Today, Rep. John Boehner (R-OH) is “preparing to unveil a major economic initiative” aimed at “economic recovery.” Based off of an earlier “alternative” to Rep. Nancy Pelosi’s stimulus package – and outlined in a memo circulated last weekend – Boehner’s plan includes tax cuts for coprorations and zeroing out the capital gains tax.
Ultimately, the plan is a mere conglomeration of ideas plucked from the conservative tax cut wishlist and won’t do what Boehner intends:
– If we cut taxes on small businesses, they’ll use the money to create jobs.
As the Wonk Room has previously noted, tax cuts do not spur business investment. Private business investment actually rose after President Clinton’s tax increases and fell after both the Reagan and Bush tax cuts. As Princeton professor Uwe E. Reinhardt wrote “I would challenge supply-siders to explain why the owners of small businesses — say, restaurants — would expand the capacity of their establishments or build new restaurants at a time when customers stay home, even if they were given a tax cut on the income from their restaurants.”
– A zero capital gains tax is the fastest way to rebuild Americans’ 401(k)s.
The benefits from a capital gains tax cut go overwhelmingly to millionaires, particularly given the current economic climate, in which “the middle class doesn’t collect capital gains, or dividends, in any material amount.” As Michael Ettlinger pointed out “benefits of capital gains tax cuts overwhelmingly go to those who own capital assets outside of retirement.” Furthermore, Ettlinger noted “a 0% capital gains rate would in fact be a disaster for the market.” “Given the uncertain times we face, it’s far more likely that a zero rate on capital gains would prompt a massive exodus from the market than a massive entry into it,” he wrote.
Boehner is also proposing a reduction in the corporate tax rate from 35 percent to 25 percent. As the Wonk Room has noted over and over, this proposal does not create jobs. A study by the Center for American Progress Action Fund found that increased corporate profits do not trickle down, and that corporations invest little in new commercial structures such as factories and office buildings.
As evidence that his plan will be well received, Boehner cites a New Models/Winston Group survey showing that “the American people overwhelmingly believe the focus of government economic policy should be economic growth and jobs, not income redistribution or ‘spreading the wealth around.'” However, according to the latest Pew Research poll, “only 25 percent of the public agrees with the centerpiece of the conservative tax program: making all of the Bush tax cuts permanent.”
Instead of presenting a
bailout stimulus package economic recovery plan based on trickle-down tax cuts – much in the manner of Sen. James Inhofe (R-OK) – Boehner should take a serious look at stimulus thru infrastructure investment, an idea which is gathering widespread support and could actually help the economy recover.