Home / Note to Democrats: Tax Cuts Didn’t Cause the Recession

Note to Democrats: Tax Cuts Didn’t Cause the Recession

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On this week's Meet the Press, guest commentator Tavis Smiley made the following assertion:

Why couldn't somebody have said, why couldn't somebody have said very simply, to David's question, tax cuts for the rich and lucky are not the answer? That's what needed to be said, that's what was not said and that's why we're in this mess now.

This notion of tax cuts for the "wealthy" being a root cause, or even part of the problem we are currently facing is about as wrong headed as you'd expect from a someone with Tavis Smiley's financial creds. Problem is, he's not the only person who has made such an arbitrary connection. Here's a quote from President Obama's Budget Director, Peter Orzag:

We arrived at this point because of an era of profound irresponsibility. We threw fiscal caution to the wind and ran up trillions of dollars in debt by cutting taxes and ignoring "the deep, systemic problems" that are a drag on the economy.

Such indulgence in fantasy hasn't just been the domain of sycophantic journalists and members of Obama's cabinet. President Obama himself has made similar claims:

But as we've learned very clearly and conclusively over the last eight years, tax cuts alone can't solve all of our economic problems — especially tax cuts that are targeted to the wealthiest few Americans. We have tried that strategy, time and time again. And it's only helped lead us to the crisis we face right now. 

While Bush was roundly blamed for tenuously connecting the 9/11 terror attacks to Saddam Hussein, Obama is making his own tenuous connections between the so-called Bush tax cuts, and the current economic crisis we are in. But Saddam Hussein had actually used his own WMDs previously and was known to fund terror. Bush's tenuous link between Saddam and Al Qaeda was considerably less of a stretch than Obama's linking tax cuts to the current crisis.

To be more specific, there is no link between cutting taxes, even those "targeted to the wealthiest few Americans" and the root cause of recessions. Or this recession. Yet, the media ignores such claims, neglects to challenge these incorrect assertions, and allows the President and his cabinet to continue with such statements without clarification. It's been repeated so often, that it's become conventional wisdom, or more accurately the lack thereof.

Liberals will be the first to opine that, once again, I don't get it. President Bush, by way of tax cuts for the evil wealthy among us, starved government programs to such a degree that at this stage, we have no choice but to more than make up for the situation. This ignores the fact that tax receipts to the federal government increased after Bush cut taxes, because while the price of taxes were lowered (for most tax paying Americans, not just the wealthiest ones), the resulting positive effect of those tax cuts on the economy caused increased economic activity and thus increased taxes collected by the government. This is real conventional wisdom, wisdom that has been followed by Democratic and Republican presidents alike, including JFK, Reagan, and Clinton. Eight years of Bush doesn't change that no matter how much the left hates him, and regardless of the fact that we are in a recession now.

The recession wasn't caused by unfunded government programs. Whether or not No Child was Left Behind has nothing to do with our current situation. That health care costs a lot, or that there are 50 million Americans without insurance, might suck, but it didn't cause the downturn nor is it impeding our economy's recovery. That we still use gas in our cars might not be good for mother earth, but not a single job was lost because of it. More importantly, increasing taxes, even if just on the wealthiest few (which, by the way, won't be enough to pay for all of Obama's new spending), won't help our economy recover, and it may actually slow things down, at the worst possible time.

Taxes are not levied in order to carry out social justice or to stick it to those greedy CEOs. Rich Americans are not evil, they're successful. Nor, as Obama has suggested many times on the campaign trail and since becoming president, are the wealthiest Americans getting away without paying their fair share. We all know, or should know, that the top 10 percent of earners pay over 70% of federal income tax. Those wealthiest 2% that Obama wants to soak already cover 40% of all income taxes paid. Meanwhile, the bottom 40% of Americans, those who will reap the most from these government programs pay no federal income taxes at all (social security, yes, federal income taxes, no).

That's not a typo. No taxes at all. Some of that bottom 40% actually get more money back in tax refunds than they paid via programs such as EITC. If we really do want America's wealthy and overtaxed achievers to pay their "fair share," then we should be instantiating a flat tax and reducing what they pay, but I digress. We now get into a situation where that pesky Joe the Plumber discussion comes in: direct wealth redistribution is occurring via unearned tax credits, and Obama's plan is to increase this government Robin Hood impersonation. One question Mr. President, how will this help the economy?

And what is rich anyway? Earning 250K in New York or LA or virtually any other major American city doesn't qualify as rich. Not by a long shot. Comfortable perhaps, but so what, these people are not living high on the hog and work really hard for what they get. Taxing a worker at 50% or higher, who earns 250K a year in a major American city, and you've just taken away any incentive that worker has for doing a job whose demands are high and pay is commensurate. Is this how we stimulate an economy or is government just looking to take the more successful among us down a notch?

