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Friday, April 14, 2006

Paul Krugman: Weapons of Math Destruction

Paul Krugman looks beneath the administration's propaganda on the distribution of tax cuts and uncovers some revealing numbers:

Weapons of Math Destruction, by Paul Krugman, Budget Lies Commentary, NY Times: Now it can be told: President Bush and Vice President Dick Cheney based their re-election campaign on lies, damned lies and statistics.

The lies included Mr. Cheney's assertion, more than three months after intelligence analysts determined that the famous Iraqi trailers weren't bioweapons labs, that we were in possession of two "mobile biological facilities that can be used to produce anthrax or smallpox."

The damned lies included Mr. Bush's declaration, in his "Mission Accomplished" speech, that "we have removed an ally of Al Qaeda."

The statistics included Mr. Bush's claim, during his debates with John Kerry, that "most of the tax cuts went to low- and middle-income Americans." ... deceptions about taxes can seem like a minor issue. But ... my early sense that we were being misled into war came mainly from the resemblance between the administration's sales pitch for the Iraq war — with its evasions, innuendo and constantly changing rationale — and the selling of the Bush tax cuts.

Moreover, the hysterical attacks ... against anyone who tries to do the math on tax cuts suggest that this is a very sensitive topic. For example, Senator Charles Grassley ... once compared people who say that 40 percent of the Bush tax cuts will go to the richest 1 percent ... to, yes, Adolf Hitler.

And just as administration officials continued to insist that the trailers were weapons labs long after their own intelligence analysts had concluded otherwise, officials continue to claim that most of the tax cuts went to the middle class even though their own tax analysts know better.

How do I know what the administration's tax analysts know? The facts are ... hidden in one of the administration's propaganda releases.

The Treasury Department has put out an exercise in spin called the "Tax Relief Kit," which tries to create the impression that most of the tax cuts went to low- and middle-income families. Conspicuously missing ... are any actual numbers about how the tax cuts were distributed ... Yet ... there's enough information in the "kit" to figure out what they discovered.

An explanation of how to extract the administration's estimates ... is here. Here's the bottom line: about 32 percent of the tax cuts went to the richest 1 percent of Americans... About 53 percent of the tax cuts went to the top 10 percent...

And what about the people Senator Grassley compared to Hitler, those who say that the wealthiest 1 percent ... will receive 40 percent of the tax cuts? Although the "Tax Relief Kit" asserts that "nearly all of the tax cut provisions" are already in effect, that's not true: ...elimination of the estate tax, hasn't taken effect yet. Since only estates bigger than $2 million, or $4 million for a married couple, face taxation... This will raise their share of the overall tax cuts to, you guessed it, about 40 percent.

Again, the point isn't merely that the Bush administration has squandered the budget surplus it inherited on tax cuts for the wealthy. It's the fact that the administration has spent its entire term in office lying about the nature of those tax cuts. And all the world now knows what I suspected from the start: an administration that lies about taxes will also lie about other, graver matters.

Previous (4/10) column: Paul Krugman: Yes he Would
Next (4/17) column: Paul Krugman: Enemy of the Planet

Explanation of tax calculations:

Reverse Engineering the “Tax Relief Kit”, Paul Krugman, Money Talks: The Treasury department’s Tax Relief Kit is a propaganda and spin exercise on behalf of the Bush tax cuts. It’s an embarrassing document in many ways. But it contains a couple of useful nuggets.

First, the document asserts that “111 million taxpayers will see their taxes decline by an average of $1,877.” This tells us the administration’s estimate of the size of the tax cut: 111 million × $1,877 = $208 billion this year.

Second, table S-8 of the administration’s fiscal 2007 budget predicts that income tax receipts will be $997.6 billion in fiscal 2006 (which started in October 2005) and $1096.4 trillion in fiscal 2007. Interpolating, we get income tax receipts in calendar year 2006 of $1022 billion. In the absence of the tax cuts, revenue would be $208 billion higher: $1230 billion.

Now let’s go back to the tax kit. According to the table at the bottom of page 4, “Projected Share of Individual Income and Taxes in 2006,” the richest one percent of Americans will pay 32.4 percent of income taxes this year, compared with 32.3 percent in the absence of the Bush tax cuts. This means that they will pay 0.324 × $1022 billion = $331 billion. Without the tax cuts, they would have paid 0.323 × $1230 billion = $397 billion. So tax cuts for the top one percent were $66 billion, which is 32 percent of $208 billion. Again: as best we can make out, the administration’s own numbers say that the richest one percent of the population got 32 percent of the tax cuts.

A similar calculation shows that the top 10 percent got 53 percent of the tax cuts.

And one last thing. The fiscal 2007 budget predict that the estate tax will yield $27.5 billion this year. But that tax is due to be eliminated in 2010. Since the tax only affects estates larger than $2 million for an individual or $4 million for a couple, repeal will overwhelmingly benefit the very wealthy. If we assume that all of the $27.5 billion would go to the top one percent of Americans, the end of the estate tax would raise their share of the Bush tax cuts to 39.7 percent.

    Posted by on Friday, April 14, 2006 at 12:15 AM in Economics, Income Distribution, Politics, Taxes | Permalink  TrackBack (0)  Comments (27)

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