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Body Politic 

click to enlarge Larry Beinhart. - DION OGUST
  • Dion Ogust
  • Larry Beinhart.


The Nissan Xterra is sold as a high adventure SUV. Take it off road! Into the outback! The mountains! The desert! A blizzard!

I happened to buy one, used. About a month later I was on Route 28, just east of Belleayre Mountain. There was a few inches of snow on the ground.

I was going up hill. The road in that spot is three lanes wide and absolutely dead straight, probably the straightest section of road in the entire Catskills. There couldn’t possibly be a problem.
Then the rear end broke loose.

The Xterra went into a sideways slide. There was oncoming traffic and cars coming up from behind me. I tried to correct. The skid reversed, but too far. I found myself going up hill, barely losing any speed, like a maddened pendulum, back and forth across all three lanes.

Finally, I managed to work the skid toward a driveway off to the right, clipped the guardrail on my way into it, and slowed to a stop.

Now anybody, with any sense whatsoever would look at what they were doing when that happened, and never, ever, do it again.

Buying a new car was not an option. Neither was staying home when it snows.

The Xterra had been in two-wheel drive and had regular tires. With careful testing, I confirmed that balance was such that the tail would regularly break loose in snow, on gravel, and even in heavy rain. But in four-wheel drive and with real snow tires, it was safe enough to drive in any condition. I made the adjustments, and I’m alive to write this.

When George Bush came into office, he sold America tax cuts. They would cause the economy to boom! Create jobs! So much, and so many, that tax revenues would actually increase!

We would have a great adventure! Like when you take an Xterra on an off-road race! Tearing up the landscape, and arriving in first place!

That didn’t happen. There was an instant recession. So he sold America more tax cuts and said, “Get out there and drive this economy!”

The stock market stayed flat. There were few new jobs. Every possible form of debt—the deficit, the national debt, the balance of trade, personal debt— went up. There was “growth.” Strangely, nobody seemed to put the minuses and the pluses together and realize that the growth consisted entirely of borrowing on top of borrowing. Now the economy is careening wildly and every day there’s news of a fresh near-disaster.

General Motors stock is selling at the price it sold for in 1955! American Airlines is cutting eight percent of its work force! US automakers are laying off 25,000 workers! One in every 519 American households received a foreclosure filing in April! The Dow Jones average, adjusted for inflation, is down over 20 percent since 2001! There have been five bank failures in the last year, regulators are expecting 100 to 200 more.

If it cost you $3,000 to heat your home last winter, this winter it’ll cost somewhere between $6,500 and $8,000. If you’re lucky.

And when I went to the gas station to fill up the damn Xterra, it was over $70.

What should we do about it?

How about doing the same thing that got us here? Tax cuts! More tax cuts!

Yes! George Bush called for more tax cuts. Congress voted for them. The checks went out. People got them. The economy got worse! The news got scarier!

What should we do? The same thing again. More rebate checks!

Both presidential candidates, McCain and Obama, are calling for tax cuts to fix the economy. It’s true that McCain’s cuts are stupider than Obama’s, but they’re both calling for cuts.

But do tax cuts actually stimulate the economy?

Vast sums of money have gone into creating that myth. Major intellectual industries have been created and sustained to sell that story.

At the center of that claim is the legend of Saint Ronald Retro Reagan. Reagan cut income taxes, big time, but raised Social Security and Medicare taxes. That meant that rich people paid less, and working people paid more. The immediate result was that economy faltered.

Then Reagan raised taxes (though not by as much as he cut them). At about the same time, oil dropped from $40 a barrel to $20. The economy did grow. That is until the stock market crash of ’87.

There is vastly more evidence the other way. Tax increases stimulate the economy.

It may not make sense, it may be counterintuitive, but here are the facts.

What if taxes went up to over 90 percent?

According to the Reaganauts and Bushwackers, the world would collapse! Business would grind to a halt. Investors would flee. Workers would lay down their tools.

Back in World War II, taxes did go up that high.

Americans who earned as little as $500 per year paid income tax at a 23 percent rate, while those who earned more than $200,000 per year paid a 94 percent rate.

The result: The American economy expanded at an unprecedented (and unduplicated) rate between 1941 and 1945. According to Economic History Services (www.eh.net), the Gross National Product of the US, as measured in constant dollars, grew from $88.6 billion in 1939—while the country was still suffering from the Depression—to $135 billion in 1944.

From 1946 to 1963, the top rate fluctuated from 86 percent to 91 percent.

Average economic growth was 3.5 percent per year.

The current top rate is 35 percent. Economic growth has been, at best, 2.5 percent, that is if you stop counting
in 2007. And don’t consider the type of growth, which consisted primarily of increased debt and pyramids of borrowing.

In 1992, the top tax rate was 31 percent. Bill Clinton increased it to 39 percent. The Dow Jones average went up 360 percent. The number of jobs went up 237,000 per month (under Bush, as of 2007, it was just 72,000 per month.). Median household income went up (instead of down). The budget was balanced.

So here’s what I suggest: If a candidate says he’s going to fix the economy with tax cuts, or a pundit refers to tax cuts as a stimulus or a pro-growth package, lure them to a snowy road. Put them in a two-wheel drive Xterra with regular tires, and tell them there are voters over the next hill, eager to hear their message.

Unfortunately, the reality is that we’re all in the car that they’re driving. Nobody is screaming sense at them. Fasten your seatbelts. Hope that you crawl out of the crash alive. Then, when we’re sitting together at the side of the road, maybe we can have a sane conversation about how economies work, based on reality, not their TV commercials.

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