Taxation Chicanary

The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. — James Madison

Tax policy has everything a politician could want in an issue: it affects everyone, it’s easy to differentiate your position from your opponent’s, and it’s complex enough that you can spin the subject six ways to Sunday without ever telling a bald-faced lie. With the presidential campaign ramping up and the California gubernatorial campaign in full swing I’m starting to see a few standard tricks get used. I’m no Penn and Teller of the political world, but I thought I’d list some of the spin tricks I’ve seen so far. (Kids, play at home — how many misleading tax claims can you find this campaign season?)

  1. Bringing down the (income) tax. In 2001, President Bush said that under his first tax cut “a family of four making $35,000 [would] receive a one hundred percent tax cut.” What he forgot to mention that this was only income tax he was talking about, not payroll tax.

    Everyone gets mad about income tax because it’s the one we see every April, but 74% of Americans actually pay more in federal payroll tax than federal income tax. For poor to moderate-income workers, it’s a lot more. And because income taxes are a relatively small percentage of these worker’s total tax burden, any small reduction can look like a huge percentage of the income tax without reducing the total tax burden by a large amount. It’s a classic use of misdirection. Penn and Teller would be proud.

    This trick hasn’t been retired in the past two years, either. Back in June of this year, Tim Russert quoted statistics provided by the Department of Treasury in his Meet The Press interview with Howard Dean:

    The Department of Treasury, we consulted and asked them: What effect would [repealing Bush’s entire package of tax cuts] have across America? And this is what they said. A married couple with two children making $40,000 a year, under the Bush plan, would pay $45 in taxes. Repealing them, under the Dean plan, if you will, would pay $1,978, a tax increase of over 4,000 percent. A married couple over 65 making $40,000 and claiming their Social Security, under Bush would pay $675 in taxes. You’re suggesting close to $1,400, a 107 percent tax increase. Can you honestly go across the country and say, “I’m going to raise your taxes 4,000 percent or 107 percent,” and be elected?

    Dean responded “I don’t believe [those figures]. This administration has not been candid about the impacts of this tax cut.”

    John Kerry continues to cite these numbers, saying in an August 31st Meet The Press that “If you’re a $40,000 income earner, Howard Dean’s going to raise your taxes more than 20 times.”

    As you might have guessed, the numbers provided to NBC for the Dean interview are only for income tax, not the full tax burden. Martin Sullivan, an economist and writer for Tax Notes, discussed the figures in a recent article:

    And in a new application of the “income tax only” approach to distribution analysis, the Treasury Department is providing the press with case studies of the combined effects of the 2002 and 2003 tax cuts on middle-income families. But in what can only be characterized as egregious use of misinformation, the Treasury Department frequently omits from its explanation that it is looking only at income taxes.

    He then discusses the Treasury Department report that was quoted in the Dean interview, noting that the words “income tax” appear only in the detailed write-up and an accompanying report, but nowhere in the main executive summary. “If this continues,” writes Sullivan, “the Treasury’s Office of Tax Policy (OTP) may have to change its name to the Office of Tax Propaganda.”

  2. Just your average family. The most common way to compute an average tax-cut is to take the total tax cut and divide by the number of tax-payers (also known as the mean). So when Bush says “ninety-two million Americans will keep, this year, an average of almost $1,000 more of their own money” in his State of the Union address, that’s the average of my tax cut, your tax cut, and Bill Gates’ tax cut. Unfortunately, Bill Gates got a bigger cut than you or I did, so that skews the numbers. It also doesn’t average in the fifty million tax-paying Americans who got no tax cut, which brings the average up even further. In fact, according to the Urban-Brookings Tax Policy Center, fewer than 20% of tax-payers would receive a tax cut of $1000 or more. A less misleading average would be the median tax cut (a little less than $100) or the mode tax cut (zero dollars) but those don’t sound nearly as exciting.

  3. The Specter of Double Taxation. The dividend tax has been loudly criticized as being an “unfair double taxation.” To quote the Republican Study Committee:

    No dollar should be taxed twice — especially not a dollar created by citizen productivity. Just imagine if taxes were taken out of your constituents’ weekly paychecks before they were mailed and then again after they were mailed. Wouldn’t that be unfair? The double taxation of dividends is equally unjust. No income should be taxed more than once. If the federal government taxes a dollar of corporate profit, it has no right to tax that same dollar again just because it is distributed to shareholders.

    There are sound economic arguments for reducing the dividend tax, the strongest being that it encourages companies to issue stock instead of borrow money. However, the double-taxation argument is complete chicanery — all money is double-taxed (and triple-taxed, and quadruple-taxed). When I receive my paycheck (created with my citizen productivity), I pay income tax. I then spend that money and pay sales tax, a double-tax. If I purchase gasoline I’ll also pay a gas tax, a triple-tax on my dollar. But it doesn’t stop there! The gas station uses that dollar to pay the attendant, and charge him income tax, and then he goes to a restaurant… you get the idea. There’s a nice Tom The Dancing Bug cartoon that illustrates the problems with this dodge quite effectively.

