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Wednesday, Nov. 2, 2011

Myths and Facts About the Economy

Don't believe the hype about taxes, job creators or the wealthy

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Does a lie become true when it's repeated often enough?

We fear that some lies about the state of our economy have become accepted as the gospel truth because they've been endlessly repeated by ultraconservatives, right-wing radio hosts and much of the corporate-owned media.

So we're hoping that this guide to the national and state economies will help you sort out which “facts” are true or not.

Myth:
Raising taxes on millionaires will hurt small businesses and “job creators.”

Fact:
President Barack Obama proposed to raise taxes on those who earn more than $1 million annually. Only about three out of every 1,000 Americans earn that much each year. Less than 1% of small business owners actually make more than $1 million annually, so if those who do make that much end up paying a few thousand more in taxes on their million-dollar income, that is not going to hurt job creation. The vast majority of the affected millionaires has inherited that wealth or is comprised of professionals and major corporate executives, such as Fortune 500 CEOs, doctors, stockbrokers and the like. They do not own small businesses on Main Street.

Myth: Tax cuts create jobs.

Fact:
If that were true, then our economy would be booming. Ronald Reagan cut taxes in 1986, but job growth wasn't sensational. George W. Bush cut taxes and hiring didn't follow. Yet Bill Clinton didn't cut taxes—he actually raised taxes on the wealthy—and there was strong job growth while he was in office. When he left office, the federal budget was in surplus. So the facts do not support the myth that tax cuts naturally lead to job creation. In fact, the opposite may be true, since so many workers—including teachers, cops, military contractors and medical researchers—depend on taxpayer funds for their livelihood.

Myth:
Regulations are crushing businesses.

Fact:
You won't find many business owners who cry about regulations. According to surveys of businesses by the Bureau of Labor Statistics, less than 0.3% of all layoffs nationally are due to governmental regulations and intervention—that is less than three out of a thousand.

Wisconsin businesses seem to feel similarly. Just look at the survey results from the conservative business lobbying group Wisconsin Manufacturers & Commerce (WMC). According to WMC's June 2011 member survey, only 13% of its members said regulation was the top policy concern in the state. In 2008 and 2009, when Gov. Jim Doyle was in office, that number was a mere 3%.

No one likes regulation, but we all know that some regulation is necessary. Perhaps the business owners became incensed about regulations when the economy turned south because Republican politicians repeated the “death by regulations” lie over and over again on the campaign trail in 2010? You be the judge.

Myth:
Corporations pay too much in taxes.

Fact:
Corporations are paying historically low taxes. Currently, less than 10% of federal revenue comes from corporate income taxes. In 1945, that was about 35%; in 1960, about 22%; during the George W. Bush administration, it ranged from 7% to 15% of federal revenue.

That's because the effective corporate tax rates have fallen precipitously. When Dwight Eisenhower was president, corporations' effective tax rate was above 50%; that dropped to 10% in 2010, its lowest rate in 60 years.

Corporations pay even less to the state of Wisconsin's coffers. According to data meticulously compiled by the Institute for Wisconsin's Future (IWF), Wisconsin's corporate income taxes are 12% below the national average. In fact, about two-thirds of corporations in Wisconsin do not pay income taxes in the state because they're able to use tax loopholes to reduce their tax payments to the state.

You may recognize some of the corporate giants that do not pay Wisconsin income taxes. According to IWF's ongoing research, SC Johnson, Rockwell Automation and Snap-on, for example, haven't paid state income taxes in at least a decade. Kimberly-Clark has only paid $2.9 million in state income tax between 2000 and 2009, despite earning profits of $19.8 billion in that same period. IWF found that SC Johnson had been using tax loopholes here and in various states to make its Wisconsin operations look less profitable and therefore not have an income tax liability in the state.

That may be why corporate income taxes account for only 7% of the state's revenue. The biggest source of Wisconsin's revenue? Individual income taxes—the taxes paid by you and me—account for half of Wisconsin's general purpose revenue.

Even worse? Gov. Scott Walker and the Republican-led Legislature have handed about $200 million in additional tax breaks to corporations and the wealthy in the current state budget. That amount will grow once they're fully phased in, hamstringing future governors from generating enough revenue to cover expenses.

Myth:
President Obama has created dangerously high levels of long-term debt that must be paid down immediately so we don't pass it on to our kids.

Fact:
Actually, the debt really ramped up under George W. Bush. After coming into office with a budget surplus, Bush quickly cut taxes, especially for the wealthy, and in short order the budget was in deficit—requiring government borrowing. After eight years in office, the federal debt increased by $5.07 trillion (that's trillion with a “T”), thanks in large part to two wars that he didn't pay for ($1.4 trillion), tax cuts ($1.8 trillion), his 2008 stimulus package ($773 billion), TARP and other bailouts ($224 billion) and the Medicare drug benefit ($180 billion).

In contrast, President Obama inherited the worst recession since the Great Depression of the 1930s. The total cost of Obama's new policies, projected to 2017, is $1.44 trillion. That's due to $711 billion in stimulus spending, $425 billion in stimulus tax cuts, $278 billion in discretionary spending and $152 billion in health care reform and entitlement changes.

Now, is this something we should tackle in the midst of a recession? No. Definitely not. The U.S. government has absolutely no problem selling its debt, especially now that the Euro is under attack. Right now, the federal government needs to stimulate the economy so that more people will work, pay taxes and not rely on the taxpayer-funded safety net. We need to stimulate the economy, create jobs, including for more teachers and firefighters, and grow our way out of deficit.


Myth: Obama's budget is in the red and we need to reduce spending so that we're living within our means.

