Taxes

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The U.S. Income Tax Burden:

 

Introduction

Below is an analysis of Congressional Budget Office (CB0) report entitled "Preliminary Estimates of Effective Tax Rates" (07-Sep-1999). The raw numbers can be scrutinized here:

http://www.cbo.gov/showdoc.cfm?index=1545&...&sequence=0

All I did was try to make heads or tails of the data by plotting it and extracting the most salient data. The Income Tax Burden is defined simply as who pays U.S. income taxes in the form of individual and corporate income taxes, payroll taxes, and federal excise taxes. Based on this information, the following conclusions clearly emerge:

An enormous percentage of taxes are payed by a minority of Americans:

The Top 1% of taxpayers pay 29% of all taxes.

The Top 5% of taxpayers pay 50% of all taxes.

Our tax system is not so much progressive as it is confiscatory -- Frederic Bastiat called this phenomenon "legal plunder." A progressive tax is based on the premise that those with more income can afford to pay more taxes, and conversely, those with little or no income should pay no tax. However, a quick look at Graph 1A below shows that the U.S. tax system has become far beyond progressive. Fully half the taxpayers contribute almost nothing in individual income taxes.

The Top 1% of income earners (comprising about 1 million families) earn about 15% of the total income earned by all wage earners in the United States, yet they pay almost 30% of all individual income taxes.

Furthermore, the Top 1% are shouldering a roughly 50% higher proportion of the overall income tax burden than they did in 1977.

The argument most oft used against tax breaks are that they benefit only the wealthy. It is clear from even a cursory look at the numbers below that the 'wealthy' will receive the majority of any income tax reduction because they pay a disproportionately huge percentage of the income taxes! To structure a tax break such that those in upper income brackets are excluded would constitute nothing more than transfer of wealth from those who have it to those who don't (i.e. legal plunder.)

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Who pays the taxes?

Bruce Bartlett

April 6, 2004

 

 

Just in time for tax season, the Congressional Budget Office has released new data on distribution of the tax burden. Contrary to popular belief, they show that taxes on the wealthy have risen over time and that the Bush tax cut in 2001 barely kept it from rising further.

 

A convenient starting point is 1984. The Reagan tax cut was then fully phased in (which reduced the top statutory income tax rate from 70 percent to 50 percent) and the 1983 Social Security tax increase had already taken effect (which raised the OASI tax rate from a combined 9.5 percent to 10.4 percent). In that year, those in the bottom quintile (20 percent of households) paid an average federal tax rate (individual, payroll, corporate and excise) of 10.2 percent.

 

Those in the top quintile paid 24.5 percent, the top 10 percent paid 25.2 percent, the top 5 percent paid 26.1 percent, and the top 1 percent paid 28.2 percent. Thus, those at the top paid about two and a half times more than those at the bottom.

 

Fast forward to 2001 (latest year in the CBO study). The top statutory income tax rate has fallen to 39.1 percent, and the total payroll tax rate has risen from 14 percent to 15.3 percent. If one knew these figures in 1984, almost all economists would have projected a sharp decline in taxes paid by the rich and an increase in those paid by the poor.

 

In fact, the data show that those in the bottom quintile are only paying about half what they did 20 years ago: 5.4 percent. This is down from 6.4 percent just the year before, owing to the Bush tax cut.

 

Those in the top quintile did pay a little less in 2001 than they did in 2000: 26.8 percent versus 28 percent. But this is still well above the average tax rate they paid in 1984. Interestingly, those at the very top saw virtually no cut at all, even though liberals constantly say that they got the lion's share of the 2001 tax cut. Between 2000 and 2001, those in the top 10 percent of households saw a drop from 29.7 percent to 28.6 percent, and those in the top 5 percent saw a decline from 31.1 percent to 30.1, but those in the top 1 percent saw their effective tax rate virtually unchanged: 33.2 percent versus 33 percent.

 

All of those in the middle three quintiles paid less in 2001 than they paid in 1984. In other words, between 1984 and 2001 average tax rates for the wealthy substantially increased, while at least 80 percent of households paid considerably less. Progressivity rose as the wealthy now pay about six times more than the poor.

 

Looking at the share of taxes paid shows a similar pattern. From 1984 to 2001, those in the bottom quintile reduced their share of the total tax burden from 2.4 percent to 1.1 percent. Those in the top quintile saw their share rise from 55.6 percent to 65.3 percent. Among the ultra wealthy, the top 10 percent increased their share from 39.3 percent to 50 percent, the top 5 percent raised their share from 28.2 percent to 38.5 percent, and that of those in the top 1 percent went up from 14.7 percent to 22.7 percent.

