Economics

The economic illiteracy of Timothy Geithner

Timothy Geithner, the 75th Treasury secretary of the United States, on fixing America’s budget mess through higher taxes on wealthier Americans (via CNBC):

That’s the kind of balance you need. Why is that the case? Because if you don’t try to generate more revenues through tax reform, if you don’t ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American, then you have to — the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security.

Let’s take this incredibly wrongheaded statement apart, piece by piece:

1. “That’s the kind of balance you need.” | Me: No you don’t. The Obama plan would raise taxes by nearly $2 trillion, and the U.S. debt-to-GDP ratio would actually edge higher rather than turn lower. Senator Pat Toomey came out with a fiscal proposal in May that would balance the budget by fiscal year 2020 and achieves a modest surplus in fiscal year 2021. It would also reduce debt/GDP to 52 percent vs. 75 percent in Obama’s budget. The debt picture would be getting noticeably better vs. marginally worse. And no tax increases.

2. “Because if you don’t try to generate more revenues through tax reform …” | Me: Geithner assumes raising taxes is the only way to generate more revenue through tax reform. How about reforming the code so it produces more revenue through higher economic growth? For instance, converting the current tax system into a consumption tax could add a percentage point to revenue as a share of GDP by boosting growth. Grow the pie, Mr. Geithner. Or, you know, cut spending.

3. “… if you don’t ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American …” | Me: What on Earth is he talking about? As it is, the top 1 percent pay 36.7 percent of federal income taxes and earn 16.9 percent of adjusted gross income (as of 2009). The top 0.1 percent pay 17.1 percent of taxes and earn 7.8 percent of adjusted gross income. The average income tax rate for the top 1 percent is 24 percent. The bottom 50 percent? Just 1.85 percent. The bottom 50 percent pay just 2.3 percent of income taxes. It seems to me the “most fortunate Americans”—because they all inherited their wealth or just got a lucky break, right?—already bear a “slightly larger burden.”

And what, if someone doesn’t agree with Obama’s plan, they’re not earning their place as an American? If someone doesn’t agree to send more tax money to a free-spending, inefficient central government running record deficits as far as the eye can see, they’re somehow leeching off Uncle Sam? Being Treasury secretary is a privilege, one earned by pushing policies that keep America prosperous and solvent—even in an election year.

4. “[Without boosting taxes on couples making over $250,000], the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security. | Me: If taxable income in the 35 percent bracket were taxed at 49 percent, federal income tax revenues would be just $78 billion higher. To get the deficit to 2 percent by 2020 using Obama’s budget baseline, it would take a 91 percent top rate by taxing just the rich. As it is, Obama’s new budget only makes things get worse more slowly—and even that assumes the tax hikes won’t slow growth one bit.

Again, the Toomey plan would cut spending over a decade to 18 percent of GDP from 24 percent of GDP by cutting/freezing discretionary spending and block granting Medicaid to the states. And let’s not forget that Obama-Geithner are proposing massive tax increases while not even trying to offer a solution to long-term entitlement costs. As Geithner infamously told Paul Ryan the other day: “We’re not coming before you to say we have a definitive solution to that long-term problem. What we do know is we don’t like yours.”

See, what America needs is solutions and leadership from the Obama administration, not lectures.

13 thoughts on “The economic illiteracy of Timothy Geithner

  1. In line with the extreme progressive nature of the federal income tax, the payroll tax too reflects a progressive bent. According to the NY Times (taken from Urban Institute, couples with low to average wages will pay $426,000 in Social Security taxes and receive $470,000 in benefits. Couples making average to high wages would pay $750,000 in Social Security taxes and receive $665,000 in benefits. Sounds like those “better off” are paying their “fair share” there too.

  2. The thing that has me seeing red is:
    “… if you don’t ask, you know, the most fortunate Americans…”

    There is no “asking” when it comes to tax increases. Anyone who uses this euphemism has no respect for the intelligence of his audience, and deserves none in return.

