Friday, April 15, 2011

Warfare, Ryan-Style

President Obama's budget speech (transcript, here) at George Washington University on Tuesday elicited the usual thoughtful, well-reasoned criticism from conservatives. No, actually it has provoked the expected hysterical accusations from many on the right, as outlined by Alex Pareene in Salon. In an editorial in The Washington Examiner, President Obama was accused of having

resorted to Huey Long tactics by making a punching bag of "the rich," that mythical top 2 percent of all Americans whose wealth the president famously told Joe the Plumber in 2008 that he just wanted to "spread around."

The editors did not tell us why the top 2% of American society is "mythical;" have they been kidnapped and frisked away to a foreign capital in an unusual application of extraordinary rendition? Were they, more tragically, lost in a natural disaster, be it tornado, earthquake, or tsunami? Or have they simply vanished, leaving the 98% of Americans behind to wonder how the top 2% disappeared?

As far as can be understood, the Washington Examiner was outraged when the President explained

For much of the last century, our nation found a way to afford these investments and priorities with the taxes paid by its citizens. As a country that values fairness, wealthier individuals have traditionally born a greater share of this burden than the middle class or those less fortunate. This is not because we begrudge those who’ve done well – we rightly celebrate their success. Rather, it is a basic reflection of our belief that those who have benefitted most from our way of life can afford to give a bit more back. Moreover, this belief has not hindered the success of those at the top of the income scale, who continue to do better and better with each passing year.

There was little careful analysis, the Examiner preferring to argue 1) if Obama wants the wealthy to pay more in taxes, then surely he'd want them to fork over all their earnings; and 2) increasing taxes on the wealthy won't alone eliminate the debt, so why bother?

Of course, the President has not advocated increasing the taxes on the upper crust- merely allowing them to rise which, according to current law, they are to do in roughly two years. That would return them to the level President Bush and the Republican Congress initially established as the rates to be paid in 2011. That would be 38.60% as the highest marginal rate, still lower than imposed during the Clinton administration (chart, demonstrating the precipitous drop in effective tax rates of the wealthy, from the Center for Budget and Policy Priorities; blog, from Krugman).

Similarly, James Pethoukoukis of National Review Online derides the devastation wrought by President Obama upon Paul Ryan's Path to Prosperity as a "class-warfare attack."

Class warfare has been invoked- but by Ryan, not by Obama. The Path to Prosperity (2012 GOP budget proposal passed today by the House) proposes lowering the top marginal tax rate from 35%. As Jamison Foser notes

That current 35 percent top rate applies only to taxpayers who make more than $373,650 a year. And remember: That's a marginal tax rate, which means it only applies to income above $373,650, so if someone makes $400,000 a year, she is only paying the 35 percent rate on the last $26,350. The average tax rate for the top 1 percent of taxpayers is only about 23 percent. Finally, keep in mind that the 35 percent top marginal rate is already quite low by historical standards: Since the Great Depression, there have only been five years in which the top rate was lower than 35 percent: 1988-1992. (The low top marginal rate in place during that time didn't prevent a recession from occurring in 1990-91.)

Ryan wants also to lower the top corporate tax rate from 35% to 25%, even though the effective corporate tax rate in the U.S.A. is lower than in many countries (chart from Doing Business database via Media Matters):

There is no word on how Ryan's plan would directly affect the industry, insurance, most generous to his election campaigns. The Wisconsin Republican does advocate, however, replacing Medicare with vouchers. According to the CBO, these cash payments would cover approximately 32% of the average elderly person's costs, with the individual left to pick up the remaining 68%. Further, the value of the voucher would decline over time relative to the cost of health care. It is a cruel trick to play on old Americans who, usually suffering from dementia or perhaps a host of physical ailments, would themselves have to negotiate with health care providers or insurance companies. Age alone would strike an insurance company, eager to please its investors, as a pre-existing condition.

Paul Ryan's dream, however, might not merely trample on the elderly and the poor to benefit wealthy taxpayers. In a study of his 2010 tax plan, Citizens for Tax Justice found (chart, below) that (compared to President Obama's proposal) under the Congressman's plan, Federal taxes would be lower for the richest ten percent and higher for all other income groups. and the bottom 80 percent of taxpayers would pay about $1,700 more on average.

President Obama doesn't want to batter and bruise the middle class. That's something Paul Ryan and his GOP colleagues are doing just fine on their own.

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