Thursday, April 28, 2011

Paul Ryan's sophistry:

Unfortunately, the reporters out there are not mathematically sharp enough to meaningfully critique Paul Ryan when he spins his policies. For instance, here he is on CBS: (emp add)
[CBS' Nancy Cordes pointed out that Ryan's budget calls for a huge reduction in top tax rates]

Q: Well, 35 to 25 percent is a big cut.

RYAN: But, in exchange for losing their tax shelters. So, we're saying, we call it revenue neutral tax reform. ... So we're saying, in exchange for losing their tax shelters, the wealthy and corporations get no tax shelters, we lower everybody's tax rates so we have a better economy. So we have better economic growth. So we don't tax our producers more than our foreign competitors tax theirs. So nobody's talking about cutting taxes for the rich. We're talking about reforming the tax code, cleaning it up, keeping revenues where they are. ...
Here's the problem:

revenue neutral - that means in this case that the total revenue from everybody stays the same
no tax shelters - that means eliminating deductions
lower tax rates - that means the rate applied after deductions (if any) are applied

It all sounds unthreatening, perhaps even attractive, but it hides a potential screwing of the middle class and big rewards for the rich. And in Ryan's plan it isn't potential, it's real.

The key is "rates" and "deductions". The basic formula is
If you lower the RATE and reduce the DEDUCTIONS, what's the net result? It depends on what the before and after figures are, but you can easily construct two formulas - one for the rich and one for everybody else - that has the rich paying less, everyone else paying more, with the total unchanged ("revenue neutral"). That's what Ryan's plan does, but not too many people are aware of that fact. He should be called out on it.

As far as Ryan's "nobody's talking about cutting taxes for the rich", that's because talking about it would be political poison. But it's what his plan does.

CODA: There's also the issue of Ryan not specifying what deductions he'd reduce or phase out, making it more likely that his budget would make the debt even worse, but let's put that aside for now.


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