December 19, 2010  |   
                                               
                                                                        
                                                        
It’s difficult to know where to begin deconstructing  conservative rhetoric on taxes and spending. It's such a central part of  their worldview, and yet it's a view informed by a whole slew of  falsehoods that have been repeated again and again during this year's  debates over the Bush tax cuts, public spending and the deficit. What  follows are nine of the biggest fact-free whoppers that conservatives 
insist are true.
  1. Cutting Taxes Leads to More Money for the Government
 Conservatives can't say they oppose popular programs on ideological  grounds, and they can't admit they're happy to run up huge budget  deficits, so they've come up with the fiction that cutting taxes  actually brings in more revenues to finance the public sector.
 What's especially brazen about this is that it's usually preceded by  debate-stifling phrases such as “as everyone knows,” “history shows us”  or “every single time taxes have been cut.”
 In 2007, Sen. John McCain, R-Arizona, said, “Tax cuts, starting with  Kennedy, as we all know, increase revenues”; Sen. Kay Bailey Hutchinson,  R-Texas, claimed that “Every major tax cut we've had in history has  created more revenue," and Senate Minority Leader Mitch McConnell, R-KY  said earlier this year that the myth represented “the view of virtually  every Republican on that subject."
 It's also complete nonsense,  and it's worth noting that only conservative politicians and pundits  make the claim -- economists across the ideological spectrum agree that  the argument is cursed by voodoo math.
 As Time Magazine's Justin Fox  noted in 2007, "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.” Harvard professor Greg Mankiw, a former chairman of Bush’s  Council of Economic Advisers, dedicated a whole section of his  economics textbook to debunking the claim.
 And in an opinion column in the Wall Street Journal responding to  Bush's claim that "You cut taxes, and the tax revenues increase," Andrew  Samwick, who served as chief economist on Bush’s Council of Economic  Advisers, wrote, “You are smart people....You know that the tax cuts  have not fueled record revenues... You know that the first order effect  of cutting taxes is to lower tax revenues.”
 2. Conservatives' Favorite Economist Proves the Point
 As I note in my book, The Fifteen Biggest Lies About the Economy,  that falsehood is based in large part on an abuse of “Laffer’s curve,”  the conservative media’s favorite economic theorem. The idea, first  scribbled on a cocktail napkin by economist Arthur Laffer (according to  lore), is pretty simple. It holds that you can raise income taxes to a  degree, but when the top tax rate exceeds a certain point, people will  go to such extraordinary lengths to avoid paying the piper that the  government will actually end up collecting less revenue.
 When Dylan Matthews asked a number of experts where the Laffer Curve “bends” for the Washington Post,  the economists (he asked some conservative opinion columnists as well)  all agreed that a top rate of 50 percent – several went as high as 70  percent – would still fall below the curve. That's important to keep in  mind as we debate the merits of letting the top rate return to the 39  percent that prevailed during the Clinton years.
 Each time taxes have been cut in the past few decades, it's led to a  drop in revenues, which is why people like McCain like to go back to the  Kennedy era, when cutting the top rate did spur growth and bring more  money into the government's coffers. What they don't mention is that  Kennedy cut the top rate from 91 percent to 70 percent, which has no  bearing on the debate we're having today.*
 3. Taxes on the Rich Keep 'Wealth Producers' from 'Creating Jobs'
 We're all familiar with this one. In a New York Post column  last week, Fox Business columnist Charles Gasparino claimed that  businesses have "been hoarding cash instead of hiring" because of "the  likelihood for higher taxes.” Media Matters responded by  citing the CBO's finding that "[I]ncreasing the after-tax income of  businesses typically does not create much incentive" to hire.
 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.
 4. The Opposite: Tax Cuts for Upper Earners Spur Job Growth
 Demand creates jobs, and U.S. Demand is way down because American  households lost around $15 trillion dollars in wealth during the  downturn. So it's important to note that research has shown that when  you give a tax break to high-earners, they bank it, and when you give relief to working people, they spend it, increasing demand.
 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 (PDF).
 5. Only Half of American Families Pay Taxes
 Rush Limbaugh put it this way: “The bottom 50 percent is paying a  tiny bit of the taxes.... Remember this the next time you hear the ‘tax  cuts for the rich’ business. Understand that the so-called rich are  about the only ones paying taxes anymore.”
 That's an entirely false narrative that emerges from some rather  transparent sleight-of-hand. 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.
 When you add it all up—state and local taxes, federal taxes, sales  taxes and excise fees—it turns out that the rich, the poor, and those in  between all end up with about the same tax rate. That’s the conclusion  of a 2007 study by Boston University economists Laurence J. Kotlikoff  and David Rapson. They summarized, “The average marginal tax rate on  incomes between $20,000 and $500,000 is 40.3%, the median tax rate is  41.8%, and the standard deviation of all of those rates is 5.3  percentage points. Basically, most of us pay about 40%, plus or minus  5.3 percentage points.”
 6. Americans Are Taxed to Death
 This is one of those claims made so frequently that it becomes a  matter of faith. But faith doesn't rely on fact, and this one is totally  untrue.
 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 burden -- the 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.
 7. We're Being Killed by Runaway Government Spending
 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 U.S. ranked 24th out of 26 OECD countries 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 average -- and almost 20 percentage points beneath  that of big spenders like France
 8. Conservatives Favor Low Taxes and Limited Government
 The Right loves “Big Government” as long as it's pursuing their  preferred agenda. What they don't like are the government's most popular  functions – assuring a social safety net, protecting consumers and the  environment, subsidizing education, etc. They don't want to debate  priorities, so they claim an ideological preference for a smaller  government while showering tons of money on the military,  law-enforcement, corporate subsidies, etc.
 That's why the share of the economy represented by government  spending (at the local, state, and federal levels combined) has been  remarkably consistent during the last 40 years or so, regardless of  which party controlled the White House or Congress.
 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.
 Given that reality, it's a wonder that conservatives have managed to  convince the mainstream media and much of the country that they’re the  fiscally responsible ones who are always ready to step in and clean up  the nation’s budgetary mess.
 9. Taxes on Top Earners Are Actually  Taxes on 'Small Businesses'
 For years, Republicans have pushed the spin that most of the Bush  cuts for the highest earners were going to “small business owners,” the  proverbial lifeblood of Small Town U.S.A. Then Republican national  committee chair Ed Gillespie launched the meme in a 2003 speech, saying  that “80% of the tax relief for upper income filers goes to small  businesses.”
 Fact-check.org, the nonpartisan campaign watchdog, looked at the  claim, which was cooked up by GOP staffers on the House Economic  Committee, and concluded that  “it’s untrue—and a classic example of a statistical distortion gone  amok.” The lie is pretty simple: around 80 percent of the wealthiest  Americans report some business income on their tax returns, either from  private partnerships (think big law firms) or from “hobby” businesses.  And the GOP committee counted everyone who reported even a dollar on  Schedule C of their returns as a “small business owner.”
 The reality? 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 go -- it 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.” 
 *The "Kennedy tax cuts" were signed into law by Johnson, a year after JFK's assassination.