James Pethokoukis

Politics and policy from inside Washington

Obama’s vague Buffett Rule a political ploy

Sep 19, 2011 15:45 UTC

A few thoughts on the economics and politics of President Obama’s tax-the-rich “Buffett Rule” and new debt reduction “plan”:

1) What problem does the Buffett Rule address (assuming it is something more than just a campaign talking point or vague guideline)? Rising inequality? Inequality has been rising globally for years due to globalization and technology. Higher taxes on the rich won’t help that. The biggest economic problem America faces right now is slow economic growth.

2) Would the Buffett Rule reduce the budget deficit at all? That’s far from clear. Higher taxes on small business and entrepreneurs would slow growth and reduce tax revenue. It would also encourage greater efforts at tax avoidance. The 1993 Clinton tax hikes, for instance, only generated a third of the revenue that CBO forecasted. And those increases were instituted when the economy was growing at a steady 3% clip, not stuck in slow-growth mode like the U.S. economy currently is. From Obama’s speech, the it seems to me that the Buffett Rule is probably a special capital gains tax rate of 28 percent for people making $1 million a year.

3) Obama still declines to release a long-term, multi-decade debt reduction plan of the sort Rep. Paul Ryan has put together. I think the reason is clear: If Obama were to do that, it would be crystal clear to voters that the only way Obamacrats can pay for permanently higher levels of government spending is through permanently higher levels of tax revenue, including higher taxes on the middle class. As I wrote a couple of months back:

Three liberal think tanks recently devised budgets to put the U.S. government on a sustainable fiscal path through 2035. Their plans, collectively, called for Washington to collect an average of 23.6 percent of GDP vs. the post-World War II average of 18.5 percent. To put that in further perspective, the highest level of tax revenue that Uncle Sam has ever taken is 20.9 percent in 1944.

And to reach such a stratospheric level of taxation, these groups are calling for unprecedented tax hikes via millionaire surtaxes, higher taxes on alcohol and tobacco, securities transaction taxes, higher taxes on capital gains, higher taxes on corporations, higher death taxes, carbon taxes, and gasoline taxes. None of which, supposedly, would hurt economic growth. Even worse, all those tax hikes would still fail to balance the budget. And when you move past 2035, taxes would almost certainly need to go even higher.

4) OK, the top 1% of US taxpayers make 20% of income and pay 40% of taxes. Isn’t the tax code already “progressive?”

5) The Solyndra scandal revealed Obamanomics to be mostly a clever, crony-capitalist scheme to launder taxpayer money through favored special interests and then back into Democrat campaign coffers. This new budget and tax plan reveals the other: a plan to redistribute rather than create wealth.

 

COMMENT

Before we raise taxes shouldn’t we first consider the value of govenment? Federal and state governments services have expanded far beyond what is reasonable (provide for security, clear air and water, etc.) and certainly beyond their level of competence. They are creating problems for which they can provide a solution; a bit like Cadilliac offering a motor to close the trunk windshield wipers that start automatically (clealy solutions for problems we do not have).

Posted by WileyWidget | Report as abusive

Why Obama’s school rehab plan may flop

Sep 14, 2011 18:05 UTC

The point of President Barack Obama’s American Jobs Act is, well, to create jobs. And the sooner the better, right? Unemployment is above 9 percent, and everyone from Wall Street to the Congressional Budget Office to the White House now thinks that number isn’t going to improve anytime soon. Thus Obama’s new $450 billion stimulus plan. But since this new proposal is structured just like 2009′s $800 billion American Recovery and Reinvestment Act, it should be no surprise that it contains many of the same flaws as Stimulus 1.0.

