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President Obama didn’t offer a budget plan yesterday. The White House hasn’t released anything beyond a set of talking points.

But that’s not terribly surprising since his speech was really the opening salvo of his 2012 reelection fight. And it’s clear that a central theme of his campaign will be class warfare.

But if we translate his campaign-style demagoguery into the overall budget framework, we get something like this fiscal continuum. Obama, for all intents and purposes, has taken the moderately left-wing proposal crafted by his Fiscal Commission and moved it significantly in the wrong direction by adding class-warfare tax policy. As such, he is close to the left end of the line, which represents “Statism.”

The Ryan plan, by contrast, is the moderately right-wing mirror image of the Fiscal Commission. But rather than cementing in place bigger government, as proposed by Simpson and Bowles,  Ryan’s budget slowly shrinks the fiscal burden of government. As such, it is on the “Liberty” side of the continuum.

America’s Founding Fathers had the right idea, of course, They envisioned a very limited central government, and for much of our nation’s history, the federal budget consumed about 3 percent of GDP. Unfortunately, the Hoover-Roosevelt policies began the process of moving America in the wrong direction, and federal spending now consumes nearly one-fourth of America’s economic output.

But enough history. Let’s revisit Obama’s speech and the accompanying talking points. In addition to the class warfare (more on that below), we also see an explicit call to reduce the growth of Medicare spending by “strengthening the Independent Payment Advisory Board.”

In other words, Obama wants to use his control of the purse strings to give bureaucrats more ability to decide what kind of care seniors can receive. It’s politically incorrect to call this type of entity a “death panel,” so I’ll simply contrast Obama’s top-down bureaucratic approach with the Ryan plan, which is based on giving vouchers to future seniors so they can pick the health plans that best fit their needs (people over 55 would be stuck with the current system). And since this is very similar to the system used to provide health care for Members of Congress and their staff, you know it must work reasonably well.

Let’s briefly return to the tax side of the fiscal equation. I’ll have more to say about this in a separate post giving a behind-the-scenes look at what Democrats really hope to achieve in the area of tax policy, but I want to offer a basic explanation of why the soak-the-rich approach is doomed to fail. There are five reasons in this video to reject class warfare, including a very important warning that high tax rates on the rich almost always are a tactical move to facilitate higher taxes for the rest of us.

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Responding to widespread criticism of his AWOL status on the budget fight, President Obama today unveiled a fiscal plan. It already is being criticized for its class warfare approach to tax policy, but the most disturbing feature may be a provision that punishes the American people with higher taxes if politicians overspend.

Called a “debt failsafe trigger,” Obama’s scheme would automatically raise taxes if politicians spend too much. According to the talking points distributed by the White House, the automatic tax increase would take effect “if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade.”

Let’s ponder what this means. If politicians in Washington spend too much and cause more red ink, which happens on a routine basis, Obama wants a provision that automatically would raise taxes on the American people.

In other words, they play and we pay. The last thing we need is a perverse incentive for even more reckless spending from Washington.

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There’s a significant debate now taking place in Washington – largely behind closed doors, but sometimes covered by the media – on whether fiscal conservatives should maintain a rigid no-tax-increase position. One side of the debate features Grover Norquist of Americans for Tax Reform, which is the organization that maintains the no-tax increase pledge. The other side features Senator Coburn of Oklahoma, who is part of a small group of GOP Senators who might be willing to increase the tax burden as part of a deal that supposedly reduces deficits.

I’m a huge fan of Senator Coburn, who was in favor of cutting wasteful spending before it became fashionable. His office, for instance, releases a “Pork Report” every couple of days. But you shouldn’t read it if you have high blood pressure, because it will confirm (and reconfirm, and reconfirm, ad nauseum) your worst fears about tax dollars getting wasted.

Nonetheless, I’m on Grover’s side on this tax debate for two reasons.

First, we have a spending problem, not a revenue problem or a deficit/debt problem. Red ink is undesirable, to be sure, but it is a symptom of the underlying problem of a government that is too big and spending too much.

But don’t believe me. Here is a chart from the House Budget Committee showing long-run projections for spending and revenues over the next 70 years. As you can see, the long-run fiscal shortfall is completely caused by higher spending. In other words, 100 percent of red ink is due to government spending. So why put taxes on the table?

But this chart actually understates the case against tax increases. It uses revenue numbers from the Congressional Budget Office’s “alternative” forecast, which shows taxes steady at 19.3 percent of GDP. That’s more than the historical average of about 18 percent of GDP, which surely indicates that revenues are not the problem.

