McGovern's Muddled Economics

...Consistently, McGovern also favors "elimination of tax loopholes for non-farmers" (McGovern on The Issues...

...McGovern is wisely unwilling to increase corporate tax rates, and all corporations only have net profits of about $50 billion anyway...

...Senator George McGovern Playboy August 1971 National Observer June 17, 1972 After being dissected and disowned by almost every major newspaper and political magazine, the only thing clear about McGovern's economic program is that it still isn't clear.Despite his recent retreat from $1,000 income grants, for example, the fact remains that McGovern's success has been built of such schemes, though he has been only too willing to abandon each one after it had served its purpose...

...The other spending items are non-controversial, since they're McGovern's own figures and have been widely publicized (The Humanist November-December 1971...

...Closer, but not close enough...

...The food stamp program and agricultural subsidies are wholly inexcusable when large cash allowances are provided, but McGovern has scheduled both programs for sizable increases...

...Note that the list does not include McGovern's promises of $10 billion more for Social Security and $5 billion for revenue sharing, because McGovern now admits that these items are expendable if the $1,000 grants are instituted...

...The cost of a $1,000 grant today would be substantially higher...

...Stripped of surplus confusion, McGovern's original idea of "tax reform" went something like this: (1) Existing loopholes in the personal income tax need not be changed, but non-farmers with incomes over $50,000 must pay a minimum of 52.5 per cent regardless of losses in previous years, medical catastrophes, charitable contributions, business or interest expenses etc...

...There were no poor people in the Land of Oz, because there was no such thing as money, and all property of every sort belonged to the Ruler...

...How much more can we get from those earning from $25,000 to $50,000...

...McGovern is seriously suggesting that we spend 3.5 per cent of GNP on defense, despite the much higher payroll costs associated with a volunteer army...

...1.4 billion in fiscal 1970 - could be allocated to the grant...

...Moreover, the original minimum income grant does away with upward graduation of rates...

...Let's be really "radical" (nasty) and leave each taxpayer in this bracket with only a "break-even" income of $12,000...

...VAT is considered "a sales tax in effect" because any tax on profits will be passed on to consumers in the form of higher prices...

...It's like saying, "Just becasue my paycheck is smaller doesn't mean I have to spend less...

...McGovern explicity said he would...not eliminate special treatment of capital gains, tax-exempt interest income from state and local bonds, oil depletion allowances and so on...

...McGovern is therefore really proposing around $21 billion in defense cuts - an amount which the Brookings study considers remotely possible only after "a significant change in U.S...

...It is hard to be equally generous about health insurance and day care, however, since they're featured in the Democratic platform...

...I wouldn't want to put the country in danger...

...Until these paradoxes are resolved, we shouldn't count on raising $6 billion from a steeply graduated "minimum tax...

...AFDC could go, but it only cost the federal government $3.5 billion in 1969...

...provision of low cost credit to home-buyers, small businessmen and farmers...

...Besides, if it is to mean anything at all to say that $43 billion will be "transferred to lower income groups," then that transfer must be over and above any offsetting tax increases on the same groups...

...so anyone with any sense will give a factory to his son, or blow the wad before he dies...

...This group can still take the same deductions, under McGovern's scheme, so we'll look at their taxable rather than gross, income...

...Alan Reynolds is an associate of National Review...

...Sincere was saying, 'some consideration" should be given to increased rates on large inheritances...

...Where is the Federal Government going to get the missing $131 billion...

...Even if we permit a deficit of $25 billion, McGovern's proposals would require that all brackets, even the lowest, experience a 22 per cent increase in effective "tax rates (e.g., a taxpayer with a $10,000 income would pay $3,060, though he now pays "only" $860...

...This is more than double the federal revenue now taken from all personal taxes...

...This can only be interpreted as catering to the large agricultural interests: Food stamps compel the poor to buy agricultural products, and only 4 per cent of farm subsidies are received by the smallest 41 per cent of all farmers...

...In the New York Review of Books, McGovern said, "the billions of dollars saved in welfare benefits and the cumbersome administration of the welfare system...

...protection against bankruptcy to small business...

...In McGovern's article in The New York Review of Books (May 4), he wrote: "The credit income tax proposal would imply a redistribution of income of some $14.1 billion from those above the poverty line to those below it...

...Their combined taxable income is $192.8 billion ($110 billion of which is from the $10,000 to $15,000 group...

...James Tobin's $43 billion estimate was based on a $750 grant several years ago...

...So, McGovern plans on adding at least $162 billion to a federal budget which the Brookings people expect to grow to $300 billion by 1975 without any new legislation...

...That is literally true, of course, as it would be true of any expenditure that is offset by new taxes, though the approach isn't very enlightening...

...Another minimum income bill which McGovern actually introduced (S.2372) would have cost $71 billion in fiscal 1977, according to the Senate Finance Committee...

...McGovern claimed he could raise $6 billion by compelling those with incomes over $50,000 to pay a minimum tax on their gross income...

...each person would be required to pay a uniform tax to the Federal Treasury (a 33.3 per cent tax is suggested...

