Wednesday, January 25, 2012

Six A Dozen Impossible Things Before Breakfast

So it turns out that Romney paid an effective rate of just 13.9%. It's too early to tell what the political impact will be (although early indications look bad for Romney), but we have already seen some pre-emptive damage control. Last week Republican apparatchik James Pethokoukis wrote a column arguing that (in the words of the title) "Actually, Mitt Romney's tax rate is too high".

Yes, he really did.

Part of me wants to say, hey, if you wanna try that line, knock yerselves out. Let us know how it works out for ya.

But of course that isn't the point. This isn't a serious attempt to convince anyone that Mitt really is paying too much in taxes; this is about the underlying talking points, the distortions and irrelevancies and dubious assumptions necessary to arrive at that absurd conclusion. We'll be seeing a lot more of all these talking points if (when) Romney is the GOP nominee. On that basis, it's taking them one by one.

He starts out with a false dichotomy:
It’s real simple: If you think the biggest problem facing the United States today is income inequality, then you should be outraged that Mitt Romney’s income tax rate isn’t higher. But if you instead think America’s biggest problem is high unemployment and a lack of economic growth, then you should be outraged that Romney is paying any income taxes at all. Really.
He frames "income inequality" and "high unemployment and a lack of growth" as two opposing issues, as if you can deal with one or the other but not both. In reality, of course, the two are linked, and income inequality actively impedes economic recovery. Really.

Next up, some bait-and-switch statistics:
1. While Romney’s tax rate is—in his own words—”probably closer to 15 percent than anything,” that’s still higher than the 8.2 percent average total effective income tax rate (as of 2010) of U.S. households (once you factor in various tax credits)....Even if you add in the payroll tax, the effective tax rate of the middle fifth of U.S. taxpayers is 12.8 percent.
Thing One: he's comparing Romney's effective rate with an average effective rate that excludes payroll taxes. Romney's "capital gains" don't have any payroll tax on top of them; that 15% (or rather, 13.9%) is his total tax burden.

Thing two: when talking about effective rate including payroll taxes, Pethokoukis suddenly switches from overall average effective rate to the average rate for the middle quintile. Why? Because according to the linked chart, the middle quintile pays 12.8% (i.e., lower than Romney's effective rate), while the overall average is 18.1% (which would be higher).

Of course, no wingnut discussion of taxes is complete without this chestnut:
Indeed, nearly half of U.S. households pay no income tax at all. Their average effective tax rate is actually negative.
Um, right. Mostly because they don't have any fucking money, dumbfuck. (Except for the millionaires who are able to game the system so they don't pay anything. But I doubt Pethokoukis wants to call them to our attention.)

Now, we get another classic wingnut talking point, the "double tax":
2. The 15 percent headline rate is just the start. The capital gains tax is a double tax. For instance, corporate profits are taxed first as income and then a second time when they are distributed to shareholders as dividends.
You may recall this talking point being used in arguments against inheritance taxes. Then as now, it's silly because money isn't taxed, transactions are. When you buy something at a store and then the store pays taxes on its profits, that isn't "double taxation" because it's two different transactions. Corporation taking a profit? One transaction. Corporation paying dividends? Second transaction. Two transactions, no double tax.

At this point we get some calculated semantic imprecision, with the feel-good word "investment" covering up for all kinds of sins:
3. We shouldn’t tax what we want more of. And the real problem with the capital gains tax isn’t the rate or how it is structured, but what is taxed: gains on investments, which are savings put to work. Economists of all stripes have been saying Americans have consumed too much and invested too little over the past decade. So why would we want to tax investment even heavier, as the Obamacrats want to do?
Thing One: a good chunk of Romney's "investment" wasn't investment at all; it was compensation for managing money invested by other people.

Thing Two: given the perverse incentives inherent in Bain's kind of investment--private-equity buyouts--do we really want more of them?

Thing Three: how does a low capital gains tax encourage savings (i.e., investment) among the 95% who have little or no capital gains income?

[Update: Commenter Chris Andersen points out an even more fundamental problem with this:
the salaries paid to workers is *also* an investment because workers use their salary to go out and buy the stuff that America makes and thus puts the money back into the economy to be scooped up by enterprising "job creators".

