Sunday, March 11, 2012

250 Things That Just Are Not True

We saw a book recently, 'Contrary {To Popular Belief}' that pointed out the fallacy of 250 widely-held beliefs such as the 'fact' that a leap year occurs every 4 years (it doesn't occur in years not divisible by 4, 100 and 400, for some reason; 2100 A.D. for example, is not a leap year), the Earl of Sandwich 'invented' the 'sandwich' (he didn't) and 'Lucy in the Sky with Diamonds' was a song written by John Lennon to extol the virtues of LSD (it was based on a drawing by his 4-year old son, Sean, about his friend in pre-school named 'Lucy')

We also have been engaged in long-term, on-going conversations about weighty things such as 'who is a 'true' conservative or not; do tax cuts yield more tax revenues for the government and can government really 'create' any new jobs?

The misguided precepts, shibboleths and talismans held by ardent advocates on both sides in politics could fill a book the size of '2500 Things That Are Just Not True!' or about 10 times larger than the one we read at CVS.

Let us address just a few to start with on the Republican conservative side of things (don't worry...we will get to the liberal Democratic side of things soon enough):

  • 'Cutting Taxes Will Starve The Beast'- This has been a long-held presumption by many on the conservative right:  'ALL we have to do to make government MUCH smaller is cut taxes, cut taxes, cut taxes...and that will force the federal government to restrain spending so we will have balanced budgets once again!'
'D'oh!'  We have empirical evidence now from the past 30 years that this 'just ain't so!', don't we?  We have had repeated tax cuts after tax cuts after tax cuts and the federal government has continued to expand almost without fail, even during the most recent crushing recession. NO federal program today is at an absolute lower level today than 3, 5 or 10 years ago.  Not one.  Check it out yourself and read the federal budget, all 2400+ pages of it on-line: Federal Budget
The reason why this has not worked is because advocates of unabashed tax cuts unpaired with any responsible spending reductions do not understand the following: 1) There is no federal balanced budget amendment that requires annual balanced budgets as in every state. 2) The Fed can and will print up money every single time Congress fails to balance the budget...which keeps spending at levels now almost 40% higher than tax receipts per year.
  • 'If you vote to raise taxes, you must be a communist!'- This comes from all the 'No Tax Hike' Pledge crowd. Somehow, when George H.W. Bush 'broke' his 'No. New.Taxes!' Pledge at the 1988 GOP Convention by agreeing to some taxes as part of the 1990 Budget Agreement hammered out at Andrews Air Force Base, the camel's back was broken and none of these people will ever agree to any tax hikes as part of any budget ever again.  
The 1990 budget agreement instituted the critical PAYGO budget mechanism that led directly to the balanced budgets from 1998-2001 trumpeted by Newt Gingrich as being something he did solely by himself (which is simply untrue). By the way, Speaker Gingrich vehemently opposed the 1990 agreement after he had a handshake agreement with President Bush 41 to support it.  So, truth be told, Mr. Gingrich had nothing to do with the institution of the 2 key elements of the budget process, PAYGO and the discretionary spending caps that actually led to a flattening out of federal expenditures during the 1990's as a result of his walking away from the deal.
Talk about 'integrity'!  Teddy Roosevelt once said of a political opponent:  'I could carve a better backbone out of a banana!'  You can choose your own fruit in this case.
You are not a 'communist' if you vote for a package of solid, bonafide and massive spending reductions that includes some tax revenue increases as a concession to the opposite party that controls now 2/3's of the federal government in Washington.  You are a 'constitutional pragmatist' in the vein of 'small government' advocates Thomas Jefferson and James Madison who care more about the future of this nation than your own personal political career.
  • 'Raising Taxes Always Kills Economic Growth!'- President Bill Clinton's tax hikes in 1993 certainly did not crush the economic boom fueled by the internet explosion in the 1990's which will be viewed one day as or more important to American history as the opening of the Erie Canal in 1825 or the completion of the Transcontinental Railroad in 1869.  
The combined package of Clinton's tax hikes, the PAYGO budget mechanism and the discretionary budget caps from the 1990 Act, the dramatic reduction of interest rates because of the market view that the US was 'actually doing something profound' to reduce its budget deficits and the 1997 Budget Act all contributed to the explosion of jobs and the economy in the 1990's.  That, and the fact that the Internet Geniuses in the Silicon Valley were figuring out practical applications to what had previously had been primarily a defense-related communications backup system in the event of nuclear war.
  • 'Cutting Taxes Always Generates More Tax Revenues!'- We have written about this before but take a look at these tables and make your own determination.  Revenues to the federal government have doubled roughly every 8 years for the past 40 years, or approximately the time of any two-term incumbent president, regardless of whether the POTUS and Congress raised or lowered taxes!  With normal economic growth, it stands to reason, that tax revenues will roughly double every eight years as well in the aggregate.
So, where is the evidence supporting the contention that higher tax revenues always follow massive income tax rate cuts at the federal level? If massive tax cuts increased tax revenues considerably, we would see it as a higher percentage relative to GDP, wouldn't we?
Just the math of it is a brain-twister.  Cut taxes...and then more money will come in as tax revenues? That just doesn't stand to reason. That is like a business saying: 'Heck!  Why not cut our prices on our products across-the-board?'.  They might get a short-run bump up in revenues if they gain market share but if they don't, they are just cutting their own throats and will be in bankruptcy in no time flat.
We feel that the swelling of tax revenues to the federal coffers from 1983 to now can be more directly attributed to the 'Social Security Surplus' extracted in the form of SS payroll taxes that were hiked in the 1983 Save Social Security Act spearheaded by Alan Greenspan.  The chart clearly shows that the 'surplus' now accounts for close to 1.4% of GDP as of 2007, up from 0% in 1982, and represents about $225 billion per year now, even in these depressed economic times. 
These are not 'new revenues' generated by any new tax cut.  These are flat-out tax revenues generated by higher tax rates in the form of payroll taxes instituted in 1983, plain and simple.  Without the higher 'SS Surplus' tax rates since 1983, the average percentage of federal tax revenues generated over the past 15-20 years relative to GDP would have dropped to about 16.5%-17%, and most assuredly would not be the 18-19% rate always referred to by national commentators, Republican candidates and their spinmeisters.
We 'get' the fact that in the early stages of an economic recovery, the prospect of lowered income taxes might motivate an existing business to expand its operations and hire more people which will yield higher tax revenues in the near-term for the larger companies.  However, to assert that 'lower taxes' stimulate entrepreneurs at the granular level is a bit preposterous, isn't it?
Do you really think that a young 17-year old Bill Gates in the 1970's actually was thinking about discounted cash flows and net present values of his future income stream relative to various personal and corporate income tax rates when he and his Microsoft-to-be compadres were hammering out computer code in Seattle, Washington?  They probably didn't make any money for the first 5 years or so of their enterprise so 'tax rate cuts' meant absolutely nothing to them or to any other visionary at the early stages of brilliance and creativity. Most entrepreneurs (French meaning 'undertake an enterprise combining labor and capital') invent something cause they love what they are doing and then it turns into something great down the road.
  •  And finally, (we promise!), this wonderful canard worthy of being broiled in the oven:  'I am only a 'true' conservative if I oppose every tax increase!'

