Low taxes, big problems
by Ernest Dumas
You would expect that the idea that spills from the lips of every Republican politician and that preoccupies the fevered brain of every tea partier and protester would be one that they all grasp perfectly.
That idea is that federal taxes are historically high and rising and are stifling the economy. When H. L. Mencken said that for every complex problem there is one explanation that is clear, simple and wrong, he had in mind people who utter such nonsense.
Federal income taxes by almost any measure are near historical lows, they have been going not up but down, and if taxes can be proved to have anything to do with the moribund economy it is that lower and lower tax rates, not higher ones, have saddled the country with mammoth budget deficits that are sucking the life out of the economy.
Contrary to all the hand wringing about skyrocketing federal taxes, the top marginal tax rate this year, 35 percent on family incomes above $373,651, has been lower only two short periods since 1917 when the income tax was fully implemented. Those were from 1925 to 1931, before and at the onset of the Great Depression, and from 1988 to 1992, a period of stagnation and recession.
But if you watch a tea party rally or tune in to any Republican talkfest — try the big debate this Friday among the eight Republican Senate candidates — you'll hear the universal lament that rising taxes are leading the country down the socialist path to ruin. Seven of the eight candidates — all but the maverick Kim Hendren of Gravette — are pledged to oppose any increase in marginal tax rates for the rest of their lives.
All of them and also their debate moderator, gubernatorial candidate Jim Keet, are going to work to lower taxes on capital gains, which they say is the key to stimulating the economy.
Never mind that the two most robust growth periods in the past century were the 1950s and '60s when the top marginal tax rate was nearly three times today's level and the 1990s after President Clinton signed a bill raising taxes on upper incomes. And never mind that the two worst economic cycles since the 1930s followed hefty reductions in marginal tax rates, including capital gains treatment.
When tea party activists showed up on Capitol Hill this month to protest the health insurance bill, David Frum, President George W. Bush's economic speechwriter and a leading conservative, sent interns to ask them some tax questions: whether taxes had gone up under President Obama, how federal tax collections stacked up against the gross national product and how much a family earning $50,000 would likely pay in federal income taxes. They interviewed 57 people, who had a staggering misconception about tax levels.
More than two-thirds of them thought income taxes had gone up under Obama and only 4 percent — two of them — knew or suspected that Obama had actually lowered taxes. Forty percent of the $787 billion stimulus bill enacted in the winter a year ago consisted of tax cuts, and the second stimulus bill this month includes more business tax cuts.
In fact, that is Obama's relatively small contribution to the $1.4 trillion budget deficit. The stimulus tax cuts lowered federal revenues by nearly $100 billion last year and $222 billion this year, according to the Tax Policy Center's analysis. Ninety percent of all taxpayers got a tax cut and every taxpayer earning below $50,000 got one. Not one American had his or her income taxes increased. Not one Republican in Congress voted for the bill.
The one tax increase, signed by the president two weeks after taking office, raised taxes on cigarettes and tobacco products to pay for expanding medical coverage to 4 million children.
As for the other questions, the tea partiers thought that federal taxes, measured as a percentage of GDP, were three times what they actually are, an average of 42 percent of GDP in the tea partiers' minds rather than the actual 14.8 percent in 2009, and they guessed on average that the tax burden on $50,000 of taxable income was nearly twice what it is.
I would bet that the Arkansas congressional and senatorial candidates with the possible exception of Hendren would fare no better on the questions. And they will not know or acknowledge the reality, which is that some Congress and some president soon will have to raise taxes pretty dramatically if the country is not to be destroyed by its debt.
If any of them knows it, he doesn't dare say so. He risks being drummed out of the party, and he might get a death threat.
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