  4. What goes around comes around. During the first California Gubernatorial recall debate, Arianna Huffington (Independent) and Peter Camejo (Green) both suggested raising corporate taxes. On the surface this sounds like a way to raise revenue without causing pain to working-class voters, but it ignores the fact that everything is interconnected in an economy. Republican State Senator Tom McClintock had this response:

    I’ll let you in on a secret about business taxes. Businesses do not pay taxes, they pay taxes through you as a consumer in higher prices, through you as an employee through lower wages or through you as an investor in lower earnings. Investors are not fat cats, that is Mom and Dad’s retirement fund we’re talking about.

    McClintock is correct as far as he goes: at some point that tax burden has to be paid by real humans, be they consumers, employees or investors. But he only describes half the cycle. The other half is that taxes on individual people will come back to be paid by businesses, through lower sales to consumers, higher wages of employees, or through lower stock prices as investors have less savings to invest. That’s the whole point of both trickle-down and trickle-up economics: to get business moving, you give a tax break to consumers and investors. In economics, everything is connected. You can’t just look at the burden on one group without looking at how it affects the whole.

  5. Math class is hard. Let’s go shopping. One of the arguments that gets used to promote flat taxes and consumption taxes goes something like this: “Boy, tax forms are complicated, aren’t they? If you’d just throw out the entire income tax system and replace it with our proposal you wouldn’t have to do all that math every April.” To quote the main tagline of Americans for Fair Taxation, “It’s simple.”

    I’m amazed that anyone falls for this argument. First of all, the tax code isn’t complex because we have a graduated (that is, non-flat) income tax, it’s complicated because of all the exemptions, deductions, and special cases. (Such exemptions are used, for example, to encourage home ownership by allowing mortgage interest to be deducted from one’s income.) Second, both flat-taxes and consumption-taxes are extremely regressive, which is to say they tax the poor a larger percentage of their income than they do the rich. I guess the idea is to distract middle-class voters with the simplicity argument so they don’t realize they’ll be taking on a larger tax burden. Pay no attention to the man behind the curtain.

In the end, tax policy boils down to just three things: fairly distributing the tax burden, creating incentives for useful behavior, and making sure there’s enough revenue to keep the government running. Between these three parameters there’s a whole world of complex, intelligent argument. We need advocates who can argue about whether a tax is more fair when it burdens everyone equally, burdens each according to his means, or burdens each according to the benefit he receives. We need economists who can argue whether trickle-up or trickle-down will jump-start an economy faster. We need political representatives who can argue about what services the government should provide. These are good, honest, and necessary arguments. We have no need for deceivers, dissemblers and charlatans who hope to pull a fast one.


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Lies: A Fair and Balanced Review

About a year ago I put myself on a no-caffeine, no-Chomsky diet. I know there are a lot of people out there who read Chomsky’s political writings and get all upset because they think it’s nothing but a pack of lies. I’m not one of those people. By the time I finish reading Chomsky I’m upset because I believe most of what he writes, and what he writes is depressing as all get-out. Chomsky has this way of saying something outlandish like “we should not forget that the U.S. itself is a leading terrorist state.” He then goes on for pages citing relevant newspaper articles, U.N. Resolutions, Senate testimony and U.S. policy documents to back up his claims. Being a linguist, he also doesn’t have the decency to bend the meaning of words so things like “terrorism” can apply when the bad guys do it but not when we do it.

After I went on my diet I became much calmer and happier. In my mind, the word chomsky became an adjective that described a whole class of media, not just those written by Chomsky himself. I started using the word to mean anything that lays out rational arguments that lead to depressing conclusions about the world. My media diet became stricter as I cut out Fairness and Accuracy In Reporting, The Daily Howler, The Center for Media & Democracy and sometimes even The Economist. (While chomsky can be of any political leaning, I don’t include people like Ann Coulter, Rush Limbaugh, Bill O’Reilly or Michael Moore because they’re more about appeals to emotion than rational argument — that’s a different class I call world wrestling federation.)

Now Al Franken has released a new book, Lies And The Lying Liars Who Tell Them: A Fair and Balanced Look at the Right. The title alone reeks of chomsky, and so my natural instinct was to curl up with my latest copy of IEEE Spectrum Magazine until it went away. But then Fox News sued Franken for using the words “Fair and Balanced” in his title. Their lawsuit, which was quickly thrown out, accused Franken as an “unstable” and “shrill” “C-level commentator” who is “not a well-respected voice in American politics.” With an endorsement like that, how could I resist?

