Smart Bubble Society

Article by Kyle Boulden
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If you’ve been paying any attention to the U.S. presidential race recently, it would be nearly impossible to miss the debate over taxation and tax reform. Mitt Romney and Paul Ryan have decided to make the economy the main focus of their campaign, and fiscal policy lies at the heart.

It is generally agreed upon that the American economy is not in good shape. Unemployment is high, budget deficits are the norm and income inequality is rising. This election the Republicans have chosen to focus on the economy, as traditionally it’s the incumbent who takes the blame for the country’s woes. They feel their experience in that field puts them at an advantage, but a closer look at this common narrative show it to be plainly false.

Tax policy is a complicated subject, but what it comes down to is that the Republicans feel they can improve the economy and create jobs by cutting taxes, particularly to corporations and the rich, and that the benefits will ‘trickle-down’ to the rest of the economy. The catch in all this is that these are exactly the policies that have been implemented in the past decade and have failed.

At first glance, the claim that Republicans want to cut taxes to the rich and to corporations might come across as partisan rhetoric. That’s certainly how it’s portrayed in many circles. Oh sure, the Republicans are bad guys who only want to help the rich and hurt the poor. However, when you strip away the veneer of speeches and spin, underneath it their actual policy platform lays it out quite plainly. It’s a matter of understanding what you are looking at.

The best place to begin is by looking at the Bush-era tax cuts, which have been a lightning-rod for debate on tax policy. Typically they refer to the 2001 legislation that lowered income taxes across all brackets, and the 2003 legislation that saw a significant cut in the top tax rates on capital gains and dividends. The Republican platform endorses making the cuts permanent, while the Democratic Party would see these cuts, originally created to be temporary, expire in favour of new policy focusing tax relief on the lower and middle incomes.

The thing is, this isn’t a debate between two potential solutions to economic crisis. It’s one plan that may help the situation versus another that has been proven wrong in a wide variety of research. What the Mitt Romney/Republican platform suggests is based on widely disproved economic theories. As former secretary of labor under President Bill Clinton Robert Reich explains: “Bush promised the tax cuts would more than pay for themselves in terms of their alleged positive impact on the economy. The record shows they didn’t. Job growth after the Bush tax cuts was a fraction of the growth under Bill Clinton – even before the economy crashed in late 2008. And the median wage dropped, adjusted for inflation.”

There is a certain cognitive dissonance when it comes to Republicans and the economy (one that is also shared by many in the Democratic Party as well). They seem quite willing to ignore decades of evidence that proves their economic theories don’t work in order to keep up their belief that taxation is bad. Recently the independent Tax Policy Center examined Mitt Romney’s campaign proposals, which includes significant reductions to taxes on income, capital gains and dividends, as well as the elimination of the estate tax. They determined that “(the plan) Governor Romney has outlined would reduce taxes for high-income households, thus requiring higher taxes on other, even if the plan’s financing is as progressive as possible, given the available tax expenditures.”

In other words, these proposed changes to the tax system would disproportionately favour the rich, and in fact would be mathematically impossible to cover in the ‘revenue neutral’ way Romney proposes without transferring additional cost to middle and lower-income people. Under Romney’s plan, the estimate is that the 99 to 99.9 percent gain an average percent change in after-tax income of 3.5 percent, and the top 0.1 percent gain 4.4 percent, while everyone loses 1.1 percent.

Now the question is: why would anyone other than the richest 1% of people vote for such a plan? What it comes down to is a lack of information. Whether it is a population more interested in pop culture than politics, or the American education system’s disturbing suppression of critical thinking skills, voters aren’t making decisions in their own best interest. In fact, a recent poll by the Pew Research Center showed that only 58% of Americans think the rich pay too little in taxes, and that 20% in fact think the poor pay too little. Compare this to 20 years ago, when 77% of people thought the rich paid too little in taxes and only 8% thought the poor paid too little. As writer Andrew Leonard explains: “income inequality has grown, tax rates for the rich have fallen to historically low levels, and the wealthiest Americans have grabbed an ever larger piece of the pie. Does that sound like a recipe for class warfare? Nope! The numbers actually signal the opposite conclusion.”

Stating that Mitt Romney and the Republican Party want to cut taxes to the rich and corporations at the expense of the poor is not some partisan rhetoric, it’s a simple fact. The extension of the Bush tax cuts and the other proposed changes to the United States’ fiscal policies are plainly designed for that, with little regard as to hiding it from the voting public. It will not help the economy, will not create jobs and will worsen income inequality. Yet in the American political discourse these are still considered legitimate strategies. The solution here is knowledge and education. People need to know and understand the issues, and understand the logical connection between their political choices and their own well-being.