– Diana Furchtgott-Roth, a former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —
By Diana Furchtgott-Roth
Pity President-elect Barack Obama. Today, only three days after his historic victory as the first African-American elected president, the Labor Department announced that the economy lost 240,000 jobs from payrolls in October and that the unemployment rate rose to 6.5%. This underscores the difficulties he faces in raising taxes on “the rich” to fund new spending.
Obama must recognize that his campaign promises are impossible to implement without making the economy sicker. The economy is weak and getting weaker, probably contracting now at an annual rate of 3-4 percent.
Obama’s promises include a combination of tax cuts and welfare for 95 percent of working Americans, an end to America’s foreign oil dependence, a costly healthcare plan, more education spending, and so-called pay equity for women. Much of this is supposed to be funded by levies on businesses as well as tax increases on those making over $250,000.
But, according to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, Obama’s tax package would cost $2.9 trillion over the decade from 2009 to 2018. That includes increasing the tax rate on capital gains from 15 percent to 20 percent, and raising the top two tax rates, 33-36 percent and 35-39.6 percent, on singles with taxable income exceeding $165,000 and married couples earning over $201,000.
The Tax Policy Center’s estimates do not include the effects of financial market chaos and the stock market decline, which has reduced taxable income. And with the economy worsening, tax increases on upper income earners would net less than the Center projected, increasing the 10-year deficit to over $3 trillion.
Here’s one small example. In 2005, the latest data available, the Internal Revenue Service recorded 3.5 million returns with $200,000 or more. About half those returns had capital gains income, which averaged $304,000, netting approximately $80 billion in taxes annually.
These revenues will be reduced by weak stock markets—as well as by disincentives to invest stemming from higher taxes. In addition, many Americans are losing jobs, meaning not only less wage and salary income to be taxed but increased government payouts for unemployment benefits.
As president, Obama will have difficulty paying for new projects such as an incremental $65 billion health care plan, a $30 billion addition to the Medicare prescription drug plan, and $37 billion in increased education and research spending—all estimates for one year.
The bill for some other proposals would go to employers, who are already struggling to survive the recession. Investments in alternative energy and electric vehicles, for instance, would be funded by requiring purchases of permits to emit carbon, estimated to raise $56 billion annually.
Obama would also require most employers to offer paid sick and maternity leave, vacation, and parental leave for school visits. Employers would be penalized for paying women less than men for “equivalent” jobs, however they are defined.
Of course, in a recession, federal deficits are desirable. The question is how to structure them to help the economy recover. By increasing taxes on upper-income earners, small businesses, and capital gains, President Obama would reduce incentives to work and invest. Additional requirements on employers would encourage them to open plants overseas, rather than in America, slowing job creation.
After the euphoria in the streets and the chants of “yes we can” have faded, the question will remain: do Obama’s promises make fiscal sense?
Diana Furchtgott-Roth can be reached at dfr@hudson.org.
We're apparently more than able to sink hundreds of billions into wars, hundreds of billions into companies that dug their own grave, yet you are afraid of $100 billion going to the most deserving of such aid? Sounds like standard trickle down economic rhetoric to me...
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Giving out green card for cash may not work. After coughing up $300,000 per house you may not have much money left for living during those months of unemployment these poor fellows will have to face in this job market. How about increasing quotas for H1 visas? Average H1 worker has to live somewhere. It should create a market for rented properties. And their expenditure on american goods and services could sustain *some* jobs.
The “enormous desire to get into America” is what is jacking up USD value. It is because of this USD sans any specie backing is overvalued. Repeating my comment on gold, I wanted to ask: Why specie backing was dropped? If gold as specie could not be honoured, surely a broad commodities backed currency or commercial paper was possible. You got to have a currency which is convertible to commodities. You got to have a currency which is trusted. Ancients chose gold but we need not have gold. Clearly gold backing was not sustainable for *any* currency. In our modern times commodities like Aluminium, Hydrochloric Acid, etc etc are traded. A broad based commodity backed paper money is feasible. Or, do I have too beautiful mind?
