Is Rep Rangel an Economist?

Asserting that Rep Rangel is an economist raises the opportunity for a needed economics lesson. Rep. Charles Rangel is not an economist either in training or in practice. First, he is trained as a lawyer and holds a law degree. Second, in practice as chairman of the tax-writing House Ways and Means Committee, he does get involved in the nation’s political economy but not in a manner suggesting a grasp of sound economic principles.

Rep Rangel has supported free trade and some tax reductions (such as reducing corporate tax rates from 35% to 30.5%, which are quite high compared to other industrialized countries) suggesting he may understand something about economic principles and what cause prosperity but his overall tax policies suggest either a bit of economic ignorance or an intentional attempt to create political approval from liberals. For instance, he has proposed the abolition of the AMT and reduction of some tax brackets but in the same legislation he also proposes increasing capital gains taxes and taxes on the upper income brackets—capital gains from 15 to 19.6%, a surtax of up to 4.6% on incomes over $150,000, an end to Bush tax cuts, and an increase in taxes on hedge funds and buyout firms. Rangel's plan would increase the top income tax rate from 35% to 44% for individuals, small-business owners and farmers, who make up about three-fourths of taxpayers in the highest bracket. Furthermore, he asserts it would produce a $3.5 trillon in tax increase, an assertion that contradicts economic principles.

While counterintuitive to the non-economist like Rep Rangel, the last round of tax cuts appear to have increased federal tax receipts by $785 billion, the largest four-year revenue increase in U.S. history. In fiscal 2007, which ended last month, the government took in 6.7% more tax revenues than in 2006. As a result, these increases in tax revenue have substantially reduced the federal budget deficits. In 2004 the deficit was $413 billion, or 3.5% of gross domestic product. It narrowed to $318 billion in 2005, $248 billion in 2006 and $163 billion in 2007. That last figure is just 1.2% of GDP, which is half of the average of the past 50 years.

Economists understand the principle behind the general fact that lowering tax rates (in the range of taxation the U.S. is in) spurs growth with the result that the percentage of federal income taxes paid by the very wealthy as a result of the Bush tax cuts have increased, not decreased. Federal tax revenues have been rising between 6.7% and 14.5% in each of the past three years.

And Rep Rangel’s tax policies would not help the poor with their share of the tax burden. According to the Treasury Department, the top 1% of income tax filers paid just 19% of income taxes in 1980 (when the top tax rate was 70%), and 36% in 2003, the year the Bush tax cuts took effect (when the top rate became 35%). The top 5% of income taxpayers went from 37% of taxes paid to 56%, and the top 10% from 49% to 68% of taxes paid. And the amount of taxes paid by those earning more than $1 million a year rose to $236 billion in 2005 from $132 billion in 2003, a 78% increase.
And as we know, we experienced 49 consecutive months of job growth as a result of the economic expansion induced by President Bush's 2003 tax rate reductions.

We might quite correctly conclude that Rep Rangel has an excellent grasp of politics and very little understanding of economics. By proposing politically popular tax increases, we have to decide whether he is being “stupid or evil.” By slowing rather than stimulating the economy, he would ensure that these percentages decline. He and other liberals assert they are acting on behalf of the common good of society by equalizing difference but these hurt the poor; he seems to define his tax policy much as Senator Clinton does: "we are going to take things away from you on behalf of the common good" which politically sounds good but raises red flags for the economists.

So while the economic facts and principles are clear to the economists, it becomes an interesting question of why these same facts and principles are so ignored and distorted by political leaders and media in such a consistent manner even given they obviously are not economists.