TCS Daily

Political Lies

By Stephen W. Stanton - January 6, 2003 12:00 AM

Too often, election campaigns devolve into popularity contests. Sound bites, slick packaging, and piles of cash become the deciding factors. Of course, there is always a pretense of public policy debate. Candidates discuss issues along the way. They identify some of the nation's problems and propose bold solutions. Take the issue of taxes: At least one candidate hawks broad tax relief while another wants to soak the rich even more.

But many voters lack the extensive knowledge of economics required to understand the true impact of proposed tax policies. As candidates rattle off conflicting deficit projections, it is hard for most people to differentiate between sound facts and baseless propaganda. When senior citizens are warned of bogeymen raiding the nonexistent Social Security "Trust Fund", they often lack the resources to investigate the substance of the claims.

Given the political reality, what positions do you think most candidates take on key issues: Do they stand up for what is right or what is popular? (Hint: elections are won by popular vote.) When the truth is unpopular, candidates try to avoid it. For example, most Americans are overweight. I doubt the electorate would put its excessive weight behind a candidate who told us to stop eating so much. (No, it is much easier to blame McDonald's. Politics 101: Scapegoats are a candidate's best friend.)

The Truth Is Out There

Fortunately for us, even if the politicians try to hide it, the truth is out there. Citizens can always find a fresh and informed perspective at the American Enterprise Institute, Cato Institute, and other redoubts of wisdom. In these repositories of truth, brave men and women pick apart the flawed logic of politically expedient policies and offer more sensible alternatives, issue by issue. Their proposals generally demonstrate a coherent understanding of cause and effect - and knowledge that each effect is, in turn, cause for subsequent effects, and so on. Such exhaustive analysis rarely translates into catchy political slogans.

Not surprisingly, catchy slogans rarely impart wisdom. See for yourself. Support your side of the marijuana legalization debate in thirty seconds or less. Or explain to your children how a people in a democracy chose to live under a tax code of nearly 6 million words. Better yet, try coming up with a catchy slogan to explain why E equals MC squared. (It is probably easier to do if you do not know the real answer.)

The truth is complicated, and voters have a short attention span. So many candidates simply say whatever will get them elected, truth be damned. To cling to such untenable slogans, candidates must be either ignorant or intentionally deceitful. Neither is the hallmark of great leadership. Society suffers as these silly yet popular ideas are immortalized in bad legislation.

The problem of dishonest leadership was perhaps best framed by Stan Marsh, a cartoon character in TV's South Park: "The big questions in life are tough.... But if people believe in... liars like you, we are never going to find the real answers to those questions. You aren't just lying, you are slowing down the progress of all mankind." Truer words were never spoken.

Arms for The Coming Tax Debate

The public cannot make fully informed decisions on tax policy when politicians lie about the facts. That's a shame, especially with an important tax debate about to heat up with the release this week of the new White House economic package. Luckily, the real facts are available. Right here is a good starting point.

Double taxation of dividends raises the effective tax rate on investors to 60%, not including the financial burden of complying with the tax code. Capital gains taxation hits the same investor with an additional current tax on the income that will also be taxed in the future. The net effect of these taxes is slower economic growth, higher unemployment, and less innovation. That is bad for everybody, not just the rich.

High marginal tax rates discourage savings, investment and consumption. Further, higher corporate tax rates lead to more bankruptcies. Bankruptcies occur when a company cannot meet its obligations, including debt payments. According to corporate finance gurus like Aswath Damodaran, while we have any tax on dividends, "other things being equal, the higher the marginal tax rate of a business, the more debt it will have in its capital structure." Again, this is not just a problem for the upper class.

Social Security is going to get us in deep trouble long before the "Trust Fund" goes bust. Even with Social Security tax revenue exceeding benefits, the government is running a deficit. As more people retire, Social Security cannot survive without dramatic benefit cuts, payroll tax increases, or a massive influx of young working immigrants. Our income taxes will soon have to finance the illusory "Trust Fund", siphoning off money that could be better used for defense, education, roads and environmental remediation. Privatization is the best and perhaps only viable way to avert fiscal catastrophe. Some of the politicians that denounce privatization are liars, plain and simple. (Yes, Senator Corzine. I'm talking to you. You know what I am talking about.)

These issues are too complicated to resolve in a single column. If this 800 word article challenged your views, perhaps you might consider further research before forming strong opinions in the future. I am not selling anything. I am not running for national office. But do not take my ideas at face value. Investigate. Understand that fiscal policy is a sophisticated and complex subject, and political sound bites do not make it any clearer.

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