Monday, February 28, 2011

Rand Paul on David Letterman, Part 1

No one wants to pay their taxes except David Letterman. Thank goodness he isn't running for office or that would become an untenable position for him to hold. David Letterman's political leanings are weakened by his desire to keep his show less political except in jest.

Rand Paul doesn't want to pay his taxes but he wants to balance the budget. You see, shrinking government is the way to make our economy work better because private citizens know better how to spend their money. The government wastes it. Therefore we should shrink our government. While this is a working theory conservatives have been working under since President Ronald Reagan it is given in response to Letterman' s question as to why we should keep the tax breaks for millionaires while firing teachers and other government workers (mostly composing the middle class). The answer vaguely adresses the question in ideological terms but utterly fails when it comes to specifics.

Again, most of the budget is composed of apparently non-negotiable items such as interest, entitlements, tax breaks (if that can be termed a budget item) and defense. Why are Bush's tax breaks non-negotiable? Rand Paul's basic response is that everyone agrees we are overtaxed. This general response seems to be popular but if the Republicans had been in power for say 8 years and they have gotten the nation further into debt, when do we pay for all of this? Since the time of President Reagan, Republicans have been arguing the same thing Rand Paul is arguing, yet, the part of the budget we pay for interest on our debt is substantially worse. And we still have to pay for it. Instead we cut taxes? What is the tea party saying that hasn't been said and not acted on by the Repbulicans. Is the Tea Party really just saying, "NO, trust us, not Republicans. It's different this time."

Rand's best and specific argument was this: “If you look at the taxes, if you look at the income tax, the top one percent pay about a third of the income tax. The top 50 percent -- those who make $70,000 and above -- pay 96 percent of the income tax, so the middle class and above are paying all of the income tax.” David Letterman's reply was "I think there’s something wrong with those numbers. I don't know what it is exactly, but I'm pretty sure there’s something wrong with them. Because you’re talking about [applause]-- thank you, you're applauding my stupidity. God bless you." His response was humorous, self deprecating and true in that David Letterman is not a political or economic pundit.

The problem is that the obvious question is how skewed is it that this statistic is true?  The median income is roughly what Rand Paul said it was, if I have any memory at all, which is debatable. That means that 50 percent earn more and 50 percent earn less.

To make this easy for me with my old math, let's do this by example, assume 10 people earning 10 different incomes, the median being 5.

The first person earns 1 dollar, the second 2 dollars. etc.  Then let us assume there is a flat tax, non progressive absolutely fair in every way the anyone could think of. Let's do 30 percent tax rate..

Lower half
Person 1-  income $1, tax ($.30)
Person 2 - income $2, tax ($.60)
Person 3 - income $3, tax ($.90)
Person 4 - income $4, tax ($1.20)
Person 5 - income $5, tax ($1.50)

Upper half
Person 6 - income $6, tax ($1.80)
Person 7 - income $7, tax ($2.10)
Person 8 - income $8, tax ($2.40)
Person 9 - income $9, tax ($2.70)
Person 10 - income $10, tax ($3.00)

Total tax paid = $16.50
Total paid by lower half = $4.50
Total paid by upper half = $12.00
Percentage of tax paid by lower half:  27.2%
Percentage of tax paid by upper half : 72.7%

Holy heck, can that be right?  Based on Rand Paul's best logic the fairest possible tax on an evenly distributed sample makes it look like we should be tax cutting the upper half and certainly not the lower.

That's not the real problem though. Because we owe more than $16.50 (remember we have borrowed in the past and are currently running a deficit) we surely can't afford a tax cut to help those poor rich guys paying 72.7% of our taxes.

But let's do it anyway. Let's give 'em an across the board tax cut, make it "fair" and give everyone an across the board 10% tax cut. Oh, holy mackerel, the upper half gets 72.7% of the tax cut. (President George W. Bush style, head 'em up move 'em out, rawhide! Hyah, RAWHIDDDDE! HYah...Sorry, got a little parenthetically carried away.) Oh no, now we are deeper in debt and the economy is tilting towards disaster. Should we pump money into the economy, (Oh heck yes, says President George W. Bush in the biggest ooops moment in history) Well, duh, yeah.  But how do we pay for that pumping of the money which makes our debt even higher. Cut government. Ummm.. but not defense, and of course, interest..., oh heck. I'm getting tired of explaining this.. let's go to Wikidpedia.
There are two types of government spending — discretionary and mandatory. Discretionary spending, which accounts for roughly one-third of all Federal spending, includes money for things like the Army, FBI, the Coast Guard, and highway projects. Congress explicitly determines how much to spend (or not spend) on these programs on an annual basis. Mandatory spending accounts for two-thirds of all government spending. This kind of spending is authorized by permanent laws. It includes entitlements like Social Security, Medicare, and Food Stamps — programs through which individuals receive benefits based on their age, income, or other criteria. Spending levels in these areas are dictated by the number of people who sign up for these benefits, rather than by Congress.
1/3 of the government spending can actually be touched, even when we include military. Actually it's closer to 38 percent according to this chart from the Congressional Budget Office for FY2008:

Non-defense discretionary spending, all we can hope to cut, is roughly 18%, or statistically insignificant enough to round it down to almost "none" (being the opposite of "all") using the Rand Paul rounding process.This same rounding process was used by House Republicans so they could say they kept their campaign promise by cutting $61 million instead of $100 million. (Only when rounding up to the closest 100 million, as Rachel Madow so humorously stated it.)

How much of the FBI do you think we should cut? hmmm

Time to tax more? Nope, the Tea Party is a tax revolt." Less taxes, less taxes" or we could say "deeper into debt, deeper into debt." While David Letterman is lampooned on Tea Party sites for not knowing specifics while Rand Paul was giving him an "economics lesson," please, for the love of our children, let's look upon snake oil salesmen a little suspiciously even if we aren't sure what's in the children's cough medicine we are buying.

Thanks Dave. Sometimes you just need to put them on the air and say "huh?"