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Obama's Shocking Fallacies, America's Not-So-Shocking Failures

This article is more than 10 years old.

(Image credit: Getty Images North America via @daylife)

The most shocking statement in the entire Obama/Romney debate earlier this week was this from President Obama:

“You know a major difference in this campaign is that Governor Romney feels comfortable having politicians in Washington decide the health care choices that women are making.  In my health care bill, I said insurance companies need to provide contraceptive coverage to everybody who is insured.  Because this is just not a health issue.  It’s an economic issue for women.  It makes a difference.  This is money out of that family’s pocket.”

This is so shocking because it reveals the degree of fantasization Obama has about his own health care bill.  Politicians in Washington deciding the health care choices women are making?  Is that not the perfect description of the individual mandate and the employer mandate in Obamacare?

Of course, women are not making any choices if politicians are deciding them.  But that awkward phrasing is not just a mistake.  It reflects some awkward thinking.  Obamacare’s individual mandate and the employer mandate are precisely politicians in Washington deciding your health care choices for you.  Under Obamacare, Kathleen Sebelius, not you, will be deciding what health insurance you must buy, and exactly what it covers.   Just ask the Catholic Church about politicians in Washington making your health care choices for you.

Equally shocking is the tooth fairy economics of Obama’s statement.  If the health insurance company is paying for it, then it is not money out of the family’s pocket?  Who does Obama think is paying the health insurance company for that benefit?  When the health insurance company is paying for it, it is more money out of the family’s pocket not less, because minor health care bills like contraceptives cost more to insure through third parties than paying for them directly.

Even if the employer is paying for the health insurance, the cost is still coming out of the worker’s pocket, because the worker is paying for it through lower wages than he would have received otherwise.  The cost is financed out of what the worker produces, which is what finances his or her wages as well.

No, Mr. President, the tooth fairy does not pay for it.  No wonder our economy is in so much trouble, with thinking like this in the White House.  Of course, there is an even more fundamental fallacy here.  Economic growth and prosperity is not driven by spending.  We can’t spend ourselves rich.  Economic growth and prosperity is driven by incentives for increased production.  But that thinking is too advanced for the retro, outdated thinking of Keynesian economics.

So much of what Obama says, however, is based on a keen understanding of what the average person does not know, and what Obama is sure the so-called mainstream, Democrat Party controlled media will not tell them.  I have called that Calculated Deception.

This tactic is used on the Detroit auto bailout issue.  Obama knows that to the average person, bankruptcy means liquidation.  So he keeps saying Romney just wanted to let the auto companies go bankrupt “and we would have lost a million jobs,” as he said at the debate.

But Romney, sophisticated businessman that he is, knows that bankruptcy is a legal process that can be, and often is, used to save viable businesses that have fallen into too much debt.  He has done precisely that many times himself.  Romney explained at the debate,

“And one thing that the President said, which I want to make sure that we understand, he said that I said we should take Detroit bankrupt.  And that’s right. My plan was to have the company go through bankruptcy like 7-Eleven did and Macy’s and Continental Airlines and come out stronger.  And I know he keeps saying, you want to take Detroit bankrupt.  Well, the President took Detroit bankrupt.  You took General Motors bankrupt.  You took Chrysler bankrupt.  So when you say that I wanted to take the auto industry bankrupt, you actually did.  And I think it’s important to know that that was a process that was necessary to get those companies back on their feet, so they could start hiring more people.  That was precisely what I recommended and ultimately what happened.”

This is precisely correct.  It was under President Obama’s bailout plan that General Motors and Chrysler went into bankruptcy, just as Romney recommended.

Obama objected: “Candy, what Governor Romney said just isn’t true.  He wanted to take them into bankruptcy without providing them any way to stay open.  And we would have lost a million jobs.”  But just like it was not necessary for 7-Eleven, Macy’s, or Continental Airlines, it was not necessary to pour billions of taxpayer funds into GM and Chrysler, and come out with government and union ownership in those companies.  Those taxpayer funds just went for pay offs to Obama’s union cronies, as has been documented.

But when Romney tried to correct the record on this point at the debate, Crowley just shouted him down, and refused to let the audience hear his answer.  I just gave you the answer, however, above.

Crowley, of course, works for a Democrat Party controlled media institution, CNN.  She revealed that even more, in her disgraceful intervention over Libya and theBenghazi murders.  When Obama said falsely that the day after the attack he went into the Rose Garden and said that it was an act of terror, Crowley then took instruction on air from the President, the head of her party, to speak up and intervene and state falsely that there was a transcript to that effect.  CNN, of course, is defrauding the public in presenting itself as an objective media institution just reporting the news.

Obama just revealed his second term socialist agenda in adding at the debate about the Detroit bailout, “I said we’re going to bet on American workers and the American auto industry, and it’s come surging back.  I want to do that in industries, not just in Detroit, but all across the country….”  So he wants to repeat theDetroit bailout and government and union ownership of companies “all across the country.”

But the Obama fallacy most harmful to the nation, perpetuated in the debate, is the fundamentally false narrative and conception regarding the American tax system: that the rich do not pay their fair share.  The truth is that the rich pay more than their fair share, particularly in regard to federal income taxes, where upper income earners pay, in fact, essentially all of the federal income tax burden.

The CBO reported earlier this year that in 2009, the year Obama entered office, the top 1% of income earners paid 39% of all federal income taxes, while earning just 13% of the income.  That was more than double the 17.6% of federal individual income taxes paid by the top 1% when President Reagan entered office in 1981.

CBO further reported that in 2009 the top 20% of income earners, those earning more than $74,000, paid 94% of federal individual income taxes.  That was 85% more, almost double, the share of national income they earned.