The first thing I note is that professional comics like Franken are much funnier than linguists. (He’s also a lot lighter on the endnotes: this is beach reading, not an academic journal.) Some of the gags are gentle ribbing, like this passage from his section on the environment:

Perhaps there is someone reading this who is saying, “Give me a break, Al. I don’t care about the environment.” To you, I have this to say: You were not legitimately elected president, sir. But I respect the office you hold, and I’m honored that you’re reading my book.

Other jokes are much more barbed, and will no doubt cause much consternation among the more thin-skinned conservatives. Especially harsh are “The Gospel of Supply Side Jesus” comic, drawn in the style of Chick Bible Tracts, and “Operation Chickenhawk,” a short story with right-wing draft-dodgers like Bush, Cheney and Limbaugh fighting in an Apocalypse Now setting. Franken can be quite venomous when he wants to be, but he seems to have an unwritten rule that he’ll only dish out as much venom as the victim deserves. Ann Coulter and Bill O’Reilly, venom-slingers in their own right, get both barrels. But in the chapter on how he toured Bob Jones University on false pretenses, Franken is actually apologetic and, in retrospect, ashamed of fooling “people who were welcoming, friendly, and extremely nice.” He also has compliments for right-wingers that he feels are honest and worthy of respect, several of whom he considers friends.

Underneath the humor, the book is still pure chomsky. He starts by taking on Ann Coulter, an easy task by any measure. Coulter’s misquotes and downright lies are well documented, and Franken does a quick job of it. (Quoting a friend of his: “I’ve never shot fish in a barrel. But I could imagine that after a while it could get boring.”) He then moves on to Bernie Goldberg (author of Bias), the 2000 election, Fox News, and the Bush Administration, as well as a very touching chapter on the Paul Wellstone memorial. Treatment ranges from point-by-point dissection of specific right-wing lies to anecdotes of the times he’s met with (and often baited) the celebrities of right-wing politics.

Through the book, Franken tries to explain the way the liars operate, and perhaps help us understand why. This is where it gets depressing. Start with slander, false quotes, out-of-context clips, and misleading figures and data. Throw in dirty tricks like push-polling. Finish with a cadre of talk-show hosts, journalists and media personalities ready and able to do your dirty work, and a mainstream press all too willing to go with the juicy, the sensational, and the easy. As for why, just look around you today. Bush has the White House, a firm grip on both houses of Congress, and has a stated priority to stack the Judicial branch. Republicans who disagree with the president’s policies have been marginalized. The Democrats are in disarray, and the White House Press Corp is intimidated.

It all makes me furious, which is why I went on the no-caffeine, no-chomsky diet in the first place. I keep hoping that if I just stick to real issues these sleaze-balls will go away. But of course they won’t, and they’re too powerful to ignore. A healthy society needs vigorous, passionate debate. What we have now is the opposite: a guerilla warfare of ideas, where rational discussion gets shot down by snipers in the trees. On its own, Franken’s book is no grand call to arms, but it joins an increasing number of chomsky that are shouting out from all sides of the political aisle. Together, they are a call to defend our democracy from corruption. To quote Franken’s closing message:

We have to fight back. But we can’t fight like they do. The Right’s entertainment value comes from their willingness to lie and distort. Ours will have to come from being funny and attractive. And passionate. And idealistic. But also smart. And not milquetoast-y. We’ve got to be willing to throw their lies in their face.

I don’t think I can just pick up my IEEE Spectrum Magazine and forget it all again.


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A Fair and Balanced Look at Hydrogen Fuel

(Happy Fair and Balanced Friday everyone!)

A few days ago I blogged about the economics of hydrogen cars. As a follow-up, I’ve recently come across a report from the Rocky Mountain Institute on hydrogen power: Twenty Hydrogen Myths. A summary of the report’s conclusions can be found here.

The gist of the RMI report is that hydrogen fuel is extremely efficient; a hydrogen fuel-cell car is 2-3 times more efficient than a gasoline car and 1.5 times more efficient than a hybrid gas-electric car (page 11). However, hydrogen is also difficult to transport because of its low energy-to-volume ratio, so their transition strategy (page 13, published in detail here) is to distribute energy in a different form, most likely natural gas, and then generate hydrogen local to where it’s needed. Building complexes would all have their own natural-gas-to-hydrogen converters, and the hydrogen would then be used to run fuel-cells to generate electricity. Excess hydrogen would be used to refuel hydrogen-powered cars during off-peak hours. These cars would initially be in company fleets, but as the infrastructure develops RMI sees the model expanding to sell fuel to cars in the neighborhood. Ultimately, natural gas will be supplanted by renewable energies such as wind and solar as these technologies become more cost-effective.

