DO YOU UNDERSTAND HOW THIS WORKS: Does anyone know how the Perry plan works? Watching cable TV last night, we were reminded of the old joke, the one called Goldberg’s Law:
“The man with one watch always know the time. The man with two watches is never quite sure.”
So it was as we watched the pundits describing this tax plan last night. How does the Perry tax plan work? If you watched one channel, you might think you know. If you watched two, you aren’t really sure.
Let’s run through a set of cable hosts and guests, several of whom are clearly part of the cable TV booboisie:
Chris Matthews, Hardball: Let’s give this big dumb nut-case some credit for once. It’s always hard to tease a coherent statement from Matthews’ nightly rants. But on Monday, he seemed to be saying that everyone pays the same percentage of their income under “flat tax” plans.
That wasn’t true of the Forbes tax plan. It isn’t true of the Perry proposal. And by gum! Last night, Matthews had adopted a different rant altogether! Plainly, someone had re-scripted this big dumb cable nut.
By last night, Matthews’ basic complaint was even accurate! But not before he kicked things off with this off-message statement:
MATTHEWS (10/25/11): Now [Perry] is going into taxes. Taxes bother people. They’re heavy in this country, maybe not as heavy as they have to be at some point, but they’re heavy already. They hurt people. And here he is with this plan. Now, I’m going to ask you guys what you think of this so-called plan. He unfurled his economic plan today. The plan gives taxpayers the option of playing a flat 20 percent tax, or they can keep their old rates. The plan also calls for lowering the corporate tax rate to 20 percent.Taxes are heavy in this country? Taxes are about as low as they have ever been! Obvious explanation:
Chris hasn’t completed his reprogramming from the Jack Welch days. At times, he still emits the bumper stickers of the side for which he once whored. But give him credit! Once he got last night’s rant in gear, he remembered what he was being paid to say now. He didn’t pretend that everyone would pay the same percentage of income under Perry’s plan. Instead, he advanced an accurate criticism, complaining that the Perry plan “would overwhelmingly help the wealthiest Americans...It’s clearly aimed directly at helping the rich.”
Chris didn’t mention the larger problem—the fact that this plan would drain the treasury at a time when we need more revenue. But give him credit! At $5 million per year, a flea-ridden poodle can only learn so many new tricks in a day.
Let’s move to the evening’s contradictions:
Jim Angle, Special Report: On last evening’s Special Report, viewers got a fairly good idea about the way those per-person exemptions work. Bret Baier called on reporter Jim Angle to “break it all down:”
ANGLE (10/25/11): The centerpiece is a flat tax of 20 percent for corporations and individuals...Perry's plan to keep deductions for home mortgage interest, charitable contribution, and state and local taxes along with the $12,500 exemption per person make the tax less flat, but for those who might be thinking about leaping into an entirely new tax system, allowing a choice may be comforting.Let’s give Angle some credit. That last highlighted statement was clear and concise—and it was even accurate! A family of four earning 50K owes nothing under this plan!
[...]
That didn't stop the Obama campaign from launching an early attack arguing the Perry plan would, quote, "shift the greater share of taxes away from large corporations and the wealthiest on to the backs of the middle class." But with all the deductions, a family of four would have to make substantial more than $50,000 to face any federal income taxes.
Bruce Bartlett, the Last Word: Doggone it! Just when the viewer thought he understood, he might have switched over to the Last Word. Lawrence did mention those per-person exemptions. But look what Bruce Bartlett said!
O’DONNELL (10/25/11): This is a massive, massive tax cut for the very rich. It’s presented as “you have your choice which way you want to go.” But it’s clear at the top end of the income structure in this country, there’s only one way to go and that would be with his flat tax.Say what? According to Angle, a family of four earning 50K (or below) owes nothing under this plan. According to Bartlett, any such family is probably going to pay more under Perry’s plan than they do now—perhaps even “massively” more!
BARTLETT: Well, it’s worse than that because it’s a massive tax increase for a very large portion of the American population. I don’t know the exact figures, but I would guess probably any family making less than $50,000 a year or so is probably going to pay more under Perry’s plan than they do now.
We’re not even saying that’s wrong. But by now, a cable viewer might well have been confused.
O’Donnell’s reaction to this dramatic claim? He simply moved ahead to his next preplanned topic.
Austan Goolsbee, OutFront: The former Obama aide guested on CNN’s brand new OutFront, one of cable’s most horrific “news” programs. Erin Burnett is about as dumb as it ever gets on cable—and she plainly tilts the news toward the plutocrat world-view. Besides that, she is constantly scrunching up her face in one of her trademark “I’m the cutest puppy you ever saw” looks. And unless we’re mistaken, she and her producers are trying to steal a bunch of highly annoying Maddow shtick.