...We're still short $165 billion...

...Our decidedly incomplete list of new spending programs totals $164 billion...

...figures show that taxpayers over $50,000 have combined gross incomes of only $38.5 billion, so a 52.5 per cent tax would yield only $20.2 billion - which is only $6.4 billion more than they're paying now...

...2) Special loopholes, such as percentage depletion, need not be phased out," but corporate taxes can be raised by almost half by simply removing recent tax incentives which were designed to stimulate investment...

...While in California, McGovern pandered to defense workers by promising them unemployment benefits amounting to 80 per cent of their previous salaries...

...Authoritative estimates of $60 billion for health insurance and $17 billion for day care centers have been supplied by the Brookings Institution's study of the 1973 federal budget...

...We already face a deficit of $40 billion in 1974, so McGovern has to raise personal income or payroll taxes by $171 billion (he'll need even more if he's serious about reducing the national debt...

...I had earlier estimated the annual cost over a decade of McGovern's lavish promise of subsidizing "30 million new homes" at $25 billion (National Review May 26, 1972), but I am willing to consign this item to the realm of loose campaign rhetoric...

...Federal income taxes now leave them with $153.2 billion, and other taxes bring the total down to about $123 billion...

...Tom Wicker, New York Times June 1, 1972...

...McGovern might get a few billion dollars once but in view of his malleability on this issue, and the ease of escaping the tax through trusts and diamonds, I'd say the whole idea is a lost cause...

...The figure is about $36 billion too high...

...Assuming that Congress will not reduce the defense budget more than $21 billion, such a reduction could involve an unemployment expense of $6.3 billion...

...It turns out that all taxable income in the $25,000 to $50,000 bracket totals $36.9 billion - of which $10.2 billion is already being paid in income taxes...

...Therefore, the Federal Government will have to come up with grants of $14 billion and tax reductions of $29 billion, and the total added expense (or reduced revenue) would therefore be $43 billion...

...In saying this, I am not holding McGovern to his $1,000 figure...

...He'd go easy on family-owned businesses (Ford...

...That is, a given reduction in I.R.S...

...That leaves about $22.6 billion of currently untaxed income among a group of 1.4 million taxpayers...

...Such extreme defense cuts are problematic: If the Soviets continue their rapid force build-up, McGovern admits that "we might have to reassess these considerations...

...When L. Frank Baum thus described the Emerald City in 1910, little did his fertile imagination suppose that such arrangements would descend from the skies of fairyland, and would come to be regarded as radical new ideas for the 'seventies...

...Well, we're now faced with perhaps $33 billion in new revenue sources, if McGovern could somehow get Congress to go along...

...But I.R.S...

...The redistribution from those above the break-even income to those below it but still above the poverty line would amount to $29 billion...

...We're still short by $159 billion...

...Next, McGovern's able aide, John Holum, tried to cover his leader's sophism with another: "The income grant would not be a part of the budget process...

...But McGovern insisted that the plan would involve "no net burden on the Treasury at all...

...This is no tax reform at all...

...Alternatively, McGovern's proposals could be financed by a 36 to 39 per cent national sales tax...

...If the personal exemption were removed," says McGovern, "the federal government would receive $63.6 billion in additional tax revenues...

...and (this one kills me) "an orderly reduction in the national debt...

...The argument is also applicable to a tax on corporate profits, which,by reducing the relative flow of capital to the corporate sector, becomes a regressive, discriminatory tax on the consumers of corporate products...

...Even McGovern's magic can't squeeze the needed $159 billion out of $123 billion, so he'll end up having to levy lots more taxes on the poor in order to pay for their "benefits...

...If all these defense scientists, engineers and workers averaged only $10,000 a year, 80 per cent unemployment benefits could cost $3.6 billion (450,000 times $8,000...

...What about the $17 billion that McGovern plans on getting from increased corporate taxes...

...What about the $5 billion McGovern hopes to get from taxing large inheritances at high rate...

...By excluding this sort of thing, I am obviously under-stating the cost of McGovern's proposals by tens of billions of dollars...

...The Brookings budget study shows that all corporate tax breaks and rate reductions over the past decade amount to only $6.6 billion...

...Why the sudden mystery...

...National Review May 26, 1972...

...Those over the $12,000 "break-even point" must, therefore, pay $43 billion in new taxes for the grant program alone...

...alleviation of the shortage of railway and freight cars, the modernization of rail transport...

...This shouldn't be so surprising, since 89.3 per cent of all taxpayers have gross incomes under $15,000...

...a guaranteed job for every man and woman who desires work...

...We can certainly use this figure ($43 billion) as a low estimate of the magnitude of redistribution that McGovern has been promising, regardless of the specific plan adopted...

...From whom ? A New York Times article (June 5, 1972) says: "these exemptions, indisputably, are worth more in taxes saved to high-bracket taxpayers than to low ones...

...McGovern's remark that the $12,000 to $20,000 group would pay only $21 more in taxes was an obvious whitewash, since there are only around 15 million taxpayers in that bracket (so that $21 apiece would yield a mere $315 mi'1 ion...