In other words, the salary paid to a worker is just as influential on the engine of the economy as is investments. Yet our current tax code treats the latter as much more valuable in its contribution.]
Okay, now it's time for a little fearmongering:
Indeed, we shouldn’t want to tax capital at all. As an AEI study on consumption taxes explains: “The income tax’s penalty on saving is an undesirable distortion of consumer choice. It also causes less capital to be accumulated in the United States. The reduction in capital accumulation reduces labor productivity and lowers real wages throughout the economy, depressing the standard of living of future generations.
Which might be marginally more persuasive if we hadn't had much higher growth during periods with a much higher capital gains rate. Or, for that matter, if the causal link between productivity and wage growth hadn't been broken years ago.

Next up, Pethokoukis beats down a strawman argument with an appeal to authority:
4. So the main reason people want to keep taxing capital—or even tax it more heavily—is one of theology rather than sound economics. As the Concise Encyclopedia of Economics puts it: “Strange as it may sound, most economists would agree that having zero taxes on capital income is theoretically the best thing to do. But many reject putting this theory into practice because they think that too much of the benefit would go to the ‘wrong’ people, namely high-income households and the wealthy.”
"Most economists"? "Concise Encyclopedia of Economics"? Boy, that sure sounds authoritative! Of course, it's a publication of the Liberty Fund (legacy of Pierre Goodrich), so it may be more accurate to say "most libertarian economists".
That’s right, the desire to make sure the wealthy like Romney “pay their fair share” is desired by class warriors even if it make everyone poorer than they otherwise would be.
"Class warriors"! Everybody take a drink!

And just to seal the deal, we have one more appeal to authority--to a guy who, in the wingnut imagination, looms as a secular saint for liberals:
5. Take it away, JFK ( in his Special Message to the Congress on Tax Reduction and Reform from Jan. 24, 1963): ”The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential growth of the economy.”
The capital gains tax rate throughout Kennedy's term was 25%, or ten points higher than it is now. Next question?

So there it is. This is what they do, because with a candidate like Romney it's all they can do. They're just going to keep throwing the linguine, hoping that some of it will stick. And a lot of it will. And the only thing we can do in defense is become so familiar with all their talking points that we can swat them down before they get all dry and caked on and we need to use some kind of nasty cleanser and a stiff-bristle brush, well, you know what I mean.


c u n d gulag said...

Don't you love that these Wingnuts can site studies from the Wingnut Welfare "institutes" and "think tanks" to prove their point"

Of course, these are the same people paying assholes like this, so that they can quote them.

It's a snake swallowing it's own dick and balls and giving itself a World Class hummer.

Steve M. said...

My five-figure annual paycheck is taxed! And then stuff I buy is taxed! Wahhhh! Wahhhh! Double taxation! Where's my right-wing think tank essay?

Chris Andersen said...

Re: point #3

He claims that capital gains should not be taxed because they are gains on investments or "savings put to work". Your refutation of this relies to much on questioning the value of those investments.

A better refutation is to say that the salaries paid to workers is *also* an investment because workers use their salary to go out and buy the stuff that America makes and thus puts the money back into the economy to be scooped up by enterprising "job creators".

In other words, the salary paid to a worker is just as influential on the engine of the economy as is investments. Yet our current tax code treats the latter as much more valuable in its contribution.

And this guy wants to treat it as infinitely valuable.

: smintheus :: said...

Romney justifies his low tax rate by appealing to the fact that the law permits it, while decrying the many Americans who pay no income the law permits.

Tom Hilton said...

@Chris Andersen: point taken. In my defense, I'll just note the sheer number of different ways in which Pethokoukis is wrong on that point, in which context it is understandable that one might miss some of those ways.

Danp said...

It's fair to argue that we want to encourage investment, but if Romney's investment income is taxed at, oh, say, 39%, what else is he going to do with it? Is the net result that less capital would be available to expand or start new businesses, or that stock prices would merely be less inflated? Isn't it likely that more people would start a business than merely become investors? And wouldn't that necessarily create more jobs, innovation and productivity?