Example: Yesterday, Obama traveled to Fort Hayes High School in Columbus, Ohio to promote his plan, particularly the bit about spending $25 billion to refurbish 35,000 American schools. Here is some color from The Columbus Dispatch:

Obama toured Fort Hayes Arts and Academic High School, a campus of Columbus City Schools buildings, some of which date back to the Civil War era and have undergone significant upgrades. The president’s jobs plan calls for the $25 billion to modernize 35,000 schools nationwide. Ohio could get up to $985.5 million, with up to $111.6 million for Columbus City Schools. ”I wouldn’t mind taking a few classes here,” said Obama, who used Fort Hayes as an example of upgrades and jobs created to complete those upgrades that could take place throughout the U.S. If his bill is passed. ”The renovation of Fort Hayes is a great example of where those jobs can come from if we can finally get our act together in Washington,” Obama said.

But what Fort Hayes High School really exemplifies is how long it will take for this new round of government spending to show any employment results. Some $55 million in renovations on the campus began in March 2003, starting with design work, and were originally scheduled to be completed by March of 2007. Different projects started at different times, with each scheduled to take about three years to complete. Heck, it takes months just to do the necessary architectural planning. In short, there will be nothing “shovel ready” about these education infrastructure projects. If we want to upgrade U.S. schools, fine. But the effort will make for a poor 2012 jobs plan.

And, of course, there are always concerns about how efficiently this money would be spent. In 2010, Los Angeles opened its new Robert F. Kennedy High School, costing $578 million. Here’s how ABC News described it:

The new campus between Wilshire Boulevard and 8th Street in Los Angeles preserve pieces of the historic hotel, but it’s the stunning new architecture that’s drawing eyes and plenty of wagging fingers.

The soaring, unusually shaped buildings are clad in glass and metal, and the interiors are just as slick. The facility boasts a state-of-the-art swimming pool, fine art murals, an ornate auditorium suitable for hosting the Oscars, and a faculty dining room that the superintendent says is “better than most restaurants.”

All those amenities add up to an enormous price tag, which works out to about $250,000 per pupil. That $578 million cost is more expensive than the Bird’s Nest stadium built for the 2008 Olympic Games in Beijing, China, which cost $500 million. It’s also significantly more expensive than the $400 million home of the Denver Broncos, Invesco Field at Mile High.

So a) all this new spending would not create many jobs anytime soon — even if you buy its Keynesian rationale — and b) the rush to spend money may result in plenty of waste just as with the LA high school and the loan guarantees to solar-panel maker Solyndra.

COMMENT

To fight against unemployment/joblessness, a country, in the modern age of our time does not need spending here and there including schools etc., rather private sectors concerning to industries and agricultural farming need to be encouraged to establish more and more of them and thus adequate number of jobs would be created in those newly formed projects and the economy of the country would be enhanced.

Posted by Shamsray | Report as abusive

Obama’s $447 billion reelection plan

Sep 9, 2011 15:16 UTC

There’s been much speculation that President Barack Obama will spend $1 billion to get reelected. Turns out those guesses were off by $446 billion.

What Americans heard last night was a $447 billion political plan, not an economic one. It’s purpose was to a) fire up the demoralized Democratic base and b) show independents that Obama is trying to do something – anything – to reduce unemployment, not just slash needed “investment” like those heartless, pro-austerity Republicans.

Now all the usual suspects will claim the American Jobs Act will create more growth and more jobs through $250 billion in temporary payroll tax cuts and $200 billion in infrastructure spending, unemployment benefits and aid to state and local government.

Take Moody’s economist Mark Zandi, a favorite of the White House and congressional Democrats. Zandi’s research says the original $800 billion Obama stimulus created or saved some 2-3 million jobs. And he likes Stimulus 2.0 just as much. He claims it would “add two percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

Really? Seriously?

1) Of course, such analysis is based on garbage in, garbage out, Keynesian economic models. The results were already baked into the cake.  Better to see what actually happened as gleaned from government statistics. In a recent paper, Stanford University economist John Taylor simply looked at whether, as a result of the 2009 American Recovery and Reinvestment Act, consumers actually consumed and whether government actually spent in a way that produced real growth and jobs. Turns out, they didn’t:

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

2) Economists from George Mason University also looked at the real-world results of  the ARRA by surveying employers. Their findings:

Hiring isn’t the same as net job creation. In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired. More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%). Thus, there was an almost even split between “job creating” and “job switching.” This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed.

