The stimulus was a failure? Taxing “job creators” will crush the economy? Think again.
By **Jake Whitney**
Photograph via Wikimedia Commons courtesy of the Ronald Reagan Presidential Library.
1) “America has a spending problem, not a tax problem.”
Federal tax revenue as a percentage of GDP is the lowest it’s been in sixty years. Except for a brief period during Presidents Reagan and Bush I, the top marginal tax rate is the lowest it’s been since 1930. In fact, during the boom years of the 1950s, the top rate was 91 percent. Under Kennedy, 70 percent. The rate has steadily declined to our current one of 35 percent.
Government spending, of course, has skyrocketed in the decades since Ike, but that’s because Americans have continued to vote for expensive programs such as Medicare, Medicaid and a strong defense. The math isn’t difficult: we need to raise revenue to pay for these programs that Americans don’t want cut—as well as find areas to reduce spending over the long term. While Republicans continue to insist that tax cuts invariably spur revenue by expanding the economy and creating more taxpayers, the evidence doesn’t support this. After fifty years of tax cuts for the wealthy, we are left with a $14.8 trillion debt, 9.1 percent unemployment and anemic growth.
2) “Republicans are more fiscally responsible than Democrats”
The last Republican president to run a budget surplus was Dwight Eisenhower, in 1957. The five budget surpluses since then have been under Lyndon Johnson, in 1969, and Bill Clinton, between 1998 and 2001. A 2003 study by Harvard economist Jeffrey Frankel (PDF) argued that since the 1960s, Republicans and Democrats have essentially “switched places.” Republicans, he found, “have become the party of fiscal irresponsibility, trade restriction, big government, and failing grade micro-economics,” while Democrats have become, relatively speaking, “the party of fiscal responsibility, free trade, competitive markets and good textbook micro-economics.”
No matter how many times Republicans assert that increasing taxes on “job creators” will damage the economy, historical evidence does not support this.
3) “Democratic presidents created our current debt.”
Ronald Reagan was the first American president to legitimize large deficits. He cut the top marginal tax rate from 70 percent percent to 28 percent, helping to triple—yes, triple—our national debt. After Clinton ran four straight years of budget surpluses, George W. Bush immediately squandered them, running us into the red with his first budget and eventually more than doubling our debt, from $5.7 trillion to $11.87 trillion. Make no mistake: the majority of our current $14.82 trillion debt is from Republican administrations; the lion’s share from Bush Jr.
Regarding Obama’s contribution: at the beginning of 2010 (the day Obama’s first budget went into effect), the national debt stood at $11.87 trillion. It is now $14.82 trillion. But of that $2.95 trillion increase, only $1.44 trillion is due to new Obama policies—and approximately $1 trillion of that was the stimulus package, which was only implemented in order to jump-start an economy that crashed under Bush. So an argument could be made that even the stimulus should be chalked up to Obama’s Republican predecessor. Dick Cheney summed up the Bush Administration’s attitude toward fiscal responsibility best when he declared: “Reagan proved deficits don’t matter.”
4) “The stimulus package was a failure.”
The Obama stimulus created nearly three million jobs, according to a study by Mark Zandi of Moody’s and Alan Binder, former vice chairman of the Federal Reserve. The non-partisan CBO estimates that the stimulus may have created as many as 3.3 million jobs in the second quarter of 2010 alone. The bailout of the auto industry saved another 1 million. While it’s true that the Obama Administration over-estimated the stimulus’s positive effect on unemployment, multiple studies have concluded that without it unemployment would be significantly higher: the CBO says it would be around 11 percent, Zandi estimates 11.5 percent, and the Keystone Research Group says 16 percent—up from its current level of 9.1 percent. If you’re being intellectually honest, it’s difficult to argue that a policy that saves/creates between three and four million jobs is an “abject failure,” as Rick Perry continues to say.
5) “Taxing the rich hurts the economy.”
No matter how many times Republicans assert that increasing taxes on “job creators” will damage the economy, historical evidence does not support this. During the twentieth century, the American economy grew the fastest between the 1940s and the 1970s. During this period the top marginal tax rate never dropped below 50 percent. That rate has been increasingly cut until Clinton raised it modestly to 39 percent, and he was our last president to run a budget surplus. Bush Jr. cut the top rate to 35 percent, where it remains thanks to Tea Party intransigence. Our economy has been in the tank ever since.
Jake Whitney is a writer originally from the Bay Area who now lives in Westchester, New York. His work has appeared in a wide range of publications, including The New Republic, The San Francisco Chronicle, Editor & Publisher, New York magazine, The Huffington Post, and many others. Jake holds a Master’s degree in journalism from Iona College. His most recent piece can be read here.