The Rank Fallacies of Willis Hart #3: Bernie Sanders Doesn't Acknowledge The "Fact" That High Tax Rates On The Wealthy Have Negative Consequences

This commentary concerns an 8/22/2015 post by the Libertarian blogger Willis Hart in which he calls out Democratic presidential candidate Bernie Sanders for a number of supposed "fallacies" that aren't fallacies.

The first of these bogus claims by Hart was that Bernie Sanders said "the economy is a fixed pie and that the only real question is how to divvy it up". I debunked this "fallacy" with OST #68 by pointing out that Bernie Sanders talks about income inequality, not divvying up pies.

Next, I proved that Willis was BSing his readers (as well as himself) when he said Senator Sanders was lying about Bernie saying "the poor and middle class are worse off than they were decades ago" (with OST #70). I showed that, by and large, they ARE worse off.

The third of Willis' phony "rank fallacies" I will debunk as follows.

Willis Hart: The Rank Fallacies of Bernie Sanders... c) That high tax rates on the wealthy don't have negative consequences (mainly that the rich will simply alter their behavior). (8/22/2015 AT 3:13pm).

The wealthy will alter their behavior, of course, but the benefits of raising taxes outweighs the negatives... as per an article by Chye-Ching Huang, a Senior Tax Policy Analyst at the Center on Budget and Policy Priorities.

Opponents of raising the taxes that high-income households face often point to findings that high-income taxpayers respond to tax-rate increases by reporting less income to the Internal Revenue Service (IRS) as evidence that high marginal tax rates impose significant costs on the economy. However, an important study by tax economists Joel Slemrod and Alan Auerbach found that such reductions in reported income largely reflect timing and other tax avoidance strategies that taxpayers adopt to minimize their taxable income, not changes in real work, savings, and investment behavior. While such strategies entail some economic costs, these costs are relatively modest. (Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy by Chye-Ching Huang. CBPP 4/24/2012).

OK, so the negative consequences of high tax rates on the wealthy are actually only "relatively modest". But, beyond those "relavively modest" negative consequences, we have the fact that it is actually a lot more harmful to the economy for tax rates to be TO LOW, as David Cay Johnston, an investigative journalist and author who specializes in economics and tax issues, speaks to in the following article (excerpt).

...while tax rate cuts can stimulate the economy immediately and, if well designed, encourage the savings and investment to support long-term growth, they can also do harm. When cuts are financed with borrowing, as they have in the post–Ronald Reagan tax-cutting era, it just pushes tax, plus interest, into the future. How taxes are cut matters too. Tax cuts can discourage work, create windfalls for existing investments without encouraging new investment and tilt the playing field in ways that produce unproductive investments. (Tax cuts can do more harm than good by David Cay Johnston. al Jazeera America 9/18/2014).

As opposed to high tax rates discouraging work because high wage earners don't like it that the government takes so much, the reverse is actually closer to reality... high wage earners may be likely to work less if they are taxed less. Because why work as hard as you did (pre-tax cut) when you can work less and net the same money?

By the way, yes, this applies to high wage earners, because these are the kind of workers who have the ability to set their own hours. At least more often than middle and lower income wage earners, who ususlly can only work the hours they are given by their employers.

In regards to tax rate cuts that stimulate, these would be tax cuts on middle and lower income wage earners, because most working people spend all that they earn. With more money in their pockets, these workers are spending more (and thus stimulating the economy more).

Rich people, on the other hand, are more likely to stash that money in a (possibly offshore) bank account, or look for an investment they can put their tax cut money into... which, might sound like it would be economically stimulative, but could actually be economically harmful. Very harmful, in fact.

[Author] Larry Beinhart... looked over the history of tax cuts and economic bubbles, and found a clear relationship between the two. High top marginal tax rates (generally well above 60%) on rich people actually stabilize the economy, prevent economic bubbles from forming, prevent economic crashes, and lead to steady and sustained economic growth (and steady and sustained wage growth for working people). On the other hand, when top marginal rates drop below 50 percent, the opposite happens. As Beinhart noted in a November 17, 2008 article on the Huffington Post, the massive Republican tax cuts of the 1920s (from 73% to 25%) led directly to the Roaring '20s stock market bubble, temporary boom, and then the crash and Republican Great Depression of 1929. (The Great Tax Con Job by Thom Hartmann. Huff Post Politics 5/25/2011).

According to Larry Beinhart's 2008 article (the one Thom Hartmann references)...

