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August 5, 2010

Nancy Folbre: Chickenhawk of the Tax War

by Quincy

Nancy Folbre, professor of economics at the University of Massachusetts Amherst, opens her article “The Art of Tax War” (via the Tax Lawyer’s Blog via Instapundit) with a truism:

As Sun Tzu observed about 2,500 years ago, “All warfare is based on deception.

Then, the deception begins.

Here is her opening volley:

The highly charged partisan debate over the future of the Bush tax cuts (scheduled to expire at the end of December) is a kind of war. Whether you term it a class war depends on what you mean by class, but it is certainly a war between the very rich (the top 2 percent of income earners) and a host of other individuals allied with them, against everybody else who gives a darn.

Let’s look at what Folbre is really doing here. The situation today is that the top two percent of income earners are paying a certain tax rate. The Democrats in Congress and their left-wing allies are conspiring to make the top two percent of pay more in taxes. In the language of war, the Democrats launched an unprovoked attack on the top two percent of income earners. As far as I can tell, this is a war between rapacious government currently in the hands of government against the top two percent of income earners.

Look again at Folbre’s opener. Government is never mentioned. The true identity of the group being attacked is literally parenthetical, appended to the identity she wants us to apply to them. This group of the individuals has “a host of other individuals allied with them”, presumably too insignificant to be named. Finally, this group is presented as being the aggressors and attacking “everybody else who gives a darn”, i.e. all you good-hearted patriotic readers.

In one paragraph, the attacked become the attackers and the bystanders become the attacked. A good opening gambit from Professor Folbre. What does she have in store for us next?

Voters’ perceptions are not primarily driven by facts. A February CBS poll showed that only 12 percent of voters recognize that the Obama administration has cut taxes. About 24 percent of voters (and about 64 percent of Tea Party supporters) said they believed it had raised taxes.

The Democratic Congress has not changed income tax rates yet. The purported Obama tax cuts are actually tax credits, most linked with specific behavior. Let’s look at the situation for the average tax-paying American who is not engaging in one of the activities targeted by the Democratic Congress. The 2008 stimulus, passed by the previous Democratic Congress and signed into law by G.W. Bush provided all taxpayers with a $600 stimulus credit. The 2009 stimulus, passed by the current Democratic Congress and signed into law by Barack Obama provided all taxpayers with a $400 stimulus credit. In 2010, the $400 credit remains. For married households, each credit is doubled.

Neither Democratic Congress altered tax rates or brackets, with these remaining at the levels set by the Bush tax cuts. Therefore, Folbre’s assertion needs to be looked at carefully. Since there were no tax rate changes, it becomes clear that the tax cuts passed by the current Congress were entirely in the form of tax credits. For the majority of tax payers, who fall under the case outlined above, taxes have gone up under the current Congress and President.

If a tax credit is a tax cut, then decreasing or eliminating a tax credit must be tax increase. Arguing otherwise is pure deception. Folbre remains true to form on this one. Let’s see now how she attempts to rationalize the deception:

Many explanations come to mind. The tax issue is often a lightning rod for other frustrations. Most people find discussions of tax policy complicated and boring, and highly charged partisan debates excite some, but upset others, discouraging them from learning more.

The dynamics of collective conflict also come into play. Precisely because they are such a small group, the very rich stand to lose much more per person than others will gain per person from increased tax revenues. They also have more resources to invest in the fight, enabling them to make bigger contributions to Congressional campaigns.

She turns a poll in which the respondents were likely answering in a manner that was truthful to their own lives and attempts to use it to paint the picture that those saying their taxes have gone up are rubes under the sway of their monied intellectual overlords.

What’s up next? A ham-fisted attempt to link tax cuts to higher unemployment:

One important strategic goal of this camp is to persuade voters that tax increases at the top will hurt the economy as a whole. Here’s where supply-side economics comes in, with its claims that tax cuts increase revenues and promote economic growth.

Historical trends, including a comparison of trends during the Clinton and Bush administrations, do not support these claims.

Both Folbre and the Krugman analysis she links to ignore the actual drivers of the last two recessions: Economic bubbles fueled by an irresponsibly loose monetary policy. To be fair, this was not a sin of either the Democrats or Republicans alone, but rather a sin of the entire industry of big government. The 1990s had the tech boom and bust, while 2008 had the massive collapse of the housing bubble, both of which have the same root cause. From the charts Krugman uses, my only conclusion can be that the Bush tax cuts were, at worst, immaterial to the current economic crisis. More realistically, looking only at the data Krugman presents, the Bush tax cuts have played a small-to-medium role in limiting the rise of unemployment in the wake of the 2001-2002 recession and were contributing to a rise in GDP that was reversed by the passage and implementation of Sarbanes-Oxley.

To Krugman’s credit, he does not overextend the case made by the data he presents. This is a task Folbre takes upon herself. Not only does the data presented by Krugman not make the case Folbre says it does, the section from 1970 to 1990 makes the exact opposite case. The precipitous decline in unemployement after the 1981-1982 recession shows the very direct effect of the Reagan-era tax cuts. Moreover, the GDP change graph is actually designed to hide the massive spike in GDP growth after the Reagan-era tax cuts by starting immediately after the peak.

Here is Krugman’s first graph, this time displaying 1970-2010:Note the large spike in GDP growth coming out of the 1981-1982 recession.

