Daily Archives: 9. September 2011

Teapublican Lie #3.

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“Cutting deficits and the national debt will create jobs.”

This is the most fashionable load of bull excrement being sold by Teapublicans. But nothing could be further from the truth.

Certainly, the debt has a chilling effect on the long-term prospects of our economy. But the debt does not constitute a crisis. In fact, the total debt equals roughly one year of the US GDP. To relate that to a family’s finances (as Teapublicans are so fond of doing), it’s akin to a family earning $100,000 per year holding a $100,000 mortgage.

Now let’s look at what severe cuts to our deficit and debt will do to our economy in the short term.

When the government cuts spending it cuts the budgets of government agencies. That forces those agencies to lay off many of their employees. So, inevitably, there’s a net loss of jobs. Further, the decrease in employees results in less oversight of banks, food and drugs, Medicare payments, etc. – all of which make our economy and taxpayers less safe. 

Moreover, government cuts can have a negative effect on private companies that act as vendors to those agencies. For example, large cuts to the Department of Defense will cause the DOD to suspend weapons acquisition and development. That means defense contractors will have to make dramatic cuts to their payroll.

Part of the reason for our jobless recovery from Bush’s Great Recession is that state and local governments are experiencing a loss of revenue from taxpayers. As a result, those governments have been laying off workers even faster than private companies can hire them.

So, in the short term, what do you expect a $1 trillion cut to our deficit will do to our economy? Obviously, it will cost tens of thousands of people their jobs. Maybe yours!

Teapublican Lie #2.

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“US corporate taxes are the highest in the world.”

You’ve heard it over and over during the past 2-1/2 years. Not only from Teapublicans. But from supposedly authoritative sources such as the US Chamber of Commerce. So let’s examine this myth more closely.

While it is true that the corporate income tax rate for the US is 34.2% (which includes a state tax rate of 6%), that is not significantly higher than the corporate tax rate for many other developed nations, and it’s less than Japan’s. Brazil has a rate of 32.5%; France and Germany have tax rates of more than 31%; Australia 30.8%; Canada 28% and the UK has a rate of 25.4%.

More to the point, this is not the rate that most large US corporations actually pay. In fact, the effective tax rate for large US corporations (after deductions and subsidies) is less than 18%!

For example, 12 major corporations made $171 billion in profits from 2008 to 2010, yet had a negative income tax rate of 1.5 percent! And the most egregious example is GE. Last year the global conglomerate generated $10.3 billion in pretax income, but ended up owing nothing in US federal income taxes. In fact, it recorded a tax benefit of $1.1 billion!

Moreover, employer payroll taxes in the US are just 7.7% – less than Korea, India, Mexico, Poland and most of the developed world. And since the 1940s, the corporate share of all federal income taxes has dropped dramatically. In 1940, corporations paid 43 percent of all the federal income taxes collected in the US. But, in 2010, that percentage was only 8.9 percent! Indeed, the US raises less corporate tax revenue than most developed countries.

So though the US has the world’s 2nd highest corporate income tax rate, the rate actually paid by US corporations is much lower. In fact, our effective tax rate is less than that of even Mexico, India, Vietnam, Korea, China and Russia. And that’s the truth!