June 12, 2012

AP: Biggest Tax Hike Ever Coming on Jan. 1 Is Only Biggest ‘In Dollars’

Here is yet another “fact check” whose sole purpose is to try to invent reasons that an objectively true statement made by a conservative or Republican really isn’t.

Monday, the Associated Press’s Stephen Ohlemacher tried to claim that “Taxmageddon,” the $423 billion tax increase which will take effect on January 1 if Congress and President Obama don’t act to prevent it, won’t really be the largest tax increase in history (bolds are mine):

FACT CHECK: Looming tax hike not the biggest ever

Republicans are calling it “Taxmageddon,” the big tax increase awaiting nearly every American family at the end of the year, when a long list of tax cuts is scheduled to expire unless Congress acts.

It would be, GOP leaders in Congress say again and again, “the largest tax increase in American history.”

Except it wouldn’t be, not when you take into account population growth, rising wages, and most importantly, the size of the U.S. economy. When those factors are taken into account, the largest tax increases were those imposed to help pay for World War II – back when the U.S. raised additional revenue to pay for wars instead of simply borrowing.

Astute readers will immediately recognize that the first two items Ohlemacher identified arguably matter in evaluating whether a tax increase is the largest in history, and the last two don’t. Continuing:

Nevertheless, it is an exaggeration that has proved too tempting for top Republicans in Congress

Wait a minute Stephen. Your headline says it’s “not.” You’re saying it’s an “exaggeration.” Which is it?

The answer is “neither.” The GOP’s claim is something known as “the truth,” as will be shown shortly.

Here’s Ohlemacher’s weaselly workup:

In all, federal taxes would increase by about $423 billion next year, according to figures from the nonpartisan Congressional Budget Office and the Joint Committee on Taxation, the official scorekeepers for Congress.

… the tax increases would pale in comparison to those imposed to help finance World War II.

… In dollars, next year’s tax hikes would be the biggest. But the population is more than twice as big as it was in the 1940s and the size of the U.S. economy is 80 times bigger. That’s why economists usually measure taxes and government spending as a share of the economy.

The 1942 tax increase represented more than 5 percent of the U.S. economy, as measured by the gross domestic product, or GDP. The 1941 tax increase was 2.2 percent of GDP, according to a Treasury Department paper published in 2006.

Next year’s looming tax increase would represent 2.6 percent of GDP – a huge tax hike but not the biggest.

Okay, here are the numbers:


Sources: Inflation; Census; GDP (Table 1.1.5); 1942 Tax increase (2006 Treasury report — large PDF, Page 15)

Adjusted for inflation and population growth, Taxmageddon will be $87.4 billion, or 26%, larger than the World War II-era 1942 tax increases.

The following will illustrate why Stephen Ohlemacher was stupid (yes, I meant that word) to adjust for “rising wages, and most importantly, the size of the U.S. economy,” which are in any event largely overlapping terms in the real world (assuming no inflation):

  • Let’s take a basketball player, who we’ll call Barry, who has been toiling in the minor-league Continental Basketball Association for the past six seasons and earning money in other ways during the rest of the year making $50,000 annually. He paid $1,500 in property taxes on his home during his first minor-league season.
  • During each of the next five minor league seasons, the government increases property taxes by $500 per year. At the end of his sixth season, Barry paid $4,000 in property taxes.
  • Finally, after six years, Barry makes the NBA, and impresses everyone so much in training camp that they give him a contract for $4 million per year.
  • In the year Barry makes it to the NBA, the government increases the property tax by $50%. Barry’s property tax bill is now $6,000.

The $6,000 Barry pays in property taxes during his rookie season in the NBA is an increase of $2,000, or four times the increases he saw during the previous five years. But using the la-la logic of Ohlemacher, it’s the smallest increase because it’s only 0.05% of Barry’s NBA rookie income, while the previous increases were 1% of his income.

The fact that Barry is earning 80 times as much as an NBA rookie doesn’t change the fact that his property tax bill skyrocketed. Similarly, the fact that the economy is 80 times larger than it was in 1942 doesn’t change the fact that in inflation- and population-adjusted terms, Taxmageddon will, if it happens, be the largest tax increase in U.S. history.

To address another odious Ohlemacher statement: “Economists usually measure taxes and government spending as a share of the economy,” but they do not use percentage-of-GDP to measure the size of individual tax increases or tax cuts. If they did, AP reporters in 2000 and 2001 would have had readily available information telling us that those awful Bush tax cuts of that era, if they were assumed to have no dynamic effect (which Democrats and the leftist press — but I repeat myself — routinely did), amounted to about 1% of GDP. But we didn’t see any measurement reported in those terms, did we? On top of that, the Bush cuts were expressed in terms of their ten-year impact and turned into “trillion-dollar” cuts. Why aren’t you doing that now with Taxmageddon, Stephen, which (again, non-dynamically) would increase taxes over the next decade by least $4 trillion? Oh, I just answered my own question. Why the Republicans are using the ten-year gambit is a mystery.

To call Ohlemacher’s work “horse manure” is unfair to equine excrement.

It now seems that the sole purpose of establishment press “Fact Check” items, when done on clearly true statements made by conservatives or Republicans, is to tell readers that something isn’t true solely because the person doing the “fact-checking” doesn’t like it. Another such example is the Politifact howler (HT Hot Air via an emailer) which rates as only “half true” the indisputable fact that the unemployment rate was as low as 4.7% in Massachusetts during Mitt Romney’s gubernatorial term. It was, but the Politifact hacks took the Romney campaign ad’s statement “Romney reduced unemployment” (made by a narrator, not by Romney) as hogging sole credit. Zheesh. I anxiously await Poltifact giving the same treatment to the assertion made by Barack Obama himself that “we’ve created 4.3 million jobs over the last 27 months” (the “we” is his administration).

Ohlemacher at the Associated Press, aka the Administration’s press, gets a special delivery “pants on fire” rating.

Cross-posted at NewsBusters.org.


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