...3) families with incomes over $12,000 will pay substantially higher taxes which will be redistributed to those with lower incomes...

...The original $28 billion tax reform has been replaced with an even sillier plan which is supposed to eventually yield $22 billion...

...By the time it got to the Wall Street Journal...

...a Senate finance committee said $51 billion...

...Treasury Department figures show that most business "loopholes," including those earmarked for farmers and small business, total only $7.8 billion (US...

...Surely we must also remain a bit astonished that a presidential contender, surrounded by scholarly advisers, could have proposed a major plan without ever understanding who would bear what cost...

...It is emphatically not true, however, for the high bracket taxpayers as a group - simply because there are so few of them...

...I'll be inconsistent once in a while...

...which would affect the income tax collections available...

...Federal social spending, on the other hand, has grown from $30 billion to $110 billion in the last decade, without dramatic results, and McGovern proposes to more than double that figure again within one administration...

...As McGovern himself explained it, "the grant would be tax-free but...

...Other taxes take another 17.8 per cent from this bracket, or $4.8 billion...

...McGovern supports health insurance and day care (Time May 8,1972...

...May 22, 1972), however, the proposal had changed from a minimum to maximum tax: "I am here suggesting a tax which will not exceed 52.5 per cent (75 per cent of 70 per cent) even on an income of one million dollars...

...In McGovern's case, the tax increase on those earning less than $10,000 would greatly exceed their cash allowances...

...This means that McGovern would need new revenues of $175 billion, but has only accounted for $43 billion - still leaving a gap of $132 billion...

...Other estimates, for example that of Time magazine (June 26, 1972), show McGovern spending at least this much...

...rather, it would be an item...

...Can we lessen this burden significantly through high taxes on the wealthy...

...Far from repealing any of the $36 billion in Great Society programs, as the Brookings study suggests, McGovern wants to increase them...

...As the Brookings study put it: 'Large numbers of families would receive allowances and at the same time have their taxes increased to pay for the allowances...

...By the time the Wall Street crowd heard it, Mr...

...How does he propose to pay for it...

...The above additions were taken from only two pages of McGovern campaign literature...

...According to Herriot and Miller's Census Bureau study, this bracket now pays 23.1 per cent in taxes other than the personal income tax...

...There are 20.4 million taxpayers in the $10,000 to $25,000 bracket...

...Nor have I included the unknown cost of: "a fund to give...

...He is widely published, his most recent fulmination appearing in The New York Times...

...McGovern's proposed $30 billion saving on defense underestimates manpower and operating costs by at least $9 billion (Time May 8, 1972...

...Suppose we do tax everyone earning over $50,000 at 52.5 per cent, and suppose they don't react by retiring early or moving to Switzerland...

...a system of tax-rebate incentives to encourage industry to plan for the transfer of its workers and its facilities to peace-time production...

...Anyone who balances a checkbook should be able to see through that...

...Playboy August 1971), but has not provided details or cost estimates...

...If McGovern doesn't really plan any new spending for health and day care, he should say so...

...Incidentally, the popular notion that defense is a growing burden is simply untrue...

...McGovern originally wanted a 100 per cent tax on estates over $500,000, then he dropped it to 77 per cent...

...The Brookings study estimates that a $12 billion defense cut-back (from a projected $100 billion 1977 defense budget) would wipe out over 450,000 civilian jobs...

...News & World Report December 27, 1971) In view of political realities it would seem quite generous to credit Mcciovern with $4 biiiion from this source...

...McGovern's objection to the Value Added Tax, incidentally, makes it clear that increased corporate taxes hardly qualify as a "reform...

...More recently, he has boosted the alleged welfare savings to $8 billion, without specifying what programs will be cut...

...Today's version replaces the $43 billion in income redistribution with $14 billion in old fashioned welfare...

...Surely that's drastic enough...

...What we really need is not indiscriminate handouts of Federal funds...

...This is true for high-bracket taxpayers considered individually...

...Their combined tax burden would therefore be 75.6 per cent...

...revenue has some altogether different budgetary effect than an equivalent increase in Treasury spending...

...At first, this was widely interpreted to mean raising corporate tax rates from 48 per cent to 'he old rate of 52 per cent, plus eliminating accelerated depreciation...

...Humphrey guessed the grants would cost $115 billion...

...It's now becoming clear who's going to get the bill for that $159 billion, no matter how much we rob the "extremely rich...

...Soviet relations...

...McGovern's Wall Street Journal ad emphatically denied any rate increase, but there is no way of getting a 43 per cent increase from corporate taxes without a sizable rate increase, plus elimination of all loopholes" instituted in the past decade...

...An $85 billion defense budget would be only 5 per cent of 1977 GNP, compared with 8.3 per cent in 1961-64 and 9.4 per cent in 1968...

...That would require $16.8 billion (out of $22.6 billion not now being taxed), leaving the government with only a $5.8 billion gain - unless they all quit working...