Lying With Words As Well As Statistics
Mon, Nov 26, 11:22 AM ET, by Bob McTeer
"When I use a word," Humpty Dumpty said . . . "it means just what I choose it to mean, neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
We had a lot of lying with statistics in the recent campaign, and it continues as attention shifts to the fiscal cliff. But we also lie with our choice of words. For example, saying that "millionaires and billionaires should pay their fair share of taxes" is not a lie, but tax increaser's now common treatment of "millionaires and billionaires" as equivalent crosses the lie line as far as I'm concerned. Do they not know that a billion is a thousand million? The lie is compounded when their prescription for taxing millionaires and billionaires fairly turns out to be higher tax rates on individuals making $200,000 and couples making $250,000 per year. Forgetting for a moment that wealth and income are two different animals—a stock versus a flow—do they not realize that a billion dollars is 5,000 times an annual income of $200,000? Of course, they realize it, which moves their rhetoric into the category of demagoguery.
My guess is, however, that their demagoguery is working in the sense that the average taxi-cab or beauty-parlor operator probably thinks that raising the top tax rates affect only millionaires and billionaires. What do they have to complain about?
To be fair and balanced, the other side has used some confusing terminology as well. One example is the constant repetition of the charge that we've had four straight years of trillion dollar deficits. That is true, but misleading in that it obscures the fact that the deficit has declined in those four years from $1.4 trillion in fiscal 2009 to $1.1 trillion in fiscal 2012. More importantly, the deficit declined from 10 percent of GDP in 2009 to 7 percent of GDP in 2012. I bet you didn't know that. Or, that government spending actually declined in 2012.
I'm not saying that this progress is good or sufficient; just that constant references to four straight years of trillion dollar deficits obscure the progress that has been made.
Probably the most insidious word play in recent fiscal debates has been the juggling of "taxes," tax rates," and "tax revenue." The Republicans wanted to be clear that they were willing to raise tax revenue through economic growth and capping deductions, but not through higher tax rates because of the incentive effects on economic growth. The other side must have believed that that distinction would be understood and appreciated by voters; so, they were careful to obfuscate the issue by focusing on unspecified "taxes." This shell game continues from the campaign into the fiscal cliff debate.
Not to let the Republicans totally off the hook. Their rhetoric often implies not only that lower tax rates stimulate economic activity and tax revenue and that that higher tax rates depressed economic activity and tax revenue, but they often go further and imply that any change in tax rates would be so powerful as to have Laffer-curve effects. That is, they often imply that all tax rate cuts or avoidance of increases would pay fully for themselves with increased tax revenue.
Laffer-curve effects might well result from a substantial cut in the corporate tax rate, which would bring money stranded abroad back home to be taxed. It might also be true of the proposed substantial increase in the tax rate on dividends, but I doubt it for the modest increase proposed for capital gains taxes.
The impact of changes in tax rates on tax revenue depends in part on the levels of taxation before the change. Changing the top marginal rate on earned income from 35 percent to 43.4 percent (including the 3.8 percent hidden in Obama care) will certainly hurt economic activity, especially since many businesses pay taxes as individuals. Whether it harms economic activity enough to reduce total tax revenue is an open question. Certainly, raising an equivalent amount of tax revenue through means other than increases in marginal tax rates would likely have a smaller negative incentive effect.
In any case, progress in averting the fiscal cliff will depend on one side acknowledging the need for more tax revenue and the other side acknowledging the negative incentive effects of higher marginal tax rates. Let's hope they don't let their rhetoric get in the way.
SDI Glossary: "GDP" Definition
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