 

In short, the poor paid half as much of the federal tax burden in 2001 as they did in 1984, while the rich paid about 50 percent more. Those in the middle paid about a third less.

 

One would think that those on the left would be happy about this trend. Instead, they constantly demagogue the wealthy as deadbeats unwilling to bear their "fair share" of the tax burden, and berate the Bush tax cuts for having "slashed" taxes for the wealthy, while the rest of us pay more. As is so often the case, the truth is exactly the opposite of that portrayed in the liberal worldview.

 

Unfortunately, all taxpayers pay a price for the steeply graduated tax system that has evolved. A new study by economists Steven Cassou and Kevin Lansing shows that a flat rate tax would add significantly to economic growth. Published in the April issue of Economic Inquiry, it concludes that real per capita gross domestic product might rise by 0.143 percentage points per year. This may not sound like much, but it's the difference between doubling in 33 years instead of 36 years.

 

The Cassou-Lansing study found that flattening the marginal tax rate schedule causes most of the economic gains, which explains why tax burdens on the rich rose as their statutory rates fell. Raising statutory rates on the rich, as John Kerry proposes, likely would reverse this trend, causing taxes on the poor and middle class to rise.

[stu]

Who pays the taxes?

Bruce Bartlett

April 6, 2004

 

 

Just in time for tax season, the Congressional Budget Office has released new data on distribution of the tax burden. Contrary to popular belief, they show that taxes on the wealthy have risen over time and that the Bush tax cut in 2001 barely kept it from rising further.

 

A convenient starting point is 1984. The Reagan tax cut was then fully phased in (which reduced the top statutory income tax rate from 70 percent to 50 percent) and the 1983 Social Security tax increase had already taken effect (which raised the OASI tax rate from a combined 9.5 percent to 10.4 percent). In that year, those in the bottom quintile (20 percent of households) paid an average federal tax rate (individual, payroll, corporate and excise) of 10.2 percent.

 

Those in the top quintile paid 24.5 percent, the top 10 percent paid 25.2 percent, the top 5 percent paid 26.1 percent, and the top 1 percent paid 28.2 percent. Thus, those at the top paid about two and a half times more than those at the bottom.

 

Fast forward to 2001 (latest year in the CBO study). The top statutory income tax rate has fallen to 39.1 percent, and the total payroll tax rate has risen from 14 percent to 15.3 percent. If one knew these figures in 1984, almost all economists would have projected a sharp decline in taxes paid by the rich and an increase in those paid by the poor.

 

In fact, the data show that those in the bottom quintile are only paying about half what they did 20 years ago: 5.4 percent. This is down from 6.4 percent just the year before, owing to the Bush tax cut.

 

Those in the top quintile did pay a little less in 2001 than they did in 2000: 26.8 percent versus 28 percent. But this is still well above the average tax rate they paid in 1984. Interestingly, those at the very top saw virtually no cut at all, even though liberals constantly say that they got the lion's share of the 2001 tax cut. Between 2000 and 2001, those in the top 10 percent of households saw a drop from 29.7 percent to 28.6 percent, and those in the top 5 percent saw a decline from 31.1 percent to 30.1, but those in the top 1 percent saw their effective tax rate virtually unchanged: 33.2 percent versus 33 percent.

 

All of those in the middle three quintiles paid less in 2001 than they paid in 1984. In other words, between 1984 and 2001 average tax rates for the wealthy substantially increased, while at least 80 percent of households paid considerably less. Progressivity rose as the wealthy now pay about six times more than the poor.

 

Looking at the share of taxes paid shows a similar pattern. From 1984 to 2001, those in the bottom quintile reduced their share of the total tax burden from 2.4 percent to 1.1 percent. Those in the top quintile saw their share rise from 55.6 percent to 65.3 percent. Among the ultra wealthy, the top 10 percent increased their share from 39.3 percent to 50 percent, the top 5 percent raised their share from 28.2 percent to 38.5 percent, and that of those in the top 1 percent went up from 14.7 percent to 22.7 percent.

 

In short, the poor paid half as much of the federal tax burden in 2001 as they did in 1984, while the rich paid about 50 percent more. Those in the middle paid about a third less.

 

One would think that those on the left would be happy about this trend. Instead, they constantly demagogue the wealthy as deadbeats unwilling to bear their "fair share" of the tax burden, and berate the Bush tax cuts for having "slashed" taxes for the wealthy, while the rest of us pay more. As is so often the case, the truth is exactly the opposite of that portrayed in the liberal worldview.

