Just Tell The Truth
By
Gary Gerard, dumbhoosier.com
I am going to touch on a couple of things this week. The first may
seem kind of trivial, but I think it’s instructional about the way
“news” is presented to us.
I don’t care whether you agree or disagree with an issue. I don’t
care what your opinion is. But I do believe strongly that you
should be properly informed before you arrive at that opinion.
And that can be extremely difficult to do in the politically
charged climate of today’s “news.”
Take just a tiny portion of Gov. Mitch Daniels’ rebuttal to
President Barack Obama’s State of the Union speech Tuesday night.
Gov. Daniels said, “The late Steve Jobs – what a fitting name he
had – created more of them than all those stimulus dollars the
president borrowed and blew.”
Of course, the media went into overdrive to make sure we all knew
that Gov. Daniels just plain got it wrong.
Apple employs 43,000 people in the U.S. and 20,000 overseas, they
were quick to point out. Then they noted that the non-partisan
Congressional Budget Office estimates President Obama’s stimulus
created between 1.2 and 3.3 million jobs.
And you know what?
One would almost buy into that kind of thing if you didn’t really
think about it. And the only reason I thought about it is because
I remember quite well some of those very same news people talking
about the bailout of General Motors.
They told us repeatedly and forcefully that if GM went bankrupt,
job losses would go far beyond the company's then-current 91,000
U.S. employees. We were told more than a million other workers at
parts suppliers and other support companies would lose their jobs,
too.
That’s because all those legions of companies and workers were
dependent on GM for their livelihoods.
OK, so why wouldn’t that be true for Apple? Certainly, if Apple
ceased to exist tomorrow, lots and lots – probably a million or so
– other workers would be adversely affected.
And while we’re at it, let’s think about why there is such a huge
disparity – 1.2 million to 3.3 million – in the estimate of the
number of jobs created by the stimulus.
I – and lots of economists smarter than I am – note that when the
government talks about stimulus-created “jobs,” it might be more
instructional to call them “projects.” That’s because not every
project funded by the stimulus translated into more workers being
hired.
For a microcosmic understanding of this phenomenon, I talked to
Warsaw Street Department Superintendent Lacy Francis.
He told me the city had applied for federal stimulus money for
projects around town. (He also told me there was a massive amount
of red tape and lots of restrictions, but that’s a different
column.)
But Francis also said even if the city had qualified for stimulus
money, his department wouldn’t have hired any workers. He would
have used existing workers.
If I had to venture a guess, I’d say that’s probably the way it
was for most of the projects funded by the stimulus. Now, one
could argue accurately that the stimulus prevented some workers
from getting a pink slip, but is that the same thing as creating a
job?
So when it’s all said and done, Gov. Daniels was probably
operating within the normal range of political banter.
Yet his remarks were characterized by the media as “dead wrong.”
And these are the people who are supposed to accurately inform us.
Another thing I noticed, which is not trivial at all, is the tax
thing.
President Obama said that anybody making more than a million
dollars a year should pay taxes at a rate of 30 percent. And that
sounds reasonable on the face of it.
But if you think about it a little bit, you see that it’s really
not even close to feasible.
That’s because most of the people he is talking about – people
like Mitt Romney or Warren Buffet, for example – make the vast
majority of their income through investments. Those are taxed as
capital gains at 15 percent.
So in order to make somebody like Romney or Buffet pay 30 percent
in income taxes, President Obama would have to raise the capital
gains rate to 30 percent.
First of all, there’s no way in the world the U.S. Congress would
do that. It’s just a political impossibility.
Second, even if it could be accomplished, it would be a huge tax
policy blunder.
There is a reason capital gains are taxed a lower rate than earned
income. It’s to encourage people with money to invest it. It
encourages people with money to risk it on investments because
when they make money it’s taxed at a lower rate.
(It’s worth mentioning here that many of the dollars invested
already have been taxed once as earned income.)
If the government pushed the capital gains tax rate to 30 percent,
it would stifle investment. Stifled investment means lower stock
market prices and lower returns on investments. This negatively
affects the value of 401(K) plans and pensions and make and
discourages future investment.
Stifled investments also mean less venture capital, fewer
startups, fewer capital improvements and fewer jobs. Seems to me
that would be the dumbest thing the government could do right now.
If you watch cable news all the time, you will hear this type of
information. But if you’re the type of person, like most Americans
who watches only network news each evening – if any news at all –
all you hear is that President Obama wants to tax millionaires at
30 percent. And that President Obama wants Buffet to pay a higher
tax rate than his secretary.
And that sounds quite reasonable to you.
But here are some fun tax facts:
- 46 percent of U.S. workers pay no federal income tax.
- The average effective tax rate for all U.S. workers is around 11
percent.
- 80 percent of U.S. workers pay an effective tax rate less than
(Bufftet’s and Romney’s) 15 percent.
- In 2009, millionaires accounted for 0.1 percent of all taxpayers
– 240,000 out of 140 million. Those taxpayers shouldered 20.3
percent of the federal tax burden.
Is there income inequality and a need for tax reform in America
today? Absolutely.
But when politicians change tax policy they need to base it on
fact instead of hyperbola.
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