3) And let’s not forget what Milton Friedman might have to say about this sort of deal, which gets to the heart of why Keynesian stimulus doesn’t work (via Wikipedia):

The permanent income hypothesis (PIH) is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.

Team Obama thinks the whole package could boost growth by two percentage points. But the  infrastructure spending and unemployment benefits will be a tougher sell. Republicans may well substitute their own stimulus ideas for those items so that the package ends up composed entirely of tax cuts.

The most likely addition is a temporary reduction in the taxes on foreign earnings brought back to the U.S. by its multinational corporations. The U.S. Chamber of Commerce estimates such a tax holiday could boost growth by a full percentage point next year. White House economists criticize idea as providing too little bang for the buck, but it could be the price for getting a deal. But an agreement can get probably get done, which would enhance perception of Obama as a leader and boost his approval ratings. Just don’t expect it to do much for America’s sputtering economic recovery.

COMMENT

James, didn’t your mama teach you “if it sounds too good to be true it probably is”–like the previous post–had your removed your “liberal magical spectacles” to take a closer look at this fraud you would have seen him for what he is–a complete non starter. Come to the dark side James and see the light.

Posted by flopper99 | Report as abusive

Obama faces worst-case 2012 scenario

Aug 19, 2011 01:55 UTC

On Wednesday, Economic Forecaster-in-Chief Barack Obama said, “I don’t think we’re in danger of another recession.” Shades of John McCain’s “The fundamentals of our economy are strong.”

On Thursday, the stock market – freaked out by Europe’s spiraling debt crisis and a shockingly weak Philadelphia Fed manufacturing report – plunged 4.5 percent. In an unintentional rejoinder to Obama, investment bank Morgan Stanley opined that the United States was “dangerously close” to falling back into recession.

When American presidents win reelection, they usually win by a heftier margin than the first time around. Narrower victories are rare, just three or four depending if you’re looking at the electoral or popular vote. When voters break against an incumbent, it’s usually fatal for the guy in the Oval Office. And right now, things are breaking bad for Obama. Really bad. Gallup has been pegging his approval rating right around 40 percent, even sometimes dipping to 39 percent. Regarding the economy in particular, Obama registers just 26 percent approval, his lowest rating ever and way down from a high of 59 percent in February 2009.

And it may be about to get a whole lot worse for the Obama 2012 campaign. The White House’s worst-case scenario for the economy on Election Day next year has become Wall Street’s baseline scenario. After looking at a string of weak economic reports and Europe’s growing fear of debt meltdown and contagion, JPMorgan – led by Obama pal Jamie Dimon – has just come out with a politically poisonous forecast.

The megabank now thinks the economy won’t grow much faster over the next 12 months than it did during the first half of this year — and that’s assuming Europe doesn’t go all pear shaped. It sees GDP growth at just 1.5 percent this year, 1.3 percent next year with unemployment at … 9.5 percent heading into the final days of the election season. “The risks of recession are clearly elevated,” the bank said. Here’s its reasoning:

Consumer sentiment has tumbled and household wealth has deteriorated. Survey measures of capital spending intentions have moved lower and the housing market shows little sign of lifting. Small businesses, retailers, builders and manufacturers all report a weaker business environment. Global growth has disappointed and foreign growth forecasts have been taken lower. In response we are lowering our projection for growth, particularly in the quarters around the turn of the year.

Team Obama had better permanently shelve any plans of running a “Morning in America” campaign. In fact, if a) the economic forecasts of Morgan Stanley, JPMorgan and Goldman Sachs are accurate, and b) voters behave as they usually do during bad economic times, then c) Barack Obama will be a one-term president. No president in the modern era has been reelected with the unemployment rate higher than 7.4 percent, much less two percentage points higher.