  3. I knew something was up when Obama came up with …

    “This is one of the biggest things I’m going to be pushing back on this year, this notion that this is somehow class warfare, that we’re trying to stir up envy,” Obama said. “Nobody envies rich people, everybody wants to be rich. Everybody aspires to be rich, and everybody understands you’ve got work hard to be successful. That’s the American way.”

    This “envy” thing must have polled really bad in some focus group. But that meant that something had to replace “envy.” So when I saw the Geithner statement yesterday, I knew that the latest “talking points” must have been distributed around the Administration.

    I found the “privilege of being an American” breathtaking, but why must only the “rich” be so “privileged” ?

    We now seem to have rights to “gay marriage,” a “living wage,” to “life,” to “choice,” to “die,” to “know,” to “forget,” to “privacy,” to “be forgotten,” to “education,” to “work,” to “play,” to “bear arms,” to “carry,” to ‘bare legs,” to “health care,” to “research,” to “read,” to “food,” to “organise and to bargain collectively,” to “hike,” to “vote” (even when dead),” to “counsel,” to “free speech,” to “protest,” and to “remain silent.”

    But alas, citizenship is now a “privilege.”

    • I hear what you are saying. Kind of makes our “rights” obsolete, doesn’t it? Especially when “rights” are only applicable to “citizens”, according to them?

      BTW, I caught your “bare legs” reference … Good one!

  4. If you don’t have health insurance and get sick, the tax payers have to pay for it anyway- so go get health insurance please- search online “Penny Health” and learn how you can get insurance at discount price.

  5. I would be a bit more impressed if Mr. Geithner had seen fit to pay his own taxes.

    He’s the epitome of the Obama administration: people who hold high office who are unqualified and undeserving, put there by a populace that has discovered it can vote themselves a share of someone else’s income.

  6. Obama’s economic advisors are grossly ignorant or stupid, maybe both. They tell him what he wants to hear, so they can keep their jobs. Hence, they are useless.

    • Ah, but they are not useless. They help the president. To the citizens of this country and this country, tney are useless, but to the president, they are priceless. And, unfortunately, we have to pay the price!

  7. I’m not sure why on should attribute Timmy’s statement to ignorance. Millions are Americans manage to file their taxes without the kind of omission Timmy made, so perhaps he’s not ignorant, just a corrupt demogogue, pandering to the economically ignorant with focus-group tested, but intellectually vacant words like “balanced”.

  8. The difference between rights and privileges is that privileges can be taken away – and inevitably WILL be taken away – otherwise they would be defined as rights.

    So, it is a privilege to pay income taxes because it is a privilege to be an American? I have been searching a long time for the phraseology in the Constitution and Bill of Rights which even HINTS at supporting this, and have not been able to find it. It has, however, prompted me to ask the question of why we even fought the Revolutionary War if we we just going to end up taxing OUR citizens, and at an even higher rate than what our predecessors’ rulers did, no less. It may be hard to digest but, in a way, the regime changes that we have been forcing on other countries “in the name of democracy”, and which have only worked to replace them with similar (or worse) ones, is really no better than what we have done to ourselves here, it just took a little longer, and we aren’t quite finished yet. Just a few more countries left to put a central bank in and then the full-blown tyranny will be seen here as well. And if they do not manage to pry our guns out of our hands before then (to be read, “DON’T LET THEM!”), it will be a very messy regime change indeed.

    I have also been researching this “fact” that half of Americans do not pay income taxes. It just seemed a little odd, since I do not know anybody who doesn’t. Does half of everyone you know avoid this? Quite interesting facts I did find, though. Maybe they are counting children, pets, insects and all the birds in the sky, I don’t know. I would merely suggest that people should generally look for answers on their own and not listen to angry commenters on blogs who appear to be irresponsibly parroting these memes (despite the fact that they hear “credible” people on TV like Cavuto spew this crap, nay, ESPECIALLY because these High Priests of Propoganda lips are moving) and unnecessarily creating a whole new group of angry people (BTW, I haven’t seen one here yet, though). They just seem so bitter that since they have been paying taxes that everyone should be. Well, I got news for them angry folks. Almost everyone DOES pay (the largest cross-section of those who aren’t being those rich enough to shield their money in off-shore accounts). So go ahead, get mad at the poor and middle-class people and let the rich people (corporations) sit back and laugh at our class warfare which they created by wisely spending their money lobbying the government for a better life. They love it. They might even, one day, let you join in their reindeer games. I just wouldn’t bank on it if I were you.

