It is easy to use facts when they support your case. When they don’t, you have to use spin, obfuscation and lies.
Pinocchio’s spiritual home
The Cato Institute is a Koch founded, libertarian, think tank – which unsurprisingly didn’t like the fiscal cliff agreement to raise the tax rate on a tiny fraction of the population. The Institute had Daniel Mitchell make its case in an article titled “Grading the Fiscal Cliff Deal”. Mitchell is long on academic achievements – he has a PhD in economics - but short on academic honesty.
He made several claims, including,
“The top tax rate will increase to 39.6 percent for entrepreneurs, investors, small business owners, and other “rich” taxpayers making more than $400,000 ($450,000 for married couples). This is Obama’s big victory. He gets his class-warfare trophy.”
Consider the following:
1. Yes the tax rate goes up. But only on taxable income over $400/450,000. Anything under that threshold is still taxed at the lower Bush tax rates. A married couple with a taxable income of $500,000 will pay an additional $2,300 in taxes – hardly debilitating.
2. This same couple will pay an additional $2,120 in taxes because of the end of the payroll tax break. Why isn’t the Cato Institute protesting that? Could it be because, that as a percentage of income, the payroll tax break disproportionately benefits lower income Americans?
3. Investors pay capital gains tax. To include them in a conversation about income tax rates is deceptive.
4. It is misleading to call a business “small” when its owner is earning $400,000+ a year.
5. To put the word “rich” in quotation marks, is to imply that people earning $400/450,000 a year are, in fact, not rich.
6. Obama campaigned on letting the Bush tax rates expire on people earning $200/250,000 so the higher amount is hardly “Obama’s big victory”
7. “He gets his class-warfare trophy”. The rich have a greater percent of the nation’s wealth than they used to – if there is a class war the wealthy are winning.
Mitchell further writes,
“The double tax on dividends and capital gains climbs from 15 percent to 20 percent (23.8 percent if you include the Obamacare tax on investment income)”.
1. There it is again – the trope that taxes on capital gains are double taxation. The theory is that money invested is already taxed so any more taxes are “double taxation”. But if you invest money on which you paid income tax, you never pay taxes on that money again. You only pay capital gains on any return on that money.
2. Mitchell implies that capital gains tax is onerous – but at 20% it is still 15 percentage points lower than the old top income tax rate, the rate paid by people who work for a living.
Mitchell also writes,
“The death tax rate is boosted from 35 percent to 40 percent (which doesn’t sound like a big step in the wrong direction until you remember it was 0 percent in 2010)”.
1. Mitchell is cherry picking the one year that the tax rate was 0%. At 40% the estate tax rate is less than in any year of the Bush Presidency
2. Like the top income tax rate, the estate tax affects very few Americans. It will be paid by less than 1% of estates, as the first $5 million of an estate is untaxed.
The tax rates in the 20th century, were in the main higher – in some cases far higher – than they are today and in that period the US rose from a tie as the world’s largest economy to accounting for 25% of the world’s total GDP.
It was such a good time for the US economy that the 1900s were called the “American Century”.
There was incredible entrepreneurial activity – every decade saw business start-ups that are now Fortune 500 companies.
But this history is inconvenient for Mitchell, so he is left to make statements of “fact” and leave the reader with the implication that – despite a lack of evidence – this will be bad for the economy.
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