Misrepresenting the Bush Tax Cuts, or the Return of Death Panels
The story goes that when Lyndon Johnson was losing his first congressional election he put out the word that his opponent was having sex with barnyard animals. An aide innocently warned Johnson that this wasn’t true. “Make the SOB deny it,” LBJ was said to have replied.
If you go to the Website of House Ways & Means Republicans, you will see this:
Meanwhile, Fox Business is running a graphic that includes another one of these ominous digital clocks, this time counting down to what it calls “the largest tax hike ever.”
All this drama is about the coming expiration of the Bush tax cuts, of course. But what else do these two allegations have in common? They are both utterly untrue.
To start, not a single important Democrat favors letting all the Bush tax cuts expire at the end of the year, as the Ways & Means Republicans allege. Ever since his campaign for president, Barack Obama has vowed not to raise taxes for anyone making $200,000 or less—a pledge I wish he had never made, but one he has nonetheless kept. His 2011 budget explicitly calls for extending nearly all of those tax cuts (except for the highest-earning 3 percent of taxpayers). Finance Committee chairman Max Baucus (D-MT), Senate Democratic leader Harry Reid (D-NV), House Speaker Nancy Pelosi (D-CA) and Ways & Means Committee chairman Sandy Levin (D-MI) all favor continuing the tax cuts, at least for the middle-class. Relative to current law, this would cut taxes by $3 trillion over 10 years. So to say that “on January 1, 2011, Democrats will drop a $3.8 trillion tax increase on American small businesses and families” is–not to put too fine a point on it–a lie.
The there is the matter of whether allowing all the Bush tax cuts to expire, would, in fact, be “the largest tax hike ever.”
By any fair measure, that’s not true either. To be sure, it would be a very big tax increase, raising revenues by about 2 percent of Gross Domestic Product. But the biggest ever? Not by a long shot. Back in 2006, Jerry Tempalski at the Treasury Department measured the relative size of all major tax bills just since 1940 (which fits pretty well into the definition of “ever.”).
This is what he found: The Revenue Act of 1941 raised taxes by an average annual rate of 2.2 percent of GDP, more than the impact of letting all the Bush tax cuts expire. The Revenue Act of 1942 was even bigger. It raised taxes by a whopping 5 percent of GDP. Remember, we used to pay for our wars in the old days, instead of leaving the bill to our grandchildren. And, in case you were wondering, the three major tax increase bills signed by President Reagan– TEFRA of 1982, the Social Security Amendments of 1983, and the Deficit Reduction Act of 1984–raised taxes by a combined 1.6 percent of GDP, not much less than what we are yelling about today.
Now, there is nothing new about this “biggest tax cut ever” canard. Republicans said it about President Clinton’s 1993 tax increase (which actually raised taxes by 0.63 percent of GDP). They trotted it out again in their campaign against Obama’s health bill. Myron Ebell at Human Events probably wins the breathless rhetoric award, however. He called last year’s House energy bill the “the biggest tax increase in world history.” Whew.
This isn’t to say Democrats won’t stoop to their own overheated hyperbole. Just listen to what some on the left say about efforts to reform Social Security. But there ought to be limits to this stuff, even in Washington. Words still mean something and just as Republicans went far over the line last year with their accusations about death panels in the health bill, they are doing it again this year with taxes. They should be ashamed.
The 5% increase was the bigger tax hike. It was 5% of the overall pie in an econonomy only outputting that amount. 5% of a pie is larger than 2%… it is just measured against the current GDP at the time which is the correct benchmark.
1941 GDP = 127 Billions –> 5% of GDP = 6 Billions
2009 GDP = 14256 Billions –> 2% of GDP = 285 Billions
Which one is bigger? It all depends on how you want to look at it.
Curiousity question: the article refers to “important democrats,” so, who then are the “unimportant democrats?” Just voters? And then are republicans as a group “unimortant, or are there “important and unimportant republicans” too?
It will come back in full force soon enough, which is likely the stick that forces the Republicans to make a deal, rather than demanding that taxes on the wealthy be included in order to extend lower rate cuts.
Very wealthy people are likely to express an opinion on this to Mitch McConnell to make him play nice.
Not a single Democrat favored letting the estate tax expire, yet here we are.
