SAN FRANCISCO, Oct. 29, 2008
Read Declan McCullagh's Lips: No New Taxes
CNET Columnist Says Recession Is Worst Possible Time To RaiseTaxes
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As October surprises in politics go, it wasn't much of one. But this month's appearance of Joe the Plumber, coupled with a YouTube clip featuring a younger Barack Obama talking about "redistributive" measures, have injected taxes into the presidential campaign's last month.
If we're entering a recession of unknown scope and duration, as seems to be the case, this would be the worst time to raise taxes. Unfortunately, both Barack Obama and John McCain have less-than-stellar records on this point.
The next president and Congress should take a lesson from their predecessors' failed policies during the Great Depression. That's when President Hoover signed into law the Revenue Act of 1932, which ended the low-tax policies of the 1920s with the largest peacetime tax hike in the history of the country.
The Revenue Act hiked corporate income taxes, doubled the estate tax, and raised the top personal income tax rate to 63 percent. Wartime excise taxes were revived, and new taxes were slapped on gasoline, tires, cars, telephones, bank checks, electricity, toiletries, jewelry, stock transfers, and so on.
That was followed by President Roosevelt endorsing a further increase in the top income tax rate, which reached 79 percent in 1936. Other new taxes that sprouted in that decade include a tax on dividends, a capital stock tax, liquor taxes, and the Social Security payroll tax. Roosevelt claimed
that forcible wealth redistribution was "the American thing to do."
Well, we know how that particular exercise in patriotism worked. During the Great Depression, the stock market fell by 90 percent, the economy contracted by 30.5 percent, and unemployment reached 24.9 percent.
To be sure, tax hikes alone didn't account for that decade's misery. Four years ago, a pair of UCLA economists calculated that other New Deal policies probably played the largest role in prolonging the Great Depression by seven years.
But higher taxes are nevertheless a sure way to delay a recovery. In times of economic strain, reducing taxes will stimulate healthy economic activity. Raising them will reduce disposable income, shrink spending, and lead to a contraction in economic activity -- precisely what politicians claim they don't want to do. It's also no way to create jobs.
Yes, it's true, as I wrote in last week's column, that government spending has run amok under President Bush and taxpayers are now being forced to pay over $500 billion a year in interest on the government debt. But the better way to balance the budget -- remember that quaint phrase? -- is to gradually reduce government spending.
Too much attention has been focused on Obama's proposal. That includes letting the scheduled 2011 tax rate hikes occur, boosting taxes on what the Tax Foundation calculates to be 50 percent of small business income, and even doling out money to Americans who pay no income taxes.
These reveal what a President Obama would like to do. The reality, though, is that Congress, not the president, writes tax laws.
Capitol Hill boasts scores of self-important committee chairmen who have their own ideas, guard their influence zealously (Ted Stevens once was one of them), and are unlikely to acquiesce to the precise policy prescriptions of a mere president. Just ask President Clinton what happened to all those sweeping proposals in the
1992 Democratic Party platform once it landed in a theoretically sympathetic Congress.
Though the specifics may not match Obama's campaign promises, his fellow Democrats do seem to agree that some sort of tax hikes are necessary.
Massachusetts Rep. Barney Frank has already been saying that "there should be tax increases" after the election. Look for his colleagues to push through increases in the rates for income taxes, capital gains, and dividends, regardless of their effects on jobs and the stock market.
President Bush's veto threats and opposition from a Republican Senate minority have thwarted some tax hikes in the recent past, including a cigarette tax increase and a
profits tax" on oil companies -- an especially odd idea now that oil prices have plummeted from $145 to around $63 a barrel.
If the Democrats sweep the White House and the Senate, those limits will disappear. This has given McCain his best argument for being elected, which isn't saying much: vote for me if you want divided government.
McCain now says that he will "maintain" the current income tax rates and oppose the automatic 2011 income tax hikes. But the Arizona senator's problem on taxes is that he's wishy-washy in a way that George W. Bush, for all of his flaws, was not.
On Internet taxes alone, in two of four votes I tabulated for a Technology Voter Guide in 2006, McCain voted in the pro-tax direction.
The broader scorecard from Americans for Tax Reform shows that McCain voted against the 2001 Bush tax cuts, against a permanent repeal of the death tax, and against the subsequent 2003 acceleration of the tax cuts. Those were arguably the three most important tax-related votes in the last decade.
Unfortunately, even though the economic picture is darkening, we're left with a less-than-inspiring choice of major party presidential candidates. Unless they learn from the mistakes that Hoover and Roosevelt made, a likely recession could turn into something worse.
Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is declan.mccullagh@cnet.com
By Declan McCullagh
© MMVIII, CBS Interactive Inc. All Rights Reserved.
