The impact of Reaganomics, amped up by Bush

Between 1984 and 2007, “The gap between the wealth possessed by white and black families grew more than four times larger,” in part because of tax cuts and policies that favored high-income groups. Researchers from the Institute on Assets and Social Policy at Brandeis University also found in a new report that the average middle-income white family was able to accumulate more wealth (assets minus debts) than the average high-income African-American family: “Consumers of color face a gauntlet of barriers – in credit, housing and taxes – that dramatically reduce the chances of economic mobility.”

The growing wealth gap between the races in the U.S. is the focus of the new report, which you can download here. Other researchers have found equally damning evidence of the widening gap between the very rich and everyone else. This graph shows how “the top 10 per cent of income earners in the US took home an ever more outsized share of the total national income starting at the end of the 1970s.” From the World War II era to the early 1980s, the “top 10 percent took 30-35 per cent of total national income,” but by 2007 that figure had grown to about 50 percent–a level not seen since just before the Great Depression.

Ronald Reagan’s fiscal policies started this trend, but George W. Bush accelerated it with his enormous tax cuts for the highest earners. During Bush’s presidency, “The share of the nation’s income flowing to the top 1 percent of households increased sharply, from 16.9 percent in 2002 to 23.5 percent in 2007 – a larger share than at any point since 1928.” In addition, approximately “Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households […].”  

This enormous wealth gap is invisible to the Reagan-worshippers who now dominate the Republican Party. For them, any attempt to increase working-class wages is a “job-killer,” and tax cuts that disproportionately benefit the well-off are the solution to every problem. Look at how the Republican candidates for Iowa governor balk at spending $42 million to send more than 12,000 kids to pre-school but brag about plans to cut corporate taxes by $80 million to $160 million. Their priorities would be laughable if the real-world consequences were not so tragic.

Share any relevant thoughts in this thread.

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New Branstad ad airbrushes his record

Terry Branstad’s campaign launched its third television ad today, about a month after his first commercials started running statewide in Iowa. The new commercial depicts Branstad as “the real conservative change we needed then… and now.”

Here’s the ad script:

The farm crisis … Budget deficits… Skyrocketing unemployment…

That’s what Terry Branstad faced when he was elected governor.

But this Winnebago County farm kid put his rural values right to work, recruiting thousands of jobs, cutting out half the state agencies and taxes $124 million – leaving us record employment, and a $900 million surplus.

Terry Branstad is the real conservative change we needed then… and NOW.

Time for a reality check.

Branstad was first elected governor near the bottom of one economic cycle (at that time the most severe recession since World War II) and was fortunate to retire near the peak of the Clinton boom years. However, job gains during Branstad’s tenure as governor did not fulfill promises he made during his campaigns.

Iowa reorganized state government in 1985, eliminating some agencies and merging others into larger departments. On the other hand, total state government employment increased from 53,342 in 1983 to 61,400 in 1999. Total receipts in the state’s general fund increased from $1.899 billion in 1983 to $4.881 billion in 1999. That 166 percent increase was more than the rate of inflation during the same period, and Iowa’s population was no larger when Branstad retired than it was when he was first elected.

The huge growth in the general fund budget would not have been possible without various tax increases Branstad signed into law. Increased revenue from two sales tax hikes dwarfed the $124 million in tax cuts highlighted in Branstad’s new commercial. Those cuts came primarily from reducing income and estate taxes, delivering most of the benefits to wealthier Iowa families. Unfortunately, Branstad’s sales tax increases disproportionately hit lower-income families, who spend a greater share of their money on essentials.

Branstad was far from reluctant to raise taxes. He asked the state legislature to increase the sales tax in his very first budget address, within days of being inaugurated in 1983.

I expect Branstad to win the Republican primary on June 8 despite his accountability problem. Bob Vander Plaats is a strong speaker but doesn’t have the financial resources to publicize his case against the former governor. Rod Roberts isn’t trying to make a case against Branstad, as far as I can tell. His function in the campaign seems to be to prevent Vander Plaats from consolidating the conservative vote in the primary.

