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Uh, Tax Rates At Their Lowest Point In 60 Years Is A Problem

I know it’s Tax Day, and every partisan Dem wants to get in their shots at the ignoramuses on the right, so it’s natural that they would highlight this report. But it kind of reveals a larger problem:

“The American people need to be reminded that 98 percent of Americans got a tax cut last year,” Senate Majority Leader Harry Reid said Wednesday.

Reid was referring to the impact of the American Recovery and Reinvestment Act, otherwise known as the stimulus — essentially, the only Obama policy to really impact people’s 2009 tax returns. In fact, tax refunds reached an all-time high this year in part because of the stimulus, the president said in his weekly address on Saturday. Meanwhile, taxes are at their lowest levels in 60 years, according to William Gale, co-director of the Tax Policy Center and director of the Retirement Security Project at the Brookings Institution.

“The relation between what is said in the tax debate and what is true about tax policy is often quite tenuous,” Gale told Hotsheet. “The rise of the Tea Party at at time when taxes are literally at their lowest in decades is really hard to understand.”

Tax rates are at a historically low level not because the burden has been taken completely off the poor and the middle class, people. It’s because taxes have been ridiculously low for the wealthy since the 2001 and 2003 Bush tax cuts, and nothing has been done to promote greater equality by rolling back those cuts. In fact, more cuts got thrown on top of them. Yes, the median family has seen lower tax rates as well, but that’s mostly due to one-time tax credits as part of the stimulus, not systemic protection of great wealth.

While we need to run greater deficits now, over the long term we do lose money in interest payments and debt service by running deficits (I don’t subscribe to the Cheneyite “deficits don’t matter” approach), and they can be largely attributed to the fact that the rich and corporations aren’t coming close to paying their fair share. There’s also the little matter of unfunded wars, but tax rates too low to fund critical services plays the starring role.

And of course, the simpletons being led by the nose to scream about being overtaxed aren’t really talking about today’s tax hikes, but tomorrow’s. They’re setting the environment to make it toxic to let the Bush tax cuts expire.

Democrats for years have vowed to let the Bush administration’s tax cuts for the wealthiest taxpayers expire as scheduled after this year, but election-year politics and the economy’s fragility could complicate matters in Congress.

One thing seems certain, both parties agree: The 2001 income tax cuts will be extended for everyone else — that is, for the roughly 98 percent of households in which couples have less than $250,000 in annual income or individuals earn less than $200,000 […]

For all of the talk from President Obama and his party of ending the Bush tax cuts, letting that happen could be harder for some Democratic lawmakers from Republican-leaning districts or states. Republicans already are reviving what has sometimes proven an effective, if disputed, argument in the past: that rich taxpayers include many small businesses whose owners pay income taxes as individuals.

Returning the tax rates to the Clinton years, a time of historic prosperity, would bring $2.6 trillion dollars back into the government, which can roll back out in services in a highly progressive fashion. It saves the government money in the long-term and would allow the funding base for all kinds of programs that promote economic equality. It could also allow for immediate spending to arrest the jobs crisis, and the kind of larger deficit that we need immediately, with the funding rolling in down the road.

I know it’s tempting to go “Nyah nyah” at the teabaggers and inform them that the Obama White House has cut taxes and not raised them, but the phrase “cutting off your nose to spite your face” comes to mind. The mentality is that Democrats and Republicans can only cut tax rates, which is after all the very premise of the conservative “drown the government in the bathtub” strategy. Why liberals would participate in that is a mystery.

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David Dayen

David Dayen

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