 

Unfortunately, all taxpayers pay a price for the steeply graduated tax system that has evolved. A new study by economists Steven Cassou and Kevin Lansing shows that a flat rate tax would add significantly to economic growth. Published in the April issue of Economic Inquiry, it concludes that real per capita gross domestic product might rise by 0.143 percentage points per year. This may not sound like much, but it's the difference between doubling in 33 years instead of 36 years.

 

The Cassou-Lansing study found that flattening the marginal tax rate schedule causes most of the economic gains, which explains why tax burdens on the rich rose as their statutory rates fell. Raising statutory rates on the rich, as John Kerry proposes, likely would reverse this trend, causing taxes on the poor and middle class to rise.

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Bush Ad Claims His Tax Cuts Exceed Reagan's

It says his cuts are "the largest tax relief in history." Some experts disagree.

 

June 8, 2004

Modified:June 8, 2004

Summary

 

A Bush ad set to run on cable networks starting June 7 makes a questionable claim when it lists "the largest tax relief in history" amid Bush's accomplishments. Bush's cuts are indeed historically big. But whether they are bigger than Ronald Reagan's depends on any number of assumptions. Reagan's looks larger by several measures.

 

 

Analysis

 

The campaign has taken a positive turn: with this ad, Bush paints himself as a bigger optimist than Kerry. The President says, "I believe in the people of America." He's responding to a June 1 Kerry ad in which Kerry says, "We're a country of optimists; we're the can-do people." The Bush ad is named "Pessimist" and the Kerry ad is called "Optimists ."

 

Bush Cheney '04

"Pessimism"

 

Bush: I'm George W. Bush and I approve this message.

 

I'm optimistic about America because I believe in the people of America.

 

Announcer: After recession, 9-11 and war, now our economy has been growing for ten straight months.

 

The largest tax relief in history.

1.4 million jobs added since August.

Inflation, interest and mortgage rates low.

Record homeownership.

John Kerry's response?

He's talking about the Great Depression.

 

One thing's sure . . . Pessimism never created a job.

 

The Bush ad is accurate when it states that the economy has been growing for 10 straight months, that 1.4 million jobs have been added since August (making up more than half the jobs lost after Bush took office), and that home ownership is at a record high. All that is true.

 

And it's also on target when it cites -- as evidence of Kerry's alleged "pessimism" -- that Kerry keeps "talking about the Great Depression." After Friday's report that the economy had gained 947,000 jobs in the past three months, the Kerry campaign issued a news release saying, "America is still in the worst job recovery since the Great Depression." Now that is looking on the dark side.

 

Whose is Biggest?

 

The one place where Bush's ad may go too far is when it claims his tax cuts are the largest -- exceeding even Ronald Reagan's historic 1981 tax cut and the cut proposed in 1963 by John F. Kennedy. Tax experts have been debating that question for some time.

 

Bush's cuts are clearly the largest if one looks at raw dollars alone, ignoring inflation and the size of the economy. But once those important factors are considered, Reagan's tax cut looks larger to some.

 

According to apaper published last July by a tax expert in Bush's own Treasury Department, Reagan's Economic Recovery Tax Act of 1981 (ERTA) clearly exceeded any one of Bush's cuts. "By every measure used here, ERTA was by far the biggest tax change (and the biggest tax cut) over the past 35 years," wrote Jerry Tempalski of the Office of Tax Analysis.

 

But what about all three of Bush's cuts, the cuts for individuals enacted in 2001 and 2003, and the business tax cut enacted in 2002? In raw dollars, Bush wins. Tempalski's tables show that Reagan's 1981 cut was estimated to average $111 billion per year during its first four years on the books, while Bush's three cuts average a combined total of $160.4 billion annually during the comparable four-year period.

 

But Bush loses when inflation is taken into account. A dollar today is worth much less than a dollar in 1981. And Reagan's cut is 12% larger than Bush's combined cuts in "real" dollars (dollars adjusted for inflation) according to Tempalski's tables, again comparing four-year averages for both tax cuts.

 

But wait -- Reagan's cuts never fully took effect. They were scaled back in 1982 by a tax increase that averaged $37.5 billion over its first four years. Subtract the '82 Reagan increase from the '81 Reagan cut, and the combined Bush cuts once again look bigger, even adjusted for inflation.

 

Hold on, though. The economy has doubled in size since 1981. According to Tempalski's tables, Reagan's cut would have amounted to 4.15% of the economy by the fourth year, and the Bush cuts total less than 1%.  Reagan's cut is four times bigger than Bush's measured this way, as a percentage of Gross Domestic Product (GDP). Even subtracting the effect of the '82 Reagan tax hike, we calculate from Tempalski's tables that Reagan's net cut is roughly three times bigger than all of Bush's put together.

