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.

Analysis

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.

Response

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.

Footnotes

* 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:

    Return of "Doctor Weird and The 'Laugher' Curve"

    "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?

Do Tax Cuts for the Richest 2% Help or Hurt You? Read the Surprising Answer Here.

[Editorial Note December 2, 2010:  See revisions to supporting calculations of M3 and average AGI for elite individuals at items #1 and #2 here]

Kudos once again to the fine team and readership over at disinformation.  Their comments continue to be extremely thought provoking.  This article, chart and supporting calculation in the attached workbook are in resonse to their many insightful questions about inept Republican tax and economic policies..

I get pissed when some dipwad tries to pull a fast one on me, as should we all.  The responsible conduct of business requires a level of trust that is decisively undermined when we’re lied to.  And while there is a time and place for everything, the place for bullshit is the weekend pintfest at a local pub, not in debates about income tax policy.  That’s why the fundamental dishonesty of Republican’t talking points has me so fired up.

The specific steaming pile that currently has me cheesed off is EGTRRA.  No, it’s not some type of horrible fat-free egg substitute; it’s the ironically named Economic Growth and Tax Relief Reconciliation Act of 2001.  The bit that’s currently in play right now is the Republican hijacking of economic recovery effots in order to renew tax cuts for the country’s fattest 2%.  And that just can’t be allowed to happen.  ‘Cause not only will it not result in any improvement in the real economy, it’s been proven to actually steal from the middle class to benefit the uber-rich.

It’s ironic that faux populist, bankster-financed hangnails like Paul Ryan (R-WI) and senator elect Ron Johnson (R-WI) try to saddle Dems with the title of  “Wealth Re-distributors” when the evidence to the contrary is all around.  You don’t have to get into a pissing match over which cable news network talking head has the biggest gnarlies—just look at the data for yourself.  Here’s how.

Data and Analysis

The solid, non-partisan career professionals in the Bureau of Economic Analysis,  Census Bureau et alia have literally reams of data available for you to plow through, but the most readily available stuff is online. It could take you months to decide which bits give you the optimal balance of long-term comparability and sufficient drill-down detail on the relevant economic topics.  So I’ll help you out and get you started:  the IRS’s summary of all individual tax returns for the years 1993 through 2008.  Particularly useful is its inclusion of data regarding sources of income (e.g., wages, long term capital gains, Social Security benefits, receipts from estates and trusts, etc., etc.).  You can find them all here1.

Mind you, though, there are also some challenges to using the data properly.  While the tables do group taxpayers in separate income-stratified categories (cool), they’ve done so by reference to current year dollar values (not cool).  That is, 1993 tax data is segregated by the amount of income reported in 1993 dollars—not 1999 or 2008 dollars, which the Consumer Product Index says are comparatively inflated by 15% and 49%, respectively.  Therefore the data for people reporting at least $40,000 but less than $50,000 in 1993 is not directly comparable to 1999 or 2008.

It’s a fairly simple matter to adjust everything up to 2008 dollars.  And it’s pretty easy to calculate the average reported income for the median tax return, too.  What is impossible to do with any precision is to determine the average reported income for the richest 2%; the data just aren’t broken down in enough detail to allow a good inflation-indexed calculation. 

However, this is less a problem for our analysis than you might think.  Despite the inclusion of numerous additional returns with lower reported income, the aggregate situation is quite clear:  the richest 2% of the population are stealing from the rest of us.  See the chart for yourself1:  EGTRRA sliced $8,000 off of the average income of the medium return filer and added $124,000 to the richest. 

Conclusion

WTF?  We’re EACH expected to give yet ANOTHER $8k of our money to Paul Ryan’s bankster buddies2 at JP Morgan Chase and AIG?   Do he and Mitch McConnell think we’re freakin’ idiots?  They expect us to just take this lying down?

Recommendations

Don’t let them get away with another handout to the plutocrats.  Call and write your representatives and senators immediately and often telling them that you know what a horrible idea it is to extend the Bush era tax cuts.  And let them know that you know what you’re talking about.  Send them a copy of this chart.  Send them a link to our workbook for them to see themselves.  Send them a link to this blog post.  Send them a link to the 2005 Office of Management and Budget Report describing how $0.72 of each dollar in tax cuts is added to the deficit.  Send them a link to the Congressional Budget Office's report that renewal of the Bush era tax cuts would add bring the national debt up to 100% of GDP by 2020.  Email this stuff to your friends, family and acquaintances.  Whatever you do, don't keep this information to yourself.

Footnotes

1  I encourage you to take as deep a look as you like to the supporting calcs and data.  All within this workbook:  EGTRRA – The 2% Delusion.xls. 

Also noted that, due to aggregation of source data by current year dollar amounts (i.e., not indexed for inflation), it was not possible to determine the precise # or $ value of the 2% highest income reporters.  HOWEVER, due to the tendency for the inclusion of a larger # of relatively lower-income individuals to actually UNDERSTATE the disparity portrayed here, the %'s actually included for purposes of this analysis were 4.5% and 5.0% of all returns, Pre- and Post-EGTRRA, respectively.  In fact, the actual disparity is rather worse--though the magnitude of that additional badness isn't precisely clear.

2  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?