It’s Scary This Man Wants Power Over People

Aside from the economic reasons I favor smaller government, there’s an intellectual one, too.  Namely, I fail to see why I should let someone who makes simple factual and mathematical errors make decisions on my life.  Take, for example, this recent meme about Bernie Sanders (I-VT) that’s made its way around my Facebook newsfeed today:

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Since this came from the senator’s official Facebook, I’m assuming he did say this (one of the difficult things about the Internet is it is difficult to verify the authenticity of quotes).

It’s hard to know where to start here since there is so much wrong in just these three sentences.  I guess let’s start with the big picture:

The senator makes a huge mathematical mistake.  He confuses relative with absolute.  Yes, corporate income tax’s share of total government revenues has fallen from 33% to 9%, but that doesn’t mean that corporate taxes are any lower.  In 1955, corporate tax revenue was $17.9 billion ($158.2 billion in 2014 dollars).  In 2014, corporate income tax is $320.7 billion, 102.7% higher than 1955. (Source: Tax Policy Center  Inflation calculations are done using the BLS Inflation Calculator)

So, why did corporate tax share of taxes fall?  Simple math:

A share (or proportion) of a portion is determined by (X/Y), where X is the portion in question and Y is the total.  If X increases and Y increases at a faster pace, then X’s share falls.  It does not mathematically follow that X is smaller (although that is sometimes the conclusion drawn, as in this case with the senator).

Second, the senator heavily implies that, in 1955, there was no budget deficit.  According to the US government, this is categorically false.  Budget deficits have been a facet of American politics for many years, including 1955, and they appear regardless of tax rates.  In fact, there is almost no relationship between tax rates and taxes collected (as % of GDP).  Regardless of where the tax rates are, revenues have hovered around 18% of GDP.

Which leads us to the third point.  The senator says that taxes (or lack thereof) are the cause of a surplus/deficit.  Again, that is categorically incorrect.  I refer you to the US government.  You’ll see that taxes, as a percentage of GDP, were actually lower in 1955 (16.1%) than they were in 2014 (17.5%) (Source: OMB, Historical Tables, Table 1.2).  So why was there a smaller deficit in 1955?  The government was spending less.  Government outlays in 1955 were 16.8% of GDP (leading to a deficit of 0.7%) vs. 20.3% in 2014 (leading to a deficit of 2.8%).  So, taxes didn’t shrink.  They rose.  Just spending rose faster.

So, want to better understand why we have a federal deficit?  It’s because spending has outpaced income (and no, higher taxes won’t work).

14 thoughts on “It’s Scary This Man Wants Power Over People

  1. With regard to point one I’m sure that Sanders and his cheerleaders would say that the problem is that corporations aren’t providing 33% of federal revenue, regardless of how high govt spending is; and regardless of how absurd that notion is, of course.

    But they never let the economic facts get in the way of a good political narrative, right?

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  3. I agree wholeheartedly. Democrats in general are really bad at simple budget arithmetic. The only thing that I can’t figure out is whether they are really that stupid (the math is not difficult) or if they are intentionally trying to deceive people.

    I touched on budget issues in two blog posts that you might find interesting.

    Is It a Tax Cut if Taxes Increase?
    http://www.madcapitalist.com/is-it-a-tax-cut-if-taxes-increase/

    Tax Increases Won’t Eliminate Our Budget Deficits
    http://www.madcapitalist.com/tax-increases-wont-eliminate-our-budget-deficits/

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  4. The good Senator also forgets the massive income tax reforms of 1986, which reduced personal tax rates below those of C-corps, and resulted in a tremendous transition (for taxes) of corporations from C-corps to S-corps & LLCs, the income from which are passed through taxed at the individual level….

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    • Great point. A much higher percentage of business income comes from pass through entities than in the past. This alone makes the comparison almost meaningless. It’s also a trick that people sometimes use when they want to make the effective corporate tax rate look lower than it actually is- show total corporate income (which includes both C corps and S corps) and then show corporate tax revenues (which only includes C corps).

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  5. Bernie Sanders is RIGHT.

    Corporations should be paying a third of the Federal budget.

    All we have to do is drop the personal income tax by 80% of current levels, and we will be at his magic proportions.

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  6. Jon

    One more point. Senator Sanders does not take into account the changes in corporate tax entities that occurred since 1952. With the advent of the S corporation, LLP’s, LLC’s etc…income that was taxed as corporate in 1952 is now passed through and taxed as individual income

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