Steve,
You said that you haven’t read anything from me that offers better suggestions. Could I refer you to my Reuters.com article of October 24, entitled Moving Beyond Conventional Remedies, where I presented the following four suggestions. They’re equally worthy of consideration today.
First, rather than extending the duration of unemployment benefits, Congress could give unemployed workers an additional tax-free sum, perhaps $5,000, after 13 weeks unemployment. This could be used for training, relocation, or general living expenses. If workers find another job before the end of the 26-week duration of unemployment benefits, they keep the $5,000.
This would help unemployed workers find new jobs in new industries or different parts of the country, while at the same time giving them an incentive to return to work early. Extending unemployment benefits, on the other hand, means that workers have to stay out of work longer in order to collect benefits.
Second, Congress could help the weak housing market by expanding permanent immigrant visas, or green cards, for those who promise to buy a house costing at least $300,000. At $300,000 a house, 100,000 visas could pour $30 billion into real estate markets, 200,000 visas could pour $60 billion. This influx of money would help stem deterioration in house prices, the root of the financial crisis.
Given the enormous desire abroad to get into America, the Immigration and Naturalization Service should have no trouble filling slots. Two hundred thousand visas is less than two tenths of one percent of our 155 million labor force, and skilled workers would make a valuable contribution to research and innovation.
Third, Congress could raise revenue to recapitalize the impaired banking and credit sector by selling oil and gas exploration and drilling rights. Oil companies have profits and want to drill; banks need capital.
Places to drill include the Arctic National Wildlife Refuge, the Outer Continental Shelf, and promising areas in the lower 48. As well as potentially raising $50 billion, this would exert downward pressure on energy futures and reduced dependence on foreign oil, translating into lower energy prices.
Finally, America’s markets need capital. If Congress were to set capital gains rates at zero for the next five years, America would see an influx of investment, both domestic and international, in equity and housing markets.
At the same time, Congress could make current tax rates permanent rather than having them rise on January 1, 2011, as currently scheduled. With a recession imminent, prospective tax increases would worsen incentives to work and invest.”
Diana Furchtgott-Roth
When I read the political and econonmic plans of Obama, it reminds me of peronism in Argentina.
So the song DO NOT CRY FOR ME ARGENTINA, should be changed to DO NOT CRY FOR ME USA.
Kill the American Dream! I guess people don’t realize that their ideas of increasing the taxes on the rich is only going to extinguish the American dream. Why do people from all over the world including Western Europe come here?
In case you didn’t realize, Buffet and Gates are giving more by “their” choice. Let me repeat. They are choosing to pay more. The government is not forcing them.
The increased taxes are hurting those who are trying to move up in the world. They make $600k in a boom year yet they don’t get ahead. Does that make sense? Those that have been making it consistently have found ways around taxes.
Jon O, the U.S. should have minimal interest in Israel. The 3% or so of the U.S. population that controls most of the U.S. media and much of the banking system should finance their religion’s interests themselves.
Please tell everyone what AIPAC. The most powerful lobby in the U.S.
You sound quite racist in the way you present your issue.
The Obamanites will probably be feeling quite foolish when they discover the truth.
Why are his followers so aggressive? Having a discussion is made over difficult because of their blatant attacks and regurgitation of his psalms.
Dreaming is good…but living in a dream sends you to the poor house.
I guess that is what our country is currently finding out.
We had a Democratic congress for four years. What have they aided to our current distress?
The loose money and giving loans to those who would not qualify in the real world originate from the Clinton/Greenspan era.
Yes, it was amplified by the Congress allowing the powerful banking lobby to have increased the investment limits from 12 to 1 to 40 to 1.
The gentlemen who profited from manipulating the formulas to falsely represent AAA ratings should be prosecuted.
The includes our current head of the Treasury, Hank Paulson. He made $38 million in 2006.
Anyone who thinks paying more taxes is completely lost with the realities of the world. I live in Chicago and we have the highest sales tax in the country. The city is running a tremendous deficit. Yes, it is run by Democrats.
