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The Perennial GOP Tax Scam

The Perennial GOP Tax Scam

Reprinted with permission fromAlterNet.

There’s something about taxes that elected Republicans know, but most Americans are completely unaware of. It’s the reason we keep falling for the perennial GOP tax scam, and Paul Ryan, Mitch McConnell, and their buddies in the White House are getting ready to run this ruse on American working people all over again.

Here it is in a nutshell: Tax cuts for truly wealthy people increase their income and wealth; tax cuts for working people actually decrease their income and wealth over time.

Here’s how it works.

If you’re part of the top 0.1% – say you’re earning a million dollars a year – and you get a tax cut, you’ll keep more of the money you’re earning. The main reason is because people in those income categories 1) generally have a high degree of control over their own income; and 2) they more often than not already are working under a massive tax cut – at least a lower tax rate – called the capital gains tax. But even setting aside Part II of that, truly super-high income earners, like the banksters on Wall Street or CEOs of large corporations, have a significant measure of control – if not total control – over their own income.

For working people, it’s an entirely different story.

Let’s say for the sake of argument that I’m a super-wealthy entrepreneur and I own the company you work for. While I can set my own paycheck (within the parameters of money available to the company), I also set your paycheck. But that’s largely a “market function” – that is, I pay as little as possible for the right talent to get the work done.

So if we live in a country where working people pay, to use round numbers for example, a 50% tax bracket, and I know that you need $50,000 a year after taxes to live, and pretty much anybody who’s applying for your job will also demand at least a $50,000 take-home pay, I’ll set the wage for that particular job at $100,000 a year. At a 50% tax rate, that gives you $50,000 after taxes.

As the company owner, let’s say that I’ve set my own salary at $1 million a year, which means I’m taking home around $500,000 a year at a 50% tax rate (of course, taxes are progressive, but that’s not relevant to this argument as Republicans want to “cut taxes for all income brackets,” so for simplicity sake let’s assume the “flat tax” Republicans say they love so much).

Now, what happens if Democrats come into power and say that they want to build a national high-speed rail system, and need to raise taxes to 60% to do it. What happens to my pay and to yours?

For me, my net take-home income goes down from $500,000 to $400,000 a year, but I can easily fix that by simply increasing my pay to $1.2 million.  After all, this is a billion-dollar company, and a little bit here and there for me and my executives is no big deal.

But you – and anybody else doing the particular job you’re doing – still need $50,000 take-home pay in order to live. So if your taxes go up, and I want to keep you as an employee, I’m going to have to raise your pay by enough to keep your take-home even.

This is why when taxes go up on working people – as they did dramatically from 1913 to 1980 – pay went up dramatically, too.

This is also why high-tax countries pay higher wages (and have better public services, paid for with those taxes). In Denmark, for example, the average full-time MacDonald’s worker earns around $45,000 U.S. equivalent, although about 40% of that goes to taxes to pay for the national health-care system, one of the world’s best school systems, and high-quality high-paid police who treat Danes with respect.

On the flip side, what happens when Republicans come into power and decide to cancel the government expenditures and “return people’s income to them” by lowering taxes? Let’s say they drop the tax rate from 50% to 25% (Reagan actually dropped the top rate from 74% to 25%). What happens to me and you?

As the CEO who controls his own income, I continue to take my $1 million, but my take-home goes from $500,000 up to $750,000.  I get richer – and rapidly – and I can stash that money in a Swiss bank account.

But I still know that you can only really live on $50,000 a year, and thus are only willing to do your job for that as take-home pay.

However, with a $100,000 before-tax salary, you’ll now be taking home $75,000 – way more than I know you need.

So, what does an employer do? He cuts your pay down enough that you’re only still taking home $50,000 a year. Your $100,000 salary will – over time, and through the process of layoffs and attrition, letting go of higher-paid people, and hiring lower-paid people – drift down to around $75,000, so you’re still taking home $50K.

A 25% cut in taxes on working people will give a short-term boost to paychecks, but over a period of a few years it’ll mean working people’s before-tax wages will drop by about 25%. Employers, after all, know the minimum amount of take-home pay working people are willing to work for (aka “the labor market”).

This is why when Republicans cut taxes, wages go down or stay flat for working people, a phenomenon we’ve watched over and over again since Reagan began this process in the 1980s.

Today, when the “older” (as in, “earning the old pay scale from when taxes were higher”) workers move on or retire, they’re replaced with new lower-paid workers. Factory jobs that used to pay $30/hour or more, for example, now pay $14/hour (check out the GM contracts negotiated over the past few decades as a vivid example).

According to economist Thomas Piketty, the poorest 50 percent of Americans have seen their incomes decline by a full 1 percent since 1978— even as incomes for the top 10 percent of Americans have jumped by whopping 115 percent and incomes for the top .001 percent have skyrocketed an astronomic 685 percent.