Add a Comment See all 60 Comments
- If you or I want to blame someone for the ROOT CAUSE of this problem....look in the mirror! Our laid-back attitude over the past 4 decades in this country allows "OUR" Government to be dictated to and "PAID FOR" by Bankers and Wall street Fat Cats. If you and I don''t stand up and say "NO MORE", than your children and grandchildren will suffer in their adult lives as "ECONOMIC SLAVES" YOU MUST GO OUT AND VOTE!!!
- Reply to this comment
- [The fact is that American corporations (certanily the smaller ones) are mostly run by decent family guys. But when faced with demands that cant be met, they subcontract overseas. Taxes are just one of those demands. The sucking sound of jobs leaving the US began in the 60''''s when we added 30% to our taxes so we could pay for growing entitlement programs.]
[Posted by Machineguy at 07:04 PM : Oct 29, 2008]
for many businesses the highest cost of doing business is payroll costs ... and the fact is that the cost of labor in the us of a is sky high compared to many other parts of the world. this has little to do with taxes and will not be solved easily by cutting them ... even if you removed them completely.
the sucking sound is not due to taxes ... it''s due to the high cost of labor in the geographies where the jobs are exported from ... and what is/was the efficient means of production and transportation worldwide that allows for cheaper production ... everywhere else. - Reply to this comment
- [Income taxes ARE NOT supposed to be
for wealth redistribution.]
[Posted by smclimans at 12:38 PM : Oct 30, 2008]
according to who? - Reply to this comment
- If Obama says he is to reduce the income tax level on 95% of Americans, he is either a liar or he has no idea of what he is talking about. Even if you decimate the military (which would throw thousands onto the unemployment rolls) and tax the top 5% to the level where they are in poverty, you would still not generate enough money for his tax cuts.
I am not even bringing into it the effect of thousands of small businesses shutting down and the remaining large industries being driven overseas. - Reply to this comment
- The author of this self-serving piece of trash is a perfect example of Mark Twain''s saying "figures don''t lie, but liars can figure". In 1993 President Clinton passed a large tax increase, mostly on the wealthy, raising the top income tax bracket to 39.6%, still low by historical standards. Results? The longest period of economic expansion in American history. 22 million new jobs. Lowest rate of unemployment in 30 years. Highest percentage of home ownership. A tripling of the stock market. The rich got richer, and *everyone else did too*. Lowest crime figures in American history. Large surpluses used to pay down the national debt and prepare for the inevitable baby boomer retirement. I could go on, but let''s talk about W. Bush. In 2001 and 2003 he passed huge tax cuts, mostly for the wealthy. Results? Lowest job creation since records were kept. Largest deficits in American history. Surplus squandered. Largest stock market drop in history. (currently about 1500 points LOWER than when Clinton left office.) Most home foreclosures in history. Country teetering on the brink of the worst economic meltdown since the Great Depression.
The facts speak for themselves. This country does best when its budget is in balance, and that means the wealthy must pay their fair share. "Trickle down" economics do not work because rich people don''t leak. Fair and progressive taxes, coupled with responsible spending, *does* work. It is American, and it is fair. So quit yer whining, McCullagh! - Reply to this comment
- In your column you wrote the following: "If the Democrats sweep the White House and the Senate, those limits will disappear. This has given McCain his best argument for being elected, which isn''t saying much: vote for me if you want divided government."
What you forgot to mention is that the government has THREE branches. The Supreme Court is now primarily conservative and can only be balanced by a more moderate federal and legislative branch. I take Obama on his word and will hold him to the challenge of running a bipartisan federal branch. Also it will take a united Federal and Legislative branch to clean up the mess the Bush administration created economically and the to correct the evisceration of environmental laws and protections. - Reply to this comment
- You''re all under this dillusion that taxing the "rich" whom ever that might be - and it''s not as easy to define rich as you folks think it is, will NOT produce more revenues. The IRS has proven over and over that when pushed to pay more taxes on income - the wealthy just stop earning. they move money out of the country and protect their investments.
The massive tax increase from 35% to almost 70% in 1930 was a prime reason for the great depression, along with the same type of restrictive tarrifs that you folks are so fond of proposing.
So when you don''t get the money from the "rich" and the corporations you will have to tax the next level of "rich" (a word that will come to have a very fluid meaning) i.e. the middle class.
The economy creates wealth - governments drain wealth. If you want a greater distribution of the wealth improve opportunities to start new businesses, encourage investment in existing business, encourage profit.
But then that Profit is a bad word - isn''t it? - Reply to this comment
- "Wealth Redistribution" is the cornerstone of all humane democracies, and it has been so in the US almost since its inception.
Obviously the writer of the above statement knows nothing about US History. America began in 1776 or 1783 if you are counting from the British recognizing end of the Revolutionary War or even 1787 if you count from the Ratification of the Constitution. Income tax came in as a permanent fixture in 1913. Before that, the main source of government income was import duties.
What has distinguished the US from many other countries has been the emphasis on individual achievement rather than collectivism. That is why at one stage it had 60% of the world''s wealth and printed 60% of its books.
