Wednesday, September 28, 2011


I often have the feeling that our politicians are akin to the street hustlers who like to lure passerby into shell games of “keep your eye on the pea”.  Some of these folks have astonishing skills, and it’s virtually impossible to track the pea as it moves from one shell to another – and is most often clandestinely palmed in any case.   Somehow or another, the pea never seems to be where the eye and logic say it ought to be, and the tourist or passerby lured into the game always loses his or her wager. So long as you play for small stakes on a nice day, it’s a pretty harmless way to pit your skills against the shills who run and surround the table.

Unhappily, our political leaders – who are supposed to articulate and explain solutions - have become shills on a grand scale.   Day after day, they seek to conceal truth with self-serving and ideological statements that bear little relationship to fact and make it impossible for citizens to either reach sensible conclusions on public policy issues or hold leaders accountable.  

Let’s examine some of the rhetoric we’ve been hearing about the President’s recent proposals on taxes. 

According to John Boehner, the Speaker of the House, the proposals are nothing but a collection of “job killing small business tax hikes”.  Rick Perry thinks the proposals “penalize investment when it is needed most” and Mitt Romney has denounced the plan as having “a crushing impact on economic growth”

Now, be sure to keep your eye on the pea.  The facts are that the proposed taxes, which only partially reverse the individual rates introduced by the so called Bush tax cuts, apply to business profits, not business revenues, and thus have no impact whatever on the ability of any business, large or small, to conduct business.  Moreover, studies done by the Joint Committee on Taxation and by the Tax Policy Center, a nonpartisan research organization, show that less than 3 percent of filers with small business income pay  the top two income tax rates, and many of those who do  are doctors and lawyers in partnerships.  So the number of true small employers who would be impacted by the proposed changes is miniscule. All other businesses would be unaffected!!  That doesn’t sound like a job killer to me – and it’s not.

Repeated surveys by various business groups establish that the primary reason business is not investing and hiring is that demand is weak. It’s hard to see how it could be otherwise, because there are some 15 million Americans who cannot find work, the Federal governments various efforts at stimulation are gradually going away and state and local governments are laying off employees.   Moreover, U.S. median real (that is, adjusted for inflation) household income is lower than it was in 2000 and real average hourly earnings are now lower than they were in 1970, more than 40 years ago.   Moreover, the U. S. has become one of the least egalitarian of all the world’s developed societies, with the top 1% of the population controlling a higher percentage of wealth and claiming a higher percentage of income than has been true since 1929.    
It’s pretty clear that the Bush tax cuts didn’t accomplish much beyond increasing annual deficits and our steadily accumulating debt.  In the years since 2000, employment and income growth have slowed or stopped, debt has skyrocketed, the economy has slipped into recession and we have endured an extraordinarily weak recovery that now seems likely to give way to still another period of recession.   
Taken together, the Bush tax cuts reduced the government’s tax revenues by about $1.8 trillion between 2002 and 2009 and if extended for another decade, will reduce government revenues by an additional $3.8 trillion.
The President’s proposals, taken together, which do not roll back all the elements of the Bush tax cuts, would raise about $1.6 trillion during the next ten years, recovering only a portion of what a full repeal would raise. The President’s proposal would raise the top two marginal rates to 36 percent and 39.6 percent from the 33 percent and 35 percent rates in effect today. It would also restore the estate tax, raise the capital gains tax on wealthy individuals from 15 percent to 20 percent, limit the value of deductions for wealthy taxpayers and increase corporate taxes by eliminating tax breaks now enjoyed by oil companies, the coal industry and other businesses.   None of these proposals are draconian, none are inconsistent with tax rates and provisions in effect in the early 90’s, and none are likely to have any meaningful impact on private sector investment.

