The Tea Party Declares Victory; Obama has Delivered

The three core values of the Tea Party movement are Fiscal Responsibility, Constitutionally Limited Government, and Free Markets. So state Mark Meckler and Jenny Beth Martin, founders of Tea Party Patriots, in their book Tea Party Patriots: The Second American Revolution. To further make the point, they state that “Issues like abortion and gay marriage have little to do with our three core principles, and therefore we leave these issues for other groups to advocate.”

The authors make much of what a trillion dollars means, and how damaging a trillion dollar deficit is. In 2012, when the book was published, the economy was still weak, and the deficit was still around a trillion dollars. Since then, the economy has sputtered to a bit of life and the deficit has plummeted by over 500 billion dollars. That will make it a deficit of just under 3% of GDP, a number which is higher than 1994-2000, when Clinton was president, higher than the three years from 2005-2007 of Bush the Younger’s administration, and higher than the years 1977-1981, when Carter was president. But it is still lower than the years 1982-1989 under Reagan, and 1990-1993 under Bush the Elder. Some have suggested the budget may be in balance for the Obama administration’s final budet for FY 2017, though CBO predictions show a slight rise from the 2014 budget. Even the Cato institute has been promoting the notion that the budget could be balanced with a 2% reduction in spending each year over 10 years (the article was from 2011, before the deficit took its steep drop, so the numbers may even be better.) Clearly, the main concerns of the Tea Party Patriots concerning the deficit have been answered.

Of course, taxes might still be an issue. On a positive note, though, federal revenues are only slightly higher than the 17.4% of GDP average for the years 1974 to 2013. The levels were somewhat lower in the first few years of the administration of Bush the Younger and the first few years of the Obama administration; and somewhat higher in the latter-Carter and earlier-Reagan years, and during the Clinton administration. Also, positively, federal tax receipts and federal income tax receipts as a percent of GDP hit a low in 2009 which had not been seen 1950. It rebounded in 2010, the latest year for which  I found data. And marginal income tax rates are roughly where they’ve been since 1993, with the exception of a slight right for those making over $400,00 a year since 2013 which was missing in the years 2003 to 2012. The Tea Party should be happy that some measure of prosperity has returned to the nation without significant rises in taxes, unless we are concerned mostly with the taxes of those making over $400,000 a year.

More encouraging yet is the status of the infamous ‘47%’, those who pay no federal income taxes. As many have noted, many who don’t pay income taxes pay federal payroll taxes. As of 2010, the federal government collects as much in payroll taxes as in income taxes, about 40% each of the total tax haul, so those paying payroll taxes are contributing their share. But this is beside the point. First, those not paying federal income taxes are not contributing to the very important functions of government. Second, by not contributing, they are takers, by definition. This would include retired individuals on Social Security not making other income on which to pay taxes; they make up about 40% of the takers. Another 40% are those like the family of four making $26,400 a year (the book uses the figure $50,000 erroneously, but just a rounding error). Each of us filling out our tax forms gets the same deductions and exemptions, meaning we pay no taxes on our first $26,400 either (assuming a family of four). But just because the wealthier don’t have to pay those taxes is no excuse for the poor not to have to pay them. These individuals and families make up another 40% of the takers. (The other 20% is random, including wealthy individuals who have figured out how to game the tax system.) But even here there is good news. In 2007 the number of takers was 40%, and as that was a year of strong economy, can be considered a base. That number rose as high as 47%, but is now back down to 43% and dropping, so the maker/taker ratio is returning to healthy economy norms.

Meckler and Martin make much of the corporate tax rate and its effect on the economy, positively comparing Canada’s 16% tax rate’s contribution to its better economy. They might also have mentioned Canada’s smaller debt to GDP as a contributing factor in their positive portrayal of Canada’s economy, but they might have to also note that Canada’s tax rate is 37.5% of GDP vs. the U.S. 22%. The Canadian takeover of health care might also have an influence on the economy. But even here, there is reason to be optimistic. Although the U.S. has a high marginal corporate tax rate, the actual share of taxes the corporation pay is near historic lows. Corporate taxes used to be as much as 30% of all federal taxes collected in the 1950’s, dropping steadily to about 6% in 1983, before moving in a band in the 8-10% window since then. Corporate taxes were especially low in 2010 when Martin and Meckler were writing, and have only inched up since. So good news there, the Obama economic policy is delivering on the requirements of the Tea Party movement.

Martin and Meckler promote the idea of a fair tax, one that taxes consumption more than production. Noting that “it is a fundamental principle of economics that when you […] tax something, you get less of it,” they promote the economic virtues for the nation of having less consumption, less spending, as this will increase economic growth. They also rail against Obamacare as part of government intrusion, noting that it will regulate one-sixth of the nation’s economy (somewhat disingenuous; health care may be one-sixth of the economy, but since Obamacare only applies to those who don’t have employment-based health insurance or government-based such as Medicare, Medicaid, and Veteran’s Benefits, and that amounts to 11% of the population, Obamacare really only regulates about 1 ½% of the economy.) But not to quibble.

Of course, even though under the Obama administration the economy has taken a path not unlike that preferred by the Tea Party as outlined in Martin and Meckler’s book, it is not the Obama administration that should get the credit. Quoting Madison in the Federalist Papers, “If angels were to govern men, neither external nor internal controls on government would be necessary,” Martin and Meckler equate the Tea Party movement with the angels, noting that “Our (unfortunately necessary) role is to act as a persistent, external control on government.” That honesty and sense of responsibility plays out even more in Jenny Beth Martin’s personal history. She and her husband, having lost their business in the Great Recession, cleaned houses to make reduced ends meet, and are quite proud of doing the hard work that makes America great. It is not the government’s role to promote the general welfare of its people, and if economic circumstances mean a declining middle class and a rising class of working poor, then we should all be proud to participate.

Martin and Meckler don’t get it all right, unfortunately. They make much of the damage that big government does to the economy, singling out the two stimulus packages which are at the foundation of our economic malaise, forgetting that the economy had already collapsed when the stimulus packages were promoted, and while they might not have been miraculous, they are generally considered to have lessened the recession and are certainly not its cause. They further indicate that the recession is the result of a government grown too large, conveniently forgetting that depressions were worse and more frequent in earlier years of the republic, before large government and incomes taxes (Panic of 1819, Panic of 1837, Panic of 1873, Panic of 1901, and the Panic of 1907). They wax maleficent on the growth in foreign oil dependence, asserting this demonstrates the failure of having a Department of Energy, failing to note that foreign oil dependency has been dropping since 2005 and continues to do so. They assert that while unemployment is high, “inflation is on the rise, food and fuel prices are skyrocketing,” all while inflation rates were often so low that students of economics and history were concerned about a deflationary spiral. But perhaps their biggest failure is in assuring their readers, in 2012, that the economy was not going to get better because the whole system was rigged for failure; the economic growth and dropping of the unemployment rate indicate that their basic premise is flawed.

But these are minor issues in what is a remarkable treatise of fantasy, fallacy, and fictitiousness.