But Obama’s political folks are clever, far more than the guys who ran Jimmy Carter’s horrific 1980 campaign. And maybe the Republicans will nominate a candidate that scares Midwest suburbanites silly. Or perhaps Obama’s plan for “winning the future” will imbue the gloomy American public with a a bit more hope that whatever Republicans offer. Perhaps. But if Obama wins four more years with this economy, it will be almost as historic as his win in 2008.

COMMENT

Any dolt knows that the economy is not the stock market. i quit reading after that. Blaming Obama just means you are too chickenshit to acknowledge the truth: we done fucked this one up uncle dad!

Posted by ohboy | Report as abusive

Why Romney’s right that ‘companies are people’

Aug 11, 2011 22:00 UTC

Liberal groups, like Think Progress, are jumping all over Mitt Romney for this (via TP):

Mitt Romney completed a rowdy campaign stop at the Iowa state fair, before a key Republican debate tonight and an upcoming Iowa straw poll. At the end of his speech, a Q&A session quickly devolved into a shouting match during which he defended the rich, argued for cutting entitlements, and equated corporations with people. Romney told a group of angry Iowans that raising the retirement age to protect corporate tax breaks is appropriate. “Corporations are people, my friend,” he said.

Now I don’t think Romney was making a legal argument about corporate personhood, which is well established concept in US law:

In the United States, corporations were recognized as having rights to contract, and to have those contracts honored the same as contracts entered into by natural persons, in Dartmouth College v. Woodward, decided in 1819. In the 1886 case Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394, the Supreme Court recognized that corporations were recognized as persons for purposes of the Fourteenth Amendment

Rather, I am pretty sure he was trying to say that corporations are made up of people, but not in a Soylent Green sort of way. Rather they are comprised of workers generating goods and services for customers. And when you punish corporations, you punish workers and shareholders and customers. A few additional points:

1) Here an interesting bit from an OECD paper on taxes and economic growth

Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. …  A second option is to reform corporate taxes, as they influence productivity in several ways. Evidence in this study suggests that lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth. It also appears that corporate taxes adversely influence productivity in all firms except in young and small firms since these firms are often not very profitable.  … Lower corporate and labour taxes may also encourage inbound foreign direct investment, which has been found to increase productivity of resident firms. In addition, multinational enterprises are attracted by tax systems that are stable and predictable, and which are administered in an efficient and transparent manner.

2) And here is economist Greg Mankiw addressing the topic in his popular economics textbook:

Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.

The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.

3) Finally, economists Kevin Hassett and Aparna Mathur on who bears the burden of corporate taxes: “The results in this paper suggest that corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates.”

 

 

 

 

COMMENT

Thomas Paine said it best in The Rights Of Man in 1791.

“It has been thought that government is a compact between those who govern and those who are governed; but this cannot be true, because it is putting the effect before the cause; for as man must have existed before governments existed, there necessarily was a time when governments did not exist, and consequently there could originally exist no governors to form such a compact with. The fact therefore must be, that the individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise, and the only principle on which they have a right to exist.”

Thomas Paine and others of the Revolutionary Era realized that any institution made up by and of humans – from governments to churches to corporations – must be subordinate to individual living people in terms of the rights and powers held by the institution.

Corporations only gained equal status with people after decades of assault on the Constitution by the railroads in the 1800′s. The peak year for their legal assault was 1877, with four different cases reaching the Supreme Court in which the railroads argued that governments could not regulate their fees or activities, or tax them in differing ways, because governments can’t interfere to such an extent in the lives of “persons” and because different laws and taxes in different states and counties represented illegal discrimination against the persons of the railroads under the Fourteenth Amendment.