 

We could go on. The cuts look different depending on whether one looks at only the first-year effects, or the fourth-year effects, or the average of the first two years or the first four years. And that's just using the figures provided by one neutral expert.

 

Who's Doing the Figuring?

 

Other figures differ even more, depending on who's doing the figuring. The conservative National Taxpayers Union (NTU), for example, has argued that Bush's combined tax cuts are smaller than either  Reagan's or Kennedy's. The way NTU's expert Paul Gessing figured it, the Bush cuts amounted to 1.6% of GDP while Reagan's 1981 cut came in at 3.3% and Kennedy's 1963 proposal at 2.0%. "The effect of Bush’s 2003 tax cut proposal – even in addition to the 2001 tax cut – is small in historical terms," Gessing wrote.

 

But Peter Orszag, a tax expert who writes for the liberal Center on Budget and Policy Priorities, says Bush's cuts actually amount to roughly 2.2% of GDP which he says, is "about the same" as the size of the Reagan cut, which he puts at 2.1%. That would make Bush the winner by a whisker.

 

Orszag's conclusion rests on several assumptions, however.  He values Reagan's 1981 cut initially at 5.6% of GDP but then reduces that figure to reflect the 1982 tax increase and something called "indexing." Before the 1981 Reagan law, inflation pushed taxpayers into higher tax brackets, automatically increasing their tax burden without any action from Congress. The Reagan law started the current practice of adjusting tax brackets each year to reflect inflation. Orszag figures that about 40% of the estimated effects of the Reagan law came from indexing, which amounted to preventing future tax increases and shouldn't be counted as a tax reduction.

 

There's one other assumption, too. Orszag assumes Congress will eventually have to enact changes in the Alternative Minimum Tax. The AMT originally was aimed at millionaires, but Congress neglected to index it and so it is predicted to take away the benefits of the Bush cuts for millions of middle-income taxpayers in future years. Orszag says Bush's cuts will amount to only 1.7% of GDP by the year 2014 unless the AMT is changed. If not, that would make Reagan's cut bigger and Bush the loser again.

 

And so it goes. The Bush campaign would be fully justified in claiming credit for one of the largest tax cuts in history. Too big, according to Kerry, who's promised to repeal it for those making more than $200,000 a year. But whether Bush's cuts are the largest will be debated, probably inconclusively, for years to come.

 

 

Sources

 

 

 

John Kerry for President Campaign, "Kerry Campaign Statement on New Unemployment Numbers," 4 June 2004.

 

Jerry Tempalski, "Revenue Effects of Major Tax Bills," U.S. Department of the Treasury, Office of Tax Analysis, OTA Working Paper 81, July 2003.

 

Paul Gessing, "President Bush's Combined Tax Cuts: Smaller Than Kennedy's or Reagan's" Issue Brief 143, National Taxpayers Union, 14 April 2003.

 

Peter R. Orszag, " The Bush Tax Cut Is Now about the Same Size As the Reagan Tax Cuts ," Center on Budget and Policy Prioties, 21 April 2001.

 

Tax Foundation, "The Bush Tax Plan: How Big is the Tax Cut?" 29 May 2003.

 

Peter R. Orszag, "The Bush Tax Cut Is Now about the Same Size As the Reagan Tax Cuts," Center on Budget & Policy Priorities, 19 April 2001.

 

Peter R. Orszag, interview and exchange of e-mails with author, 4-7 June 2004.

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Kerry's "Misery Index" Accentuates the Negative

Kerry invents a new "Misery Index." The old one makes Bush's tenure look better than most.

 

April 12, 2004

Modified:April 13, 2004

Summary

 

 

Kerry's campaign has invented a new "misery index" that makes Bush's economic record look, well, miserable. Why a new index? Perhaps because the classic "misery index" --  which adds together the unemployment rate and the rate of inflation  -- currently is better than it's been in most years since World War II. In fact, it's less than half the miserable level reached in 1980, the last year of the Carter administration, and better than in any of Clinton's first four years:

 

 

Source: Bureau of Labor Statistics. (Annual Average Unemployment Rate + Percentage Change in Annual Average Consumer Price Index)

 

Analysis

 

 

The original "misery index" is simply the jobless rate added to the inflation rate. The term was coined by economist Arthur Okun, an economic adviser in Lyndon Johnson’s administration. It was widely used during the "stagflation" of the '70s and '80s when stagnant economic growth kept unemployment high and inflation reduced the buying power of wages.

 

By that classic misery measure the country is faring better than average under Bush: the unemployment rate for March was 5.7% -- which is just 0.1% above the average for all months since 1948. And the inflation rate remains historically low – the Labor Department’s Consumer Price Index rose only 1.7% in the 12 months ending in February, the most recent month on record. So the classic “misery index” number is currently 7.4.