Fact:
Once again, much of the federal government's red ink is due to Bush's tax cuts, which drastically reduced the amount of revenue the federal government is taking in.

When Bush took office, Clinton handed him a $128 billion budget surplus. When Bush left office, he handed Obama a $1.4 trillion budget deficit, which is the difference between its operating expenses and its revenues. That shortfall is now $1.5 trillion, slightly higher than Bush's deficit.

Obama could begin to balance the budget by raising more revenue, especially on the people who can afford to pay taxes and who have done well in America. But Republicans in Congress won't allow that to happen, even if the tax is levied on those who earn more than $1 million a year. So who, exactly, is to blame for the red ink?

Myth: “We're broke,” said Gov. Scott Walker, upon taking office.

Fact:
The state of Wisconsin is not broke, contrary to what Gov. Scott Walker argued when he took office. Earlier this year he falsely declared the state to be broke to create an “emergency” so that he could call a special session of the state Legislature and attempt to eviscerate public employee unions. The budget Walker inherited could have easily been balanced by making the payment for the state's Patient Compensation Fund after July 1, as any businessperson would have done.

Wisconsin has a revenue problem, due to the slowdown in the economy. Unfortunately, Walker has not balanced his budget by raising more revenue—especially revenue coming from the wealthiest Wisconsinites and profitable corporations.

Policy think tanks have offered many revenue options that would only affect the wealthy, including raising taxes on the top income earners, raising taxes on profits from investments, and closing tax loopholes that allow corporations to shift profits out of Wisconsin so they can dodge taxes here.

But instead of asking the wealthy to pay more, Walker has chosen to balance his budget by reducing public employee pay (in the form of higher benefits contributions), cutting spending on public education, mass transit and local aids, and jeopardizing BadgerCare.

In addition, Walker has even turned away $1.2 billion in federal investment in Wisconsin, primarily because of his rejection of $800 million in high-speed rail funds and almost $500 million in Medicaid funds. This $1.2 billion would have created many, many jobs in Wisconsin.

So will Walker's budget work? The state has already warned that it's going to be short on funds and is asking the UW System to take the brunt of the hit. Walker's Department of Workforce Development secretary announced that the governor would likely not meet his pledge to create 250,000 new jobs by the end of his term. (The secretary, Scott Baumbach, resigned after telling the truth.) Local governments and schools are struggling to make ends meet, since they received reduced aid from the state at the same time Walker imposed property tax caps on them. And public employees are earning less, which will result in less money being spent in local businesses.

Instead of asking for some shared sacrifice, Walker is putting the burden on institutions and programs for education and public health.

Myth:
Roads pay for themselves through the gas tax and other user fees, but forms of public transit—like Amtrak and the Milwaukee County Transit System—have to be supported through taxes.

Fact:
Roads are heavily subsidized by the taxpayer. According to data analyzed by 1000 Friends of Wisconsin, only 10% of roads (state roads) are supported through user fees. When all roads are considered, between 41% and 55% of all road funds come from non-user sources, such as the property tax and sales taxes. Additional funds were borrowed.

In addition, roads cost a lot of money. “Each year roads consume $779 per Wisconsin household in non-user taxes,” the organization found. “The comparable figures for user fees flowing to transit and other uses is $50 and $34, respectively.”

Now think about Walker's shortsighted high-speed rail rejection. Walker refused the $800 million in federal funds because the state might have to pay roughly $7 million a year to operate the line. That's less than 1% per year of state funding to leverage a huge sum of money. In the end, high-speed rail provided a far better return on investment than roads. Even worse, Walker lost $99 million for the Hiawatha service to Chicago and other upgrades that had been included in the high-speed rail package. The state's on the hook for those upgrades, which when amortized still come out to more than $7 million per year.

Myth: The downturn in the economy is affecting all of us, from the wealthiest Americans to the poorest.

Fact:
The sad truth is that the wealthiest Americans are making out like bandits while middle-class and low-wage earners are taking the biggest hits. While workers' wages have been more or less stagnant since 1979, the top 1% has seen their after-tax income increase almost 300% during the same period.

“Wage inequality is growing for several reasons, including long periods of high unemployment, globalization, the shrinkage of manufacturing jobs and the expansion of low-wage service jobs, and immigration, as well as the lower real value of the minimum wage and fewer and weaker unions,” concluded the nonpartisan Center on Budget and Policy Priorities.

It's not hard to see the results in our neighborhoods.

In Wisconsin, child poverty has spiked from 11.8% in 2000 to 19.1% last year. Overall unemployment languishes at 7.8%, although the numbers of jobless black men in Milwaukee is a shocking 53%, according to Professor Marc Levine at UW-Milwaukee.

Those who have a job aren't seeing any real gains.

According to the IWF, the average worker's pay has increased only 2%, from $38,000 to $39,000, between 2000 and 2009 (adjusted for inflation). Yet the average Wisconsin CEO's pay increased 21% during the same period. The pay disparity is even more outrageous for some of the companies that dodge Wisconsin income taxes. For example, Snap-on's top executive's pay increased 101%, from $2.1 million to $4.3 million, from 2000 to 2009; Rockwell's CEO earned $2.8 million in 2000 but $6.8 million in 2009, a 138% increase; and Kimberly-Clark's top executive earned $2.6 million in 2000 but a whopping $11.4 million in 2009, a 339% increase.

At the same time, however, Snap-on and Rockwell reduced their workforce 21% and 54%, respectively, while Kimberly-Clark added a modest 2% of workers. So these companies have chosen to not pay state income taxes and reward their CEOs with lavish pay packages instead of investing in their workers.