The economic illiteracy of Timothy Geithner

2.25.12



Timothy Geithner, the 75th Treasury Secretary of the United States, on fixing America’s budget mess through higher taxes on wealthier Americans (via CNBC):

“That’s the kind of balance you need. Why is that the case? Because if you don’t try to generate more revenues through tax reform, if you don’t ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American, then you have to — the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security.”

Let’s take this incredibly wrongheaded statement apart, piece by piece:

1. “That’s the kind of balance you need.” | Me: No you don’t. The Obama plan would raise taxes by nearly $2 trillion, and the U.S. debt-to-GDP ratio would actually edge higher rather than turn lower. Senator Pat Toomey came out with a fiscal proposal in May that would balance the budget by fiscal year 2020 and achieves a modest surplus in fiscal year 2021. It would also reduce debt/GDP to 52% vs. 75% in Obama’s budget. The debt picture would getting noticeably better vs. marginally worse. And no tax increases.

2. “Because if you don’t try to generate more revenues through tax reform …” | Me: Geithner assumes raising taxes is the only way to generate more revenue through tax reform. How about reforming the code so it produces more revenue through higher economic growth? For instance, converting the current tax system into a consumption tax could add a percentage point to revenue as a share of GDP by boosting growth. Grow the pie, Mr. Geithner. Or, you know, cut spending.

3. “… if you don’t ask, you know, the most fortunate Americans to bear a slightly larger burden of the privilege of being an American …” | Me: What on Earth is he talking about? As it is, the top 1 percent pay 36.7 percent of federal income taxes and earn 16.9 percent of adjusted gross income (as of 2009). The top 0.1 percent pay 17.1 percent of taxes and earn 7.8 percent of adjusted gross income. The average income tax rate for the top 1 percent is 24 percent. The bottom 50 percent? Just 1.85 percent. The bottom 50 percent pay just 2.3 percent of income taxes. It seems to me the “most fortunate Americans” — because they all inherited their wealth or just got a lucky break, right? — already bear a “slightly larger burden.”

And what, if someone doesn’t agree with Obama’s plan, they’re not earning their place as an American? If someone doesn’t agree to send more tax money to a free-spending, inefficient central government running record deficits as far as the eye can see, they’re somehow leeching off Uncle Sam? Being Treasury secretary is a privilege, one earned by pushing policies that keep America prosperous and solvent — even in an election year.

4. “[Without boosting taxes on couples making over $250,000], the only way to achieve fiscal sustainability is through unacceptably deep cuts in benefits for middle class seniors, or unacceptably deep cuts in national security. | Me: If taxable income in the 35 percent bracket were taxed at 49 percent, federal income tax revenues would be just $78 billion higher. To get the deficit to 2 percent by 2020 using Obama’s budget baseline, it would take a 91 percent top rate by taxing just the rich. As it is, Obama’s new budget only makes things get worse more slowly — and even that assumes the tax hikes won’t slow growth one bit.

Again, the Toomey plan would cut spending over a decade to 18% of GDP from 24% of GDP by cutting/freezing discretionary spending and block granting Medicaid to the states. And let’s not forget Obama-Geithner are proposing massive tax increases while not even trying to offer a solution to long-term entitlement costs. As Geithner infamously told Paul Ryan the other day: “We’re not coming before you to say we have a definitive solution to that long-term problem. What we do know is we don’t like yours.”

See, what America needs is solutions and leadership from the Obama administration, not lectures.

SOURCE: By James Pethokoukis - The American