The state of Illinois is on the brink of bankruptcy. Yes, Obama helped. Yes, this has come to be since the Democrats took over.
Anyone who believes giving the government to the Democrats is lost in a dream that will end painfully.
I believe being conservative is better.
- I should control more of my money not government. Most people are very loose with other people’s money.
- Those that work should be helped but with in reason.
- Those that are unemployed should be helped but should be required to return it or work it off. That is what the socialist countries of Europe do so our socialists should accept it.
Fight for your country not the government. Government is inherently evil.
I think Obama was the wrong choice but that is over. If he lied, I hope he is crucified (figuratively for all the racists). I never was a rah, rah, guy so I never bought into the song and dance formulated for him.
I hope he proves to be more than a great orator and brings in great people to run this country.
We are in dire straits. We will survive. The question is how much suffering will there be.
God Bless America!
How about selling gold which is locked away Fort Knox? As it is it has no use. US not anymore a specie backed currency. US does not need gold. Sell it and raise some cash. May be even Alaska can sold back to Russia. May be Hawaii can be sold to Japan or whoever wants to buy it.
Dear D F-R,
Oh, by the way, we just spent some 1.4 Trillion Dollars bailing out your good buddies on Wall Street, who’ve been distributing the wealth in form of boni at the rate of hundreds of millions per head, and many billions over the past couple of speculative years with their CDOs and Swaps. $1.4 Trillion (1,400 Billion). And you actually have the nerve to write that we don’t have the $65, $30, $37, and $56 Billion needed for health care coverage and for education and research.
$1,400 Billion for Wall Street we have, but $188 Billion for the people producing the wealth Wall Street burned up, that we don’t have. Right!
We just had a long national debate about priorities for our resources, and your argument was defeated. Further, that was not an abberation, you are just on the wrong side of history. And the other 17 industrial nations of the world prove you wrong every day of their existence.
But as I said, I’m sure Rupert Murdoch and his Fox News Channel would love to pay for your services. Send him your resume!
Dear DF-R,
While you may be working up your talking points at Hudson, fact is, your basic concepts are faulty.
Obama’s promise: affordable health care (near-universal coverage), is an example. Were you to be right, the other 17 of the 18 most industrialized (and richest) countries in the world could not already have implemented universal health care coverage.
But the have. That includes not just countries like France and Germany, and Switzerland, but also a country like Taiwan, for example.
So America is, according to your Hudson research, so poor that it can’t afford what all other 17 countries, already can afford?
That is just patently absurd, and shows you up for the ideologue your truly are.
You lost this national debate, and you will lose the historical move to universal health care in the U.S. too.
But keep trying. And when your funds dry up at Hudson, perhaps Rupert Murdoch can use your services at Fox News Channel for an occasional commentary on the issue of how poor America is, that it can’t afford to do anything except finance a vast military and elective wars around the globe.
Talk about die-hard fanatics and ideologues!
One source of revenue has never been mentioned: tariffs. Not only would tariffs provide a source of revenue (until 1913 we had no income tax and tariffs were the sole source of federal revenue) but they would also provide incentive to move manufacturing back to the U.S.
Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, is now approaching $9 trillion. What will happen when those assets are depleted? Today’s recession may be just a preview of what’s to come.
Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.
Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?
At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world’s population.
Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.
Pete Murphy
Author, “Five Short Blasts”
Perhaps you should have started … I am a Republican. I worked for Ronald Regan. I feel its necessary to perpetuate stifling partisanship by being a critical. I would rather use my intellect to identify obstacles that propose solutions.
