If You Believe These Myths, I Have a Bridge to Sell You

It’s amazing how people believe stuff that has been proved wrong – over and over again. Take the conservatives’ prescription for a better U.S. economy, for example.

Today on the web, Joshua Holland of AlterNet debunks nine pet theories that the Republican PR machine passed off as fact during the past election campaign.

Number one, of course, is the bizarre idea that cutting taxes actually increases government revenue. Holland blows this nonsense out of the water.

He quotes a Time Magazine article by Justin Fox that reported:

Every economics Ph.D. who has worked in a prominent role in the Bush administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves—and were never intended to.

On the notion that taxes on the rich “keep wealth producers from creating jobs,” he comments:

What’s noteworthy about the narrative is the degree to which it defies simple common sense. It shouldn’t be a matter of debate that only one thing creates jobs, and that’s demand for companies’ goods and services. The idea that a business that was booming would refuse to hire people and forego expansion because top tax rates might nudge upward is as silly as the idea that a business that has no customers would add new employees because its owners expect taxes to be low.

He is equally dismissive of the idea that tax cuts for the rich create jobs. In fact, he points out:

Like other types of public spending, giving cuts to those at the top does stimulate the economy, but very, very badly. According Mark Zandi, chief economist for Moody’s, a dollar in tax cuts on capital gains adds 38 cents of economic growth and a dollar in corporate tax cuts brings us just 30 cents worth of stimulus, but a dollar in unemployment benefits gives the economy a boost of $1.63 and a buck worth of food stamps adds $1.73 in stimulus.

Holland takes Rush Limbaugh to task for saying the “so-called rich are about the only ones paying taxes anymore.” He points out that this is “an entirely false narrative that emerges from some rather transparent sleight-of-hand.” Here’s how:

You have to look at the federal income tax in isolation and then pretend that it represents the government’s entire take. But the reality is that the government isn’t financed from federal income taxes alone – far from it. Payroll taxes, for example, represent the biggest tax bite for the average worker.

Holland goes on to debunk the notion that Americans “are taxed to death.” In fact, he notes:

In 2008, we ranked 26th out of the 30 countries in the Organization for Economic Cooperation and Development (OECD) in terms of our overall tax burdenthe share of our economy we fork over to the government. The U.S.came in almost 9 percentage points below the average of the group of wealthy nations, and some 20 percentage points below highly taxed countries like Denmark.

As for the much-touted idea that government spending is out of control, Holland countered:

Public spending has increased with the wars in Afghanistan and Iraq, and, temporarily, with the stimulus package. And it will rise in the future as more baby boomers retire. But beyond that, it’s important to understand how “limited” our government really is relative to other wealthy countries

Sabina Dewan and Michael Ettlinger of the Center for American Progress crunched the data and found that between 2004 and 2007, the US ranked 24th out of 26 OECD countrties in overall government spending as a share of our economic output. Only Ireland and South Korea, both relative newcomers to the club, had a more “limited government” than we did during that span. Again, we came in around 7 percentage points of GDP below the OECD averageand almost 20 percentage points beneath that of big spenders like France.

Then there’s the widely accepted idea that the political right actually implements low taxes and tight-fisted government policies. The facts say otherwise, Holland points out:

In the two years that Gerald Ford presented budgets, government spending as a share of GDP averaged 31.4 percent; in ultra-liberal Jimmy Carter’s four years, it dropped to 30.7 percent; Ronald Reagan, the patron saint of fiscal conservatism, came into office, and it rose to 32.2 percent. It nudged slightly higher during the first George Bush’s term in office, then dropped to an almost Nixonian 30.3 percent during the Clinton years, before rising to 31.6 percent during the second Bush administration.

Looking at the other side of the ledger, overall government revenues have also remained relatively stable, but the pattern is reversed. The government’s take, as a share of GDP, dropped during the Ford era, rose again under Carter, and fell again under Reagan. Revenues rose by almost 2 percent under Clinton and fell by a percent and a half under George W. Bush. (The only exception: government revenues rose from 27.3 percent of GDP during the Reagan years to 27.6 percent under George Herbert Walker Bush – that was the “peace dividend.”)

Although the government taxes and spends at fairly similar rates, under Republican leadership the nation shells out a bit more for government services and takes in just a bit less in taxes. With a $15 trillion economy, those little differences add up to pretty big deficits, and this, rather than hot school lunches for poor kids, is responsible for a large chunk of our federal debt.

The final myth debunked in Holland’s analysis is that “80 percent” of the Bush cuts for the highest earners go to “small business owners.”

The reality, Holland found, is that:

Less than 2 percent of tax returns reporting small-business income are filed by people in the top two income brackets. As a Washington Post analysis concluded, “If the objective is to help small businesses, continuing the Bush tax cuts on high-income taxpayers isn’t the way to goit would miss more than 98 percent of small-business owners and would primarily help people who don’t make most of their money off those businesses.”

And this is just the tip of the iceberg. The ocean of lies that Republicans sold the public during the past campaign is boundless. Holland doesn’t mention the claim that “Social Security is going broke,” for example. But I don’t think he should have to. You must know that’s a lie. The program is fully funded for several more decades.

But snake oil salesmen have always managed to hoodwink the citizens of America.  Perhaps the economic horrors that are sure to come during the next two years will wake them up to reality.

Click here to read Holland’s analysis.