Tag Archives: political economy

The Economy

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Two purchasing managers indexes for China fell in May, and Indonesia had its first trade deficit in nearly two years, while the Republic of Korea’s exports fell for a third straight month.  Nomura Securities’ chief Asia economist, Rob Subbaraman, attributed this in part to “The crisis in Europe.”  The debt crisis is having two effects in Asia: European banks are husbanding their resources for domestic and European commitment, and so they are only able to extend less credit  in Asia—including for trade finance.  Moreover, the crisis is reducing European demand for Asian goods and services directly.

Within Europe, the debt crisis is becoming a self-fulfilling prophecy.  Heineken NV, for instance, worried about its euro holdings in a Greece that might leave the euro zone (and convert those euros to drachmas of sometime value), is taking its cash out of Greece and the euro zone altogether, which creates liquidity problems for Greece and the euro zone.  Of course, Heineken isn’t that big, but their move is typical of a whole lot of businesses that, in their aggregate, approach being big enough.  Additionally, Greek companies are starting to max out their existing credit lines and then expatriating the cash.  Other businesses, in both the non-financial and the financial arenas, are making similar moves in anticipation of a Greek departure.  This caution by everyone is part of the pathway through which the debt crisis is contributing to a slowing European economy—and to a reduced demand for Chinese and US exports.  That slowing European economy is evidenced by sustained unemployment of 11% and a falling purchasing managers index (to 45.1—a level that means actual shrinking) in May.

Coincident with Europe’s reduced demand, our own economy, whose cyclic business recovery is being held back, has suppressed our business’ health and thereby reduced American demand for Asian exports.  The poor US economy, not helped by our reduced exports, is indicated by the recent job creation number—69,000—for May that is the third straight month of falling job creation rate, and by an unemployment rate holding above 8%—8.2% in May.

Our economy is at the core of the global economy, and so much of the rest of world depends on an economically healthy US for their own prosperity.  Yet our health depends on their economic health, too.  It’s not quite a chicken and egg thing, though; we really are the engine, and so we really do need to right ourselves rather than wait on Europe, for instance, to right itself.  The foregoing just shows the integration of the global economy; it is not an excuse for our own government’s policy failures.  The buck stops—and starts—with this administration.

Our path is amazingly simple, too, except that politicians are artificially complexifying things.  Our government needs to get out of our business’ way.  It needs to stop spending—and borrowing—at its current profligate rate.  It needs to reduce spending and tax rates in real terms, not just with accounting gimmicks and a promise to pay us Tuesday for that hamburger today (which, if Mayor Bloomberg were to have his way, won’t be for sale soon, anyway [/snark]).

Four More Years

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Here’s what we’ve seen in the last three years:

  • Obamacare, which nationalized 16% of our economy.
  • Dodd-Frank, which seeks to nationalize our financial industry in all but name with its control over private business financial decisions via the CFPB.
  • The HHS contraceptives, sterilization, and abortifacients mandate, which is a naked attack on our religious freedom.
  • Annual spending of $3.6 trillion in 2011, up from $3 trillion in 2008.
  • Annual deficits of $1.2+ trillion per year.
  • A national debt exploding to nearly 100% of GDP in 2011 from 60% in 2008.
  • A refusal even to consider a budget for the last three years.
  • A bailout of two American car companies (disingenuously called a bailout of the American auto industry, even though of the seven major car companies in the American industry, only two were in trouble).  The bailout worked so successfully that one of those American car companies is now an Italian car company, and the other one still is into us for $25 billion.
  • Hampering of our energy industry by slow-walking, or outright blocking, drilling capacity on Federal lands and, through regulation, attempting to decimate our coal producers.
  • Blaming this administration’s failure to answer our country’s challenges on everything from his predecessor to a tsunami in Japan, to ATMs, to the Arab Spring, to airport check-in kiosks, to Fox News, to Super PACs, to the Supreme Court, to….
  • Discussing the issues before us by denigrating the issue raiser.

Can we afford four more years?

Let’s Tax the Rich

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Yeah, that’ll work.  Let’s go with that.  And of course this has nothing to do with class envy.  No siree, Bob.

Here’s what happens when we tax those worthies.  When we hit up the Obama-rich, those making more than $250k per year (or those families doing better than $200k per year), we’re actually taxing small businesses, which are organized as LLCs, S-Corporations, partnerships, and so on, so that the business’ profits are passed through to the owners, who pay income tax on that money.  Businesses or their owners, though, including large businesses that nominally pay their own taxes, don’t actually pay those taxes; they just act as go-betweens between Uncle Sugar and their customers: those taxes are passed through as increased prices which their customers must pay to buy their product.

Thus, the benefit of taxing the “rich” is this: these business’ product prices will rise, leading to less buying, leading to slower growth and lower hiring—or reduced hiring from actually shrinking businesses—leading to more leisure time for us as we continue to be unable to find a job.

Here’s just one example of how that works.  In the ’90s, the Feds instituted a 10% luxury tax on yachts, ostensibly aimed at the really rich.  The American yachting industry virtually disappeared as a result, while the rich went on being rich.  As the President of the Institute for Policy Innovation, Tom Giovanetti, put it

The luxury tax didn’t hurt the wealthy.  It hurt the people that make things for the wealthy.

