Republican Tax Nonsense

So, sat down tonight and watched some Fox News, a little bit of Hannity, a little bit of Gretta.  The GOP talking heads are basically unified in their tax stance.  They will consider raising revenues, but not by raising tax rates because that will hurt the mythical job creators, stifling job growth, etc, etc.  BUT they will consider closing loopholes.  Hmmm.  Think about that.  If you take more money out of peoples pockets via raising tax rates – DOOM!  If you take it out of peoples pockets via closing loopholes, that is just fine and dandy.  This makes no sense whatsoever.  Taking money out of peoples pockets is taking money out of peoples pockets.  This is just another Republican bait and switch.  They have no intention of raising revenues.  The want to reinstate the Bush tax cuts and then … close loopholes? nahhhhhhh.

At the core of their argument is that high taxes inherently stifle economic growth.  Unfortunately this is demonstrably false, and it always confounds me that the Democrats don’t simply pull out some charts and graphs to show this to people.  A recent study from the congressional research service here shows that the tax argument is clearly bogus. So clearly in fact that the Republican congressional leadership squelched the report.

The two graphs from this report that show this most clearly are these,

What do these show?  The graph on the left shows that there is essentially ZERO correlation between the top marginal tax rates and economic growth.  Some of the highest economic growth we had in fact was when the top tax rate hovered about 90%.  The graph on the right shows that there is a (very) weak correlation between the capital gains tax rate and economic growth.  Unfortunately for Republicans, the correlation is positive.  Higher capital gains rates correspond with higher economic growth.

I decided to do a graph of my own.  I found a table of yearly federal deficits and tax rates going back to 1913.  I plotted the yearly federal deficits in inflation adjusted 1983 dollars (not sure why that year was chosen) versus the top marginal tax rate in a given year and this is what I came up with,

Whaddya know, even though it is a weak correlation,  higher tax rates tend to correspond with lower deficits.

All in all the Republican tax argument is … in short … utter bullshit.

 

Time to Kill the “Defense Spending” Holy Cow

As you all know now, the Republicans are trying to weasel out of the Debt Ceiling Deal of which they were architects.  The Supercommittee failed both stunningly and predictably, triggering ‘sequestration’ which is just a fancy word for mandatory cuts.  As part of this sequestration both non-military discretionary and military spending are to suffer equal reductions in spending of $600B each over the next 10 years.  But the Republicans are now screaming, “we will hollow out the military, we can not let this go forward!”.  In the Senate there was introduced the “Down Payment to Protect National Security Act of 2012″ which, according to Senator Rubio’s website:

Senator Rubio joined Senators Kyl, McCain, Graham, Cornyn, and Ayotte in introducing The Down Payment to Protect National Security Act, legislation which overrides the automatic, across-the-board cuts to our nation’s defense capabilities, which are scheduled to take effect in 2013 unless Congress acts. Instead of making severe cuts to the Department of Defense that Secretary of Defense Leon Panetta has warned would be “devastating to the defense budget” and would “weaken our national defense,” This bill replaces the scheduled cuts by reducing the federal workforce and extending the current pay freeze for federal workers. By doing so, the legislation ensures the debt reduction targets laid out in the Budget Control Act are still on track to be met –without endangering our national security at a time when threats both at home and abroad remain very real.

This pretty much dead on arrival,  So the House is now putting up the Ryan Budget version 2.0, the major upgrade from 1.0 being the focusing of the ‘message’ on no military cuts as opposed to the evisceration of Medicare (which is still there).  The military is protected from cuts by savaging domestic programs.

Now my question to the GOP is, “Are you fucking kidding me ?!?!”  The Defense Department budget accounts for 20% of federal spending on paper.  If you include other security and military functions under the umbrella of defense spending you are looking at 25-30% of our budget, depending on how you count things such as Homeland Security (not to mention the US accounts for ~40% of worldwide military spending).  In the last ten years military spending has amounted to well over  6 trillion dollars … 6 … TRILLION. Yet, noooooooo, cutting this is off of the table.  It is just fine, however, to recoup all these missing savings on the backs of seniors, the poor, our transportation infrastructure, our educational infrastructure, etc.

Man oh man was Eisenhower sadly prescient ..

 

A Little Debt Ditty

A recent article from Paul Krugman got my little gears turning.  In the article, Debt Is (Mostly) Money We Owe to Ourselves, he makes the comment that “…the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.”  He bases this comment on the following graph

What This shows is that most of the debt that we owe – government, personal, and “non-financial” business is mostly owed to ourselves. The Chinese do not “own us” as the conservatives and tea-partiers like to rail on about, to any extent . But what does this mean? Well what it says to me (and feel free to correct me) is that it is essentially a closed system. You have Ted, Bill, and Jon.  Bill owes Ted $6; Jon owes Bill $3; and Ted owes Jon $2.  In aggregate everyone has a total debt of $11.  But lets say you reduce down the Jon/Bill/Ted triad.  You end up with you end up with Jon owing Bill $1 and Bill owing Ted $4.  Seems a bit more manageable, no?  As an extension of this thought, If you look at the following graph (courtesy of Wikipedia/CIA) of external debt (debt owed to entities outside the country) You see that almost every country owes someone else.  I will note this is not net external debt so there are nations owed money by others nations and will have a net negative debt.  But I believe the aforementioned principle at the least loosely applies.

