May 28, 2010
Trillion-Dollar Deficits and the Press
The prolongation of the Great Recession is due to bad government policy, just as in the Great Depression. And just as in the 1930s, the greatest threat to prosperity is the federal government. But one would never suspect this if one got one's news from the lapdog media, which shamelessly repeats D.C.'s lies and pabulum.
Vying for the title of "Best in Show" of the lapdog media is The New York Times. The Times' big star is columnist and Nobel Prize-winning economist Paul Krugman. Krugman is a case of a "scientist" gone native. He's received considerable criticism from fellow economists, especially Don Luskin in his "Krugman Truth Squad" column for National Review Online (archives here; nice juicy column here).
In "We're Not Greece" on May 13, Krugman wrote, "We'd be better positioned to deal with the current emergency if so much money hadn't been squandered on tax cuts for the rich and an unfunded war." Let's unpack this remarkable sentence.
First, there's the word "squandered." Whose money was "squandered"? Krugman must believe it was the government's money. So the feds waste money when they allow folks to keep more of their income. Of course, it wasn't the money of the nice folks that was "squandered" -- it was the money of the evil "rich." You know, those nasty people who take risks, start up businesses, and create jobs. (It's puzzling, however, how money could have been "squandered" on something that was "unfunded.")
Second, there's the charge that the Iraq and Afghanistan campaigns were "unfunded," an article of faith among the left. Sometimes they say the wars were "off-budget," which is wrong, as off-budget items are things like Social Security, which have their own taxes. Rather, Pres. Bush used emergency supplementals to fund the wars. There's no shadowy account somewhere; the funding has all been accounted for (see the update).
Third, there's the "tax cuts for the rich" shtick. If the left wants to be taken seriously, they should stop referring to "tax cuts" when tax revenue goes up, as it did under Bush (see Table 1.1 of OMB's Historical Tables). What did happen were tax rate cuts.
The tax rate cut for the "rich" was 4.6 percent: from 39.6 percent to 35. This means that revenue from the "rich" would have been 13.14 percent more had rates stayed at the higher level, assuming (unrealistically) that other behavior would not change.
According to OMB's Table 2.1, Individual Income Tax revenue for 2009 was some $915 billion. For the sake of illustrating Krugman's thesis, let's round that up to an even trillion, and let's round the revenue-loss percentage up to an even 14 percent, and let's say that all of that income tax revenue had been paid by the evil "rich" at the top rate. That would mean the feds would have taken in $140 billion more under the old rate. That's not even 10 percent of the $1.412 trillion 2009 deficit.
The cost of Krugman's "unfunded war" -- or what the White House on page 58 calls "Discretionary Overseas Contingency Operations (OCO)" -- was $145 billion for 2009. Add that to the $140 billion in "tax cuts for the rich," and one sees that Mr. Krugman doesn't account for $1.1 trillion of the $1.4-trillion deficit for 2009.
So, if Congress were to allow the Bush-era tax rates for the evil "rich" to expire and were to defund the GWOT (Global War on Terror), then the Trillion-Dollar Deficit would just lick his lips, leer at Krugman, and keep on coming.
One can see that deconstructing a single sentence of Krugman's can take a bit of space. So cut to the chase: Paul Krugman of The New York Times is responsible for the federal deficit. For when Democrats captured Congress in Nov. 2006, the darling of the Left advised them:
... the lesson of the last six years is that the Democrats shouldn't spend political capital trying to bring the deficit down. ... given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending. .. . Should [the Democrats] use the reclaimed revenue to reduce the deficit, or spend it on other things? The answer, I now think, is to spend the money...and let the deficit be. ... In the long run, something will have to be done about the deficit. But given the state of our politics, now is not the time.
And that's how we got the Trillion-Dollar Deficit. Or is that a bit unfair -- like not giving credit to Congress for budget surpluses if the Congress is Republican?
The lapdog media may try to offload the responsibility for the disastrous deficits onto Republicans, conservatives, the private sector, and Fox News, but the irreducible fact is this: Democrats have controlled Congress since January 2007. And in controlling Congress, they are responsible for the budget -- budgets are legislation. The deficit for 2009 was more than 3.4 times worse than the biggest deficit ever racked up by a Republican Congress (2004). And 2010 is expected to be even worse.
The coverage of the deficit by the lapdog media has been shameful.
NOTE: Of course, the evil "rich" don't pay all of the personal income taxes. So here's my formula for figuring lost revenue due to a tax rate cut:
L = (T * F) * ((HR - LR) / LR)
...where L is lost revenue, T is total revenue, F is the fraction of revenue paid at the LR or low rate (i.e., the statutory rate in effect), and HR is the old higher rate.
Jon N. Hall is a programmer/analyst from Kansas City.