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September 17, 2010

Doing the Tax Cut Math

For many moons the Reality Based Community have repeated a fundamentally dishonest set of talking points with respect to the Bush tax cuts:

[REPORTER] "You face a major decision next year on tax rates, since the rates do expire at the end of 2010," the reporter said. "Isn't it inevitable that many taxpayers will face a significant tax increase in 2011?"

[PELOSI] "Let me just say that the tax cuts at the high end that you were referencing have been the biggest contributor to the budget deficit," Pelosi said. "Don't take my word for it, that's the word of the Congressional Budget Office when the Republicans had control of the Congress."

There's just one problem with Ms. Pelosi's statement. As Politifact discovered when it tried to verify her claim, it's not true:

When we started this item, we thought it would be relatively straightforward. How wrong we were.

We should start off with the easy stuff: First, there is no CBO report that says tax cuts for the wealthiest are the biggest contributor to the deficit.

Oops. And her math turned out to be wrong, too:

The Tax Policy Center calculated what share of the federal tax changes each income bracket gained from the Bush tax cuts. The top 5 percent of earners (those making about $225,000 or more) received 30.5 percent of the tax benefits in 2008, according to their analysis. But conversely, the bottom 95 percent of tax payers got 70 percent.

Oops. And to think it only took the AP 20 months to notice:

Here's some pressure for lawmakers: If they don't reach agreement on extending soon-to-expire Bush-era tax cuts, nearly all their constituents back home will get big tax increases.

A typical family of four with a household income of $50,000 a year would have to pay $2,900 more in taxes in 2011, according to a new analysis by Deloitte Tax LLP, a tax consulting firm. The same family making $100,000 a year would see its taxes rise by $4,500.

Democrats have been arguing for much of the past decade that tax cuts enacted in 2001 and 2003 under former President George W. Bush provided a windfall for the wealthy. That's true, but they also reduced taxes for the working poor, the middle class, and just about everyone in between.

When progressives lose the AP you know they're really in trouble. But lest you begin to feel sorry for them, fear not: help is on the way.

This is sort of impressive: Paul Krugman simultaneously castigates Republicans for the fiscal irresponsibility of wanting to extend tax cuts for the rich that cost about $700 billion--and for irresponsibly threatening the extension of tax cuts for the middle class which cost three times as much. Yet you could read the entire column and not realize that it's the middle class tax cuts which are the really expensive, budget-busting bit.

Hard to blame Krugman for trying though. Especially when the Associated Press is so good at burying the lede:

Making all the tax cuts permanent would add about $3.9 trillion to the national debt over the next decade, according to congressional estimates. Obama's plan would cost a little more than $3 trillion over the same period.

Let's see if I have this straight (and please correct me if I don't):

Extending all the Bush tax cuts would cost about 3.9 trillion.

Extending only the middle class tax cuts and RAISING taxes on the rich (as opposed to extending their supposedly budget wrecking tax cuts) would cost 3 trillion dollars.

[whipping out handy-dandy pocket calculator]

3.9 billion minus 3 trillion is what? .9 trillion worth of deficit reduction netted by RAISING taxes on the rich as opposed to extending the Bush tax cuts for that income bracket?

[whipping out handy-dandy pocket calculator again]

So that would mean that the vast majority (about 77%) of cost of extending the Bush tax cuts is attributable to existing tax cuts to the middle class. I think that just might fall under the general rubric of Things the Media Might Want to have Mentioned Earlier.

Posted by Cassandra at September 17, 2010 10:11 AM

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They also omit mention of the multiplier effect from the individual spending his/her own money vs the government spending it for us, after first taking a taste off the top to pay the bureaucrats (et al.,) for administering the spending.

And the fact that a dollar I spend today actually goes right into the local economy today directly on the goodie that I'm buying, and then is turned over several times over the next few days to weeks, rather than sitting around in "obligated" status in a government locker, not yet actually spent. Or not even yet obligated, as is the case with some 70% of the "stimulus" package foisted off on us last year by Obama's henchmen.

And etc.

Eric Hines

Posted by: E Hines at September 17, 2010 12:06 PM

OW! My head just exploded. How can a tax cut contribute to a deficit? The deficits are debt spending by Congress...NOT tax cuts which actually increase revenue.

