Country Needs Help for Workers and Unemployed, not Corporate Tax Dodges

Latest unemployment figures show the jobless rate has increased to 5.7 percent--the highest in six years.

In the past year more than 2.5 million people have lost their jobs--many before the Sept. 11 terrorist attacks.

As the recession deepened, Congress became sharply divided between two different approaches and struggled to reach agreement.

The UAW wanted Congress to act in a sensible way to put money in the hands of people who will spend it--thus providing the economy with a needed jolt.

Instead Republican leaders in the U.S. House created a package that it called a stimulus plan but centered around a tax cut for profitable corporations.

The worst part of the House bill was the repeal of the corporate alternative minimum tax which was passed in 1986 to correct the fact that some profitable corporations were paying no income tax.

And the worst part of the repeal was its retroactivity. House Republicans shoved through a bill that contained billions of dollars in rebates to corporations for taxes they had paid all the way back to 1986. That corporate windfall would save selected corporations--and would cost the treasury--over $25 billion.

Citizens for Tax Justice calculated that just 16 Fortune 500 companies would receive more than $7 billion under the bill.

“Who would have thought that a national emergency would set off a feeding frenzy by corporations and the wealthy?” asked Robert S. McIntyre, director of Citizens for Tax Justice. “And who could have imagined that so many of our nation’s elected officials would eagerly go along with this monstrous demonstration of greed?”

Though Republicans called their bill a “stimulus” package, many prominent economists were skeptical.

Nine Nobel laureates and four past members of the Council of Economic Advisers to the President said the House bill would do little to assist a near term recovery and was likely to undermine growth in the long run.

Criticizing the inequitable makeup of the tax cuts, the economists observed that tax cuts for the wealthy are less likely to be spent quickly than are benefits to low-income families and the recently unemployed.

“The tax cuts for large corporations are particularly inappropriate,” said the economists, including Nobel Prize winners George Akerlof, Kenneth Arrow, William Sharpe, Lawrence Klein, Franco Modigliani, Robert Solow, Douglass North, Joseph Stiglitz and James Tobin.

The nine Nobel Prize winners and several other prominent economists pointed out that large retroactive rebates to a few giant corporations would do little to stimulate the economy.

“These tax breaks may do wonders for big campaign contributors, but will do little to heal a hurting economy and put people back to work,” said Jeff Faux, president of the Economic Policy Institute, which circulated the statement.

Peter Orszag, a former economic aide to President Bill Clinton who now is at the Brookings Institute, agreed.

The problem facing companies is a lack of demand for their products, not a lack of cash, he said.

Senate Republicans first offered a plan that would exceed the House version in tax cuts for the wealthy by accelerating individual tax rate reductions in every one of the upper income brackets.

“This is a great bill for rewarding GOP campaign contributors, but it is a bad stimulus policy because some 55 percent of its benefits would go to the wealthiest one percent of taxpayers,” commented the Campaign for America’s Future.

During the debate over an economic stimulus package, the UAW supported the bill offered by Senate Democratic leadership that provided significant assistance to laid-off workers including improved unemployment benefits and extended health care coverage.

The debate over stimulus focused attention on the inadequacy of unemployment benefits.

Only about 37 percent of the nation’s unemployed received jobless benefits in October. The rest were stuck in a one-week waiting period, had exhausted their 26 weeks of payments or weren’t eligible.

Senate Democrats wanted to expand eligibility to an estimated 600,000 part-time and low-wage workers not eligible for benefits in most states and provide 13 weeks of federally paid extended benefits.

The White House bore much of the responsibility for the delay in passing a stimulus bill. It insisted on a repeal of the corporate minimum tax, opposed a broad expansion of health care benefits, and wanted to limit use of extended unemployment benefits to only those states where there was a 30-percent increase in unemployment.

Republicans also tried to demonize Senate Majority Leader Tom Daschle, D-S.D., for insisting that any plan have the support of two-thirds of Senate Democrats.

Daschle’s tactic would ensure that Republicans couldn’t win passage of their anti-worker legislation by picking off a small handful of Democrats. The UAW and other progressive forces saw Daschle as a hero for insisting on a process that would be fair to unemployed workers.

When Bill Clinton became president, Republicans like Newt Gingrich predicted that the first Clinton budget with its tax increases on upper income groups and its increases in Earned Income Tax credits for low-income workers, would send the economy into recession.

But their economic predictions--based on a faulty analysis--proved wrong as the U.S. moved into a long stretch of growth, low unemployment, and modest but real increases in wages.

As president, George W. Bush moved quickly to reverse the Clinton approach. And so far neither the markets nor the economy responded well--even before the Sept. 11 tragedy. Not only did most of the benefits in last June’s tax package go to the wrong people, the timing was wrong, too.

Except for the new 10 percent bracket, the plan was written to phase in gradually over 10 years, making it useless as economic stimulation.

Tax policy does have a role to play if it is used sensibly.

Tax cuts to stimulate the economy should be temporary and should target those who are most likely to spend any increase in their disposable income.

A temporary credit against payroll taxes is an example of sensible stimulative policy. Permanent tax cuts for corporations and the wealthy are not.