(in US $; 2005)

Now back to the first graph.  If you add in “financial sector” debt (see here) our total debt as a nation is 300% of the GDP.  To give a sense of scale, our GDP is in the ~$15T range, so our total debt is around $45T.  Now the total national household wealth is  ~$50T depending on your method of calculation.  I showed before in National Debt … that the government debt, while somewhat painful, is completely manageable when scaled in terms of personal wealth.  Using the total debt number, $45T, that assumption becomes just simply painful.  The bottom 90%, in theory, on average owe one and a half times their yearly earnings to retire all debt.   But I have to think that that large fraction of that amount that we “owe ourselves” can be ‘reduced’ using the Bill-Ted-Jon methodology above.  I wonder about this because given the logic used and screams of doom from the right, and given the numbers above you would think that the whole thing would have collapsed long ago.  But look at Japan.  Their total public and private sector debt is almost 500% of their GDP (and has been that way for sometime) and they have not imploded.  If you look at the following historical chart you can see that while our debt is at all time highs it is on the same order as historical trends.

I am in no way trying to say that debt is unimportant, but that it is manageable, for now, and that perhaps we should be spending money on jobs, social programs & infrastructure, as opposed to this austerity agenda being put forth by the GOP.  An austerity agenda which has been tried and demonstrably failed in Europe.

 

And The New Year Begins

Alrighty folks, a new year is upon us.  I hope everyone had a delightful holiday season.  Mine was quite a little clusterfuck, but cest la vie, it is over and onto a new year. Let’s start with a few things

• An oldie but a goldie, and oh so relevant

• 25 Of The Best Crazy, Stupid, And Scary Quotes Uttered By The Republican Presidential Candidates In 2011 Some of my favorites being

“I’m very proud to know the Koch brothers. This may be a breaking news announcement for the media: I am the Koch brothers’ brother from another mother.”
~Herman Cain, creepily admitting that he’s REALLY close to the Koch brothers.

“One of the things I will talk about, that no president has talked about before, is I think the dangers of contraception in this country. It’s not okay. It’s a license to do things in a sexual realm that is counter to how things are supposed to be. [Sex] is supposed to be within marriage. It’s supposed to be for purposes that are yes, conjugal…but also procreative. That’s the perfect way that a sexual union should happen…This is special and it needs to be seen as special.”
~Rick Santorum, opposing contraception and frighteningly suggesting that he would love to make pre-marital sex illegal.

“There’s no question at times of my life, partially driven by how passionately I felt about this country, that I worked far too hard and things happened in my life that were not appropriate.”
~Newt Gingrich, blaming his many affairs on his patriotism.

“Corporations are people, my friends.”
~Mitt Romney, declaring that corporations are people in front of a crowd of real people in Iowa.

• A little clarity from Krugman on the debt

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

• And a small amusing example of the Republicans total and utter lack of historical knowledge Eric Cantor’s Press Secretary Interrupts 60 Min Interview to Claim Reagan Never Raised Taxes

 

National Debt …

OK so we have all heard the numbers.  The US is $15 trillion in debt, and we are told that this comes out to ~$50,000 per person.  For you and I (this assumes there aren’t any of the 1% reading this blog) this is a big, very scary number. But this is a simple division by the population.  In reality, if a bill was to come due we would all pay a percentage based on our wealth and income.

So let’s do a little math.

The population of the US is estimated to be ~311 million, giving us the $50K number above. Now lets look at the US wealth and income distributions.  I got the numbers from Mother Jones as I had the article handy,

If we divvy up the debt by share of wealth:

The average 1% share is $1.67 million

The average 1-10% share is $206,599

The average 90% share is $14,435

If we compare this with the average incomes the results look skewed.  The bottom 90% owe roughly half of their yearly income while the top 1% owe roughly 145% of their yearly income.  This is due to the higher wealth to income ratio of higher income earners compared to lower income earners. Assuming a balanced-ish budget, we could mostly pay this down over 10 years with a 5% income surtax or over 20 years with a 2.5% surtax.  If we include corporate income the surtaxes would drop a bit more.

Another way to look at this is strictly in terms of national wealth.  The current aggregate national wealth is about $50 trillion.  So the national debt is 30% of the national wealth.  Using this as a basis, the debt would be retired if everyone paid 3% of their wealth each year for 10 years or 1.5% per year over 20 years.

These are admittedly very simplistic calculations, but what they show is that while the situation sucks, it is entirely manageable, especially if you consider the debt has been decades in the making.  In fact, simply going back to the Clinton Era tax rates would be a huge step in the right direction.  There is no reason to shred our safety net, abandon environmental regulations, labor regulation, gut schools and public services, all in the name of debt reduction.  It is a red herring we are being fed in an attempt to lead us into another gilded age.