My Congresscritter informed we, his constituents, that Pelosi voted to increase unemployment benefits by not using the surplus created during the Bush tax cuts, but to increase our debt by borrowing money for the benefit from China.

Posted by: Cricket at September 17, 2010 12:12 PM

How can a tax cut contribute to a deficit?

Herein lies the fallacy of the Social Democrats in Congress and the White House. If revenues are cut (tax rates reduced, or employment created so collectible taxes are reduced), and spending is held constant, the deficit between the two goes up.

And herein lies a crucial difference between a Social Democrat and a fiscal conservative: the one wants to hold spending constant, or increase it, the other wants to cut spending, and likely taxes as well.

Here's a question I suggest all ask their Congresscritter: "Can you say 'cut spending?' "

I suspect you will be appalled, if not surprised, by the answers--from members of both parties. I predict that mostly, you'll get excuses for why spending cannot be cut just now, or challenged to identify what spending should be cut. No one will be able to say the phrase.

Of course those few who can answer the question correctly won't have proven their fitness for office, but they'll at least have passed a crucial first cut.

Eric Hines

Posted by: E Hines at September 17, 2010 12:25 PM

As Politifact discovered when it tried to verify her claim, it's not true:

You mean, Politifact hasn't yet learned that "Nancy Pelosi" and "lying crapweasel" are synonyms?

Posted by: BillT at September 17, 2010 12:39 PM

Bill, you ignorant slut!

Harry Reid is synonymous with "lying crapweasel".

Nancy Pelosi is synonymous with "lying sack of Botox".

Posted by: Sister Mary Bag O'Metaphors at September 17, 2010 12:47 PM

Oh...someone owes me a box of monitor wipes...

Lessee: If we vote to borrow money for social programs, the collateral is the taxpayers and all they own.

Yep, that about sums up 'promoting the general welfare.'

Posted by: Cricket at September 17, 2010 12:50 PM

No, no, no -- Harry Reid is synonymous with "self-resurrected zombie."

Henry Waxman is synonymous with "human earwig."

Posted by: BillT at September 17, 2010 01:01 PM

How can a tax cut contribute to a deficit?

This is an example of what, amongst the wonkery, is euphemistically called an "accounting fiction" (as in, "If you seriously believe all that foregone tax revenue would have been spent reducing the deficit, there's a wonderful book called "How To Make a Million Bucks Selling Beachfront Lots in AZ" I'd like to sell ya").

Posted by: Cassandra at September 17, 2010 01:08 PM

'Self-Resurrected Zombie' has two contenders for that title: Arlen Spectre and Alan Cranston.

*stars wiping up snorted root beer*

In my Econ Class (which I got an A in, BTW), there were people saying they had to pay their fair share of taxes. After a few rounds of history from me and some other like minded individuals, the class started to think more rationally and less passionately.

One of the history factoids was that deficit spending under Hoover, and then under Roosevelt, made the Depression worse. As we wrangled the question, we right-wingers pointed out that in a recession, the first thing individuals, families and businesses do, is cut back on spending. This actually increases revenue, as we don't have to worry too much about certain lost opportunities.

Government? No way.

Posted by: Cricket at September 17, 2010 01:19 PM

You obviously meant "Arlen Sphincter"...

Posted by: BillT at September 17, 2010 01:22 PM

Y'all see this?

Pelosi Calls for Vote on 'Obama Middle-Class Tax Cuts' when talking about EXTENDING THE BUSH-ERA TAX CUTS?

Posted by: Miss Ladybug at September 17, 2010 02:22 PM

Naturally. Obama will be praised for something he blamed Bush for. GLORY BE!!


Posted by: Cricket at September 17, 2010 02:26 PM

E File your federal tax filing electronically and get fast tax refund. E filing is one of the best options. Now easy to file your federal taxes and get rapid tax refund in your account. We also provide federal tax table.

Posted by: Federal Tax at September 18, 2010 02:30 AM

Who is this Arlen Sphincter?

A new porn actress?

Posted by: Ymarsakar at September 21, 2010 10:55 AM

I'm so glad I wasn't taking a drink.

Posted by: DL Sly at September 21, 2010 12:13 PM

Yeah sly, be safe!

Posted by: Ymarsakar at September 21, 2010 04:45 PM