 

That's lower than it's been in all  but 20 of the previous 56 years on record. It never got this low during any of the years under Richard Nixon, Jimmy Carter, Ronald Reagan or Bush's father.

 

And the classic "misery index" was higher in every one of Clinton's first four years than it has been in any of Bush's years. It was not until Clinton's second term that the long economic boom of the 1990's pulled the index down to below its current level.

 

 

Source: Bureau of Labor Statistics. (Annual Average Unemployment Rate + Percentage Change in Annual Average Consumer Price Index)

 

(Note: Kerry's advisers say presidents should be judged by the change in the index, not its absolute level. Under Clinton the index did improve significantly: it was 10.5 the year before he took office and nearly 30% lower in his final year. It worsened under Bush but currently has settled down to the same level as it was in Clinton's last year. Unemployment is worse but inflation is lower by the same amount.)

 

Kerry's New "Misery Index"

 

So it's not surprising that the Kerry campaign has come up with another way of looking at the economy. On April 12 Kerry issued a news release saying "Middle-Class Misery Hits Record Under George Bush," based on a new index put together by former Clinton economic adviser Gene Sperling and former Al Gore adviser Jason Furman.

 

The Kerry index is, to put it mildly, selective.

 

Rather than use all consumer prices, the Kerry index cherry-picks three items that have gone up faster than the overall rate of inflation: college tuition (at public four-year universities only), gasoline, and health care.

 

And rather than use the overall unemployment rate -- which was 5.5% at this point in Clinton's first term, only two-tenths of one percent lower than now -- Kerry has used the number of jobs, which produces a more negative picture.

 

Other statistical indicators chosen by Kerry are median family income and bankruptcies, which have both worsened under Bush, and home ownership -- the only one of the seven indicators in the Kerry index to show improvement.

 

A Dubious "Record"

 

The Kerry news release proclaimed that the new index under Bush shows "the largest three-year fall on record and the worst record of any president ever." But look closely: their own calculations don't back that up. The "record" only goes  back to 1976, when some of the statistics Kerry uses were first collected. The 13-point drop that the Kerry advisers calculate for Bush is indeed the worst in that relatively brief 28-year period, but they can't call it the worst "ever." What about Herbert Hoover?

 

In a telephone conference call with reporters Sperling denied that the items in Kerry's index were selected just to make Bush look bad. Asked why the Consumer Price Index wasn't used, Sperling said the prices of gasoline, health-insurance premiums and college tuition were chosen because they are "the major things people see and feel." And Furman pointed out that the index generously includes one statistic that has shown improvement:  home ownership, which has increased to 68.6% of all households since Bush took office, according to the Census Bureau. That's an increase of 1.1 percentage points and is due in part to record low mortgage rates.

 

But elsewhere the Kerry index selects those figures that look the worst. It includes median family income before taxes, for example. But that doesn't measure the typical family's take-home pay as well as the Census Bureau's measure of after-tax income. Worth noting is that the Center on Budget and Policy Priorities -- a liberal group often at odds with Bush's policies -- issued a report April 12 saying that the federal tax burden on the typical middle-income family of four was at its lowest level in decades. The Kerry index reflects none of the benefit of the Bush tax cuts. After-tax income has fallen, but not by as much as income before taxes.

 

Contributing the most to the gloomy picture presented by Kerry's index is college tuition. Kerry aides used only the figure for four-year public colleges and universities, which has shot up 13% under Bush, even after adjusting for inflation. But they excluded tuition for private colleges and universities, which went up only 5%. (Both figures are from the College Board's annual survey of college costs.)

 

When it came to measuring the change in employment, however, the Kerry aides focused on the loss of private sector jobs only, not total employment. That ignored gains in hiring of local, state and federal workers. The economy has lost 2.6 million private-sector jobs since Bush took office, but government hiring has kept the total job loss to just 1.8 million. The Kerry index uses the larger figure, making their index look worse.

 

Kerry isn't the only one spinning economic figures, of course. We pointed out earlier a Republican attempt to claim that after-tax income was up when the Census Bureau reported it was down. Our advice: be wary of all politicians spouting economic statistics.

 

 

Sources

 

 

 

John Kerry for President, "Record Deterioration in the Middle-Class Misery Index" Press Release 12 April 2004.

US Census Bureau, Housing Vacancy Survey: Fourth Quarter 2003 "Table 5: Homeownership rates for the United States: 1965 to 2003" 3 Feb 2004.

 

Center on Budget and Policy Priorities, "Federal Tax Burdens Generally at Lowest Levels in Decades," 12 April 2004.

