Vail Daily letter: So who’s lying?
Vail, CO, Colorado
Mr. Van Ens’ recent commentary, “Half-truths are twisted into whole lies,” may itself be an example of the issue he is trying to illustrate. It is important to shed light, through facts, on the four half-truths he characterizes as whole lies.
Half-truth: Bailouts are bad and fail to get a stalled economy into gear. To think that a government bailout was the only answer for the auto companies is wrong. It wasn’t necessary for the airline industry. A managed bankruptcy where the government provided financial guarantees to credit lines would have done the same thing.
The government bailout undermined the rule of law, stole billions of dollars from secured bondholders and has forced GM to become an accomplice in the development of the Volt. The Volt is a chess piece in this administration’s gambit to develop a green energy industry. It’s also a car that, without huge government subsidies, would not be produced, because there is no free market consumer demand for it.
The bailout, sticking it to bondholders and rewarding the United Auto Workers Union, is an excellent example of crony capitalism at work.
Half-truth: Private businesses, not government, create jobs. Mr. Van Ens would have us believe that government research grants to universities is a giant engine of job creation.
This administration’s Keynesian experiment spent billions of dollars to create “shovel-ready” jobs with an assurance that it would keep unemployment below 8 percent. After all this spending we learned from President Obama that “shovel-ready was not as shovel-ready as we expected.”
While Roosevelt built dams and Eisenhower built an interstate highway, it looks like all we got from the stimulus was some filled potholes. When government throws money at a problem, it’s inevitable that politics and ideologies get in the way.
The stimulus bill gave $50 million to the National Endowment for the Arts and $400 million to study global warming – hardly resulting in significant job creation.
It should be clear that if the government wants to help lift the country out of a recession, the best thing it can do is get out of the way and let the free market work.
Half-truth: Uncle Sam, not Wall Street, caused the Great Recession. Here, Mr. Van Ens uses a half-truth himself in defending the government’s role in the mortgage collapse. It is true that the Community Reinvestment Act became law 30 years before the crisis.
However, it was President Clinton who, in 1992, bypassed Congress by ordering the Treasury Department to rewrite the rules which broadened the Community Reinvestment Act’s mandate in ways the Congress had not intended.
The new rules created mortgage quotas for banks to achieve in low-income neighborhoods. To achieve these quotas, banks had to lower their credit standards, or be accused of “red-lining.”
The next step leading to the collapse occurred in 1995, when the Clinton administration established subprime lending quotas for Fannie Mae and Freddie Mac. These quotas resulted in Fannie and Freddie being a backstop for the high-risk loans that banks initiated. The final nail in the coffin was pounded in when Clinton legalized the securitization of these mortgages, which created the leverage to expand the house of cards.
The idea that this was a Wall Street-generated problem ignores the fact that many regional and local banks also got caught up in the mortgage meltdown. Yes, banks make loans to make a profit. However, it was the government that pushed banks to make subprime loans, enabled Fannie and Freddie to buy those loans from the banks and securitize those loans and spread risk throughout the financial system. If Freddie and Fannie weren’t buying these subprime loans in the first place, the market for them would likely not have existed.
Half-truth: Cutting taxes creates prosperity. Since Mr. Van Ens considers this statement a half-truth, which equals a whole lie, the corollary is that increasing taxes creates prosperity. Does that make sense?
Mr. Van Ens refers to the tax cuts of Reagan and Bush, but let’s add Kennedy to that analysis. In 1964, Kennedy cut taxes across the board with the top bracket going from 91 percent to 70 percent. In the eight years those cuts were in effect, tax revenue doubled.
In fact, every time there was a dramatic reduction in tax rates, tax revenues increased. According to President Kennedy, “The soundest way to raise revenues in the long run is to cut the rates now. … The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous expanding economy, which can bring a budget surplus.”
Mr. Van Ens presents the worn-out myth, perpetuated by the liberal media, that the Bush tax cuts “disproportionately favored the wealthy” and that “benefits for the poor were cut back.”
Before the Bush tax cuts were implemented, the top 10 percent of earners paid 67.3 percent of all personal income taxes. By 2006, the top 10 percent of earners paid 70.8 percent of taxes. At the same time, the top 10 percent received 46 percent of 2000 income and about 47.3 percent of 2006 income.
In other words, their tax burden went up, not down, relative to their income. By comparison, the bottom 50 percent of earners paid 3.9 percent of income taxes in 2000 and only 3 percent of taxes in 2006.
Despite the perception that the poor had their benefits cut under President Bush, anti-poverty spending increased by 39 percent, reaching a record 16.3 percent of all federal spending in 2004, up from 14.9 percent in 2000.
It is clear that tax revenues correlate with economic growth, not tax rates. It should also be as clear as it is logical that raising tax rates does not spur economic growth.
Jeff J. Miller