However, that 19.3 percent estimate is completely artificial. As CBO states in its long-run forecast, “the alternative fiscal scenario also incorporates unspecified changes in tax law that would keep revenues constant as a share of GDP after 2020.”

I’ll actually be delighted if we can permanently keep federal revenues below 20 percent of GDP, but I’m not overly optimistic because the tax burden is projected to automatically increase over time. And I’m not talking about the expiration of the Bush tax cuts or the alternative minimum tax. Yes, those factors would push up tax revenues (at least based on static revenue estimates), but the tax burden also is expected to climb because even modest economic growth slowly but surely pushes more and more people into higher tax brackets.

This second chart shows CBO’s estimate of personal income tax revenue based on current policy (as opposed to estimates based on current law, which includes already legislated tax hikes). To be more specific, it shows how much revenue the government will collect from the individual income tax even if the 2001 and 2003 tax cuts are made permanent and the AMT is indexed.

As you can see, the aggregate individual income tax burden will increase by roughly 5 percentage points of GDP when compared to the long-run average of about 8 percent of GDP (the CBO estimate only goes to 2035, so I extrapolated to show the same time period as the first chart). And remember, this is the forecast of what will happen to income tax revenues even if politicians don’t impose any new laws to coercively extract more revenue.

This might not be too bad if other taxes were falling, but that’s not what CBO is projecting. As such, this big increase in revenue from the individual income tax means that the overall tax burden will climb by approximately the same amount.

In other words, revenue likely will rise close to 25 percent of GDP as we approach the next century. So if we use this more realistic baseline, we can say that more than 100 percent of the long-run deficit problem is because spending is out of control.

The second reason for a firm no-tax increase position is that higher taxes are a very ineffective way of reducing budget deficits. Indeed, tax increases generally backfire and lead to more red ink. To understand why, it’s important to put away the calculator and instead consider the real world of politics and public policy. For instance:

o  Tax increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, people respond to incentives, and this means taxable income falls as tax rates increase.

o  Tax increases erode pressure to control spending. Why would politicians want to make tough decisions and upset special interest groups, after all, when there is going to be more revenue (or at least the expectation of more revenue)? Using more colloquial language, trying to control spending with higher taxes is like trying to cure alcoholics by giving them keys to a liquor store.

o  Milton Friedman was right when he said that, “In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.” In other words, if politicians think they can get away with deficits averaging, say, 5 percent of GDP in the long run, then the the only impact of higher taxes is an equal amount of additional spending – while still retaining deficits of 5 percent of GDP.

The real-world evidence certainly points in this direction. We’ve seen “bipartisan budget summits” several times in Washington, and the result is more spending rather than lower deficits. Americans for Tax Reform has a good analysis of what happened after the two big budget summits in 1982 and 1990, but I think the problem is best captured by my adaptation of a famous Peanuts cartoon strip.

Every year, if my aging memory is correct, Lucy would ask Charlie Brown if he wanted to kick the football. At first, Charlie was skeptical. But Lucy always managed to trick him into giving it a try. And the inevitable result was Charlie Brown lying on his back wondering why he had been so foolish.

In the Washington version of this cartoon, Democrats hypnotize gullible Republicans with ostensibly sincere promises of future spending restraint. Republicans eventually acquiesce, naively assuming that Democrats will be their new best-friends-forever in the fight against big government.

Needless to say, that’s not the way the story ends.

Ronald Reagan is reported to have said that the 1982 tax increase was the “biggest mistake” of his presidency. And since Congress never followed through on commitments to reduce spending by $3 for every $1 of higher taxes, he wryly remarked that, “I’m still waiting on those three dollars of spending cuts I was promised from Congress.”

Like Ronald Reagan, Tom Coburn wants to do the right thing. But good intentions are not the same as good policy. America’s fiscal challenge is too much spending. Government is too big and it is wasting too much money. Taking more money from the American people is not the way to solve that problem.

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I didn’t watch President Obama’s interview with Bill O’Reilly a couple of days ago, and that’s probably a good thing since I probably would have suffered a stroke if I actually heard Obama state, “I didn’t raise taxes once.”

This was such an absurd display of mendacity that even the left-leaning PolitiFact people had no choice but to conclude that Obama’s statement was false.

I suppose I could take a mature approach to this controversy and explain in mind-numbing detail why the President was wrong, but that wouldn’t be much fun. I’d much rather copy the guy who did the famous QE2 video and have some fun.

