Economy -- Right-Wing Tax And Budget Myths

February 27, 2009

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, and Pat Garofalo

BUDGET

Right-Wing Tax And Budget Myths

Yesterday, the Obama administration released its fiscal year 2010 budget, which lays out an ambitious course of action on health care reform, energy policy, and education while estimating a deficit of $1.75 trillion for the current fiscal year. The budget also includes "significant tax increases" for corporations and wealthy Americans that will increase revenue by nearly $2 trillion over the next 10 years. The proposal allows the Bush tax cuts on the top two income brackets to expire on time in 2011, reduces itemized deductions for those making more than $250,000 a year, raises the top rate on capital gains and dividends to 20 percent (from 15), and closes the capital-gains loophole so that hedge fund and other private-equity managers have their profits taxed as ordinary income instead of capital gains. The budget also proposes a cap-and trade program that would auction permits to companies that emit greenhouse gases, with the revenue directed toward President Obama's Making Work Pay tax credit. As the Center for American Progress's Michael Ettlinger noted, these changes are "going to provoke outrage." But "were this budget to be enacted, it would be by far the most significant progressive step in over forty years," noted CAPAF Fellow Matt Yglesias. Conservatives are already propagating various myths about the budget; The Progress Report offers these debunks:

MYTH 1: OBAMA'S RAISING TAXES DURING A RECESSION: "If there's anything that economists on the left and the right agree on, that supply-siders, classic economists and Keynesians agree on, you don't raise taxes in a recession," said Rep. Paul Ryan (R-WI). "This budget is raising taxes in a recession." The plan drew a similar rebuke from the American Petroleum Institute, the oil industry's most powerful trade group. However, as Office of Management and Budget Director Peter Orszag said, "[F]olks need to actually look at the budget document." To avoid raising taxes during the recession, the increases will not take effect until 2011. Furthermore, the economic stimulus package signed into law by Obama last week enacted one of the largest tax cuts ever, which made good on Obama's campaign promise to cut taxes for 95 percent of Americans. The first benefits from these cuts should be seen no later than April 1, 2009.

MYTH 2: TAX INCREASES WILL RUIN ECONOMIC GROWTH: The Heritage Foundation claimed that Obama's tax proposals "sacrifice future economic growth at the altars of redistributionism," while House Minority Leader John Boehner (R-OH) called the budget a "job killer." But as Orszag said, "[W]e're returning to the tax rates that applied during the 1990's. I think all Americans -- including high income Americans -- did quite well during that decade." The Center for Budget and Policy Priorities pointed out that "what the data do show clearly is that, despite major tax cuts in 2001, 2002, 2003, 2004, and 2006, the economy's performance between 2001 and 2007 was far from stellar." As CAP's Joshua Picker found, the Bush economy "registered the weakest jobs and income growth in the post-war period. Overall monthly job growth was the worst of any cycle since at least February 1945, and household income growth was negative for the first cycle since tracking began in 1967." Women reversed employment gains of previous cycles, and for African-Americans, the worst job growth on record was matched by an unprecedented increase in poverty. Businesses didn't fare any better, as the Bush tax cuts "were actually followed by a pronounced decrease in the fraction of G.D.P. devoted to business investment." Business investment fell after both the Reagan and Bush tax cuts, but rose after the Clinton tax increase, according to work by Princeton professor Uwe Reinhardt.

MYTH 3: TAX INCREASES WILL HARM SMALL BUSINESSES: Republicans, "knowing they will get little mileage from defending the rich, instead are casting the plan as a tax hit on people who run industrious little companies driving job growth," noted the AP. "A majority of those penalized by the proposed tax increase in this budget are small businesses," said Rep. Eric Cantor (R-VA). Sen. Jim DeMint (R-SC) said the proposal "shows a lack of understanding of the private sector." But as the Associated Press pointed out, Republicans are "adrift" on this one, as "many truly small operations simply don't make enough to qualify for the tax hit." Indeed, only 1.9 percent of small businesses file in the top two federal income tax brackets, which leaves 98.1 percent unaffected by the rate change. And because of the Treasury Department's broad definition of small business, "many of the roughly 650,000 filers with small-business income who face one of the top two tax rates are merely passive investors who have nothing to do with running the business." So "the $84 of income President Bush received in 2001 from a passive investment in an oil and gas company made him a 'small-business owner.'" Overall, only 0.7 percent of households file in the top two income brackets. As Yglesias wrote, "[A]ny small businessman who's earning a middle class income isn't paying in the top two brackets, just as any salaried employee who's earning a middle class income isn't paying in the top two brackets."

MEDIA -- GEORGE WILL AND WASHINGTON POST STAND BY FALSE DENIALS OF GLOBAL WARMING: Yesterday, in an apparent attempt to preempt criticism of the second round of blatant falsehoods from George Will on the subject of climate change, Washington Post editorial page editor Fred Hiatt defended Will's right to cite "data that most scientists reject" as factual. In his op-ed today, Will takes aim at the widespread criticism he received after his Feb.15 column. He maintains that he was accurate in using research from the Arctic Climate Research Center on the question of sea-ice levels, although the center put out a statement disavowing Will's conclusions. In addition, he ignored a request from the Sierra Club, the League of Conservation Voters, Friends of the Earth, and Media Matters for America to issue a correction based on his misrepresentation of the World Meteorological Organization's position on global warming and his irresponsible rehashing of the "discredited myth that in the 1970s, there was broad scientific consensus that the Earth faced an imminent global cooling threat." After Will's inaccurate column, the Washington Post assured the Wonk Room's Brad Johnson that Will's column had been subject to a "multi-layer editing process" that "checks facts to the fullest extent possible."