 

The College Board, "2003 Trends in College Pricing" Sept 2003.

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Bush Says Kerry Will Raise Taxes $900 Billion; Kerry Says That's False

Attack ad revives question of whether Kerry's numbers add up.

 

March 11, 2004

Modified:March 12, 2004

Summary

 

 

In its first attack ad to hit the airwaves, the Bush campaign accuses Kerry of proposing to raise taxes by $900 billion. Kerry denies that. And Bush's ad fails to mention that Kerry's "new government spending" would provide health insurance to more than 26 million who don't have it now.  

 

But Kerry's ambitious health-care plan that would indeed cost an estimated $895 billion over 10 years. And Kerry has also promised to cut the current $500-billion federal deficit in half. Can he pay for all that while raising taxes only for the wealthy? Those numbers don't quite add.

 

Analysis

 

Bush unveiled an ad March 11 that claims Kerry plans to pay for "new government spending" by raising taxes $900 billion. The Kerry campaign calls that number "completely false." Neither side is exactly right. We'll try to put this in context.

 

Bush-Cheney '04 Ad

 

"100 Days"

 

Bush: I’m George W. Bush and I approve this message.

 

Announcer: A President sets his agenda for America in the first 100 days.

 

John Kerry’s plan: To pay for new government spending, Raise taxes by at least $900 billion.

 

On the War on Terror: Weaken the Patriot Act used to arrest terrorists and protect America .

 

And he wanted to delay defending America until the United Nations approved.

 

John Kerry:  Wrong on taxes.  Wrong on defense.

 

Bush Spin

 

Naturally enough, Bush's ad leaves out that the "new government spending" it mentions would benefit millions of Americans who lack health insurance. According to a study  by Emory University professor Kenneth Thorpe, which the Bush campaign's own background material cites as a credible authority, Kerry's plan would provide coverage for 26.7 million who currently have no coverage.

 

The ad also goes too far when it says "Kerry's plan" is to raise taxes by at least $900 billion. Kerry has never endorsed such a figure, and his campaign spokeswoman Stephanie Cutter issued a statement accusing the Bush campaign of using "weapons of deception and distortion" and saying "The $900 billion ad is completely false."

 

Well, maybe not completely.

 

Kerry Spin

 

Kerry himself issued a statement (see below) in which he didn't address the $900 billion figure directly. Instead he said, "What's most interesting about this ad is what's not in it." But the same can be said of Kerry's tax proposals, which leave out many specifics.

 

The Bush campaign -- in backup material issued to reporters -- argued that Kerry's health-care plan and other promised spending proposals are so expensive that only a $900-billion tax increase over 10 years will pay for them while still allowing Kerry to cut the deficit by half, as he has also promised to do.

 

And in fact, several news organizations have said that Kerry is overpromising, most recently a Washington Post story Feb 29. The Post said Kerry is proposing to spend at least $165 billion more on new programs in the next four years than his tax plan would pay for. Kerry disputed that, saying the Post failed to account for his plan to save $139 billion by repealing Bush's Medicare prescription drug benefit, and overestimated what Kerry planned to spend -- temporarily, he said -- to stimulate the economy.

 

But Kerry hasn't yet shown in detail how he would close the gap between his spending promises and his somewhat vague promise to repeal portions of Bush's tax cuts.

 

Kerry's health-care plan alone would cost $895 billion over 10 years, according to the Thorpe study , which Kerry has accepted. And it's not clear how that would be paid for.

 

Kerry would not repeal the entire Bush tax cut; he's said he would preserve increases in the per-child tax credit, tax breaks for married couples, and lowered rates at the bottom of the income scale. He also speaks generally about raising taxes on those making over $200,000 a year. But a look at some calculations   made recently by the nonpartisan Tax Policy Center suggests strongly that raising taxes only on individuals in that category wouldn't produce nearly enough to pay for Kerry's health plan, let alone reducing the deficit.

 

For example, restoring the top two marginal tax rates to what they were before the Bush cuts would produce only $224 billion over the next 10 years. And even that would hit some people making less than $200,000. The top two rates  currently affect those making $174,700 or more in taxable income for a married couple filing jointly, or $143,500 for a single taxpayer. Those income brackets would be somewhat higher in years to come, as they are adjusted each year for inflation.

