Joel's Rant

There’s a famous laboratory test that psychologists use to measure things like “fairness” and “altruism” called “The Ultimatum Game.”  There are 2 people that are anonymous to each other.  One person, person A, is given $20.  Person A is told that she must offer Person B a portion of that money.  If Person B accepts the offer they both get to keep the money they have been given.  If Person B rejects the offer, they both go home penniless.

According to the world of economics, if Person A offers $1 to Person B, Person B should accept the offer.  Even though Person A gets to keep $19, at least Person B gets something out of the deal.  If Person B rejects Person A’s offer of only $1, both Persons A and B get nothing.

To me, this is how those on the political left view the Bush tax cut policies of 2001 and 2003, which are presently set to expire on January 1, 2011, thereby instituting the largest single tax increase in American history.  As long as they perceive, incorrectly I might add, that someone is getting more of a tax cut then they are, they don’t want anyone to get the tax cut.  It’s as simple as that.

I have liberal friends tell me all the time that they can’t wait for those tax cuts to expire because they only favored the “rich” or only provided tax cuts to “millionaires.”  They also want “rich” people to finally pay their “fair share” of income taxes.  Never, of course, does anyone provide any data to back up those claims nor do any of them want to actually know the truth.  That would include state-run media people as well.

Don’t you hate that, when the truth gets in the way of making your point?

In fact, the truth is quite the opposite.  But first let’s stipulate a few facts.

1. Poor people do not create jobs.  Unfortunately, that’s a fact.  People without the financial means to hire workers, who expect to be paid for their efforts, are not going to create jobs.  They’re not going to create industries or businesses or provide any of the instrumentalities an economy requires in order to be prosperous.  Generally speaking, only “rich” people can do that and having those people available to provide that kind of support is necessary in a free-market, capitalist society.  Again, that’s a fact.
2. In 2008, the last year in which complete IRS data is so far available, the top 1% of taxpayers paid 40.4% of all the income taxes collected that year.  In fact, under George W. Bush (GWB), the tax liability of this top group grew faster than their share of the income.  Now, I don’t happen to be rich, and I’m certainly not feeling sorry for anyone who is rich, but what part of 40.4% is not a “fair share?”  If 40.4% of the taxes being paid, by only 1% of the payers mind you, is not absolutely amazingly fair, can we at least stipulate it comes very close to being fair?  By the way, the top 5% of taxpayers paid 60% of the income taxes and the top 10% paid 75% of the nation’s income taxes.  Oh, and the bottom 50% paid only 3% of the taxes and 47% of the nation paid zero income taxes.  So much for the argument that so-called rich people are not already paying their fair share.
3. Despite the Bush tax cuts of 2001 and 2003, the same amount of money was deposited in the U.S Treasury as there was before the cuts.  That’s a fact.  The conventional wisdom that receipts to the Treasury suffered because of the tax cuts is completely bogus.  The average Treasury collection from federal personal income taxes averaged 18% of GDP from 1953 through 2006.  The Bush Treasury averaged that same 18% from 2001 through 2006.  Even with the cuts, the same amount of tax money was collected. 

However, there were 2 differences from the averages of the past.  First, 6 million new jobs were created during the GWB years, from 2001 through the end of 2006.  That’s a fact, as inconvenient as that is for some to grasp.   Second, while Treasury revenues remained the same even after the tax cuts, spending increased to historical heights, at least historical before Barack Obama. 

An interesting factoid regarding that level of spending is that never one time, not once, not one single time, not for even one moment, did the Democrats in Congress during the GWB years offer a lower budget, filibuster for decreasing spending, or in any way, shape or form recommend cutting spending in any program except for one….the Defense Department.  In fact, the only response to any of the budgets submitted by GWB was that he wasn’t spending enough.  Every GWB budget eventually ended up being raised because of Democrats’ higher spending requirements.  That’s a fact.  And every single higher spending requirement was fully endorsed and approved by…….Barack Obama.  Go figure!

The facts I’ve indicated above are not meant to absolve the GWB presidency of mistakes they made, because they made many.  Every president makes mistakes.  Even the hero of the political left, FDR, took a recession in 1930 and created a Great Depression that did not officially end until 1947.  FDR’s economic policies and his social engineering initiatives were a complete and utter disaster, and breached the fire walls of the Constitution, thereby creating the mechanism of big government that extends into every facet of our life and society that we experience today.  But he was an excellent, politically conservative, and America loving, wartime president.

But the conventional wisdom that the economy under GWB was a disaster is bullcrap. 

