Monday, November 08, 2010

Tax Cut Fallacies, Again

Those tire tracks visible on the back of Representative Steve Scalise of Louisiana came Friday from the Hummer disguised as Chris Matthews (transcript here). We pick it up as the GOP congressman raises an extraordinarily petty issue:

You know, I`m surprised that Speaker Pelosi is still so tone deaf that she still wants to stick around and hold onto that power as long as she can. But I mean, you know, whether John Boehner yanks that gavel out of her hand or not, she`s going to lose the gavel and the airplane and all those other things, and she`s just got to recognize that there was a sounding (SIC) defeat that that liberal agenda took --

MATTHEWS: Well, you`re a little --

SCALISE: -- and the country just doesn`t want us going down that road.

MATTHEWS: Why is everybody so petty? She doesn`t get the airplane as minority leader.

SCALISE: Well, I mean, ultimately, you got to look at --

MATTHEWS: Why are you talking about that thing?

SCALISE: -- what the right agenda is --

MATTHEWS: And why are you throwing a shot at her about the airplane that she doesn`t get as Speaker?

SCALISE: You know --

MATTHEWS: She won`t be Speaker. We know that. So why did you say she`s trying to hold onto the airplane? She doesn`t get --

SCALISE: Chris, I`m just --

MATTHEWS: -- an airplane as majority leader?

SCALISE: Chris, I`m just surprised --

MATTHEWS: So you just took a cheap shot there.

SCALISE: I`m just surprised that --

MATTHEWS: That was just a cheap shot.

SCALISE: -- they don`t get the message that was sent.

MATTHEWS: No, but why did you throw in the airplane part? What`s that got to do with the American people and producing jobs?

SCALISE: Well, regardless -- regardless of all of that, I`ve said --

MATTHEWS: What has that got to do --

SCALISE: -- what our agenda is going to be --

MATTHEWS: -- with producing jobs? Sir, you ask for bipartisan cooperation --

SCALISE: Our agenda is going to be producing jobs, Chris.

MATTHEWS: -- and then you throw the old -- you know, the old skunk at her. You know, why is it relevant whether she has an airplane or not? She won`t have one as Republican (SIC) leader, so why bring it up? I`m just asking why`d you bring it up.

SCALISE: Well, Chris, I told you at the very beginning what our agenda is going to be, and in fact --


SCALISE: -- we`ve reached out to the president --

MATTHEWS: Your agenda seems to be to dump on her. Let me ask you this --

SCALISE: No, but we`ve reached out to the president --

MATTHEWS: Why do you guys do the cheap shots --

More important than the cheap shot Scalise took at the outgoing Speaker of the House, the Representative raised common GOP myths about income taxes:

As long as it`s not a group that`s set up to try to raise taxes. And there is concern about that because, again, tax increases have never been proven to help anything, except growing the size of government and killing jobs.

Tax increases have never been proven to help anything, except growing the size of government and killing jobs.

It's unfortunate that Ronald Reagan is not still alive to be educated by Mr. Scalise, given that as President Reagan increased taxes four times from 1982-1984.

Scalise went on to claim

So control spending and cut taxes. That`s a formula for job growth and stability in our economy.

Fortunately, we have from four graphs, with top marginal rates from the IRS and real GDP per capita from the Bureau of Labor Statistics, analyzing the relationship between change in tax rates and growth in real gross domestic product. (Unfortunately, there is too such detail that I am unable to post them large enough to read.) AB concludes

all of this allows us to state that "carefully selecting data allows one to show that that tax cuts are correlated with rapid growth in the first and second year after the cut, but even that degree of cherry picking indicates that the year of the tax cut, as well as 3 or more years out, growth is faster when taxes are hiked than when they are cut."

This analysis, however, does not differentiate between cuts for the middle class and cuts for the upper class, and the former are likely to spend a greater portion of their cut than are the latter. As Paul Krugman notes

If we get a temporary extension of the high end tax cuts, that - it would be hard to devise a less efficient stimulus policy. This is almost guarantee - this is giving money precisely to the people least likely to spend it, and so it will worsen the federal budget outlook while delivering hardly any punch to the economy.

The graph (below, with statistics from the Tax Foundation, Bureau of Economic Analysis, and Bureau of Labor Statistics) from a Daily Kos posting indicates that job hikes are positively correlated, slightly, with job growth, and considerably with GDP growth.

Tax cuts generally do little for job growth (our most urgent national need) as illustrated in this chart from Moody's Mark Zandi (via Democratic Underground):

But then came the real whopper from Scalise:

MATTHEWS: So cutting taxes -- if you were to cut the tax rate dramatically today, Congressman, are you saying we would have more federal revenue?

SCALISE: Yes....

The graph below (utilizing data from the Congressional Budget Office) from the Center for Budget and Policy Priorities demonstrates that neither wars, recession, economic stimulus, bailouts, nor gloom of night have done as much to jack up the national debt as have the Bush-era tax cuts.

But there still is one good reason to reinstate lower income tax rates for the wealthy- to reinforce the economic dominance of the upper class over the lower class, on its way since just before Ronald(6) Wilson(6) Reagan(6) became President. Data from the Congressional Budget Office used in this pie graph from the CBPP demonstrate how dramatically wealth has shifted to the top 1% of the American public from the rest of us:

The economic dominance of the upper class over the middle class, ongoing since shortly before the inauguration of Ronald(6) Wilson(6) Reagan(6), lives on. And I suppose that is what this is all about, from Steven Scalise and his like-minded colleagues.

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