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The GOP's Tax Warfare

Why do Republicans insist on cutting taxes for the ultra-rich, while shrouding their impact in mendacious nonsense? Because that's what their ultra-richest donors want.
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Republican Presidential hopeful Marco Rubio of Florida speaks during the 2016 Republican Jewish Coalition Presidential Candidates Forum in Washington, DC, December 3, 2015. AFP PHOTO / SAUL LOEB / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Republican Presidential hopeful Marco Rubio of Florida speaks during the 2016 Republican Jewish Coalition Presidential Candidates Forum in Washington, DC, December 3, 2015. AFP PHOTO / SAUL LOEB / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)

The discovery was startling -- since the millennium, middle-class whites are dying at sharply increased rates. The reasons are equally stunning. The primary killers are self-inflicted: drugs, alcohol, suicide. The victims are the least educated; the triggers are poor health and financial distress. Yet the mortality rate for blacks and Hispanics is declining; so, too, for comparable groups in other economically -- advanced countries. In short, a segment of once secure Americans is suffering an epidemic of shattered dreams. This, it seems clear, is death by class.

How ironic, then, is the current Orwellian twist on the term "class warfare." In Marxian parlance, this connotes the struggle for economic and political power between capitalists and workers. But for the GOP it means only this -- opposing tax cuts for the rich. Thus the conservative echo chamber bewailed Obama's plan to let Bush-era tax cuts expire -- but only for the top earners -- as "full-throated class warfare," nothing less than "a pitchfork and torches attack on Republicans and America's rich."

But before imagining our first black president as America's Robespierre, a brief look at the embattled class trembling behind the barricades. To say the least, it is hard to fathom their self-pity. In 2013, the top 1 percent received 20 percent of the national income, and held an equal percentage of our wealth -- double their share 30 years ago. And a principal driver of their ever-cascading riches is our tax code, markedly more favorable to the privileged few than in other developed countries.

For, far from being victims, they are the beneficiaries of an enormous tax windfall -- over the last 50 years, our top income tax rate has fallen by 48 percent. As their assets swell, those of the poor and middle class decline, a trend accelerated by the Great Recession. Labor unions -- a primary target of class warfare from the right -- have weakened. Debt increases; bankruptcies have quintupled. In macroeconomic terms, shifts in income to the wealthy slow consumption and retard growth -- even as more political power flows to those who have the most and, all too often, care the least about those below them.

As to the phenomenon of rising deaths among the middle class, the late historian Tony Judt describes the causal links: "There has been a collapse in intergenerational mobility: in contrast to their parents and grandparents, children born...in the US have very little expectation of improving [their] condition... The poor stay poor. Economic disadvantage for the overwhelming majority translates into ill health, minimal educational opportunity, and -- increasingly -- the familiar symptoms of depression: alcoholism, obesity, gambling and minor criminality."

So what does the GOP offer us? More tax cuts for the rich.

This would make sense only if they served some larger social benefit. But they don't. So the GOP dresses them up as the Tax Fairy, cloaked in a hoary myth which history has long since proven false: that tax cuts magically pay for themselves or, at least, offset much of their cost by stimulating economic growth.

With apologies to my readers, the truth resides in numbers.

The first great tax cutter, Ronald Reagan, slashed the upper income tax rate by 42 percent; the deficit exploded by $1.4 trillion. Fans of economic reality noticed. When the second President Bush proposed cutting the top rate by 4.5 percent, 450 economists -- including 10 Nobel Prize winners -- sent a letter protesting that "these tax cuts will weaken the long-term budget outlook... will reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure and basic research... [and] generate further inequities in after-tax income."

All true. In the event, these cuts increased the deficit by another $5 trillion. The cause was a reprise from the Reagan years, and worth remembering now -- large tax cuts combined with increased military spending.

By contrast, Bill Clinton raised the upper income tax rate 11.6 percent, achieving a budget surplus of $236 billion by the end of his term. Barack Obama's more modest achievement is to hike the top rate by 8.5 percent, while the percentage of the deficit to gross domestic product (GDP) fell from 10 percent to 3 percent. Add to this the small matter of creating jobs: under Clinton, the economy added over 20 million new jobs -- the highest total for the last five presidents.

The concurrent myth that tax cuts spur economic growth is demolished by a five decade comparison. In the '60s, the highest marginal rate was a whopping 91 percent; the average annual growth in GDP was 4.5 percent. In the '70s, the upper rate declined to 70 percent -- so did GDP growth, to 3.2 percent. It remained at 3.2 percent in the '80s, when Reagan drastically lowered rates, and in the '90s, when Clinton raised them. When George W. Bush lowered the rates again, average GDP growth declined to 1.5 percent, only to rise again, in the wake of Obama's tax hikes, to a little over 2 percent.