    Even the Supreme Court has found income taxes to be unconstitutional, which is why all of us have been “paying our fair share” for the past 100 years (and really only significantly for the last 60 or so years) “voluntarily” – to avoid imprisonment. I congratulate all of us for supporting the governmental (emphasis on “mental”) status quo and not the Constitution.

    Corporate taxes? Constitutionally sound. In fact, the money earned from corporate taxes covers about 90 percent of our military budget. Capital gains taxes? Yes, arguably they are Constitutionally taxable as well. We were doing just fine with tariffs, liens, levies, fines and (state) taxes to support our infrastructure for a long time. It is only when the government outgrew itself and wanted more and more and more that we started going downhill, faster and faster and faster. Where does all the extra tax money go? Well, don’t ask me. I am just an anonymous ignorant commenter and don’t claim to have all of the answers. Instead, everyone should get off of their duffs and search for the truth, if they really care, and then pass it on to others.

  9. The serious people in this debate–the ones not engaged in magical thinking–understand that our budget problems arose with the tax reforms started under Carter. The analytical people also understand that the stagnation of the average American’s salary started shortly thereafter, as did the phenomenon under which the richest of the rich saw their incomes sky-rocket, both in real terms, as well as in terms of their share of the total pie. There is a connection between these events, which is so simple it should not need pointing out. (I will, in a later post if someone is too dense to get it.)

    This nation has been undergoing a philosophical revolution over the past 40 years, and I think the enough data is in to see where it will shake out. Whereas previously we had been a nation driven by the needs, concerns and sensibilities of the middle class, we have now become a nation which is driven by the needs, concerns and sensibilities of the most affluent among us. We are a nation comprised of the bottom third, who are basically dead-enders–people who live and die without much hope of anything except maybe avoiding homelessness. These people pass fluidly between jail and section 8 housing. The next level up is the newly decimated middle class who live in a constant state of wage-thralldom. They are slowly sinking, with each generation facing dimmer prospects and the bottom end sloughing off into the lower third (logically, making them greater than the bottom third–call it, soon to be bottom 40%). Finally, the top third–that is those with household incomes of $69,000 and up–most of whom are struggling to be able to keep their place–send their kids to college, have some hope for a decent retirement, and some prospects for a good life. Of that top third, only the top 5% or so live life on their terms.

    This is not how it used to be and I think it is worth questioning whether this is really the way we want it to be. Our parent’s parents bore a much greater tax burden than we do, especially at the top. Their willingness–and yes, it was willingness, because they could have engaged in the same abdication of their responsibilities their tax-revolting children engage in– made it possible for this nation to be a nation in which huge swaths of the population flourished. Their tax dollars paid to their community brought us parks, high quality schools, safe streets, and a chance for nearly everyone to live the American Dream.

    The left is willing to meet the right half way. They are willing to make huge cuts in many programs, and nothing is really off the table. In comparison, the right is utterly intransigent about increasing revenue through higher taxation even one penny. They would rather destroy this nation than pay an extra cent in income tax. Is there waste in government spending? Sure. Let’s talk about how to run what we have more efficiently. Are there some programs which create perverse incentives? Maybe. Come to the table, we’re willing to discuss it. But also come with a dose of reality and an acceptance of the facts. Taxes on the richest of the rich, and on all in the top 10%, are at their lowest levels in 60 years, and that shortfall has a lot to do with our deficit.
    Don’t blame Geithner for stating the truth and the obvious.

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