In 1886 the Supreme Court ruled on an obscure tax issue in the case Santa Clara County vs. Union Pacific Railroad, but the Recorder of the court, a man named J. C. Bancroft Davis, himself formerly the president of a small railroad wrote into his personal commentary of the case that the Chief Justice had said that all the Justices agreed that corporations are persons. This, in fact, was not true at all.

In so doing, he – not the Supreme Court, but its clerical recorder – inserted a statement that would change history and give corporations enormous powers that were not granted by Congress, not granted by the voters, and not even granted by the Supreme Court. Davis’s headnote had no legal standing, but was taken as precedent by generations of jurists, including the Supreme Court who followed and read the headnote but not the decision.

The Founders never intended corporations to have the same rights as citizens. It doesn’t matter how many rationalizations the right wing think tanks disseminate to their armies of bloggers and pundits. It is only because of an obscure headnote written by a corrupt Supreme Court clerk in an obscure railroad tax case that took place in 1886 that they have been able to excercise such power, and to the detriment of the People.

Posted by GetpIaning | Report as abusive

A crisis of confidence in economy — and Obama

Aug 9, 2011 00:29 UTC

Barack Obama’s presidency was birthed by economic collapse and financial crisis. Opportunity for a second term is now in growing danger of termination by the very same forces. After its Monday plunge, the U.S. stock market has fallen 18 percent since late April. (During his January State of the Union address, the president pointed to a “roaring” market as one sign his Keynesian policies were working.)

And the economy is advancing at such a slow pace that it risks sliding back into recession. Goldman Sachs thinks the nation’s GDP will expand just 1.7 percent this year and 2.1 percent in 2012, leaving the unemployment rate stuck at well over 9 percent. The firm sees a one-in-three risk of a downturn over the next six to nine months. Other financial firms think the odds are closer to 40 percent or even 50-50.

Then, once again, there’s Wall Street. Not only were bank stocks hammered in the sell-off, the cost to insure their bonds against default soared. Standard & Poor’s downgrade of U.S. government debt may have been a factor since Uncle Sam is backstopping the sector. (More evidence “too big to fail” is alive and well.) But there are also concerns about U.S. bank exposure to European banks and, in turn, their exposure to European government debt. (Sovereign defaults and a EU banking crisis would also slow economic growth in a key market for U.S. exports.) And, coming full circle, banks here still face billion in potential mortgage losses, a problem that another recession would only worsen.

In short, there is again a crisis of confidence in the U.S. economy – but in Washington, too. During his brief speech yesterday at the White House, Obama did nothing to calm jittery markets, perhaps achieving just the opposite. He blamed Tea Party Republicans for the debt downgrade. He said government discretionary spending couldn’t be cut much further. He called for raising taxes. And he repeated his demand for a mini-version of the 2009 stimulus – temporary tax cuts, infrastructure spending, more unemployment benefits.

The stock market, already falling before Obama spoke, saw selling accelerate as Obama made it clear he had no new ideas to offer. And he certainly gave no hint that he’s ready to adopt Republican ideas such as cutting business taxes or slashing regulation. Instead of a pivot, Obama stayed firmly planted in the anti-growth policies of the past two-and-a-half years. He’s even keeping Tim Geithner as Treasury secretary, practically begging the poor guy to stay. (Indeed, it was almost exactly a year ago that Geithner penned his “Welcome to the Recovery” op-ed.)

Americans have seen this movie before. And it didn’t end well. No one wants a sequel, least of all Obama. But the way things are going, another president-elect might be able to utter pretty much the same words on Nov. 6, 2012, as Obama did on Nov. 4, 2008:

The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America – I have never been more hopeful than I am tonight that we will get there. I promise you – we as a people will get there.

 


 

COMMENT

One day plunges don’t mean much to me any more. ~5 (biz) day movement matters more. How this week ends is more significant, imo.

If this week closes below 10,000, a lot of folks are going to be looking for something new to add to the end of their very long machine-trading if-then-else software logic statement after “buy US treasuries.”

