Last night, I saw Austan Goolsbee on The Colbert Report. If you don’t know who Austan Goolsbee is, then he’s the Chairman of the Council of Economic Advisers. As far as I can tell, his job consists primarily of explaining this administration’s economic policies to the American public in a way that disguises how destructive and ideological these policies are. I’ve read some of his writings and watched several of his media appearances, and not surprisingly, he attempts to sell his policies the way most people on the Left do—by lying about them. He also misleads his audience when talking about Republican ideas and policies. Lest anyone think I’m just attacking someone with whom I disagree and not providing any evidence to back up my assertions, here is the video of the interview as it appeared on TV:
Apparently, the full interview lasted sixteen minutes, according to Colbert, and had to be edited down to the video embedded above, which is just under seven minutes. I’ve included the link to it in this post because I want to call attention to three specific things he said during the interview I saw, and this way, no one can fairly accuse me of taking his words out of context.
1. “The high-income tax rates are the lowest they’ve been in some 60 years.”
First of all, that’s not true. Second … well, there really is no need for a second point; just look at the facts. Right now, the highest federal individual income tax rate is 35%. 60 years ago, the highest federal income tax rate was 94%. That rate stayed in effect until 1954, when it was dropped to 91%. Since then, the federal tax rate on the highest individual income bracket was changed several times and ultimately dropped to 28% under the Tax Reform Act of 1986 (TRA86). One novel feature of TRA86 was the so-called “bubble rate.” The rate structure included four individual income tax brackets, and the rates were 15%/28%/33%/28%. The Omnibus Budget Reconciliation Act of 1990, which was passed by a Democratic Congress and signed into law by Pres. George Bush, did away with this “bubble rate” and established a new surtax on the highest-income-earners, effectively raising the top tax rate on individual income to 31%. Maybe Austan misspoke, or maybe he just flat-out lied. Either way, there’s no disputing that what he said was false.
2. “The president has said he doesn’t think we can afford to keep rates at these historically low levels, and I think he’s totally right.”
OK, if Mr. Goolsbee had said that we can’t afford to keep taxes at these historically low levels, then I would agree, but he didn’t say “taxes;” he said “rates.” Look, I’m not prepared to admit that Austan Goolsbee is a smart guy, but I believe he’s the sort of person who chooses his words carefully. Of course, I don’t know what measure he has in mind when he says “levels,” but the rest of his statement sounds pretty clear. We already know that tax rates are not at a historical low, but what could be an objective measure of tax “levels”? How about total tax revenues as a share of the nation’s economy? According to the Congressional Budget Office, as a share of the nation’s GDP, the government’s take this year will be the lowest since 1950. Now the CBO projects that “total federal revenues will be about $2.2 trillion in 2010, a 3.3 percent increase from 2009,” when tax receipts were only 14.8% of GDP, but “total federal revenues will rebound sharply from the current historically low amounts relative to GDP starting in 2011.” (See this.) I’d just like to point out that an AP article I saw in February said that, in George W. Bush’s “last year in office, tax receipts were 17.5 percent of GDP, just below their 40-year average.” What this all boils down to is that taxes are too low, but the problem is that the people who aren’t paying their fair share are not the same people who Obama and the Democrats want to pay more taxes. The AP’s Stephen Ohlemacher explains the problem thusly:
Income tax rates remain unchanged. But many taxpayers are seeing their bills drop under Obama because of more generous tax credits for college students, working families, homebuyers and the working poor. Many of the changes were enacted as part of the big economic stimulus package passed in 2009.
So even if we can afford to maintain the current schedule of tax rates, I doubt a majority of the electorate will accept the kind of budget cutbacks that will be needed to balance the budget if we do that. Look, I’m a conservative (Actually, I prefer to call myself a classical liberal, but whatever.), but I’m also a pragmatist, and there’s no good reason why so many people pay little or nothing in federal taxes. If you’re making $50,000 a year, then I don’t care what your personal situation is: you should be feeding the kitty, even if you’re only paying $1,000 in income taxes. So, let’s keep the current rates where they are and get rid of a bunch of these costly deductions and tax credits. That would mean a higher effective tax rate for some people, but if Goolsbee is serious about deficit reduction, then he has to concede that those individuals should pay more.
3. “Let’s return to tax revenues from high-income people that are more like the historic norms.”
