Sunday, March 17, 2013

Fuzzy Math In Washington D.C.

While everybody knows Washington D.C. is the capital of the United States, few realize that Washington D.C. is also the capital of fuzzy math, particularly as practiced by that city's politicians.  A couple of tax proposals introduced by our Congressional representatives this past month are stark indicators of how the numbers work in Washington D.C.

Perhaps the most mind numbing example of the practice of fuzzy math is the Democratic proposal  to delay the sequester for the rest of the  year.  The cost of the sequester delay was $100 billion, to be split between alternate spending cuts of $50 billion and tax increases of $50 billion.  The announcement from the bill's authors proudly proclaimed that the $50 billion tax increase would be funded almost entirely by implementing the Buffett rule, which would take taxpayers whose income is largely taxed at 15 percent due to high concentrations of dividend income and capital gains, and subject them to a 30 per cent tax rate.  This sounds like a neat and easy method of putting the burden of the sequester delay on the very few super rich.  And aside from the "no tax increase, nowhere on nobody" purists, this might sound like a reasonable solution.  Except for the fact that the Buffett rule in fact affects very few taxpayers.  While it makes wonderful news headlines, there are not very many Warren Buffetts or Mitt Romneys who pay such a low overall tax rate.  In fact, there are so few of them that would be affected by the passage of a Buffett rule, that enactment of the Buffett rule would only raise a paltry $5 billion a year in tax revenues.  So how do they come up with $50 billion in revenues from this proposal?   Why by counting ten years worth of Buffett rule revenues in their equation. Yep.  Only in Washington can you balance the budget by offsetting one year (well, really ten months) worth of spending cuts against ten years of revenue increases.

The other example of fuzzy math is a proposal by Senator Levin of Michigan to close a tax loophole that doesn't exist.  Now in Washington D.C., politicians generally stay clear of raising tax rates, but have no qualms about closing "tax loopholes", even though most of those "loopholes" were consciously enacted by Congress to encourage selected economic behavior.  For example, dollarwise the biggest corporate tax "loophole" allows an accelerated depreciation writeoff of plant and equipment, which was specifically designed by Congress to encourage businesses to buy more plant and equipment.  Other loopholes encourage alternative energy sources, such as ethanol or wind energy.  In any event, the object of closing a tax loophole is to raise government revenues.  The loophole that the good senator wants to close is the one that permits corporations to take a bigger tax deduction for stock options granted to employees than the deduction which is allowed in computing the company's earnings reported to shareholders.  Again, this sounds like a potentially reasonable way to increase tax revenues.  Except that when an employer gets a tax deduction for stock options, there is a equal and corresponding amount of compensation income recognized by the employee for tax purposes.  In other words, closing this tax loophole raises zero dollars in revenues for the government.  Or as Billy Preston said, nothin from nothin leaves nothin.

So when the talking robot in "Lost In Space" said "that does not compute" we know it was talking about our politicians in Washington D.C.  I'm thinking we should take all our politicians and spay and neuter them so they won't beget any more.

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