St. Petersburg Times' triumvirate of terror, part 2

The St. Petersburg Times ever treads that razor thin line between fulfilling their ad jingle "In the know" and acting as a shill for the Democratic Party. An editorial from last week helps to illustrate, as it takes John McCain's economic policies to task while ignoring the problems with the ideas of his competition.

McCain's problem, according to the Times editor, is his endorsement of the Bush tax cuts while only specifically advocating cuts in earmark spending.

McCain used to be known as a fiscal conservative and deficit hawk who twice voted against President Bush's tax cuts. As the presumptive Republican presidential nominee, however, he did an about face and favors extending those tax cuts. Now he is getting squishy on deficit reduction.

Perhaps McCain realizes that increasing taxation hampers the economy. One would think that the concept does not register with the Times. As to McCain's supposed squishiness on deficit reduction, the column limits its evidence to McCain's support of the Bush tax cuts along with his advocacy of trimming corporate taxes from 35 percent down to 25 percent.

Do Times editors have any clue at all about economics?

The Arizona senator once opposed the Bush tax cuts because the benefits went mostly to the wealthy and the cuts were unaccompanied by spending reductions. He was right. That disastrous formula turned a $120-billion budget surplus into a $400-billion deficit.

One would think from the Times account above that the terrorist attack on the WTC towers had no significant effect on the national economy. For those who are historically challenged, President Clinton handed off a slowing economy to President Bush and the economic problems were dramatically magnified by the 9/11 attacks.

Four major items have affected this $388 billion deterioration in the FY 2002 budget balance estimate. The first can be related to the impact on the budget of the 2001 Federal tax package which reduced the FY 2002 surplus estimate by $33 billion. The second change relates to the events of September 11, 2001, and the associated spending increases approved by Congress. These spending increases reduced the projected FY2002 budget surplus by an additional $61 billion. The largest impact on the FY 2002 surplus is the $197 billion of negative adjustments attributable to the slowdown in the United States economy.
(Senate Fiscal Agency--.pdf)

Don't you love the way the Times allows you to be "In the know"?

Originally, President Bush advocated tax cuts because of the budget surplus (a government taking in more money than it needs to pay for its budget is gratuitously stealing from its constituents, in a sense).

After the 9/11 attacks, Bush advocated tax cuts to help stimulate the economy, and the second round of tax cuts (2003) did correspond to economic recovery in the wake of the 9/11 attacks.

You can buy the Times' analysis if you forget enough history.

Now, McCain says he not only wants to extend those tax cuts beyond their 2010 expiration date, he wants to cut the corporate tax rate from 35 percent to 25 percent. Those cuts would cost about $400-billion a year, and that's not counting another few billion in lost revenue from eliminating the alternative minimum tax, which McCain also promotes.

Here, the Times omits to inform its readers that cuts in corporate taxation are more likely to lead to offsetting economic growth than tax cuts to middle/lower class wage earners. In short, the tax cuts tend to result in increases in revenue that cut deeply into the estimated "cost" of the tax cut--and the tendency of the Times to assign a "cost" to tax cuts is nothing but spin. The taxpayer pays the cost of taxes. A cut in taxes reduces the cost to the taxpayer. By assigning a "cost" to the government associated with tax cuts, the story encourages the impression that the money rightfully belongs to the government.

It is true that government revenues will probably shrink with a cut in taxes, so in that sense it is fair to use the term "cost" in reference to tax cuts--but probably not the full $400 billion.

He justifies such irresponsibility as necessary to stimulate the sluggish economy. His position makes little sense. Fed Chairman Ben Bernanke is already flooding the economy with easy money to try to stabilize the banking system and housing market. Some 130-million rebate checks should be arriving in the mail in May. The soonest any impact from the tax cuts would be felt is in 2010, and by then the economy could have changed direction.

Here the Times is simply wrong. The economy is inseparably attached to Wall Street, and Wall Street reacts to expectation. An expectation of higher corporate taxation under a new Democrat president causes companies to lose value. They will anticipate greater difficulty maintaining profitability. For the corresponding reason, a commitment to sustain the Bush tax cuts provides a stable set of expectations in which investors can operate. That creates an immediate stabilizing effect on the economy--something one might not ever realize if one relied on the Times.

Perhaps the most dishonest position McCain staked out is how he would balance tax cuts with reduced spending. His numbers are laughable. He would end congressional earmarks. While they are wasteful, they amount to only about $18-billion a year. He would eliminate some corporate tax breaks, saving perhaps another $45-billion a year. Together those are a small fraction of lost revenue from the tax cuts.

A small fraction? Even if we assume that the Times is correct that lost revenue from tax cuts does not come back in part from increased economic activity (which is not a realistic assumption), 60/400 reduces to 15/100 or 15%. I don't think that's what most people have in mind by "small fraction." Fraction, yes. Small fraction, no. It's bigger than 1/7, for example.

Will the Times offer a critique of the Obama or Clinton economic plans, I wonder? Each wants to add billions to the federal budget (estimates for Obama hover around $300 billion, with $225 billion for Clinton).

As Presidential contenders Barack Obama and Hillary Clinton race toward a key electoral showdown tomorrow, updated findings from the National Taxpayers Union Foundation's (NTUF's) candidate cost analysis project show that their federal budget proposals are racing ahead as well. According to neutral data, Obama's platform would boost yearly federal spending by $307.3 billion compared to Clinton's $226.1 billion -- both measurably higher totals since NTUF began examining the candidates' plans earlier this year.
(National Taxpayers Union)

Yeah, that McCain sure is irresponsible.

Obama and Clinton will either renege on their spending promises or balloon the deficit or torch the economy with increased taxes--unless they figure out a way to accomplish more than one of the options without sacrificing the others.

"In the know"?



Corrected spelling of "National Taxpayers Union"
Added clarification to my 10th graph.

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