The Truth About Taxes and 'Job-Killers'
I f you want to fully appreciate the absurdity of the game of chicken that Congress is playing with the president over the "fiscal cliff" (the draconian budget cuts and tax increases that will take effect if the two sides cannot strike a deal before the end of the year), you need to know this:
In the third fiscal quarter of 2012, the quarter running from July through September, corporate profits in the United States reached an all-time high.
According to a report by the Commerce Department released on Dec. 3, third-quarter corporate profits came in at $1.75 trillion for the third quarter of 2012 - up 18.6 percent from the same period in 2011.
This comes on the heels of a report published by The New York Times on Nov. 30 which revealed that the tax burden for most Americans - federal, state and local taxes combined - are the lowest that they've been for the past 30 years.
In fact, households earning $350,000 in 2010 paid a combined rate of 42.1 percent in 2010, compared with 49 percent back in 1980. That's an inflation-adjusted savings of about $24,000 for households at the low end of the top 1 percent in this country.
Just to be clear, corporate profits are the highest that they have ever been, and taxes for Americans, especially high-income Americans, are lower than they've been since before Ronald Reagan was president. The "job creators" are sittin' in high cotton.
Our country's supply side is so sated that rather than trickling down, wealth should be pouring down in torrents. Surely, unemployment will be eradicated like smallpox by year's end and Obama's second inauguration will come on the eve of a ticker tape parade down Wall Street in his honor.
Unfortunately, what has been eradicated is any connection between Wall Street and Main Street.
The same Commerce Department report that heralded the record Q3 profits also noted that those profits came at the expense of workers, whose inflation-adjusted income dropped 0.7 percent. According to Moody's Analytics economist Aaron Smith, that's "largely because they are squeezing more productivity out of their workers without paying them more. Workers are afraid to slack off because it's become so hard to find another job." In effect, there is a perverse incentive to keep unemployment high in order to keep wages low.
Similarly, the benefits of lower tax rates are greater for high-income households. The aforementioned report in The New York Times noted that households with incomes in excess of $200,000 saw the biggest drop in the percentage of income spent on taxes. Eighty-five percent of middle-income households also saw their taxes drop, but to a much less significant degree. Lower-income households saw little or no drop in tax rates.
This disparity in income distribution and relative tax benefits highlights the problem with supply-side economics. Simply put, it is neither the obligation nor the inclination of the wealthy to redistribute their wealth. Rather, the objective is to accumulate it.
The result of the Bush-era tax cuts and the implementation of supply-side policies has been to expand the deficit by reducing revenues and concentrating more and more money in the hands of people who have neither the need nor the inclination to spend it. It is winner-take-all economics with ever fewer winners.
It is increasingly clear that Republicans will have to accept a 3 percent increase in federal income tax on the winners, those households with incomes of more than $250,000. The president is committed to it, a study by the Congressional Budget Office confirms that it won't kill growth, and 65 percent of Americans want it. What is yet to be determined is what price people who have seen their wealth redistributed upward will pay in a "bargain" to avoid another recession or worse.
In a saner world, the cacophony of fiscal-cliff rancor would be the death knell of supply-side economics - and with it, the phrase "job creators," and the need to add the words "job-killing" before using the word "taxes."
In a saner America, our leaders would be seeking more sustainable economic models, perhaps emphasizing local economies, to reinvigorate the greatest job creator the world has ever known, the American middle-class.
In this world, in this country, the winners have too much invested in the status quo to let that happen.
Kevin Smith lives in Aberdeen. Contact him at email@example.com.
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