Thoughts on a Bumper Sticker
Going to pick up my lunch today, I saw a bumper sticker that I’d seen before and kept meaning to expound upon. The bumper sticker itself is a play on the ‘No Child Left Behind’ policy of the Bush administration and reads: The Bush Legacy: No Child Left a Dime. The producer of that particular bumper sticker wants to bring to mind the idea that Bush’s economic policies are going to keep money from being available for future generations. I’m going to see if I can debunk this idea and see if everyone is able to follow the bouncing dollar.
Fallacy #1: The Government creates economic growth/expansion
Many people seem to operate under the delusion that money flows from the Government. In the cases of those on government subsidies and the like, I suppose I can see where they might get that mistaken idea. However, the simple fact is that the government creates no money in and of itself. At best, it is merely a factor for the tax payers, taking money they give the Government to make necessary improvements and purchases for the country as a whole. At worst, it is a pass through for taking money from one tax payer to another. In and of itself, the Government does not produce anything. Without taxes, it has no money of its own. In the end, the Government can only make the decision of how much or little it is going to block the ability of others to move the economy. The more strictures it puts on the production of others, the more it will slow down the growth of the economy.
Fallacy #2: Cutting Taxes on the “Wealthy” hurts the economy
First and foremost, let’s look at four instances of the Federal Government has altered tax rates in the country. JFK: The Kennedy administration cut taxes, spurring economic growth in the country. Reagan: The Reagan administration cut taxes (notably on the upper income earners and on capital gains), resulting in the start of one of the largest economic expansions in the history of the country. To quote the Joint Economic Committee Report from Febrary of 1997: The 1960s and 1980s were periods of sustained high growth rates in the economy. The major reason for this growth is the tax cuts enacted in the beginning of each decade. President Kennedy’s and President Reagan’s tax cuts resulted in higher investment, lower unemployment, and improved overall economic performance. The Clinton administration, however, opted to raise taxes on higher income earners and on capital gains. Clinton was spared the quick slowdown of the economy due to the Internet Boom. The popping of the Internet bubble combined with the Clinton tax policies resulted in the recession inherited by the Bush administration in 2001 (there is a good comparison of the Reagan Tax Cuts versus the Bush(I) and Clinton tax policies found here.
Bush came into office and pushed for Tax Cuts across the board, including on capital gains. This has resulted in economic growth throughout his adminsitration, not withstanding the issues surrounding 9/11. Even with the fallout from the attack on the World Trade Center, the economy recovered and continued to grow. It hasn’t grown as quickly as it could have during a period without other external factors, but the fact is it has still grown. To compare the same periods in the Clinton and Bush(II) administrations, you had a 5.4% Unemployment Rate in 1996 and a 5.1% Unemployment Rate in 2005.
Another thing that many people don’t realize or don’t want to admit is that many of the highest income earners in the US are small business owners. By the nature of the tax code and the way they’re incorporated, these business owners report their business income as personal income. Thus a higher personal income rate results in less money for them to reinvest in their businesses. When their tax burden is lessened, they are able to expand their businesses, thus resulting in more jobs and more growth for the economy.
Fallacy #3: The Poor carry too much of the tax burden in this country
Far too often you’ll see someone talking about the tax burden and how the poor are shouldering too much of the burden. I hate to break it to people, but this isn’t the case. Based on information from the Tax Policy Center, you have the lowest quintile with a -2.6 share of the personal income tax burden and the second quintile with a -0.2 share of the personal income tax burden. Between the two of them, they have a 15.6 share of the after tax income. Compare this to the top quintile where those tax payers have a 48.2 share of the income but shoulder an 82.8 share of the tax burden. There is also the press release by the Joint Economic Committee that notes that the tax burden of the top 1% of wage earners actually increased under the Bush tax cuts.
Fallacy #4: Cutting Capital Gains Taxes overly benefits the wealthy
When I hear that cutting capital gains taxes hurts the poor, I really have to wonder what people are thinking and where their understanding of the American economy derives. On the surface, I suppose I could see where someone could believe that Capital Gains tax cuts don’t help the poor, and given the superficial nature of many people in the US, it makes sense. Scratching under the surface, however, it gives a different story. Capital Gains are based on investments. Without investments, economic growth slows or grinds to a halt. This can be anything from putting money in the bank (where do people think banks get money to lend to other people) or buying stocks in a company (which provides money for that company to grow and expand). If people aren’t willing to move their money around, invest in companies, or otherwise do things that might make them money and thus result in taxes, then the economy stagnates. The Cato Institute has a good article on the ABCs of Capital Gains Taxes that goes into more detail than I can dedicate here.
In the end, I personally can’t help but laugh at the sentiment on the bumper sticker and the lack of understanding it expresses. Now, if it actually attacked Bush’s No Child Left Behind policy, I would likely be right there with them. But using it as a semi-clever play on words to attack the administration’s economic policies just have me wanting to shake my head. There are other things I could go into at this point (Social Security springing immediately to mind), but that would lead to taking more time than I have right now. Regardless, tax cuts are overall a good thing for the economy and tax increases tend to be detrimental. Of course, not that many people actually involved in Government want to believe it. After all, less money coming into the government means less power for them.