I don’t have the expertise to judge the arguments made in the report, but on their face they sound compelling. Most of all I’m pleased with RMI’s overall message: you don’t need to choose between environmentally friendly business practices and the bottom line. Rather than argue that corporate fat-cats need to give up their profits so we can have cleaner air, RMI is creating road maps that show how businesses can improve the environment by acting in their own economic self-interest. Assuming these road maps stand the test of the market, that sounds a lot more effective (and valuable to society) than raging against the machine or trying to pass ham-handed government regulation, especially in today’s political environment.


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Newman Joins Gubernatorial Race

(a DocBug.com exclusive)

Sacramento — Today political luminaries such as Arnold Schwarzenegger, Gary Coleman and Larry Flint have been joined by none other than Mad Magazine’s Alfred E. Newman. Declaring his candidacy at an afternoon taping of the Jerry Springer show, Newman blasted Governor Gray Davis and “all those other guys who have experience in politics.” Newman said he would be running as an Independent. “None of the parties wanted me,” Newman explained to reporters. “Even the Greens wouldn’t take me, in spite of being just as electable as Nader was.”

Considered one of the darkest horses in an election overrun by dark-horse candidates, Newman feels he still has one major advantage over his opposition. “I’m especially appealing to stupid people,” Newman explained. “Stupid people like me because I can’t speak good English. That and I have a kinda boyish smile that puts people at ease.” Given that Lyndon LaRouche is already tied up in his presidential race, political analysts agree Newman is a shoe-in for the stupid vote.

Even so, Newman’s campaign will have an up-hill battle against the huge name-recognition of many of the opposing candidates, a group that includes movie stars, washed-up TV celebrities and professional publicity hounds looking for some cheap exposure. But Newman shrugs off suggestions that his chances are slim. “Only a small percentage of Californians bother to vote, and those that do will be spread out over about 200 candidates. So I’m figuringing I’ll only need two or three votes to win, tops. And I’ve already got two votes lined up!” Newman declined to reveal the name of his second supporter.

In spite of his shortcomings, Newman’s politics do appeal with voters on several core issues. In particular, Newman is a proponent of what he calls a “radical pro-choice” position. “I believe that life begins at 40,” Newman stated during a recent fund-raiser. Campaign strategists are quick to point out that this position endears Newman to both the pro-choice and pro-death-penalty camps, both powerful interests in California. “I like it — it’s like compassionate conservatism with a California twist!” commented one San Francisco resident.

On other issues Newman is less forthcoming, but he did hint that if he is elected we would see a return to traditional California methods for handling the state’s woes. When asked to comment on how he would handle California’s unprecedented deficit, much of which will need to be handled in next year’s budget, Newman simply flashed his trademark grin and said “What, me worry?”


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Rethinking Hydrogen Cars

The July 18th issue of Science Magazine has an interesting article that gives a critical eye to the idea that hydrogen-powered automobiles is the best way to attack our environmental problems. (The article is also currently cached here for those without a subscription to Science.) The article makes two main points:

  1. The hydrogen-fuel infrastructure will be expensive (around $5000 per car).
  2. The bang-for-the-buck environmental improvement from replacing gas cars with fuel-cell cars won’t be as good as simply improving the fuel efficiency of existing cars on the road (especially ancient “high emitters”). They also identify fuel-burning power plants as a more cost-effective target for cutting emissions than the already-optimized gas-powered automobile. “When emission mitigation opportunities across the economy are ordered by their cost (to form a supply curve), dep reductions in automobile emissions are not inthe cheapest 30%… Hydrogen cars should be seen as one of several long-run options, but they make no sense any time soon” concludes the report. The report also notes that even in the area of transportation, hydrogen-powered heavy freight vehicles such as ships, trains and large trucks would be better first targets for conversion than the automobile.

Fuel Cell Today suggests that some of their numbers may be exagerated, especially when it comes to the cost of they hydrogen-fuel infrastructure needed for fuelcell-powered cars. In particular, they point out that the huge financial commitment auto makers have made to fuelcell technology is a good indication that they believe it will be economically viable. They also note that many of the alternatives raised in the Science article, while perhaps better targets from an energy-efficiency standpoint, are not possible in the current political climate.

Even given this criticism, the general point seems to be well-taken. As Marianne Mintz, author of one of the reports cited in the Science article, says to Fuel Cell Today, “They’re basically trying to make the point that there are other options that deserve a fair share of attention in the near term. I don’t think that anybody would argue with that.”


  1. Rethinking Hydrogen Cars (Science Magazine, 18 July 2003)
  2. Rethinking Hydrogen Cars (Science Magazine, 18 July 2003, Cached copy that does not need subscription)
  3. Fuel cell cost study gets mixed reaction (Fuel Cell Technology, 28 July 2003)

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