Tag Archives: political economy

The Growth Deficit Redux

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There’s this from last fall:

Let’s look at this another way.  It’s been widely reported that this “recovery” is the weakest, most anemic post-recession recovery in our nation’s history.  Those reports aren’t far wrong.  A normal recovery coming out of a downturn as deep and steep as was the Panic of 2009 typically sees growth rates of 5%-6% per year, or more.  This Obama recovery has been 6.7% over the entirety of his term in office—nearly four years [as of October 2012.  It’s not any better today].  Had we seen a normal recovery (and using a pessimistic 5%/year growth rate), we would have reached today’s unemployment rate after a shade over one year—in 2010—and we would have been back to full employment (in the range of 4.8%-5.5%) in just under 2 years—by last year.

Next, there’s this from last weekend:

We are now in year five of what has been one of the great experiments in Keynesian economic policy.  We were told that if Congress would spend $830 billion more temporarily, and the Federal Reserve would unleash monetary policy, a recovery would begin and rapid growth would resume.  Larry Summers, Alan Krueger, Jared Bernstein and their allies on Wall Street got their policy wishes.  Their economy has delivered mediocre growth and declining middle-class incomes—though we will concede that the wealthy have done well as the stock market has recovered.

So now the same Keynesians say the spending blowout wasn’t large or long enough, taxes still aren’t high enough, and monetary policy hasn’t been easy enough.  What this economy really needs is a statute of limitations on intellectual denial.

Finally, there’s this from Henry Morgenthau in the depths of that earlier great experiment in Keynesian economic policy:

We have tried spending money.  We are spending more than we have ever spent before and it does not work.  I want to see this country prosper.  I want to see people get a job.  I want to see people get enough to eat.  We have never made good on our promises.  I say after eight years of this administration, we have just as much unemployment as when we started.  And enormous debt to boot.

Hmm….

National Debt

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Kevin Williamson, writing in the National Review Online, is not optimistic about our 2023 national debt, projecting our interest costs on the assumption that interest rates won’t rise over the next 10 years (OK, he’s pessimistic; he holds rates at their current near-zero levels only to make a point).

Williamson projected the interest payments on the $26 trillion debt projected for 2023 to be $763 billion at today’s rates.  That works out to an interest rate of 2.9%.  Those $763 billion would be more than what the Federal government spent on Social Security, national defense, or all nondefense discretionary spending in 2011, Williamson noted.

But suppose interest rates rise as lenders decide our sovereign debt just isn’t all that valuable, our ability to repay that debt just isn’t all that assured?

First a rounding exercise: let’s say our interest rates rise to 3%.  That runs our 2023 interest payment to $780 billion.  That’s not so bad, eh?  However, nearby historical treasury rates, dating back 1990, have run around 5%.  That runs the interest bill to $1,300 billion.  If rates run to 7%, where they were during the Vietnam War, the interest bill gets over $1,800 billion.  If it spikes to 14%–the Carter Recession—the interest bill explodes: $3,600 billion. That’s what the Federal government spent—on everything—in 2012.

Who wants to bet lender confidence levels in our debt will keep our interest rates from rising above that historical average?

Taxes, Again

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The Tax Policy Center of the Urban Institute and the Brookings Institution has had time to go over President Barack Obama’s budget “proposal,” and they’ve

found that the budget plan would raise roughly $1.1 trillion over 10 years….

Their graph below illustrates from where those trillion dollars would come.

Notice that.  Those at the bottom of the economic totem pole—a strait contributed to in no small way by Obama’s rather cynical wealth redistribution policies—will see a larger drop in their take home pay from Obama’s tax increase than will his highly touted middle class.

So much for Obama’s promise of not raising taxes on those making less than $250k.  But that promise went by the boards long ago.

Then there’s the sin tax bump on tobacco:

The White House proposes raising the federal tax on a pack of cigarettes to $1.95 from $1.05.  It estimates this would raise $78 billion over 10 years, and it plans to use the proceeds for expanded preschool education.

The White House has defended the proposal by saying it would both discourage smoking and fund an education initiative that low-income families would benefit from the most.

But apparently the sin tax shouldn’t be used to deal with the health-related outcomes of this particular sin.  Never mind that “low-income families would benefit most” from this alternate use.  This is one of the contradictions inherent in Progressive attempts to use our tax code to achieve their social goals.

There’s more; RTWT.

2014 (and 2016) aren’t coming soon enough.

More Obama Sequester Games

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As The Wall Street Journal reports,

This week the Federal Aviation Administration (FAA) began furloughing each of its air-traffic controllers for one day out of every 10 to achieve roughly $600 million in savings this fiscal year.  The White House dubiously claims that the furloughs are required by the sequester spending cuts enacted in 2011.

President Barack Obama’s hoped for result is

to force airline flight delays until enough travelers stuck on tarmacs browbeat enough Republicans to raise taxes again.

Once again, Obama is blowing smoke.  Leaving aside the fact that furloughing ATC Controllers is not the only way in which the FAA could have found the sequester-mandated pocket change savings (FAA Administer Michael Huerta’s “difficult choices” don’t include crossing his boss and making those savings elsewhere), the threatenedhoped forpredicted widespread delays don’t seem to be developing, as the FAA’s own Web site indicates, four days into the furlough program.

“I Do Think at a Certain Point You’ve Taxed Enough Money”

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John Cochrane, University of Chicago Booth School of Business Professor of Finance (among other positions), writing in a Wall Street Journal op-ed, proposed an Alternative Maximum Tax.  He was on the right track, but he didn’t go far enough.

Here is a partial list of Federal taxes and tax-related limits on our weal which we currently pay:

  • Income tax, to tune of $1.2 trillion as recently as 2007
  • Cap on tax deferred savings: no more than $6,000 (in 2013) on Roth and Traditional IRAs, including catchup contributions if you’re a geezer; no more than $23,000 (in 2013) for 401(k)s, including catchup contributions
  • Tax on dividend income—this money is taxed twice: once at the corporate level where this profit sharing is not allowed to be deducted from corporate income and once at the individual level where the money is taxed as high as 20% in 2013
  • estate tax, as much as 40% on amounts over $5.25 million
  • payroll tax, 7.65% of every paycheck, and both employer and employee pay this—a total of 15.3%
  • Federal communications taxes
    • Federal excise tax of 3%
    • Federal Universal Service Cost Recovery tax of 15.5% of net interstate and international long distance tolls
  • Federal personal transportation taxes
    • gasoline tax, 18.4¢/gallon
    • diesel tax, 24.4¢/gallon
  • Obamacare taxes
    • 0.9% additional payroll tax for Medicare, paid by employees of a certain wage
    • 2.3% tax on top line revenue on medical equipment manufacturers
    • medical expense personal income tax deduction only after expenses reach 10% of income
    • surtax on investment income raises the top dividend income tax to 43.4% and the top capital gains tax rate to 23.8%
  • Obamacare Individual Mandate—by order of the Court, this is a tax: both the premium paid for buying the government-approved policy and the…tax…for not buying health insurance

I do think at a certain point, we’ve been taxed enough.

Instead of an alternative max tax, it’s time simply to eliminate a bunch of taxes and lower the rates on the others.  A straight flat tax, with no deductions, no credits, no nothing would be good.  No redistributionist, no social engineering, froo-froo of any sort.