Wednesday, April 16, 2008

Back to Normal: Do It with Mirrors, John?

by Ken Houghton

After I tried (with a hint of irony) to say something nice about RWR (and Tom corrected me*), John McCain undermines all that goodwill with another mailing:
While many of us are aggravated and displeased when we see exactly how much of our hard-earned money goes to the federal government - if one of my Democratic opponents is elected in November, you can be certain your tax rate will increase across the board. [emphasis his]

Hmmm; increasing deficits (ameliorated only slightly by a Social Security Trust Fund surplus that even Andrew Samwick is now defending), an ever-more-costly war (some of which is "off balance sheet" [think derivatives], so the actual deficit is ever higher), and more than a 2% difference between income (read: taxes) and outflows that have increased at greater than the rate of inflation only for defense for all of the Discretionary Spending. (And if cactus at AngryBear updates this post,*** I suspect the differences will be even worse.)

But I'll hold out hope, John; after all, you're a Straight Talker. What's your plan?
I believe today, as I have always believed, in small government, fiscal discipline and low taxes. I believe that tax cuts work best when accompanied by lower spending. And I make the promise to you that if elected president, I plan to make the present tax cuts permanent, lower corporate rates from 35% to 25% and end the Alternative Minimum Tax, which will affect millions of middle class families.

Let's see:
  1. "make the present tax cuts permanent": I assume this means the 2001 and 2003 cuts that were scheduled to "sunset" in ten years because even then—with a trend toward paying off deficits and Saint Alan talking about the Evil that would be a Sovereign Wealth Fund—our representatives and Senators knew they would be too costly on an Infinite (or even Extended) Time Horizon. So monies that are in the baseline CBO projection, for instance, would not be there. Need taxes, or cuts in spending.
  2. lower corporate rates from 35% to 25%: Well, as pgl pointed out last year, it would be absurd to assume that the actual corporate tax rate is at 35% now.**** But, once again, baseline projection monies are no longer there. Need taxes, or cuts in spending.
  3. "end the Alternative Minimum Tax"—this is the first year in a few that I wasn't hit by the AMT. But this is also, definitionally, the first time in a few years that our Gross Income was less than about 250% of the national average. And this is outright elimination. (The CBO released a report this month [PDF] that projects the 10-year cost of just indexing the AMT to inflation of $700B.) So this is a major loss of revenue, without any noticeable income

So that's three proposals: all tax cuts without a single revenue source in sight. And I'm not betting that John "we'll spend 100 years in Iraq, but don't worry, only 95 of them will be as an active fighting force" McCain is going to reverse the GWB trend in increasing defense spending at greater-than-inflation rates.

The kicker? There's only one way to cause this miracle to happen:
But I cannot succeed in my efforts without your immediate financial support. [I spare you the link]

So the only way not to pay taxes is to pay tribute to a man who plans to increase deficits in a major way, crowding out entrepreneurial activity and further impairing growth.

Makes me long for the days when RR appointed David Stockman to run the OMB. At least then we got Straight Talk from a Republican.

*This may be what I get from believing my accountant, who may well have confused 1986 and 1996.** Though it remains remotely possible that Reagan did start the ball rolling to some small extent:
Most Americans already escape the tax by either rolling over, or deferring, their capital gain when they buy a more expensive house, or by taking a one-time exemption for up to $125,000 in gains allowed for those 55 and older.

So it's possible that Reagan initiated it, while Clinton both eliminated the age restriction and raised the limit. But that's probably not the way to bet.

**We are both of an age where that happens. Having heard the, er, update of Kurtis Blow's classic "Basketball" last weekend on Radio Disney, I suggest that the decay of memory and the "memory of decay" is natural.

***I thought he had, but I can't find it on a quick use of The Google (TM Sadly No!).

****If we do the math, taking the 39.3% overall corporate tax rate here and the proportions documented by the CBO here***** [PDF; 1.6% of GDP for Federal; 2.1% for all], we would conclude that the effective Federal corporate tax rate is currently 39.3% * 1.6/2.1 or 29.9%. So take heart, John; we're halfway there and you haven't done anything yet.

****I am comparing a 2004 ratio with 2006 data, but since the Tax Foundation indicates a difference of 0.1% between 2001 and 2006, this does not seem unreasonable.

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