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How the media lost the plot on US taxation | Mike Lofgren

What hope does the public have of making informed choices about parties’ tax policies when the press is not telling the story?

The media doesn’t seem to understand the basics about budgets – and the inescapable relationship between aggregate revenues, aggregate spending and total deficits. Either that, or reporters just choose to play dumb. The end result is the same, however: journalists don’t probe deeply – or they probe when it is too late to matter – into budget proposals and their real-world consequences (as opposed to regurgitating the talking points politicians issue to “explain” them). They are also generally unaware of easily obtainable historical data and historical trends, and how these predict the likely outcome of current fiscal policy choices.

The point is this: we will always have big deficits as long as tax policy is radically different from the post-second world war average until about 1981. And Republicans now want to cut taxes, mainly on the wealthy, even further. So the GOP’s moaning about the deficit has no credibility whatever to anyone who knows budgets. But most people, and most reporters, don’t know that during the Eisenhower administration, the top marginal rate was 91%, and that it was 70% for the following two decades or so, and that capital gains (which accrue overwhelmingly to the rich) were usually taxed as ordinary income. That lack of perspective distorts a whole range of popular assumptions about social equity now versus, say, the 1950s.

Rarely is it ever stated in the media that taxes under Obama are lower even than under George W Bush (for example, tax cuts in the stimulus, the payroll rate reduction and some other minor tax policies). Early in the Obama administration, revenues fell below 15% of GDP – the lowest in close to 60 years. But you never hear that. Instead, the public dialogue has been pre-empted by ideologues who claim Obama is a tax increaser, a Kenyan socialist, etc. As a result, lots of low-information voters think Obama raised their taxes – when he reduced them. Because of stereotypes about the parties that filled the vacuum a lack of accurate information had created, many average voters have no clue about which party advocates which policy.

Some other examples: the proposed House Republican budget in 2011 did not balance the budget even by 2021 – there was still a deficit of almost 0bn in 2021, which would be large by historical standards. The proposal could have balanced the budget, but Representative Ryan chose not to – he cut taxes on the wealthy so much that the revenue loss nullified the deficit reduction he obtained from draconian cuts to domestic discretionary spending and some cuts to entitlements. Needless to say, he left Department of Defense spending, now at historic highs, pretty much alone.

Do not misunderstand: anyone with any credibility recognizes that responsible fiscal management will require spending cuts, many of them painful. But they also recognize that we will have to have a tax policy that doesn’t just maintain tax rates where they are, but increases them. The House Republican budget cuts taxes even further, leaves half of the discretionary budget alone, and focuses on cutting a spending category that is only about one-sixth of the total budget (that is, domestic discretionary spending). That is not a serious and credible proposal, no matter how much the media lazily label Paul Ryan as a serious and sincere deficit hawk.

Likewise, the Herman Cain “9-9-9″ tax plan. It was a masterpiece of marketing, with its simple “9-9-9″ label being reminiscent of a two-for-one pizza special. It would lower all federal income tax rates to a single 9% rate, set the corporate rate at 9%, and levy a national sales tax of 9%, while eliminating most deductions. It had the sort of meretricious simplicity that appealed both to the simple-minded and the mainstream media. True to its “horse race” philosophy of covering politics, early on most of the press declared Cain’s plan a brilliant campaign move without making any effort to evaluate its substantive merits.

What the plan actually did was decrease revenue as it drastically cut the taxes of the wealthy and – here’s the kicker – raised taxes on the least well-off. And it did not, in fact, tax all income at 9% (so much for its appealing tripartite simplicity): it lowers the capital gains and dividend rates to zero. Generally, the richer the individual is, the more likely his income is to be derived from capital gains and dividends, which are already taxed at less than half the top marginal income tax rate. This current inequity in the tax code accounts for the fact that the 400 richest Americans have been paying an average effective federal income tax rate of 17-18% since passage of the Bush tax cuts: little more than half the effective rate they had paid since the early 1990s – even as their combined income quadrupled. Cain’s plan would have sharply increased this disparity.

The Tax Policy Center did a distributional analysis of Cain’s plan. The center’s conclusion:

“A middle-income household making between about ,000 and 0,000 would get hit with an average tax increase of about ,300, lowering its after-tax income by more than 6% and increasing its average federal tax rate (including income, payroll, estate and its share of the corporate income tax) from 18.8% to 23.7%. By contrast, a taxpayer in the top 0.1% (who makes more than .7m) would enjoy an average tax cut of nearly.4m, increasing his after-tax income by nearly 27% … a typical household making more than .7m would pay a smaller share of its income in federal taxes than one making less than ,000.” [my emphasis]

That would appear to be big news: drastically lower taxes on the wealthy and tax increases for lower-income earners. But it took the media a long time to come to that conclusion, and by the time they had, the focus of press attention moved on to other matters – like Cain’s personal life.

Several of the other Republican contenders have tax plans similar to Cain’s. The plan being pushed by Mitt Romney, the putative frontrunner, is as follows: those making more than m annually would receive an average federal income tax cut of 5,000 by 2015, while those making less than ,000 would see their federal income taxes increase.

Will any member of the press ever say that these candidates are responding to the political pressure exerted by their contributors – as well as manifesting their ideological identification with, and personal admiration of, the wealthy? Would that reporter conclude that these tax plans make concrete the philosophy of Ayn Rand that the rich are to be worshipped and the poor ignored, if not despised?

I’m not holding my breath.

This article was originally published by Nieman Watchdog and is crossposted by kind permission of the author and editors © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds