As we’ve been extensively documenting recently, Republicans have created a sort of right-wing fantasy land when it comes to taxes, claiming that tax cuts pay for themselves and that extending them doesn’t count as federal spending. Senate Minority Leader Mitch McConnell (R-KY) even claimed that “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” even though there is an exhaustive amount of evidence showing just that.

Today, the Senate Finance Committee held a hearing to examine the issues surrounding the expiration of the Bush tax cuts, and particularly whether they should be allowed to expire for the wealthiest Americans like President Obama has proposed. The Finance Committee’s Ranking Member, Sen. Charles Grassley (R-IA) refused to go quite as far as his GOP brethren, saying “I’m not disputing the notion that extending these tax relief plans scores under the conventions of our budget process…So, in that sense, tax cuts are not free.”

However, Grassley nonetheless wants to preserve the Bush tax cuts for the wealthy (which will cost $678 billion while benefiting just the richest 2 percent of the country), and issued a challenge to those who want to let the rates expire:

On this side, we hear the small business people loud and clearly. They say they know their taxes are going up. They don’t know how high the rates will go. They are reluctant to commit to expanding their businesses in what they perceive to be a hostile and uncertain environment…To those who are pushing the higher marginal rates, I say the burden is on you to show that you are not harming our primary job creators, small business.

At least he didn’t say “there’s no evidence whatsoever” that allowing the tax cuts for the wealthy to expire will have a negligible effect on small business, right? Unfortunately for Grassley, his challenge is exceedingly surmountable, as he’s relying on the conservative trope that tons of small businesses face the highest tax brackets.

According to the Center on Budget and Policy Priorities, however, fewer than 2 percent of the small businesses in the country face either of the top two tax brackets, which are the ones in question, while 34 percent are in the lowest tax bracket. 14 percent of small businesses actually qualify for the Earned Income Tax Credit, which is only available to low-income working people.

Plus, “many of the roughly 650,000 filers with small-business income who face one of the top two tax rates are merely passive investors who have nothing to do with running the business”:

Under the Treasury definition [of small business], for example, the $84 of income President Bush received in 2001 from a passive investment in an oil and gas company made him a “small-business owner.” About 35 percent of “small-business owners” with incomes above $200,000, and about 58 percent of “small-business owners” with incomes over $1 million, received some or all of their business income in the form of passive investments. The Treasury definition also counts as “small-business income” the fees that CEOs are paid for sitting on corporate boards.

So it would seem that the burden has shifted back to Grassley. I, for one, would like to hear why he thinks spending $678 billion to benefit the richest 2 percent of the country is a worthwhile endeavor.

Our guest blogger is Michael Linden, Association Director for Tax and Budget Policy at the Center for American Progress Action Fund.

There have already been two posts today calling out Sen. Mitch McConnell (R-KY) for his recent utterly ridiculous statements regarding the Bush tax cuts. I’m going to pile on a bit, because this is the kind of thing that really should be getting even more attention.

When the Senate Minority Leader says something like, “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” in a sane world, that would disqualify him from ever being taken seriously on economic issues again. This is not some disagreement among economists over the effects of a future tax cut. Nor is this a philosophical debate between the left and the right.

Instead, what we have here is McConnell making a clearly false claim about recent history. Even a casual glance at a graph of federal income tax revenues would confirm that, yes, the Bush tax cuts had a massive negative affect on revenues. There is no room for interpretation. Before the tax cuts, income tax revenues were 10.2 percent of GDP. Three years later, income tax revenues were 6.9 percent of GDP. 6.9 is smaller than 10.2.

But the point of this post is not that McConnell is colossally wrong – though he is – it’s that his willingness to make such a dramatically false statement reveals something really ill about the current state of our national economic debate. When someone so high-profile not only makes such an easily disproven statement, but bases his larger policy positions on that statement, it should call into question that person’s entire platform.

