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The GOP’s claim that a tax hike on the wealthy would pay for only a week of spending

at 06:02 AM ET, 11/28/2012

“If the president just went and changed the tax rates, that pays for eight days. Where do we go from there? The president also says that he wants a balanced approach… we haven’t heard of where his cuts are.”

— House Majority Whip Kevin McCarthy (R-Calif.) during an interview on Fox News, Nov. 19, 2012

“We know that you can’t raise taxes enough to solve the problem. In fact, the big argument during the campaign over whether or not we should raise tax rates on people above $250,000 would have produced enough revenue to fund the government for six days. So we know that may be a good political talking point, but it doesn’t really deal with the problem.”

— Senate Minority Leader Mitch McConnell (R-Ky.) speaking to reporters, Nov. 14, 2012

Democrats insist that raising tax rates for wealthy Americans has to be part of any deal to reduce the deficit and avoid the fiscal cliff. Republican leaders oppose that idea but say they’re willing to raise revenue by limiting deductions and closing tax loopholes.

House Majority Whip Kevin McCarthy (R-Calif.) questioned the effectiveness of raising rates by arguing that a tax increase on families making more than $250,000 per year would pay for only eight days of government spending.

This has become a go-to argument for Republicans, who prefer to reduce the deficit by overhauling the nation’s entitlement programs. Senate Minority Leader Mitch McConnell (R-Ky.) told reporters roughly a week after the election that the Democrat-supported, rate-hike proposal would pay for just six days of government spending — even less than what McCarthy claimed.

Let’s take a closer look at the statements from McConnell and McCarthy. Are their numbers accurate?

The Facts

McConnell’s office backed up the senator’s statement with an analysis from the nonpartisan Joint Committee on Taxation that estimated that raising rates on families with income above $250,000 would net $68 billion more for the federal government in 2013.

Divide that amount by the $3.8 trillion in spending projected for the 2013 budget, and you end up with a tax hike that covers 0.18 percent of the budget. Multiply that by 365 days, and you get a little less than seven days. (We should note that the actual White House proposal included some other provisions aimed at upper-income Americans that it estimated would have yielded a total of $85 billion — or a little more than eight days of government — in 2013.)

Given that McConnell said six days and McCarthy said eight days, it seems both are in the ballpark with their statements, at least in terms of mathematics.

But this matter is not that simple.

Talking about policies in terms of days’ worth of government spending can make virtually any idea seem inconsequential. It distracts from the real issue here, which is how much any given proposal would reduce the deficit.

The more logical way to look at potential revenue from a rate increase is to measure it as a percentage of the revenue gap.

Under current policies, the projected 2013 deficit is about $1 trillion. So the tax hike would eliminate 6.5 to 8.5 percent of that shortfall — and would obviously have an even greater impact in later years. Over a decade, the rate hikes and other provisions affecting the wealthy would raise $968 billion, which is essentially one year of the current deficit.

We should point out that the days-of-government game works as easily against Republican proposals as it does against those of the Democrats.

During meetings of the Joint Select Committee on Deficit Reduction — a failed attempt to avert the looming sequestration — Republicans proposed raising an estimated $50 billion per year by eliminating deductions and closing tax loopholes. That covers only 4.8 days of government spending.

Republican members of the committee also proposed trimming Medicare and Medicaid spending by about $28 billion per year. That would reduce government spending by only 2.7 days if you use the McConnell-McCarthy metric.

You get the picture.

Of course, this type of math can be instructive when the stakes are puny. During the presidential primaries, eventual GOP presidential nominee Mitt Romney asserted that the Democrat-proposed “Buffett Rule,” which would have imposed a surcharge on gross income earning more than $1 million, would pay for only 11 hours of government.

The Joint Committee on Taxation estimated that the policy would bring in just $5.1 billion for 2013, cutting the deficit by only .75 percent. Again, that’s compared to as much as $85 billion under the latest Democratic proposal, which would trim 10 percent off the deficit.

Romney’s claim showed that Democrats were making a big deal over a relatively small amount of money in order to stir up emotions about fairness. Even the president admitted that the Buffett Rule was largely a gimmick.

Romney essentially used one rhetorical device to answer another, and we awarded him a Geppetto for getting his facts right.

The quotes from McConnell and McCarthy are a bit different. They distract from the main issue of how much each proposal would reduce the deficit. They also minimize a much larger amount of money, suggesting that reducing the deficit by nearly 10 percent is no big deal — it’s hardly a gimmick.

A McConnell spokesman vigorously defended the days-of-spending metric, saying it illustrates the Republican belief that only spending cuts — especially in the realm of entitlements — can truly solve the nation’s long-term deficit problems.

Similarly, a McCarthy spokesman said: “We are not disputing that raising taxes would decrease the deficit. We are saying it would not generate nearly enough revenue to reverse the dangerous trajectory our government spending is on.”

These are valid points. But just because a rate hike wouldn’t solve the deficit problem on its own doesn’t mean lawmakers should take the option off the table entirely.

The Pinocchio Test

Democrats and Republicans are posturing for the deficit-reduction negotiations by trashing each other’s proposals as wrongheaded and potentially harmful to the country.

The question is whether rate hikes should accompany the type of spending cuts that the GOP desires. Democrats say the answer is yes, but it’s hard to find a single Republican who openly agrees — they’ve expressed a willingness to budge only on loopholes and deductions.

McConnell and McCarthy used a misleading metric — days of government spending — to make their case against the proposed rate hike. Their argument distracts from the primary issue, which is how much the new revenue — or spending cuts — would help reduce the deficit.

The two Republican lawmakers made a valid point that growth in government spending is a long-term concern that needs to be addressed. But that does not prove that rate hikes should be dismissed as part of a balanced approach to doing that.

McConnell and McCarthy earn One Pinocchio for their statements.

One Pinocchio







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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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