October 2, 2011

Yes Mr. President; It’s Simple Math After All

by Hal Gershowitz

Comments Below

“It’s not class warfare, it’s simple math!”

That’s how President Obama defended the tax-the-rich foundation of his so-called American Jobs Act.  The President’s rhetoric was, of course, over reaching, as it so often is when he is in campaign mode, and none other than the Associated Press took him to task for his over-zealous, and, inaccurate, generalization that the rich are not paying their fair share.

Here’s the President setting up a straw man and then knocking him down with the practiced skill of a populist debater. “It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million…. Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” Obama said. “That’s pretty straightforward. It’s hard to argue against that.”

Well, middle-income households shouldn’t be paying a higher percentage of their income in taxes than high-income households, and, of course, they aren’t.  As the AP pointed out, the rich, are (Mr. Buffett, apparently, notwithstanding), in fact, paying the highest marginal tax rates, as they should. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government according to Stephen Ohlemacher of the Associated Press.  The ten percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, says the Congressional Budget Office.

While there may be individual millionaires who pay taxes at rates lower than middle-income workers (IRS data reveals that in 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax), those free riders represent less than 1 percent of the nearly 237,000 returns with incomes above $1 million. This year, it is estimated by the Tax Policy Center, a Washington think tank, that households making more than $1 million will pay, on average, nearly 30% of their income in federal taxes, including income taxes, payroll taxes and other taxes. Households making between $50,000 and $75,000 will pay an average of 15 percent of their income in federal taxes.

To make matters worse, while the President rails against millionaires and billionaires, the group of individual taxpayers he really is targeting with this ruse is, as we all know, everyone making over $200,000, who he invariably lumps into the millionaire and billionaire category.

The President, of course, knows a good campaign catch phrase when he sees or hears one, even if he badly botched this particular exercise in hyperbole.  We thought his use of this particular canard was, however, rather intriguing given the opening he has provided the opposition to really focus on the “simple math” realities of where the country is and where this Administration has taken us.  Let’s take a look.

When President Obama assumed office he quickly surrounded himself with Keynesian economic advisors, and vigorously, pursued a spending spree (they called it a stimulus program), which quickly soared into more than a trillion dollars. This was to rein in unemployment before it reached 8.0%, which, at the time, was at 7.8%. The result? Nearly three years later – unemployment is at 9.1%.  What we have learned is that the President’s program to reduce unemployment simply failed.  It’s simple math.

Then there is the matter of the nation’s soaring debt, and to be fair, it was soaring before President Obama took office. In fact, the nation’s debt had, over many Administrations, climbed to $10.6 trillion which it reached during Bush’s eight years in office, but it has soared an additional $4.0 trillion  to $14.6 trillion in the thirty-four months since Obama assumed office.  And that only includes what the keepers of the national fisc call “public debt.” The difference between “pubic debt” (that held by holders of US Treasury notes and bonds) and the balance of the government’s debt is that the government can cancel much of what it owes (it’s non-public debt) simply by writing a new law; such as one that could abrogate all or part of what the government has previously committed to pay to, say, its Social Security or Medicare beneficiaries.  This “non-public” debt (but debt nonetheless) is estimated to be about $100 trillion, which assures high taxes and high debt for generations to come.

Winston Churchill once equated a nation trying to tax and borrow its way into prosperity with a man standing in a bucket and trying to lift the bucket by its handle, which probably explains why President Obama, immediately upon assuming office, deep sixed the bust of Churchill that had adorned the Oval Office for decades. The Obama debt doesn’t attest to wise economic tactics, but rather to failed economic strategy.  In terms of economic accomplishment, we have nothing to show for the hyper profligacy.  Government spending is way up – economic indicators are way down. It’s simple math.

Then there’s what might be called the Obama Shell Game. A cornerstone of the President’s American Jobs Act is a continuation of the payroll tax holiday that promises to pump about $240 billion into the economy.  That would be a whopping 36% of the entire payroll tax collected. But if the current payroll tax is required to fund current social security payments, won’t the social security trust fund be short by that much? Yes, we know the “trust fund” is a chimera, but stay with us.  Yes, the Social Security trust fund account would be short by $240 billion (plus the $50 billion it is already projected to be short without the payroll tax holiday), except for, figuratively speaking, the sleight of hand (the left hand) that deftly slides the same amount ($240 billion) back into the so-called trust fund account. Well, the reader might ask, where would the replacement $240 billion come from? That would be the $240 billion that is simultaneously put back into the Social Security Trust Fund account from the General Revenues account. But where would that money come from?  Ah yes, the millionaires and billionaires who the President falsely excoriates for paying less taxes than, “the teachers, nurses and construction workers”…or with yet more debt.

 The eye-crossing legislative legerdemain that prescribes this shell game is worth reading, if only for comic relief.  Buried within the 155-page American Jobs Act we find what might be called “the Shell Game Provision.” It reads:

“TRANSFERS OF FUNDS. –(1) Transfers to federal old age and survivors’ insurance trust fund. —There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsections (a) and (b) to employers other than those described in (e)(2). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers, which would have occurred to such Trust Fund had such amendments not been enacted.”

