TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, June 20, 2012

Johnston: America's Long Slope Down

Reuters:  America’s Long Slope Down, by David Cay Johnston:

A broad swath of official economic data shows that America and its people are in much worse shape than when we paid higher taxes, higher interest rates and made more of the manufactured goods we use.

The numbers since the turn of the millennium point to even worse times ahead if we stay the course. Let’s look at the official numbers in today’s dollars and then what can be done to change course.

First, incomes and jobs since 2000 measured per American:  IRS data show that average adjusted gross income fell $2,699 through 2010 or 9%, compared to 2000. ... Wages per capita in 2010 were 4.3% less than in 2000. ... In May, nearly 23 million workers, 14.8%, were jobless or underemployed, the Bureau of Labor Statistics reported. ... Now let’s look at debt per American since 2000 using Federal Reserve data:

Mortgage debt grew 51% through 2010, even though incomes and wages fell, which should result in steady or lower housing prices, not higher prices. ...

And what of taxes? ... [M]easured per capita, the IRS data show a pattern of shrinking numbers, with modest upticks in 2010. Individual income taxes in 2010 averaged $2,995, down $1,654 or almost 36% from 2000. ...

The bottom line: less income, hardly any more jobs, sharply increased mortgage debt and Washington ledgers awash in red ink as voters are asked to endorse even more tax cuts.

How many years of evidence does it take to establish that a policy worked or failed? Will continuing our current tax, credit and trade policies produce favorable results in the future? Will they produce higher incomes?

My reading of this and tons more data is that the Bush tax cuts utterly failed, the Fed’s artificially low-interest rate policies under presidents Bush and Obama do far more damage than good (especially to savers), and that the United States is harmed both by the imbalance in the trade relationship with China and scores of trade agreements with South Korea and other low-wage countries that are deeply flawed at best.

We need to recognize that the tax cutters were snake oil salesmen, the Federal Reserve an enabler of damaging debts and that bilateral trade deals are written of, by and for global financiers, not workers.

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It's ridiculous to say this is somehow evidence of the failure of the tax cuts. They could be miserable policy, but this doesn't say anything nor anything else Johnston has written on the matter. There is no rigorous analysis Johnston has ever done on anything.

Also, the graph could have at least shown the change in after-tax (i.e., disposable income).

Posted by: anonymous | Jun 21, 2012 7:51:41 AM

It would be more relevant to compare income to total housing expense.

I'm in my 30's. I don't like the size of my mortgage, but at below 4% interest on a 30 yr, the payments are very manageable. My total monthly housing expense (exluding taxes) is less than I paid for my first studio apt out of college...

I wouldn't be surprised if my monthly housing expense was lower as a % of income than it was for my parents many years ago.

Posted by: lv | Jun 21, 2012 8:52:12 AM

If a policy does not work, you cannot infer that its opposite would have had a better result or that its opposite would have better results if adopted going forward.

The classic case is the California Department of Transportation in the 1970s. Its director observed that no matter how many new freeways they built, they were always overcrowded from Day One. So she stopped building new freeways. Stupid, stupid, stupid. This article's logic is the same. It's faulty.

When your only tool is a hammer, everything looks like a nail. Tax rates aren't the only factor influencing the economy. They aren't even near the top of the list, in my opinion.

Posted by: AMTbuff | Jun 21, 2012 12:11:03 PM

Perhaps DCJ is a nice guy, but when is Reuters going to see through his superficial analyses of taxes and economics and put an end to our suffering of his articles?

Posted by: Woody | Jun 21, 2012 1:11:54 PM

Start your graph at the height of a bubble and end it at the bottom of a burst and you can fudge all sorts of conclusions.

And I second "anonymous", any income or income-disparity graphs should only chart after tax income.

Posted by: Yo Gabba Gabba | Jun 21, 2012 2:11:58 PM

I did not look at who wrote this before reading it. Then I got to this part: "[m]y reading of this and tons more data is that the Bush tax cuts utterly failed". I said to myself, "who wrote this, David Cay Johnston?" Sure enough when I scrolled up, there was David Cay Johnston in the byline.

Posted by: A. Non | Jun 21, 2012 6:57:17 PM

The byline "David Cay Johnson" just seems to flip some people out all by itself. I have a problem with Johnson's article: It isn't news.

GDP averaged 1% more during the higher tax Clinton regime than the lower tax George Bush regime. That's just a fact.

The budget deficit is largely caused by the lower tax receipts from the depression. The next biggest cause are the Bush tax cuts. (Now extended by President Obama). The third leading cause is the decision by president Bush to finance two wars entirely on credit.

Posted by: jimharper | Jun 22, 2012 11:48:14 AM