    This can be dispensed with with the following clear-as-a-crystal argument:
'Suppose you oppose any and all deals that includes any tax hike, tax exemption repeal, or moderation of any special tax rule benefit...to anyone.  You then have to, by definition, summarily reject any and all budget deals that also contains $1 of spending restraint going forward; $100 billion; $1 trillion or $10 trillion.'
'Suppose I, on the other hand, will accept a $10 trillion spending reduction budget deal in return for a $1/person tax increase.  That means we will have $10 trillion less spending in the future which means $10 trillion less debt incurred which means the federal government will far smaller than under the 'no spending cut accepted' posture of the 'no tax hike' crowd.
'Who then will have produced a smaller, more fiscally responsible, 'conservative' 'small government' budget for the federal government, by definition, then in this situation?'
We rest our case.

Think for yourself, not based on what other people tell you to think.

Look at the results around you. Isn't it time we do something different?

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3 comments:

  1. On the first point, you're absolutely correct: the federal government has demonstrated a remarkable and persistent resistance to any semblance of fiscal responsibility or growth limiting, no matter how much revenue is limited. To have any hope of getting any adult fiscal behavior in Washington, we must have a system with severe, automatic cuts to spending when it exceeds revenue. I stand by my view that the first thing to be automatically cut by Constitutional mandate, in the event of a deficit, is 100% of the salaries and benefits of everyone in Congress, along with their entire staffs and all supporting personnel. There's absolutely no reason they should get one cent of payment if they cannot do even a most basic part of their jobs.

    The other points are valid as well, but I think you leave out an equally important one, at least from my perspective. Specifically: it is vastly more difficult to get the government to "give anything back", once it has taken it, than it is to fight the taking, even if each step is incremental.

    Consider income tax, for example. Initially there was no income tax in the country. Then it was "we need a small tax, say 2%, to cover government expenses, but with that small concession the government will have plenty of money." Then it got raised, and raised, and raised again. Then it got rebalanced, but the marginal rate stayed the same. This time, it's just "we need to take a little more from the rich, then we'll be fine." Of course that's obviously false, but it follows the trend line.

    Alternatively, consider the second amendment. Initially, it was "the people have the right to bear arms, so the government doesn't oppress them." Then it became "states can regulate this." Then licensing got added, along with background checks, waiting periods, and red tape. Then it was "you can have a gun, but only these types." Then, "you can have a gun, but only a few types, only in these areas, not in public, not near any government facilities or people, and only if approved by the government."

    There's a proverb about not speaking up when the government took away other people's rights, because the people were not you, and you didn't care about the rights. I won't recount it, but it does remind me of other fallacy we could add to the list: allowing the government to raise taxes, even incrementally or on other people, could possibly be beneficial or "worth it" long-term. There's just no historical evidence to suggest any benefit to such concessions, any reason to believe the government would "give back" money even if it wasn't in a fiscal calamity of its own causing, or any benefit for the people in acquiescing and giving up more to the government. If I could pick one truth (of those on this page) to drill into the minds of the voting populace, it would be this one; frankly it's more important than any of the others to the long-term fiscal well being of the country.

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    1. we could repeal the 16th amendment and get rid of the income tax. Then direct taxation would once again violate the proportional taxation clause of the Constitution, Article 1, section 2 clause 3 which forbids doing so.

      no go on the automatic cuts. make Congress do its constitutional job and vote the cuts in and/or raise the taxes to pay for it.

      the credit markets are going to demand it soon enough, just like it is 'demanding' them in Greece and soon to be the other PIIGS nations

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    2. Congress has demonstrated that they are incapable, or unwilling, to do their job. Thus, I see automatic cuts as the only viable way to achieve responsible spending controls. There's just no other plausible way to "make Congress do its constitutional job".

      Personally, I'd rather the country get spending under control before we're in the same situation as Greece. Living in a state of prolonged deep recession, fiscal uncertainty, and impending unavoidable national default seems like something we might want to try to avoid, if at all possible.

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