It’s funny how right wingers just assume that a Democratic president is going to spend like George Bush did and then tack on more spending to boot. This just seems like more mudslinging after the campaign is done. GET OVER IT! What happened to “stand behind the president”? Republicans never had any problems saying that about a guy who was running this country into the ground financially. THe base line fact is that if my grandfather’s generation was the “greatest generation”, then my father’s generation (including the author of this article and the rest of the republican right) would be, bar none, be the worst generation this country has seen. They gave up their “revolution” in the sixties for disco and the suburbs, and now they find themselves in power. More conservative than, by some accounts, the idiots who ran this country into the Great Depression and used the military to stop labor riots over safe conditions. I, for one, can’t wait until the babyboomers are gone, so I don’t have to try and clean up after their mistakes anymore.
Another applicable term for ‘trickle down economics’ is ’socialism for the rich’.
This has to be one of the saddest, most useless and most pathetic articles I’ve ever read online. Clearly has no point to it than attack Obama after he already won. What’s going on with this country? People always dwelling on the past, can’t endure their losses without back lashes and pity attempts to bring an opponent down.
According to what Jon O said about Funding to Israel should not stop and people are “fools” for not knowing the truth and putting the blame on the Arabs. Yet in the same time Jon, you managed to insult people and call out names, instead of trying to get your point across in a civilized manner. Your behavior is the exact same of Israelis, they do not know how to send their point across without aggression, violence, killings of thousands and thousands of Palestinian women and children and peaceful men, but they come up with an excuse “terorrists” when in fact all they’re doing is taking more and more land from the Palestinians. But when the Palestinians retaliate, its called terrorism. It was the Israelis who stole the land after WWII. The “Israeli” land now is Palestinian land occupied by the Jews who flew in from Europe and across the world after WWII. The land didn’t even belong to the Jews, so how about you get your facts straight and the first thing the US should do is stop supporting Israel, it’s that policy alone that has flooded hatred towards the US for years, because everyone internationally knows the pain Israel has dumped on the region, through unlawful and terrorized actions.
The only way to go forward for the US is to cut those funds for those aggressor regimes, and focus domestically instead of spending all their ideas on how to conquor the world by breaking down trade barriers and flooding those poor nations with their corporations. Why not attempt a civilized attempt at greatness? instead of attacks and and wars and the killings of millions around the world each year.
I’m sure Obama has different ways to achieve his objections.
Funny…
When Reagan came in he first of all brought about HUGE unemployment, broke the backs oif unions, interest rates sored, it was a disaster.
Today he is considered the Holy of Holies—
Give Obama a chance, OK? You neocon-bots had your chance to take the country apart morally, financially, politically, socially and to whack our foreign policy. Move over for a while, your medicine had bad side-effects…
Burgess, sorry to tell you the truth, but FDR inherited a problem and with The New Deal made it worst. FDR actually prolonged the recession.
Diana Furchtgott-Roth economics are those of the “user pays”.
Individuals earning the minimum wage should pay for their own health care under her regime.
Perhaps she could tell us just how they should accomplish this.
In regular English preferably not economic jargon.
Plenty of old guff form Ms.Furchtgott-Roth, but not solutions.
No money for Isreal would definaely be a good start in the savings direction.
How soon we forget. Menachem Begin organized attacks against the British and Palestinians. This was considered an act of treachery at a time when Britain was experiencing difficulties in North Afrika against Rommel’s Afrika Korps. Begin was put on a ‘wanted’ list by the British for terrorist activities.
He of course became Prime Minister of Isreal.
Talk about the kettle calling the pot black!!
$700 billion for banks does not sound like lassez-faire economics, more like corporate welfare.
Money for the auto industry?
Why?
They made the decision to build gas guzzlers.
And by the way there is only one way to reduce CO2 form an internal combustion engine.
You guessed it.
Make them smaller!!
Funny nobody seem to know this except me!!!!
Tax the rich.
Lets face it if they don’t want to pay taxes all they have to do is not go to work.
It’s as simple as that.
From an earlier column by Ms. Roth
“House Speaker Nancy Pelosi’s prescription for economic stimulus centers on more infrastructure spending, as well as more aid to states, Food Stamps, rebate checks, and unemployment benefits, a package that could cost up to $300 billion.
This is the Keynesian “solution” that didn’t work in the 1930s—more government spending. It’s time for new ideas.”