Burnett was horrible all night long. But look what Goolsbee said:
BURNETT (10/25/11): Austan Goolsbee, does it surprise you that 47 percent of Americans have a positive view of a flat tax?Is that accurate? Under the Perry proposal, would 90 percent of people’s taxes go up? Burnett didn’t ask.
GOOLSBEE: No, not especially because I think in these polls, they are confusing radical simplification with reducing the top marginal rates. Most polls—and we've known this for 20 years. We're kind of “back to the future” on this stuff. When you actually show that the top 1 percent of people get a gigantic tax cut and 90 percent of people’s taxes go up, suddenly the support for the flat tax goes way down.
Tom Foreman, Anderson Cooper 360: We rarely look to Cooper for clarification. He’s too busy furrowing his brow so viewers will know he cares.
Last night, things were different. Cooper threw to Tom Foreman, asking him to explain the tax plan. Foreman played tape of Perry saying this: “Taxes will be cut across all income groups in America.” Foreman took things from there, stressing the current lack of clarity about some ways this plan would work:
FOREMAN (10/25/11): That's a big, big claim, Anderson. Let's look at some of the facts here.Foreman seemed to say that programs like the EITC may be terminated under the Perry plan. That may explain a point of confusion in today’s New York Times news report.
Certainly under his plan it looks like there would be lower taxes for wealthier people. There's be lower corporate tax rates for companies, no tax on dividends or capital gains, no inheritance tax. Those are things that generally tend to favor people who have a lot of money. They're the ones who benefit from those sorts of things.
But what about everybody else? Well, that's a different matter. He's talking about a $12,500 exemption before you pay taxes. That's higher than what we currently have. So you can argue that's better for people at the lower end of the spectrum. If you have two parents and one child, for example, they easily go over $36,000 before they start paying an income tax of any sort.
But then he's talking about a 20 percent flat rate over that. So the problem here— When I say “the part we don't know,” Anderson, is— For all of the 95 percent we know here, the 5 percent could have tremendous details and that could make a big difference.
What kind of breaks do people lose at the lower end of the scale? Things like the earned income tax credit. Do they still get credit for that in the long run? There are many, many, many details left in this, Anderson. So the bottom line is, when we judge this one, we have to say this is really a case of it being at best true but incomplete.
In this puzzling, unexplained graphic, the Times shows many households paying no tax under the Perry plan. But it shows them better off under current law, in which they actually get money back from the IRS! In the graphic, the Times makes no attempt to explain how this works, a typical move from the Times. Richard Oppel makes a fleeting, unhelpful reference in his news report. But then, what else is new?
It’s always murky in the Times. On cable TV, we’re in the wild west. Do you understand how this tax plan would work?
We’ll take a guess: No. You do not.
Coming later today: Rick and the birthers (and Sherr)
Bob Somerby says,
ReplyDeleteTaxes are about as low as they have ever been!
A correct version of his statement is:
Federal income taxes are about as low as they have ever been since the mid-1940's.
See: http://www.usgovernmentrevenue.com/income_tax_history
Matthews's statement referred to "taxes", not "Federal income taxes". I don't know what taxes Matthews had in mind. However, his claim that "taxes are heavy in this country" is correct if one looks at total taxes, i.e., including state income tax, state and local sales tax, Social Security and Medicare assessments, property tax, estate tax, etc. I think total taxes paid today are indeed about as heavy as they ever were.
I'd cut the talking heads a break this time. It's an absurd, complex, poorly described plan that would cut revenue drastically & they have to pretend to take it seriously.
ReplyDeleteWhy they have to pretend this is a more interesting question than watching them flail around trying.
Total taxes as a percentage of GDP have dropped off in recent years:
ReplyDeletehttp://www.usgovernmentrevenue.com/revenue_history
While real GDP has flatlined:
http://www.usgovernmentspending.com/us_real_gdp_history
None of these tax plans would ever get through Congress, so they're more useful as indicators of how much each candidate will pander to their base/skew the debate to the right. Rick Perry wants to cut taxes on the rich and not even pretend to care about revenue. That's one well-played pander.
Good pickup, Alex. Your link oddly says, "Government Revenue in the United States has steadily increased from seven percent of GDP in 1902 to over 35 percent today." But, the accompanying chart shows government revenue having declined from a high of 35% of GDP to just over 30%.
ReplyDeletePerry says he would make his tax cuts work by cutting federal spending by a third. Of course, cuts of that magnitude are unthinkable. The really scary thing is that cutting federal spending by 1/3 is about what would be needed to balance the budget under today's tax code. This is a reminder how huge and untractable our federal deficit is.
