Saturday, December 11, 2010

Mitch McConnell, This One's For You

Also titled, "Everything that's wrong with Republicans and Democrats."

It's been a while since I've posted something political; now that the dust is getting kicked up around the compromise deal between President Obama and the Senate Republicans, I think it's a good time to let my feelings out.

Hearing Mitch McConnell on the radio is an audio reminder of why I don't consider myself a Republican anymore. I have no idea how he can claim that extending the Bush tax cuts to the wealthiest 2% of Americans is going to help our ailing economy. Since it's obvious that it's been a few years since he's had an economics course, I'm going to share my limited recollection of college econ.

Now, mind you, I was born and raised in a house that bled Reaganomics. I still hear stories about how I ran around the Whitewater Armory on election day yelling "Ronald Reagan is a good man!" I was always told that the rich people create jobs and that you never asked a Wal-Mart greeter for a job. I was told that everyone's born a Democrat, and then they grow up.

However, I've come to the realization that this particular viewpoint was very one-sided and not very practical.

While rich people and businss owners *do* create jobs, they create jobs when there is sufficient economic cause to do so. Rich people didn't get to be rich by spending their money foolishly, and few things are more foolish than employing a bunch of people making stuff that isn't getting sold.

For some reason, Mitch McConnel seems sold on the idea that the richest 2% of Americans need all of these tax breaks extended because we're in a fragile economy and that extra oomph is needed to entice them to create jobs.

Mitch, I've got news for you--no one with bags of money sits around thinking, "I'm going to create some jobs by employing a bunch of minimum wage folks in hopes of stimulating the economy." There is no benevolent employer who is looking for the opportunity to create a warehouse full of unsold goods. Rich people don't get to be rich by hiring a bunch of people to stand around idle. What stimulates the economy is a lot of people buying stuff over a sustained period. The spending must come before the job creation does.

What he (and the other Congressional Republicans) need to remember is that the most direct ways to stimulate the economy and reduce the deficit are:

1. Extend unemployment benefits. People who are on unemployment aren't building a rainy day fund. UE is barely enough to keep food on the table for most families; every last penny of it is going immediately back into the economy.
2. Simplify the tax structure. It was tried in 1986, but didn't really have a huge net change. There are so many loopholes favoring the rich that they can, in some cases, pay less taxes than people making 1/10 of what they make. Eliminate the vast majority of deductions. There is no reason that the personal tax code can't be under 100 pages, or even 50.
3. Broaden the tax base. Get more people to pay taxes. Fewer exemptions and deductions means more people are affected.
4. Lower marginal tax rates. If the tax base is sufficiently broad, everyone's marginal rates can go down. This woul directly put money back into pockets to be spent. A family of four making $40,000 per year spends a much higher percentage of their income on necessities than a single person making $2m a year. Lowering the tax rates (especially on the low end of the income scale) again means that more money would be going directly back into the economy. And we all know that money flowing in means employers need to hire more people (that whole supply and demand thing).

The President and his Debt Commission have several recommendations; I think a lot of the ideas are good. There are only two ways to shrink the deficit--raise revenues and cut spending. Republicans and Democrats seem to think that those ideas are mutually exclusive. Democrats want to increase revenues, Republicans want to cut spending on bleeding-heart programs.

Things that I think would beneficial for a comprehensive tax plan:

1. Exempt first $35,000 from personal income tax.
2. Do away with all deductions except charity and medical expenses (EIC, mortgage deduction, etc)
3. Eliminate capital gains tax.
4. Eliminate inheritance tax.
5. Implement progressive income tax (maybe about 18% on $35,000-70,000; 22% on $70,000-150,000; 25% on 150,000-$500,000, etc. It would take a bit of math, but in the end, the marginal tax rates drop significantly, but with a broader base and only two deductions (charity and medical expenses), I think we'd see an overall increase in government revenue.

My numbers may need some tweaking, but I think in teh end, it's going to take some out-of-the-box ideas like that (like touching the sacred cow "Mortgage deduction") to put real money back in the pockets of the people most likely to spend it and start growing our economy.

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