Obama’s Kansas speech: some suspect facts

at 09:40 PM ET, 12/06/2011

“I mean, understand, it's not as if we haven't tried this theory. Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did they get us? The slowest job growth in half a century.”

 -- President Obama, Dec. 6, 2011

 

Channeling his inner Teddy Roosevelt, President Obama on Tuesday gave a feisty speech in Osawatomie, Kan., that sought to rebut Republican arguments that he is waging class warfare. He argued that the issue was one of fairness for the broad middle class, drawing repeated contrasts to the presidency of George W. Bush.

 We’ll leave the politics to others, but how accurate were some of his facts?

 

 “I mean, understand, it's not as if we haven't tried this theory. Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class: things like education and infrastructure, science and technology, Medicare and Social Security.”

 

Inserting the words “for the wealthy” was interesting phrasing by the president, since he suggests these tax cuts were intended to benefit only the rich.  

The bulk of the 2001 tax cuts were marginal rate cuts, which extended to all taxpayers, while the 2003 tax cuts included a reduction in taxes on dividends and capital gains.

But the 2001 tax cuts also included tax changes that benefited the middle class, such as a reduced marriage penalty and expanded tax credits, along with an instant tax rebate. Still, it is correct that most of the benefits of the tax cuts flowed to the wealthy (who, let’s not forget, pay the largest share of income taxes).

 Obama has said repeatedly he wants to keep the Bush tax cuts for people making less than $250,000; he wants to reinstate higher tax rates only for the wealthy. (In fact, he would retain about 70 percent of the overall tax cut.) But he should not suggest that the Bush tax cuts were aimed only at the wealthy, since that is not correct.

 The Bush tax cuts were certainly large. To compare tax cuts over the decades, it is best to ignore raw numbers but instead focus on the size of the tax cut as a percentage of national income. Under that measure, the John F. Kennedy tax cut of 1964 (-1.90 percent) and the Ronald Reagan tax cut of 1981 (-1.40 percent) were larger than Bush’s 2001 tax cut (-0.80 percent.) But all of Bush’s tax cuts in 2001, 2002 and 2003 combined would equal -2.00 percent.

 The Bush tax cuts have been roundly criticized for being inefficient and poorly designed, but it is a stretch for Obama to blame slow job growth on the tax cuts. That are many factors that affect job growth, and it is silly to directly link the 10-year-old tax cut to today’s job growth — just as it is silly to claim that Bill Clinton’s tax increases resulted in a gain of 23 million jobs.

 Obama’s claim of the “slowest job growth,” in fact, includes the loss of jobs under his administration. The White House provided as evidence a report on a New York Times blog  that was based on gross domestic product data through 2010, or the first two years of Obama’s administration.

The White House also cited a Center on American Progress report on job growth through 2007, which showed monthly job growth of 68,000 jobs during the Bush business cycle. But, since the recession ended, job growth has been even more anemic under Obama — just 40,500 jobs a month, according to the Bureau of Labor Statistics.

An administration official responded that Bush only faced a traditional recession (though one affected by the Sept. 11 attacks), compared to the Great Recession. He also asserted that there is evidence that higher income disparity can affect economic growth.

Obama certainly inherited an economic mess, and we have argued he does not deserve blame for the massive loss of jobs early in his administration. But it seems odd to keep blaming poor job growth on the Bush tax cuts, especially because Obama himself pushed through a nearly $1 trillion stimulus and took other actions that have affected the economy, for better or worse.

 Finally, Obama blames the Bush tax cuts for “massive deficits.” It is certainly true that the Bush tax cuts helped blow a hole in the budget. But they did not do it all by themselves. We looked at length at this issue earlier this year, assisted by new Congressional Budget Office data.

 The data showed that the biggest contributor to the disappearance of projected surpluses was increased spending, which accounted for 36.5 percent of the decline in the nation’s fiscal position, followed by incorrect CBO estimates, which accounted for 28 percent. The Bush tax cuts (along with some Obama tax cuts) were responsible for just 24 percent.

Thus it is simply wrong to blame only the Bush tax cuts for the deficits now faced by the country, especially three years into another presidential term.

 

“Some billionaires have a tax rate as low as 1 percent — 1 percent. That is the height of unfairness.”

 

This is a striking statistic. But the only evidence that the White House could offer for it was a clip of a conversation on Bloomberg TV, in which correspondent Gigi Stone made this assertion during a discussion about the tax strategies that the very wealthy use to avoid paying taxes.  The TV clip was promoted by the left-leaning Web site Think Progress.

Stone quoted from a Bloomberg News article last month that reported on such tax strategies, which mostly involve complicated ways to defer paying capital gains taxes. But the article never made the 1-percent claim. It also noted that the IRS had gotten more hostile to such transactions in recent years.

An administration official conceded the White House had no actual data to back up the president’s assertion, but argued that other reports showed that some of the wealthy pay little in taxes.

 Frankly, when it comes to taxes, let’s not forget the legendary statement of Judge Learned Hand — as long as it is not illegal, people can try to lower their taxes as much as possible:

 

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands."

 

 The most recent data that we can find on the top 400 taxpayers — many of which are likely to be billionaires — show that in 2008, 30 of these individuals paid an average tax rate of between zero and 10 percent. Certainly “some” might have paid as little as 1 percent on income. But we are talking about a very tiny number. By contrast, 59 of the top 400 paid an average tax rate of 30 to 35 percent.  And 238 faced a marginal tax rate of 35 percent and above; only 17 had a marginal rate of zero to 26 percent. (The marginal tax rate is what people pay on each additional dollar they earn.)

 The average tax paid by the top 400 taxpayers was nearly $50 million. It is impossible to know the financial circumstances of the handful of apparent billionaires who may have lowered their taxes to 1 percent, but there may be reasonable explanations. For instance, the person may be retired and generating no new income, while keeping investments in tax-deferred entities.

  

The Pinocchio Test

 The president does not need to lard his case with such suspect data. There are few independent tax analysts who have much good to say about the Bush tax cuts. But it is difficult for Obama to justify blaming those tax cuts for being mostly responsible for today’s slow job growth, especially when he wants to retain a good chunk of those tax cuts.

To bolster his case about unfairness, the president is also relying on a suspect statistic about billionaires paying as little as 1 percent in taxes. Even if true, it is a clearly a rare event. Moreover, it is certainly surprising that the White House would rely on such a dubious, unverified source for a major presidential address.

 

Three Pinocchios

 

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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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