me! I know it’s obnoxious to talk about one’s good fortune, but the Republicans have given me a huge tax cut.
We have to borrow every penny of it from your children to do it, but we’re doing it anyway – I’m sure they won’t mind. And hey: kids don’t vote.
We have not funded homeland security for our 106 nuclear plants and are cutting FBI agents because of budget constraints, but we’re doing it anyway.
Our cities and states are laying off tens of thousands of workers, but we’re doing it anyway.
Services are being cut (though not for those of us in gated communities) . . . and we haven’t heard a peep lately about a prescription drug benefit for senior citizens (or about protecting the Social Security Trust Fund), but we’re doing it anyway.
The ostensible reason? ‘To create jobs.’
Commerce Secretary Donald Evans was spectacularly on message on the ‘Today Show’ last week, saying it over and over and over: that every aspect of this tax cut was crafted with one goal in mind – to create jobs for working Americans. Give . . . me . . . a . . . [I don’t usually use expletives like the one I’m deleting] . . . break. Almost no credible economist sees a connection between cutting my taxes dramatically and creating new jobs. And neither does the Congressional Budget Office.
(And what about all the jobs Bush’s first tax cut for the rich created? ‘It is striking commentary on America’s situation,’ notes economist David Hale in a different context, ‘that Canada created 70,000 jobs during February and March while the U.S. lost half a million jobs.’)
Like most hugely fortunate people who need no tax relief, the bulk of my income derives from dividends and capital gains. The tax on my dividends has just been cut by 61%! Isn’t that great? I expected to have to pay 38.6% of my dividends in taxes this year, but now, thanks to the Republicans, just 15%.
Warren Buffett argued last week that this was beyond stupid. But whose judgment are you going to trust when it comes to money, Warren Buffett’s or George W. Bush’s?
The tax on my capital gains has just been cut by 25%! From 20% to 15%. That’s most of my income – and I just got a 25% tax cut! This is the sacrifice I have to bear for my country in order to help create new jobs.
The tax on the income I make from this web site, and other ordinary income – already cut from 39.6% to 38.6% last year – has been cut a further 9.3%, from 38.6% to 35%.
It’s like Christmas in July, except that it’s still only May (never mind that it came close to snowing here in New York this weekend).
So let’s say – just to take a number, this is not me – you’re the typical gal or guy with $20 million in investments. You’re no one special with $200 million (now that begins to be money) or $2 billion or $20 billion, let alone Bill Gates or Warren Buffett with twice that. No, you don’t have one thousandth the wealth of the phenomenally rich, you’re just the typical gal or guy bumbling along with $20 million you’ve been able to set aside.
Chances are (because it takes a while to save that much, unless you inherited it), the kids are grown and through college, so you and your loved one have no big expenses. You already have your three houses and the other basics of a comfortable life. Maybe you’re retired. Twenty million isn’t much, but it’s enough to live on, if you’re careful.
Say this $20 million is all you have and you’re able to grow it at 8% a year. That’s $1.6 million a year before tax.
If (for the sake of this example) you were someone who locked in your gains the minute they went long-term each year, selling and incurring the tax, then you’d have been paying 20% of that $1.6 million each year, leaving you with only $1.28 million (plus any dividends, and your Social Security check).
The Republicans, who control all branches of government, look at your plight – weigh it against other pressing needs – and decide to cut your capital gains tax bill by $80,000 a year, leaving you with $1.36 million a year to live on instead.
Surely you see the fundamental soundness of borrowing $80,000 a year from future generations in order to provide this tax relief.
And surely you see the wisdom of providing a huge chunk of the tax relief to people who don’t need it and won’t go out and spend it.
True enough, the money doesn’t disappear. It goes somewhere. Take the $181,000 it’s been estimated Commerce Secretary Evans himself would save each year, or the $184,000 a year for Rumsfeld or the $274,000 a year for Treasury Secretary Snow or the $327,000 a year for Cheney.* Where will it go?
One might hope they will take every penny and use it to hire more maids and gardeners, which would create jobs. But their houses are already pretty clean and nicely landscaped. No, most of their tax relief will just get added to the pile of money they already have, invested in stocks or bonds or money market funds, here and abroad.
There’s nothing wrong with investment, heaven knows. But right now, capital is not what the country is starving for. Lenders are desperate to lend. Interest rates are at 45-year lows. It’s much tougher than it was in the Nineties for entrepreneurs to fund new ventures, but that’s not because investors have no cash. It’s because they are still in shock from the dot-com collapse, and still uncertain about the future. Those things would work themselves through whether we cut taxes or not.
Please note: I’m all for tax cuts that apply to, say, the first $100,000 in ordinary income and, say, the first $2,500 of dividend income. Rich people would save a few bucks on their taxes along with everyone else. But Sandy Weill’s $4.3 million a year? (See note, below.)
It’s enough to make you cry. We tried a tax bonanza for the Best Off combined with a huge military build-up under Reagan/Bush, and it produced a sluggish economy and added $3 trillion to our National Debt. Then, in 1993, we fixed it. And now we’re making the same mistakes all over again, only worse.
In electing to borrow to help multi-millionaires, we are making crazy choices. Let’s borrow, if we must – but for investments in our kids and our cities and our security and our future. Not to further widen the gap between the wealthy few and everyone else.
*These estimates were based on the original $726 billion tax bill the President pushed for. The $350 billion he got instead, which he derided as ‘little bitty,’ will actually be more like $800 billion (both figures are over 10 years), because the only thing that makes it little bitty is the way various provisions ‘sunset’ after a year or two or six. A lot of people expect Congress not to let them sunset after all. So I don’t know exactly what Evans and Rumsfeld, et al, will save each year. It depends on the capital gains they realize and a whole bunch of other things. But clearly, it will be a lot.
Here’s one example I did work out, Sandy Weill, CEO of Citigroup. He has 22.7 million shares of Citi, which pays an 80-cent dividend. So his ‘little bitty’ annual tax saving just on these dividends – let alone his salary and whatever capital gains he may realize – will be $4.3 million a year. Sandy is a good guy, and this is nice for him. But why on Earth, when we are running huge deficits and letting schools crumble and not protecting our nuclear plants, would we do this? If it bothers you, sign up to fix it at democrats.org.
Wednesday: Mark Foley Wants to Be My Senator