From today’s column: “Of course, in a recession, federal deficits are desirable. The question is how to structure them to help the economy recover.”
So are you debating yourself, Ms. Roth, or taking shots at the speaker to talk up the Republicans prior to the election? Now that the election is over, deficit spending is permitted? Of course Pelosi was attempting to gain political clout. Reagan and the supply-siders have inverted logical discussion on fiscal responsibility to the point where the democrats have to play this right-wing game of tax cuts for political purposes. These tactics have ultimately played down sensible fiscal debate in election years, and led us to a debt that Ms. Roth is not concerned with, unless a democrat is in office.
http://archive.salon.com/politics/featur e/2001/02/15/reaganomics/index.html
“Reaganomics redux
Supply-side economist Diana Furchtgott-Roth defends President Bush’s $1.6 trillion tax cut.”
- - - - - - - - - - - -
By Daryl Lindsey
Feb. 15, 2001 | WASHINGTON –”If you want to find a one-stop shop for all your answers to the Bush administration’s view on tax cuts, look no further than the American Enterprise Institute. As host to panel discussions like “Does It Really Make Sense to Pay Off the National Debt (Using the Budget Surplus),” it’s not very surprising that AEI falls on the supply-side theory of the tax cut debate. AEI conservatives like Oxford-trained economist Diana Furchtgott-Roth, argue that tax cuts focused on the upper-income brackets are the best prescription for an ailing economy because they create opportunities for investment and job creation by the individuals who are financially equipped to create new jobs or start new businesses.”
So the same people who defended Bush’s pointless tax cuts for the rich are now chiding president-elect obama for 2.9 billion dollars in new spending? This is a classic reaganite supply-sider. These people have no concern for the middle class, and their fiscally irresponsible actions have left the nation 10 trillion dollars in debt. The last two presidents to have a balanced or surplus budget were Carter and Clinton. Whenever the Democrats take power and want to spend money on infrastructure, health care, or anything else constructive, the borrow and spend republicans lambast them as “fiscally irresponsible.”
Shame on you, Diana. You’re defending a failed economic policy that didn’t work in the 1980s, that kept us from paying off the national debt, and that has little to offer for the middle class.
“What we need is Robin Hood. Yes. Robin Hood.”
Absolutely! Robin Hood robbed from a bloated and non-responsive government and gave the money back to the hard working peasants. There was no middle class since the upper class (the GOVERNMENT!) would not allow it.
Obama will be the president, but to drive business out of the country by following the lead of the government during Robin Hood’s time will do severe harm. I expect that 40 percent will get tax breaks, 55 percent will get tax credits (formerly called welfare), 0.5 percent will get just what they deserve, and 4.5 percent will have their taxes raised enough to fire or cause the firing of 15 percent of the population who rely on those with money spending and EARNING it. Why should those 4.5 percent bother to strive to earn when it makes more sense not to? Give people a reason to succeed and they will; give people the opportunity to fail without consequence and they will in greater numbers.
BUT, Keep working; the 3 people who don’t want to depend on you.
If you want real change, you need to think outside the box! The LP is FISCALLY responsible (now that IS change)
Obama and McCain agreed before the campaign that they would both accept federal matching funds. Obama made a promise to McCain - and signed a document - stating he would do so. Obama broke that campaign promise. A promise about money. In other words HE LIED. Not a good record on his rhetoric so far. Obama is full of sh_t.
I highly doubt anyone writing in on this forum is having trouble getting enough food. They probably have a place to stay at night too, as well as clothes. Can\’t think of anything else that I would put down as a \”need\”, not even medical help, as that is just too broad and in the end is fairly futile anyway (we all die). So what is it that people are hoping to get out of Obama being president? Somehow, they \”deserve\” something that other people have. I think many people in this election cycle have crossed the line of pure jealousy and envy. Not that they didn\’t before, but it seems more blatant to me this time than ever before. We want and do not have and so we take through force of government. There is no end to that sort of thought process.