The aforementioned progressive nature of our tax code – big changes at the top are matched by much smaller changes at the bottom – accounts for why wages have “merely” been flat or declined “only” 1% since Reagan, whereas wealth at the top has exploded under “conservative” tax policies.

Meanwhile, the larger effect of tax cuts defunding government will see the power of corporations and billionaires grow, while the ability of government to do things will shrink.

We’ve gone from NASA sending men to the moon to having to rely on private corporations to send rockets up to refill the space station. Starting with Reagan’s government-defunding billionaire-friendly tax-cuts in the 1980s we stopped building and even repairing much of our infrastructure, causing the deterioration of our nation to nearly developing-world status in many parts of the country.

So, with the GOP in power, get ready to see working people’s pay start dropping again, as it did starting in the 1980s after Reagan’s tax cut and in the early 2000s after Bush’s. Also get ready to see income inequality grow even worse, as the truly rich see a big boost in their take-home pay and thus their overall wealth, while working people and our nation’s infrastructure get screwed.

And get ready for voters who have no idea how this all works to get totally behind the GOP “we’ll cut your taxes” rhetoric, not realizing that Paul Ryan, Mitch McConnell, and Donald Trump/Mike Pence view us all as merely useful idiots.

Thom Hartmann is an author and nationally syndicated daily talk show host

Brownback ‘Experiment’ Blows Up Laboratory Of Democracy

Brownback ‘Experiment’ Blows Up Laboratory Of Democracy

When Louis Brandeis wrote in 1932 that a “single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country,” he was suggesting that state innovations might advance reform on the federal level. The progressive Supreme Court justice surely wasn’t imagining anything quite like Brownbackistan.

Under Governor Sam Brownback, however, the old Brandeis metaphor is especially apt for Kansas, where a highly publicized “experiment” in extreme tax cutting has just blown up the entire laboratory. As Kansans peer through the still-smoking ruins, they evidently don’t much like what they see.

What makes the Brownback blowup feel so familiar is that the same experiment was mounted more than three decades ago, on the federal level, under the rubric of Reaganomics – by some of the same people. It crashed miserably then, too. But the Republican right has a special knack for dressing up old mischief as fresh policy. To put this one over, Brownback has enjoyed heavy support from the Koch brothers — chief financial backers of the ultra-right Tea Party — whose industrial empire is headquartered in Kansas.

The statewide tax cut that Brownback pushed through the legislature in 2012 certainly benefited the most wealthy Kansans – people just like the Kochs – while inflicting higher taxes on middle income and working-class families through sales and property tax increases. Proceeding with expert advice of Arthur Laffer, author of the “supply-side” theory underlying the Reagan tax cuts, the gung-ho governor promised that these regressive changes would promote rapid economic growth. He predicted that his plan would produce 23,000 new jobs and over $2 billion in new disposable income for Kansans. Their tax payments were supposed to offset the loss of nearly 8 percent of state revenues.

But the results have yet to justify the hype. Today, the fruits of Brownback’s experiment include a state budget deficit of nearly $340 million this year; a decision by Moody’s to lower the rating on Kansas bonds; a growing gap in education funding at every level, from kindergarten through college; a ruinous reduction in state and local workforces across the state; and a future that promises even larger deficits and service cutbacks to come.

Advocates of the Brownback cuts – who are much more likely to be found in New York and Washington think tanks than in Kansas itself – insist that with patience, the governor’s vindication will come. Noting that the tax cuts took effect less than two years ago, they say that with time will come the jobs and revenues that Kansans expected. But over the past several months, as most states have added jobs, their state has fallen behind.

The Kansas City Star, leading newspaper in the state, recently analyzed federal employment data compiled by the Bureau of Labor Statistics – and published an editorial comparing Kansas with other states in seasonally adjusted, non-farm total job growth. The bottom line was not encouraging. From January 2011 through June 30, 2014, job growth for Kansas at 3.5 percent was lower than its four neighbors, other Midwestern states, and even “extremely high income tax” New York, not to mention the national average of 6.1 percent. “Kansas has had one of the nation’s poorest rates of employment growth during Brownback’s time in office,” noted the Star editorial, “including since the first tax cuts took effect in 2013.” Moreover, the state actually had fewer jobs at the end of June than it did seven months ago.

As a creature of the Koch machine, Brownback naturally blames this embarrassing data on Barack Obama, the devilish socialist in Washington. But polls show that whatever Kansans may think of the president, they aren’t so easily bamboozled by such arguments anymore. Their opinion of the governor is declining almost as quickly as the state’s revenues — and in some polls he is trailing the lesser-known Democrat, Paul Davis, who bravely challenged him this year. Even some prominent Republicans recently declared they would rather elect Davis than continue the destruction that Brownback is inflicting on their state.

Nationally, the Republican Party still promotes Brownback as an innovator with expertise in growing the economy. The Koch brothers will deluge their home state in dark money and Tea Party propaganda before they let him fall. But if the voters boot him in November, this latest experiment in extremism will be ranked as an explosive failure.

Photo: J. Stephen Conn via Flickr

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