A mass redistribution of wealth will me a dampening of individual achievement and joining the enforced mediocrity of several other countries. - Reply to this comment
- The sucking sound of jobs leaving the US began in the 60''''s when we added 30% to our taxes so we could pay for growing entitlement programs.
Posted by Machineguy
We should have raised taxes on the rich even more to pay for the invasions and occupations. And the actual recipients of your entitlement programs are the rich corporations who pay little to no income tax. And the wealthy CEOs who have taken so much of the money out of society. The bank bailout was an entitlement program as was the Republicans letting the energy companies write our energy policy. That''s pretty much how it works in a fascist country. - Reply to this comment
- The Republicons, by turning America into a fascist country, have been part of the largest redistribution of wealth in the history of the world.
They have given our hard earned tax money to the rich who run the war profiteering and oil companies. - Reply to this comment
- Yes, the last eight years have created a big mess. Senator Obama is well aware of the mess. A President needs to know what the issues are, know how to negotiate and find quality people to work with and beside him with the skill sets needed in each particular area. When I look at the candidates, Senator Obama has all of those qualities while Senator McCain does not. With Senator Obama there seems to be hope again. America needs that.
- Reply to this comment
- smclimans said: "Income taxes ARE NOT supposed to be
for wealth redistribution."
History shows it is FAR, FAR better to tax the rich than to tax the children. It''s too bad that, for 30 years, Republicans have disagreed. - Reply to this comment
Income taxes ARE NOT supposed to be
for wealth redistribution.
The ONLY REAL purpose for incomes taxes is supposed
to be funding government operations
"Wealth Redistribution" ,, IS ,,, socialism
- SOURCE: Communist Manifesto by Karl Marx
- Reply to this comment
Income taxes ARE NOT supposed to be
for wealth redistribution.
The ONLY REAL purpose for incomes taxes is supposed
to be funding government operations
"Wealth Redistribution" ,, IS ,,, socialism
- source: Communist Manifesto by Karl Marx
- Reply to this comment
- I certainly don''t claim to be an expert in economics. But it seems to me that if the money flows up to the wealthy so they can keep their businesses open and re-invest and there is less money for the working class and they can''t afford to buy anything more than the things that are necessary to survive like rent, food, gas,medicine and utilities then who are the wealthy going to sell their products to? What good does it do to have a warehouse full of widgets when nobody can afford to buy a widget? How does that benefit anyone? Probably a stupid question but, just askin.
- Reply to this comment
- Article: "President Bush''s veto threats... have thwarted some tax hikes in the recent past, including... a windfall profits tax on oil companies -- an especially odd idea now that oil prices have plummeted from $145 to around $63 a barrel."
Your views are so ''yesterday''. Today, ExxonMobil broke its own record quarterly profits, the highest of any corporation in history: $15 billion.
Aren''t you glad Bush vetoed tax increases so we could hand our taxes to our children in the form of an $11 trillion debt? Its the Republican way... - Reply to this comment
- jayfl11 said: "We have the second highest corporate tax rate in the industrialized world "
Add in the loopholes, and we have one of the lowest corporate tax rates in the world.
That''s the purpose of loopholes, to allow corporate apologists like yourself to claim corporations pay high taxes when they actually don''t.
''Lost in the fine print'' - Reply to this comment
- We have the second highest corporate tax rate in the industrialized world and companies are leaving for overseas. Ireland saw the light and lowered corporate tax rates and has seen enormous growth and companies setting up shop in Ireland. So we want to chase more companies out by increasing already too high taxes? When all the companies leave, are you ready to take up the slack in the tax receipts? You are all killing the golden goose. You get the gold quicker but the flow stops.
- Reply to this comment
- But machine guy, the corporations have been hiding our money and shipping our jobs overseas for years. That is what happens when you give tax breaks to the rich.
The right wing agenda of privatization. free market and trickle down has never worked anywhere in the world. As we can see from the last 8 years the GOP is a complete failure.
Just give me one good thing the Cons have done for our country and its people. Just one, please.
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Posted by noloyalisti at 05:58 PM : Oct 29, 2008
1. Stopped the cold war with Russia.
Stopped the Vietnam wat.
3. Made us the wolrd leader in manufacturing during the 1950''s and early 60''s
I cant deal with such paranoid view that: "the corporations have been hiding our money and shipping our jobs overseas for years". Its just too irrational. The fact is that American corporations (certanily the smaller ones) are mostly run by decent family guys. But when faced with demands that cant be met, they subcontract overseas. Taxes are just one of those demands.
The sucking sound of jobs leaving the US began in the 60''s when we added 30% to our taxes so we could pay for growing entitlement programs. - Reply to this comment
- RIP Ray Gun, Norquist, Friedman and all the other right wing economic failures. Along with the GOP. Except they got all our tax money in their banks.
- Reply to this comment
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