Indulge me an imperfect analogy. Say you have a friend who goes on and on about how great this certain restaurant is. So one night you and he go out to this place and you discover that what he thinks is a great restaurant is actually just a huge vacant lot. That would be odd, but maybe you’d think, “I guess my buddy was mistaken about the location of the restaurant.”

Now, imagine that the next day, your friend sidles up to you and says, “Wow, wasn’t that restaurant so amazing last night? Let’s go back there again tonight!” Why would you accept any recommendations from this guy ever again? Not only does his “favorite place” not exist, but he won’t even admit what’s clear to everyone else.

Mitch McConnell is your crazy friend. He sings the praises of tax cuts of rich people – even though we know they don’t work – and then pretends that the ones we already passed didn’t hurt the federal bottom line. And this kind of problem is rife throughout the conservative world. Read more

When the 2003 Bush tax cuts were passed, a phase out of the estate tax began that culminated this year with the tax’s full repeal. But since the Bush administration wanted to minimize the long-term cost of its massive tax cuts (which overwhelmingly benefited the richest Americans), they expire at the end of this year. So the estate tax is scheduled to come back at its Clinton-era level of 55 percent with a $1 million exemption in 2011.

This week, New York Yankees owner George Steinbrenner passed away, making him at least the third billionaire to pass on his estate to his heirs tax free. Today, during a Senate Finance Committee hearing Sen. Jim Bunning (R-KY) said that Steinbrenner is a genius for dying this year and escaping the estate tax:

“Because he was smart enough to die in 2010, there is zero tax liability on the estate tax,” he said.

Bunning’s comment echoes those Rush Limbaugh made earlier in the week, saying Steinbrenner “knew when to die,” because of the repealed estate tax. Steinbrenner’s net worth was about $1.15 billion, making him the 341st richest person in America.

Some conservatives have seized on the expiration of the estate tax to push for cutting the rate going forward. Today, Sens. Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) reintroduced their plan to cut the rate to 35 percent with a $5 million exemption, complete with a Bush-style phase-in “meant to make the short-term cost of the bill appear smaller.” President Obama and many Democrats, meanwhile, have proposed permanently setting the tax at the 2009 level of 45 percent with a $3.5 million exemption.

The Lincoln-Kyl plan would cost about $91 billion more than permanently adopting the 2009 rate, which itself costs hundreds of billions relative to current law. Lincoln and Kyl have said that they plan to raise spending offsets to make up the difference, raising the prospect that Congress will waste offsets on a tax cut for the richest of the rich.

After all, only the wealthiest 0.25 percent of households are subject to the estate tax at the 2009 level. At that rate, 62.5 percent of estate tax revenue comes from estates worth more than $20 million and another 35 percent comes from estates worth between $5 million and $20 million. Sens. Sheldon Whitehouse (D-RI), Tom Harkin (D-IA), and Bernie Sanders (I-VT) have proposed an even more progressive estate tax, adding higher rates for estates worth more than $10 million, $50 million, and $1 billion.

Last weekend, faux deficit hawk Sen. Jon Kyl (R-AZ) proved that he’s not concerned about deficits at all by saying that spending $678 billion to extend the Bush tax cuts for the wealthiest Americans does not need be offset. Sen. Judd Gregg (R-NH) agreed, saying, “I tend to think that tax cuts should not have to be offset.” This comes just one week after supply-side guru Art Laffer claimed that eliminating all federal taxes would magically bring unemployment down to 2.5 percent and Wall Street editorial board member Stephen Moore advocated raising taxes on the poor in order to cut them for the rich.

But conservative tax craziness may have reached its apex yesterday, when Sen. Mitch McConnell (R-KY) said that “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue.” McConnell’s claim is so demonstrably false that it’s almost laughable, but he is not the only one making it.