In 2006 Warren Buffett, world's third richest man, paid about 0.2% of his income and investment gain in total taxes (federal, state, and local combined). (That's based on tax figures he released when he was arguing the taxes of wealthy people like him are much to low.) A middle-class working family earning about $70,000 a year pays total taxes of about 28% of the wages they earn, a rate 150-fold higher than Mr Buffett's.
How can this be? Firstly, investment earnings are taxed at lower rates, thanks to the Bush tax cuts. Secondly, unrealized capital gains of the very wealthy represent most of their earnings, but are not taxable under our current tax system. Because the very wealthy need never cash in (“realize') these earning, they continue to grow tax-free until they are passed along tax-free in a trust to the next generation. Meanwhile the middle-class family's taxes are increased by effectively regressive payroll, sales and property taxes. All this has combined to recently concentrate 40% of the nation's wealth in top 1% (up form 22% 30 years ago).
In response to this some have said, “but Warren Buffett uses practically no government resources. He's a self-made man.” This could not be more wrong. He would be nothing without the economic infrastructure provided by government, that is all tax payers. The companies he owns shares in would not exist without public education (of their employees), roads (to deliver their goods), antipoverty programs for the elderly (a huge class of consumers), basic science research (which supports industries like pharmacuticals etc.), the recent financial bailouts…..
The advantages our tax system gives to wealthy investors distorts market forces, leads to the demand for investments outstripping the supply of worthy investments..investment prices rise … investment bubble … bubble bursts … recession … and all but the the very wealthy are at risk for losing their jobs, their homes, and their retirement savings. The last 50 years shows again and again our economy does best with higher GDP and low unemployment when the wealthy investors are not given favored tax treatment and pay their fair share of taxes.
If we tax ALL investment gains at the SAME rates as wages and other income and eliminate our regressive taxes, then even mildly progressive tax rates would result in the wealthy finally paying their fair share. This would allow full funding of important public investment programs, substantial tax reductions for the middle-class (This is what stimulates the economy; encouraging the very rich invest in the next dot-com or securitized subprime mortgages does not.), reduction of the national debt, and a just, robust, recession-resistant economy … that is a true rising tide that lifts all boats.
For much more and a proposal to fix our broken tax system see http://fairsharetaxes.org
I don't get it. Democrats want to stimulate the economy but want to raise taxes for the top 5 %. The top 5 % is responsible for 1/3 of all private spending in the US. As good Keynesian they should let the Bush tax cuts stand since they want to stimulate the economy since they have no chance in hell to pass Stimulus II bill.
The Republicans want to be fiscally conservative and eradicate the budget deficit i.e they should let the Bush tax cuts expire since the have no chance in hell of cutting Medicare/Social Security.
I've never in my life seen such deceitful politicians and even worse aided by deceitful think tanks with social scientist knowing better. That tax cuts stimulate the economy in a recession and that raising taxes in a recession will prolong the recession. But also that in the long run taxes will have to be raised to cut the deficit but for fairness sake every body has to pay, not just the so called rich. And that Social Security and Medicare need to dramatically cut.
If nothing happens the Great Depression of the 1930s will look like a walk in the park when US Financial Armageddon 2030 hits the road.
Propaganda to the Max!
Taxpayers making over $200,000 per year have professionals advising them and doing Tax Planning for them.
Taxpayers making under $200,000 per year for the most part end up paying more than the law requires due to missed credits and deductions.
How would the “Largest Tax Hike Ever” impact the average taxpayer and the majority of taxpayers?
We will not know … it will not happen.
Thank You for an awesome post.
First, they have no shame.
Second, they don't know enough economics to normalize the data to GDP or inflation. Nominally, it is big – although it is actually a reversion to the Clinton tax levels – so it is not technically an increase at all, but simply the implementation of current law.
Finally, it could be that the Republicans know something. Unless the tax cuts for the middle class and poor can somehow be put through under reconciliation (which is hard to do without a budget resolution), there is the possibility that the Republicans might block any tax cut that does not include the wealthiest taxpayers, provided they hang together as a caucus. Of course, most people would see this as a Republican tax increase and I have a feeling that the Democratic leadership is setting them up to do so.
If the GOP spent more on legislative talent and less on PR professionals, they would see that they were about to be played and would make a deal now to avoid a standoff that will make them look very bad in October.
Both parties routinely lie about their opponents. It's the one thing they can agree on.