Lies, Lies, Lies... Yeah! (The Hidden Krugman)

Now it can be told: President Bush and Vice President Dick Cheney based their re-election campaign on lies, damned lies and statistics.

So begins Paul Krugman's latest assault on the BushCo Gang, Weapons of Math Destruction (fully available to Times Select subscribers), which brings up a timely subject: taxes.

Compared with the deceptions that led us to war, deceptions about taxes can seem like a minor issue. But it's all of a piece. In fact, 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 the administration and its defenders launch against anyone who tries to do the math on tax cuts suggest that this is a very sensitive topic. For example, Senator Charles Grassley of Iowa once compared people who say that 40 percent of the Bush tax cuts will go to the richest 1 percent of the population 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 there, if you know how to look for them, 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 from the document are any actual numbers about how the tax cuts were distributed among different income classes. Yet Treasury analysts have calculated those numbers, and there's enough information in the "kit" to figure out what they discovered.

An explanation of how to extract the administration's estimates of the distribution of tax cuts from the "Tax Relief Kit" is here. Here's the bottom line: about 32 percent of the tax cuts went to the richest 1 percent of Americans, people whose income this year will be at least $341,773. About 53 percent of the tax cuts went to the top 10 percent of the population. Remember, these are the administration's own numbers — numbers that it refuses to release to the public.

[...]

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.

[UPDATE, 5:20pm PST] Just got the new issue of the Economist, and was doing my traditional Friday afternoon quick perusal of all the articles, when this one jumped out at me:

Quite apart from the recklessness of a fiscal strategy based on cutting taxes and boosting spending, the man [ed note: that would be George Bush] who promised to devote his second term to making America's tax system simpler, fairer and more pro-growth has presided over something rather different. During the past five years America's tax code has become far more complex, somewhat less progressive, and has done less to improve incentives to work and save than first appearances suggest. Of course, it is not all Mr Bush's fault; Congress has done plenty to help. But Congress never said it would improve matters.

[...]

The share of taxes paid by different income groups can vary dramatically for reasons that have nothing to do with changes in the tax code. In 2001, for instance, the share of taxes paid by the richest fifth of Americans fell because of the large drop in the stockmarket. In the long term, America's income distribution has widened dramatically; since 1979 the share of income going to the top 1% of Americans has risen by over 50%, from 9% to 14%. Even with no change in tax rates, that implies a large increase in the share of income tax paid by the rich.

A better measure of tax progressivity is how the average tax rate varies across income groups (although that, too, can be affected by changes in income distribution). In a progressive tax system, richer people should pay tax at a higher average rate than poorer ones. Tax cuts are progressive if they reduce average tax burdens more at the bottom than the top.



Chart 1 (above) shows average effective federal tax rates for American households at different levels of income distribution. [...] America's tax system is clearly progressive; richer people have a higher average tax rate than poorer ones. But, by some measures, the Bush tax cuts have made it moderately less so. Calculations by the Tax Policy Centre show that the Bush tax cuts reduced average tax rates more for richer Americans than poorer ones. Assuming Congress patches up the AMT, the average tax rate in 2006 for the richest 0.1% of Americans is 3.8 percentage points lower than without the tax cuts. For the bottom 20%, the average tax rate has fallen by 0.3%.