It appears Krugman was playing the “hide the decline” in reverse to make his point. Maybe this is where Folbre learned it from?

Next, Folbre again tries to distort the identity of the people being attacked by the Democratic Congress:

But in a world in which most people believe their livelihoods depend on rich investors, many people are fearful. As Brit Hume of Fox News put it on July 25, “When’s the last time one of these poor people offered you a job?”

The tax increase is being targeted at the top two percent of people who earn income. A super-rich investor who does not receive enough income in the current year to be in that top two percent will not be hit by these tax increases. But, realizing that she may be called on this, she actually acknowledges her opponents argument and then snarkily replies that raising taxes on the CEO of a big (politically-connected) business that paid surprisingly little in taxes just isn’t that bad for the economy.

Next, comes deception by omission:

Another strategic goal of opponents of the tax increase is to split and weaken the coalition favoring it. In this context, it is advantageous to label those receiving public assistance (including unemployment insurance) as slackers and cheats. About 47 percent of Americans owed no federal income tax in 2009, which you might think people opposed to federal income taxes would consider good news. Instead, the conservative radio commentator Rush Limbaugh characterized this as a form of fraud, “worse than anything Bernie Madoff ever thought about doing.”

What Folbre leaves out of this is the legitimate grievance that many of those who do not pay taxes are receiving tax money paid to the government by their fellow citizens. If the situation were different, i.e. the federal government only needed to tax the higher-income half of the population to support its limited operations, then maybe some taxpayers would be inclined to think of this as good news. Instead, taxpayers see an enormous beast that is taking from half of America, giving to the other half, and conjuring money out of thin air when it runs out of the real thing.

Thinking about it, Limbaugh’s quote is still hyperbole, if only because Madoff promised returns that were impossible. If he’d followed the IRS’ tact of just taking money and promising nothing, then it’d be a toss up.

Finally, let’s look at Folbre’s parting shot:

In my view, Citizens for Tax Justice, which describes itself as an advocacy group that strives “to give ordinary people a greater voice” against the “armies of special interest lobbyists for corporations and the wealthy,” offers the most specific and well-documented analysis of the two competing approaches to the Bush tax cuts, those of President Obama and the Congressional Republicans. Unfortunately, it doesn’t seem to have gotten much attention from the news media

Her deception about the identity of the participants in the tax war cracks as she winds up for a big finish. She now acknowledges that Congressional Democrats are the attackers here, though she does it by saying that the other side is “resisting change”. This is as small a victory for truth as I have ever seen, but a victory nonetheless.

The Citizens for Tax Justice report is useful in that it lays out the figures behind the competing tax cut proposals. The rest is the same kind of incomplete analysis and outright deception put forth by Folbre, laid out for precisely the same purpose: to declare economic warfare on a class of citizen they feel deserves it. At the end of the day, all this energy is being directed towards rhetoric and deception to sell this simple, savage proposition: Take more from them and less from me.

These people remind me of the people who vociferously support a war but refuse to go fight in it. There were many of those in the Republican party when it came to Iraq and Afghanistan, and they were rightly branded “chickenhawks”. Folbre manages to write an entire article about taxing other people without once mentioning the word government or naming the IRS, instead only targeting the enemy and touting the purported benefits to “everybody else who gives a darn”. This is like the chickenhawk who writes a piece talking about the benefits of the Iraq war without once invoking the words violence or death. Violence happens in war, government happens in the tax war. The chickenhawks will admit neither.

Folbre is right, though, that there is a tax war and it is based on deception. The war is between a rapacious government and a host of tax chickenhawks allied with them, against everybody else. Remember that the battle being fought today is merely a skirmish in the economic war plans of the current ruling class. The real battles come when the government has its back against the fiscal wall and needs cash now. When that day comes, remember that Nancy Folbre and the other tax chickenhawks are not on your side.

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  • Ben Barker

    “Since there were no tax rate changes, it becomes clear that the tax cuts passed by the current Congress were entirely in the form of tax credits. For the majority of tax payers, who fall under the case outlined above, taxes have gone up under the current Congress and President.” – This statement from the article is quite misleading. It suggests that a majority of people would not be receiving these credits, which is false. ALL single filers making below $95,000 (and couples making less than $190,000) are eligible to receive these tax credits ($400 for a single filer, $800 for a couple). For the record, 82% of American’s make less than $95,000 – that’s a majority. Saying that many American’s taxes have gone up is simply not true, it’s completely the opposite.

  • http://thelibertypapers.org Quincy

    Ben, a $600 ($1200 for couples) tax credit that is allowed to lapse and is replaced by a $400 ($800) tax credit represents a tax increase. Folbre’s trick is to acknowledge the second of these credits without acknowledging the first. You fell for it.

  • Galtish bus driver

    Great work Quincy. Deconstructing the deception that was layered in to Professor Folbre’s essay is hard work that needed to be done. You’ve done the greater blogosphere a favor by giving a good fisking to it. Thank you!

  • http://thelibertypapers.org/ Brad Warbiany

    Well done. It’s like many people who talk about what needs to be done and say “the government will pay for it”, like they don’t know whose money the government is spending. Likewise, Prof Folbre seems to know who she thinks should be paying the taxes, but acts as if it’s Main Street that’s doing the collecting, not the guys at 100 Constitution Avenue.

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