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Obama Tax Hike Plan Still Supported by Myths and Straw Men

Posted By Curtis Dubay On October 6, 2010 @ 12:30 pm In Economics | Comments Disabled

The White House recently released a video defending President Obama’s tax hike plan [1] featuring the new Chairman of the Council of Economic Advisors, Austan Goolsbee. Goolsbee replaced Christina Romer in September. Even though the personnel have changed, the flawed arguments supporting the President’s tax hike plan [2] remain the same. In the 90-second video, Goolsbee commits enough errors to fill a 30-minute speech.

First, he argues that extending the 2001 and 2003 tax relief for all taxpayers would be a tax cut for “very high income people.” But extending the tax relief simply keeps tax rates where they’ve been for 10 years now. There is no new tax cut. No taxpayer would pay a lower tax rate next year if Congress extends the tax relief. Everyone would pay the same rate they’ve been paying for a decade now. Conversely, if Congress allows the tax relief to expire as President Obama wants, high-income taxpayers would pay significantly higher rates that would damage the already struggling economy.

Goolsbee then claims that extending the tax cuts for “the rich” is “expensive” because it would reduce tax revenue by $700 billion over 10 years. Inasmuch as the money is not the government’s to begin with but the families and businesses that earn it, there is no “cost” to the government. Again, Goolsbee confuses keeping tax rates where they are with a tax cut. The faulty notion that keeping taxes where they are is a tax cut originates from the Congressional Budget Office [3]’s (CBO) faulty treatment of expiring tax provisions.

The CBO says all tax-reducing provisions that expire will do so as scheduled, even though Congress routinely extends them. As a result, it wrongly scores the extension of expiring provisions as a tax cut in its budget calculations. The Research and Development credit, for example, has been in place for many years, but because it expires annually, Congress has to extend it. The CBO treats this like a tax cut. On the other hand, CBO anticipates that Congress will extend all current spending policies even though most spending also expires regularly. If CBO treated tax policies the same way it treats spending, it would put a quick end to the confusion regarding the 2001 and 2003 tax relief.

Goolsbee makes yet another flawed argument when he says that keeping the tax rates where they are now for high-earners is not a good stimulus for the economy. Treasury Secretary Timothy Geithner and Vice President Joe Biden also use this straw man argument in defense of President Obama’s tax hike plan. Extending the 2001 and 2003 tax relief is not meant to be a new stimulus. Instead, it would prevent a severe anti-stimulus from striking the economy when it is in a badly weakened condition. President Obama’s tax hike plan would destroy almost 900,000 jobs in 2016 alone [4]. The unemployment rate is stuck stubbornly near 10 percent and promises to remain there for the foreseeable future. The economy can ill afford to lose any more jobs in such a perilous economic environment.

Despite the constant repeating of myths by Goolsbee and other Obama Administration officials, these myths remain just that. The American people recognize that higher tax rates on high-earners wouldn’t just hurt the rich but would hurt Americans at all income levels [5] because they would destroy jobs, reduce wages, and limit prosperity for everyone.


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URL to article: http://blog.heritage.org/2010/10/06/obama-tax-hike-plan-still-supported-by-myths-and-straw-men/

URLs in this post:

[1] video defending President Obama’s tax hike plan: http://www.whitehouse.gov/blog/2010/09/29/white-house-white-board-cea-chair-austan-goolsbee-explains-tax-cut-fight?utm_source=093010&utm_medium=image&utm_campaign=daily

[2] flawed arguments supporting the President’s tax hike plan: http://www.heritage.org/Research/Reports/2010/08/Obama-Tax-Hikes-Defended-by-Myths-and-Straw-Men

[3] the Congressional Budget Office: http://www.heritage.org/Research/Reports/2009/06/Obama-Gets-a-Tax-Issue-Right-Is-Congress-Next

[4] destroy almost 900,000 jobs in 2016 alone: http://www.heritage.org/Research/Reports/2010/09/Obama-Tax-Hikes-The-Economic-and-Fiscal-Effects

[5] hurt Americans at all income levels: http://www.heritage.org/Research/Reports/2010/09/Obama-Tax-Hikes-Bad-for-All-Americans

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