 

[]i]John Kerry's Response:

 

(The full text of Kerry's response as issued by his campaign)

 

“After losing nearly 3 million jobs, watching health care costs rise out of control, turning record surpluses into record deficits, and breaking his own promises on everything from improving schools to making America secure, this President has now decided to launch a negative advertising campaign against me.  What’s most interesting about this new ad is what’s not in it.  This President can’t talk about his positive vision for America, because at each turn he has put this nation on the wrong track.  It’s time he pays attention to that old saying, when you’ve dug yourself into a ditch, stop digging.  I am running for President because I want to change the direction of this country.  If I’m elected, we’ll create new and better jobs, lower the cost of health care, and get Bush’s runaway deficits under control.  What you’re seeing is the last gasp of air from the failed Bush Administration that has no record to run on and nothing but more of the same failed policies to offer the American people.”[/i]

 

Kerry might also recoup some additional billions by restoring the estate tax and reversing the new, lower rates on capital gains and dividends. But still, accepting the Kerry campaign's statement that there's no plan to raise taxes by $900 billion, voters are left to wonder where the money to pay for Kerry's health plan would come from.

 

Pressed on that point, Kerry spokesman Michael Meehan told FactCheck.org: "John's not the president yet. When he becomes the president he'll send up a whole budget." Meanwhile, Meehan said, "We're not going to get into the back and forth on that." He also said that the Thorpe analysis "doesn't take into account any savings," but Meehan would not be specific about what kind of savings he meant.

 

Patriot Act Spin

 

The Bush ad also says Kerry would "weaken" the USA Patriot Act "used to arrest terrorists and protect America." But that's a matter of opinion.

 

Kerry voted for the act and even boasts of drafting some of its provisions relating to money-laundering. But he has also talked of "abuses" of the act by Bush's Attorney General, John Ashcroft, and has said some portions of the act need changing.

 

After learning of the Bush ad, the Kerry camp called anew for "reforming" the act: "John Kerry believes it is necessary to scale back several provisions in the Patriot Act and introduce a new law to assure our enhanced security does not come at the expense of our civil liberties, such as more oversight of sneak and peak searches."

 

That's a reference to search warrants that judges can issue in special cases to allow a search without notification to the subject.

 

Pressed on precisely how Kerry would "weaken" the act, Bush campaign spokesman Steve Schmidt said rolling back any provision of the act weakens it.  "That's our position," he told FactCheck.org.

 

 

Sources

 

 

 

Kenneth E Thorpe, " Health Insurance Reform Proposals of the Democratic Presidential Candidates" Emory University (unpublished paper) 5 Sept 2003.

 

Jim VandeHei and Brian Faler, "Kerry's Spending, Tax Plans Fall Short; Review of Proposals Shows Expenditures Exceeding Savings by $165 Billion" Washington Post 29 Feb 2004: A1

 

Table T04-005, “Marginal Tax Rates -  Options to Repeal Portions of the 2001 and 2003 Tax Cuts Affecting Upper-Income Families  - Revenue Tables – 2005” Tax Policy Center 19 Feb 2004.

 

Internal Revenue Service, "Revised 2003 Tax Rate Schedules"

[Lunchbox]

April 15, 2004, 8:58 a.m.

Dr. Misery

John Kerry’s economy is sick, sick, sick.

 

How would you like go to a doctor who takes your temperature with a thermometer that says you're running a fever even when you're perfectly healthy? Sound good? Well then step into the examining room — Dr. Kerry will see you now.

 

Never mind three back-to-back quarters of great GDP growth. Never mind new all-time high levels of household wealth. Never mind strong consumer spending, low inflation, and a recovering job market. Presumptive Democratic presidential candidate John Kerry has come up with what he calls the "Middle-class Misery Index" — and it purports to prove that the economy is sick, sick, sick.

 

It's all quackery, of course. And as you'll see in a moment, this economy is so healthy that even John Kerry and his brainless-trust of liberal economists couldn't come up with a fraud nasty enough to make it look really bad.

 

A traditional version of the misery index has been around for years, providing a rough-and-ready picture of the health of the economy as experienced by ordinary people. It's simple — you just add up inflation and unemployment: the lower the total, the lower the misery (and the healthier the economy). As Jerry Bowyer pointed out here a couple weeks ago, the traditional misery index looks great right now, thanks to very low inflation coupled with about-average levels of unemployment. Check out the chart below — there aren't a whole lot of periods when things have been less miserable than they are today (and lots when they've been plenty worse).

 

 

But that's a chart John Kerry doesn't want you to see — he knows you won't vote for him unless you are really and truly miserable. So he's come up with his own version of the index — based on different economic indicators — to show you just how miserable you really are. Below is a chart of it from Kerry's website. Be careful when you compare it to the one above — this one only goes back to 1976. And it's built upside-down: In the traditional misery index, lower readings are better, but in Kerry's version higher readings are better.