ENVIRONMENT -- PELOSI, REID MOVE AWAY FROM COAL POWER AT CAPITOL: Yesterday, Speaker of the House Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) called for an end to the use of the coal-fired U.S. Capitol Power Plant (CPP). The move comes as mass protests at the plant are scheduled for March 2. "The Capitol Power Plant (CPP) continues to be the number one source of air pollution and carbon emissions in the District of Columbia and the focal point for criticism from local community and national environmental and public health groups," Pelosi and Reid wrote in a letter to the plant's managers. They called on the CPP to switch to 100 percent natural gas "by the end of the year." However, the enormous protests planned for March are not necessarily canceled. "It sounds like we're making progress before we even get there," Bill McKibben, one of the protest's organizers, said. "Of course our real protest is aimed at coal power all over the country, and Nancy Pelosi could help rewrite the rules for that as well, which would be even more important." Sen. Robert Byrd (D-WV), a promoter of coal power, said yesterday that he supported the efforts to "retrofit the CPP if deemed possible."

HEALTH CARE -- OBAMA ADMINISTRATION TO OVERTURN ABORTION 'CONSCIENCE RULE': Today, the Obama administration will move to rescind a controversial rule permitting "federally funded health care providers to decline to participate in services to which they object, such as abortion." The so-called "conscience rule" was issued in December as President Bush prepared to leave office. While the Bush administration insisted that the rule merely reaffirmed existing conscience-clauses and did not re-write reproductive laws, critics complained that the rule defined abortion too vaguely and created confusion about the original intent of the law. As the Wonk Room noted, "It fails to provide a clear, medically-accepted definition of abortion, expands the definition of health care providers protected by conscience regulations, and permits practitioners to deny women access to commonly used methods of birth control." The American College of Obstetrics and Gynecology has documented unwanted pregnancies occurring after women were denied emergency contraception under the rule, including one instance when "a rape victim found her prescription for emergency contraception rejected by a pharmacist." Officials indicated that the administration may draft a new rule making clear what health care workers "can reasonably refuse to do for their patients" after the standard 30-day comment period.

In his "first presidential directive," President Obama outlined the structure of his National Security Council, adding "the attorney general, the secretaries of energy and homeland security, and the U.S. ambassador to the United Nations" to the body. Further, he plans to solicit "wide input to NSC meetings, providing for 'regular' inclusion of senior trade, economic and science advisers."

Yesterday, the Senate voted 61-37 to "give the District a voting seat in the House of Representatives." However, lawmakers also attached language stripping many local gun-control laws, which "complicates the D.C. vote bill's passage into law, because the legislation will have to be reconciled with a companion bill in the House with no gun provisions that is expected to be approved next week."

The Obama administration has notified Congress that "Chas Freeman has been appointed chairman of the National Intelligence Council. The right wing, outraged over his views on the Middle East conflict and opposition to the Iraq war, had tried to stop the appointment of Freeman.

The Senate Intelligence Committee is preparing to launch an investigation of the CIA’s interrogation programs under President Bush. Officials said the inquiry was not designed to determine whether CIA officials broke laws but "to do fact-finding in order to learn lessons from the programs."

Just months after declaring that President Obama "would rather lose a war than lose a campaign," Sen. John McCain (R-AZ) said he supports Obama's Iraq withdrawal plan. Asked by the Huffington Post whether he would have enacted a similar plan were he president, he replied, "Oh, I’m sure...because that’s what our military and civilian leadership has recommended."

The Justice Department is preparing to bring terrorism-related charges in a civilian criminal court against Ali Saleh Kahlah al-Marri, "a man identified as an operative of al Qaeda who has been held in a military brig" inside the U.S. for more than five years. The Bush administration had “argued that he could be held indefinitely without being charged."

A group of progressive bloggers "are teaming up with organized labor and MoveOn.org to form a political action committee that will seek to push the Democratic Party further to the left," recruiting candidates to challenge Blue Dog Democrats. The group, named Accountability Now, "is another step in the evolution of the blogosphere."

And finally: Yesterday at CPAC, Rep. Michele Bachmann (R-MN) told RNC chairman Michael Steele that he was "da man" after he concluded his remarks. "Michael Steele!" exclaimed Bachmann, the event moderator. "You be da man! You be da man.

President Obama's FY2010 budget includes family planning funding that was stripped out of the economic recovery package because of GOP complaints.

THINK PROGRESS: Joe the Plumber suggests some members of Congress should be shot.

WONK ROOM: The next steps to get out of Iraq.

YGLESIAS: Sen. Mitch McConnell (R-KY) says hanging out with Rush Limbaugh is awesome.

OMB BLOG: The first blog post at the Office of Management and Budget.

ILLINOIS: "Gov. Pat Quinn is reviewing how the son of embattled Sen. Roland Burris got a state job as a housing-agency lawyer under ousted Gov. Rod Blagojevich's administration."

ARIZONA: State may sell government buildings as a way to balance next year's budget.

MISSOURI: State Rep. Cynthia Davis (R) says that fathers aren't "natural nurturers."

"Every major tax cut we've had in history has created more revenue."
-- Sen. Kay Bailey Hutchison (R-TX), 2/27/09

VERSUS

"Robust revenue growth in 2005-2007 has not made up for extraordinarily weak revenue growth over the previous few years."
-- Center for Budget and Policy Priorities, 5/9/08, on the effects of the Bush tax cuts

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