The American economy is a complex thing, driven by a myriad of factors in any given time span. But one thing is clear: the Republican fairytale notwithstanding, there is no correlation between tax cuts and economic growth. In 2012, the non-partisan Congressional Budget Office (CBO) said just that; so has a study by Martin Feldman, Reagan's principal economic advisor. The coup de grace comes from another Republican, Keith Hall, the current head of the CBO. Hall was brought in by the GOP to calculate projected budgets through a process known as "dynamic scoring", a highly speculative method favored by tax-cut advocates, in that it incorporates the presumed growth effects of prospective tax cuts. But Hall is an honest man: " [T]he evidence is that tax cuts do not pay for themselves. And our models show that."

But here is the most persuasive proof of all -- the near-infinite self-interest of most elected officials. If the GOP's tax cut voodoo actually worked, Democrats would be trampling all over Republicans in a frenzied race to enact it. They aren't.

Not so the GOP. Remarkably, its current candidates are doubling down on tax cuts for the wealthy. Here, as often, Marco Rubio and Ted Cruz are salutary examples.

To an almost comical extreme, Rubio's plan scatters golden eggs meant solely for the rich -- the total elimination of taxes on capital gains, estates, dividends and interest income. As for the income tax, he cuts the highest rate by 4.6 percent. In all, Rubio's gifts to the top 1 percent would hand them 11 percent more income.

Down the ladder, Rubio increases taxes on much of the middle class, but provides some relief at the lower rungs through child tax credits. But the overall effect is ruinous, particularly to the vulnerable. The conservative Tax Policy Center estimates that Rubio would nearly double the deficit over the next 10 years -- an average of $414 billion annually above the current $474 billion. And the least affluent would pay the price. Rubio has pledged to boost military spending, and expenditures required by entitlement programs can't be slashed. To cover his deficit requires massive borrowing -- which retards economic growth -- or spending cuts.All that is left to cut are infrastructure projects which create jobs or programs for the poor and disadvantaged.

But Cruz is no lightweight. On top of his own exclusive enticements for the rich is a flat income tax of 10 percent. This would increase the income of the top 1 percent by about 20 percent; for the next level by about 17 percent. The ostensible benefit to everyone else plummets to from 1 to 4 percent. But even this is a Trojan horse. For within the Cruz plan is a 16 percent value added tax on corporations which, like sales taxes, would be passed on to consumers in the form of higher prices -- a far more crushing burden on low income families than the income tax itself. Another regressive feature is that , like Rubio, Cruz balloons the deficit -- $3.7 trillion over the next decade -- with the same attendant damage.

Just for fun, let's imagine what would happen if these candidates actually proposed to raise the rate on the top 1 percent. An increase of 7 percent in the overall tax rate, experts say, would generate about $157 billion in revenue -- more than enough to pay for Rubio's child tax credit, without any serious impact on economic growth. And even without raising taxes for the upper tier, keeping their rates as they are would lessen the impact on the deficit of tax relief for the middle class and poor.

So why do Republicans insist on cutting taxes for the ultra-rich, while shrouding their impact in mendacious nonsense? Because that's what their ultra-richest donors want. Rubio's billionaire soft-money man, Paul Singer, is a fierce proponent of tax cuts for the wealthy. Cruz' leading patron, tax-phobic billionaire Robert Mercer, clocks in at $20 million; his business is being investigated for $6 billion in alleged tax evasion by an IRS Cruz proposes to abolish. And his next largest soft-money nest egg, $15 million, comes from two billionaire brothers who support the Koch brothers' anti-tax crusade.

Here we get to the biggest plutocratic prize awaiting the winner of the GOP's tax cut derby: the $900 million pledged by the Kochs to elect the president of their choice. And the brothers are deadly serious about cutting their own taxes -- through abolishing the estate tax, drastically cutting capital gains and corporate taxes and, above all, completely eliminating progressive income tax rates. After all, as their anti-tax front group grouses, a graduated tax rate "removes individuals in the lower brackets from the reality of the cost" of anti-poverty programs. For the middle class, apparently, bankruptcy and suicide is not reality enough.

As to who will receive the Kochs' $900 million in prize money, the betting favorite is Marco Rubio -- when it comes to the brothers, cravenness counts. But the the real victor won't be their chosen candidate. No one knows this better than the Kochs' fellow billionaire, Warren Buffett: "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning."

No kidding.

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