This is my first experiment with a cartoon video, so I welcome feedback.

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I don’t know if this commercial was broadcast nationally, but I saw it in northern Virginia. A very smart, anti-politician message.

The worst commercial (this is a no-brainer) was from Chrysler. Not because the advertising was bad, but because the company is mooching from the taxpayers.

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I’m disappointed, but not surprised, to read in the Washington Post that President Obama has decided against any changes to restrain Social Security spending. He’ll still probably subject us to pious and insincere rhetoric about fighting red ink in tonight’s State-of-the-Union address, but it is very revealing that the President is rejecting even the recommendations of his hand-picked Commission.

More than two months after his deficit commission first laid out a plan for reining in the national debt, President Obama has yet to embrace any of its controversial provisions – and he is unlikely to break that silence Tuesday night. …the president’s decision not to lay out his own vision for reducing the national debt has infuriated balanced-budget advocates, who fear that a bipartisan consensus for action fostered last month by Obama’s commission could wither without presidential leadership. …Liberals…applauded the decision, arguing that Social Security cuts are neither necessary to reduce current deficits nor a wise move politically.

I won’t be surprised, though, if Obama proposes in his budget to increase the Social Security payroll tax burden. That’s an idea he endorsed during the 2008 campaign.

The right approach, by the way, is not just cutting benefits, but rather letting younger workers shift their payroll taxes into personal retirement accounts, as explained in this video that was released earlier this month.

But the President’s reluctance to touch Social Security is only part of the story. The White House actually intends to push for more government spending. Only they won’t phrase it that way. The President will claim the new spending is an “investment.” But Senator Durbin of Illinois committed a gaffe and admitted this is just a repeat of the failed stimulus.

“It’s part of a stimulus. but we’re sensitive to the deficit,” Durbin said on “Fox News Sunday” when asked by host Chris Wallace about the president’s expected plans to call for more spending for infrastructure, education, research in his State of the Union address Tuesday night to a joint session of Congress.

I’m not sure why people are talking about a new, centrist-oriented Obama. Recycling big-government proposals is hardly a sign of fiscal restraint. And ducking-and-running on entitlements hardly seems to indicate a new era of fiscal responsibility.

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It may not be very nice to say “I told you so” when the warnings you issue become reality, but I’m not a nice person (at least when it comes to greedy politicians imposing stupid policy).

So I’ll openly admit that I’m happy to read that entrepreneurs and job creators already are beginning to escape the kleptocrat politicians in Illinois. Here are a few highlights of an article in the News-Gazette.

The founder of Jimmy John’s said he has applied for Florida residency and may recommend that his corporate headquarters move out-of-state as a result of the Illinois tax increases enacted last week. Jimmy John Liautaud told The News-Gazette on Tuesday that he is angry about the moves, which boosted the individual income tax from 3 percent to 5 percent and the corporate income tax from 7.3 percent to 9.5 percent. “All they do is stick it to us,” he said, adding that the Legislature and governor showed “a clear lack of understanding.” …Jimmy John’s, which has its corporate headquarters on Fox Drive in Champaign, has more than 1,000 sandwich shops nationwide, many of them franchise operations. Champaign has been its corporate base, but Liautaud said it will not necessarily continue that way. …Once he collects information on alternative sites, he will present it to the company’s board of directors and ask the board to decide. As for himself, “my family and I are out of here,” he said. …Jimmy John’s employs 100 at the corporate office in Champaign and has 190 other employees who work elsewhere but come to Champaign every four weeks, Liautaud said. …He said he’s sick of being “pummeled.” “I’m not sophisticated enough, smart enough or politically correct enough to absorb it all,” he said. Jimmy John’s offices occupy 23,000 square feet on Fox Drive, and Liautaud said he had considered buying a 20,000-square-foot building just north of those offices. Those plans went out the window with the tax increase, he said. …James North, president of Jimmy John’s, echoed many of the same sentiments. “I absolutely love it here,” North said. “But when you do the math, it doesn’t add up. Florida looks pretty nice right now.”

It goes without saying, of course, that Illinois is not the only short-sighted state. New York politicians also have a fetish for driving taxpayers to other states.

A special welcome to Instapundit and NRO readers, and an addendum. This example of people and businesses escaping bad policy by crossing borders is more than just a cheerful anecdote. It is part of a process known as tax competition, which  is a powerful force for better policy between both states and nations.

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