However, during the general election campaign, Branstad will face an opponent with the resources to compare his record with his rhetoric. I wonder how many conservative Republicans will either stay home in November or check the Libertarian box in the governor’s race.

UPDATE: Kathie Obradovich says the $124 million figure “is the campaign’s calculation of the net result of all the tax changes enacted under Branstad – an overall reduction of $124 million, in 2008 inflation-adjusted dollars.” I would like to see a calculation of all the Branstad-era sales and gas tax increases in 2008 dollars. Hint: it would work out to a lot more than $124 million.

SECOND UPDATE: Branstad “had an elective heart procedure” today to put a stent in a partially blocked artery. I hope he feels better soon. His campaign released a statement from his doctor saying, “Governor Branstad should be able to resume his normal campaign schedule within the next few days and should quickly return to his normal lifestyle without limitations. He should be fully capable of performing the activities of a candidate and a Governor.”  

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The stimulus was the biggest middle-class tax cut in history

I was disappointed by some compromises made to pass the stimulus (the American Recovery and Reinvestment Act) in February 2009. I felt President Obama made too many concessions in the fruitless pursuit of Republican votes, and that too much of the cost went toward tax cuts that would be slower-acting and less stimulative than certain forms of government spending.

That said, the tax cuts in the stimulus will help tens of millions of American families, particularly those with working-class or middle-class incomes. Citizens for Tax Justice has calculated that “the major tax cuts enacted in the 2009 economic stimulus bill actually reduced federal income taxes for tax year 2009 for 98 percent of all working families and individuals. ”

In terms of the number of Americans who benefited, the stimulus bill was the biggest tax cut in history. That is, “the estimated $282 billion in tax cuts [from the stimulus] over two years is more than either of the 2001-2002 or the 2004-2005 Bush tax cuts or the Kennedy or Reagan tax cuts.” George W. Bush’s tax cuts were more costly to the U.S. Treasury over a 10-year period, but as Anonymous Liberal noted last year,

The Bush tax cuts were skewed dramatically toward the wealthy. In 2004, 60% of the tax cuts went to the top 20 percent of income earners with over 25% going to the top 1% of income earners. Those numbers have increased since then as the cuts to the estate tax have taken effect.

Tomorrow is the deadline for most Americans to file their tax returns, and Republicans will try to harness the tea party movement’s anger at what they view as excessive taxes and spending. However, many ordinary people may be shocked to learn how large their refunds are this year. According to the White House, “the average tax refund is up nearly 10 percent this year.”

Democrats should not be afraid to vigorously defend the stimulus bill during this year’s Congressional campaigns. I wish the recovery act had been larger and better targeted, but the bottom line is that Republicans voted against the largest ever middle-class tax cut.

The White House website has this Recovery Act Tax Savings Tool to help people find benefits to which they are entitled. After the jump I’ve posted a fact sheet on this subject, which the White House press office released on April 12. Note: if you have already filed your taxes, you can amend them after April 15 to collect on any credits from the stimulus bill that you missed.

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Year in review: national politics in 2009 (part 1)

It took me a week longer than I anticipated, but I finally finished compiling links to Bleeding Heartland’s coverage from last year. This post and part 2, coming later today, include stories on national politics, mostly relating to Congress and Barack Obama’s administration. Diaries reviewing Iowa politics in 2009 will come soon.

One thing struck me while compiling this post: on all of the House bills I covered here during 2009, Democrats Leonard Boswell, Bruce Braley and Dave Loebsack voted the same way. That was a big change from 2007 and 2008, when Blue Dog Boswell voted with Republicans and against the majority of the Democratic caucus on many key bills.

No federal policy issue inspired more posts last year than health care reform. Rereading my earlier, guardedly hopeful pieces was depressing in light of the mess the health care reform bill has become. I was never optimistic about getting a strong public health insurance option through Congress, but I thought we had a chance to pass a very good bill. If I had anticipated the magnitude of the Democratic sellout on so many aspects of reform in addition to the public option, I wouldn’t have spent so many hours writing about this issue. I can’t say I wasn’t warned (and warned), though.

