Sunday, July 09, 2006

It's not trickling down, fools (a sequel to bonddad)

[Also available at Daily Kos and MyLeftWing]

In his diary today, bonddad lays the hammer to the idea that the economy is booming and everything is hunky-dory.  At the end, he briefly mentions one of the main talking points concerning an increase in corporate tax receipts, as reported today by the New York Times.

Bonddad touched on these tax receipt figures briefly, but I wanted to expound on them a little, based on my novice-level ability to interpret this data and what it means to me.  But if I'm right--man oh man does this crap piss me off to the highest degree.

I'm certainly not an economic analyst, and I would very much welcome any input from those who would be much more qualified than me to discuss this issue.

Let's start with the graphic posted by the New York Times--it displays total individual tax receipts, total corporate tax receipts, and total tax receipts as a percentage of GDP since 2000:

(click for full-size image)

Now, one can draw some very interesting observations from this data.

First of all--yes, it's true that corporate tax receipts have surged by nearly 300% in the past 3 years, based on the total projected receipts for the year 2006.  This is making the Club for Growth sing the praises of supply-side from the rooftops:

Pat Toomey, president of the Club for Growth, a conservative political fund-raising group, said: "The supply-siders were absolutely right. All the major sources of revenue have grown, especially in areas where we said they would."

I just have one thing to say about that data: if corporate tax receipts are increasing that dramatically given the ability of corporations to find tax shelters and pay as little as possible to the government, how much is taxable corporate profit increasing?  There's a scary question.

Even scarier, however, is the correlation between corporate tax receipts and individual tax receipts.  As the graph shows--while corporate tax receipts in 2005 already far outpaced their level in 2000, the same can most certainly not be said for individual tax receipts:

Despite almost five years of economic growth, individual income taxes — the biggest component of federal tax revenues — have yet to reach the levels of 2000.

As bonddad points out, individual tax receipts for the year 2005 came to $927 billion dollars--well below the $1 trillion mark reached in 2000, even without adjusting for the effects of 5 years of inflation.

Even more problematic is the source of what rise there is in individual tax receipts.  Far from being driven by an increase in the collective wealth of the wage-earning middle class, the increase in individual receipts is being generated by a massive increase in taxes that are not withheld from paychecks--that is to say, investment and dividend income, and executive bonus pay:

The other big increase is an extraordinary jump in individual taxes that were not withheld from paychecks, usually a reflection of taxes on investment income and executive bonuses.

Now, I don't have the numbers in front of me, but let's do a vague, "fuzzy math" calculation.  So, individual tax receipts are still below their Clinton-era levels after 6 years of supply-side economic policy, and the only reason they're even beginning to be able to approach that level in the first place--in real dollars, mind you, not adjusting for inflation in the least--is because of investment income and taxes on CEO bonuses.  Can anyone provide some sort of chart indicating the total tax receipts based on income taxes withheld from paychecks?  I'd like to see that, because based on what I'm reading and seeing, it seems likely that that figure would be scary.

By a clear process of subtraction, it would seem obvious that the middle class--the supposed eventual beneficiaries of trickle-down supply-side policy--are not having any of the wealth trickle down to them in the least, at least based on the total tax receipt figures.

Indeed, this is well-corroborated by bonddad's analysis from earlier:

Wages increased from $16.07 to $16.70 from June 2005 to June 2006 (a 3.92% increase), but over the same time the overall inflation level increased from 194 to 202.5 (an increase of 4.16%).  That means purchasing power actually decreased over that time.  That means no one got a raise - they lost money.  That's some accomplishment, Larry.  Idiot.

The bottom line is, the increase in federal tax receipts that Bush and the Club for Growth are currently using as evidence for the success of trickle-down are in fact prima facie evidence that trickle-down concentrates wealth in the hands of a few, and blindsides the middle class.  It's right there in the goddamn numbers if anyone bothered to look.

Now, it would be one thing is this economic policy provided any long-term stability in the tax base, but it doesn't even do that.  You want to know why?  Because while taxes levied on wage income are generally stable despite the vicissitudes of the stock market, investment income such as dividends, capital gains, and lavish CEO bonuses can fluctuate wildly, depending on whether there's a bull or a bear market:

One reason for the increased volatility may be that, contrary to a popular assumption, a disproportionate share of income taxes is paid by wealthy households, and their incomes are based much more on the swings of the stock market than on wages and salaries. About one-third of all income taxes are paid by households in the top 1 percent of income earners, who make more than about $300,000 a year. Because those households also earn the overwhelming share of taxable investment income and executive bonuses, both their incomes and their tax liabilities swing sharply in bull and bear markets.

"These people have incomes that fluctuate much more rapidly, so when the economy is doing well and the stock market is doing well, tax revenues will be up," said Brian Riedl, a budget analyst at the Heritage Foundation, a conservative research organization. "Rapidly fluctuating tax revenues will continue to be the norm for years to come."

So essentially, what we've done is eroded the purchasing power and tax receipts of the middle class with "entrepreneurship stimulation" policies that reward wealth and not work--apparently because the only reason that we haven't all become Warren Buffett is because being wealthy just isn't tax-advantaged enough.  And in the process, a far greater percentage of America's tax revenue is dependent on the uncontrollable and unpredictable fluctuations of the stock market.

And still, this "increasing revenue" will only lower the budget deficit for this fiscal year to only $300 billion.  As if the fact that we're $300 billion in the red IN ONE YEAR is something for our nation to be proud of.

Now, take all those instability-producing factors into consideration and add to them the fact that the tax revenues in question are growing more slowly than the economy, but government spending is growing at a far faster pace than the economy.  Now add to that the fact that government obligations to social security, and government health spending will balloon substantially in the coming years.

What does that come to?  A recipe for disaster.  And yet, despite the obviousness of the facts, the Club for Growth and George Bush continue to tout the "success" of their supply-side economic policy.

The bottom line is this: conservative economic policy is nothing more than an exercise at justifying short-term selfishness at the expense of the nation at large.  They try to say that it is eventually good for the country, but no matter how they slice it, the cold, hard data--even the data they like to tout--prove the fallacious immorality of their actions.

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