I don’t believe GWB ever nationalized an industry, business, company or corporation.  He also recognized potential economic disaster and tried twice to reign in Fannie Mae and Freddie Mac but was repulsed by the Democrats in Congress (unlike the filibuster proof Congress enjoyed by Barack Obama, GWB has to cater to Democrats’ to get any legislation passed).  With unemployment around 5%, with home values doubled, with low inflation, with a record high stock market, with over 6 million new jobs created through 2006, the GWB economy was something that should be envied today given our current state of distress and danger to the health of the very Republic itself.  Let’s also try to remember that in addition to the recent financial crisis wrought, in large part, by government regulation like the Community Reinvestment Act and the criminality of government agencies like the aforementioned Fannie Mae and Freddie Mac, that the Congress was taken over by Democrats in January 2007, a Congress which included, as one of its most vocal and strident members, one Barack Obama.

So, what are those GWB tax cuts that favor only the rich?

In the chart below you’ll see the tax years 2002 and 2003.  The tax year 2003 shows the rates with the GWB tax cuts, the rates we presently pay. If the tax cuts are allowed to expire by Barack Obama, the tax rates in 2011 will revert essentially to those shown below in tax year 2002.  Got it?

You might want to pay particular attention to how earnings from $46,700 to $56,800, the proverbial middle of the “middle class”, will have their marginal tax rate raised from 15% (2003 chart) to 27% (2002 chart), a rate increase of 12%.  That doesn’t sound too bad, right?  Actually someone paying 15%, and having their tax rate raised to 27%, has just suffered an 80% increase in their income tax!

So it turns out that GWB tax cuts actually helped middle class tax payers the most, with the biggest reductions going to those that needed it the most.  In fact, the GWB tax cuts were targeted to the middle class.  Those are the facts.  Any of that other rhetoric is bullcrap.

Tax Year 2002                                                 Tax Year 2003
 
up to $12,000 10%                              up to $14,000 10%
$12,000 – $46,700 15%                       $14,000 – $56,800 15%
$46,700 – $112,850 27%                     $56,800 – $114,650 25%
$112,850 – $171,950 30%                   $114,650 – $174,700 28%
$171,950 – $307,050 35%                   $174,700 – $311,950 33%
over $307,050 38.6%                          over $311,950 35%

But wait, that’s not all that’s going to change when the GWB rates expire on January 1^st.  In addition to the higher tax rates above, this is what’s going to also change so strap yourself in for the bumpy, and painful, ride:

The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples relative to the single level.  The dependent care and adoption tax credits will be cut.  For you liberals, pretty good, no?

This year, there is no death tax.  For those dying on or after January 1, 2011, there is a 55% top death tax rate on estates over $1 million.  Actually, $1 million’s not that much.  A person leaving behind two homes, or one home on Long Island, and a retirement account could easily pass along a death tax bill to their loved ones.

The capital gains tax will rise from 15% this year to 20% in 2011, a 33% increase.  The dividends tax will rise from 15% this year to 39.6% in 2011, a 164% increase.  These rates will rise another 3.8% in 2013.  These are the kinds of taxes that affect people with retirement savings, pensions, and others who might want to sell assets and take a profit.  That means it includes most people, including you liberals, in the middle class.  (And don’t forget the VAT tax that’s coming as well as the often discussed “wealth tax” on yearly assets owned.)

Here’s a real good one.  You liberals will really like this too.  Congresses failure to index the dreaded Alternative Minimum Tax (AMT) will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million in 2011.  These families will have to calculate their tax burdens twice, and pay taxes at the higher level. 

And there are all sorts of higher business taxes that will guarantee higher unemployment and more failed businesses.  The recently passed financial overhaul bill, often referred to as Dodd-Frank, has virtually guaranteed that small banks and small financial organizations will go out of business leaving fewer options for consumers seeking loans and mortgages, thereby tightening credit even more than it is right now.

Oh, and don’t forget the first ObamaCare taxes go into effect on January 1^st as well.

Here’s the important thing for my friends on the political left to remember.  The rich can pay taxes.  They’ll either always be able to pay taxes or they can fashion their income so they appear to have no income.  The truly rich can do that.  That’s the beauty in being truly rich.  Got it?

That’s not the same for the rest of us.  That’s not the same for people like you.  Even if you confiscate every dime of every rich person there won’t be enough.  That won’t nearly be enough because there are not nearly enough rich people.   

But the people on the left don’t care.  It’s the Ultimatum Game for them.

But at least you now know the truth.

And that’s all there is to it.