Sure.  The top 10% already pay 70% of the total income tax collected by the Feds while the bottom 50% of income earners pay around 4% of the total, so the rich plainly aren’t paying their share.  Raise the taxes on the rich.  That’s the ticket.

Next Year’s Tax Increases

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Here’s a list of President Obama’s tax increases that are scheduled to kick in, in six short months.  The list is from the IPI’s TaxBytes.

  • Bush tax cuts expire.  Obama has steadfastly refused to extend them beyond 1 Jan 13 unless the Republicans accede to his demand to raise taxes elsewhere under the Progressive fiction that tax cuts must be “paid for” with tax increases rather than spending cuts.
  • Obama payroll tax cut expires.  This is a tax cut that has made absolutely no sense whatsoever.  It’s only useful purpose has been to bamboozle Republicans as they continue to make a hash of their messaging.  This cut reduced funding for an already dysfunctional and rapidly approaching bankruptcy Social Security system, while at the same time the Democrats in government have absolutely refused to allow any reform of that system.
  • The child tax credit will be reduced from its current $1,000 per child to its original $500.
  • The death tax will explode.  In 2010, the death tax—the tax on your estate, collected by the Feds before your heirs get a dime—had been repealed, but only for that year.  This year, and this year only, that death tax was 35% (!) of the value of your estate above $5.12 million.  On 1 Jan, it will go to 55% (!!) of the value of your estate above $1 million.  The Feds think they deserve your money more than your heirs do.
  • Obamacare taxes (this is not an exhaustive list):
    • If you’re rich (which Obama defines as you making $250k or more per year, or your family making $200k or more*), the Hospital Insurance Tax goes up: the hospital insurance portion of your payroll tax will rise from 2.9% to 3.8%.  This is carefully not indexed for inflation, either.  At current inflation rates, that means that in 10 years’ time, that rich threshold drops to the equivalent of today’s $190k ($152k for families).
    • Medical device manufacturers will begin being charged a 2.3% excise tax on top line revenues—not even on profits.  There’s a pro-business move….
    • Medical deductions on your personal income tax (whether you’re “rich” or not) will have to exceed 10% of your adjusted gross income instead of the current 7.5%.  This certainly helps the less fortunate among us.

Hmm….

 

*Notice that: here’s the marriage penalty back, too.

Déjà Vu All Over Again Cont’d

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In this post I continue a discussion of the advice to Reagan memo that The Wall Street Journal excerpted a few days ago.

On the matter of budgeting, the memo advised, in the context of fighting then-high inflation

Many question whether you are serious about a sizeable cut in budget outlays.  Credible FY 1981 and 1982 budgets which do that clearly and unambiguously would evoke an extraordinary response in the financial markets, and set the stage for a successful assault on inflation and a decline in mortgage and other interest rates.

This is sound advice for the next President, also.  Credible FY2013 (since the Progressives in the Senate and White House have variously refused to offer a serious budget or any budget at all for the last three years, a 2013 budget for the fiscal year then in progress will remain a necessity), FY2014, and FY2015 budgets will be as critical in demonstrating resolve in cutting irresponsible spending as it was in fighting inflation.  And it will be critical in reducing the impact of the inflation time bomb the Fed is creating, should that go off before it can be defused.

Those advisors continued in their section on the Budget:

Off-budget financing and government guarantees mount and expand programs through the use of the government’s borrowing capacity, draining the nation’s resources without being adequately recorded in the formal spending totals.

Pop quiz time: what off-budget financing and government guarantees are present today?  Bonus question: what does the continued existence of off-budget financing and government guarantees of any sort say about the sense of responsibility felt by incumbents of a Big Government?

The Reagan advisors also warn of this:

In addition, the mandating of private expenditures for government purposes has gained momentum as the spotlight has [i]lluminated direct spending. These mandates are also a clear call by government on the nation’s resources.

Boy, has it ever gained momentum.

Closely related to budgeting is tax policy.

Tax policy is properly the province of your Secretary of the Treasury.

Indeed.  And the inability of the present Treasury Secretary to pay his own taxes says far more about the unnecessary scope and complexity of current tax law than it does about his intelligence or sense of responsibility.  If we assume Geithner isn’t a tax scofflaw—and I believe he is a fundamentally honest man—his mistake should be a clarion call for simplification.  That it is not speaks poorly of the incumbents on both sides of the aisle.

Reagan’s advisors continue:

We consider that the key ingredients should be your proposals for the Kemp-Roth cut in personal income tax rates, simplification and liberalization of business depreciation and a cut in effective taxes on capital gains….  Consistent with your proposals earlier this year, the effective date for these reductions should be January 1, 1981.

Other key proposals are…reductions in…inheritance taxes and the taxation of Americans living abroad….

Again, these are remarkably prescient.  The Obama tax increase is set to take effect on January 1, 2013.  That increase, aside from raising income taxes on ordinary Americans smack in the middle of the present recession, will include jumps to usurious rates on what those same ordinary Americans would otherwise leave to their own children and other heirs of their choice—not of government’s choice.  Moreover, most sub-Federal jurisdictions only tax income earned within their jurisdiction.  Why should the Federal government be any different?

The Obama tax increase also includes major increases in business-related taxes: investment taxes on capital gains and increasing the double taxation present on dividend payouts.  These will serve only to reduce investment in American businesses, to the detriment of our already suffering economy.

I’ll have more in the coming days.