And yes, marginal tax rates were higher in our history, much higher, at times as much as 90%. This isn't something to aspire to, and in fact, there was a good reason why the laws were changed. If we are going to go back in history, it's worth noting that back then, more Americans of all income levels paid taxes than they do today, without getting it all or more back in tax credits. We have the largest number of Americans paying no taxes than ever in American history, a trend that has been growing, and it's low income earners getting a pass, not the rich as the media might have you believe.

On the corporate tax front, America has the second highest corporate tax in the world. Obama contends that the costs of health care stymies business. But if so, why not just lower the corporate taxes? The truth is, corporations don't pay taxes, they just pass the cost on down to the consumer — you. And if those higher prices reduce demand, then the company will lay people off or find cheaper labor elsewhere to deal with the shortfall. If you really want to know why company's are shipping jobs overseas, or why American made products are so expensive, look no further. Any increase on these greedy corporations and their CEOs are actually going to be hitting all of us directly by way of higher prices, or worse yet, less jobs when they relocate to more favorable business environs.

As I write this, Obama and Democrats in congress are feigning their best outrage at the $160 million in bonuses paid to people working at AIG, and are scheming various tax and legal tricks to get that money back. Yet liberal commentator Maureen Dowd acknowledged that Obama knew about these bonuses and signed off on them when approving the most recent AIG bailout. The fact is Obama could have told AIG that they wouldn't get additional bailout funds unless they halted bonuses. Instead, in pure wag the dog fashion, Obama and Democrats are making hay out of $160 million in bonuses for AIG employees that they already agreed to, meanwhile, Obama is busy spending trillions (six additional zeros more than millions) of our tax dollars on advancing an extreme liberal ideology. He's even planning to fly out to California on Air Force One to continue his endless campaign and sell the already passed stimulus on Jay Leno's show.

All of these situations show that liberals have an absolute lack of concern for the economy — the private sector economy, that is. They really don't care how well business does, and by extension the people employed by them. Obama has made clear his entire concern is around establishing an extremely powerful central government that provides for our every need and ultimately gives us a servants existence of dependency. And I thought slavery was abolished!

America didn't become great by taking from the most successful elements in society to give to the least successful. Opportunities are not made with a handout but by the desire to achieve and earn a higher standing in life. The question liberals and President Obama has forced the country to ask is, after 200 years of having a free society based on individual freedoms, should we instead become a society based on dependency, as that is precisely what all of these programs will encourage.

Actually, the president hasn't asked America such a question. Rather, via his cohorts in the press and in our educational system, Obama and the left have preempted the conversation by fooling many Americans into thinking tax cuts for the rich were the problem, and not at all the issues with our credit system, or a deeper issue with the erosion of personal responsibility (Oh yes he did). And sadly many Americans have taken the bait. The populist groundswell against those wealthiest Americans has manifest itself in making being rich out of vogue. Recession-chic is in, as is hating those who have managed to obtain more for their families than we have. When I was young, we were taught to look up to people who had made themselves very rich, to try and emulate their success. Now we seem to just want them to pay for our shit. This isn't what America is about, nor what it was founded on.

America's founders didn't guarantee health care, or clean energy. There is nothing in the constitution about education. Americans who are competitive are so regardless of how well paid their public school teachers are. And in Obama's case, his daughters don't actually have to worry about that since they go to a private school. America is based on three rights, life, liberty and the pursuit of happiness. We are getting dangerously close to running afoul of those three basic rights. Quoting Federalist #10, "A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union…" While the discussion in Federalist #10 centered around using strong states rights to protect our country from such "wicked projects," it's clear that America's founding fathers would not have approved of Obama's platform.

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About The Obnoxious American

  • Arch Conservative

    Gee OA, by using reason, logic and honesty you just took a four page dump all over the radical left’s class warfare propaganda campign and for that you get a virtual high five from me.

    Although we can’t excuse the GOP and thier lacksadisical attitude torward our right to have the federal government stay the fuck out of our business.

    The next time big brother sticks his hand deeper in our pocket or tries to dictate our lives for us we would all do well to take a page out of Charlton Heston’s book………

    “From my cold dead hands!!!!!!”

    Charlton Heston’s been dead for a year now and that liver spotted commie fuck Noam Chosmky is still prattlingon to anyone who will listen………maybe the moonbats are right……….there’s just no justice in this world.

  • Cutting taxes during a very expensive war was the issue. It may not have caused the recession, but it did quickly turn a surplus into a deficit.

    Returning the taxes to the Clinton-era rates doesn’t seem like an ‘extremist’ or ‘socialist’ idea to me. The very wealthy did not suffer under Clinton’s tax rates. They did get very much wealthier during the Bush administration.

