Blog Credo

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

H.L. Mencken

Friday, December 3, 2010

Facts are Stupid Things...

Math is hard.

One of the things that is sooooo frustrating about the debate on taxes in this country, is how fact-free the debate is allowed to be, since the zombie lies about taxes are allowed to go on without end.

First Zombie Lie: Obama wants to keep tax cuts on households under $250,000, raise them on everyone else.

Fact: Obama will extend tax cuts on every household on the first $250,000 that every household earns.  Only income ABOVE $250K will see an increased rate of taxation.  In other words, Bill Gates will see the same tax cut that someone making $249,999 a year will see.

Second Zombie Lie: We have to cut taxes to create economic growth.

Fact: Bush cut taxes in 2001 and 2003.  The result has been anemic growth, stagnating real wages and wealth so concentrated at the upper end of the spectrum that it began chasing more exotic ways of increasing itself and created a housing bubble.  Clinton raised taxes in 1993 and the GOP ran around screaming about the end of the world.  The economy grew - with low inflation - for one of the longest stretches in our history.  There is some merit to not allowing the Bush cuts to expire right now in the midst of a crushing recession.  It's important to stimulate consumer demand.  There is no argument based on evidence that keeping tax cuts for the wealthy will improve our economic situation.

Third Zombie Lie: Letting the Bush tax cuts expire would create the largest tax increase in history.

Fact: Lies, damned lies and statistics.  Because the economy - even in its recessed state - is so much larger than past economies, it will represent a huge increase in absolute dollars.  But consider PAST taxation rates. The NY Times has a nice chart here showing how much the top earners in 1941 - BEFORE we entered World War II - paid in income tax as a percentage of their income.  Tax rates were around 60% or greater for the top earners in America back then.  We are now fighting two wars (maybe one and a half) and have a major looming debt issue and the top earners are paying around 24% of their income in taxes.

Cheney said that Reagan proved that deficits don't matter.  The modern GOP (and a few Democrats) have made that falsehood their god.  The problem with the deficit is not really Social Security, which can be fixed through a few adjustments in revenue and benefits.  There is a real problem in Medicare, which HCR will only partly address.

The real problem with deficits is that for a decade we spent hundreds of billions on new spending (Medicare Plan D) and two wars without bothering to pay for them.

George W. Bush screwed this country over in a number of ways.  Perhaps the most insidious and longest lasting damage he did was in blowing up the fiscal discipline that Clinton brought to the national budget.  Not because you should NEVER run a deficit.  The government SHOULD be running deficits right now to stimulate demand.

But the government is hamstrung because Bush ran up the deficit in order to finance tax cuts that ultimately did no good for the economy at all.  I have a chart:

Much of the reduction in the deficit seen in 2007 was the artificial boom of the housing bubble.  And it was still pretty bad.

America is not bankrupting itself because of TARP or bailing out GM or with unemployment insurance or food stamps.  We're bankrupting ourselves to pay for millionaire's third homes.

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