Ryan’s New Budget

In: Politics Source: WSJ US Economy

21 Mar 2012

There’s are a lot of nonsense charts and projections in Paul Ryan’s new House Republican budget, but rather than get into political arguments, I’ll just post the ones I thought were actually insightful:

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8 Responses to Ryan’s New Budget

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Brian C

March 21st, 2012 at 4:46 pm

Wow, these charts are so misleading. When people talk about lying with charts, this is what they mean.

1) To put each real dollar benefit in context to all income groups is not a fair comparison. A more accurate method would be to compare the benefit to the average income in each bracket. Or to compare the benefit to the average tax payment per income group. In these last two groups, you would get completely different results that don’t appear to suggest a liberal bias to income.

2) Again, wildly inappropriate comparisons. You can’t compare tax rates with % of GDP. They real numbers are wildly different scales. GDP is multi-trillion in size. A one or two percent change in GDP is a massive change. So the scale of these charts are way off. Second, I believe there is legitimate debate as to whether tax cuts stimulate economic activity or government revenue. But what can’t be denied by tax policy is WHO spends the money. Higher tax rates suggest the government is a better steward of market spending than individuals. Which in the end is a political party picking economic winners and losers at the expense of ALL tax payers.

3) This is kind of a no duh, meaningless chart. As real GDP grows, so will tax revenue.

What isn’t taken into account through these charts is inflation and the affect of monetary policy on the value of the dollar. If there is a political debate to be had about economic classes, its here. Inflation and dollar devaluation destroys the middle class. And this is the result of political and economic (the fed) tinkering with the economy.

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Alex

March 21st, 2012 at 6:34 pm

Brian C somehow missed the definition of “real” somewhere along the way.

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Jimmy

March 21st, 2012 at 9:45 pm

Interesting arguments Brian C. First you say we can’t use raw numbers, next you say we must use raw numbers. In neither case did actually crunch the numbers and prove your point.

Regardless, while I tend to agree on the first plot, if you crunch the numbers you’ll still see inequity. The average 1% make $1.1 million, so they are getting about 30% from loopholes. I doubt those making under $25k are saving $7k from loopholes.

Plot 2 merely shows that there is no correlation between tax cuts and revenue. (We could perform a statistic test for correlation, but, of course, we would be called liars again.) Reaganomics, therefore, doesn’t work. Cutting taxes doesn’t increase revenue when corrected for GDP. Plot three shows that you must correct revenue for GDP, otherwise your data is dominated by GDP growth.

Even though number three is a “no duh” chart, most “tax cutters” refuse to acknowledge this. They say, “every time we cut taxes, revenues increased.” However, revenues increase with GDP; tax cutters don’t correct for GDP because they claim GDP increased as a result of tax cuts. BUT, GDP increases most strongly with population. (Again, statistical analyses prove this.) So, you must correct for increasing population before you can claim your policy was effective. Did it increase tax revenues per person? Tax cuts do not.

Beside population, don’t forget productivity. Most tax revenue increases in the past 30 years are the result of two things, population growth and increased worker productivity. These two increase GDP then, as plot two shows, tax revenue is about 20% of GDP.

As these plots show, tax cuts to the rich have little, if anything, to do with increasing tax revenue. Tax cuts to the rich DO, however, increase campaign fund raising. It’s just politics.

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Dennis DeJarnette

March 22nd, 2012 at 10:32 am

Jimmy said this:

As these plots show, tax cuts to the rich have little, if anything, to do with increasing tax revenue.

Usually reductions in top marginal rates are designed to be revenue neutral by other changes in the law-closing loopholes.

But lets say for a moment that this is an inference that can be drawn from the chart. Then this inference can also be drawn.

As these plots show, tax increases to the rich have little, if anything, to do with increasing tax revenue.

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Dennis DeJarnette

March 22nd, 2012 at 10:40 am

I blogged about the effect of inflation on those with high marginal tax rates.

http://www.prophecypodcast.com/journal/2011/5/14/inflation.html

I would have no objection to closing the capital gains “loophole” if inflation is factored into taxable income.

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Bill Moore

March 22nd, 2012 at 12:46 pm

Aren’t these charts/numbers FROM the Ryan (a Republican) presentation?

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Ben

April 2nd, 2012 at 3:35 pm

My wife and I made $247,000 in 2011. I know that doesn’t put us in the top 1%, but it does put us in the top 1.2%. Wish I could find out where all these “loopholes” are. Cause they don’t exist for the “top 1%” unless your talking millions and millions of dollars.

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Roanman

May 1st, 2012 at 9:12 pm

I’m laughing so hard at the space cadets above who conclude from Chart #2 that tax cuts for the rich don’t increase government revenue.

What Chart #2 really demonstrates is that tax increases don’t increase total government revenue or income tax revenue as a percentage of GDP. I know this because I actually read the chart as opposed to hating mindlessly.

If you want more tax income, grow the economy.

Therein lies the real argument around marginal rates. Which approach best grows the economy and therefor brings more money into government coffers, high marginal rates or low marginal rates?

As for poor Ben. Do you have a mortgage, pay local property taxes, pay state or local property taxes, have medical expenses, gift money or other items of value, provide for your own medical care, engage a professional to do your taxes, have a couple kids? If so, you have deductions up the ass and are paying nowhere near the top marginal rate on your total income.

The poor bastards with no offsets to their income are working for maybe $11.50 an hour someplace, living check to check and barely making the rent which doesn’t come off in many places.

If you want to grow this economy, put people back to work and load up the federal government with cash to waste on dumbass wars, $1,200 toilet seats for the Air Force and funds aplenty for embezzlement by ACORN and unscrupulous medicare providers. Simply cut the marginal rate to 10% across the board for every dollar of income, for every type of income, for every kind of entity, from every source, over $20,000.

Remove all deductions for individuals including mortgage interest and charitable contributions to 503c outfits, taxes from other government entities, medical expenses, dependents ….. everything.

Remove all imaginary deductions for corporations including depreciation, depletion allowances, inventory rigging, LIFO etc., make them keep one set of books with which they both report to shareholders and calculate their tax liability. Just cash in, cash out.

Then stand back and watch as we take back the world …… peacefully.

If you want to waste your time being angry because someone is kicking your ass financially and the only way you can think to feel better about yourself is to raise their taxes, your wasting your time. You’re gonna have to get your own sweetcakes, the rich ain’t giving theirs back.

As an aside, were you to reverse the tax treatment of dividends and interest payments for corporate entities, wherein interest payments were not a deductible corporate expense, but dividends were, every corporate entity in this country would be debt free and in the hands of pension funds and other independent investors in a matter of months.

That would be a good thing.

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