Sunday, Republican Minority Leader John Boehner appeared onCBS’Face the Nationand tried to throw cold water on President Elect Obama’s plan toaccess the $350 billion in remaining stimulus money. After aiding and abetting the gross fiscal mismanagement throughout the Bush years, Rep. Boehner* is suddenly all about fiscal rectitude and accountability. He says:
Boehner went on to conclude that it will be “a pretty tough sell” to get Congress to release the money.
A “pretty tough sell”, eh? Those words reminded me of Boehner’s “responsible” salesmanship this fall, when he was proposing a capital gains tax cut to stimulate the economy. We’ll examine this more fully, but first let’s review some background information.
In case you hadn’t heard, the stock market fell deep in the crapper this year. Many Americans saw their retirement portfolios slashed by 30 to 40% or more. This wealth destruction created stress and uncertainty for families, especially during a recession full of job losses, andespecially during a painful deflation of an historic housing/credit bubble. It’s difficult to know what to do at such times, and it’s difficult to know where to turn for guidance. Where do you put your remaining retirement monies for which you’ve worked so hard? Do you cut your losses and save what’s left, or take an antacid and try to ride it out?
from stagnating incomes to piles of consumer debt, perhaps the least
understood and among the most serious is the looming crisis in
retirement. Several trends, each debilitating alone, are due to
converge on the middle class over the next decade or so.
Of all the trends, perhaps the most worrisome is the failure of highly
touted 401(k) private savings accounts to replace fast-disappearing
traditional pensions. Not only do millions of workers not save enough,
or… drain their 401(k)s well ahead of retirement, but all the
risk of making wise investment choices and planning for retirement now
falls entirely on workers who have no training to deal with it.
So, right before the electionBoehner proposed a “pro-growth, pro-jobs package
to get our economy moving again through lower taxes to allow families
to keep more of what they earn”. (Apparently, he saw a “demonstrated need in the economy” that necessitated quick action.) Guess what one of the centerpieces of the plan was? Lowering the capital gains tax level to ZERO percent for the next two years. And here’s how he justifiedthe plan:
capital gains tax [on equities purchased]…
will help Americans rebuild their 401(k)s and encourage investment.
100 million Americans own mutual fund shares, roughly, and about 85 million hold these shares in plans like 401(k)s. Most of those who own 401(k)s understand that they don’t get taxed on them until they withdraw their money. Regular contributions that purchase shares in equities are taxed deferred. However, very few people understand that when they do withdraw their retirement, it will be taxed at REGULAR INCOME TAX rates, not at capital gains tax rates. (Early withdrawal, of course, will cost you an extra 10% in penalties.)
Some people know these things, some don’t. But Boehner, the top Republican in the House, seems to be among the ignorant. He either doesn’t understand how a 401k works, or he’s willfully trying to mislead people about how theydo work, because his proposal to cut the capital gains tax rate to zero WILL NOT directly help Americans “rebuild their 401(k)s”, as he claims. The only thing his proposal will do will be to provide speculative incentives to the wealthy investors who fueled the housing/credit mania with capital freed up by Bush’s tax cuts. Perhaps that’s his exact plan. (Give it another go, boys, but try not to screw up and hurt the little people this time!)
Providing a welcome counterpoint to this line of supply side fantasia, economic historianProf. James Livingston argues
George Bush’s tax cuts produced a new tidal
wave of surplus capital with no place to go except into real estate,
where the boom in lending against assets that kept appreciating allowed
the “securitization” of mortgages—that is, the conversion of consumer
debt into promising investment vehicles.
[T]he Bush tax cuts merely fueled the housing
bubble—they did not… lead to increased productive
investment. And that is the consistent lesson to be drawn from fiscal
policy that corroborates the larger shift to profits, away from wages
and consumption.There is no correlation whatsoever between lower taxes on corporate or personal income, increased net investment, and job growth.
For example, the 50 corporations with the
largest benefits from Reagan’s tax cuts of 1981 reduced their
investments over the next two years. Meanwhile, the share of national
income from wages and salaries declined 5 percent between 1978 and
1986, while the share from investment (profits, dividends, rent) rose
27 percent, as per the demands of supply-side theory— but net investment
kept falling through the 1980s.
Please read Livingston’s entireargument. Clearly, the lack of “productive investment” leading to robustjob growth during the “low tax” Bush years requires an explanation, and I believe Livingston provides a good one.
In light of Livingston’s analysis, Boehner’s behavior is maddening. In the aftermath of a housing/credit mania, Boehner proposes lowering Cap Gains taxes to zero to help wealthy investors re-inflate the market somehow. Worse, at a time of maximum anxiety among people concerned about their retirement, he falsely claims that such a move“will help Americans rebuild their 401(k)s”. Then, after another couple months pass and recession becomes official and over a million more jobs are destroyed, Boehner’s suddenly not sure that “there’s a demonstrated need in our economy” to spend $350 billion on productive infrastructure investments and foreclosure relief.Unlike the Cap Gains giveaway to the speculators who helped cause the “Great Financial Panic of 2008-09” (Get back in the game Mad Men!), it’sObama’s stimulus plans that will be a “pretty tough sell”, in Boehner’s eyes. After Bush Republicans helped Wall St. get dangerously drunk, they want to keep a close eye on Obama, because, you know, there’s no telling what this guy will do.
I know, I know. You say “same shite, different day”. But it pisses me off. The next time I hear Boehner use the word “irresponsible”, I swear I’m going tospit (#1).
* Despite the spelling, his name pronounced “BentFukStik” for you noobs. It’s not “Boner”, like Mike Seaver’s friend on Growing Pains, Richard Milhous “BONER” Stabone.