The Saxby Chambliss Tax Plan Makes no Sense and it Makes Perfect Sense

The Saxby Chambliss Tax Plan Makes no Sense and it Makes Perfect Sense

I listened to Steve Inskeep interview Senator Saxby Chambliss (R-GA) about Tax Reform and the fiscal cliff to work yesterday. Chambliss’s argument was not supported by any empirical data and so completely incoherent I wanted to slam my head into the steering wheel. Traffic was really bad, so I didn’t

Chambliss, a member of the Gang of Six, outlined his three-pronged approach to curing our nation’s long-term debt problem: cut federal spending, reform Medicaid and Medicare, and raise revenue by eliminating loopholes and credits. He then accepted the fact that Obama has been elected twice with a campaign that called or letting the Bush tax cuts expire for those making over $250,000, but he went on to say something very misleading:

The small business community in America generates more jobs than any other segment of our workforce, and too many small businesses fall in that category. And if you raise taxes on an individual or a company that is creating jobs, does that really provide an incentive to that company to expand and create more jobs?

And I think the answer is pretty simple. It doesn’t.

Note: Only around 3% of small businesses earn more than $250,000.

Steve Inskeep did push back a little with:

If somebody is making $300,000, $400,000 a year in a small business and the marginal tax rate, the taxes on the upper part of their income, goes up a point or two points or three points, they’re paying more in taxes, but not actually very much more.

And as far as somebody who’s making a lot of money who would pay a lot more taxes, Warren Buffett said the other day, the ultra rich, including me, will forever pursue investment opportunities. In other words, he’s saying don’t say that it’s going to discourage economic activity to raise taxes a little bit.

Chambliss then claimed that raising the tax rate 4% on a small businessman making $400,000 a year may make a difference in him hiring any new employees. Inskeep replied smartly with:

… but somebody who’s making three or $400,000 a year and taxes are raised by a couple of percentage points on the upper part of his income, not his entire income, but the upper part of his income. He’s paying an extra couple thousand bucks. That’s going to stop him from hiring somebody?

And here’s where Chambliss becomes incoherent:

Reforming the tax code does not mean raising tax rates. If that’s all we do, we’ve missed a golden opportunity to really invigorate the economy. And then, secondly, when you reform the tax code, that person that’s making three or $400,000 is the person that’s going to lose those tax credits and tax deductions to a greater extent than somebody who’s making $50,000, let’s say.

So they’re going to wind up, in all probability, paying more in taxes, but it will be in a different way and at a rate that’s actually lower, which will allow them to reinvest what money they do have left over in their business.

Inskeep points out that either way the small businessman would end up paying more in taxes and wonders why he would hire employees under the loophole-closure method but not under the rate-raising method.

Chambliss responded with the Republican mantra about raising revenue with economic activity:

…because of the energizing of the economy, instead of making three or $400,000 in his business, he may make $500,000. And the economy grows and the employment base, and thereby the tax base, grows when you see that economy invigorated like that.

Inskeep missed an opening here to point out that there is no proof that low tax rates on wealthy lead to a robust economy. In fact, many economic studies have completely discredited that theory, and history shows that the economy boomed in post-war America and during the Clinton years when the top marginal rate ranged from 39.6% to 91%. And during the Reagan years the economy did pretty well when capital gains and dividends were taxed at the same rate as earned income.

It’s exactly this kind of incoherency that Bruce Bartlett wrote about in an excellent introspective essay for The American Conservative titled, “Revenge of the Reality-Based Community: My life on the Republican right—and how I saw it all go wrong” that led to his “intellectual crisis”. He criticized the the Bush plan and was ultimately purged from the party. But that wasn’t all – he was banned from Fox News for his heresy.

But when you consider that Chambliss is against raising rates on the top 2% and that as a member of the Gang of Six he wanted he wanted to reduce the top marginal rate by at least 9%; and if you then dispense with any thoughts that Republicans actually care about deficits, what he said starts to make sense.

Let’s review: Bush and Cheney proved “deficits don’t matter” by drastically cutting taxes and keeping them low throughout two very expensive, prolonged wars in Iraq and Afghanistan. Chambliss wants to lower taxes even further.

Republicans don’t want to collect revenue to pay for government. They’d rather cut the taxes of rich people by trillions of dollars than use the money to pay for entitlements and wars. Any real increase in marginal rates will without a doubt raise more revenue, and that’s why Chambliss said this to Sean Hannity on Fox News yesterday:

…there are two things that the president is talking about that are non-starters, Sean, I just don’t see any way forward. One is increasing tax rates on certain individual taxpayers. That’s not going to fly. I’ve never supported a tax increase rate-wise and I’m not going to. Secondly, we’re not even going to discuss revenues until they’re willing to put entitlement reform on the table.

He knows, you know, and I know that there is no way that closing tax loopholes for the rich will raise enough revenue to fill the hole made by cutting the tax rate on the very rich by 9%. They only way to fill the hole would be to raise the rates on capital gains and dividends and collect more taxes from the middle class by eliminating write-offs like the mortgage-interest deduction. He also knows that if the President succeeds in raising rates for the top 2%, then he might also someday, after the economy is running strong again, succeed in raising all rates back to Clinton-era levels, and that would mean we could actually afford to pay for entitlements.

So to summarize, Chambliss is for raising revenue only when it doesn’t really raise revenue, because raising revenue for real would take money from the rich to provide for the elderly, the infirmed, and the poor. And that is something for which Republicans simply will not stand.

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