 

 

Instead of just adding up inflation and the unemployment rates, Kerry's misery index combines median family income, college tuition, health costs, gasoline costs, bankruptcies, the home-ownership rate, and private-sector job growth. Other than the home-ownership rate, all of these components have experienced negative moves in recent years. With a whole universe of economic statistics from which to choose, Kerry has deliberately picked economic measurements that tell a gloomy story, throwing in a single positive one — home ownership — to make it all seem fair and balanced.

 

On this basis, Kerry claims that under President Bush, the middle-class misery index has just had its "Largest Three-year Fall on Record," giving Bush "the Worst Record of Any President Ever."

 

"Ever"? That's a big word — too big even for the left-leaning New Republic. As Gregg Easterbrook points out on its website, "'ever' only goes back only to 1976."

 

Be that as it may, take a hard look at the chart — and set aside Kerry's overheated press-release rhetoric. You'll see immediately that even this hand-picked collection of negative statistics doesn't really make today's economy look especially bad. Looks about average to me.

 

The only years that were much better came during the bubble economy of President Clinton's second term (his first term was worse), and during President Carter's single term. No surprise that the good times according to Kerry's index would be under Democratic presidents. But as Easterbrook asks, "Can you find one single person in the United States who would want a time-machine ride to the economic conditions of 1978?"

 

It's remarkable that Kerry couldn't manage to make the economy look worse. Heaven knows he tried. Consider these dirty statistical tricks:

 

The non-partisan Annenberg Political Fact Check has pointed out that Kerry's median family income statistics are pre-tax: "The Kerry index reflects none of the benefit of the Bush tax cuts." Surely voters know from their own happy experience that taxes have been cut steeply under the Bush administration.

 

The Annenberg report also points out that the college costs included in Kerry's index are exclusively for public colleges, where tuitions have risen almost three times as rapidly as private colleges. But when it comes to jobs, it's just the opposite. The Kerry index looks only at the number of private-sector jobs (which has fallen), completely ignoring the number of public-sector jobs (which has grown).

 

When Americans go to the polls in November, chances are they'll vote on the basis of how wonderfully unmiserable the economy really is. They won't be swayed by the sleazy statistical quackery of Kerry's index. Or maybe they will — maybe they'll decide they don't want to vote for a quack.

 

— Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at don@trendmacro.com.

   

         

 

 

 

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 http://www.nationalreview.com/nrof_luskin/luskin200404150858.asp

[skielty1]

This might be a good time to explore the only substantive charges against Kerry that were made in the ad that was the focus of this thread.

 

1.  Kerry voted to raise taxes 350 times.

 

This is patently a lie.  It is so over the top that Republicans backed away from it almost immediately.  What the Republicans realize more clearly than most however, is that once the lie is offered, there is an almost unendless stream of ideologues that will repeat it shamelessly. As Last Resort has said, the lie will be come believable just through repetition.  

 

The best example of this is the "I invented the Internet"  quote that the RNC and the sheep-like media hung on Al Gore during the 2000 campaign.  It's amusing, to be sure, but it's also a lie. Gore never said he invented the Internet.

 

2.  Kerry voted for the Clinton tax increase, which was the largest tax increase in history.

 

As Last Resort demonstrated in his analysis of the Bush tax cuts, 'figures lie, and liars figure'.

 

In comparing government economic figures, there are three ways to count the numbers.  The first is raw dollars.  By this measure Clinton's tax increase was the largest.  But as we have seen, the results of this comparision are usually regarded as meaningless.  That's why the Republicans cite it.  They know that the media, by and large, will let them get away with it, and that the public is, for the most part, too lazy or too stupid to do their homework.  (This is not to imply that Democrats don't do the same thing when it suits them, they do.  Unfortunately for the Dems, the Republicans do it better, and the media, scared shitless of being called "liberal", lets them get away with it more often).

 

Another way is to compare the results in inflation adjusted dollars.  By this measure, FDR's tax increase in 1942 dwarfed the Clinton tax increase 71 billion to 32 billion.  Reagan's tax increase in 1982 edged out Clinton's by 5 billion dollars.

 

The method generally accepted as the most meaningful is to look at the numbers as a percentage of GDP.  Reagan's increase amounted to 4.6% of GDP, while Clinton's checked in at 2.7%

[Fugdbdt]

Although the numbers indicate the higher percentage of taxes are paid by the top 1% /5% -

 

It also results in a lower % of income taken by taxes.

 

I have clients who make less than I do - Yet pay much more in taxes.

 

They are always happy when I introduce them to Irv - My CPA.

 

If you compare my credit report payment obligations - To my tax returns -

 

I should be living in a box under the 405.

 

Or worse -

 

Under the 15...

 

Thanks, Danny

[Maldev]

Or Chino Hills...