Tuesday, November 24, 2015

Hillary's Middle Class Tax Cut Plan Is A Non-Starter

In Europe, citizens of high benefits nations (Germany, France, Denmark, Norway, Sweden, Finland)  understand one doesn't get something for nothing and that higher taxes are the price paid for state social support. Thus, citizens need not worry about health care, higher education debt and daycare - like those in the U.S. 

However, in this country, people are baited again and again by "tax cuts"  when they ought to know by now they don't work and will only force cuts to their most desired social benefits later, e.g. Social Security, Medicare and VA health benefits.  That tax cuts, including middle class, don't work has already been proven by a detailed (Sept. 15, 2010) analysis appearing in the Financial Times.

That analysis (p. 24) showed the earlier Bush tax cuts engendered "the weakest decade in U.S. postwar history for real, non-residential capital investment".

The FT analysis also observed that during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%”

This is evidence enough that the Democrats have to stop playing politics with these god damned tax cuts!

Yet on reading The Wall Street Journal (Nov. 21-22, 'Clinton Proposes Middle Class Tax Cuts', p. A4) one sees Hillary is ready to pander again, hoping enough Americans are stupid enough to bite in order to give her their votes.

A Clinton campaign aide quoted in the piece insists her plan:

"would inject hundreds of billions of dollars into middle class households enabling them to better cope with expenses."

But this is total snake oil. As we've seen with the Bush tax cuts, later unwisely extended by Obama and Co., a huge push was initiated in 2010  to also cut Social Security under Obama's "Debt Commission". This was no coincidence. Obama's advisors knew something would have to give because the extension of those cuts - especially to the middle class (since on the rich alone they don't pay the freight) would otherwise create $1.2 trillion in deficits over the total time employed. The only way to offset them would be to cut "entitlements" - and the 'Chained CPI" was proposed  before Democratic forces inveighed against it forcing Obama-ites to back down.

Now, Hillary wants to resurrect this baloney, not telling Americans that if they accept these tax cuts they will pay the piper later - likely in future cuts to much more valuable Social Security and Medicare benefits. But Hillary is determined realizing that Bernie Sanders' plan for REAL benefits to the middle class, including free college, expansion of Social Security and single payer health care, can only be paid for by at least a nine percent increase in taxes (though at this level defense cuts will also have to be considered).

So, in order to further separate herself from Sanders, she proposes middle class tax cuts  The outfit behind this scurvy plan is likely the Third Way bunch which we (on the Left) like to call "Republican Lite".    This is because instead of pushing progressive values and populist economics, they call for welfare "reform," talk about how cutting Social Security, and support awful trade deals like NAFTA and the TPP. And if that wasn't bad enough, they also take in millions of dollars in donations from the fat cats on Wall Street, big Pharma and the so-called "defense" industry.

According to the WSJ piece "Third Way, a centrist think tank said Mrs. Clinton is outlining an approach that should lift sagging middle class fortunes".

But they don't say it would only be for a time. Then the hammer of other benefits cuts would fall on these middle class folks to avoid deficits busting the nation.

Anyone who can do math would instantly see, as Clive Cook pointed out some 6 years ago in an article in the Financial Times, that middle class tax cuts are insanity. You simply can't get enough revenue with tax on the wealthiest alone, even the upper one percent. He argued it needs to go as low as the upper 40 percent which includes the upper middle class and the "middle middle class".

Obama didn't heed the repeated warning, not just from the FT but elsewhere, so no surprise barely two years after extending the Bush cuts for the middle class he began proposing Social Security cuts.

Ultimately the backlash and outcry forced Obama to take stock and realize he was batting on a losing wicket, see e.g.


As for the president and his supporters, it is clear that the chained CPI is well-liked by both the White House's key economic players -- and by many of the commentators who support them. That's unfortunate, because it is inaccurate, unjust, and economically unwise. But like it, they do.

It appears that both the Republicans and the White House like it, but neither wants such a politically unpopular measure hung around their neck -- especially in an election year.”

Hillary, should she get elected next year and try to push her misbegotten tax cuts through,  will also get the same reaction if she subsequently tries to cut "entitlement" programs to offset the cost of  the tax cuts.

Hillary's middle class tax cut plan is bad for another reason. As reported in The Economist (Nov 24), such "expensive" tax cuts "would require a squeeze on public investment. That would sap productivity, especially given the shoddy state of America's infrastructure."

The article adds that the "burden of shoddy roads, airports and energy infrastructure will cost every household $3,100 a year according to the American Society of Civil Engineers".

That, along with later Social Security and Medicare cuts, ought to convince any sensible American not to bite on Hillary's tax cut snake oil. Bernie Sanders' proposed increase in taxes -including on the middle class- is the only one that makes mathematical or policy sense - if salvaging the middle class is a priority.

Bottom line: You can't get something for nothing!

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