In sharp contrast, in that same year, the middle 20% of income earners, the true middle class, paid 2.7% of total federal individual income taxes on net, while earning 15% of before-tax income.  And the bottom 40% of income earners, instead of paying some income taxes to support the federal government, were paid by the IRS cash equal to 10% of federal individual income taxes on net.

That means altogether the bottom 60% of income earners, which includes the middle class, paid less than 0% of total federal individual income taxes as a group on net.  Instead, as a group, they received cash payments from the IRS on net.

Given these indisputable facts, it is preposterous for President Obama to be promoting his false narrative regarding federal income tax burdens, not only during this campaign, but during his entire Presidency.  He is misleading the country, and stirring up false resentments.

Even looking at all federal taxes, and not just the predominant income taxes, the story is the same.  The “rich” and upper income workers still pay almost all federal taxes, with the middle class and lower income workers paying far lower proportions and rates.

CBO reports that in 2009, the top 1% paid over 22% of all federal taxes, while earning 13% of the income.  And that is down under Obama from the nearly 27% of all federal taxes paid by the top 1% achieved by Reaganomics in 2007.

Moreover, in 2009 the top 20% paid nearly 70% of all federal taxes, while earning 50% of the income.  The middle 20% of income earners, again the true middle class, paid 9% of federal taxes, less than two-thirds their share of income.  The top 1% alone paid way over twice the share of total federal taxes as the entire middle 20%, while earning less of a share of income.  The bottom 20% paid 0.3% of all federal taxes.

President Obama also continued to promote in the debate the false narrative that the rich pay lower tax rates than everyone else.  But CBO has again exposed that as untrue.  CBO reports that in 2009 the top 1% paid an average federal tax rate of 29%.  In contrast, the middle 20% paid an average federal tax rate of only 11.1%.  The bottom 20% paid an average federal tax rate of 1%.

The fundamental problem on that tax rate issue is that President Obama literally does not understand the multiple taxation of capital income.  Capital income is taxed not once, but several times in federal and state tax codes.  First it is taxed by the corporate income tax, then by the individual income tax, then by the capital gains tax, then by the death tax.

But President Obama simplistically sees the capital gains tax rate is lower than most tax rates on ordinary income, and concludes that is unfair.  He does not recognize that the capital gains tax is assessed in addition to, not instead of, the ordinary income tax rates.  For that reason, it is unfair for the capital gains tax rate to be more than zero.  It is also counterproductive for the middle class and working people, because it discourages the capital investment necessary for new jobs and rising wages.

If President Obama does not understand this basic economics of taxation, he is not qualified to be President.  If he does understand it, and is misleading the American people, stoking up class hatred for political gain, then he does not have the character to be President.

Still another Obama fallacy reiterated at the debate Tuesday relates to tax policy and the recession.  When Obama talks about the failed policies of the past that he thinks caused the financial crisis and recession, he is increasingly referencing the tax rate cuts under Bush and even lately Reagan.  That is what he is saying in referencing lately more and more “over the past 30 years,” which goes back to the Reagan Kemp Roth tax rate cuts of 1981.

But there is no economic theory under which tax rate cuts are recessionary.  Even under Keynesian economics, tax rate cuts are expansionary.  Even Karl Marx never said in all his writings on economics that cutting tax rates could cause an economic downturn.

There were two main causes of the financial crisis. One was the overregulation of President Clinton’s National Home Ownership Strategy, announced in 1995, that forced the banks to trash their traditional mortgage lending standards in the name of fairness to lower income workers and minorities, so they could gain greater home ownership.  That included over 100 specific new regulatory initiatives that greatly expanded the subprime mortgage market, including not only a greatly beefed up Community Reinvestment Act, but also actual or threatened lawsuits by the Justice Dept. and HUD, and regulatory mandates on Fannie Mae and Freddie Mac to fund trillions in subprime mortgages, among many others.  Once the lending standards were trashed to help less creditworthy borrowers, those standards couldn’t be maintained for more creditworthy borrowers taking riskier and riskier loans,  speculating on second and even third homes during the housing bubble. Fannie Mae and Freddie Mac then bundled these increasingly toxic loans into mortgage securities and spread these ticking security time bombs throughout the financial community worldwide, aided by effective government guarantees for their financing that kept trillions coming into the government sponsored enterprises to enable such mayhem.

That is documented well in Paul Sperry, The Great American Bank Robbery, and in Gretchen Morgenson, Reckless Endangerment,

The second fundamental cause was the recklessly loose, cheap dollar, monetary policies pursued by the Fed under the Bush Administration, abandoning Reagan’s strong dollar policies.  Bush’s Treasury Secretaries cheered on the Fed’s record low interest rates, which were actually negative in real dollars for 2 ½ years, and easy money printing, because they accepted the traditional Keynesian fallacy that a cheap dollar promotes exports and so growth.  But that easy money available at rock bottom interest rates flows into the longest term investments first and foremost for which interest rates are the most important.  So that money flowed into mortgages and other long term construction financing pumping up the housing bubble even more, leading to financial catastrophe when that bubble inevitably popped.  That is explained well in John Taylor, Getting Off Track.

The Bush tax rate cuts were followed by the creation of 8 million jobs and the precedent shattering descent of the unemployment rate to 4.4%.  The sharp cuts in the capital gains tax rate and the tax rate on corporate dividends were followed by soaring revenues from those two taxes.  After the Bush income tax rate cuts, income tax revenues leapt 47%.  The Reagan tax rate cuts, of course, spawned a 25 year, generation long, economic boom from late 1982 to late 2007.  These were the most successful economic policies in world history.  Obama is promoting abandonment of all the pro-growth policies that worked so well during all of those years.