#yikes
@DanFarfan

Posted by DanFarfan | Report as abusive

Sputter to stall: U.S. economy dips into danger zone for recession

Jul 29, 2011 20:45 UTC

More evidence, as if we needed it, that the U.S. economy is in sad shape. America’s gross domestic product grew just 1.3 percent in the second quarter, according to the Commerce Department. And first-quarter growth was revised down to just 0.4 percent. This is now the weakest two-year recovery since World War II.

More importantly, it means we’re in the danger zone for another recession. Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

Check out this depressing analysis from IHS Global Insight, one of the economics firms the White House regulatory likes to cite (but maybe not today):

There is little doubt that, since the summer of 2010, U.S. growth has faltered—the only question now is how much weaker could things get and how long will the (very) “soft patch” last. His Global Insight now expects that growth in the third quarter will come in much weaker than previously expected—probably less than 2 percent and possibly less than 1 percent.

There is no margin for error here. Nothing else can go wrong, such as, for instance, an EU sovereign debt crisis. Oh, wait:

Italian bond spreads have widened to new highs, while Spanish debt spreads are at the doorstep of their 2011 highs. The short-lived euphoria over last week’s expanded bailout proposal—a euphoria we did not share—appears to have worn off quickly. With weakness now bleeding into the European corporate bond market and into the core countries’ data releases, a double dip recession in the eurozone is a live possibility. We wish things were materially better on this side of the Atlantic … – Michael Darda, MKM Partners.

When Election Day 2012 rolls around, it will be the economy rather than the debt ceiling debate or the killing of Osama bin Laden that will most influence voters. And time is running for a dramatic turnaround that will substantially lower unemployment or boost incomes. Just today, Gallup released some nasty poll numbers for President Barack Obama:

 

The White House and its media surrogates will continue to argue that without the $800 billion stimulus, the economy would be even worse.  Their models and multipliers are never questioned.  But to many Americans, it looks like the car is headed back into the ditch, if it ever got out.

COMMENT

It will be a miracle if the US economy does not collapse before this turd of a President is removed.

If he is re-elected, things ceonomically will fall faster than anyone can immagine at this point in time.

If he is not re-elected, dozens of cities will burn, and there will be riots on the scale of the late 60′s early 70′s.

I do not have high hopes… Just a bussload of bullets.

Godspeed to all here and there.

Posted by mmercier | Report as abusive

Explaining Obama’s tax-hike obsession

Jul 19, 2011 02:41 UTC

It’s the great mystery of the debt ceiling debate: Why is President Barack Obama so darn adamant about raising taxes? “This may bring my presidency down, but I will not yield on this,” Obama told Republicans before dramatically exiting their budget meeting last week.

“This,” of course, is his demand that large spending cuts be “balanced” with tax increases on wealthier Americans, entrepreneurs, investors and unpopular businesses such as Big Oil and Wall Street. But why insist on higher taxes in the middle of weakest economic recovery in the post-World War II era?

Wouldn’t standard Keynesian economics, much beloved in the White House, actually call for cutting taxes (or increasing spending) to boost aggregate demand?

Doesn’t Obama know that even his former chief economist, Christina Romer, says tax increases “will tend to slow the recovery in the near term.” Not that things look much better a few years out. The International Monetary Funds sees economic growth below 3 percent through 2016. And Democrat-friendly Goldman Sachs now thinks a double-dip recession is possible even as it lowers its growth forecast and raises its prediction for unemployment.

But Obama’s tax obsession becomes understandable when you realize the long game he’s playing: Big Taxes to fund Big Government. Decade after decade. See, it’s an almost universal belief among left-of-center journalists, economists, policymakers and politicians that Americans must pay higher taxes in coming years to cover the medical expenses of its aging population – not to mention all sorts of brand new social spending and green “investment.” Dramatically higher taxes. On everybody. And if we have a debt crisis, maybe those tax increases come sooner rather than later.