David-in-CA, how much would GDP have to grow to balance the budget? What assumptions would such growth include about some of the drivers of today's lack of balance -- we were in balance briefly in the not too distant past, you know. Was it merely a huge increase in discretionary spending that got us here?
ReplyDeleteIf it's unthinkable that Perry (or some other President) could cut spending by 1/3, then by how much, in your august opinion, could they cut spending? What might the next GOP President be able to cut? Other than decreasing current deficits, what impact would such cuts as you deem achievable have on poverty and economic growth?
The local yellow rag The Arizona Republic(an) forgot to mention the $12,500 per person exemption as well.
ReplyDeleteSwan -- you ask a lot of good questions. The federal government collects around $2.5 trillion per year and spends around $4 trillion. A 50% increase in revenues would more or less balance the budget. Presumably a 50% GDP growth would do the job.
ReplyDeleteClinton's suplus came during an economic boom. But, Clinton certainly deserves credit for not adding a bunch of new spending, as does Newt Gingrich.
Of course, we're in a recession, rather than a boom, today. Also, there has been a huge growth in discretionary spending under both Bush and Obama, as well as continued growth in so-called non-discretionary spending. The way federal accounting is done, when SS runs a smaller surplus than before, that hits the budget as a spending increase.
In the short run, federal spending cuts would increase unemployment. It might make poverty worse, depending on where the cuts were made. In the short run, spending cuts would likely hurt the economy, though not as badly as tax increases IMHO.
The US has been on a credit binge. Sobering up (i.e., big tax increases and/or big spending cuts) will be painful. Many people will turn out to have less money than they have had. However, I think the sooner we face this pain, the better.
Not sobering up would be disastrous IMHO. If we keep running multi-trillion dollar deficits, then at some point, the world will stop lending us money and/or charge much higher rates of interest. If the US pays a lot more interest on borrowed money, that increases the deficit even more. We would likely respond by printing money, leading to high inflation. That would cause the stock market to tank, as foreign investors got out of dollar-based investments. It would wipe out people's savings and the value of pensions (except for lucky few whose pensions go up with inflation, such as federal employees.) High and uncertain inflation would cause a worse recession than the one we're in now.
David in Cal said...
ReplyDelete"The really scary thing is that cutting federal spending by 1/3 is about what would be needed to balance the budget under today's tax code. This is a reminder how huge and untractable our federal deficit is."
Only for those who worship at the altar of Grover Nordquist and refuse to raise revenue by any means, including closing loopholes, ever!! But their's is a political goal and has little to do with real world economics.
The rest of us know a sensible approach of taxes and cuts, starting with repealing the Bush tax cuts for the wealthiest, will get the deficit under control.
Burnett is even developing the excruciating Maddow rat-a-tat-tat bark. Both women have perfectly comfortable voices when they're calm, but both seem to think (or their bosses do) that excited nasal barking is far more compelling to viewers.
ReplyDeleteI've felt for some time that the reason we have so very few competent top-tier female news broadcasters is because for the last 20 or 30 years, glamorous good looks has been an absolute requirement for the lowliest on-camera TV job, so there's almost no bench anymore.
If we're actually concerned with the deficit, we'd do 3 things at once (it used to be possible to pass more than one good law at the same time):
ReplyDelete1. Increase spending to prime the pump
2. Increase taxes on the wealthy (1 and 2 together are just redistributing the wealth downward)
3. Deal with the long-term problem the budget deficit is a sign of: The trade deficit. It's a basic law that Keynes recognized (I don't know if he was the first to think of it, though): the trade deficit is always off-set by public and private debt in a country. What we've seen is that debt moved from the private sphere to the public sphere in the past few years, but the economy wasn't healthy beforehand.
That last one means we have to start producing things (real things people can touch!) in the US again, and it also means that things are more complicated than increasing spending. So long as the trade deficit is high, we'll have a lot of debt in the US.
Anonymous -- I wish the problem could be solved so easily. Personal income tax amounts to around 1/3 of federal revenues. I'm not sure how you define "the wealthiest". Let's say the wealthiest pay half of all personal income tax. The Bush tax cuts were around 10%. So, eliminating the Bush tax cuts for the wealthiest would increase federal revenues by 1/2 of 1/3 of 10% or 1.7%. This is probably optimistic, because higher taxes would tend to depress the economy, but let's ignore that.
ReplyDeleteIncreasing federal revenue by 1.7% is only 1/30 of the increase needed to balance the budget.
Alex, I'm not sure that increased spending would actually prime the pump. Obama had by far the biggest stimulus in history, and the economy got worse instead of better. Furthermore, increasing taxes would depress the economy, offsetting the potential value of stimulus spending.
