“I mean, understand, it's not as if we haven't tried this theory.
Remember in those years, in 2001 and 2003, Congress passed two of the
most expensive tax cuts for the wealthy in history. And what did they
get us? The slowest job growth in half a century.”
-- President Obama, Dec. 6, 2011
Channeling his inner Teddy Roosevelt, President Obama on Tuesday gave a feisty speech
in Osawatomie, Kan., that sought to rebut Republican arguments that he
is waging class warfare. He argued that the issue was one of fairness
for the broad middle class, drawing repeated contrasts to the presidency
of George W. Bush.
We’ll leave the politics to others, but how accurate were some of his facts?
“I mean, understand, it's not as if we haven't tried this theory. Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class: things like education and infrastructure, science and technology, Medicare and Social Security.”
Inserting the words “for the wealthy” was
interesting phrasing by the president, since he suggests these tax cuts
were intended to benefit only the rich.
The
bulk of the 2001 tax cuts were marginal rate cuts, which extended to
all taxpayers, while the 2003 tax cuts included a reduction in taxes on
dividends and capital gains.
But the 2001 tax cuts also included
tax changes that benefited the middle class, such as a reduced marriage
penalty and expanded tax credits, along with an instant tax rebate.
Still, it is correct that most of the benefits of the tax cuts flowed to
the wealthy (who, let’s not forget, pay the largest share of income
taxes).
Obama has said repeatedly he wants to keep the Bush tax
cuts for people making less than $250,000; he wants to reinstate higher
tax rates only for the wealthy. (In fact, he would retain about 70
percent of the overall tax cut.) But he should not suggest that the Bush
tax cuts were aimed only at the wealthy, since that is not correct.
The
Bush tax cuts were certainly large. To compare tax cuts over the
decades, it is best to ignore raw numbers but instead focus on the size of the tax cut
as a percentage of national income. Under that measure, the John F.
Kennedy tax cut of 1964 (-1.90 percent) and the Ronald Reagan tax cut of
1981 (-1.40 percent) were larger than Bush’s 2001 tax cut (-0.80
percent.) But all of Bush’s tax cuts in 2001, 2002 and 2003 combined
would equal -2.00 percent.
The Bush tax cuts have been roundly criticized
for being inefficient and poorly designed, but it is a stretch for
Obama to blame slow job growth on the tax cuts. That are many factors
that affect job growth, and it is silly to directly link the 10-year-old
tax cut to today’s job growth — just as it is silly to claim that Bill
Clinton’s tax increases resulted in a gain of 23 million jobs.
Obama’s
claim of the “slowest job growth,” in fact, includes the loss of jobs
under his administration. The White House provided as evidence a report
on a New York Times blog that was based on gross domestic product data through 2010, or the first two years of Obama’s administration.
The White House also cited a Center on American Progress report
on job growth through 2007, which showed monthly job growth of 68,000
jobs during the Bush business cycle. But, since the recession ended, job
growth has been even more anemic under Obama — just 40,500 jobs a
month, according to the Bureau of Labor Statistics.
An
administration official responded that Bush only faced a traditional
recession (though one affected by the Sept. 11 attacks), compared to the
Great Recession. He also asserted that there is evidence that higher
income disparity can affect economic growth.
Obama certainly
inherited an economic mess, and we have argued he does not deserve blame
for the massive loss of jobs early in his administration. But it seems
odd to keep blaming poor job growth on the Bush tax cuts, especially
because Obama himself pushed through a nearly $1 trillion stimulus and
took other actions that have affected the economy, for better or worse.
Finally,
Obama blames the Bush tax cuts for “massive deficits.” It is certainly
true that the Bush tax cuts helped blow a hole in the budget. But they
did not do it all by themselves. We looked at length at this issue earlier this year, assisted by new Congressional Budget Office data.
The
data showed that the biggest contributor to the disappearance of
projected surpluses was increased spending, which accounted for 36.5
percent of the decline in the nation’s fiscal position, followed by
incorrect CBO estimates, which accounted for 28 percent. The Bush tax
cuts (along with some Obama tax cuts) were responsible for just 24
percent.
Thus it is simply wrong to blame only the Bush tax cuts
for the deficits now faced by the country, especially three years into
another presidential term.
“Some billionaires have a tax rate as low as 1 percent — 1 percent. That is the height of unfairness.”
This is a striking statistic. But the only
evidence that the White House could offer for it was a clip of a
conversation on Bloomberg TV, in which correspondent Gigi Stone made
this assertion during a discussion about the tax strategies that the
very wealthy use to avoid paying taxes. The TV clip was promoted by the left-leaning Web site Think Progress.
Stone quoted from a Bloomberg News article
last month that reported on such tax strategies, which mostly involve
complicated ways to defer paying capital gains taxes. But the article
never made the 1-percent claim.
It also noted that the IRS had gotten
more hostile to such transactions in recent years.
An administration official conceded the White House had no actual data to back up the president’s assertion, but argued that other reports showed that some of the wealthy pay little in taxes.
Frankly,
when it comes to taxes, let’s not forget the legendary statement of
Judge Learned Hand — as long as it is not illegal, people can try to
lower their taxes as much as possible:
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
The most recent data
that we can find on the top 400 taxpayers — all billionaires — show
that in 2008, 30 billionaires paid an average tax rate of between zero
and 10 percent. Certainly “some” might have paid as little as 1 percent
on income. But we are talking about a very tiny number. By contrast, 59
billionaires paid an average tax rate of 30 to 35 percent. And 238
faced a marginal tax rate of 35 percent and above; only 17 had a
marginal rate of zero to 26 percent. (The marginal tax rate is what
people pay on each additional dollar they earn.)
The average tax
paid by the top 400 taxpayers was nearly $50 million. It is impossible
to know the financial circumstances of the handful of billionaires who
may have lowered their taxes to 1 percent, but there may be reasonable
explanations. For instance, the person may be retired and generating no
new income, while keeping investments in tax-deferred entities.
The
president does not need to lard his case with such suspect data. There
are few independent tax analysts who have much good to say about the
Bush tax cuts. But it is difficult for Obama to justify blaming those
tax cuts for being mostly responsible for today’s slow job growth,
especially when he wants to retain a good chunk of those tax cuts.
To bolster his case about unfairness, the president is also relying on a
suspect statistic about billionaires paying as little as 1 percent in
taxes. Even if true, it is a clearly a rare event. Moreover, it is
certainly surprising that the White House would rely on such a dubious,
unverified source for a major presidential address.
Three Pinocchios
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