Tuesday, September 20, 2011

Obama's class warfare rhetoric and the new math

In the president’s continuing conduct of class warfare on higher income earning Americans, he proclaimed “Either we ask the wealthiest Americans to pay their fair share in taxes or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both. This is not class warfare, it’s math”. Of course it is class warfare and it is evident that the same group of teachers that taught him economics must have also taught him mathematics. What the president is doing is saying that instead of having a spending problem we have a revenue problem. Nothing could be further from the truth. But framing the argument by blaming the “wealthiest Americans” is campaign rhetoric and decidedly unpresidential. It is time to call the president out and demand what does he mean by “pay their fair share”. We know that he has latched on the catch phrase “millionaires and billionaires” and as part of the new math has defined that group to include those who earn $200,000 and more. Why doesn’t he get asked how $200,000 equates to being a millionaire? Obviously, the president has flunked math by leaving off a zero. However, no one has asked him to define “fair share”. We all know that this group pays the vast majority of federal income taxes and the only group not paying its “fair share” is the 47 percent of wage earners who pay no federal income tax at all. Perhaps he is alluding to Warren Buffet when he says that hedge fund managers pay less than their secretaries. Here again is the new math. There is no way that this can be true. Even if you assume that the hedge fund manager is paying at a lower capital gains tax rate when you do the math, the manager is paying much more than the secretary is at the personal income rate. So Obama flunks this math test as well. The third way the president flunks is that he assumes that we are too stupid to do the math. He asserts that if we just raise the taxes on high earnings that the deficit problem will go away. Really? The American Thinker has pointed out (http://www.americanthinker.com/archived-articles/../2011/03/confiscate_americans_wealth_to.html) that if the government confiscated 100 percent of all income over $200,000 per year then the gain to the treasury would be only $221 billion! This means that the confiscation could not even cover the $714 billion spent on antipoverty programs last year. Lastly, as pointed out in EconLog (Obama's budgetary sleight of hand http://econlog.econlib.org/archives/2011/09/obamas_budgetar.html) the president also flunks the math test by double counting budget cuts as well. Thus the president is either bad at mathematics or is a bad liar.


Kevin Jones said...

Dr. Black, I am a student of yours from last semester. Your class was eye-opening and helped inspire me to research things I hear on the news. It certainly was one of the best classes I've had at UT. When I'm out searching for an educated opinion on a topic, I often look to your blog. I remember you mentioned once in class that our tax code should be one sentence--it should be a flat tax. I also hear a lot of arguments for why a fair tax would be better. Can you help me understand why a flat tax would be more efficient than a fair tax? Thanks for your help!

H.A. Black said...

Hello Kevin, I have written about this earlier (see July 29, 2011). The basic problem with the "fair" tax is that it is a hidden tax (called a value added tax in Europe). I want people to know what they are paying for government. As a hidden tax it is easier to raise. It also has exemptions. A flat tax has no exemptions. Everyone pays and if you are poor you get subsidized through other programs (last year $719 billion) rather than through the tax code.It puzzles me that conservatives who vilify European economic systems want to adopt their tax policy. Also this is the way that Europeans have to tax since there would be too much cheating and avoidance under our system.

Martin Drone said...

Dr. Black, I hope your retirement is going well.
I know this is an unrelated question, but I am curious as to what you think about the Fed's "Operation Twist." It seems like the Fed has been attempting to manipulate the yield curve for a while now, at what point do they stop? At what point should the Fed let the market decide what interest rates should be?