You can’t make this sort of thing up.  Churchill might well have called this “The Lifting The Bucket From Within” provision.

The American economy remains in bad shape.  Economic growth is pitifully low and substantially less than the Administration projected. Our debt has soared.  Interest on that debt dominates the entire federal budget.  Under President Obama we have had three successive years with $1.0 trillion budget deficits (unprecedented in American history) while unemployment has moved above nine percent.  The Obama strategy, by any rational measure, has failed.  It’s simple math.

All comments regarding these essays, whether they express agreement, disagreement, or an alternate view, are appreciated and welcome. Comments that do not pertain to the subject of the essay or which are ad hominem references to other commenters are not acceptable and will be deleted.

Invite friends, family, and colleagues to receive “Of Thee I Sing 1776” online commentaries. Simply copy, paste, and email them this link— www.oftheeising1776.substack.com/subscribe  –and they can begin receiving these weekly essays every Sunday morning.

9 responses to “Yes Mr. President; It’s Simple Math After All”

  1. irwin yablans says:

    All the clever intellectual mumbo jumbo included in this weeks column can not change the reality that there are glaring inequities in our country.
    Those people protesting on Wall street reflect the dissatisfaction and desperation of many who are tired of a rigged system that has destroyed much of our middle class.
    “Attention must be paid.”

  2. Hank Stein says:

    In reply to Irwin Yablans,there is a huge difference between the opportunity for all to achieve financial success and your idea that should be no inequities, and that everyone is entitled to share in someone else’s success. It is this endeaver to acheive that has made this country great. A “no inequities” model has been tried before and has only managed to drag down the standard of living for all. Let us give everyone the chance to acheive and hope that this country will continue to be a wonderful place for all of us to live.

  3. mark j levick says:

    If our President had as much interest in governing as he has in campaigning or if Mr. Obama had any backround in business the first thing he would have done was direct his aides to determine how 1,470 millionaire household managed to pay no income tax. He would then have them draft legislation to close those loopholes. That legislation would more than likely become law. Yet alas, there goes the underpinning of Obama’s attack on those greedy rich Americans who must be held accountable for this Country’s inability to pay for the four trillion dollars in debt he has wrung up with no tangible result other than launching the “it would have been much worse” defense. The lesson to be learned is to never let the facts interfere with ideology.

  4. Joyce Gruenberg says:

    Are we to assume the previous administration was a success and that we should return to the simple math that President Bush used?

    • Mrs. Gruenberg asks reasonable question. While it was on President Bush’s watch that the policy-driven game of musical chairs ended with the bursting of the housing bubble (a bubble that began under Carter, grew under Reagan and Bush 41, and than hyper inflated under Clinton and Bush 43), a close look at the economic record of the Bush 43 Administration is warranted as Ms. Gruenberg suggests. Data published by the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), the World Bank, the International Comparison Program (ICP) (a cooperative venture coordinated by the World Bank) and the U.S. Census Bureau allow a nonpartisan, factual assessment. Here are some of the findings:
      – Economic growth. U.S. output expanded faster than in most advanced economies during the Bush years. The IMF reports that real U.S. gross domestic product (GDP) grew at an average annual rate of 2.2% over the period 2001-2008. That’s over 90 months of sustained economic growth. President Bush left his successor an economy 19% larger than the one he inherited from President Clinton. This U.S. expansion compares with 14% by France, 13% by Japan and just 8% by Italy and Germany over the same period. The findings, published by the World Bank in its World Development Indicators 2008, also show that GDP per capita in the U.S. reached $41,813 (in purchasing power parity dollars) in 2005. This was a third higher than the United Kingdom’s, 37% above Germany’s and 38% more than Japan’s. While it would not be fair to compare economic data of the Bush and Obama years, given that President Obama did inherit a mess that was five administrations in the making, the Bush economy, absent the bursting of the housing bubble, was, indeed, successful. It really is pretty simple math.

  5. Fred Mayer says:

    Everyone is aware of the horrendous deficit the government is operating on. Nobody is offering a reasonable solution !

  6. Jerry Kessler says:

    As always-on the mark. The reality is that “simple math” really isn’t “simple”. While I believe wholeheartedly that your example is the right one, I have no doubt that Obama’s simple math is actually believed by many-especially the part about a wage earner shouldn’t pay at a higher tax rate than a millionaire/billionaire-a really bogus contention.
    OH yes-on that subject – when you come to the paragraph on the Obama Shell Game-the references to $240 billion are incorrectly referred to as $240 million the last two times in that paragraph-also simple math.

  7. While it is clear that the Obama/Keynesian policies have failed, I am still waiting to learn of a viable solution to return this country to fiscal health with integrity. Is there someone out there who can actually DO the math?

Leave a Reply

Your email address will not be published. Required fields are marked *