Large income tax cuts are followed by a bubble and then a crash. High income taxes correlate with economic growth. Income tax increases are followed by economic growth. Moderate income tax cuts are followed by a flat economy. (Tax Cuts: Theology, Facts & Totally F**ked by Larry Beinhart. Huff Post Politics 12/18/2008).

george w. bush, aside from totally f*cking us by creating ISIS when he ordered the invasion of Iraq, also f*cked us by lowering taxes on the wealthy, which (along with the deregulation of Wall Street) lead to the housing bubble that crashed the economy.

Tax cuts on high income earners historically lead to bubbles and crashes, as Beinhart shows in his article. His examples are Hoover, Reagan and bush the lesser... all presidents whose tax cuts were followed by recessions. (The Bush Tax cuts CAUSED the economic crisis).

Given these facts, why the hell would anyone argue against raising taxes on wealthy individuals as Willis Hart does, saying there are "negative consequences"? The consequences are CLEARLY negative when taxes are too low and POSITIVE when they are higher. And because tax rates have been too low since the Reagan presidency is why middle class wages have been largely stagnant for the past 30-plus years... and why lower-income workers are losing ground (see chart below).

Bernie Sanders knows this. Instead of being a "rank fallacy", Bernie Sanders, in advocating for higher marginal tax rates, is an economic truth-teller. And Senator Sanders' truth-telling on this matter strongly illustrates why this man should be our next president. Hillary Clinton, while she might be in favor of a small increase, isn't a Progressive.

I'd say it's doubtful Hillary would support the Congressional Progressive Caucus' (CPC) People's Budget which "creates fair tax rates for millionaires and provides needed relief to low- and middle-income families". (The People's Budget "returns to Clinton-era tax rates for households making over $250,000 and implements new brackets for those making over $1 million"... the top rate, for people making more than $1 billion, is 49 percent).

Bernie Sanders, given that he's he is one of six Progressives who established the CPC in 1991, absolutely would support the People's Budget (or some variant of it that raised taxes on higher-income earners up to around 50 percent). A president Sanders would push a budget that would stop the very negative consequences of bubble-and-bust caused by taxes that are too low. Frankly I'd call ignoring this consequence is "rank fallacy" of the Hartster, not Bernie Sanders. Bernie Sanders acknowledges this truth, while Willis embraces Libertarian/Conservative lies about it/pretends the opposite is true.

Image: This chart shows that in recent decades the rich are getting richer, the middle class and poor got richer, then poorer... with the poor worse off in 2010 than they were in 1983... so poor households are worse off than they were decades ago, both in relative and absolute terms. (Chart source: The Lost Decade of the Middle Class. Pew Research Center 8/22/2012).

OST #72

The Rank Fallacies of Willis Hart #2: Bernie Sanders Truth-Telling Re Poor & Middle Class Being Worse Off

This commentary concerns an 8/22/2015 post by the Libertarian blogger Willis Hart in which he calls out Democratic presidential candidate Bernie Sanders for a number of supposed "fallacies" that aren't fallacies.

The first of these bogus claims by Hart was that Bernie Sanders said "the economy is a fixed pie and that the only real question is how to divvy it up". This is something Senator Sanders has never said. He speaks of income inequality, not divvying up fixed pies (see OST #68 for my full response).

The second of Willis' phony "rank fallacies" as follows.

Willis Hart: The Rank Fallacies of Bernie Sanders... b) That the poor and middle class are worse off than they were decades ago. (8/22/2015 AT 3:13pm)

The poor and middle class ARE worse off than they were decades ago... relatively speaking. Bernie Sanders has never claimed that they are worse off in absolute terms.

As illustrated in the charts below, clearly middle and lower class incomes have been steadily declining... on a relative basis. Bernie Sanders speaks of a "40-year decline of our middle class and the growing gap between the very rich and everyone else", and (as these charts show) this ABSOLUTELY is the case.

The rank fallacy spreader here is Willis Hart. Although the economy continues to grow, most of those gains have gone to the top, with the middle class losing ground since 2010 (The Lost Decade of the Middle Class: Fewer, Poorer, Gloomier) and the poor actually being worse off than they were in 1983.

Image1: The middle class's share of aggregate income has fallen. Relatively speaking, the middle class is worse off than they were decades ago. (source of chart: Census Report Shows Middle Class Decline in 2011 by Benjamin Landy. The Century Foundation 9/13/2012).

Image2: This chart shows that in recent decades the rich are getting richer, the middle class and poor got richer, then poorer... with the poor worse off in 2010 than they were in 1983... so poor households are worse off than they were decades ago, both in relative and absolute terms. (Chart source: The Lost Decade of the Middle Class. Pew Research Center 8/22/2012).

