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Tuesday, December 7, 2010

The Economy of The Crow: Bird Brains Want to Throw Away $116 Billion A Year to Benefit The Richest 1.3% 'Small' Business Owners

There is an old folk saying that comes down from the Irish tradition:  “The economy of the crow”.  It’s uttered whenever some old wag wishes to describe, in a dryly pithy manner, a short-sighted and foolish resource management strategy.  It supposedly is derived from the habit of scavenger birds like crows who, upon noticing an unharvested bit of carrion ripe for the picking, tend to drop whatever goodies they may currently have in their clutches in order to go in pusuit.  Basically the saying is a ridicule, a chastisement of stupid waste.
Chart 1 (see underlying calculations  here)
While that kind of bird-brained buffoonery may be understandable in a creature with the cranial capacity of a thimble, it’s not the type of responsible management practice we expect from our elected representatives.  Certainly not from the members of the party that claim in one breath to be both the party of fiscal responsibility and the party of deep business savvy.  Nonetheless that’s exactly what Republican’t douchebags like Paul Ryan (R-WI) and McConnell (R-KY) continue to parrot unashamedly when they urge for yet another tax cut for the wealthiest 2% of Americans.  We’ve already estimated at Chart 2 of this post that tax cuts for elite income individuals as proposed by Ryan will likely add $116 BILLION* per year to the deficit.

And what, pray tell, do sirs Ryan and McConnell promise the American people will receive in return for the bankrupting of the national treasury?  Jobs.  Jobs they say will be created by pushing more capital into the economy.  They’re kinda vague about just how many jobs, though.  While the suspicious among us might be inclined to attribute this to fundamental dishonesty, the generous interpretation of their lack of clarity is because they don’t want to confuse what they regard as their constituency of simpletons with all sorts o’ complimicated numbers an’ stuff.  ‘Cause numbers are for egg heads and nerds—not cool ‘down home folks’ like you an’ me, right?
Bullshit.  I call fucking bullshit on Ryan and McConnell.  And here’s why:  LESS THAN 2% OF THE SMALL BUSINESSES THEY KEEP HARPING ON NET MORE THAN $200,000 A YEAR.  And here’s the fucking proof drawn directly from  the IRS’s most recent business survey.

Table 1 (See underlying calculations  here)
That’s right.  Even if these tax cuts could spur job creation (which clearly they won’t1), they are focused on less than 2% of small businesses, the sector that the Kaufmann Foundation says creates 2/3 of all net new job creation.  Now that’s what I call a horrendous goddamned waste of money.
That sound like a good deal to you?  Throw away $116 BILLION and increase the deficit by 7.5% every year for less than 2% of benefit?
The Technical Stuff
This is by far and away the simplest analysis conducted on the blog yet.  All I had to do was go to the IRS’s website, download the most recent available survey of business filings by receipts and net income, calculate the average net income in each net income bracket and the % of total businesses that fall within each bracket.  Incredibly straightforward.
Nothing technical there.  But for purposes of full disclosure, I’ll point out the following:
  1.  Businesses included for consideration here are only what the IRS calls ‘flow-through entities’—that is, those businesses organized under charters which require their owners to report business income directly on their individual tax forms rather than separately on a corporate income tax return.  I trust the reason for this is simple enough—the discussion at hand, like the bills currently before Congress, focuses on the taxation of individuals rather than corporations.  Just for your information though, these ‘flow-through’ entities included S Corporations, Partnerships and Sole Proprietorships.
  2. The most recently available survey, published here, is for 2003.  Meaning that for purposes of debating the current bills, I’ve had to inflate the historical net income $’s reported to the most recent Consumer Price Index, published for October 2010.
Check out the charts, tables and underlying data and source citations here at your leisure.
So there it is, the straight dope:  Ryan and McConnell want you to throw away $116 Billion each year, bankrupt the Treasury and destroy the United States all for the sake of some make believe hope (not anything remotely resembling a signed contract, mind you) of an unspecified number of jobs at some point in the undetermined future.  Never mind that the rhetorical bullshit that bargain is premised upon has been destroyed years ago and many multiple times over, not only on this blog2, but by the CBO as early as 2005 (linked here).  And never mind the fact that we’ve proven on this blog that a single dollar retained spent in federal programs typically has 4,700% more job creating potential than any dollar ever spent by Ryan’s corporate finance buddies3 over at AIG or JP Morgan Chase4.  And never mind the fact that Ryan’s credibility has been severely challenged time and time again over a shamefully inadequate fiscal plan that has been publicly branded a “sham” by prestigious economists.  Paul Ryan and McConnell seem to think that you are so fucking stupid that you will thank them for destroying both the economy and the United States.
So are you going to prove them right?  Are you going to just sit back and take it?  Or are you gonna stand up for common sense and your rights and say “BULLSHIT!  No more millionaire handouts!  We're not gonna let you bankrupt the nation for the sake of your country club pals!”
Call and your representatives and senators immediately on this issue.

* That is, $114 billion (2009 dollars) annual cost of extending Bush era tax cuts to all but the elite, inflated to the October 2010 Consumer Price index.  See calculation and citations for underlying data on the 'Analysis and Charts' tab  here.

1  Numbnuts like Ryan and McConnell need to understand that the principle is to shove capital into sectors with higher, rather than lower, fiscal multipliers.  Clearly the federal government's fiscal multiplier of 9.4 is larger than the 0.2 (ZERO POINT TWO) of the financial sector.  Or clear to you and me at least.  See the chart and supporting calculations here

And even if you were naively to assume that the wealthy individuals receiving these tax cut windfalls would go out and spend them on their businesses right away instead of hoarding them in their already bloated securities holdings, the federal  fiscal multiplier of 9.4 is almost THREE TIMES as large as the  fiscal multiplier of the non-corporate sector's of 3.6.  That sound like savvy financial strategy to you?  Throwing away $0.66 of every dollar?  If so, please leave a comment with your name and contact information; I have some lovely 'marshland' property in Florida you may be interested in purchasing.

2  See the following:
    "Fail Files", Volumes I and II.
3  Yeah, that's right.  Fiscal multiplier of 9.4 for the federal government is literally 4,700% of the fiscal multiplier for finance of 0.2.  See  this original blog for discussion of the calculation of those multipliers.
4.  During this last election cycle, Paulie boy was a big favorite of the banksters.  His clients included not only Goldman, but CITI, Bank of America, JP Morgan and a host of other F.I.R.E.  (i.e., "Finance, Insurance and Real Estate sector) companies and trade groups.  In fact, he got about $246,000 or 25% of his total PAC money from these guys.  See details here.  Who knows how much else he got INdirectly through Orwellian-ly named PACs or individual contributions?

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