Tag Archives: markets

A Few More Musings on Taxes and an Economy

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James Pethokoukis, writing for AEIdeas, has a thought.

First, some rough background:

From 2009-2012, revenue as a share of GDP has averaged 15.4% of GDP vs. 13.9% from 1948-1951 and 18.1% overall in the postwar era.

Then,

Imagine if we a) kept all the expiring 2001 and 2003 tax cuts, b) started indexing the Alternative Minimum Tax for inflation so it wouldn’t hit more and more taxpayers.

How would that affect tax revenue? The Congressional Budget Office tells us:

Under that scenario, revenues from 2013 to 2022 would average about 18 percent of GDP, which is equal to their 40-year average.

Indeed, we would be back to the postwar average of 18.1% by 2016.

I would argue that the AMT, which began life as a special assessment against all of 155 particularly hated-by-Progressives successful Americans, should be abolished altogether, but that’s a topic for another post.

Here are a couple of other numbers.  US GDP was $15.1 trillion in 2011, while Federal income tax collections ran to $1.273 trillion, or 8.5% of GDP (my number differs from Pethokoukis’ because I’m only considering individual and business income taxes and leaving out Social Insurance, ad valorem, and other taxes).  In 2007, US GDP was $13.3 trillion, while Federal income tax collections ran to $1.534 trillion, or 11.5% of GDP (yes, that’s a 17% drop in Federal income tax collections in the third year of the failed recovery).

Plainly, if the Feds just got out of the way of our economy, stopped demanding ever more taxes, stopped spending our money on failed “investments,” stopped paying essentially well-meaning individuals for not working, our economic recovery would push income tax revenues up those missing three per centage points—and having returned to 11.5% of GDP, Federal income tax revenues would approximate $1.7 trillion—a rise of nearly $500 billion in the first year.  And that’s just a static analysis.  At that rate of increase every year, the Feds would be getting a whole lot more in income tax revenue by 2016—again a static analysis.  Imagine the increase from a dynamic analysis, which would include all the feedback loops from economic growth—like individual spending, business growth, jobs increases for those currently on the Feds’ dole, etc.

Another thought: from the Tax Foundation, via the TaxProf, comes this:

[W]hat does the academic literature say about the empirical relationship between taxes and economic growth?  …the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.  In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth.  Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.  …

[T]he lesson from the studies conducted is that long-term economic growth is to a significant degree a function of tax policy.  Our current economic doldrums are the result of many factors, but having the highest corporate rate in the industrialized world does not help.  Nor does the prospect of higher taxes on shareholders and workers.  If we intend to spur investment, we should lower taxes on the earnings of capital.  If we intend to increase employment, we should lower taxes on workers and the businesses that hire them.

Why, with all that revenue enriching the Feds coffers, we could look forward to actually paying down/off our national debt, and then across the board reductions in income tax rates.

Except that tax revenues (partly) fund incumbents’ vote pandering “welfare” programs.

Negotiating?

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The Progressives in our Federal government insist, with a straight face, that the Republicans have put forward no concrete proposals in the present budget…negotiations.  They carefully ignore the fact that the Republicans already have put forward three concrete proposals: two House-passed budgets (for 2011 and 2012, which contained explicit spending, taxing, and entitlement reform steps), and the proposal on which they campaigned last fall.

Oh, wait—the Progressives studiously ignored those, too—in the Senate, where they refused even to permit debate on the budgets and ever since, with their pretense that the spending, tax, and entitlement reforms of the campaign don’t exist.

The Progressives’ current position?  As The Wall Street Journal reports,

[M]any Democrats have ruled out any changes to Social Security during the current fiscal talks.

And

A senior administration official said the White House would make no new offers until Republicans changed their opposition to raising top tax rates.

Throughout this entire shabby charade, President Barack Obama has been accusing the Republicans of holding middle-class America hostage against their refusal to agree to tax rate hikes on his hated Americans.  Yet the Republicans and Progressives already agree on making permanent current tax rates on 98% of Americans.  It’s Obama who is threatening to blow up our economy on his ego trip of demanding 100% of a tax deal for which he already has 98%.

It’s Obama who’s threatening to blow up our economy by refusing to discuss spending cuts and entitlement reform at all—after agreeing that they should be on the table shortly after the election.

It’s Obama who’s threatening to blow up our economy with his insult of demanding sole debt ceiling authority in utter disregard of the Constitutional role of Congress—and not the President—in setting spending.

Update: Speaker John Boehner (R, OH) and a number fellow members of the Republican leadership made a counterproposal Tuesday that included much of Obama’s precious tax revenue increases–not as rate increases–to the tune of $800 billion, and $1.2 trillion in spending cuts.  Obama blew this off within the hour.  So much for negotiating.

