February 26, 2009

The NY Times vs. Reality

The NY Times in an article explaining why your taxes are going to rise, doesn't fail to get it's dig in against former President Bush and the Bush tax cuts, while managing to gloss over the fact that;
But the problem can’t be solved just by taxing the rich. That top 1 percent pays only about one-quarter of federal taxes. Once the recession ends, taxes on the not-so-rich will need to rise, too.
Admitting in one short paragraph that the taxes on the middle class will have to rise and that the top 1% of income earners pay 25% of all taxes, the editor of the Times must have been asleep.

There's a couple of problems with the New York Times when compared to reality. Firstly there's this issue; as recently as October 31st, 2008 (just before the election), the New York Times had this to say;

Independent analyses of the presidential candidates’ tax proposals show that those who make less than $250,000 a year would not see their taxes raised under Senator Barack Obama’s plans. Further, Mr. Obama would generally cut taxes more than Senator John McCain would for households with incomes less than $100,000 a year.

Uh okay - you were lying then or covering for Obama now, NYT - take your pick. The reality is that your statements from 4 months ago are diametrically opposed to your statements today.

But the deception goes further. The article today (as shown in the graph below) points out that tax revenue as a percentage of GDP dropped as a result of the Bush Tax cuts of 2001 and 2003.

But that is in direct contrast to the graph Nonsensible Shoes posted on February 23rd that shows the Bush tax cuts of 2003 led to the highest revenue ever recorded in 2005.

Are both of these graphs potentially true? Well, yes actually. Looking at tax revenue as a percentage of GDP is a bit of a red herring. If you lower taxes of course it's percentage of the domestic economy will fall. More economic activity is happening outside of the tax base, so as a percentage it will necessarily be smaller. It has to be. But look what happened to the tax revenue. It rose, and quite significantly too.

So while liberals would have you look at the impact on tax as a percentage of the economy, what they are doing is distracting you from the fact that reducing taxes decreased the government revenue. Extra money held by consumers and business created additional economic activity, clearly with a higher multiplier effect and grew the economy which made the tax percentage fall even further, even while the tax revenue for the government still managed to rise quite dramatically.

The graph below shows what the real issue is;

Revenue dipped in the early part of the decade with the recession and then the 9/11 attacks compounding the problem. But the tax cuts, particularly the 2003 tax cuts started to kick in over time and by 2005 the tax revenue was steamrolling past historical highs. But look at the spending line. In the last 14 years spending has doubled and the graph shows no sign of curtailing the spending. It's just a steady rise.

Looking back at the Times chart, the interest payments and the Medicare/Medicaid/Social Security burden are what's going to hurt. Getting the debt down is important, but most important is figuring out smarter ways to finance Medicare/Medicaid/Social Security has got to be priority #1 for the government. And by the way, in 2004 that's what President Bush wanted to spend his political capital on. Seems like not only was he right in warning about the impending mortgage crisis, he was also sounding another warning that wasn't being heeded under his watch.

Perhaps it's deliberate misdirection in support of Obama's tax plan, or perhaps it's too much to expect of the NY Times to understand basic economics (tax revenue growth is possible with tax reductions). In either case, don't let the Times, the Democrats or the President fool you into another crisis mentality with respect to government deficits and the national debt. Yes the deficit must be addressed, but the issues are on the spending side, not the revenue side. Don't let anyone tell you otherwise.

No comments:

Post a Comment

Disagreement is always welcome. Please remain civil. Vulgar or disrespectful comments towards anyone will be removed.

Related Posts Plugin for WordPress, Blogger...

Share This