Just Dumb -- or Intentionally Misleading?

"Officials said that, overall, the proposal could increase federal borrowing by $900 billion." This sentence and others with the same thought have appeared in essentially every story about the deal struck by the congressional GOP leaders and President Obama with regard to taxes. To put it mildly, the point is truly idiotic for a number of reasons.

First, more than two thirds of the cost of the proposed compromise comes from the continuation of the current tax rates for those earning less than $250,000. Since overwhelming majorities in Congress in both parties as well as Obama has always been in favor of this, the cost of the compromise should not include this amount. A better way to look at the issue is to consider the difference between the cost of what the Democrats wanted and what the Republicans wanted. There, the difference is about 45 billion dollars, not the 900 billion that the AP loves to report.

Second, essentially all of the purported costs that the AP reports are the result of avoiding tax increases or -- in the case of the estate tax -- increasing taxes but by less than was otherwise scheduled to happen. From a technical accounting standpoint, it would be acceptable to call these increases, but in the real world they are no such thing. Income tax rates are staying the same for the next two years as they have been for the last few years. That is over 700 billion of the supposed costs. Estate taxes will rise to 35% from 0% in 2010. According to the AP this is a cost of about 90 billion dollars since rates would otherwise have risen even more so that the tax would hit essentially every farmer, rancher, small businessman and homeowner who had land, a business or a home worth more than $1 million. In Connecticut where I live, that would mean that about 85% of all homeowners would get hit with the tax on death. But when a rational estate tax is designed, this supposedly "costs" 90 billion dollars for two years. The payroll tax reduction will actually cost over $100 billion and the expansion of unemployment benefits will cost over $50 billion. These are true costs.

Third, it is hard to imagine that congress would ever have cut off unemployment benefits for some while giving better benefits to others, something that this bill is designed to prevent.

So, you may ask, what is the importance of this issue? The AP wants to present the Republicans as big spenders who do not care about the deficit. They think this will upset the Tea Party people. So, to accomplish this result, the AP and the rest of the mainstream media is either intentionally misrepresenting the true cost of the bill or they are just too dumb to realize the economic reality. Personlly, I am not sure which it is. One can never vouch for the existence of the economic intelligence of the main stream media; they truly are economic illiterates.