Ex-Senator Rick Santorum, last night on Greta van Susteren’s On the Record,  said that Obama’s fallback–his Plan A–of Sequestration and tax rate increases across the board makes him entirely willing to take our economy over the cliff: Obama gets his tax rate increases, and he gets the Progressives’ decades-long fought-for cut in defense spending, a $500 billion reduction.  Obama sees this as a heads, I win; tails, you lose situation.

I think Santorum is right.

Government Regulator Abuse

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Described by John Stossel:

Today, Americans were told that they must close their Intrade.com accounts. That happened because the federal government agency known as the “Commodity Futures Trading Commission” (CFTC) today sued the prediction market, where people from all over the world bet about things like who will win elections.

Because

Intrade has…successfully predicted events like Saddam Hussein’s capture and the winner of the Oscars.  People with the best information trade about those events, and drive up the odds on Intrade.

After all, such things are against US financial regulations, don’t you know:

Section 4c(b) and 9(a)(3) of the [Commodity Exchange] Act, §§6c(b) and 13(a)(3) (2006); Section 2(e) of the Act, as amended by the Dodd-Frank Act, to be codified at 7 U.S.C. § 2(e); and Regulation 32, as amended, to be codified at 17 C.F.R. § 32 (2011)

The CFTC is, here, specifically and deliberately targeting “prediction markets:”

It is against the law to solicit US persons to buy and sell commodity options, even if they are called “prediction” contracts, unless they are…traded on a CFTC-registered exchange….  Today’s action should make it clear that we will intervene in the “prediction” markets, wherever they may be based.

Why does this matter?  Because if the government can “intervene” to destroy an obscure little idea and the free market business it generated, it can do so in the free market generally, and that market becomes a  government run market.

The CFTC argues that the regulation

is important for a number of reasons, including that it enables the CFTC to police market activity.

So the CFTC says it’s necessary to enforce so that it can enforce.  Nothing circular here.

One more thing.  The CFTC has, with this…position…placed your penny-ante poker game at risk, too.  After all, each of you, as you deal the next round, are soliciting options on the future—of your and your opponents’ hands.

Republicans and Talking to Folks

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Neil King and Victoria McGrane have some thoughts.  They cite various conservatives, for instance:

[A]ctivists—including tea-party activists but also some mainline Republicans—say the party should adopt a more populist tone, one that places more emphasis on ways Republican policies would help the middle class.

And

The critique from these Republicans suggests that the party should change some policies—such as adopting a more skeptical posture toward big banks—as well as the way it talks about economic issues.

And

Mr. Romney’s lopsided loss among the country’s expanding universe of minority voters has fanned fears within the party that its main challenge is demographic, though others dismiss that worry as secondary.

But these are short-sighted and outright wrong.  The “others” are right; the problem is Republicans’ and conservatives’ general failure to talk to all Americans, regardless of ethnicity.  Republicans and conservative need to get out and talk to people in the neighborhoods in which they live—all of those neighborhoods—as I pointed out here and here.

Ex-Mississippi Governor and erstwhile GOP Chairman Haley Barbour has the right of it.  He understands that conservative policies aren’t the problem.

We do very well when our policies for economic growth and job creation are put in place.  But we often don’t talk about those policies in ways that the middle class and working class see as in their interest.

And they don’t talk at all about those policies where Americans physically live.

The other critiquers, though (the ones who are concerned with the content of the message as well as where it’s delivered), also have a point—apart from attempts to change those policies.

The Republicans’ approach to dealing with the nation’s largest financial firms illustrates the tension.  GOP leaders oppose the Dodd-Frank financial-overhaul law as regulatory overreach and want it scrapped, partly because they say it codifies certain institutions as being too big to fail.  But so far, they haven’t rallied around an alternative means to reining in the big banks.

Or establishing the need for government to “rein in” the big banks.  Which points up another aspect of message content.  In addition to their failure clearly to articulate what they would do differently vis-à-vis Dodd-Frank, their mantra concerning Obamacare is woefully inadequate:  “Repeal and replace.”  Replace with what?

An Empirical Demonstration

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Investor’s Business Daily provides one.

Renting a 20-foot truck one-way from San Francisco to San Antonio, for example, will cost $1,693. But the U-Haul tab to go in the opposite direction is just $983.

Hmm….

This figure compares, across just a few parameters, the outcome of big government, high taxes, and profligate spending—California—with the outcome of limited government, low taxes, and (more) disciplined spending—Texas.  Texas has many faults, but the routine of government interference with its citizens’ wallets and businesses isn’t among them.

California has become a state that people are increasingly trying to escape, and Texas a state people are increasingly migrating to.

…

A study by the Manhattan Institute found that Californians have been leaving for states with better job prospects, lower taxes and better business climates.

In other words, states that are pursuing the kind of low-tax, limited government, free market policies [President Barack] Obama typically rejects.

The public may have voted to give Obama a second term.  But many people in California are voting with their feet, leaving the state that’s already put in place policies Obama has promised to keep pushing for four more years.

Obamanomics, as California demonstrates—its economy actually shrank sharply in the last four years—are an utter failure.  RTWT.