And it’s not even a secret, really. Here’s liberal economics columnist Ezra Klein of The Washington Post:

The reality is that we’re going to have higher taxes in the coming years, and beyond that, we’re going to have higher taxes than we’ve traditionally had during periods in which taxes were relatively high.

And liberal economics columnist David Leonhardt of The New York Times outlines a completely implausible scenario — at least to himself — to avoid massively higher taxes:

For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military – or do some combination of the above.

How high? Three liberal think tanks recently devised budgets to put the U.S. government on a sustainable fiscal path through 2035. Their plans, collectively, called for Washington to collect an average of 23.6 percent of GDP vs. the post-World War II average of 18.5 percent. To put that in further perspective, the highest level of tax revenue that Uncle Sam has ever taken is 20.9 percent in 1944.

And to reach such a stratospheric level of taxation, these groups are calling for unprecedented tax hikes via millionaire surtaxes, higher taxes on alcohol and tobacco, securities transaction taxes, higher taxes on capital gains, higher taxes on corporations, higher death taxes, carbon taxes, and gasoline taxes. None of which, supposedly, would hurt economic growth. Even worse, all those tax hikes would still fail to balance the budget. And when you move past 2035, taxes would almost certainly need to go even higher.

That is the high-tax future the liberal establishment has in store for America. No wonder Obama rejected his own debt commission last December. It would limit the tax and spending burden to 21 percent of GDP. Neither is nearly enough for the Obamacrats and their successors. Just look at Obama’s budget from last February. Over a decade, it never reduces spending to less than 23 percent of GDP and spending is actually higher at the end of the ten-year span than in the middle. And eventually all that spending would need to be paid for via higher taxes. Recall that back in 2009, the White House floated a trial balloon about a instituting a value-added tax to pay for healthcare reform or general debt reduction.

Underlying all this longing for higher taxes is a belief government can’t and shouldn’t be cut. Nonsense. Both the American Enterprise Institute and Heritage Foundation have devised workable fiscal plans that would keep taxes below 20 percent of GDP. And Rep. Paul Ryan’s Path to Prosperity shows how to reduce spending to below 19 percent of GDP by 2040. And rather than managed decline toward a slow-growth, EU-style social welfare state  (that even the EU can’t afford anymore,) these plans would help keep America growing and living standards rising as they have for decades. Those are high stakes in the debt ceiling debate —  and in the battles over taxes and spending in the years to come.

COMMENT

@Dustycornfield, the poor, once deprived of a job, housing and lastly food, will simply eat the rich. They lack good protein in their diets.

@jabone, welfare for the rich and corporations rather than working to move the USA forward is what the Republicans are all about … giving the most to those who do not need it, are what people like you don’t/can’t see.

The propaganda machine that is fox news truly worked its magic on the dimwitted… especially being you blame the Democrats for the “class warfare.”

http://www.nytimes.com/2003/09/14/magazi ne/the-tax-cut-con.html?pagewanted=19&sr c=pm

Posted by hsvkitty | Report as abusive

Would the GOP’s ‘Cut, Cap and Balance’ plan really cost 700,000 jobs?

Jul 18, 2011 16:24 UTC

This is the Democratic talking point: Cutting spending by $111 billion, as some Republicans want to do, would cost the economy 700,000 jobs.  Now I will admit that I am not sure if those are jobs somehow not created, jobs somehow not saved or what exactly.

But the basic point is that less government spending means fewer jobs. But to believe that, you also have to believe that more government spending means more jobs.  Just ask Moody’s.com economist Mark Zandi who had this to say in February about an earlier GOP plan to cut spending by $61 billion (and is the apparent source of the meme):

The House Republicans’ proposal would reduce 2011 real GDP growth by 0.5% and 2012 growth by 0.2%. This would mean some 400,000 fewer jobs created by the end of 2011 and 700,000 fewer jobs by the end of 2012.