Today, The Wonk Room spoke with Rep. Keith Ellison (D-MN) about the GOP’s position that tax cuts for the rich don’t have to be paid for. Ellison — who unlike most of his colleagues has proven his deficit reduction bona fides by voting against military spending that the Pentagon doesn’t want but that Congress continually approves — called the GOP’s claims “patently absurd and ridiculous.” He argued that such rhetoric proves conservatives don’t really care about deficits, but only about cutting taxes for rich people:

When reasonably intelligent people say something that is patently absurd and ridiculous, then you have to look to the hidden agenda, right? Judd Gregg, Sen. Kyl, these are not dumb people. They know what they’re saying is completely self-serving, but they’re looking at it strictly from the standpoint of personal gain and the gain of individuals directly connected to them and people who they regard as their base. They’re like ‘help my friends, and the rest, too bad.’ They are elitists. That’s what they are. What is an elitist? An elitist believes that those that have should have, those that don’t should not. There’s sort of a social or economic Darwinian concept behind their philosophy.

The fact that they would say that massive tax cuts for the wealthy shouldn’t be offset simply means that they think privileges for their friends and themselves should continue to flow and the unwashed masses, they don’t value their lives anyway. That’s basically the bottom line. That’s harsh reality, but it is reality.

Watch it:

“Their extra yacht is more important to them than your meal for your kids, and that is who you’re dealing with,” Ellison said.

Indeed, any lawmaker who says that the Bush tax cuts for the wealthy should be extended without any effort to pay for them should immediately lose all credibility when it comes to reducing the deficit, and they certainly shouldn’t get away with claiming that $33 billion to pay for extending unemployment benefits is too high a price. As Matt Yglesias put it, “the key element of conservative fiscal policy is that tax revenue as a percent of GDP should be made as low as possible. This isn’t a goal they pursue that stands in some kind of balance with concern about the deficit, it’s the only goal they pursue.”

On Sunday, Sen. Jon Kyl (R-AZ) appeared on Fox News and admitted that Republicans have no interest in trying to pay for their desired extension of the Bush tax cuts for the wealthy, which will cost about $678 billion. “You should never have to offset cost of a deliberate decision to reduce tax rates on Americans,” Kyl said.

It’s become a standard conservative position that all the Bush tax cuts should be extended, and the GOP is coalescing around Kyl’s pronouncement that the extension shouldn’t be paid for. “When you’re spending money, you’re spending money that is — it’s not the same thing because it’s growing the government. So I tend to think that tax cuts should not have to be offset,” said Sen. Judd Gregg (R-NH).

Not only have conservatives decided that their concern with the deficit doesn’t apply to tax cuts for the rich, but they are weaving an economic fantasy in order to justify their position. Yesterday, Senate Minority Leader Mitch McConnell (R-KY) said that “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.”

I emailed McConnell’s assertion to CAP Associate Director for Tax and Budget Policy Michael Linden, who responded by saying “this graph took me literally five minutes to make.” The graph tracks tax receipts as a percentage of GDP, complete with the precipitous drop following the Bush tax cuts:

Even in total dollars, tax receipts were lower in 2002 and 2003 than they were in 2001. And the slight uptick that occurs around 2005, which still doesn’t come close to paying for the cost of the cuts, is simply the housing bubble inflating. So if conservatives want to take credit for that rise, then they have to own the bubble too. As Paul Krugman wrote, “everything you’ve heard about how revenues have boomed since the Bush tax cuts is wrong. What really happened was that revenue plunged, as a percent of GDP, in the early Bush years, then staged a partial, but only partial, recovery.”

Factcheck.org has called the assertion that the Bush tax cuts increased revenue “highly misleading,” while the Center on Budget and Policy Priorities has said the claim that tax cuts inevitably pay for themselves “is contradicted by the historical record.” In all, the Bush tax cuts will cause $3.4 trillion in deficits over between 2009 and 2019. Just debt-service costs amount to “$1.7 trillion over the 2009-2019 period” and more than $330 billion in the 2019 fiscal year.

McConnell, though, is not alone in his bizarro world, as Carly Fiorina, Republican senate candidate in California, said this week that “you don’t need to pay for tax cuts. They pay for themselves.”