    David Leonhardt, the very perceptive economics columnist in the NY Times, put it this way:

    The history of the United States economy over the last 70 years can be roughly divided into two periods: the decades immediately after World War II, when [income] inequality plummeted, and the past three decades, when global economic forces and government policies caused it to soar. Mr. Obama is setting out to begin a third period that looks more like the first than the second.

    That agenda starts with taxes. Over the last three decades, the pretax incomes of the wealthiest households have risen far more than they have for other households, while the tax rates for top earners have fallen more than they have for others, according to the Congressional Budget Office.

    As a result, the average post-tax income of the top 1 percent of households has jumped by roughly $1 million since 1979, adjusted for inflation, to $1.4 million. Pay for most families has risen only slightly faster than inflation.

    Before becoming Mr. Obama’s top economic adviser, Lawrence H. Summers liked to tell a hypothetical story to distill the trend. The increase in inequality, Mr. Summers would say, meant that each family in the bottom 80 percent of the income distribution was effectively sending a $10,000 check, every year, to the top 1 percent of earners.

    So, turnabout is fair play.

  • Lumpy

    Ah the self-serving liberal bullshit is deep here, dished out by the likes of handy. truth is that even after the tax cuts government revenue was up in subsequent years so blaming them is just silly propaganda for the suckerfish.

  • bliffle

    Bush cut taxes, depleted the surplus, created deficits, unleashed business pirates and started 2 expensive wars.

    Then the country went broke.

    It’s all Jimmy Carters fault.

  • Baronius

    Excuse me, but didn’t the Taliban start the War in Afghanistan by sponsoring the WTC attacks?

  • bliffle

    I’ve not heard it asserted that the Taliban ‘sponsored’ the WTC attacks. I remember that they refused to turn over OBL unless the USA made a convincing case. So we invaded knowing that nothing would be convincing enough, I assume.

  • V.M.B

    handyguy… How deluded you are. The government’s goal should not be income equality. That would be a Marxist tenet. The goal of the government should be to provide a basic framework for business, and nothing more. Taxing the successful, and separating the classes is near criminal. Hitler did the same exact thing, except it was the Jews. Nazis and Fascists use race hatred and race conflict to keep order and control over the masses. Socialists and Marxists use class hatred and class conflict to achieve their goals. We should help fix education, and that should be the main avenue for social mobility, but we should not distribute income after it has been earned. We need to give everyone an equal chance for success, not adopt a Robin Hood scheme.

  • VMB,

    Agreed. But also protecting all citizens from all manner of abuses, whether at the hands of criminal corporations or individuals. And although not everyone can afford equal protection in terms of taxation (i.e., being able to pay for it), everyone’s is entitled to it under the auspices of a just state. And in such a state, justice is a distributive quality.

  • Links, references, anything would be nice to back up your conservative rhetoric.

  • NJ

    Of course they caused the recession.
    The assertions that these cuts were used to create jobs, or start new businesses does not pan out.

    What the wealthiest two percent did with their trillion dollar of the tax cut was to start a round of speculative investment, largely in mortgage backed securities.

    The reason that the Clinton tax INCREASES worked was because Clinton ALSO lowered other taxes. Like dropping capital gains from 28 percent to 20 percent, as well as cutting other “corporate” and “business”taxes.

    This was carrot and stick. If you wanted to take money out of a business as personal income, you were taxed higher. If you used it for business purposes, your taxes dropped.

    Even today, the Bush tax cuts are having their pernicious effect.

    The first round of Bush tax cuts come to about 210 billion dollars a year.

    Then in 2008 Bush’s answer to forestall a recession that had already started, but which he did not admit started was…

    ANOTHER TAX Cut. 143 billion in NEW tax cuts in fact.

    Then in order to get three Republican votes for the Obama stimulus, these three votes insisted that at least 43 percent of the 789 billion dollar stimulus be tax cuts. They negotiated, and came down to 36 percent for an additional 288 billion in tax cuts.

    So over the last two years, there have been a total of 851 billion dollars total in tax cuts *210 – 420 + 288 + 143 = 851) and the rest of the stimulus that was not tax cuts came to 501 billion.

    If tax cuts were EVER going to stimulate an economy, the 425.5 billion given each year for 2009 and 2010, should have done so. This was in fact TWICE AS MUCH per year in tax cuts as was being given on between 2001 and 2008.

  • John Wilson

    The reason for tax cuts to big business and rich people is to inject more capital in the system in order to build businesses and thereby increase employment and GDP.

    But if the capital channel is already overloaded with money then it just goes into savings, e.g., US Treasury bonds, which means the money never becomes capital. The money is dead, stagnant.

    This is the situation we are in today: we have too much capital. Offices and factories are standing idle and empty. Machinery goes unused. It is the irony of supply-side economics.

    What we need is more market activity and the most effective way to do that is to increase consumption by directing money to the people who spend it immediately and thoroughly: the poor, the unemployed, the lower classes.