Links to stories from January through June 2009 are after the jump. Any thoughts about last year’s political events are welcome in this thread.

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Iowa taking full advantage of stimulus unemployment funds

When Congress was debating the stimulus bill earlier this year, Mark Zandi, the chief economist for Moody’s, compared various forms of government spending and tax cuts in terms of economic stimulus “bang for the buck.” He concluded (pdf file) that various forms of government spending did more to stimulate the economy than various kinds of tax cuts.

The best kinds of spending in terms of stimulative effect were food stamps and extending unemployment benefits. Every extra dollar the federal government spends on food stamps generates approximately $1.73 in economic activity, and every dollar the federal government spends to extend unemployment benefits generates approximately $1.63 in economic activity. People who need these services are likely to spend additional money quickly, helping preserve jobs in the retail sector.

With this in mind, you might imagine that the states would take full advantage of money allocated to unemployment benefits in the American Reinvestment and Recovery Act. But you would be wrong, according to this article by Olga Pierce from ProPublica:

So far, only about half of the $7 billion included in the stimulus package [for expanding unemployment insurance] has been claimed by states. […]

Four states have explicitly rejected the funding, but many others have so far failed to pass legislation qualifying them for incentive payments. […]

Under the stimulus bill [2], states can qualify for the extra funding by extending unemployment insurance to new categories of workers. To receive a third of the funding, they must begin using something called an alternative base period, which would allow more low-wage workers to receive unemployment benefits. […]

To get the other two-thirds of the cash, they must adopt at least two other changes from a list that includes covering part-time workers and offering $15 extra per week for each dependent.

If states meet the requirements, they qualify for a federal lump sum payment that will cover the cost of expansion for at least three years, or longer in many cases. It was on those grounds – that after the federal funding runs out states will have to find another way to cover the cost – that Louisiana Gov. Bobby Jindal [3], Mississippi Gov. Haley Barbour [4] and others [5] that said they would reject the funding.

Bleeding-heart liberal that I am, I believe basic fairness justifies extending unemployment benefits to more part-time and low-wage workers. But even if you don’t care about fairness, Zandi’s analysis shows that extending unemployment benefits will get money circulating in the economy.

Click here for a map and a chart showing how much federal unemployment money each state has claimed.  

As of mid-June, 17 states had claimed none of the stimulus funding for unemployment benefits, and another 12 states and the District of Columbia had claimed only part of that money. In some of those states, Democrats are in charge. Progressives who have ridiculed Republican governors for rejecting stimulus money for unemployment benefits should also hold Democrats accountable on this score.

Fortunately, Iowa is among 21 states that have fully used these stimulus funds as Congress intended. Thousands of Iowans struggling to get by will benefit from the $70.8 million the stimulus bill appropriated to our state for unemployment benefits. Democrats in the state legislature and Governor Chet Culver deserve credit for enacting the necessary legislative changes to collect this funding.

Many of the states that have left stimulus money on the table have significantly higher unemployment rates than Iowa, by the way.

Speaking of boosting the economy, Zandi’s report showed that infrastructure projects were the third-most stimulative form of government spending. Every extra dollar spent on infrastructure generates an estimated $1.59 in economic activity. Remember that next time Iowa Republicans bring out their misleading talking points about the the I-JOBS program. Also remember that Iowa has used the stimulus bill’s transportation funding wisely compared to many other states, according to a recent review by Smart Growth America.

In contrast, most kinds of tax cuts Republicans advocate generate less than one dollar of economic activity for every dollar they cost the government. As a gesture to Republicans, Democrats replaced some spending in the stimulus bill with $70 billion allocated to fixing the alternative minimum tax, even though Zandi’s analysis found that a dollar spent on fixing the alternative minimum tax generates only about 49 cents in economic activity.

It’s too bad the Obama administration made a number of concessions to Republicans on the stimulus bill. Like Bob Herbert wrote a few months ago, when the GOP talks about the economy, nobody should listen.

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