I don't think there's a magic answer. At some point, we'll have to raise taxes and cut spending, even though that might make the recession worse and even though it will piss off a lot of powerful constituencies. If we don't do that, I think the eventual consequences will be even worse.
Alex Blaze said...
ReplyDelete"If we're actually concerned with the deficit...."
Republicans are only concerned about trimming the deficit as a means to realize their goal of making government so small they can drown it in a bath tub!!
Anonymous, you're exaggerating, but I essentially agree with you. Republicans tend to believe that big government is bad for the economy, bad for freedom, bad for civil liberties, bad for minority groups, and bad for the poor. We tend to believe that only group of people helped by big government is government workers.
ReplyDeleteBTW government workers are making out very well during this recession. Silicon Valley, where I live, used to be the most properous area of the country. But Washington D.C. has now become the most prosperous area.
See: Beltway Earnings Make U.S. Capital Richer Than Silicon Valley
David in Cal said...
ReplyDelete"Anonymous, you're exaggerating, but I essentially agree with you."
About making government so small you can drown in in the bath tub?
That's a quote from Grover "no tax increases ever under any circumstances" Nordquist. How many Republicans in congress have signed his no new taxes pledge?
"BTW government workers are making out very well during this recession."
Yeah, if you count the multi-millionaire congresspeople as "government workers."
You won't find too many government clerks living in Georgetown!!
"BTW government workers are making out very well during this recession."
ReplyDeleteand let's not forget the armies of well paid lobbyists populating the city either!!
Come on, admit it, like Perry you're just having a little "fun".
Yes, Anonymous. I ought to have included the armies of well paid lobbiests. That's another reason I favor less government. If the government wre less powerful, organizations would have less to gain by lobbying. They'd have to succeed the old-fashioned way -- by providing quality products and services at fair prices.
ReplyDeleteDavid in Cal said...
ReplyDelete"They'd have to succeed the old-fashioned way -- by providing quality products and services at fair prices."
You believe in fairy tales rather than history.
The robber barons and monopolists didn't provide quality products and services at fair prices they exploited an unregulated system for the benefit of the few!!
Let's look at actual results, Anon. During the period of what you call the robber barons and monopolists, the US grew to be the greatest, richest country on the face of the earth. Now, during the period of big government, high taxes, and enormous amounts of regulation, the US is declining toward becoming a second-rate nation.
ReplyDeleteSome ways to reduce the deficit? How about no more wars of choice based on lies, e.g., Vietnam, Iraq. The Afghanistan war should be closed down at long last, that would certainly help lower the deficit. Allow Medicare to negotiate for lower drug prices, to buy drugs in bulk as the VA does. Raise the top marginal tax rate to what it was during the Nixon regime. Wasn't WW 2 the biggest stimulus spending in history? So many people say WW 2 was what really got us out of the Depression, thereby trying to discredit FDR's bold efforts before war broke out? FDR's programs did improve things, then WW 2 certainly pushed us out of the Depression but at a terrible price in blood. The GI bill certainly stimulated the economy as well. The GI Bill was a stimulus and an investment in the returning veterans of the war. If the smaller government ideologues had been in charge in 1945, there would have been no GI Bill. As far as I know, Bush was the only president to ever lower taxes during a time of war. Bush's wars have not stimulated the economy, quite the opposite.
ReplyDeleteDavid in Cal said...
ReplyDelete"Now, during the period of big government, high taxes, and enormous amounts of regulation, the US is declining toward becoming a second-rate nation."
You clearly have no clue what the top marginal income tax rate was during the Eisenhower years, a time of great prosperity.
" the US is declining toward becoming a second-rate nation."
Now you're having "fun" again, just like Perry was and it's still not a good reason for bringing back the robber barons and monopolists!!
Since people still do not come in 4-packs, taxes would go up for one group - single, childless people. Under the Perry plan, a single person making $20,000 a year would pay $1500 in income taxes, much more than the four-pack at $50,000. Our current system favors families with children, but even under the current system a childless person at $20,000 income only pays $1,243 at most - less if they take advantage of the IRA deduction and the retirement savings credit. And childless people would only be paying a 15% marginal rate on income up to $42,900.
ReplyDeleteFurther, since the top .1% was only paying an average rate of 22.7% in 2008 and the top 1% was paying 23.27%, the Perry plan would not be that huge of a tax cut for them, unless it exempts non-wage income from taxation.
I have a question. In the present form one can take the standard deduction for each member of the household or deduct for home mortgage, charitable contributions and so on. Does the Perry system allow you to do both?
ReplyDelete