That line got a big round of applause. Once again, I believe that Austan Goolsbee choose the words he used here carefully and deliberately, so when he said, “Let’s return to tax revenues from high-income people that are more like the historic norms,” I thought, Yes, let’s. I don’t know how he defines “high-income people,” but this graph shows total tax revenues as a percentage of gross domestic product over the last four decades: 
As you can see, the CBO pegs the federal government’s average annual tax collection at just above 18% of GDP for the period shown in the graph above, so let’s call that the historic norm. So, what would a return to the historic norm mean, and what would it accomplish? According to the most recent numbers available, current-dollar GDP just topped $15 trillion in the first quarter of 2011. (You can read the “advance” estimate on the BEA’s website here.) Of course, that’s going to be revised, but for now, let’s just say that if real GDP totals $15 trillion for 2011, then based on “the historic norms” as shown, we should be collecting about $2.7 trillion in tax revenues, but Austan just said he wants to “return to tax revenues from high-income people that are more like the historic norms.” So, using Austan’s benchmark, that sounds like he’s content with the current levels of tax revenue the government is collecting from all other individuals, which would mean running the government on less than $2.7 trillion. (For the record, we haven’t done that since FY2006.) Now, if you’re the sort of person (as I am) who’s not content to deal with this in the abstract, then let’sat least agree that, for the budget to balance, total revenues must match or exceed total spending. So, assuming we can all agree on that point, it must follow that, to get our fiscal house in order, if we can somehow get tax revenues back up to a level that’s ”more like the historic norms,” then we must necessarily reduce federal spending to equal or lower levels. The problem with returning to “the historic norms” is that, historically, the U.S. government has run huge budget deficits. Thus, if we want to “return to tax revenues … that are more like the historic norms” and still balance the budget, then we should cap spending at a level below the historic norm. (Nick Gillespie & Veronique de Rugy of Reason Magazine have written extensively about this; they call it The 19 Percent Solution.)
As you can see, the CBO pegs the federal government’s average annual tax collection at just above 18% of GDP for the period shown in the graph above, so let’s call that the historic norm. So, what would a return to the historic norm mean, and what would it accomplish? According to the most recent numbers available, current-dollar GDP just topped $15 trillion in the first quarter of 2011. (You can read the “advance” estimate on the BEA’s website here.) Of course, that’s going to be revised, but for now, let’s just say that if real GDP totals $15 trillion for 2011, then based on “the historic norms” as shown, we should be collecting about $2.7 trillion in tax revenues, but Austan just said he wants to “return to tax revenues from high-income people that are more like the historic norms.” So, using Austan’s benchmark, that sounds like he’s content with the current levels of tax revenue the government is collecting from all other individuals, which would mean running the government on less than $2.7 trillion. (For the record, we haven’t done that since FY2006.) Now, if you’re the sort of person (as I am) who’s not content to deal with this in the abstract, then let’sat least agree that, for the budget to balance, total revenues must match or exceed total spending. So, assuming we can all agree on that point, it must follow that, to get our fiscal house in order, if we can somehow get tax revenues back up to a level that’s ”more like the historic norms,” then we must necessarily reduce federal spending to equal or lower levels. The problem with returning to “the historic norms” is that, historically, the U.S. government has run huge budget deficits. Thus, if we want to “return to tax revenues … that are more like the historic norms” and still balance the budget, then we should cap spending at a level below the historic norm. (Nick Gillespie & Veronique de Rugy of Reason Magazine have written extensively about this; they call it The 19 Percent Solution.) As to these ”high-income people,” look, I don’t know what Austan’s thinking; I can only listen to what he’s saying and compare it to objectively verifiable facts. So, for simplicity’s sake, let’s talk about the top 5% of wage earners (since Obama’s fond of saying he “cut taxes for 95% of Americans”). What share of federal tax revenues, historically, has the government collected from the top 5%? Well, according to the CBO, in 2001, the last year we had a budget surplus, the share of the total federal tax burden shouldered by the Top 5% of households was 38.5%. That share hit a record high of 44.7% in 2006. Perhaps even more impressively, the Top 5%’s share of individual income tax liabilities increased from 55.2% to 60.9% during the same time period, and it hit an even 61.0% for 2007, the most recent fiscal year for which the CBO provides this data. (My source on the CBO web site can be seen here.) Bottom line: returning “to tax revenues from high-income people that are more like the historic norms” would likely mean collecting less tax revenue that one would think Mr. Goolsbee wants to see the government collect.
Tying all this together, if Austan truly believes that we can balance the budget just by raising taxes on a small minority of income earners and accomplish the rest through spending cuts, then he should explain: (1) what incomes are “high” enough to warrant an increase in the marginal rate; (2) how will you cut the budget down to a level that does not exceed total revenues; and (3) given that individuals in the highest income tax brackets are making more money, paying more in taxes and paying a larger share of the total tax bill than they were when the higher tax rates were in place, why should we return to the old rate schedule? I’d also like to hear him explain why he only thinks people at a certain income level should pay more taxes, but that’s more a question of fairness and not crucial to the policy goals he’s laid out.
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