And recall that Zandi had this to say about the Obama’s $800 billion stimulus:

Nonetheless, the effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls. These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration.

I have expressed my doubts about this before, as has economist John Taylor who, after examining data as opposed to models, concludes this about the Obama stimulus (bold is mine):

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

Here is another way of looking at why the stimulus didn’t function as projected — and why the GOP budget cuts wouldn’t hurt the economy:

Unfortunately, we find substantially smaller government spending multipliers than those used by Romer and Bernstein. For example, the multiplier associated with a permanent increase in government spending by the end of 2010 lies between 0.5 and 0.6. In other words, government spending does not induce additional private spending but instead quickly crowds out private consumption and investment.

We also provide an assessment of the impact of the American Recovery and Re-investment Act. This legislation implies measures amounting to $787 billion and spread over 2009 to 2013 but peaking in 2010. Our estimate of the total impact is closer to 1/6 of the effect estimated by Romer and Bernstein. By 2010 we project output to be about 0.65% higher. Using the same rule-of-thumb as Romer and Bernstein, this increase in GDP would translate to about 600,000 additional jobs rather than three to four million.

So if the GOP plan cost any jobs, it might be in the tens of thousands. And that number might be more than offset by massive new hiring caused by the decrease in business and consumer uncertainty. Deep cuts in spending, hard spending caps and a balanced budget amendment would go a long way toward removing the threat of fiscal crisis from the fiscal horizon. If only the EU could say the same right now.

Kill jobs? The GOP plan would potentially be a powerful job creator.

 

 

 

COMMENT

Taking my money and giving some of it back in the form of misguided programs (The presidential dollar coin fiasco comes to mind) can never be more efficient than letting me keep the money and spending it on something that I want or need. The money I keep goes directly into doing something usefull, while the money the government takes always has a pretty high collection and adminitrative costs before it is ever spent. We don’t need the “balanced” approach of tax hikes now and maybe cuts later that the dems are proposing. This will encourage the politicians to get us into even more wars, and to spend ever more money on wastefull give aways as part of their campaign to get re-elected. The cycle of tax and spend needs to be interupted. Keep on writting Mr. Pethoukokis you are correct.

Posted by zotdoc | Report as abusive

Panic at the White House? Gloomy Goldman Sachs sees high unemployment, possible recession

Jul 16, 2011 12:22 UTC

Last night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):

Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.

The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …

Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out. Maybe Goldman is wrong, but economists across Wall Street have been growing more bearish.

And recall that back in August of 2009, the White House — after having a half year to view the economy and its $800 billion stimulus response — made an astoundingly optimistic forecast. Starting in 2011, with Obamanomics fully in gear and the recession over, growth would take off. GDP would rise 4.3 percent in 2011, followed by … 4.3 percent growth in 2012 and 2013, too!  And 2014? Another year of 4.0 percent growth. Off to the races, America.

Even in its forecast earlier this year, Team Obama said it was looking for 3.5 percent GDP growth in 2012, followed by 4.4 percent in 2013,  4.3 percent in 2014.

Goldman Sachs doesn’t have to tell you things are bad. I don’t have to tell you things are bad. Everybody knows things are bad. Unemployment is at 9.2 percent (11.4 percent if the official labor force hadn’t collapsed since 2008 and 16.2 percent if you include discouraged and underemployed workers.)  Moreover, the economy grew at just 1.9 percent in the first quarter of this year and may have grown less than 2 percent in the second. Wages and income are going nowhere fast.

When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.

 

COMMENT

Oddly, disliking what Obama and Obamanomics have done to the country doesn’t make you:

racist
unpatriotic (if you were a real patriot you’d just nod and say yes to anything the administration wants to do)
conservative
Republican
Tea Party

It just makes you intelligent. Welcome to the disenfranchised.

Posted by notthistime | Report as abusive
  •