But, say the shills, raising taxes will limit the willingness of the wealthy to invest.  Is that true? To tell the truth, I don’t know, but I am struck by the fact that those who shout the loudest never offer any evidence, but merely assert what they apparently believe is obvious.
 I have looked high and low for any careful study of this question and haven’t found anything.  My own view is that if the capital gains rate went up to the old 28% -- which is about 10 points less than the proposed maximum individual  income tax rate – it would have no adverse impact whatever.  I think taxing capital gains at a marginally lower rate than wage income makes sense because some portion of the “gain” an investor realizes over time is simply inflation, which should not be taxed.  However, if an investor has money he or she wants to put to work, the probability that the tax on any gain realized will be 28% rather than 15% isn’t going to cause me – or anyone else, in my view – to put the money under the mattress or buy a very low yielding CD. 
Add it all up and it seems to me that raising taxes on the richest Americans, and on those individuals and corporations who enjoy the largest tax breaks, would give the government more ammunition with which to fund programs to ameliorate the adverse impacts being caused by excessive debt and a lack of jobs. 


  1. Almost all politicians in the last 25 yrs have become very good at spending "other people's money" Tax breaks for the people and companies the need it the least,borrow the money to make up the difference, and hand the bill to a future generation. You are right on Bob.Tell the big lie long enough and loud enough and people will believe it.It does not seem to make a difference whether it is a democrat or republican.

  2. the man of reason...thanks

  3. Bob, excellent commentary. Thanks.

  4. There was a Senator from Louisiana who is credited with the rhyme: "Don't tax you, don't tax me; tax that fellow behind the tree." The current mantra seems to leave the fellow behind the tree out of the equation and just say: "Don't tax anybody."

    Problem is, the government needs revenue and it's gotta come from somewhere. So where can it come from?

    Lowering the debt and reducing the budget deficit cannot be done by cutting spending alone. The Simpson/Bowles Commission Report does a good job of proving that.

    If one believes in the concept of a progressive tax system like we have in the US, the ideal should be that the last tax dollar that one pays has an equal amount of pain on everyone, regardless of their income or net worth. Right now more marginal pain is felt by the middle class than those at the higher end of the income spectrum.

    I don't disagree that we need to cut spending. I just feel that we need to raise revenue also.

    Problem is: the pea just disappeared; the huckster blurted out some catch phrase or talking point and the public got sucked in to thinking that they know where the pea is again.

  5. Common sense ,as always. I have been unsuccessful getting the Times, CNBC, Bloomberg, or any other major outlet to pick up on Bob's commentary. I guess common sense just doesn't sell?

    Ralph Richardi

  6. Vince Caminiti, Johns Creek, Ga.September 30, 2011 at 10:48 AM

    Yeah, just what our central government needs is more of our taxes to spend on things we don't need. Put any new taxes DIRECTLY into deficit reduction and I may consider it

  7. American Airlines needs and misses you,Mr Crandall!

  8. I am astounded by the depth and breadth of this article. I served as a flight attendant during Mr. Crandalls tenure. We endured one of the most vitrolic union strikes in aviation history. I was also one of scores of flight attendants who sent him my ravaged worn out uniform shoes with the note, "Walk a mile in my shoes Bob." Now it seems we could sit down amicably over a cup of coffee and conversation. That is, as long as I didn't have to serve it.
    Jeannie B. Bright

  9. I remember when Jeannie and her friends went on strike. AA lost a ton of money, I loaded planes all day every day full of mail, and AMR made a truck load of mail money from that strike. AA lost, AMR made gazillions!!! That was a good strike for AMR.

  10. Bob has it nailed very well. There is no longer objective reporting that will expose the misinformation promulgated each day by Fox and their minions. I suggest it would be worthwhile reading "The Republican Noise Machine" to fully understand what the Right is really up to, as if we don't already know.

  11. You are a voice of reason. I was a flight attendant when Bob was our CEO. He was not the most well liked, but he did the most for our company. I did not strike but went to work for my convictions. Unions are killing this country.
    We are all going to have to give up something to get this country back on track. We need to vote out all our politicians and get some new blood and ideas in Washington. people that don't owe their jobs to some other interest. They don't represent us anymore and they don't listen. We need term limits, mandatory retirement and we need our politicians to have the same medical we do and pay into s/s and medicare. Maybe then we would get some decent reform.

  12. The employees of American Airlines, need and want you Mr. Crandall. We need a leader we can follow. Please, please try to do what needs to be done for you to come back to AMR! Our futures depend on it.

  13. have you considered a FB page? you are getting a lot of "air play" there ...
    AA employee