OST #70

The Rank Fallacies of Willis Hart #1: Bernie Sanders Never Said The Economy Is A Fixed Pie

This post concerns an 8/22/2015 commentary by the Libertarian blogger Willis Hart in which he calls out Democratic presidential candidate Bernie Sanders for a number of supposed "fallacies".

Problem is, instead of giving any "rank fallacies", Willis either lies (by attributing views to Bernie Sanders he has never expressed) or by insisting that ideological differences equate to a "fallacy" (Bernie doesn't agree with Willis' Libertarian views because Bernie Sanders isn't a Libertarian).

The first of these phony "rank fallacies" as follows.

Willis Hart: The Rank Fallacies of Bernie Sanders... a) That the economy is a fixed pie and that the only real question is how to divvy it up. (8/22/2015 AT 3:13pm)

Bernie Sanders has never said these words. I'm guessing that Willis believes Bernie Sanders speaking against the sky-high pay of some individuals is the same as saying the economy is a fixed pie? It isn't. Bernie Sanders opposes people taking a bigger slice of the GROWING pie than they deserve. Everyone knows that the US economy grows. When it shrinks that's called a recession, and when it doesn't grow that's stagnation.

But Willis scoffs at the idea that sky-high CEO pay reduces worker pay. According to Hart, "in the larger scope of things [the high pay is]... exceedingly insignificant". But Willis is wrong.

Paying a CEO an exorbitant amount of money does not magically increase the size of the "pie", it naturally (and logically) leaves less money for the workers. When you consider that CEO pay has grown 90 times faster than typical worker pay since 1978 (according to a 7/1/2015 EPI article, these individuals are OBVIOUSLY taking an increasingly larger size of the pie.

So, even though the pie is growing, some are taking a larger slice of that growth than others. That the pie is being divvied up unfairly is what Bernie Sanders is saying! Further proof that this is what is happening is the fact "that in 2009 and 2010, the first year of the current recovery the one percent captured 93% of the income growth".

According to a FED survey of consumer finances, the gap between rich and poor Americans widened during the recovery.

Average... pretax income for the wealthiest 10% of U.S. families rose 10% in 2013 from 2010, but families in the bottom 40% saw their average inflation-adjusted income decline over that period. (Fed: Gap Between Rich, Poor Americans Widened During Recovery by Ben Leubsdorf. 8/4/2014 The Wall Street Journal).

Bernie Sanders has NEVER said the economy doesn't grow. He has never said "the economy is a fixed pie and that the only real question is how to divvy it up". This is one of Willis Hart's infamous strawman.

The United States is the world's largest economy. Yet, in the last two decades... its growth rates have been decreasing. If in the 50's and 60's the average growth rate was above 4 percent, in the 70's and 80's dropped to around 3 percent. In the last ten years, the average rate has been below 2 percent... (Trading Economics).

The rate of growth has been steadily decreasing, while salaries for those at the upper end have been increasing at a MUCH faster rate than the salaries of everyone else. And, since the recession "ended", the wealthy (who saw their incomes go down... as EVERYONE'S did) have recovered (they got 93% of the income growth), while those at the bottom have seen their incomes go down.

Bernie Sanders is RIGHTLY concerned about this. For Willis to call this concern a "rank fallacy" is proof of Hart's rank stoogery in supporting the Libertarian oligarchy-serving fallacy of dismissing the ever-increasing wealth divide.

An example of an ACTUAL statement by Bernie Sanders... as opposed to words suck in his mouth by the lying strawman-loving Willis Hart?

Bernie Sanders: The issue of wealth and income inequality, to my mind, is the great moral issue of our time. It is the great economic issue of our time and it is the great political issue of our time. (Excerpt from a 7/1/2015 speech in Madison Wisconsin at the Alliant Energy Center before an estimated at 10k people).

In regards to this ACTUAL statement concerning income inequality (not fixed pies), PolitiFacts says "mostly true".

Politifact: [Sanders'] claim repeats a finding from a study by two internationally known economists that were supported by two other major economists we contacted. But the study has been criticized, for example, for not including Social Security in the wealth calculations. For a claim that is accurate but needs additional information, a rating is Mostly True. (Bernie Sanders, in Madison, claims top 0.1% of Americans have almost as much wealth as bottom 90%).

A rating of "mostly true" is leagues away from a "rank fallacy", you liar Willis! This is why the Hartster's claim of "rank fallacy" gets a rating of "strawman-pants-on-fire" from me.

Image: French economist Thomas Piketty has warned that unfettered capitalism will lead to even more grotesque wealth inequality because returns on investments like stocks and real estate - stuff the wealthy own - generally outpace economic growth and wages. That warning is looking more and more like a reality in the US, which has seen much more of its income growth going to its top 1 percent of earners in recent decades than any other developed country.

OST #68